-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QZdde6tozhBGKTy8w/kU7Qo3DZDTU/QyMYukUR1JTMiWYLrHUqnsOdin+Y9ZkbTx eW0ID/jPmjJro8oqb9fazA== 0001036050-97-001207.txt : 19971229 0001036050-97-001207.hdr.sgml : 19971229 ACCESSION NUMBER: 0001036050-97-001207 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 23 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971224 SROS: CSX SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: IKON OFFICE SOLUTIONS INC CENTRAL INDEX KEY: 0000003370 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 230334400 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05964 FILM NUMBER: 97743966 BUSINESS ADDRESS: STREET 1: P O BOX 834 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 2152968000 MAIL ADDRESS: STREET 1: BOX 834 CITY: VALLEY FORGE STATE: PA ZIP: 19482 FORMER COMPANY: FORMER CONFORMED NAME: ALCO STANDARD CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ALCO CHEMICAL CORP DATE OF NAME CHANGE: 19680218 10-K 1 FORM 10-K IKON Office Solutions, Inc. SEC FORM 10-K SEPTEMBER 30, 1997 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] Annual]report pursuant in Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended September 30, 1997 or [_] Transition]report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . COMMISSION FILE NUMBER 1-5964 IKON OFFICE SOLUTIONS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 23-0334400 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) BOX 834, VALLEY FORGE, PENNSYLVANIA 19482 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) Registrant's telephone number, including area code: (610) 296-8000 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE ON WHICH TITLE OF CLASS REGISTERED Common Stock, no par value New York Stock Exchange (with Preferred Share Purchase Rights) Philadelphia Stock Exchange Chicago Stock Exchange Series BB Conversion Preferred Stock (Depositary Shares)New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ---- ---- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF DECEMBER 19, 1997 WAS APPROXIMATELY $3,490,314,157 BASED UPON THE CLOSING SALES PRICE ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE OF $26.4375 PER COMMON SHARE AND $64.25 PER DEPOSITARY SHARE OF SERIES BB CONVERSION PREFERRED STOCK ON DECEMBER 19, 1997. FOR PURPOSES OF THE FOREGOING SENTENCE ONLY, ALL DIRECTORS AND OFFICERS OF THE REGISTRANT AND THE TRUSTEES OF THE REGISTRANT'S PENSION PLAN AND STOCK PURCHASE PLANS WERE ASSUMED TO BE AFFILIATES. THE NUMBER OF SHARES OF COMMON STOCK, NO PAR VALUE, OF THE REGISTRANT OUTSTANDING AS OF DECEMBER 19, 1997 WAS 134,094,079. DOCUMENTS INCORPORATED BY REFERENCE PARTS I AND II--PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR FISCAL YEAR ENDED SEPTEMBER 30, 1997 PART III--PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE 1998 ANNUAL MEETING OF SHAREHOLDERS - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. IKON Office Solutions, Inc. ("IKON" or the "Company") was incorporated in Ohio in 1952 and is the successor to a business incorporated in 1928. The address of the Company's principal executive offices is P.O. Box 834, Valley Forge, Pennsylvania 19482 (telephone number: (610) 296-8000). IKON sells, rents and leases photocopiers, fax machines, digital printers and other automated office equipment for use in both traditional and integrated office environments, and provides equipment service and supplies and equipment financing. IKON's business also includes outsourcing and imaging services, such as mailroom and copy center management, specialized document copying services and electronic imaging and file conversion. IKON also offers network consulting and design, hardware and software product interfaces, computer networking, technology training and software solutions for the networked office environment, providing one-stop shopping to customers who seek quality, accessible office productivity solutions. IKON has over 1,100 locations in the United States, Canada, the United Kingdom, Germany, France and Denmark. These locations comprise the largest network of independent copier and office equipment dealers in North America and in the United Kingdom. IKON competes against numerous competitors over a wide range of markets, competing on the basis of quality, customer service, price and product performance. IKON distributes the products of numerous manufacturers, including Canon, Oce, Ricoh and Sharp, throughout 50 states, eight Canadian provinces, in Europe and in Mexico. IKON also distributes the products of Microsoft, IBM, Lotus, Compaq and Hewlett-Packard in the United States and Canada. Customers include large and small businesses, professional firms and government agencies. In fiscal 1997, IKON generated approximately $5.1 billion in revenues and $261 million in operating income. Finance subsidiaries contributed 23.5% of IKON's operating income in fiscal 1997. During fiscal 1997, IKON acquired 89 companies in the United States, Canada, and Europe, with an aggregate of approximately $528 million in annualized trailing revenues. Of the 89 companies acquired in fiscal 1997, 34 were traditional copier companies, 27 were outsourcing and imaging companies and 28 were technology services companies. IKON's international expansion during fiscal 1997 included the acquisition of companies in Canada, the United Kingdom, France and Germany. INFORMATION CONCERNING IKON'S BUSINESS IN GENERAL BUSINESS TRANSFORMATION At the end of fiscal 1995, the Company began a transformation program designed to change the organization into a more cohesive and integrated network. The transformation involves a variety of activities that IKON believes will lower administrative costs and improve margins. These activities include the consolidation of purchasing, inventory control, logistics and other activities into thirteen customer service centers in the United States, establishment of a common information technology system, adoption of a common name and creation of marketplace-focused field operations with greater attention to customer sales and service. In March 1997, IKON determined that it would accelerate the transformation program, which was originally expected to be completed in fiscal 2000. The Company now expects to complete its transformation program by the end of fiscal 1998. NAME CHANGE Effective January 23, 1997, the Company's shareholders approved an amendment to the Company's Articles of Incorporation to change the name of the corporation from Alco Standard Corporation to IKON Office Solutions, Inc. 1 UNISOURCE SPIN-OFF In the third quarter of fiscal 1996, the Company announced that it would distribute all of the common shares of Unisource Worldwide, Inc. ("Unisource"), its paper products and supply systems distribution subsidiary, to the Company's common shareholders. Accordingly, the Company declared a dividend payable to holders of record of the Company's common stock at the close of business on December 13, 1996 (the "Record Date") of one share of Unisource common stock, $.001 par value, for every two shares of the Company's common stock owned on the Record Date. As a result of the distribution, 100% of the outstanding shares of Unisource Common Stock were distributed to the Company's shareholders on December 31, 1996 (the "Distribution Date"). Except for any cash received in lieu of fractional shares, the Unisource spin-off was tax-free to the Company and the Company's U.S. shareholders. Effective January 2, 1997, Unisource began operating as an independent publicly traded company. In conjunction with the separation of their businesses, the Company and Unisource entered into various agreements that address the allocation of assets and liabilities between them and define their relationship after the separation, including a Distribution Agreement, a Benefits Agreement and a Tax Sharing and Indemnification Agreement, all of which have been filed as exhibits to this report. BOARD AND MANAGEMENT CHANGES James R. Birle, Chairman of Resolute Partners, Inc., a private merchant bank, was elected to the Board of Directors in November 1996, and Philip E. Cushing, Group Chief Executive of Inchcape PLC, an international distribution business, was elected to the Board in November 1997. Among other executive changes during fiscal 1997, Kurt E. Dinkelacker, who had been serving as President and Chief Operating Officer, assumed the position of Executive Vice President and Chief Financial Officer. In addition, Michael H. Dudek (Vice President--Acquisitions), William A. Brady (Vice President--Law) and Beth Sexton (Vice President--Human Resources), were appointed as corporate officers, and J. F. Quinn was named Treasurer. DEBT OFFERING In October 1997, IKON completed a public offering of $125 million seven-year notes with a stated interest rate of 6.75% at a discount price of 99.132%, and $125 million of thirty-year notes with a stated interest rate of 7.30% at a discount price of 98.593%, and used the net proceeds of approximately $247 million to reduce outstanding short-term debt. SUPPLIERS AND CUSTOMERS Products distributed by IKON are purchased from numerous domestic and overseas suppliers, primarily Canon, Oce, Ricoh and Sharp. There has been no significant difficulty in obtaining products from these suppliers. Supplier relationships are good and are expected to continue. IKON has a large number of customers, and is not dependent upon a single customer, or a few customers, the loss of any one or more of which would have a material adverse effect on IKON's business taken as a whole. Many of the Company's operations are required to carry significant amounts of inventory to meet rapid delivery requirements of customers. At September 30, 1997, inventories accounted for approximately 21% of IKON's total current assets. PROPRIETARY MATTERS The Company has a number of trademarks, trade names and service marks which the Company uses in the conduct of its business. However, except for the "IKON Office Solutions" and "IKON" designations, the 2 Company does not believe that any single name, trademark, trade name or service mark is material to its business taken as a whole. A number of parties have brought claims against the Company alleging that its use of the "IKON Office Solutions" designation infringes upon certain proprietary rights. The Company believes that such claims are without merit and is vigorously defending its use of the designation. ENVIRONMENTAL REGULATION IKON is engaged in distribution and services businesses which do not generate significant hazardous wastes. Some of IKON's distribution facilities have tanks for storage of diesel fuel and other petroleum products which are subject to laws regulating such storage tanks. Federal, state and local provisions relating to the protection of the environment have not had and are not expected to have a material adverse effect upon the Company's capital expenditures, liquidity, earnings or competitive position. Certain environmental claims, however, are now pending against the Company for manufacturing or landfill sites relating to predivestiture activities of discontinued manufacturing operations. While it is not possible to estimate what expenditures may be required in order for the Company to comply with environmental laws or discharge environmental liabilities in the future, the Company does not believe that such expenditures will have a material adverse effect on it or its operations as a whole. EMPLOYEES At September 30, 1997, IKON had approximately 41,000 employees. IKON believes its relations with its employees are good. FOREIGN OPERATIONS IKON has operations in Canada, Mexico, the United Kingdom, Germany, France and Denmark. Information concerning revenues, income before taxes and identifiable assets of the Company's foreign continuing operations for each of the three years in the period ended September 30, 1997 set forth in note 14 to the consolidated financial statements (included on page 32 of the Company's 1997 Annual Report to Shareholders ("1997 Annual Report")) is incorporated herein by reference. Revenues from exports during the last three fiscal years were not significant. There are additional risks attendant to foreign operations, such as possible currency fluctuations and unsettled political conditions. ITEM 2. PROPERTIES. At September 30, 1997, IKON owned or leased approximately 1,100 facilities in 50 states, eight Canadian provinces, in Europe and in Mexico, of which approximately 2% are owned and 98% are leased under lease agreements with various expiration dates. These properties occupy a total of approximately 9.2 million square feet. IKON believes that its facilities are suitable and adequate for the purposes for which they are used. ITEM 3. LEGAL PROCEEDINGS. A number of ordinary course legal proceedings are pending against the Company. There are also a number of claims against the Company alleging that its use of the "IKON Office Solutions" and "IKON" designations infringes upon certain proprietary rights. Except for these proprietary rights claims (which the Company believes will be resolved in a manner which will not have a material adverse effect on the Company), there are no material pending legal proceedings to which the Company is a party (or to which any of its property is subject), and to the Company's knowledge, no material legal proceedings are contemplated by governmental authorities against the Company or any of its properties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (No response to this item is required.) ---------------- 3 EXECUTIVE OFFICERS OF IKON The following is a list of the Company's executive officers, their ages and their positions for the last five years. Unless otherwise indicated, positions shown are with IKON or its subsidiaries. ----------------
NAME AGE POSITION AND YEARS SERVED ---- --- ------------------------- John E. Stuart.......... 53 Chairman (1995-Present), Chief Executive Officer (1993- Present), and a director (1993-Present); President (1993- 1996); Vice President (1989-1993) William F. Drake, Jr. .. 65 General Counsel (1996-Present), Vice Chairman (1984- 1996), and a director (1969-Present); Of Counsel (1996- Present), Partner (1984-1996), Montgomery, McCracken, Walker & Rhoads Kurt E. Dinkelacker..... 44 Executive Vice President and Chief Financial Officer (1997-Present; 1993-1995); President (1995-1997) and Chief Operating Officer (1996-1997) (also a member of the Finance Committee of Crozer-Keystone Health System) James J. Forese......... 61 Executive Vice President and President of International Operations (1996-Present); Chief Operating Officer (1996- 1996), and a director (1994-1996); General Manager, IBM Customer Financing, and Chairman, IBM Credit Corporation (1993-1996) David M. Gadra.......... 49 Senior Vice President and Chief Information Officer (1996-Present); Manager, General Electric Corporation Corporate Information Services (1992-1996) O. Gordon Brewer, Jr. .. 61 Vice President--Finance (1986-Present) Michael J. Dillon ...... 44 Vice President (1994-Present) and Controller (1993- Present); Group Controller, Office Products Group (1991- 1993) Michael H. Dudek........ 41 Vice President-Acquisitions (1993-Present); Director of Financial Operations, Office Products Group (1991-1993) William A. Brady........ 46 Vice President-Law (1996-Present); Vice President and General Counsel, Office Products Group (1994-1996); Group Counsel, Office Products Group (1984-1994) Beth B. Sexton.......... 41 Vice President--Human Resources (1996-Present); Human Resources Director, Americas, CH2M Hill (1993-1996) Karin M. Kinney......... 37 Corporate Secretary (1996-Present) and Corporate Counsel (1992-Present); Counsel (1990-1992) J. F. Quinn............. 42 Treasurer (1997-Present); Assistant Treasurer (1996- 1997); Manager, Foreign Exchange and Cash Management (1994-1996); Manager, Foreign Exchange, ARCO Chemical Company (1991-1994)
4 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The New York Stock Exchange is the principal market on which the Company's common stock is traded (ticker symbol IKN). IKON's common stock is also traded on the Philadelphia and Chicago Stock Exchanges. As of December 19, 1997, there were approximately 14,980 holders of record of IKON's common stock. The information regarding the quarterly market price ranges of IKON's common stock and dividend payments under "Quarterly Financial Summary" on page 37 of the 1997 Annual Report is incorporated herein by reference. IKON anticipates that it will pay a quarterly dividend of $.04 per common share in March 1998. The Company currently expects to continue its policy of paying regular cash dividends, although there can be no assurance as to future dividends because they are dependent upon future operating results, capital requirements and financial condition and may be limited by covenants in certain loan agreements. ITEM 6. SELECTED FINANCIAL DATA. Information appearing under "Corporate Financial Summary" for fiscal 1993 through 1997 regarding revenues, income from continuing operations, income from continuing operations per common share, total assets, total debt, serial preferred stock and cash dividends per common share on pages 38 and 39 of the 1997 Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Information appearing under "Financial Review" on pages 33 through 36 of the 1997 Annual Report is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Information appearing under "Market Risk" on page 36 of the 1997 Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Report of Independent Auditors and Consolidated Financial Statements of IKON and its subsidiaries on pages 18 through 33 and the information appearing under "Quarterly Financial Summary" for fiscal 1997 and 1996 on page 37 of the 1997 Annual Report are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. (No response to this item is required) ---------------- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding directors appearing in IKON's Notice of Annual Meeting of Shareholders and Proxy Statement for the January 22, 1998 annual meeting of shareholders (the "1998 Proxy Statement") is incorporated herein by reference. Information regarding executive officers is set forth in Part I of this report and additional information regarding executive officers appearing under "Executive Compensation" in the 1998 Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information appearing under "Executive Compensation" in the 1998 Proxy Statement is incorporated herein by reference. 5 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information regarding security ownership of certain beneficial owners and management appearing under "Security Ownership" in the 1998 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information appearing under "Certain Transactions" in the 1998 Proxy Statement is incorporated herein by reference. ---------------- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) and (2) List of Financial Statements and Financial Statement Schedules. The response to this portion of Item 14 is submitted on page S-1 hereof as a separate section of this report. (a) (3) List of Exhibits.* The following exhibits are filed as a part of this report (listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K): 3.1 Amended and Restated Articles of Incorporation. 3.2 Code of Regulations of IKON, filed as Exhibit 3.2 to IKON's Form 10-Q for the quarter ended March 31, 1996, is incorporated herein by reference. 4.1 Credit Agreement, dated December 16, 1996, among IKON and various institutional lenders, with CoreStates Bank, N.A., as Agent, filed as Exhibit 4.1 to IKON's 1996 Form 10-K, is incorporated herein by reference. 4.2 Credit Agreement among IKON, certain of its subsidiaries, various banks and Deutsche Bank AG, New York Branch, as Agent, dated as of August 30, 1996. Amendment 1 to Credit Agreement, dated as of April 1, 1997. 4.3 Credit Agreement dated as of October 13, 1995 among IKON Office Solutions, Inc., an Ontario corporation (formerly Alco Office Systems Canada), Deutsche Bank Canada, Chemical Bank of Canada and Royal Bank of Canada, filed as Exhibit 4.5 to IKON's 1995 Form 10-K, is incorporated herein by reference. 4.4 Note Purchase Agreement between IKON and various purchasers dated July 15, 1995 for $55 million in 7.15% Notes due November 15, 2005, filed as Exhibit 4.9 to IKON's 1995 Form 10-K, is incorporated herein by reference. 4.5 Pursuant to Regulation S-K item 601(b)(iii), IKON agrees to furnish to the Commission, upon request, a copy of other instruments defining the rights of holders of long-term debt of IKON and its subsidiaries. 10.1 Distribution Agreement between IKON and Unisource dated as of November 20, 1996, filed as Exhibit 2.1 to Unisource's Registration Statement on Form 10 (effective November 26, 1996), is incorporated herein by reference. 10.2 Tax Sharing and Indemnification Agreement between IKON and Unisource dated as of November 20, 1996, filed as Exhibit 10.1 to Unisource's Registration Statement on Form 10 (effective November 26, 1996), is incorporated herein by reference. 10.3 Benefits Agreement between IKON and Unisource dated as of November 20, 1996, filed as Exhibit 10.5 to Unisource's Registration Statement on Form 10 (effective November 26, 1996), is incorporated herein by reference. 6 10.4 Support Agreement dated as of October 22, 1996 between IKON and IKON Capital, Inc. (IKON's leasing subsidiary), filed as Exhibit 10.4 to IKON Capital, Inc.'s Form 8-K dated October 22, 1996, is incorporated herein by reference. 10.5 Amended and Restated Receivables Transfer Agreement dated as of March 31, 1997 among IKON Funding, Inc., IKON Capital, Inc., Twin Towers, Inc. and Deutsche Bank AG, New York Branch. 10.6 First Tier Transfer Agreement, dated as of March 31, 1997, between IKON Capital, Inc. and IKON Funding, Inc. 10.7 Receivables Transfer Agreement dated as of September 30, 1996 among IKON Funding, Inc., IKON Capital, Inc., Old Line Funding Corp. and Royal Bank of Canada, filed as Exhibit 10.5 to IKON's 1996 Form 10-K, is incorporated herein by reference. Amendment 1 to Receivables Transfer Agreement, dated as of October 7, 1997. 10.8 Transfer Agreement dated as of September 30, 1996 between IKON Capital, Inc. and IKON Funding, Inc., filed as Exhibit 10.6 to IKON's 1996 Form 10-K, is incorporated herein by reference. 10.9 Indenture dated as of December 11, 1995 between IKON and First Union Bank, N.A., as Trustee, filed as Exhibit 4 to IKON's Registration Statement No. 33-64177, is incorporated herein by reference. 10.10 Indenture dated as of July 1, 1995 between IKON Capital, Inc. and Chase Manhattan Bank, N.A. (formerly Chemical Bank, N.A.), as Trustee, filed as Exhibit 10.8 to IKON's 1996 Form 10-K, is incorporated herein by reference. 10.11 Indenture dated as of July 1, 1994 between IKON Capital, Inc. and NationsBank, N.A., as Trustee, filed as Exhibit 4 to IKON Capital, Inc.'s Registration Statement No. 33-53779, is incorporated herein by reference. 10.12 Indenture dated as of April 1, 1986 between IKON and the Chase Manhattan Bank, N.A., as Trustee, filed as Exhibit 4.1 to IKON's Registration Statement No. 30-4829, is incorporated herein by reference. 10.13 Distribution Agreement dated as of June 4, 1997 between IKON Capital, Inc. and various distribution agents. 10.14 Distribution Agreement dated as of June 30, 1995 between IKON Capital, Inc. and various distribution agents, filed as Exhibit 10.21 to IKON's 1995 Form 10-K, is incorporated herein by reference. 10.15 Distribution Agreement dated July 1, 1994, filed as Exhibit 1 to IKON Capital Inc.'s Form 10-Q for the quarter ended June 30, 1994, is incorporated herein by reference. 10.16 Maintenance Agreement dated as of August 15, 1991 between IKON and IKON Capital, Inc., filed as Exhibit 10.2 to IKON Capital, Inc.'s Registration Statement on Form 10 dated May 4, 1994, is incorporated herein by reference. 10.17 Operating Agreement dated as of August 15, 1991 between IKON and IKON Capital, Inc., filed as Exhibit 10.3 to IKON Capital, Inc.'s Registration Statement on Form 10 dated May 4, 1994, is incorporated herein by reference. 10.18 Rights Agreement dated as of February 10, 1988 between IKON and National City Bank, filed on February 11, 1988 as Exhibit 1 to IKON's Registration Statement on Form 8-A, as amended by an Amended and Restated Rights Agreement dated as of June 18, 1997, filed as Exhibit 4.1 to IKON's Form 8-K dated June 18, 1997, is incorporated herein by reference. 10.19 Amended and Restated Long Term Incentive Compensation Plan, filed as Exhibit 10.1 to IKON's Form 10-Q for the quarter ended March 31, 1996, is incorporated herein by reference.** 7 10.20 Annual Bonus Plan, filed as Exhibit 10.3 to IKON's 1994 Form 10-K, is incorporated herein by reference.** 10.21 IKON Office Solutions, Inc. Partners' Stock Purchase Plan** 10.22 1986 Stock Option Plan, filed as Exhibit 10.6 to IKON's 1995 Form 10-K, is incorporated herein by reference.** 10.23 1995 Stock Option Plan, filed as Exhibit 10.5 to IKON's Form 10-Q for the quarter ended March 31, 1996, is incorporated herein by reference.** 10.24 Non-Employee Directors Stock Option Plan.** 10.25 Executive Employment Contracts--John E. Stuart, Kurt E. Dinkelacker, and David M. Gadra.** 10.26 Form of Change in Control Agreement--William F. Drake, Jr., James J. Forese, and David M. Gadra.** 10.27 1980 Deferred Compensation Plan, filed as Exhibit 10.7 to IKON's 1992 Form 10-K, is incorporated herein by reference.** 10.28 1985 Deferred Compensation Plan, filed as Exhibit 10.8 to IKON's 1992 Form 10-K, is incorporated herein by reference.** 10.29 1991 Deferred Compensation Plan, filed as Exhibit 10.9 to IKON's 1992 Form 10-K, is incorporated herein by reference.** 10.30 1994 Deferred Compensation Plan.** 10.31 Executive Deferred Compensation Plan.** 11 Statement re: Computation of Earnings per Share. 12.1 Ratio of Earnings to Fixed Charges. 12.2 Ratio of Earnings to Fixed Charges Excluding Captive Finance Subsidiaries. 12.3 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. 12.4 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends Excluding Captive Finance Subsidiaries. 13 Financial Section of IKON's Annual Report to Shareholders for the fiscal year ended September 30, 1997 (which, except for those portions thereof expressly incorporated herein by reference, is furnished for the information of the Commission and is not "filed" as part of this report). 21 Subsidiaries of IKON. 23 Auditors' Consent. 24 Powers of Attorney; certified resolution re: Powers of Attorney. 27 Financial Data Schedule. - -------- * Copies of the exhibits will be furnished to any security holder of IKON upon payment of the reasonable cost of reproduction. **Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. On July 17, 1997, the Company filed a Current Report on Form 8-K to file, under Item 5 of the form, information contained in its press release dated July 17, 1997 concerning IKON's earnings for the fiscal quarter ended June 30, 1997. On October 22, 1997, the Company filed a Current Report on Form 8-K to file, under Item 5 of the form, information contained in its press release dated October 15, 1997 concerning IKON's earnings for the fiscal quarter and fiscal year ended September 30, 1997. (c) The response to this portion of Item 14 is submitted in response to Item 14(a)(3) above. (d) The response to this portion of Item 14 is contained on page F-1 of this report. 8 FORWARD LOOKING INFORMATION This Report includes or incorporates by reference information which may constitute forward-looking statements within the meaning of the federal securities laws. Although the Company believes the expectations contained in such forward-looking statements are reasonable, no assurances can be given that such expectations will prove correct. Such forward-looking information is based upon management's current plans or expectations and is subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and the Company's future financial condition and results. These uncertainties and risks include, but are not limited to, those relating to successfully managing an aggressive program to acquire and integrate new companies, including companies with technical services and products that are relatively new to the Company, and also including companies outside the United States, which present additional risks relating to international operations; risks and uncertainties relating to conducting operations in a competitive environment; delays, difficulties, technological changes, management transitions and employment issues associated with a large- scale transformation project; debt service requirements (including sensitivity to fluctuation in interest rates); and general economic conditions. As a consequence, current plans, anticipated actions and future financial condition and results may differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. 9 IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES ANNUAL REPORT ON FORM 10-K ITEMS 14(A)(1) AND (2) AND 14(D) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS: The following consolidated financial statements of IKON Office Solutions, Inc. and its subsidiaries included in the 1997 Annual Report to Shareholders are incorporated by reference in Item 8 of Part II of this report: Consolidated Statements of Income --Fiscal years ended September 30, 1997, September 30, 1996 and September 30, 1995 Consolidated Balance Sheets --September 30, 1997 and September 30, 1996 Consolidated Statements of Cash Flows --Fiscal years ended September 30, 1997, September 30, 1996 and September 30, 1995 Consolidated Statements of Changes in Shareholders' Equity --Fiscal years ended September 30, 1997, September 30, 1996 and September 30, 1995 Notes to Consolidated Financial Statements FINANCIAL STATEMENT SCHEDULES: The following consolidated financial statement schedule of IKON Office Solutions, Inc. and its subsidiaries is submitted in response to Item 14(d): Schedule II--Valuation and Qualifying Accounts. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. F-1 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Ikon Office Solutions, Inc. Date: December 24, 1997 /s/ Michael J. Dillon By____________________________________ (MICHAEL J. DILLON) VICE PRESIDENT AND CONTROLLER (PRINCIPAL ACCOUNTING OFFICER) PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT ON FORM 10-K HAS BEEN SIGNED BELOW ON DECEMBER 24, 1997 BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED. SIGNATURES TITLE *John E. Stuart Chairman and Chief Executive - ------------------------------------ Officer (Principal Executive (JOHN E. STUART) Officer) /s/ Kurt E. Dinkelacker Executive Vice President, Chief - ------------------------------------ Financial Officer and a Director (KURT E. DINKELACKER) (Principal Financial Officer) /s/ Michael J. Dillon Vice President and Controller - ------------------------------------ (Principal Accounting Officer) (MICHAEL J. DILLON) *James R. Birle Director - ------------------------------------ (JAMES R. BIRLE) *Philip E. Cushing Director - ------------------------------------ (PHILIP E. CUSHING) *William F. Drake, Jr. Vice Chairman, General Counsel and - ------------------------------------ a Director (WILLIAM F. DRAKE, JR.) *Frederick S. Hammer Director - ------------------------------------ (FREDERICK S. HAMMER) *Barbara Barnes Hauptfuhrer Director - ------------------------------------ (BARBARA BARNES HAUPTFUHRER) *Richard A. Jalkut Director - ------------------------------------ (RICHARD A. JALKUT) *By his signature set forth below, Michael J. Dillon, pursuant to duly executed Powers of Attorney duly filed with the Securities and Exchange Commission, has signed this Form 10-K on behalf of the persons whose signatures are printed above, in the capacities set forth opposite their respective names. /s/ Michael J. Dillon December 24, 1997 - ------------------------------------ (MICHAEL J. DILLON) IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E ------ ------ ------ ------ ------ ADDITIONS ----------------------- CHARGED TO BALANCE AT CHARGED TO OTHER BEGINNING OF COSTS AND ACCOUNTS-- DEDUCTIONS-- BALANCE AT DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD ----------- ------------ ----------- ----------- ------------ ------------- YEAR ENDED SEPTEMBER 30, 1997 - ------------------------ Allowance for doubtful accounts............... $35,308,000 $25,724,000 $ 3,755,000(1) $10,595,000(2) $54,192,000 YEAR ENDED SEPTEMBER 30, 1996 - ------------------------ Allowance for doubtful accounts............... $32,856,000 $18,296,000 $ 6,634,000(1) $22,478,000(2) $35,308,000 YEAR ENDED SEPTEMBER 30, 1995 - ------------------------ Allowance for doubtful accounts............... $13,494,000 $ 8,940,000 $17,062,000(1) $ 6,640,000(2) $32,856,000
- -------- (1)Represents beginning balances of acquired companies. (2) Accounts written off during year, net of recoveries. S-1 IKON OFFICE SOLUTIONS, INC. P.O. BOX 834 VALLEY FORGE, PENNSYLVANIA 19482-0834 (610) 296-8000 IKON OFFICE SOLUTIONS, INC. INDEX TO EXHIBITS
EXHIBIT NO. TITLE PAGE ----------- ----- ---- 3.1 Amended and Restated Articles of Incorporation............. 3.2 Code of Regulations of IKON, filed as Exhibit 3.2 to IKON's Form 10-Q for the quarter ended March 31, 1996, is incorporated herein by reference. ......................... 4.1 Credit Agreement, dated December 16, 1996, among IKON and various institutional lenders, with CoreStates Bank, N.A., as Agent, filed as Exhibit 4.1 to IKON's 1996 Form 10-K, is incorporated herein by reference........................... 4.2 Credit Agreement among IKON, certain of its subsidiaries, various banks and Deutsche Bank AG, New York Branch, as Agent, dated as of August 30, 1996. Amendment 1 to Credit Agreement, dated as of April 1, 1997....................... 4.3 Credit Agreement dated as of October 13, 1995 among IKON Office Solutions, Inc., an Ontario corporation (formerly Alco Office Systems Canada), Deutsche Bank Canada, Chemical Bank of Canada and Royal Bank of Canada, filed as Exhibit 4.5 to IKON's 1995 Form 10-K, is incorporated herein by reference.................................................. 4.4 Note Purchase Agreement between IKON and various purchasers dated July 15, 1995 for $55 million in 7.15% Notes due November 15, 2005, filed as Exhibit 4.9 to IKON's 1995 Form 10-K, is incorporated herein by reference.................. 4.5 Pursuant to Regulation S-K item 601(b)(iii), IKON agrees to furnish to the Commission, upon request, a copy of other instruments defining the rights of holders of long-term debt of IKON and its subsidiaries.......................... 10.1 Distribution Agreement between IKON and Unisource dated as of November 20, 1996, filed as Exhibit 2.1 to Unisource's Registration Statement on Form 10 (effective November 26, 1996), is incorporated herein by reference................. 10.2 Tax Sharing and Indemnification Agreement between IKON and Unisource dated as of November 20, 1996, filed as Exhibit 10.1 to Unisource's Registration Statement on Form 10 (effective November 26, 1996), is incorporated herein by reference. ................................................ 10.3 Benefits Agreement between IKON and Unisource dated as of November 20, 1996, filed as Exhibit 10.5 to Unisource's Registration Statement on Form 10 (effective November 26, 1996), is incorporated herein by reference. ............... 10.4 Support Agreement dated as of October 22, 1996 between IKON and IKON Capital, Inc. (IKON's leasing subsidiary), filed as Exhibit 10.4 to IKON Capital, Inc.'s Form 8-K dated October 22, 1996, is incorporated herein by reference...... 10.5 Amended and Restated Receivables Transfer Agreement dated as of March 31, 1997 among IKON Funding, Inc., IKON Capital, Inc., Twin Towers, Inc. and Deutsche Bank AG, New York Branch. .............................................. 10.6 First Tier Transfer Agreement, dated as of March 31, 1997, between IKON Capital, Inc. and IKON Funding, Inc........... 10.7 Receivables Transfer Agreement dated as of September 30, 1996 among IKON Funding, Inc., IKON Capital, Inc., Old Line Funding Corp. and Royal Bank of Canada, filed as Exhibit 10.5 to IKON's 1996 Form 10-K, is incorporated herein by reference. Amendment 1 to Receivables Transfer Agreement, dated as of October 7, 1997. .............................. 10.8 Transfer Agreement dated as of September 30, 1996 between IKON Capital, Inc. and IKON Funding, Inc., filed as Exhibit 10.6 to IKON's 1996 Form 10-K, is incorporated herein by reference..................................................
EXHIBIT NO. TITLE PAGE ----------- ----- ---- 10.9 Indenture dated as of December 11, 1995 between IKON and First Union Bank, N.A., as Trustee, filed as Exhibit 4 to IKON's Registration Statement No. 33-64177, is incorporated herein by reference. ........................ 10.10 Indenture dated as of July 1, 1995 between IKON Capital, Inc. and Chase Manhattan Bank, N.A. (formerly Chemical Bank, N.A.), as Trustee, filed as Exhibit 10.8 to IKON's 1996 Form 10-K, is incorporated herein by reference....... 10.11 Indenture dated as of July 1, 1994 between IKON Capital, Inc. and NationsBank, N.A., as Trustee, filed as Exhibit 4 to IKON Capital, Inc.'s Registration Statement No. 33- 53779, is incorporated herein by reference................ 10.12 Indenture dated as of April 1, 1986 between IKON and the Chase Manhattan Bank, N.A., as Trustee, filed as Exhibit 4.1 to IKON's Registration Statement No. 30-4829, is incorporated herein by reference.......................... 10.13 Distribution Agreement dated as of June 4, 1997 between IKON Capital, Inc. and various distribution agents. ...... 10.14 Distribution Agreement dated as of June 30, 1995 between IKON Capital, Inc. and various distribution agents, filed as Exhibit 10.21 to IKON's 1995 Form 10-K, is incorporated herein by reference....................................... 10.15 Distribution Agreement dated July 1, 1994, filed as Exhibit 1 to IKON Capital Inc.'s Form 10-Q for the quarter ended June 30, 1994, is incorporated herein by reference. ............................................... 10.16 Maintenance Agreement dated as of August 15, 1991 between IKON and IKON Capital, Inc., filed as Exhibit 10.2 to IKON Capital, Inc.'s Registration Statement on Form 10 dated May 4, 1994, is incorporated herein by reference. ........ 10.17 Operating Agreement dated as of August 15, 1991 between IKON and IKON Capital, Inc., filed as Exhibit 10.3 to IKON Capital, Inc.'s Registration Statement on Form 10 dated May 4, 1994, is incorporated herein by reference. ........ 10.18 Rights Agreement dated as of February 10, 1988 between IKON and National City Bank, filed on February 11, 1988 as Exhibit 1 to IKON's Registration Statement on Form 8-A, as amended by an Amended and Restated Rights Agreement dated as of June 18, 1997, filed as Exhibit 4.1 to IKON's Form 8-K dated June 18, 1997, is incorporated herein by reference. ............................................... 10.19 Amended and Restated Long Term Incentive Compensation Plan, filed as Exhibit 10.1 to IKON's Form 10-Q for the quarter ended March 31, 1996, is incorporated herein by reference.**.............................................. 10.20 Annual Bonus Plan, filed as Exhibit 10.3 to IKON's 1994 Form 10-K, is incorporated herein by reference.**......... 10.21 IKON Office Solutions, Inc. Partners' Stock Purchase Plan**.................................................... 10.22 1986 Stock Option Plan, filed as Exhibit 10.6 to IKON's 1995 Form 10-K, is incorporated herein by reference.**.... 10.23 1995 Stock Option Plan, filed as Exhibit 10.5 to IKON's Form 10-Q for the quarter ended March 31, 1996, is incorporated herein by reference.**....................... 10.24 Non-Employee Directors Stock Option Plan.**............... 10.25 Executive Employment Contracts--John E. Stuart, Kurt E. Dinkelacker, and David M. Gadra.**........................ 10.26 Form of Change in Control Agreement--William F. Drake, Jr., James J. Forese, and David M. Gadra.**...............
EXHIBIT NO. TITLE PAGE ----------- ----- ---- 10.27 1980 Deferred Compensation Plan, filed as Exhibit 10.7 to IKON's 1992 Form 10-K, is incorporated herein by reference.**............................................... 10.28 1985 Deferred Compensation Plan, filed as Exhibit 10.8 to IKON's 1992 Form 10-K, is incorporated herein by reference.**............................................... 10.29 1991 Deferred Compensation Plan, filed as Exhibit 10.9 to IKON's 1992 Form 10-K, is incorporated herein by reference.**............................................... 10.30 1994 Deferred Compensation Plan.**......................... 10.31 Executive Deferred Compensation Plan.**.................... 11 Statement re: Computation of Earnings per Share. .......... 12.1 Ratio of Earnings to Fixed Charges......................... 12.2 Ratio of Earnings to Fixed Charges Excluding Captive Finance Subsidiaries. ..................................... 12.3 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. ................................................ 12.4 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends Excluding Captive Finance Subsidiaries........... 13 Financial Section of IKON's Annual Report to Shareholders for the fiscal year ended September 30, 1997 (which, except for those portions thereof expressly incorporated herein by reference, is furnished for the information of the Commission and is not "filed" as part of this report). .... 21 Subsidiaries of IKON. ..................................... 23 Auditors' Consent. ........................................ 24 Powers of Attorney; certified resolution re: Powers of Attorney. ................................................. 27 Financial Data Schedule. ..................................
EX-3.1 2 AMENDED AND RESTATED ARTICLES OF INCORP. AMENDED AND RESTATED ARTICLES OF INCORPORATION OF IKON OFFICE SOLUTIONS, INC. FIRST: The name of the Corporation shall be IKON OFFICE SOLUTIONS, INC. SECOND: The principal office of the Corporation in the State of Ohio is to be located at Cleveland in Cuyahoga County. THIRD: The purposes for which, and for any of which, the Corporation is formed are as follows: 1. To develop, manufacture, service, repair, treat, finish, buy, sell and generally deal in, in every manner, articles, materials and products of every kind and description, to own, hold and deal in, in every manner, all real and personal property, and to do all things necessary or incidental to the foregoing purposes. 2. In general to carry on any other lawful business whatsoever which is calculated, directly or indirectly, to promote the interests of the Corporation or to enhance the value of its properties; and to have and exercise all rights, powers and privileges which are now or may hereafter be conferred upon corporations by the laws of Ohio; provided, however, that nothing contained in this Article Third shall be construed as authorizing the Corporation to carry on the business of a public utility or railroad as defined by the public utility laws of the State of Ohio. The Corporation reserves the right at any time and from time to time to substantially change its purposes in any manner now or hereafter permitted by statute. Any change of the purposes of the Corporation authorized or approved by the holders of shares entitled to exercise the proportion of the voting power of the Corporation now or hereafter required by statute for such authorization or approval shall be binding and conclusive upon every shareholder of the Corporation as fully as if such shareholder had voted therefor; and no shareholder, notwithstanding that he may have voted against such change of purposes or may have objected in writing thereto, shall be entitled to payment of the fair cash value of his shares. FOURTH: The number of shares which the Corporation is authorized to have outstanding is 302,095,628 consisting of 2,095,628 shares of Serial Preferred Stock of no par value (hereinafter called "Serial Preferred Stock"), and 300,000,000 shares of Common Stock of no par value (hereinafter called "Common Stock"). The shares of such classes shall have the following express terms: Division A Express Terms of the Serial Preferred Stock 1. Series and Rank. The Serial Preferred Stock may be issued from time --------------- to time in one or more series. All shares of Serial Preferred Stock shall be of equal rank and shall be -2- identical, except in respect of the matters that may be fixed by the Board of Directors as hereinafter provided, and each share of each series shall be identical with all other shares of such series, except as to the date from which dividends are cumulative. Subject to the provisions of Sections 2 to 7, both inclusive, of this Division, which provisions shall apply to all Serial Preferred Stock, the Board of Directors hereby is authorized to cause such shares to be issued in one or more series and with respect to each such series prior to the issuance thereof to fix: (a) The designation of the series, which may be by distinguishing number, letter or title. (b) The number of shares of the series, which number the Board of Directors may (except where otherwise provided in the creation of the series) increase or decrease (but not below the number of shares thereof then outstanding). (c) The annual dividend rate of the series. (d) The dates at which dividends, if declared, shall be payable, and the dates from which dividends shall be cumulative. (e) The redemption rights and price or prices, if any, for shares of the series. (f) The terms and amount of any sinking fund provided for the purchase or redemption of shares of the series. (g) The amounts payable on shares of the series in the event of any liquidation, dissolution or winding up of the affairs of the Corporation, which amount may vary depending upon whether such liquidation, dissolution or winding up is voluntary or involuntary. (h) Whether the shares of the series shall be convertible into Common Stock, and, if so, the conversion price or prices, any adjustments thereof, and all other terms and conditions upon which such conversion may be made. (i) Restrictions on the issuance of shares of the same series or of any other class or series. The Board of Directors is authorized to adopt from time to time amendments to the Articles of Incorporation fixing, with respect to each such series, the matters described in clauses (a) to (i), both inclusive, of this Section 1. 2. Dividends. The holders of the Serial Preferred Stock of each series --------- shall be entitled to receive, when and as declared by the Board of Directors, out of funds of the Corporation legally available for dividends, dividends in cash at the rate for such series fixed in accordance with the provisions of Section 1 of this Division, and no more, payable quarterly on the dates fixed for such series. Such dividends on each share of Serial Preferred Stock shall accrue and be cumulative, whether or not earned or declared, from and after the date or dates fixed with respect to such series. No dividends may be paid upon or declared or -3- set apart for any of the Serial Preferred Stock for any quarterly dividend period unless at the same time a like proportionate dividend for the same quarterly dividend period, ratably in proportion to the respective annual dividend rates fixed therefor, shall be paid upon or declared or set apart for all Serial Preferred Stock of all series then issued and outstanding and entitled to receive such dividend. 3. Dividends on or Distributions to Holders of Junior Stock. So long as -------------------------------------------------------- any shares of Serial Preferred Stock are outstanding, the Corporation shall not (a) declare or pay any dividends (other than dividends payable in Common Stock or other shares of the Corporation ranking junior to the Serial Preferred Stock) to holders of Common Stock or shares of the Corporation of any other class ranking on a parity with or junior to the Serial Preferred Stock, or (b) make any distributions of assets (directly or indirectly, by purchase; redemption or otherwise) to the holders of Common Stock or shares of the Corporation of any other class ranking on a parity with or junior to the Serial Preferred Stock (except in the case of shares purchased in compromise of claims or to prevent loss on doubtful debts and except in the case of shares purchased out of the proceeds of the sale of Common Stock or other shares ranking junior to the Serial Preferred Stock received by the Corporation, subsequent to January 1, 1968): (a) Unless all accrued and unpaid dividends on shares of Serial Preferred Stock, including the full dividends for the then quarterly dividend period, shall have been paid or declared and funds sufficient for payment thereof set apart; and (b) Unless there shall be no arrearages with respect to redemption of shares of Serial Preferred Stock from any sinking fund provided for shares of such series in accordance with provisions of Section 1 of this Division. 4. Voting Rights. The holders of Serial Preferred Stock shall be ------------- entitled at all times to one vote for each share, and except as otherwise required by law, the holders of the Serial Preferred Stock and Common Stock of the Corporation shall vote together as one class on all matters, subject, however, to the special voting rights conferred upon the holders of the Serial Preferred Stock as hereinafter provided. If and when the Corporation shall be in default in the payment, in whole or in part, of each of six quarterly dividends (whether or not consecutive) accrued on any series of Serial Preferred Stock whether or not earned or declared, the holders of the Serial Preferred Stock of all series, voting separately as a single class, shall be entitled to elect two Directors of the Corporation, to serve in addition to the Directors otherwise elected. Such rights to elect additional Directors may be exercised at any annual meeting of shareholders or, within the limitation hereinafter provided, at a special meeting of shareholders held for such purpose. If such default shall occur more than 90 days preceding the date of the next annual meeting of shareholders as fixed by the Regulations of the Corporation, then a special meeting of the holders of the Serial Preferred Stock shall be called by the Secretary of the Corporation upon the written request of the holders of not less than 10% of the Serial Preferred Stock then outstanding, such meeting to be held within 60 days after the delivery to the Secretary of such request or such later time as may be -4- reasonably required to obtain clearance from the Securities and Exchange Commission. Such additional Directors, whether elected at an annual meeting or at a special meeting, shall serve until the next annual meeting and until their successors shall be duly elected and qualified, unless their terms shall sooner terminate pursuant to the provisions of this Section 4. At any meeting for the purpose of electing such additional Directors, the holders of 35% of the Serial Preferred Stock then outstanding shall constitute a quorum, and any such meeting shall be valid, notwithstanding that a quorum of the outstanding shares of any other class or classes shall not be present or represented thereat. At the time of any such meeting at which a quorum shall be present, the number of Directors constituting the whole Board of Directors shall be deemed to be increased by two. If and when all dividends in default on the Serial Preferred Stock shall be paid or declared and funds sufficient for the payment thereof irrevocably set aside for payment, the right of the holders of the Serial Preferred Stock as a class to elect two Directors shall then cease and if any Directors were elected by the holders of the Serial Preferred Stock, as a class, the term of such Directors shall terminate, and the number of Directors constituting the whole Board of Directors shall be accordingly reduced. The above provisions for the vesting of such voting rights in the holders of the Serial Preferred Stock, as a class, shall apply, however, in case of any subsequent default or failure under this Section 4. The rights of the holders of Serial Preferred Stock to elect two Directors provided by this Section 4 shall, when in effect, be in lieu of, and not in addition to, all other rights otherwise held by the holders of Serial Preferred Stock to vote as a class with the Common Stock for the election of Directors. 5. Action Requiring Serial Preferred Stock Consent. ----------------------------------------------- (a) So long as any shares of Serial Preferred Stock shall be outstanding, the Corporation shall not, without (i) the affirmative vote of the holders of at least two-thirds of the shares of Serial Preferred Stock at the time outstanding, given in person or by proxy, either at a special meeting called for the purpose, or at any annual meeting of shareholders if appropriate notice of such proposed action is given, at which all of the shares of Serial Preferred Stock shall vote separately as a single class, or (ii) the written consent of the holders of at least two-thirds of the shares of Serial Preferred Stock at the time outstanding: A) Amend or repeal any of the provisions of the Articles or Regulations of the Corporation so as to affect adversely the preferences, rights, powers or privileges of the Serial Preferred Stock or the holders thereof. B) Authorize or issue any class or series of any class of the stock of the Corporation ranking prior to the Serial Preferred Stock, or authorize or issue any obligations or securities convertible into any such class. C) Purchase or redeem (for sinking fund purposes or otherwise) less than all of the Serial Preferred Stock then outstanding except in accordance with a stock purchase offer made to all holders of record of Serial Preferred Stock, unless all accrued and unpaid dividends on the Serial Preferred Stock, including all dividends for the then quarterly -5- dividend period, shall have been paid or declared and funds sufficient for the payment thereof set apart, and unless all accrued sinking fund obligations applicable thereto shall have been complied with. D) Sell, lease or convey all or substantially all of the property or business of the Corporation, or voluntarily liquidate or dissolve the Corporation, or consolidate or merge the Corporation with or into any other corporation; provided, however, that no such class vote or consent of the holders of the Serial Preferred Stock shall be required for consolidation or merger of the Corporation if (i) each holder of shares of Serial Preferred Stock immediately prior to such consolidation or merger shall, upon the occurrence thereof, possess the same or an equivalent number of shares of the resulting corporation (which may be the Corporation or another corporation) having substantially the same or equivalent terms and provisions as the shares of Serial Preferred Stock, and (ii) the resulting corporation will have, immediately after such consolidation or merger, no stock either authorized or outstanding ranking prior to or on a parity with such shares, other than stock of the Corporation theretofore authorized ranking prior to or on a parity with the Serial Preferred Stock (or stock of the resulting corporation into which such stock of the Corporation is changed pursuant to the merger or consolidation). (b) So long as any shares of Serial Preferred Stock shall be outstanding, the Corporation shall not, without (i) the affirmative vote of the holders of at least a majority of the shares of Serial Preferred Stock at the time outstanding, given in person or by proxy, either at a special meeting called for the purpose, or at any annual meeting of shareholders if appropriate notice of such proposed action is given, at which all of the shares of Serial Preferred Stock shall vote separately as a single class, or (ii) the written consent of the holders of at least a majority of the shares of Serial Preferred Stock at the time outstanding: A) authorize or issue any class of the stock of the Corporation ranking on a parity with the Serial Preferred Stock, with respect to the payment of dividends or upon liquidation, dissolution and winding up of the Corporation, or authorize or issue any obligations or securities convertible into any such class, or B) increase the authorized number of shares of the Serial Preferred Stock or increase the authorized number of shares of any class ranking on a parity with the Serial Preferred Stock, with respect to the payment of dividends or upon liquidation, dissolution and winding up of the Corporation, or authorize or issue any obligations or securities convertible into any such class. (c) So long as any shares of a series of Serial Preferred Stock shall be outstanding, the Corporation shall not, without (i) the affirmative vote of the holders of at least two-thirds of the shares of such series at the time outstanding, given in person or by proxy, either at a special meeting or at any annual meeting of shareholders if appropriate notice of such proposed action is given, at which all of the shares of such series shall vote separately as a single class, or (ii) the written consent of the holders of at least two-thirds of the shares of such series at the time outstanding, amend or repeal any of the provisions of the Articles or Regulations of the Corporation so as to affect adversely and particularly the preferences, rights, powers or privileges of such series of Serial Preferred Stock or the holders thereof. (d) Notwithstanding the foregoing, (i) no such vote or consent of the holders of the Serial Preferred Stock shall be required if, prior to or contemporaneously with the happening -6- of any of the events listed in subparagraphs (a) or (b) above, provision has been made in accordance with the provisions fixed by the Directors for the redemption of all of the Serial Preferred Stock at the time outstanding and (ii) no such vote or consent of the holders of any series of Serial Preferred Stock shall be required if, prior to or contemporaneously with the happening of any of the events listed in subparagraph (c) above, provision has been made in accordance with the provisions fixed by the Directors for the redemption of all shares of such series of Serial Preferred Stock at the time outstanding. 6. Liquidation Rights. In the event of the liquidation, dissolution or ------------------ winding up of the Corporation, whether voluntary or involuntary, the holders of Serial Preferred Stock shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made to the holders of Common Stock or any other class of stock junior to the Serial Preferred Stock as to rights upon liquidation, payment of the amount per share provided for in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such shares, plus an amount equal to all dividends accrued to the date of such payment and unpaid, whether or not earned or declared but without interest, and no more. If, upon any liquidation, dissolution or winding up of the Corporation, the assets available for distribution shall be insufficient to pay the holders of all outstanding shares of Serial Preferred Stock the amounts to which they shall respectively be entitled, the holders of Serial Preferred Stock of all series shall share ratably in any distribution of assets according to the respective amounts which would be payable in respect of the shares held by them upon such distribution if all amounts payable in respect of the Serial Preferred Stock of all series were paid in full. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of any of the provisions of this Section 6. 7. Definitions. For the purpose of this Division: ----------- Whenever reference is made to shares "ranking prior to the Serial Preferred Stock" or "on a parity with the Serial Preferred Stock" such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions in the event of any involuntary liquidation, dissolution or winding up of the Corporation are given preference over, or rank on an equality with, (as the case may be) the rights of the holders of the Serial Preferred Stock; and whenever reference is made to shares "ranking junior to the Serial Preferred Stock" such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders as to the payment of dividends and as to distributions in the event of an involuntary liquidation, dissolution or winding up of the Corporation are junior and subordinate to the rights of the holders of the Serial Preferred Stock. -7- 8. Express Terms of the Series 12 Preferred Stock (Express Terms are Described as Adopted by Amendment on December 5, 1988) ------------------------------------------------------------- There is hereby established a series of the Serial Preferred Stock to be known as Series 12 Preferred Stock to which all of the Express Terms of the Serial Preferred Stock set forth in 1 through 7 above as well as the following provisions shall be applicable: (a) The designation of the series is Series 12 Preferred Stock; (b) The number of shares of the series, which number the Board of Directors may increase or decrease (but not below the number of shares then outstanding) is 480,000 shares; (c) The annual dividend rate of the series shall be in an amount per share (rounded to the nearest cent) equal to, but no more than, the greater of (x) $6.80 or (y) subject to the provision for adjustment thereinafter set forth, one hundred times the aggregate per share amount of all cash dividends, and one hundred times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock of the Corporation since the immediately preceding Quarterly Dividend Payment Date (as defined in subparagraph (d) below), or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of a share or fraction of a share of Series 12 Preferred Stock (the "Original Issue Date"). In the event the Corporation shall at any time on or after the Original Issue Date declare or pay any dividend on the shares of Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series 12 Preferred Stock are entitled (without giving effect to such event) under clause (y) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. The Corporation shall declare a dividend or distribution on the Series 12 Preferred Stock as provided in the paragraph above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $6.80 per share on the Series 12 Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. The record date for any such dividend or distribution shall be the tenth Trading Day prior to the Quarterly Dividend Payment Date. (d) The dividends provided above shall be payable quarterly on January 1, April 1, July 1, and October 1 in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"); -8- (e) The Corporation, at the option of the Board of Directors, may at any time redeem all and may from time to time redeem any part of the outstanding shares of Series 12 Preferred Stock on any date fixed by the Board of Directors, upon notice given as hereinafter provided, by paying in cash for each share thereof to be redeemed an amount equal to the Market Price (as hereinafter defined) of the Common Stock on the Trading Day (as hereinafter defined) immediately prior to the date fixed for redemption, multiplied by one hundred (the "Multiplier"), plus, in each case, an amount equal to all dividends thereon accrued to the date fixed for redemption and unpaid whether or not earned or declared but without interest (such amounts being in this subparagraph (e) sometimes referred to as the "redemption price"). In case of the redemption of a part only of the outstanding shares of Series 12 Preferred, the shares to be redeemed shall be selected by lot in such manner as the Board of Directors shall determine. Not less than thirty (30) nor more than ninety (90) days prior written notice shall be given by mail, first class postage prepaid, to the holders of record of the shares of Series 12 Preferred to be redeemed. On or after the date fixed for redemption and stated in such notice, the holder of each share of Series 12 Preferred Stock called for redemption shall surrender the certificate therefor at the place designated in such notice and shall thereupon be entitled to receive payment of the redemption price. If such notice of redemption shall have been duly given as provided above and if on the date fixed for redemption funds sufficient to redeem the shares called for redemption shall be irrevocably set aside for the payment thereof, then, notwithstanding that the certificate for any share of Series 12 Preferred Stock so called for redemption shall not have been surrendered, from and after such date the shares so called for redemption shall no longer be deemed to be outstanding and dividends thereon shall cease to accrue and all rights with respect to the shares so called for redemption, including rights, if any, to receive notices and to vote, shall forthwith on such date cease and determine, except only the right of the holders thereof to receive the redemption price without interest upon surrender of the certificates therefor; provided, however, that if such notice of redemption shall have been duly given as provided above and if on or prior to the date fixed for redemption there shall have been deposited with a bank or trust company having a capital and surplus of more than $5,000,000 named in such notice of redemption, in trust for the account of the holders of the shares so called for redemption, funds sufficient to redeem, on the date fixed for redemption, the shares called for redemption, then upon the making of such deposit in trust (although made prior to the date fixed for redemption), the shares so called and with respect to which such deposit shall have been made shall no longer be deemed to be outstanding and all rights with respect to such shares, including rights, if any, to receive notices and to vote, shall forthwith cease and determine, except only the right of the holders thereof to receive, out of the funds so deposited in trust, forthwith and without awaiting the date fixed for redemption, the redemption price thereof, without interest, upon surrender of the certificates therefor, upon to but not after the close of business on the second business day prior to the date fixed for redemption of such shares. Any interest accrued on such funds shall belong to the Corporation and shall be paid to it from time to time. In case any shares called for redemption shall be converted after deposit of the redemption price thereof, the redemption price of the shares so converted shall be returned to the Corporation. Any other funds so deposited and unclaimed at the end of two years after the date fixed for redemption shall be -9- repaid to the Corporation upon its request, and thereafter the holders of the shares so called for redemption shall be entitled to receive payment of the redemption price, but without interest only from the Corporation. In the event the Corporation shall at any time on or after the Original Issue Date declare or pay any dividend on the shares of Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of Series 12 Preferred Stock were entitled (without giving effect to such event), shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. As used herein the term "Market Price" per share of the Common Stock on any date of determination shall mean the average of the daily closing prices per share of the Common Stock (determined as described below) on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date; provided, however, that if the Company shall at any time -------- ------- (i) declare a dividend on the Common Stock payable in Common Stock, (ii) subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares of Common Stock or (iv) issue any shares in a reclassification of the Common Stock, and such event or an event of a type analogous to any such event shall have caused the closing prices used to determine the Market Price on any Trading Days not to be fully comparable with the closing price on such date of determination, each such closing price so used shall be appropriately adjusted in order to make it fully comparable with the closing price on such date of determination. The closing price per share of the Common Stock on any date shall be the last sale price, regular way, or, in case no such sale takes place on such date, the average of the closing bid and asked prices, regular way, for each share of the Common Stock, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the average of the high bid and low asked prices for each share of Common Stock in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or, if on any such date the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the securities elected by the Board of Directors of the Corporation; provided, however, that if -------- ------- on any such date the Common Stock is not listed or admitted for trading on a national securities exchange or traded in the over-the-counter market, the closing price per share of the Common Stock on such date shall mean the fair value per share of Common Stock on such date as determined in good faith by the Board of Directors of the Corporation, after -10- consultation with a nationally recognized investment banking firm with respect to the fair value per share of such securities, and set forth in a certificate delivered to the Corporation. As used herein, the term "Trading Day," when used with respect to the Common Stock, shall mean a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, a Business Day (defined to mean any day other than a Saturday, Sunday or a day on which banking institutions in New York, New York are generally authorized or obligated by law or executive order to close.) (f) Except as otherwise provided herein, the holders of shares of this Series 12 Preferred Stock shall not have any rights herein to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation. (g) In case the Corporation shall enter into any consolidation, merger combination, reclassification or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series 12 Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to one hundred times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time on or after the Original Issue Date declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series 12 Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (h) Upon the liquidation, dissolution or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive and amount equal to the greater of (x) $7,500 or (y) 100 times the aggregate per share amount received by the holders of Common Stock upon such liquidation, dissolution or winding up. (i) Series 12 Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holders fractional shares to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series 12 Preferred Stock. -11- 9. Express Terms of the Series BB Preferred Stock (Express Terms are described as Adopted by Amendment on July 25, 1995) -------------------------------------------------------------- There is hereby established a series of the Serial Preferred Stock to be known as Series BB Conversion Preferred Stock to which all of the Express Terms of the Serial Preferred Stock set forth in 1 through 7 above as well as the following provisions shall be applicable: 1. Designation and Number. The designation of the series is Series BB ---------------------- Conversion Preferred Stock. The number of shares of the series, which number the Board of Directors may increase or decrease (but not below the number of shares then outstanding) is 38,772 shares. 2. Dividend Rate and Dividend Payment Dates. The annual dividend rate ---------------------------------------- of the series shall be in an amount per share equal to, but no more than, $504.00. The dividends provided above shall accrue from the date of original issue of the Series BB Preferred Stock and be payable quarterly on January 1, April 1, July 1 and October 1 of each year, commencing October 1, 1995 (each such date being referred to herein as a "Dividend Payment Date"), to holders of record as they appear on the stock records of the Corporation at the close of business on such record dates, not exceeding 60 days preceding the payment dates thereof, as shall be fixed by the Board of Directors. Dividends payable on the Series BB Preferred Stock for any period greater or less than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable on the Series BB Preferred Stock for each full dividend period will be computed by dividing the annual dividend rate by four. 3. Conversion. ---------- (a) Mandatory Conversion. Unless earlier converted at the option of -------------------- the holder in accordance with the provisions of paragraph (b), on October 1, 1998 (the "Mandatory Conversion Date"), each outstanding share of the Series BB Preferred Stock shall convert automatically (the "Automatic Conversion") into (i) shares of authorized Common Stock (the "Common Stock") at the Exchange Rate (as hereinafter defined) in effect on the Mandatory Conversion Date and (ii) the right to receive an amount in cash equal to all accrued and unpaid dividends on such share to the Mandatory Conversion Date, whether or not earned or declared, out of funds legally available therefor. The Exchange Rate is equal to (a) if the Current Market Price is greater than or equal to $94.40 per share (the "Threshold Price"), 81.965 shares of Common Stock (the "Upper Exchange Rate"), (b) if the Current Market Price is less than the Threshold Price but greater than the Initial Price, the number of shares of Common Stock having a value (determined at the Current Market Price) equal to 100 times the Initial Price (the "Middle Exchange Rate"), and (c) if the Current Market Price is less than or equal to the Initial Price, 100 shares of Common Stock (the "Lower Exchange Rate") per share of Series BB Preferred Stock, and is subject to adjustment as set forth in paragraph (c) below. Dividends on the shares of Series BB Preferred Stock shall cease to accrue and such shares of Series BB Preferred Stock shall cease to be outstanding on the Mandatory Conversion Date. The Corporation shall make such arrangements as it deems -12- appropriate for the issuance of certificates representing shares of Common Stock and for the payment of cash in respect of such accrued and unpaid dividends, if any, or cash in lieu of fractional shares, if any, in exchange for and contingent upon surrender of certificates representing the shares of Series BB Preferred Stock, and the Corporation may defer the payment of dividends on such shares of Common Stock and the voting thereof until, and make such payment and voting contingent upon, the surrender of such certificates representing the shares of Series BB Preferred Stock, provided that the Corporation shall give the holders of the shares of Series BB Preferred Stock such notice of any such actions as the Corporation deems appropriate or is legally required and upon such surrender such holders shall be entitled to receive such dividends declared and paid on such shares of Common Stock subsequent to the Mandatory Conversion Date. Amounts payable in cash in respect of the shares of Series BB Preferred Stock or in respect of such shares of Common Stock shall not bear interest. (b) Optional Conversion. Shares of Series BB Preferred Stock are ------------------- convert-ible, in whole or in part, at the option of the holders thereof ("Optional Conversion"), at any time after September 25, 1995 and prior to the Mandatory Conversion Date, into shares of Common Stock at a rate of 81.965 shares of Common Stock for each share of Series BB Preferred Stock (the "Optional Conversion Rate"), subject to adjustment as set forth below. Optional Conversion of shares of Series BB Preferred Stock may be effected by delivering certificates evidencing such shares, together with written notice of conversion and a proper assignment of such certificates to the Corporation or in blank (and, if applicable, payment of an amount equal to the dividend payable on such shares), to the office of any transfer agent for the Series BB Preferred Stock or to any other office or agency maintained by the Corporation for that purpose and otherwise in accordance with Optional Conversion procedures established by the Corporation. Each Optional Conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the foregoing requirements shall have been satisfied. The Optional Conversion shall be at the Optional Conversion Rate in effect at such time and on such date. Holders of shares of Series BB Preferred Stock at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the Optional Conversion of such shares following such record date and prior to such Dividend Payment Date. However, shares of Series BB Preferred Stock surrendered for Optional Conversion after the close of business on a dividend payment record date and before the opening of business on the next succeeding Dividend Payment Date must be accompanied by payment in cash of an amount equal to the dividend payable on such shares on such Dividend Payment Date. Except as provided above, upon any Optional Conversion of shares of Series BB Preferred Stock, the Corporation shall make no payment or allowance for unpaid Preferred Dividends, whether or not in arrears, on such shares of Series BB Preferred Stock as to which Optional Conversion has been effected or for dividends or distributions on the shares of Common Stock issued upon such Optional Conversion. -13- (c) Adjustments to the Exchange Rate and the Optional Conversion Rate. ----------------------------------------------------------------- The Exchange Rate and the Optional Conversion Rate shall each be subject to adjustment from time to time as provided below in this paragraph (c). (1) If the Corporation shall pay or make a dividend or other distribu-tion with respect to its Common Stock in shares of Common Stock (including by way of reclassification of any shares of its Common Stock), the Exchange Rate and the Optional Conversion Rate in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall each be increased by multiplying such Exchange Rate and Optional Conversion Rate by a fraction of which the numerator shall be the sum of the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the total number of shares of Common Stock constituting such dividend or other distribution, and of which the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. (2) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Exchange Rate and the Optional Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall each be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Exchange Rate and the Optional Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall each be proportionately reduced, such increases or reductions, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (3) If the Corporation shall, after the date hereof, issue rights or warrants, in each case other than the Rights, to all holders of its Common Stock entitling them (for a period not exceeding 45 days from the date of such issuance) to subscribe for or purchase shares of Common Stock at a price per share less than the Fair Market Value of the Common Stock on the record date for the determination of stockholders entitled to receive such rights or warrants, then in each case the Exchange Rate and the Optional Conversion Rate shall each be adjusted by multiplying the Exchange Rate and the Optional Conversion Rate in effect on such record date, by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus the number of additional shares of Common Stock offered for subscription or purchase pursuant to such rights or -14- warrants, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase pursuant to such rights or warrants would purchase at such Fair Market Value (determined by multiplying such total number of shares by the exercise price of such rights or warrants and dividing the product so obtained by such Fair Market Value). Shares of Common Stock owned by the Corporation or by another company of which a majority of the shares entitled to vote in the election of directors are held, directly or indirectly, by the Corporation shall not be deemed to be outstanding for purposes of such computation. Such adjustment shall become effective at the opening of business on the business day next following the record date for the determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Exchange Rate and the Optional Conversion Rate shall each be readjusted to the Exchange Rate and the Optional Conversion Rate which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of the issuance of rights or warrants in respect of only the number of shares of Common Stock actually delivered. (4) If the Corporation shall pay a dividend or make a distribution to all holders of its Common Stock consisting of evidences of its indebtedness or other assets (including shares of capital stock of the Corporation other than Common Stock but excluding any cash dividends or any dividends or other distributions referred to in clauses (i) and (ii) above), or shall issue to all holders of its Common Stock rights or warrants to subscribe for or purchase any of its securities (other than those referred to in clause (iii) above), then in each such case the Exchange Rate and the Optional Conversion Rate shall each be adjusted by multiplying the Exchange Rate and the Optional Conversion Rate in effect on the record date for such dividend or distribution or for the determination of stockholders entitled to receive such rights or warrants, as the case may be, by a fraction of which the numerator shall be the Fair Market Value per share of the Common Stock on such record date), and of which the denominator shall be such Fair Market Price per share of Common Stock less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive) as of such record date of the portion of the assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, applicable to one share of Common Stock. Such adjustment shall become effective on the opening of business on the business day next following the record date for such dividend or distribution or for the determination of stockholders entitled to receive such rights or warrants, as the case may be. -15- (5) Any shares of Common Stock issuable in payment of a dividend or other distribution shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend or other distribution for purposes of calculating the number of outstanding shares of Common Stock under subparagraph (ii) above. (6) Anything in this subsection III notwithstanding, the Corporation shall be entitled to make such upward adjustments in the Exchange Rate and the Optional Conversion Rate, in addition to those required by this subsection III as the Corporation in its sole discretion shall determine to be advisable, in order that any stock dividends, subdivision of shares, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock (or any transaction which could be treated as any of the foregoing transactions pursuant to Section 305 of the Internal Revenue Code of 1986, as amended) hereafter made by the Corporation to its stockholders shall not be taxable. (7) In any case in which this paragraph (c) shall require that an adjustment as a result of any event become effective at the opening of business on the business day next following a record date and the date fixed for conversion pursuant to paragraph (a) occurs after such record date, but before the occurrence of such event, the Corporation may in its sole discretion elect to defer the following until after the occurrence of such event: (A) issuing to the holder of any shares of Series BB Preferred Stock surrendered for conversion the additional shares of Common Stock issuable upon such conversion over the shares of Common Stock issuable before giving effect to such adjustment; and (B) paying to such holder any amount in cash in lieu of a fractional share of Common Stock pursuant to paragraph (g). (8) For purposes hereof, an "adjustment in the Exchange Rate" means, and shall be implemented by, an adjustment of the nature and amount specified, effected in the manner specified, in each of the Upper Exchange Rate, the Middle Exchange Rate and the Lower Exchange Rate. If an adjustment is made to the Exchange Rate pursuant to this paragraph (c), an adjustment shall also be made to the Current Market Price solely to determine which of clauses (a), (b) or (c) of the definition of Exchange Rate in paragraph (a) will apply on the Mandatory Conversion Date. Such adjustment shall be made by multiplying the Current Market Price by a fraction of which the numerator shall be the Exchange Rate immediately after such adjustment pursuant to paragraph (c) and the denominator shall be the Exchange Rate immediately before such adjustment. All adjustments to the Exchange Rate and the Optional Conversion Rate shall be calculated to the nearest 1/10,000th of a share of Common Stock. No adjustment in the Exchange Rate or in the Optional Conversion Rate shall be required unless such adjustment would require an increase or decrease of at least one percent in the Lower Exchange Rate; provided, however, any adjustments which by -16- reason of this subparagraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All adjustments to the Exchange Rate and the Optional Conversion Rate shall be made successively. (9) Before taking any action that would cause an adjustment increasing the Exchange Rate or the Optional Conversion Rate such that the conversion price (for purposes of this paragraph (c), an amount equal to the liquidation value per share of Series BB Preferred Stock divided by the Optional Conversion Rate, respectively, as in effect from time to time) would be below the then par value of the Common Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at the Optional Conversion Rate as so adjusted. (d) Adjustment for Certain Consolidations or Mergers. In case of any ------------------------------------------------ con-solidation or merger to which the Corporation is a party (other than a merger or consolidation in which the Corporation is the continuing corporation and in which the Common Stock outstanding immediately prior to the merger or consolidation remains unchanged), or in case of any sale or transfer to another corporation of the property of the Corporation as an entirety or substantially as an entirety, or in case of any statutory exchange of securities with another corporation (other than in connection with a merger or acquisition), proper provision shall be made so that each share of the Series BB Preferred Stock shall, after consummation of such transaction, be subject to (i) conversion at the option of the holder into the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock into which such share of the Series BB Preferred Stock might have been converted immediately prior to consummation of such transaction, and (ii) conversion on the Mandatory Conversion Date into the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock into which such share of the Series BB Preferred Stock would have been converted if the conversion on the Mandatory Conversion Date had occurred immediately prior to the date of consummation of such transaction; assuming in each case that such holder of Common Stock failed to exercise rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon consummation of such transaction (provided that if the kind or amount of securities, cash or other property receivable upon consummation of such transaction is not the same for each nonelecting share, then the kind and amount of securities, cash or other property receivable upon consummation of such transaction for each nonelecting share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares). The kind and amount of securities into which the shares of the Series BB Preferred Stock shall be convertible after consummation of such transaction shall be subject to adjustment as described in paragraph (c) following the date of consummation of such transaction. The Corporation may not become a party to any such transaction unless the terms thereof are consistent with the foregoing. -17- (e) Notice of Adjustments. Whenever the Exchange Rate and Optional --------------------- Con-version Rate are adjusted as provided in paragraph (c), the Corporation shall: (1) Forthwith compute the adjusted Exchange Rate and Optional Conversion Rate and prepare a certificate signed by the Chief Financial Officer, any Vice President, the Treasurer or the Controller of the Corporation setting forth the adjusted Exchange Rate and Optional Conversion Rate, the method of calculation thereof in reasonable detail and the facts requiring such adjustment and upon which such adjustment is based, which certificate shall be prima facie evidence of the correctness of the adjustment, and file such certificate forthwith with the Transfer Agent; (2) Make a prompt public announcement stating that the Exchange Rate and Optional Conversion Rate have been adjusted and setting forth the adjusted Exchange Rate and Optional Conversion Rate; and (3) Promptly mail a notice stating that the Exchange Rate and Optional Conversion Rate have been adjusted, the facts requiring such adjustment and upon which such adjustment is based and setting forth the adjusted Exchange Rate and Optional Conversion Rate, to the holders of record of the outstanding shares of the Series BB Preferred Stock at or prior to the time the Corporation mails an interim statement to its stockholders covering the fiscal quarter period during which the facts requiring such adjustment occurred but in any event within 45 days of the end of such fiscal quarter period. (f) Notices of Proposed Actions. In case, at any time while any of the --------------------------- shares of Series BB Preferred Stock are outstanding, (1) the Corporation shall declare a dividend (or any other distribution) on the Common Stock, (other than in cash out of profits or surplus and other than the Rights), or (2) the Corporation shall authorize the issuance to all holders of the Common Stock of rights or warrants (other than the Rights) to subscribe for or purchase shares of the Common Stock or of any other subscription rights or warrants, or (3) of any reclassification of the Common Stock (other than a Sub-division or combination thereof) or of any consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation is required (except for a merger of the Corporation into one of its subsidiaries solely for the purpose of changing the corporate domicile of the Corporation to another state of the United States and in connection with which there is no substantive change in the rights or privileges of any securities of the Corporation other than changes resulting from differences in the corporate statutes of the then existing and the new state of domicile), or -18- of the sale or transfer of all or substantially all of the assets of the Corporation, then the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of the shares of Series BB Preferred Stock, and shall cause to be mailed to the holders of shares of Series BB Preferred Stock at their last addresses as they shall appear on the stock register, as promptly as possible, but at least 15 days before the date hereinafter specified (or the earlier of the dates hereinafter specified, in the event that more than one date is specified), a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (B) the date on which any such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property (including cash), if any, deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. The failure to give or receive the notice required by this paragraph (f) or any defect therein shall not affect the legality or validity of any such dividend, distribution, right or warrant or other action. (g) No Fractional Shares. No fractional shares of Common Stock shall be -------------------- issued upon the conversion of any shares of the Series BB Preferred Stock. In lieu of any fraction of a share of Common Stock which would otherwise be issuable in respect of the aggregate number of shares of the Series BB Preferred Stock surrendered by the same holder upon Automatic Conversion or Optional Conversion, such holder shall have the right to receive an amount in cash (computed to the nearest cent) equal to the same fraction of the Closing Price of the Common Stock determined (A) as of the fifth Trading Day immediately preceding the Mandatory Conversion Date, in the case of Automatic Conversion or (B) as of the second Trading immediately preceding the effective date of conversion, in the case of an Optional Conversion by a holder. If more than one share of Series BB Preferred Stock shall be surrendered for conversion at one time by or for the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Series BB Preferred Stock so surrendered. (h) Treasury Shares. For the purposes of this subsection III, the --------------- number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Corporation but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Corporation will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Corporation. (i) Other Action. If the Corporation shall take any action affecting ------------ the Common Stock, other than action described in this subsection III, that in the opinion of the Board of Directors would materially adversely affect the conversion rights of the holders of the shares of Series BB Preferred stock, the Exchange Rate and/or the Optional Conversion Rate for the Series BB Preferred Stock may be adjusted, to the extent permitted by law, in such manner, -19- if any, and at such time, as the Board of Directors may determine to be equitable in the circumstances. (j) Conversion. The Corporation covenants that it will at all times ---------- reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued shares of Common Stock for the purpose of effecting conversion of the Series BB Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all outstanding shares of Series BB Preferred Stock not theretofore converted. For purposes of this paragraph (j), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Series BB Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single holder. The Corporation covenants that any shares of Common Stock issued upon conversion of the Series BB Preferred Stock shall be validly issued, fully paid and non-assessable. The Corporation shall endeavor to list the shares of Common Stock required to be delivered upon conversion of the Series BB Preferred Stock, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery. Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Series BB Preferred stock, the Corporation shall endeavor to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority. (k) Taxes. The Corporation will pay any and all documentary stamp or ----- similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock or other securities or property on conversion of the Series BB Preferred Stock pursuant thereto; provided, however, that the -------- ------- Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock or other securities or property in a name other than that of the holder of the Series BB Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any of such tax or established, to the reasonable satisfaction of the Corporation, that such tax has been paid. 4. Definition. For purposes of the Series BB Preferred Stock, the ---------- following terms shall have the meanings indicated: "business day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the state of New York are authorized or obligated by law or executive order to close. "Initial Price" shall mean $77.375 per share of Common Stock. -20- "Current Market Price" per share of the Common Stock shall mean the average Closing Price per share of the Common Stock of the Company on the 20 Trading Days immediately prior to, but not including, the Mandatory Conversion Date. "Closing Price" of a share of Common Stock on any date of determination shall mean the closing sale price (or, if no closing sale price is reported, the last reported sale price) of such share on the New York Stock Exchange (the "NYSE") on such date or, if the Common Stock is not listed for trading on the NYSE on any such date, as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is so listed, or if it is not so listed on a United States national or regional securities exchange, as reported by The NASDAQ Stock Market, or, if it is not so reported, the last quoted bid price for the Common Stock in the over-the-counter market as reported by the National Quotation Bureau or similar organization, or, if such bid price is not available, the market value of a share of Common Stock on such date as determined by a nationally recognized independent investment banking firm retained for this purpose by the Company. "Fair Market Value" on any day shall mean the average of the daily Closing Prices of a share of Common Stock of the Company on the five (5) consecutive Trading Days selected by the Corporation commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex" date with respect to the issuance or distribution requiring such computation. The term "'ex' date", when used with respect to any issuance or distribution, means the first day on which the Common Stock trades regular way, without the right to receive such issuance or distribution, on the exchange or in the market, as the case may be, used to determine that day's Closing Price. "Rights" shall mean the rights of the Corporation which are issuable under the Corporation's Stockholder Rights Plan adopted on February 10, 1988 and as amended from time to time, or rights to purchase any capital stock of the Corporation under any successor shareholder rights plan or plan adopted in replacement of the Corporation's Stockholder Rights Plan. "Trading Day" shall mean a day on which the Common Stock (a) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (b) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of such security. "Transfer Agent" means National City Bank or such other agent or agents of the Corporation as may be designated by the Board of Directors as the transfer agent for the Series BB Preferred Stock. 5. Liquidation, etc.. Upon the liquidation, dissolution or winding up ----------------- of the Corporation, whether voluntary or involuntary, the holders of the shares of this Series BB Preferred Stock shall be entitled to receive an amount equal to $77.375 per share, plus accrued and unpaid dividends thereon (whether or not earned or declared) at the date of final distribution to such holders. -21- 6. Issuance of Fractional Shares. Series BB Preferred Stock may be ----------------------------- issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series BB Preferred Stock. Division B Express Terms of the Common Stock The Common Stock shall be subject to the express terms of the Serial Preferred Stock. Each share of Common Stock shall be equal to every other share of Common Stock. The holders of shares of Common Stock shall be entitled to one vote for each share of such stock upon all matters presented to the shareholders. FIFTH: No holders of any class of shares of the Corporation shall have any preemptive right to purchase or have offered to them for purchase any shares or other securities of the Corporation. SIXTH: The Corporation may from time to time, pursuant to authorization by the Board of Directors and without action by the shareholders, purchase or otherwise acquire shares of the Corporation of any class or classes in such manner, upon such terms and in such amounts as the Board of Directors shall determine; subject, however, to such limitation or restriction, if any, as is contained in the express terms of any class of shares of the Corporation outstanding at the time of the purchase or acquisition in question. SEVENTH: A director or officer of the Corporation shall not be disqualified by his office from dealing or contracting with the Corporation as a vendor, purchaser, employee, agent or otherwise; nor shall any transaction, contract or other act of the Corporation be void or voidable or in any way affected or invalidated by reason of the fact that any director or officer, or any firm in which such director or officer is a member, or any corporation of which such director or officer is a member, or any corporation of which such director or officer is a shareholder, director or officer, is in any way interested in such transaction, contract or other act, provided the fact that such director, officer, firm or corporation is so interested shall be disclosed or shall be known to the Board of Directors or such members thereof as shall be present at any meeting of the Board of Directors at which action upon any such transaction, contract or other act shall be taken; nor shall any such director or officer be accountable or responsible to the Corporation for or in respect of any such transaction, contract or other act of the Corporation or for any gains or profits realized by him by reason of the fact that he or any firm of which he is a member or any corporation of which he is a shareholder, director or officer is interested in such transaction, contract or other act; and any such director may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the Corporation which shall authorize or take action in respect of any such transaction, contract or other act, and may vote thereat to authorize, ratify or approve any such transaction, contract or other act with like force and effect as if he or any firm of which he is a member or any corporation of which he is a shareholder, director or officer were not interested in such transaction, contract or other act. -22- EIGHTH: Notwithstanding any provision of the Ohio Revised Code now or hereafter in force requiring for any purpose the vote, consent, waiver or release of the holders of shares entitling them to exercise two-thirds, or any other proportion, of the voting power of the Corporation or of any class or classes of shares thereof, such action, unless otherwise expressly required by statute or by these Articles, may be taken by the vote, consent, waiver or release of the holders of shares entitling them to exercise a majority of the voting power of the Corporation or of such class or classes. NINTH: No shareholder of the Corporation may cumulate such shareholder's voting power in the election of directors of the Corporation. TENTH: Any and every statute of the State of Ohio hereafter enacted, whereby the rights, powers or privileges of corporations or of the shareholders of corporations organized under the laws of the State of Ohio are increased or diminished or in any way affected, or whereby effect is given to the action taken by any number, less than all, of the shareholders of any such corporation, shall apply to the Corporation and shall be binding not only upon the Corporation but upon every shareholder of the Corporation to the same extent as if such statute had been in force at the date of filing these Amended and Restated Articles of Incorporation of the Corporation in the office of the Secretary of the State of Ohio. ELEVENTH: These Amended and Restated Articles of Incorporation shall supersede and take the place of the heretofore existing Amended Articles of Incorporation as amended of the Corporation. -23- EX-4.2 3 CREDIT AGREEMENT, DATED AUGUST 30, 1996 ================================================================================ Exhibit 4.2 CREDIT AGREEMENT AMONG ALCO STANDARD CORPORATION, CERTAIN OF ITS SUBSIDIARIES, VARIOUS BANKS AND DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT __________________________________ Dated as of August 30, 1996 __________________________________ ================================================================================ TABLE OF CONTENTS -----------------
Page ---- SECTION 1. Definitions and Accounting Terms...................................... 1 1.01 Defined Terms......................................................... 1 SECTION 2. Amount and Terms of Credit............................................ 11 2.01 The Commitments....................................................... 11 2.02 Minimum Amount of Each Borrowing...................................... 11 2.03 Notice of Borrowing................................................... 11 2.04 Disbursement of Funds................................................. 12 2.05 Notes................................................................. 13 2.06 Pro Rata Borrowings................................................... 13 2.07 Interest.............................................................. 14 2.08 Interest Periods; Terms............................................... 14 2.09 Increased Costs, Illegality, etc...................................... 16 2.10 Compensation.......................................................... 18 2.11 Change of Lending Office.............................................. 19 2.12 Replacement of Banks.................................................. 19 SECTION 3. Fees; Reductions of Commitment........................................ 20 3.01 Fees.................................................................. 20 3.02 Voluntary Termination or Reduction of Unutilized Commitments.......... 21 3.03 Mandatory Reduction of Commitments.................................... 21 SECTION 4. Prepayments; Payments; Taxes.......................................... 21 4.01 Voluntary Prepayments................................................. 21 4.02 Mandatory Repayments and Commitment Reductions................................................. 21 4.03 Method and Place of Payment........................................... 23 4.04 Net Payments.......................................................... 23 SECTION 5. Conditions Precedent to Loans......................................... 24 5.01 Opinion of Counsel.................................................... 24 5.02 Corporate Documents................................................... 24 5.03 Adverse Change, etc................................................... 24 5.04 Litigation............................................................ 25 5.05 Fees, etc............................................................. 25 5.06 Borrowing Subsidiaries................................................ 25 SECTION 6. Conditions Precedent to All Credit Events............................. 25 6.01 No Default; Representations and Warranties............................ 25 6.02 Notice of Borrowing................................................... 26 SECTION 7. Representations, Warranties and Agreements............................ 26 7.01 Organization and Good Standing........................................ 26 7.02 Corporate Power and Authority......................................... 27 7.03 Validity of Agreement and Notes....................................... 27 7.04 Litigation............................................................ 27 7.05 Financial Statements.................................................. 27 7.06 ERISA................................................................. 28 7.07 Regulations G, T, U and X............................................. 28 7.08 Compliance with Laws.................................................. 29 7.09 Taxes and Assessments................................................. 29 7.10 Investment Company; Public Utility Company............................ 29 7.11 Environmental Matters................................................. 29 7.12 Liens................................................................. 30 7.13 Disclosure Generally.................................................. 30 7.14 Ownership of Borrowing Subsidiaries................................... 30 SECTION 8. Covenants............................................................. 30 8.01 Financial Statements and Information.................................. 30 8.02 Funded Debt to Capitalization......................................... 32 8.03 Subsidiaries' Debt.................................................... 32 8.04 Sale of Assets........................................................ 32 8.05 Mergers and Acquisitions.............................................. 33 8.06 Negative Pledge....................................................... 33 8.07 Sale, Discount of Receivables; Sale, Leaseback Transactions........... 34 8.08 Regulations G, T, U and X............................................. 35 8.09 Corporate Existence................................................... 35 8.10 Books and Records..................................................... 35 8.11 Insurance............................................................. 35 8.12 Litigation; Event of Default.......................................... 35 8.13 Taxes................................................................. 35 8.14 Compliance with Laws.................................................. 36 8.15 Employee Benefit Plans................................................ 36 8.16 Continued Ownership of each Borrowing Subsidiary...................... 36
SECTION 9. Events of Default and Acceleration.................................... 37 9.01 Events of Default..................................................... 37 9.02 Acceleration by Reason of Default..................................... 39 SECTION 10. The Agent............................................................. 39 10.01 Appointment........................................................... 39 10.02 Nature of Duties...................................................... 40 10.03 Lack of Reliance on the Agent......................................... 40 10.04 Certain Rights of the Agent........................................... 40 10.05 Reliance.............................................................. 41 10.06 Indemnification....................................................... 41 10.07 The Agent in its Individual Capacity.................................. 41 10.08 Holders............................................................... 41 10.09 Resignation by the Agent.............................................. 42 SECTION 11. Guaranty.............................................................. 42 11.01 The Guaranty.......................................................... 42 11.02 Bankruptcy............................................................ 43 11.03 Nature of Liability................................................... 43 11.04 Independent Obligation................................................ 43 11.05 Subordination......................................................... 43 11.06 Waiver................................................................ 44 11.07 Banks' Rights......................................................... 44 11.08 Guaranty Absolute..................................................... 45 11.09 Guaranty Continuing................................................... 45 11.10 Binding Nature of Guaranty............................................ 45 11.11 Limitation on Enforcement............................................. 45 SECTION 12. Miscellaneous......................................................... 46 12.01 Payment of Expenses, etc.............................................. 46 12.02 Right of Setoff....................................................... 47 12.03 Notices............................................................... 47 12.04 Benefit of Agreement.................................................. 47 12.05 No Waiver; Remedies Cumulative........................................ 49 12.06 Payments Pro Rata..................................................... 49 12.07 Calculations; Computations............................................ 49 12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL.................................................. 50 12.09 Counterparts.......................................................... 51 12.10 Effectiveness......................................................... 51 12.11 Headings Descriptive.................................................. 51 12.12 Amendment or Waiver; etc.............................................. 51 12.13 Survival.............................................................. 52 12.14 Domicile of Loans..................................................... 52 12.15 Judgment Currency..................................................... 53
SCHEDULE I Commitments SCHEDULE II Schedule of Litigation SCHEDULE III Schedule of Liens EXHIBIT A Notice of Borrowing EXHIBIT B Form of Company Note EXHIBIT C Form of Borrower Subsidiary Note EXHIBIT D Form of Opinion of Company Counsel EXHIBIT E Form of Secretary's Certificate EXHIBIT F Form of Borrowing Subsidiary Agreement EXHIBIT G Form of Assignment and Assumption Agreement CREDIT AGREEMENT, dated as of August 30, 1996, among ALCO STANDARD CORPORATION, an Ohio corporation (the "Company"), certain subsidiaries of the Company, DEUTSCHE BANK AG, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH and the various lending institutions as are or may become parties from time to time hereto (each, a "Bank" and collectively, the "Banks") and DEUTSCHE BANK AG, acting through its New York Branch, as agent for the Banks under this Agreement (the "Agent"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, subject to the terms and conditions set forth herein, the Banks are willing to make available to the Borrowers the respective credit facilities provided for herein; NOW, THEREFORE, IT IS AGREED: SECTION 1. Definitions and Accounting Terms. -------------------------------- 1.01 Defined Terms. As used in this Agreement, the following terms ------------- shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Affiliate" shall mean, with respect to any Person, any other Person (other than an individual) directly or indirectly controlling (including, but not limited to, all directors and officers of such Person), controlled by, or under direct or indirect common control with, such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" shall have the meaning set forth in the first paragraph of this Agreement, and shall include any successor to the Agent appointed pursuant to Section 10.09. "Agreement" shall mean this Credit Agreement, as modified, supplemented or amended from time to time. "Bank" shall have the meaning provided in the first paragraph of this Agreement, as well as any Person which becomes a "Bank" hereunder pursuant to 12.04(b). "Bank Default" shall mean (i) the refusal (which has not been retracted) of a Bank to make available its portion of any Borrowing or (ii) a Bank having notified in writing a Borrower and/or the Agent that it does not intend to comply with its obligations under Sections 2.01 or 2.04. "Bankruptcy Code" shall mean Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto, or any similar Federal, state or foreign law for the relief of debtors. "Borrower" shall mean the Company and any Borrowing Subsidiary. "Borrowing" shall mean a borrowing hereunder consisting of Loans made to the Borrower by the Banks on any Borrowing Date. "Borrowing Date" shall mean the date on which a borrowing of Loans here under occurs. "Borrowing Subsidiary" shall mean each Subsidiary of the Company accept able to the Agent that has executed a Borrowing Subsidiary Agreement. "Borrowing Subsidiary Agreement" shall mean that agreement executed pur suant to Section 5.06 substantially in the form of Exhibit F hereto. "Business Day" shall mean (i) for all purposes other than as covered by clauses (ii) and (iii) below, any day except Saturday, Sunday and any day which shall be in New York a legal holiday or a day on which banking institutions are authorized or required by law or other government action to close, (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, any U.S. Dollar Loan, any day which is a Business Day described in clause (i) above and which is also a day for trading by and between banks in U.S. Dollar deposits in the London inter bank Eurodollar market and (iii) with respect to all notices and determinations in connection with, and payments of principal and interest on, any Loan the Loan Currency of which is not the U.S. Dollar, any day which is a Business Day described in clause (i) above and which is also (x) any day except a day which, in the primary trading market for the Loan Currency, shall be a legal holiday or a day on which banking institutions are authorized by law or other government action to close and (y) a day for trading by and between banks in Loan Currency deposits in the interbank market. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., as the same -- ---- may be amended from time to time. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time and the regulations promulgated and the rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement, and to any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor. "Commitment" shall mean, with respect to any Bank at any time, the amount set forth opposite such Bank's name in Schedule I hereto under the caption "Commitment," as such Schedule may be amended from time to time pursuant to Section 12.04(b) or reduced pursuant to Section 3.02, 3.03, 4.02 or 9.01. "Consolidated Net Worth" shall mean, at any time, all amounts which would be included under shareholders' equity on a consolidated balance sheet of the Company and its Consolidated Subsidiaries at such time, determined on a consolidated basis in accordance with GAAP. "Consolidated Subsidiaries" shall mean, as to any Person, all Subsidiaries of such Person which are consolidated with such Person for financial reporting purposes in accordance with generally accepted accounting principles in the United States. "Contingent Liabilities" shall mean letters of credit (excluding commercial documentary letters of credit), unconditional guaranties to banks or other lenders of indebtedness of another person or entity, and liabilities associated with interest rate hedging agreements, provided, however, that -------- ------- Contingent Liabilities shall not be deemed to include any recorded liability provided for on the Company's consolidated balance sheet. "Credit Documents" shall mean this Agreement and, after the execution and delivery thereof pursuant to the terms of this Agreement, each Note and each Borrowing Subsidiary Agreement. "Credit Event" shall mean the making of any Loan. "Debt" shall mean (i) Funded Debt and (ii) any portions of notes payable and capital lease obligations which are classified as current liabilities. "DBNY" shall mean Deutsche Bank AG, New York Branch. ---------------------------------------------------- "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Bank" shall mean any Bank with respect to which a Bank Default is in effect. "Effective Date" shall have the meaning provided in Section 12.10. "Eligible Transferee" shall mean and include any commercial bank, financial institution or other "accredited investor" (as defined in Regulation D of the Securities Act). "Employment Benefit Plan" shall have the meaning provided in Section 7.06. "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, directives, claims, liens, notices of non compliance or violation, investigations or proceedings relating in any way to any Environmental Law or any permit issued, or any approval given, under any such Environmental Law (hereafter, "Claims"), including, without limitation, (a) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief in connection with alleged injury or threat of injury to health, safety or the environment due to the presence of Hazardous Materials. "Environmental Law" means any applicable Federal, state, foreign or local statute, law, rule, regulation, ordinance, code, guideline, legally binding written policy and rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, employee health and safety or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. (S) -- ---- 2601 et seq.; the Clean Air Act, 42 U.S.C. (S) 7401 et seq.; the Safe Drinking -- ---- -- ---- Water Act, 42 U.S.C. (S) 3803 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. -- ---- (S) 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of -- ---- 1986, 42 U.S.C. (S) 11001 et seq., the Hazardous Material Transportation Act, 49 -- ---- U.S.C. (S) 1801 et seq. and the Occupational Safety and Health Act, 29 U.S.C. -- ---- (S) 651 et seq.; and any state and local or foreign counterparts or equivalents, -- ---- in each case as amended from time to time. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued there under. Section references to ERISA are to ERISA, as in effect at the date of this Agreement, and to any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Affiliate" shall have the meaning provided in Section 7.06. "Eurocurrency Loan" shall mean each Loan designated as such by the applicable Borrower at the time of the incurrence thereof. "Eurocurrency Rate" shall mean, with respect to any Eurocurrency Loan, the sum of (a) the LIBOR Rate for such Loan and (b) 0.20%. "Event of Default" shall have the meaning provided in Section 9. "Facility Fee" shall have the meaning set forth in Section 3.01(a) hereof. "Federal Funds Rate" shall mean for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rates are not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent on such day from three federal funds brokers of recognized standing selected by the Agent. "Fees" shall mean all amounts payable pursuant to or referred to in Section 3.01. "Finance Leasing Subsidiaries" shall mean IKON Capital, Inc., a Delaware corporation, IKON Capital Inc., a Canadian corporation, and IKON Capital, PLC, an English company, and their respective successor corporations, and such additional Subsidiaries whose primary business is the leasing of products distributed by the Company and its Subsidiaries. "Funded Debt" shall mean any obligation payable more than one year from the date of the creation thereof which under GAAP is shown on the consolidated balance sheet as a liability (excluding reserves for deferred income taxes and other reserves to the extent that such reserves do not constitute obligations for borrowed money) and including, without limitation, the portion of any such obligation properly classified as a current liability and capitalized leases. "Funds Rate" shall mean the rate at which the Agent, in its sole discretion, can acquire the applicable Loan Currency in the primary trading market for such Loan Currency from such funding sources as the Agent in its sole discretion may deem appropriate, through brokers of recognized standing, for a period and in an amount comparable to the period and amount for which interest is being calculated, provided that for loans in U.S. Dollars, the Funds Rate will be the Federal Funds Rate. "GAAP" shall have the meaning provided in Section 12.07. "Hazardous Materials" means (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formal dehyde foam insulation, transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls, and radon gas; (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous waste," "hazardous materials," "extremely hazardous substances," "restricted hazardous waste," "toxic substances," "toxic pollutants," "contaminants," or "pollutants," or words of similar import, under any Environmental Law; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority. "Indebtedness" shall mean, as to any Person, without duplication, (i) all indebtedness (including principal, interest, fees and charges) of such Person for borrowed money or for the deferred purchase price of property or services, (ii) the maximum amount available to be drawn under all letters of credit issued for the account of such Person and all unpaid drawings in respect of such letters of credit, (iii) all Indebtedness of the types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition secured by any Lien on any property owned by such Person, whether or not such Indebtedness has been assumed by such Person, (iv) the aggregate amount required to be capitalized under leases under which such Person is the lessee, (v) all obligations of such person to pay a specified pur chase price for goods or services, whether or not delivered or accepted, i.e., take-or-pay and similar ---- obligations, (vi) all obligations of such Person guaranteeing or intending to guarantee any Indebtedness of the types described in clause (i) of this definition and (vii) all amounts payable by such Person under any Interest Rate Protection Agreement or Other Hedging Agreement or under any similar type of agreement. "Initial Borrowing Date" shall mean, with respect to any Borrower, the date occurring on or after the Effective Date on which the initial borrowing of Loans by such Borrower hereunder occurs. "Interest Determination Date" shall mean, with respect to any Eurocurrency Loan, the second Business Day prior to the commencement of the Interest Period for such Loan. "Interest Period" shall have the meaning provided in Section 2.08. "Interest Rate Protection Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest collar agreement, interest rate hedging agreement or other similar agreement or arrangement. "Judgment Currency" shall have the meaning provided in Section 12.15. "Leaseholds" of any Person means all the right, title and interest ------------------------------------------------------------------ of such Person as lessee or licensee in, to and under leases or licenses of - --------------------------------------------------------------------------- land, improvements and/or fixtures. - ----------------------------------- "LIBOR Rate" shall mean, with respect to the Interest Period for any Eurocurrency Loan in any Loan Currency, the rate of interest per annum that the Agent would offer to major banks in the London interbank market for deposits in such Loan Currency for such Interest Period and in an amount approximately equal to the amount of such Loan at or about 11:00 a.m. (New York time) on the second Business Day prior to the commencement of such Interest Period. "Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the UCC or any other similar recording or notice statute, and any lease having substantially the same effect as any of the foregoing). "Loan" shall mean an extension of credit by the Banks to a Borrower under Section 2, and may be a Quoted Rate Loan or a Eurocurrency Loan (each a "Type" of Loan). "Loan Currency" shall mean the currency acceptable to the Agent in which any applicable Loan is made. "Majority Banks" shall mean the Banks whose Commitments under this Agreement aggregate greater than 50% of the Total Commitments. "Material Adverse Effect" shall mean, with respect to any Borrower, a material adverse effect on the business, properties, assets, liabilities, condition (financial or otherwise) or prospects of such Borrower or such Borrower and its Subsidiaries taken as a whole. "Maturity Date" shall mean August 30, 1999. "Minimum Borrowing Amount" shall mean U.S. $500,000 or the U.S. Dollar Equivalent of such amount in the Loan Currency. "Multiemployer Plan" shall have the meaning provided in Section 7.06. "Note" shall mean each of the notes executed pursuant to Section 2.05 hereof. "Notice of Borrowing" shall mean each telephonic notice of borrowing given pursuant to Section 2.03(a) and each written notice of borrowing given pursuant to Section 2.03(b). "Notice Office" shall mean the office of the Agent located at 31 West 52nd Street, New York, New York 10019, Attention: Syndications Department, or such other office as the Agent may hereafter designate in writing as such to the other parties hereto. "Obligations" shall mean all amounts owing to the Banks pursuant to the terms of this Agreement or any other Credit Document. "Other Hedging Agreement" shall mean any foreign exchange contracts, currency swap agreements or other similar agreements or arrangements designed to protect against the fluctuations in currency values. "Payment Office" shall mean the office of the Agent located at 31 West 52nd Street, New York, New York 10019 or such other office as the Agent may hereafter designate in writing as such to the other parties hereto. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto. "Pension Plan" shall have the meaning provided in Section 7.06. "Person" shall mean any individual, partnership, joint venture, firm, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "Prime Lending Rate" shall mean the rate which the Agent announces from time to time as its prime lending rate in the applicable Loan Currency, the Prime Lending Rate to change when and as such prime lending rate changes. Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Agent may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate. "Quoted Rate" shall mean the rate at which the Agent, in its sole discretion, offers to lend to the applicable Borrower the applicable Loan Currency in the amount and for such period such Borrower selects pursuant to Sections 2.03 hereof, provided that, the Quoted Rate for Loans denominated in U.S. Dollars shall mean the Prime Lending Rate. "Quoted Rate Loan" shall mean each loan designated as such by the applicable Borrower at the time of the incurrence thereof. "Quarterly Payment Date" shall mean the last Business Day of each March, June, September and December occurring after the Effective Date. "RCRA" shall mean the Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., as the same may be amended from time to time. -- ---- "Real Property" of any Person shall mean all the right, title and interest of such Person in and to land, improvements and fixtures, including Leaseholds. "Recomputation Date" shall have the meaning provided in Section 4.02(a). "Regulation D" shall mean Regulation D of the Board of Governors ---------------------------------------------------------------- of the Federal Reserve System as from time to time in effect and any successor - ------------------------------------------------------------------------------ to all or a portion thereof establishing reserve requirements. - -------------------------------------------------------------- "Regulation G" shall mean Regulation G of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Regulation T" shall mean Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Regulation X" shall mean Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Required Banks" shall mean non-Defaulting Banks, the sum of whose Commitments represent an amount equal to or greater than 66-2/3% of the sum of the Total Commitments. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Securitization" means the transfer or pledge of assets or interests in assets to a trust, partnership, corporation or other entity, which transfer or pledge is funded by such entity in whole or in part by the issuance of instruments or securities that are paid principally from the cash flow derived from such assets or interests in assets. "Significant Subsidiary" shall mean a Subsidiary which is a "significant subsidiary" as defined in Section 210.1-02(v) of Regulation S-X of the Securities and Exchange Commission, 17 C.F.R. Part 210, as in effect on the date hereof. "Subsidiary" shall mean, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. "Taxes" shall have the meaning provided in Section 4.04(a). "Total Commitments" shall mean the aggregate of all of the Commitments of all of the Banks. "Type" shall have the meaning specified in the definition of "Loan". "UCC" shall mean the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction. "Unfunded Pension Liabilities" shall have the meaning provided in Section 7.06. "United States" and "U.S." shall each mean the United States of America. "Unrecognized Retiree Welfare Liability" shall have the meaning provided in Section 7.06. "Unutilized Loan Commitment", with respect to any Bank, at any time shall mean such Bank's Commitment at such time less the U.S. Dollar Equivalent of the aggregate outstanding principal amount of Loans made by the Bank under this Agreement. "U.S. Dollar" or "U.S.$" shall mean freely transferable lawful money of the United States. "U.S. Dollar Equivalent" of any amount of any currency on any date shall mean the equivalent amount in U.S. Dollars, after giving effect to a conversion of such amount of such currency to U.S. Dollars at the buy spot rate quoted for wholesale transactions by DBNY at approximately 11:00 A.M. (New York time) on such date in accordance with its normal practice. SECTION 2. Amount and Terms of Credit. -------------------------- 2.01 The Commitments. Subject to and upon the terms and conditions --------------- set forth herein, each Bank severally agrees, at any time and from time to time on and after the Effective Date and prior to the Maturity Date, to make a Loan or Loans to each Borrower, which Loans (a) shall at the option of the Borrower be Quoted Rate Loans or Eurocurrency Loans, (b) shall bear interest (i) in the case of Eurocurrency Loans at the Eurocurrency Rate and (ii) in the case of Quoted Rate Loans at the Quoted Rate, (c) shall be denominated in the applicable Loan Currency and (d) may be repaid and reborrowed in accordance with the provisions hereof. In no event shall a Bank be obligated to make a Loan hereunder on any Borrowing Date if, on such Borrowing Date after giving effect thereto, (A) the U.S. Dollar Equivalent of such Bank's Loans outstanding on such Borrowing Date would exceed its Commitment or (B) the U.S. Dollar Equivalent of the aggregate Loans outstanding on such Borrowing Date would exceed the Total Commitments. 2.02 Minimum Amount of Each Borrowing. The aggregate principal amount -------------------------------- of each Borrowing shall (a) not be less than the Minimum Borrowing Amount and (b) be in round lot currency multiples reasonably acceptable to the Agent. 2.03 Notice of Borrowing. (a) Whenever a Borrower desires to make a ------------------- Borrowing hereunder, it shall give the Agent at its Notice Office by telephone a Notice of Borrowing (i) in the case of a Quoted Rate Loan not later than 10:00 a.m. (New York time) on the day before such Loan is to be made and (ii) in the case of a Eurocurrency Loan at least three Business Days prior to the proposed date of Borrowing, which shall be a Business Day; provided that any such Notice -------- of Borrowing in respect of a Borrowing shall be deemed to have been given on a certain day only if given before 12:00 noon (New York time) on such day. Each such Notice of Borrowing, except as otherwise expressly provided in Section 2.09, shall be irrevocable and shall specify the Type of Loan to be made pursuant to such Borrowing, the aggregate principal amount of such Loan, the date of such Borrowing (which shall be a Business Day), the Loan Currency and, in the case of a Eurocurrency Loan, the duration of the Interest Period applicable thereto and, in the case of a Quoted Rate Loan, the term of such Loan. The Agent shall promptly give each Bank notice of such proposed Borrowing, of such Bank's proportionate share thereof, and of the other matters required by the immediately preceding sentence to be specified in the Notice of Borrowing. (b) Notwithstanding anything to the contrary provided in Section 2.03(a), the Agent may, at any time, request a Borrower to promptly confirm in writing any tele phonic notice given by such Borrower pursuant to Section 2.03(a). Each such confirmation shall be irrevocable and shall be given by such Borrower in the form of Exhibit A hereto appropriately completed to specify the same information required pursuant to Section 2.03(a). (c) Without in any way limiting the obligation of a Borrower to confirm in writing any telephonic notice permitted to be given hereunder following a request by the Agent pursuant to Section 2.03(b), the Agent may act without liability upon the basis of a telephonic Notice of Borrowing, believed by the Agent in good faith to be from the chair man, the president, the vice president/finance, the treasurer, any assistant treasurer or the controller of such Borrower (or any other officer of such Borrower designated in writing to the Agent by the chairman, the president, the vice president/finance or the controller as being authorized to give such a Notice of Borrowing under this Agreement) prior to receipt of written confirmation. In each such case, such Borrower hereby waives the right to dispute the Agent's record of the terms of such telephonic Notice of Borrowing absent manifest error. 2.04 Disbursement of Funds. No later than 12:00 noon (New York time) --------------------- on the date specified in each Notice of Borrowing, each Bank will make available its pro rata portion of each such Borrowing requested to be made on such date. --- ---- Each Bank shall make its pro rata portion of each such Borrowing available in --- ---- the Loan Currency and in immediately available funds at the Payment Office of the Agent, and the Agent will make available to the applicable Borrower at the Payment Office the aggregate of the amounts so made available by the Banks. Unless the Agent shall have been notified by any Bank prior to the date of Borrowing that such Bank does not intend to make available to the Agent such Bank's pro rata portion of any Borrowing to be made on such date, the Agent may --- ---- assume that such Bank has made such amount available to the Agent on such date of Borrowing and the Agent may, in reliance upon such assumption, make available to such Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent by such Bank, the Agent shall be entitled to recover such corresponding amount on demand from such Bank. If such Bank does not pay such corresponding amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the applicable Borrower, and such Borrower shall immediately pay such corresponding amount to the Agent. The Agent shall also be entitled to recover on demand from such Bank or such Bor rower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent to the applicable Borrower until the date such corresponding amount is recovered by the Agent, at a rate per annum equal to (i) if recovered from such Bank, the overnight Funds Rate and (ii) if recovered from such Borrower, the rate of interest applicable to the respective Borrowing, as determined pursuant to Section 2.07 (it being understood that if such Borrower pays such interest to the Agent, no interest on such amount shall be payable by such Borrower to the respective Bank). Nothing in this Section 2.04 shall be deemed to relieve any Bank from its obligation to make Loans hereunder or to prejudice any rights which any Borrower may have against any Bank as a result of any failure by such Bank to make Loans hereunder. 2.05 Notes. (a) Each Borrower's obligation to pay the principal of, ----- and interest on, the Loans made by a Bank to such Borrower shall be evidenced by a promissory note duly executed and delivered by such Borrower substantially in the form of Exhibit B hereto, in the case of the Company, and Exhibit C hereto, in the case of a Borrowing Subsidiary, with blanks appropriately completed in conformity herewith (each a "Note" and, collectively, the "Notes"). (b) Each Note issued to each Bank shall (i) be executed by the applicable Borrower, (ii) be payable to the order of such Bank and be dated the Effective Date, in the case of the Company, and the Initial Borrowing Date, in the case of a Borrowing Subsidiary, (iii) be in a stated principal amount equal to the amount of the applicable Loan, (iv) mature on the Maturity Date, (v) bear interest as provided in the appropriate clause of Section 2.07, (vi) be subject to voluntary prepayment as provided in Section 4.01, and mandatory repayment as provided in Section 4.02, and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (c) Each Bank will note on its internal records and on each Note the amount of each Loan made by it and each payment in respect thereof. Failure to make any such notation shall not, however, affect the Borrower's or the Company's obligations in respect of any Loan. 2.06 Pro Rata Borrowings. All Borrowings of Loans under this ------------------- Agreement shall be incurred from the Banks pro rata on the basis of their --- ---- Commitments. It is understood that no Bank shall be responsible for any default by any other Bank of its obligation to make Loans hereunder and that each Bank shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Bank to make its Loans hereunder. 2.07 Interest. (a) Each Borrower shall pay interest in respect of -------- the unpaid principal amount of each Quoted Rate Loan to such Borrower from the date the proceeds thereof are made available to such Borrower until the maturity thereof (whether by acceleration or otherwise) at a rate per annum equal to the Quoted Rate in effect from time to time. Each Borrower shall pay interest in respect of the unpaid principal amount of each Eurocurrency Loan from the date the proceeds thereof are made available to such Borrower until the maturity thereof (whether by acceleration or otherwise) at a rate per annum equal to the Eurocurrency Rate. (b) Overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan and any other overdue amount payable hereunder shall, in each case, bear interest at a rate per annum equal to the rate which is 2% in excess of the rate of interest then borne by such Loans, in each case with such interest to be payable on demand. (c) Accrued (and theretofore unpaid) interest shall be payable (i) in respect of each Quoted Rate Loan, on the date of any prepayment or repayment thereof (on the amount prepaid or repaid) and monthly in arrears on each monthly anniversary of the date such Quoted Rate Loan was advanced, and (ii) in respect of each Eurocurrency Loan, on the date of any prepayment or repayment thereof (on the amount prepaid or repaid), on the last day of the Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period. (d) On the Interest Determination Date in respect of each Eurocurrency Loan, the Agent shall determine the LIBOR Rate for the Interest Period for such Loan and shall promptly notify the applicable Borrower and the Banks thereof. Each such determination shall, absent manifest error, be final and conclusive and binding on all parties hereto. 2.08 Interest Periods; Terms. (a) At the time it gives any Notice of ---- ----------------------- Borrowing in respect of any Eurocurrency Loan, the Borrower shall have the right to elect, by giving the Agent written notice thereof, the interest period (each, an "Interest Period") applicable to such Eurocurrency Loan, which Interest Period shall, at the option of the Borrower, be a one, two, three, six or twelve-month period, provided that with respect to any such Loan: -------- (i) if the Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall, subject to clause (iv) below, end on the last Business Day of such calendar month; (ii) if the Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, however, that if the Interest Period -------- ------- would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iii) no Interest Period may be selected at any time when a Default or Event of Default is then in existence; (iv) no Interest Period shall be selected which extends beyond the Maturity Date; and (v) no Interest Period shall be selected which extends beyond any date upon which a mandatory repayment of such Loan will be required to be made under Section 4.02(b) if the aggregate principal amount of Loans which have Interest Periods or terms which will expire after such date will be in excess of the aggregate principal amount of Loans then outstanding less the aggregate amount of such required prepayment. (b) At the time it gives any Notice of Borrowing in respect of any Quoted Rate Loan, the Borrower shall have the right to elect, by giving the Agent written notice thereof, the term applicable to such Quoted Rate Loan, provided -------- that with respect to any such Loan: (i) if the term of such Quoted Rate Loan would otherwise expire on a day which is not a Business Day, such term shall expire on the next succeeding Business Day; (ii) no term may be selected at any time when a Default or Event of Default is then in existence; (iii) no term shall be selected which extends beyond the Maturity Date; and (iv) no term shall be selected which extends beyond any date upon which a mandatory repayment of such Loan will be required to be made under Section 4.02(b) if the aggregate principal amount of Loans which have Interest Periods or terms which will expire after such date will be in excess of the aggregate principal amount of Loans then outstanding less the aggregate amount of such required prepayment. 2.09 Increased Costs, Illegality, etc. (a) In the event that any --------------------------------- Bank shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto but, with respect to clause (i) below, may be made only by the Agent): (i) on the Interest Determination Date in respect of any Loan that, by reason of any changes arising after the date of this Agreement affecting the inter bank Eurodollar market or the applicable Loan Currency, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of LIBOR Rate; or (ii) at any time, that such Bank shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Loan because of (x) any change since the date of this Agreement in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) or in the interpretation or administration thereof and including the enactment of any new law or governmental rule, regulation, order, guideline or request, such as, for example, but not limited to (A) a change in the basis of taxation of payments to any Bank of the principal of or interest on the Notes or any other amounts payable hereunder (except for changes in the rate of tax on, or deter mined by reference to, the net income or profits of such Bank, or any franchise tax based on the net income or profits of such Bank, in either case pursuant to the laws of the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein), but without duplication of any amounts payable in respect of Taxes pursuant to Section 4.04(a); or (B) a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent covered by Section 2.09(c) and/or (y) other circumstances since the date of this Agreement affecting such Bank or the interbank Eurodollar market or the applicable eurocurrency market or the position of such Bank in such market; or (iii) at any time, that the making or continuance of any Loan has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by such Bank with any governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the interbank Eurodollar market or the applicable eurocurrency market; then, and in any such event, such Bank (or the Agent, in the case of clause (i) above) shall promptly give notice (by telephone confirmed in writing) to the applicable Borrower and, except in the case of clause (i) above, to the Agent, of such determination (which notice the Agent shall promptly transmit to each of the other Banks). Thereafter (x) in the case of clause (i) above, the affected Loans shall no longer be available until such time as the Agent notifies such Borrower and the Banks that the circumstances giving rise to such notice by the Agent no longer exist, and any Notice of Borrowing given by such Borrower with respect to such Loans which have not yet been incurred shall be deemed rescinded by such Borrower, (y) in the case of clause (ii) above, such Borrower shall pay to such Bank, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its sole discretion shall determine) as shall be required to compensate such Bank for such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to such Bank, showing the basis for the calculation thereof, submitted to the applicable Borrower by such Bank shall, absent manifest error, be final and conclusive and binding on all the parties hereto) and (z) in the case of clause (iii) above, such Borrower shall take one of the actions specified in Section 2.09(b) as promptly as possible and, in any event, within the time period required by law. (b) At any time that any Loan is affected by the circumstances described in Section 2.09(a)(ii) or (iii), the applicable Borrower may (and in the case of a Loan affected by the circumstances described in Section 2.09(a)(iii) shall) either (x) if the affected Loan is then being made, cancel such Borrowing by giving the Agent telephonic notice (confirmed in writing) of such cancellation on the same date that such Borrower was notified by the affected Bank or the Agent pursuant to Section 2.09(a)(ii) or (iii) or (y) if the affected Loan is then outstanding, upon at least three Business Days' written notice to the Agent, prepay such Loan, provided that, if more than one -------- Bank is affected at any time by the circumstances described in Section 2.09(a)(ii) or (iii), then all affected Banks must be treated in the same manner pursuant to this Section 2.09(b). (c) In the event that any Bank shall determine (which determination shall, absent manifest error, be final and conclusive and binding on all the parties hereto) at any time that by reason of Regulation D such Bank is required to maintain reserves in respect of Eurocurrency liabilities (as defined in Regulation D) (any such determination, for any Bank, a "Eurocurrency Reserve Event"), then such Bank shall promptly give notice (by telephone confirmed in writing) to the Borrowers and to the Agent of such determination (which notice the Agent shall promptly transmit to each of the other Banks), and the Borrowers shall directly pay to such Bank additional interest on the unpaid principal amount of such Bank's Eurocurrency Loans throughout such Eurocurrency Reserve Event at a rate per annum which shall, during each Interest Period, be the amount by which (A) the LIBOR Rate for such Interest Period divided (and rounded upward to the next whole multiple of 1/16 of 1%) by a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities (as defined in Regulation D) exceeds (B) the LIBOR Rate for such Interest Period. Additional interest payable pursuant to the immediately preceding sentence shall be paid by each Borrower at the time that it is otherwise required to pay interest in respect of such Loans or, if later demanded by the Bank, promptly on demand. Each Bank agrees that, if it gives notice to the Borrowers of the existence of a Eurocurrency Reserve Event, it shall promptly notify the Borrowers of any termination thereof, at which time the Borrowers shall cease to be obligated to pay additional interest to such Bank pursuant to the first sentence of this Section 2.09(c) until such time, if any, as a subsequent Eurocurrency Reserve Event shall occur. (d) If at any time after the date of this Agreement any Bank determines that the enactment of or any change in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law) concerning capital adequacy, or any change or any change therein, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, has or will have the effect of increasing the amount of capital required or expected to be maintained by such Bank or any corporation controlling such Bank based on the existence of such Bank's Commitments hereunder or its obligations hereunder or has or would have the effect of reducing the rate of return on such Bank's capital or assets as a consequence of such Bank's Commitments or obligations hereunder to a level below that which such Bank could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) hereunder, then each Borrower shall pay to such Bank, upon its written demand therefor, such additional amounts as shall be required to compensate such Bank or such other corporation for the increased cost to such Bank or such other corporation or the reduction in the rate of return to the Bank or such other corpora tion as a result of such increase of capital. In determining such additional amounts, each Bank will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that such Bank's determination of compensation owing under -------- this Section 2.09(d) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. Each Bank, upon determining that any additional amounts will be payable pursuant to this Section 2.09(d), will give prompt written notice thereof to the applicable Borrower, which notice shall show the basis for calculation of such additional amounts, although the failure to give any such notice shall not release or diminish any of the Borrower's obligations to pay additional amounts pursuant to this Section 2.09(d). 2.10 Compensation. Each Borrower shall compensate each Bank, upon its ------------ written request (which request shall set forth the basis for requesting such compensation and shall absent manifest error, be final and conclusive and binding on all the parties hereto), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Bank to fund its Loans but excluding any loss of anticipated profit) which such Bank may sustain: (i) if for any reason (other than a default by such Bank or the Agent) a Borrowing of any Loan does not occur on a date specified therefor in a Notice of Borrowing (whether or not withdrawn by the applicable Borrower or deemed withdrawn pursuant to Section 2.09(a)); (ii) if any repayment (including any repayment made pursuant to Section 4.01 or 4.02 or a result of an acceleration of the Loans pursuant to Section 9) of a (a) Eurocurrency Loan occurs on a date which is not the last day of the Interest Period with respect thereto, and (b) Quoted Rate Loan occurs on a date which is not on the last day of the term thereof; (iii) if any prepayment of any of its Loans is not made on any date specified in a notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any other default by such Borrower to repay any Loan when required by the terms of this Agreement or any Note held by the such Bank or (y) any election made pursuant to Section 2.09(b). Calculation of all amounts payable to a Bank under this Section 2.10 with respect to any (i) Eurocurrency Loan shall be made as though that Bank had actually funded its relevant Loan through the purchase of a Eurocurrency deposit bearing interest at the relevant Eurocurrency Rate in an amount equal to the amount of such Loan, having a maturity comparable to the relevant Interest Period, in the relevant Loan Currency and through the transfer of such Eurocurrency deposit from an offshore office of such Bank to a domestic office of such Bank in the United States of America, and (ii) Quoted Rate Loan shall be made as though that Bank had actually funded its relevant Loan at the Quoted Rate in an amount equal to the amount of such Loan, having a maturity comparable to the maturity of the relevant Loan and in the relevant Loan Currency; provided, however, that each -------- ------- Bank may fund each of its Loans in any manner it sees fit and the foregoing assumption shall be utilized only for the calculation of amounts payable under this Section 2.10. 2.11 Change of Lending Office. Each Bank agrees that on the ------------------------ occurrence of any event giving rise to the operation of Section 2.09(a)(ii) or (iii), Section 2.09(c), Sec tion 2.09(d) or Section 4.04 with respect to such Bank, it will, if requested by the applicable Borrower, use reasonable efforts (subject to overall policy considerations of such Bank) to designate another lending office for any Loans affected by such event, provided that such -------- designation is made on such terms that such Bank and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of such Section. Nothing in this Section 2.11 shall affect or postpone any of the obligations of the applicable Borrower or the right of any Bank provided in Sections 2.09 and 4.04. 2.12 Replacement of Banks. (x) If any Bank becomes a Defaulting Bank -------------------- or otherwise defaults in its obligations to make Loans as provided hereunder, (y) upon the occurrence of any event giving rise to the operation of Section 2.09(a)(ii) or (iii), Section 2.09(c), Section 2.09(d) or Section 4.04 with respect to any Bank which results in such Bank charging to the applicable Borrower increased costs in excess of those being generally charged by the other Banks, or (z) as provided in Section 12.12(b) in the case of certain refusals by a Bank to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks, the applicable Borrower shall have the right, if no Default or Event of Default then exists, to either replace such Bank (the "Replaced Bank") with one or more other Eligible Transferees, none of whom shall constitute a Defaulting Bank at the time of such replacement (collectively, the "Replacement Bank") acceptable to the Agent or at the option of such Borrower, to replace only the Commitment (and outstanding pursuant thereto) of the Replaced Bank with an identical Commitment provided by the Replacement Bank, provided that (i) at the time of any -------- replacement pursuant to this Section 2.12, the Replacement Bank shall enter into one or more Assignment and Assumption Agreements pursuant to Section 12.04(b) (and with all fees payable pursuant to said Section 12.04(b) to be paid by the Replacement Bank) pursuant to which the Replacement Bank shall acquire all of the Commitments and outstanding Loans of the Replaced Bank and, in connection therewith, shall pay to (x) the Replaced Bank in respect thereof an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Bank, and (B) an amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced Bank pursuant to Section 3.01 and (ii) all obligations of such Borrower owing to the Replaced Bank (other than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Bank concurrently with such replacement. Upon the execution of the respective Assignment and Assumption Agreements, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Bank, delivery to the Replacement Bank of the appropriate Note or Notes executed by the respective Borrowers as provided in Section 2.05, the Replacement Bank shall become a Bank hereunder and, unless the respective Replaced Bank continues to have outstanding Loans hereunder, the Replaced Bank shall cease to constitute a Bank hereunder, except with respect to indemnification provisions under this Agreement, which shall survive as to such Replaced Bank. SECTION 3. Fees; Reductions of Commitment. ------------------------------ 3.01 Fees. (a) The Company shall pay to the Agent for the ratable ---- distribution to each Bank in proportion to its Commitment a facility fee (the "Facility Fee") for the period from the Effective Date to and including the Maturity Date (or such earlier date as such Commitment shall have been terminated), computed at a rate for each day equal to 0.1% per annum of the Total Commitments. The accrued Facility Fee shall be due and payable semi- annually in arrears on March 30, 1997, on each September 30 and March 30 thereafter and on the Maturity Date or such earlier date on which the Total Commitments shall have terminated. (b) Each Borrower shall pay to the Agent, for its own account, such other fees as have been agreed to in writing by such Borrower and the Agent. 3.02 Voluntary Termination or Reduction of Unutilized Commitments. ------------------------------------------------------------ Upon at least five Business Days' prior written notice to the Agent at its Notice Office (which notice the Agent shall promptly transmit to each of the Banks), the Company shall have the right, at any time or from time to time, without premium or penalty, to terminate or reduce ratably in part the Unutilized Loan Commitments of the Banks hereunder (which reduction shall also reduce the Total Commitments hereunder), provided that any partial reduction -------- pursuant to this Section 3.02 shall be in the amount of at least U.S. $5,000,000 and in integral multiples of U.S.$5,000,000 in excess thereof. 3.03 Mandatory Reduction of Commitments The Total Commitments (and ---------------------------------- the Commitment of each Bank) shall terminate in their entirety on the Maturity Date. SECTION 4. Prepayments; Payments; Taxes. ---------------------------- 4.01 Voluntary Prepayments. Any Borrower shall have the right to --------------------- prepay its Loans in whole or ratably in part on the following terms and conditions: (i) such Borrower shall give the Agent prior written notice (or telephonic notice promptly confirmed in writing at its Notice Office by no later than 11:00 A.M. (New York time)) of its intent to prepay any Loan (x) at least one Business Day prior to prepayment in the case of a prepayment of a Quoted Rate Loan and (y) at least three Business Days prior to prepayment in the case of the prepayment of a Eurocurrency Loan, which notice shall specify the Type or Types of Loan to be prepaid, the amount of such prepayment (and, subject to clause (iv) of this Section 4.01, if more than one Type of Loan is to be prepaid, the amount of each Type of Loan to be prepaid), the Loan Currency of such Loan to be prepaid and the spec ific day on which such Loan was made; (ii) each partial prepayment shall be in an aggregate principal amount of at least U.S. $500,000 or an amount in the applicable Loan Currency, the U.S. Dollar Equivalent of which is $500,000 or more, provided that no partial prepayment of -------- Loans made pursuant to any Borrowing shall reduce the outstanding Loans made pursuant to such Borrowing to an amount less than U.S. $500,000 or an amount in the applicable Loan Currency, the U.S. Dollar Equivalent of which is $500,000 or more; (iii) concurrently with such prepayment such Borrower pays all amounts owing pursuant to Section 2.10 as a result of such prepayment; and (iv) each prepayment in respect of any Type of Loan made on the same day shall be applied pro rata among such Type of Loan. The Agent shall promptly notify each Bank of - --- ---- each such prepayment of Loans. 4.02 Mandatory Repayments and Commitment Reductions. (a) Notwith- ---------------------------------------------- standing any other provision of this Agreement to the contrary, if there are any Loans out standing in a Loan Currency other than U.S. Dollars, the Agent shall recompute, on and as of the last day of each calendar quarter (each such date, a "Recomputation Date"), the U.S. Dollar Equivalent of such Loans. If pursuant to such recomputations, the Agent determines that the aggregate principal amount of the U.S. Dollar-denominated Loans then outstanding plus the U.S. Dollar Equivalent of the aggregate principal amount of the non-U.S. Dollar-denominated Loans then outstanding is greater than one hundred ten percent (110%) of the Total Commitments as then in effect, the Agent shall so advise the Borrowers, and the Borrowers shall prepay the amount by which the aggregate principal amount of the U.S. Dollar-dominated Loans then outstanding plus the U.S. Dollar Equivalent of the aggregate principal amount of the Non-U.S. Dollar-denominated Loans then outstanding is greater than the Total Commitments as then in effect, together with accrued interest on the amount so prepaid, on the last day of each Interest Period applicable to such Loans until the amount of such excess is prepaid in full. (b) With respect to each repayment of Loans required by this Section 4.02, the Borrowers may designate the Type or Types of Loans to be repaid, the Loan Currencies of Loans which are to be repaid and the specific Loan or Loans, provided that: (i) repayments of Eurocurrency Loans pursuant to this Section - -------- 4.02 may only be made on the last day of the Interest Period applicable thereto unless all Loans made with Interest Periods ending on such date of required repayment have been paid in full; (ii) no repayment of Loans made on the same day shall reduce the outstanding amount of such Loans on such day to an amount less than U.S. $500,000 or an amount in the applicable Loan Currency, the U.S. Dollar Equivalent of which is $500,000 or more, unless such Loans shall be paid in full; (iii) each repayment of any Type of Loan made on the same day shall be applied pro rata among such Type of Loan and (iv) all payments in respect of a --- ---- Loan shall be made in the applicable Loan Currency. In the absence of a designation by the Borrowers as described in the preceding sentence, the Agent shall, subject to the above, make such designation in its sole discretion. (c) Notwithstanding anything to the contrary contained elsewhere in this Agreement, each Loan shall mature on the Maturity Date. Prior thereto, each Loan shall mature on the last day of the applicable Interest Period therefor. Subject to the provisions of Section 2.01 and the conditions applicable thereto set forth in Section 6, when the Borrower is required to pay any Loan on the maturity thereof, the Borrower shall be entitled to request, pursuant to Section 2.03, that, as of any such maturity date prior to the Maturity Date, Loans be made in an aggregate principal amount not in excess of the princi pal amount of the matured Loans. (d) If the Banks make Loans hereunder to the Borrower on a day on which all or any part of outstanding Loans denominated in the same Loan Currency are to be repaid, each Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Agent and by the Agent to the Borrower. 4.03 Method and Place of Payment. Except as otherwise specifically --------------------------- pro vided herein, all payments under this Agreement or any Note shall be made to the Agent for the account of the Bank or Banks entitled thereto not later than 12:00 Noon (New York time) on the date when due and shall be made in the applicable Loan Currency in immediately available funds at the Payment Office of the Agent. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension. 4.04 Net Payments. (a) All payments made by any Borrower hereunder ------------ or under any Note will be made without setoff, counterclaim or other defense. All such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of what ever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the immediately succeeding sentence, any tax imposed on or measured by the net income or profits of a Bank, or any franchise tax based on the net income or profits of a Bank, in either case pursuant to the laws of the jurisdiction in which it is organized or in which the principal office or applicable lending office of such Bank is located or any sub division thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non- excluded taxes, levies, imports, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any amounts are payable in respect of Taxes pursuant to the preceding sentence, then such Borrower shall reimburse each Bank, upon the written request of such Bank, for taxes imposed on or measured by the net income or profits of such Bank, or any franchise tax based on the net income or profits of a Bank, in either case pursuant to the laws of the jurisdiction in which the principal office or applicable lending office of such Bank is located or under the laws of any political sub division or taxing authority of any such jurisdiction in which the principal office or applicable lending office of such Bank is located and for any withholding of income or similar taxes imposed by the United States as such Bank shall determine are payable by, or with held from, such Bank in respect of such amounts so paid to or on behalf of such Bank pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Bank pursuant to this sentence. If any Taxes are so levied or imposed, then such Borrower shall pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. Each Borrower will furnish to the Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by such Borrower. Each Borrower shall indemnify and hold harmless each Bank, and reimburse such Bank upon its written request, for the amount of any Taxes so levied or imposed and paid by such Bank. (b) Each Bank agrees, to the extent such Bank is entitled at such time to a total or partial exemption from withholding that is required to be evidenced by a United States Internal Revenue Service Form 1001 or 4224, to deliver to the Agent (with a copy to the Borrowers), prior to the Initial Borrowing Date and from time to time thereafter as requested by the Agent or the Borrowers, such Form 1001 or 4224 (as applicable) or any successor thereto, completed in a manner reasonably satisfactory to the Agent and the Borrower. SECTION 5. Conditions Precedent to Loans. The obligation of each ----------------------------- Bank to make any Loan hereunder to any Borrower on the Initial Borrowing Date is subject at the time of the making of such Loan to the satisfaction of the following conditions: 5.01 Opinion of Counsel. On or prior to the Initial Borrowing Date, ------------------ the Agent shall have received from the General Counsel of the Company an opinion addressed to the Agent and each of the Banks and dated the Effective Date covering the matters set forth in Exhibit D hereto, which opinion shall be in form and substance satisfactory to the Agent and the Required Banks. 5.02 Corporate Documents. If requested by the Agent, the Agent shall ------------------- have received from the applicable Borrower a certificate, dated the Initial Borrowing Date, signed by the chairman, the president, the vice president/finance, the treasurer, any assistant treasurer or the controller of such Borrower, and attested by the secretary or any assistant secretary of such Borrower, in the form of Exhibit E hereto with appropriate insertions, in each case together with copies of the relevant charter documents and corporate authorizations of such Borrower referred to therein. 5.03 Adverse Change, etc. On the Initial Borrowing Date, nothing -------------------- shall have occurred (and the Banks shall not have become aware of any facts or conditions not previously known) which the Agent or the Required Banks shall determine (a) has, or could reasonably be expected to have, a material adverse effect on the rights or remedies of the Agent or the Banks, or on the ability of any Borrower to perform its obligations to them hereunder or under any other Credit Document or (b) has, or could reasonably be expected to have, a Material Adverse Effect. Notwithstanding the foregoing, the parties hereto acknowledge that it is the Company's intention to complete a spin off of its wholly owned subsidiary, Unisource Worldwide, Inc., effective January 1, 1997. The parties have been given an opportunity to ask questions concerning the spin-off and to review the Unisource Worldwide, Inc. Form 10 related thereto. The parties hereby agree that, so long as the spin-off is conducted in all material respects in accordance with the description set forth in the Form 10 (and exhibits thereto), neither the Agent nor any of the Banks shall assert that such spin- off, or the agreements between the Company and Unisource Worldwide, Inc. related thereto or any transactions contemplated thereby, has had or could reasonably have a material adverse effect on the rights or remedies of the Agent or the Banks, or on the ability of any Borrower to perform its obligations to them hereunder or under any other Credit Document, or has, or could reasonably be likely to have, a Material Adverse Effect. 5.04 Litigation. Except as set forth on Schedule II, on the Initial ---------- Borrowing Date, no litigation by any entity (private or governmental) shall be pending or threatened (a) with respect to this Agreement or any documentation executed in connection herewith or the transactions contemplated hereby or (b) which the Agent or the Required Banks shall determine could reasonably be expected to have (i) a material adverse effect on the rights or remedies of the Banks or the Agent hereunder or under any other Credit Document or on the ability of any Borrower to perform its respective obligations to the Banks or the Agent hereunder or under any other Credit Document or (ii) a Material Adverse Effect. 5.05 Fees, etc. On the Initial Borrowing Date, the Agent and the ---------- Banks shall have been paid or reimbursed for all costs, fees and expenses (including, without limitation, legal fees and expenses) payable or reimbursable to the Agent and the Banks hereunder to the extent then due. 5.06 Borrowing Subsidiaries. On the Initial Borrowing Date of any ---------------------- Borrower other than the Company, the applicable Borrower shall have executed and delivered a Borrowing Subsidiary Agreement substantially in the form of Exhibit F hereto. 5.07 Notes. On the Effective Date, there shall have been delivered to ----- the Agent for the account of each Bank a Note executed by the Company and appropriately completed in accordance with the provisions of this Agreement. On each Initial Borrowing Date, there shall have been delivered to the Agent for the account of each Bank a Note executed by the relevant Borrowing Subsidiary and appropriately completed in accordance with the provisions of this Agreement. SECTION 6. Conditions Precedent to All Credit Events. The obligation ----------------------------------------- of each Bank to make any Loan (including any Loan made on the Initial Borrowing Date) is subject, at the time of each such Credit Event (except as hereinafter indicated), to the satisfaction of the following conditions: 6.01 No Default; Representations and Warranties. At the time of each ------------------------------------------ such Credit Event and also after giving effect thereto (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained herein or in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on the date of such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). 6.02 Notice of Borrowing. Prior to the making of any Loan, the Agent ------------------- shall have received a Notice of Borrowing meeting the requirements of Section 2.03. 6.03 Proceedings. Prior to the making of any Loan, all corporate and ----------- legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Credit Documents shall be satisfactory in form and substance to the Agent and the Required Banks, and the Agent shall have received all supplemental legal opinions, information and copies of all documents and papers, including records of corporate proceedings, governmental approvals, good standing certificates and bring-down telegrams, if any, which the Agent reasonably may have requested in connection with the requested Loan, such documents and papers where appropriate to be certified by proper corporate or governmental authorities. The acceptance of the benefits of each Credit Event shall constitute a representation and warranty by the applicable Borrower to the Agent and each of the Banks that all the conditions specified in Section 5 and in this Section 6 and applicable to such Credit Event exist as of that time. All of the Notes, certificates, legal opinions and other documents and papers referred to in Section 5 and in this Section 6, unless otherwise specified, shall be delivered to the Agent at its Notice Office for the account of each of the Banks and, except for the Notes, in sufficient counterparts for each of the Banks and shall be in form and substance satisfactory to the Banks. SECTION 7. Representations, Warranties and Agreements. In order to ------------------------------------------ induce the Banks to enter into this Agreement and to make the Loans, each Borrower makes the following representations, warranties and agreements, all of which shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans, with the occurrence of each Credit Event on or after each Initial Borrowing Date being deemed to constitute a representation and warranty that the matters specified in this Section 7 are true and correct in all material respects on and as of each Initial Borrowing Date and on the date of each such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date): 7.01 Organization and Good Standing. Such Borrower and each of its ------------------------------ Significant Subsidiaries is a corporation duly organized and in good standing (where such concept exists) under the laws of the jurisdiction of its incorporation and has the power to carry on its business as now conducted. Such Borrower is duly qualified as a foreign corporation in the various jurisdictions wherein the nature of the business it transacts makes such qualification necessary. The Company's only Significant Subsidiaries on the date hereof are IKON Capital, Inc., Alco Standard Acquisition Capital Corporation, IKON Office Solutions, Inc., IKON Capital, PLC, and IKON Office Solutions (Canada), Inc.. 7.02 Corporate Power and Authority. The execution, delivery and ----------------------------- performance of this Agreement, all other Credit Documents and the Notes are within the corporate power and authority of such Borrower, have been duly authorized by proper corporate proceedings, will not contravene any provision of law or the Certificate or Articles of Incorporation, Memorandum and Articles of Association or Bylaws or Code of Regulations of such Borrower or constitute a default under any agreement binding upon such Borrower, and do not require the consent or approval of, or registration with, any governmental body, agency or authority. 7.03 Validity of Agreement and Notes. This Agreement and the other ------------------------------- Credit Documents are legal, valid and binding obligations of such Borrower, and the Notes when issued will be legal, valid and binding obligations of such Borrower, enforceable in accordance with their respective terms. 7.04 Litigation. Except as set forth on Schedule II there are no ---------- suits, litigation or other proceedings pending, or to the knowledge of any officer of such Borrower threatened (i) with respect to any Credit Document or (ii) against or affecting such Borrower or any of its Subsidiaries or any of their respective properties, before any court, governmental commission, bureau or other regulatory body, the outcome of which might materially and adversely affect the financial condition or business of such Borrower or and its Subsidiaries considered in the aggregate or the ability of such Borrower to perform its obligations hereunder. 7.05 Financial Statements. Such Borrower has heretofore furnished to -------------------- the Banks consolidated balance sheets of such Borrower and its Subsidiaries as at September 30, 1996 and September 30, 1995 and the related consolidated statements of income and retained earnings, with a report thereon by Ernst & Young, L.L.P., independent certified public accountants, stating in comparative form the amounts for the corresponding dates and periods for the previous fiscal year. Such balance sheets and such statements of income and retained earnings fairly present the consolidated financial position of such Borrower and its Consolidated Subsidiaries as of the dates thereof and the results of their operations for the periods then ended. All such financial statements were prepared in accordance with GAAP or, in the case of any Borrower incorporated outside the United States, such other accounting principles as are generally accepted in such Borrower's country of incorporation. Since September 30, 1996, there has not been any material adverse change in the financial condition, business or operations of such Borrower and its Subsidiaries. 7.06 ERISA. Each Employee Benefit Plan of such Borrower and any ----- ERISA Affiliate of such Borrower is in compliance with ERISA and the Code, where applicable, in all material respects. As of the date hereof, (i) the amount of all Unfunded Pension Liabilities under the Pension Plans, (ii) the amount of the aggregate Unrecognized Retiree Welfare Liability under all applicable Employee Benefit Plans, and (iii) the aggregate potential annual withdrawal liability payments, as determined in accordance with Title IV of ERISA, of such Borrower and any such ERISA Affiliate with respect to all Pension Plans which are Multiemployer Plans, are, in the aggregate, no more than U.S. $5,000,000. Such Borrower and each such ERISA Affiliate have complied with the requirements of ERISA Section 515 with respect to each Pension Plan which is a Multi employer Plan. Such Borrower and/or any such ERISA Affiliate has, as of the date hereof, made all contributions or payments to or under each such Pension Plan required by law or the terms of such Pension Plan or any contract or agreement. No material liability on a consolidated basis to the PBGC has been, or is expected by such Borrower or any such ERISA Affiliate. For purposes of ERISA matters under this Agreement, "Employee Benefit Plan" means any employee benefit plan within the meaning of ERISA Section 3(3) maintained, sponsored or contributed to by such Borrower or any such ERISA Affiliate; "ERISA Affiliate" means any entity that is a member of any group of organizations within the meaning of Code Sections 414(b), (c), (m) or (o) of which such Borrower is a member; "Multiemployer Plan" means a pension plan that is a multiemployer plan as defined in ERISA Section 4001(a)(3); "Pension Plan" means any Employee Benefit Plan, including a Multiemployer Plan, the funding requirements of which (under ERISA Section 302 or Code Section 412) are or, at any time within the six years immediately preceding the time in question, were in whole or in part, the responsibility of such Borrower or any such ERISA Affiliate; "Unfunded Pension Liabilities" means, with respect to any Pension Plan at any time, the amount determined by taking the accumulated benefit obligation, as disclosed in accordance with Statement of Financial Accounting Standards number 87, over the fair market value of Pension Plan assets; and "Unrecognized Retiree Welfare Liability" means, with respect to any Employee Benefit Plan that provides post-retirement benefits other than pension benefits, the amount of the transition obligation, as determined in accordance with Statement of Financial Accounting Standards number 106, as of the most recent valuation date that has not been recognized as an expense on the income statement of the Company and its Subsidiaries. 7.07 Regulations G, T, U and X. Except for Partners Securities ------------------------- Company, neither such Borrower nor any of its Subsidiaries is or will be engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying or trading in any margin stocks or margin securities (within the meaning of Regulations G, T, U and X of the Board of Governors of the Federal Reserve System). No part of the proceeds of any Loan made hereunder will be applied for the purpose of purchasing or carrying or trading in any such stocks or securities, or of refinancing any credit previously extended or of extending credit to others for the purpose of purchasing or carrying or trading in any such margin stocks or margin securities, if and to the extent that such action could result in such Borrower, any Subsidiary or any Bank having violated or being in violation of any provision of any Regulations G, T, U and X of the Board of Governors of the Federal Reserve System. 7.08 Compliance with Laws. Such Borrower and each of its Subsidiaries -------------------- is in compliance in all material respects with all applicable laws and regulations, federal, state and local, the violation of which would have a material adverse effect on such Borrower and its Consolidated Subsidiaries taken as a whole; such Borrower and each Subsidiary possess all the material franchises, permits and licenses necessary or required in the conduct of its business, and the same are valid, binding and enforceable. 7.09 Taxes and Assessments. Such Borrower and each of its --------------------- Subsidiaries have filed all required tax returns or have filed for extensions of time for the filing thereof, and have paid all applicable taxes, governmental charges and similar obligations, including United States federal, state and local taxes, other than taxes, governmental charges and similar obligations not yet due or which may be paid hereafter without material penalty; the Internal Revenue Service has completed audits of tax returns filed through September 30, 1992; and neither such Borrower nor any of its Subsidiaries has knowledge of any material deficiency or additional assessment against it in connection with any applicable taxes not provided for in the financial statements referred to in Section 7.05 hereof. 7.10 Investment Company; Public Utility Company. (a) Neither such ------------------------------------------ Borrower nor any Subsidiary of a Borrower is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (b) Neither such Borrower nor any of its Subsidiaries is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.11 Environmental Matters. Such Borrower and each of its --------------------- Subsidiaries have received all permits and filed all notifications necessary to carry on their businesses and are in compliance in all material respects with all federal, state or local laws and regulations governing the control, removal, spill, release or discharge of hazardous or toxic wastes, substances and petroleum products; including, without limitation, as provided in any Environmental Law, and any regulations thereunder, the effect of which if not received, filed or complied with could have a material adverse effect on the financial condition, business or operations of such Borrower and its Subsidiaries. Also, neither such Borrower nor any of its Subsidiaries has received notice of potential responsibility for costs associated with responding to the release or threatened release of Hazardous Materials for any site where such Borrower's potential responsibility could have a material adverse effect on the financial condition, business or operations of such Borrower and its Subsidiaries. 7.12 Liens. Except as disclosed on Schedule III hereto, mortgages, ----- pledges, security interests, encumbrances and other liens upon properties of such Borrower and its Subsidiaries which are in existence at the date hereof do not secure indebtedness that is, in the aggregate, material to such Borrower and its Consolidated Subsidiaries and do not encumber properties which are material to such Borrower and its Consolidated Subsidiaries. 7.13 Disclosure Generally. The representations and statements made by -------------------- or on behalf of such Borrower and its Subsidiaries in connection with this Agreement, the other Credit Documents and each Loan, do not and will not contain any untrue statement of a material fact or omit to state a material fact or any fact necessary to make the representations made not materially misleading. No written information, exhibit, report or financial statement furnished by such Borrower or any of its Subsidiaries to the Agent or the Banks in connection with this Agreement, the other Credit Documents or the Loans contains or will contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading. 7.14 Ownership of Borrowing Subsidiaries. The Company owns, directly ----------------------------------- or indirectly, all of the issued and outstanding capital stock of each Borrowing Subsidiary other than qualifying shares held by the directors of such Borrowing Subsidiary. Each Notice of Borrowing in respect of any Loan hereunder, and the acceptance of the proceeds of such Loan, shall constitute a reaffirmation by the officer making such Notice of Borrowing (to the best of his knowledge and belief) as of the time thereof and by the Borrower as of the time thereof of the continuing truth and accuracy of the foregoing representations and warranties. SECTION 8. Covenants. Each Borrower covenants and agrees that on and --------- after the Effective Date and until the Total Commitments have terminated and the Loans and Notes, together with interest, Fees and all other obligations incurred hereunder and thereunder, are paid in full: 8.01 Financial Statements and Information. Such Borrower will furnish ------------------------------------ to each Bank, or to the Agent which will in turn furnish to each Bank: (a) as soon as available and in any event within 60 days after the end of the first, second and third quarterly accounting periods in each fiscal year of such Borrower, copies of a consolidated balance sheet of such Borrower and its Consolidated Subsidiaries as of the end of such accounting period and of the related consolidated income and retained earnings statements of such Borrower and its Consolidated Subsidiaries for the elapsed portion of the fiscal year ended with the last day of such accounting period, all in reasonable detail and stating in comparative form the amounts for the corresponding date and period in the previous fiscal year, and all prepared in accordance with GAAP, subject to year-end audit adjustments and certified by an authorized financial officer of such Borrower, provided -------- that if the Borrower is not incorporated in the United States, such financial statements shall be prepared in accordance with accounting principles generally accepted in its country of incorporation. (b) as soon as available and in any event within 120 days after the end of each fiscal year of such Borrower, copies of consolidated balance sheets of such Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and consolidated statements of income and retained earnings of such Borrower and its Consolidated Subsidiaries for such fiscal year, in reasonable detail and stating in comparative form the figures as of the end of and for the previous fiscal year pre pared in accordance with GAAP and certified by independent public accountants of recognized standing as may be selected by such Borrower and reasonably satisfactory to the Agent, provided that, if the Borrower is not incorporated in the United -------- States, such financial statements shall be prepared in accordance with accounting principles generally accepted in its country of incorporation and such financial statements may be unaudited, and provided further, that, -------- ------- if such Borrower is a Subsidiary of the Company, such financial statements may be unaudited; (c) concurrently with each of the financial statements furnished pursuant to the foregoing subsections (a) and (b), a certificate of the chairman, president, a vice president (whose duties are in the finance area) or the treasurer or any assistant treasurer of such Borrower, stating that in the opinion of such officer, based upon a review made under his supervision, no Event of Default or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred and is continuing, and such Borrower has performed and observed all of, and such Borrower is not in default in the performance or observance of any of, the terms and covenants hereof or, if such Borrower shall be in default, specifying all such defaults, and the nature thereof, of which the signer of such certificate may have knowledge; (d) concurrently with their being filed, mailed or delivered, as applicable, copies of all proxy statements, financial statements and reports which such Borrower shall send or make available generally to its shareholders, and copies of all reports on Forms 10-K, 10-Q and 8-K and all other filings and reports specifically requested by the Agent or a Bank which such Borrower or any of its Subsidiaries may be required to file with the Securities and Exchange Commission or any similar or corresponding governmental commission, department or an agency substituted therefor or with any securities exchange located in the United States of America; and (e) such other information relating to the business, affairs and financial condition of the Company and its Subsidiaries as the Agent (when requested so to do by any Bank) may from time to time reasonably request. 8.02 Funded Debt to Capitalization. Such Borrower will not permit ----------------------------- Funded Debt of such Borrower and its Consolidated Subsidiaries to exceed 45% of the sum of (1) Funded Debt of such Borrower and its Consolidated Subsidiaries plus (2) the consolidated minority interest obligations shown on the consolidated balance sheet of such Borrower and its Consolidated Subsidiaries plus (3) the Consolidated Net Worth of such Borrower and its Consolidated Subsidiaries. For purposes of calculating such ratio with respect to the Company, Finance Leasing Subsidiaries shall be excluded from the definition of "Consolidated Subsidiaries". 8.03 Subsidiaries' Debt. Such Borrower will not permit, and any of ------------------ its Subsidiaries directly or indirectly to create, incur, assume, suffer to exist, guarantee or otherwise become, be or remain liable with respect to any Debt (other than Loans here under) in an aggregate amount outstanding at any time in excess of 20% of Consolidated Net Worth plus the amount of such Debt outstanding on the date hereof except (i) Debt owing exclusively to the Company or any Subsidiary thereof, (ii) Debt of a Subsidiary out standing on the date that such Borrower acquires such Subsidiary, (iii) Debt with respect to property to be used by such Borrower or its Subsidiaries, the interest on which Debt is exempt from federal income tax pursuant to Section 103 of the Internal Revenue Code of 1986, as amended, (iv) Debt of any foreign Subsidiary of such Borrower that is not guaranteed by the Company or any of its Subsidiaries, (v) Debt of Finance Leasing Subsidiaries owing to the Company or any of its Consolidated Subsidiaries, (vi) Debt of Finance Leasing Subsidiaries to a person or persons other than the Company and its Consolidated Subsidiaries, provided that such -------- Debt is not guaranteed by the Company or any of its Consolidated Subsidiaries, and (vii) unsecured Debt of Unisource Worldwide, Inc. in an amount not to exceed one billion U.S. Dollars. 8.04 Sale of Assets. Such Borrower will not, and will not permit any -------------- of its Consolidated Subsidiaries to, sell, lease or transfer all or substantially all of its assets unless (i) immediately after giving effect thereto such Borrower is in compliance with the covenants and provisions of this Agreement and (ii) such sale, lease or transfer shall not have any materially adverse effect upon the financial condition of the Company and its Subsidiaries taken as a whole or the Company's ability to perform its obligations hereunder. The parties hereby agree that the Unisource Worldwide, Inc. spin-off, and the agreements and transactions related thereto (as described in the Unisource Worldwide, Inc. Form 10) shall not be deemed to have a material adverse effect upon the financial condition of the Company. Notwithstanding this provision, any Consolidated Subsidiary that is not a Borrowing Subsidiary may sell, lease or transfer all or substantially all of its assets to any other Consolidated Subsidiary or to the Company, and any Borrowing Subsidiary may sell, lease or transfer all or substantially all of its assets to any other Borrowing Subsidiary or to the Company. 8.05 Mergers and Acquisitions. Neither the Company nor any Borrowing ------------------------- Subsidiary will merge or consolidate with, or otherwise acquire control of the assets of, any other corporation or other entity, unless (i) the Company is the surviving or parent corpora tion of any merger or other acquisition involving the Company, (ii) a Borrowing Subsidiary is the surviving or parent corporation of any merger or other acquisition involving one or more Borrowing Subsidiaries and (iii) the Company and each Borrowing Subsidiary are in compliance with this Agreement and the other Credit Documents prior to and after such merger or acquisition; provided, however, that the provisions of this Section 8.05 shall -------- ------- apply to a Borrowing Subsidiary only if and so long as such Borrowing Subsidiary has outstanding Loans. 8.06 Negative Pledge. Such Borrower shall not, and such Borrower --------------- shall not permit any Consolidated Subsidiary to, create, incur, assume or suffer to exist any mortgage, pledge, security interest, encumbrance or other lien upon any property, now owned or hereafter acquired, of the Company or any Consolidated Subsidiary (the sale with recourse of receivables or any sale and lease back of any fixed assets being deemed to be the giving of a lien thereon for money borrowed), other than: (a) liens existing on the date of this Agreement on any property, provided that the amount secured by any such lien is not greater than the -------- amount secured thereby on the date of this Agreement; (b) liens on any property (including, but not limited to, margin stock (within the meaning of Regulations G, T, U and X of the Board of Governors of the Federal Reserve System)) hereafter acquired existing at the time of such acquisition or created within a period of 120 days following any such acquisition to secure or provide for the payment of any part of the purchase price thereof or liens to secure indebtedness incurred to fund or refund any liens within the scope of this subsection (b), provided that the -------- amount secured by such liens is not greater than the amount secured thereby on the date of such acquisition or within the 120-day period, as the case may be; (c) liens securing indebtedness of a Consolidated Subsidiary outstanding on the date that the Company acquires such Consolidated Subsidiary; (d) liens for taxes, assessments or governmental charges or levies not yet due and payable or being contested in good faith and by appropriate proceedings promptly initiated and diligently conducted, provided that a -------- reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made there for and no foreclosure, distraint, sale or other similar proceedings shall have been commenced; (e) statutory liens of landlords and liens of carriers, warehousemen, mechanics and materialmen incurred in the ordinary course of business for sums not yet due or being contested in good faith by appropriate proceedings promptly initiated and diligently conducted, provided that a -------- reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; (f) liens incurred or deposits made in the ordinary course of business in connection with workmen's compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, performance and return-of- money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (g) liens created hereafter in connection with borrowing or pledges of receivables which liens when added to all sales and discounting transactions contemplated by Section 8.07 do not in the aggregate exceed 10% of Consolidated Net Worth; (h) liens, security interests and any other encumbrances on any of its treasury shares; and (i) liens arising in connection with a Securitization permitted by Section 8.07, limited in each case to the accounts therein or in any trust or similar entity utilized to effect such Securitization and to any equipment giving rise to such accounts. 8.07 Sale, Discount of Receivables; Sale, Leaseback Transactions. ----------------------------------------------------------- Such Borrower will not, and will not permit its Consolidated Subsidiaries to, enter into any Securitization which, when added to the aggregate amount of all Securitizations then outstanding, exceeds the lesser of 15% of Consolidated Total Assets or $775,000,000. Exclusion of such Securitizations, the Company will not, and will not permit its Consolidated Subsidiaries to sell or discount receivables with recourse or sell and lease back fixed assets the aggregate amount of which when added to all liens permitted by Section 8.06(g) exceed 10% of Consolidated Net Worth. 8.08 Regulations G, T, U and X. Such Borrower will not, and will not ------------------------- permit any Subsidiary, to use Borrowings hereunder in any manner which may cause a violation of or noncompliance with Regulations G, T, U or X of the Board of Governors of the Federal Reserve Board. 8.09 Corporate Existence. Such Borrower will maintain its existence ------------------- and, except as otherwise permitted pursuant to Section 8.05, the existence of each Borrowing Subsidiary in good standing as a business corporation under the laws of the jurisdiction of its incorporation, and remain qualified and cause each Borrowing Subsidiary to remain qualified to do business in all jurisdictions wherein the nature of the business it transacts or the character of the properties owned by it makes such qualification necessary. 8.10 Books and Records. Such Borrower will keep and maintain, and ------------------ cause each Subsidiary to keep and maintain, satisfactory and adequate books and records of account in accordance with GAAP or, if such Borrower is not incorporated in the United States, such accounting principles as are generally accepted in its country of incorporation, and make or cause the same to be made available to the Agent or any Bank or their agents or nominees at any reasonable time upon reasonable notice for inspection and to make extracts thereof. 8.11 Insurance. Such Borrower will insure and keep insured, and cause --------- each of its Subsidiary to insure and keep insured, with reputable insurance companies, so much of their respective properties, to such an extent and against such risks (including liability and fire) as companies engaged in similar businesses customarily insure properties of a similar character; or, in lieu thereof, such Borrower or any one or more of its subsidiaries will maintain or cause to be maintained a system or systems of self-insurance which will be in accord with the approved practices of companies owning or operating properties of a similar character and maintaining such systems, and, in such cases of self- insurance, maintain or cause to be maintained an insurance reserve or reserves in adequate amounts. 8.12 Litigation; Event of Default. Such Borrower will notify the ---------------------------- Agent, which shall notify the Banks, in writing immediately of the institution of any litigation, the commencement of any administrative proceedings, the happening of any event or the assertion or threat of any claim which might materially or adversely affect its and its Subsidiaries' business, operations or financial condition (taken as a whole), or the occurrence of any Event of Default hereunder or an event which with the passage of time or the giving of notice or both would constitute an Event of Default hereunder. 8.13 Taxes. Such Borrower will pay and discharge, and cause each of ----- its Subsidiaries to pay and discharge, all taxes, assessments or other governmental charges or levies imposed on it or any of its property or assets prior to the date on which any material penalty for non-payment or late payment is incurred, unless the same is currently being contested in good faith by appropriate proceedings and reserves in accordance with GAAP, or, if such Borrower is not incorporated in the United States, such accounting principles as are generally accepted in its country of incorporation are being maintained. 8.14 Compliance with Laws. Such Borrower will comply and cause each -------------------- of its Subsidiaries to comply in all material respects with all local, state and federal laws and regulations material to its business and operations, including but not limited to: (i) all rules and regulations of the Securities and Exchange Commission, (ii) local, state and federal laws governing the control, removal, spill, release, or discharge of hazardous or toxic wastes, substances or petroleum products, including, without limitation, Environmental Laws, and (iii) the provisions and requirements of all franchises, permits and licenses applicable to its business, including, but not limited to, those required by the Environmental Laws. Such Borrower shall notify the Agent, which shall notify the Banks, promptly in detail of any actual or alleged failure to comply with or perform, breach, violation or default under any such laws or regulations or if such Borrower receives notice of potential responsibility for the release or threatened release of hazardous substances, or of the occurrence or existence of any facts or circumstances which with the passage of time, the giving of notice or both or otherwise could create such a breach, violation or default or could occasion the termination of any of such franchises or grants of authority or the creation of potential responsibility for releases or threatened releases of hazardous substances, if any of the foregoing would have a Material Adverse Effect on such Borrower. 8.15 Employee Benefit Plans. Such Borrower will and will cause each ---------------------- ERISA Affiliate (a) to comply in all material respects with the provisions of ERISA to the extent applicable to any Employee Benefit Plan maintained by it and cause all Employee Benefit Plans maintained by it to satisfy the conditions under the Internal Revenue Code for tax qualification of all such plans intended to be tax qualified; and (b) to avoid (1) any material accumulated funding deficiency (within the meaning of ERISA section 302 and Code section 412(a)) (whether or not waived) (2) any act or omission on the basis of which it or an ERISA Affiliate might incur a material liability to the PBGC (other than for the payment of required premiums) or to a trust established under ERISA section 4049; (3) any transaction with a principal purpose described in ERISA section 4069; and (4) any act or omission that might result in the assessment by a Multiemployer Plan of withdrawal liability against such Borrower or any ERISA Affiliate, but only to the extent that the liability aris ing from a failure to comply with any covenant set forth in (a) or (b) of this Section 8.15 could reasonably be expected to result in a liability to such Borrower or its Subsidiaries or an ERISA Affiliate for any one such event in excess of U.S. $10,000,000. 8.16 Continued Ownership of each Borrowing Subsidiary. The Company ------------------------------------------------ shall continue to own, directly or indirectly, all of the issued and outstanding capital stock of each Borrowing Subsidiary, other than qualifying shares held by the directors of such Borrowing Subsidiary; provided, however, that this -------- ------- Section 8.16 shall apply only (a) as a condition to such Borrowing Subsidiary obtaining a Loan hereunder and (b) if and so long as such Borrowing Subsidiary has outstanding Loans. SECTION 9. Events of Default and Acceleration. ---------------------------------- 9.01 Events of Default. Any of the following shall constitute an ----------------- "Event of Default" with respect to this Agreement and the Notes: (a) Failure of any Borrower to pay any amount payable on account of the principal of or interest on any Note when due, or the failure to pay any Fee or other payment due hereunder within 10 days after the same shall become due; (b) Failure of any Borrower to observe or perform any term, covenant or agreement contained in this Agreement, the Notes or any other document evidencing the Loans (other than that specified in (a) above) and the continuation of such failure for 30 days after written notice thereof has been given to such Borrower by the Agent at the request of the holder of any Note (including but not limited to itself); (c) Any statement, certificate, report, representation or warranty made or furnished by any Borrower in this Agreement or in compliance with the provisions hereof shall prove to have been false or misleading in any material respect at the time when made; (d) Any obligation(s) of any Borrower and/or any of its Subsidiaries in excess of U.S. $15,000,000, individually or in the aggregate (as principal or guarantor or other surety), to any person other than the Banks in connection with this Agreement and the Notes for borrowed money (other than the Notes) shall become or is declared to be due and payable prior to its stated maturity or any event of default or event which with the passing of time or notice or both shall have occurred the effect of which permits payment of any such obligation to be demanded prior to its stated maturity; (e) If (1) any Employee Benefit Plan shall cease to have "qualified" status under the Code, (2) the minimum funding standards applicable to any Employee Benefit Plan shall not be complied with, (3) any excise tax or tax lien shall be incurred in connection with any Employee Benefit Plan and the administration thereof, (4) any claim shall be incurred with respect to any Employee Benefit Plan other than in the ordinary operation of such Plan, (5) any "prohibited transaction" as defined by the Code or ERISA shall have occurred, (6) any liability shall be incurred to the PBGC, (7) any withdrawal liability shall be incurred with respect to a Multiemployer Plan, (8) any liability shall be incurred in connection with a failure to make timely reports and filings with respect to Employee Benefit Plans, or (9) any other thing shall have occurred with respect to any Employee Benefit Plan, the result of which (in any one of the foregoing clauses (1) through (8), any combination of said clauses, or otherwise) is that any Borrower or any of its Subsidiaries, in the reasonable judgment of the Majority Banks, has or is likely to incur liabilities (whether the liability is direct or indirect, current or deferred, fixed or contingent) of U.S. $10,000,000 or more; (f) Any judgment or judgments against any Borrower and/or any of its Subsidiaries or any attachments against any of their assets or property in an amount in excess of U.S. $10,000,000 in any one instance or in the aggregate shall remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of 30 days; (g) If (1) any person or group within the meaning of Section 13(d)(3) of the Securities Exchange Act and the rules and regulations promulgated thereunder shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act), directly or indirectly, of securities of any Borrower (or other securities convertible into such securities) representing twenty percent (20%) of the combined voting power of all securities of such Borrower entitled to vote in the election of directors, other than securities having such power only by reason of the happening of a contingency (such person hereinafter called a "Controlling Person"); or (2) a majority of the Board of Directors of any Borrower shall cease for any reason to consist of (A) individuals who on August 30, 1996 were serving as directors of such Borrower and (B) individuals who subsequently become members of the Board of Directors of such Borrower if such individuals' nomination for election or election to the Board of Directors of such Borrower is recommended or approved by a majority of the Board of Directors of such Borrower. For purposes of clause (1) above, a person or group shall not be a Controlling Person if such person or group holds voting power in good faith and not for the purpose of circumventing this Section 9.01(g) as an agent, bank, broker, nominee, trustee, or holder of revocable proxies given in response to a solicitation pursuant to the Securities Exchange Act, for one or more beneficial owners who do not individually, or, if they are a group acting in concert, do not as a group have the voting power specified in clause (1); (h) Any Borrower and/or any of its Subsidiaries shall (i) apply for or consent to the appointment of a receiver, trustee or liquidator of itself or of its property, (ii) be unable, or admit in writing inability, to pay its Debts as they mature, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent, (v) file a voluntary petition in bankruptcy, or a petition or answer seeking reorganization or an arrangement with creditors to take advantage of any insolvency law, or an answer admitting the material allegations of a bankruptcy, reorganization or insolvency petition filed against it, (vi) take corporate action for the purpose of effecting any of the foregoing, or (vii) have an order for relief entered against it in any proceeding under the United States Bankruptcy Code or any other law, domestic or foreign, relating to bankruptcy, insolvency or reorganization or relief of debtors; (i) An order, judgment or decree shall be entered, without the application, approval or consent of any Borrower and/or any of its Subsidiaries by any court of competent jurisdiction, approving a petition seeking reorganization of such Borrower or such Subsidiary or appointing a receiver, trustee or liquidator of such Borrower or such Subsidiary or of all or a substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of 60 consecutive days; or (j) The Company shall fail to continue to maintain its ownership of each of the Borrowing Subsidiaries to the extent required by Section 8.16. 9.02 Acceleration by Reason of Default. If an Event of Default occurs --------------------------------- under Section 9.01(a) through Section 9.01(g) or Section 9.01(j) above, the Agent may, and shall, if requested by the Majority Banks without prejudice to the rights of the Agent, any Bank or the holder of any Note to enforce its claims against any Borrower, immediately terminate each Bank's Commitment by notice in writing to the Borrowers and immediately declare the Notes to be and they shall thereupon forthwith become due and payable without presentment, demand, or notice of any kind, all of which are hereby expressly waived. Simultaneously with the giving of any such notice to the Borrowers, the Agent shall notify the Banks of any such action. If an Event of Default occurs under Section 9.01(h) or Section 9.01(i) above, then, forthwith and without any election or notice, each Bank's Commitment shall terminate and the Notes shall forthwith become due and payable without presentment, demand or other notice of any kind, all of which are hereby expressly waived. SECTION 10. The Agent. --------- 10.01 Appointment. The Banks hereby designate DBNY as Agent ----------- hereunder to act as such as specified herein and in the other Credit Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, the Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its respective officers, directors, agents, employees or affiliates. 10.02 Nature of Duties. The Agent shall not have any duties or ---------------- responsibilities except those expressly set forth in this Agreement and the other Credit Documents. Neither the Agent nor any of its respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by it or them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Bank or the holder of any Note; and nothing in this Agreement or any other Credit Document, expressed or implied, is in tended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein. 10.03 Lack of Reliance on the Agent. Independently and without ----------------------------- reliance upon the Agent, each Bank and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company, each Borrowing Subsidiary and their respective Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the credit worthiness of the Company, each Borrowing Subsidiary and their respective Subsidiaries and, except as expressly provided in this Agreement, the Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Bank or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. The Agent shall not be responsible to any Bank or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of the Company, each Borrowing Subsidiary and their respective Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of the Company, each Borrowing Subsidiary and their respective Subsidiaries or the existence or possible existence of any Default or Event of Default. 10.04 Certain Rights of the Agent. If the Agent shall request --------------------------- instructions from the Required Banks with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, the Agent shall be entitled to refrain from such act or taking such action unless and until the Agent shall have received instructions from the Required Banks; and the Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Bank or the holder of any Note shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Banks. 10.05 Reliance. The Agent shall be entitled to rely, and shall be -------- fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that the Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by the Agent. 10.06 Indemnification. To the extent the Agent is not reimbursed and --------------- indemnified by the Borrowers, the Banks will reimburse and indemnify the Agent, in pro portion to their respective "percentages" as used in determining the Required Banks, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Agent in performing its respective duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other Credit Document; provided that no Bank shall be liable for any -------- portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. 10.07 The Agent in its Individual Capacity. With respect to its ------------------------------------ obligation to make Loans under this Agreement, the Agent shall have the rights and powers specified herein for a "Bank" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Banks," "Required Banks," "holders of Notes" or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Borrower or any Affiliate of any Borrower as if it were not performing the duties specified herein, and may accept fees and other consideration from any Borrower for services in connection with this Agreement and otherwise without having to account for the same to the Banks. 10.08 Holders. The Agent may deem and treat the payee of any Note as ------- the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor. 10.09 Resignation by the Agent. (a) The Agent may resign from the ------------------------ performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 15 Business Days' prior written notice to the Borrowers and the Banks. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation, the Banks shall appoint a successor Agent hereunder or thereunder who shall be a commercial bank or trust company reasonably acceptable to the Borrowers (it being understood and agreed that any Bank is deemed to be acceptable to the Borrowers). (c) If a successor Agent shall not have been so appointed within such 15 Business Day period, the Agent, with the consent of the Borrowers, shall then appoint a successor Agent who shall serve as Agent hereunder or thereunder until such time, if any, as the Banks appoint a successor Agent as provided above. (d) If no successor Agent has been appointed pursuant to clause (b) or (c) above by the 20th Business Day after the date such notice of resignation was given by the Agent, the Agent's resignation shall become effective and the Banks shall thereafter perform all the duties of the Agent hereunder and/or under any other Credit Document until such time, if any, as the Banks appoint a successor Agent as provided above. SECTION 11. Guaranty. -------- 11.01 The Guaranty. In order to induce the Banks to enter into this ------------ Agreement and to extend credit hereunder and in recognition of the direct benefits to be received by the Company from the proceeds of the Loans, the Company hereby agrees with the Agent and Banks as follows: the Company hereby unconditionally and irrevocably guarantees as primary obligor and not merely as surety the full and prompt payment when due, whether upon maturity, by acceleration or otherwise, of any and all indebtedness of each Borrowing Subsidiary to the Agent or the Banks. If any or all of the indebtedness of a Borrowing Subsidiary to the Agent or the Banks becomes due and payable hereunder, the Company unconditionally promises to pay such indebtedness to the Agent or Banks on demand. The word "indebtedness" as used in this Section 11 includes, without limitation, any and all Loans, fees, expenses, obligations and liabilities of each Borrowing Subsidiary arising in connection with this Agreement and any other Credit Document, in each case, heretofore, now, or hereafter made, incurred or created, whether voluntarily or involun- tarily, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether or not such indebtedness is from time to time reduced, or extinguished and there after increased or incurred, whether such Borrowing Subsidiary may be liable individually or jointly with others, whether or not recovery upon such indebtedness may be or hereafter become barred by any statute of limitations, and whether or not such indebtedness may be or hereafter become otherwise unenforceable. 11.02 Bankruptcy. Additionally, the Company unconditionally and ---------- irrevocably guarantees the payment of any and all indebtedness of each Borrowing Subsidiary to the Banks whether or not due or payable by the Borrowing Subsidiary upon the occurrence in respect of the Borrowing Subsidiary of any of the events specified in Section 9(h) or (i), and unconditionally, jointly and severally, promises to pay such indebtedness to the Banks, or order, on demand, in lawful money of the United States. 11.03 Nature of Liability. The liability of the Company hereunder is ------------------- exclusive and independent of any security for or other guaranty of the indebtedness of the Borrowing Subsidiary whether executed by such Company or by any other party, and the liability of such Company hereunder shall not be affected or impaired by (a) any direction as to application of payment by the Borrowing Subsidiary or by any other party, or (b) any other guaranty, undertaking or maximum liability of a guarantor or of any other party as to the indebtedness of the Borrowing Subsidiary, or (c) any payment on or in reduction of any such other guaranty or undertaking or (d) any dissolution, termination or increase, decrease or change in personnel by the Borrowing Subsidiary, or (e) any payment made to the Agent or the Banks on the indebtedness which the Agent or such Banks repay the Borrowing Subsidiary pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and such Company waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding. 11.04 Independent Obligation. The obligations of the Company ---------------------- hereunder are independent of the obligations of each Borrowing Subsidiary, and a separate action or actions may be brought and prosecuted against the Company whether or not action is brought against a Borrowing Subsidiary and whether or not the Borrowing Subsidiary is joined in any such action or actions. The Company waives, to the fullest extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by the Borrowing Subsidiary or other circumstance which operates to toll any statute of limitations as to the Borrowing Subsidiary shall operate to toll the statute of limitations as to the Company. 11.05 Subordination. Any indebtedness of any Borrowing Subsidiary ------------- now or hereafter held by the Company is hereby subordinated to the indebtedness of the Borrowing Subsidiary to the Agent and the Banks. If the Agent, after an Event of Default has occurred, so requests, any indebtedness of the Borrowing Subsidiary to the Company shall be collected, enforced and received by the Company as trustee for the Agent and the Banks and be paid over to the Agent and the Banks on account of the indebtedness of the Borrowing Subsidiary to the Agent and the Banks, but without affecting or impairing in any manner the liability of the Company under the other provisions of this Section 11. Prior to the transfer by the Company of any note or negotiable instrument evidencing any indebtedness of such Borrowing Subsidiary to the Company, such Company shall mark such note or negotiable instrument with a legend that the same is subject to this subordination. 11.06 Waiver. (a) The Company waives any right (except as shall be ------ required by applicable statute and cannot be waived) to require the Agent or the Banks to proceed against a Borrowing Subsidiary and any defense based on or arising out of any defense of such Borrowing Subsidiary other than payment in full of the indebtedness, including, without limitation, any defense based on or arising out of the disability of such Borrowing Subsidiary or the unenforceability of the indebtedness or any part thereof from any cause, or the cessation from any cause of the liability of such Borrowing Subsidiary other than payment in full of the indebtedness. Until all indebtedness of each Borrowing Subsidiary to the Agent and the Banks shall have been paid in full, the Company shall not have any right of subrogation, and waives any right to enforce any remedy which the Agent and the Banks now have or may hereafter have against the Borrowing Subsidiary. (b) The Company waives all presentments, demands for performance, protests and notices, including without limitation notices of nonperformance, notice of protest, notices of dishonor, notices of acceptance of the guaranty provided by this Section 11, and notices of the existence, creation or incurring of new or additional indebtedness. 11.07 Banks' Rights. The Company hereby agrees that the Company will ------------- continue to be obligated under this Section 11 following any amendment pursuant to the terms of this Agreement which may: (a) change the manner, place or terms of payment of, and/or change or extend the time of payment of, renew, increase, accelerate or alter, any indebtedness of the Borrowing Subsidiaries, and the guaranty provided by this Section 11 shall apply to the indebtedness as so changed, extended, renewed or altered; (b) exercise or refrain from exercising any rights against any Borrowing Subsidiary or otherwise act or refrain from acting; (c) settle or compromise any indebtedness, and may subordinate the pay ment of all or any part thereof to the payment of any liability (whether due or not) of any Borrowing Subsidiary to creditors of such Borrowing Subsidiary other than the Banks; or (d) consent to or waive any breach of, any act, omission or default under, this Agreement or any of the instruments or agreements referred to herein, or otherwise amend, modify or supplement the Agreement or any of such other instruments or agreements. 11.08 Guaranty Absolute. No invalidity, irregularity or ----------------- unenforceability of all or any part of the Credit Documents shall affect, impair or be a defense to the guaranty provided by this Section 11, and the guaranty provided by this Section 11 shall be primary, absolute and unconditional notwithstanding the occurrence of any event or the existence of any other circumstances which might constitute a legal or equitable discharge of a surety or guarantor except payment in full of the indebtedness. 11.09 Guaranty Continuing. The guaranty provided by this Section 11, ------------------- is a continuing one and all liabilities to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. No failure or delay on the part of any Bank or of any holder of any Note of any Borrowing Subsidiary in exercising any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly specified are cumulative and not exclusive of any rights or remedies which any Bank or any subsequent holder of a Note of any Borrowing Subsidiary would otherwise have. No notice to or demand on the Company in any case shall entitle the Company to any other further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Bank or any holder of a note of any Borrowing Subsidiary to any other or further action in any circumstances without notice or demand. 11.10 Binding Nature of Guaranty. The guaranty provided by this -------------------------- Section 11 shall be binding upon the Company and its successors and assigns and shall inure to the benefit of the Banks and their respective successors and assigns. 11.11 Limitation on Enforcement. The Banks agree that the terms of ------------------------- this Section 11 may be enforced only by the action of the Agent and that no Bank shall have any right individually to seek to enforce or to enforce the terms of this Section 11, it being understood and agreed that such rights and remedies may be exercised by the Agent for the benefit of the Banks upon the terms of this Agreement. SECTION 12. Miscellaneous. ------------- 12.01 Payment of Expenses, etc. The Company shall: (i) whether or ------------------------- not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of the Agent (including, without limitation, the reasonable fees and disbursements of White & Case) in connection with the preparation, execution and delivery of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein and any amendment, waiver or consent relating hereto or thereto, of the Agent in connection with its syndication efforts with respect to this Agreement and of the Agent and each of the Banks in connection with the enforcement of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein (including, without limitation, the reasonable fees and disbursements of counsel for the Agent and for each of the Banks in connection with such enforcement); (ii) pay and hold each of the Banks harmless from and against any and all present and future stamp, excise and other similar taxes with respect to the foregoing matters and save each of the Banks harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Bank) to pay such taxes; and (iii) indemnify the Agent and each Bank, and each of their respective officers, directors, employees, representatives and agents from and hold each of them harm less against any and all liabilities, obligations (including removal or remedial actions), losses, damages, penalties, claims, actions, judgments, suits, costs, expenses and disbursements (including reasonable attorneys' and consultants' fees and disbursements) incurred by, imposed on or assessed against any of them as a result of, or arising out of, or in any way related to, or by reason of, (a) any investigation, litigation or other proceeding (whether or not the Agent or any Bank is a party thereto) related to the entering into and/or performance of this Agreement or any other Credit Document or use of the proceeds of any Loans hereunder or the consummation of any transactions contemplated herein or in any other Credit Document or the exercise of any of their rights or remedies provided herein or in the other Credit Documents, or (b) the actual or alleged presence of Hazardous Materials in the air, surface water or groundwater or on the surface or subsurface of any Real Property owned or at any time operated by any Borrower or any of its Subsidiaries, the generation, storage, transportation, handling or disposal of Hazardous Materials at any location, whether or not owned or operated by such Borrower or any of its Subsidiaries, the non-compliance of any Real Property with foreign, federal, state and local laws, regulations, and ordinances (including applicable permits thereunder) applicable to any Real Property, or any Environmental Claim asserted against such Borrower, any of its Subsidiaries or any Real Property owned or at any time operated by such Borrower or any of its Subsidiaries, including, in each case, without limitation, the reasonable fees and disburse ments of counsel and other consultants incurred in connection with any such investigation, litigation or other proceeding (but excluding any losses, liabilities, claims, damages or expenses to the extent incurred by reason of (i) the gross negligence or willful misconduct of the Person to be indemnified or (ii) a claim by any Borrower against such Person). To the extent that the undertaking to indemnify, pay or hold harmless the Agent or any Bank set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, each Borrower shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law. 12.02 Right of Setoff. In addition to any rights now or hereafter --------------- granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and continuance of an Event of Default, each Bank is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to any Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held by or owing to the Bank (including, without limitation, by branches and agencies of such Bank wherever located) to or for the credit or the account of any Borrower against and on account of the Obligations and liabilities of such Borrower to such Bank under this Agreement or under any of the other Credit Documents, and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Bank shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 12.03 Notices. Except as otherwise expressly provided herein, all ------- notices and other communications provided for hereunder shall be in writing (including telex, tele copier or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered: if to the Company, at the Company's address specified opposite its signature below, or, if to a Borrowing Subsidiary, to such Subsidiary's address specified in the Borrowing Subsidiary Agreement; if to the Agent, at its Notice Office; if to a Bank, at the address specified opposite its signature below or; as to any Borrower or Bank, at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall, when mailed, telexed, telecopied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the tele graph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier, except that notices and communications to any Bank or Borrower shall not be effective until received by such Bank or Borrower. 12.04 Benefit of Agreement. (a) This Agreement shall be binding -------------------- upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, no Borrower may assign or -------- ------- transfer any of its rights, obligations or interest hereunder or under any other Credit Document without the prior written consent of the Agent and, provided -------- further, that, although each Bank may, with the prior consent of the applicable - ------- Borrower, transfer, assign or grant participations in its rights hereunder, such Bank shall remain the "Bank" for all purposes hereunder (and may not transfer or assign all or any portion of its Commitment hereunder except as provided in Section 12.04(b)) and the transferee, assignee or participant, as the case may be, shall not constitute a "Bank" hereunder and, provided further, that no Bank ---------------- shall transfer or grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of any Loan or Note in which such participant is participating, or reduce the rate or extend the time of payment of interest or Fees thereon (except in connection with a waiver of applicability of any post- default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitments shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof), or (ii) consent to the assignment or transfer by any Borrower of any of its rights and obligations under this Agreement. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against any Bank in respect of such participation to be those set forth in the agreement executed by such Bank in favor of the participant relating thereto) and all amounts payable by the applicable Borrower hereunder shall be determined as if such Bank had not sold such participation. (b) Notwithstanding the foregoing, each Bank may (x) assign all or a portion of its Commitment and related outstanding Obligations hereunder to any affiliate of such Bank which is at least 50% owned by such Bank or its parent company or (y) assign all, or if less than all, a portion equal to at least U.S. $5,000,000 in the aggregate for the assigning Bank, of such Commitment and related outstanding Obligations hereunder to one or more Eligible Transferees, each of which assignees shall become a party to this Agree ment as a Bank by execution of an Assignment and Assumption Agreement substantially in the form of Exhibit G hereto, provided that, (i) at such time Schedule I shall be deemed -------- modified to reflect the Commitments (and/or outstanding Loans, as the case may be) of such new Bank and of the existing Banks, (ii) new Notes will be issued, at such Bank's expense, to such new Bank and to the assigning Bank upon the request of such new Bank or assigning Bank, such new Notes to be in conformity with the requirements of Section 2.05 (with appropriate modifications) to the extent needed to reflect the revised Commitments (and/or outstanding Loans, as the case may be) and (iii) the consent of the applicable Borrower shall be required in connection with any assignment to an Eligible Transferee pursuant to clause (y) above. To the extent of any assignment pursuant to this Section 12.04(b), the assigning Bank shall be relieved of its obligations hereunder with respect to its assigned Commitments. (c) Nothing in this Agreement shall prevent or prohibit any Bank from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank. 12.05 No Waiver; Remedies Cumulative. No failure or delay on the ------------------------------ part of any Bank or any holder of any Note in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between any Borrower and any Bank or the holder of any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights, powers and remedies herein or in any other Credit Document expressly provided are cumulative and not exclusive of any rights, powers or remedies which any Bank or the holder of any Note would otherwise have. No notice to or demand on any Borrower in any case shall entitle any Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Bank or the holder of any Note to any other or further action in any circumstances without notice or demand. 12.06 Payments Pro Rata. (a) Except as otherwise provided in this ----------------- Agreement, the Agent agrees that promptly after its receipt of each payment from or on behalf of any Borrower in respect of any Obligations hereunder, it shall distribute such payment to the Banks (other than any Bank that has consented in writing to waive its pro rata share of any such payment) pro rata based upon --- ---- --- ---- their respective shares, if any, of the Obligations with respect to which such payment was received. (b) Each of the Banks agrees that, if it should receive any amount here under (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise), which is applicable to the payment of the principal of, or interest on, the Loans or Facility Fee, of a sum which with respect to the related sum or sums received by other Banks is in a greater proportion than the total amount of such Obligation then owed and due to such Bank bears to the total amount of such Obligation then owed and due to all of the Banks immediately prior to such receipt, then such Bank receiving such excess payment shall purchase for cash without recourse or warranty from the other Banks an interest in the Obligations of the respective Borrower to such Banks in such amount as shall result in a proportional participation by all the Banks in such amount; provided that if all -------- or any portion of such excess amount is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 12.07 Calculations; Computations. (a) Unless otherwise specifically -------------------------- pro vided herein, the financial statements to be furnished pursuant hereto shall be made and pre- pared in accordance with generally accepted accounting principles ("GAAP") in the United States consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the applicable Borrower to the Agent). (b) All computations of interest, Facility Fee and Fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, Facility Fee or Fees are payable. (c) All computations of Loans outstanding, gains, losses, debts, liabilities and other amounts (the "Amounts") for purposes of determining compliance by the Company and/or the Borrowers with the provisions of this Agreement shall be made by aggregating all U.S. Dollar-denominated Amounts with the U.S. Dollar Equivalent of all non-U.S. Dollar-denominated Amounts. 12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF ----------------------------------------------------------- JURY TRIAL. (A) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS - ---------- AND OBLIGATIONS OF THE PAR TIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH BORROWER HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK JURISDICTION OVER SUCH BORROWER AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN ANY OF SUCH AFORESAID COURTS, THAT ANY SUCH COURT LACKS JURISDICTION OVER SUCH BORROWER. EACH BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PRE PAID, TO THE BORROWER AT ITS NOTICE ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY LEGAL ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY BANK UNDER THIS AGREEMENT OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE APPLICABLE BORROWER IN ANY OTHER JURISDICTION. (B) EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (C) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 12.09 Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Company and the Agent. 12.10 Effectiveness. This Agreement shall become effective on August ------------- 30, 1996 (the "Effective Date"). 12.11 Headings Descriptive. The headings of the several sections and -------------------- sub sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 12.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any ------------------------- other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by each Borrower party thereto and the Required Banks, provided that no such change, waiver, discharge or termination shall, without - -------- the consent of each Bank (other than a Defaulting Bank) (with Obligations being directly affected in the case of following clause (i)), (i) extend the final scheduled maturity of any Loan or Note beyond the Maturity Date, or reduce the rate or extend the time of payment of interest or Fees thereon, or reduce the principal amount thereof, (ii) amend, modify or waive any provision of this Section 12.12, (iii) reduce the percentage specified in the definition of Required Banks (it being understood that, with the consent of the Required Banks, additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Banks or (iv) consent to the assignment or transfer by, or discharge or termination of, any Borrower of any of its rights and obligations under any Credit Document; provided further, that no such change, waiver, discharge or termination shall - ---------------- (x) increase the Commitment of any Bank over the amount thereof then in effect without the consent of such Bank (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in the Total Commitments shall not constitute an increase of the Commitment of any Bank, and that an increase in the available portion of any Commitment of any Bank shall not constitute an increase in the Commitment of such Bank), (y) without the consent of the Agent, amend, modify or waive any provision of Section 10 as same applies to such Agent or any other provision as same relates to the rights or obligations of such Agent. (b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement as contemplated by clause (a)(i) through (iv), inclusive, of this Section 12.12, the consent of the Required Banks is obtained but the consent of one or more of such other Banks whose consent is required is not obtained, then the Borrowers shall have the right to replace each such non-consenting Bank or Banks (so long as all non- consenting Banks are so replaced) with one or more Replacement Banks pursuant to Section 2.12 so long as at the time of such replacement, each such Replacement Bank consents to the proposed change, waiver, discharge or termination, provided that the Borrowers shall not have the right to replace a Bank solely as a result of the exercise of such Bank's rights (and the withholding of any required consent by such Bank) pursuant to the second proviso to Section 12.12(a). 12.13 Survival. All indemnities set forth herein including, without -------- limitation, in Sections 2.10, 2.11, 4.04 and 12.01 shall survive the execution, delivery and termination of this Agreement and the Notes and the making and repayment of the Loans. 12.14 Domicile of Loans. Each Bank may transfer and carry its Loans ----------------- at, to or for the account of any office, Subsidiary or Affiliate of such Bank. Notwithstanding anything to the contrary contained herein, to the extent that a transfer of Loans pursuant to this Section 12.14 would, at the time of such transfer, result in increased costs under Section 2.10, 2.11 or 4.04 from those being charged by such Bank prior to such transfer, then the applicable Borrower shall not be obligated to pay such increased costs (although such Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective transfer). 12.15 Judgment Currency. The obligations of any Borrower in respect ----------------- of any sum due to the Banks hereunder or under the Notes shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than the applicable Loan Currency, be discharged only to the extent that on the Business Day following receipt by the applicable Bank or Banks of any sum adjudged to be so due in the Judgment Currency, the Bank, in accordance with normal banking procedures, purchases the applicable Loan Currency with the Judgment Currency. If the amount of such Loan Currency so purchased is less than the sum originally due to such Bank or Banks, the applicable Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the applicable Bank or Banks against such loss, and if the amount of Loan Currency so purchased exceeds the sum originally due to the Bank or Banks, such Bank or Banks agree to remit such excess to the applicable Borrower. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written. Address: - -------- ALCO STANDARD CORPORATION 825 Duportail Road Wayne, Pennsylvania 19087 Attention: Mr. J.F. Quinn By Telephone: (610) 296-8000 ---------------------------------- Facsimile: (610) 640-4056 Title: DEUTSCHE BANK AG, NEW YORK BRANCH AND CAYMAN ISLANDS BRANCH By ---------------------------------- Title: By ---------------------------------- Title: DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT By ---------------------------------- Title: By ---------------------------------- Title: SCHEDULE I ----------
Bank Commitment ---- ---------- Deutsch Bank AG, $25,000,000 New York Branch and/or Cayman Islands Branch
EXHIBIT A --------- FORM OF NOTICE OF BORROWING --------------------------- [Date] Deutsche Bank AG, New York Branch, as Agent 31 West 52nd Street New York, NY 10019 Attention: Ladies and Gentlemen: The undersigned, ______________________ (the "Borrower"), refers to the Credit Agreement, dated as of August 30, 1996 (as amended from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among Alco Standard Corporation, certain of its Subsidiaries, various Banks from time to time party thereto (the "Banks"), and you, as Agent for such Banks, and hereby gives you notice, irrevocably, pursuant to Section 2.03 of the Credit Agreement, that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the "Proposed Borrowing") as required by Section 2.03(a) of the Credit Agreement: (i) The Business Day of the Proposed Borrowing is __________, 19__./ / / / Shall be a Business Day at least three Business Days after the date hereof. (ii) The Type of Loan of the Proposed Borrowing is a [Eurocurrency Loan]/[Quoted Rate Loan]. (iii) The Loan Currency of the Proposed Borrowing is ______________. (iv) The aggregate principal amount of the Proposed Borrowing is _________________. (v) The [Interest Period]/[term] for the Proposed Borrowing is _______ [month(s)] [year(s) and _____ days]. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing: (A) the representations and warranties of the Borrower set forth in the Credit Agreement are and will be true and correct in all material respects, both before and after giving effect to the Proposed Borrowing and to the application of the proceeds thereof, as though made on such date, unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date; and (B) no Default or Event of Default has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the proceeds thereof. Very truly yours, [BORROWER] By ------------------------------------ Title: EXHIBIT B --------- FORM OF NOTE ISSUED BY THE COMPANY ---------------------------------- [Amount] New York, New York , 19 ------------ -- FOR VALUE RECEIVED, ALCO STANDARD CORPORATION, an Ohio corporation (the "Borrower"), hereby promises to pay to the order of __________ or its registered assigns (the "Bank"), in lawful money of the United States of America and/or other applicable jurisdictions, in immediately available funds, at the office of Deutsche Bank AG, New York Branch (the "Agent"), located at 31 West 52nd Street, New York, NY 10019, on the Maturity Date the principal sum of _____________ dollars or its equivalent in U.S. Dollars and/or other applicable Loan Currency, or, if less, the then unpaid principal amount of the Loans initially evidenced by this Note and made by the Bank pursuant to the Agreement. The Borrower also promises to pay interest on the unpaid principal amount hereof in like money at such office from the date hereof until paid at the rates and at the times provided in Section 2.07 of the Agreement. This Note is one of the Notes referred to in the Credit Agreement, dated as of August 30, 1996, among the Borrower, certain of its Subsidiaries, the financial institutions from time to time party thereto (including the Bank) and Deutsche Bank AG, New York Branch (the "Agent") (as amended, modified or supplemented from time to time, the "Agreement"; capitalized terms used herein and not otherwise defined herein having the respective meanings given to such terms in the Agreement), and is entitled to the benefits thereof. As provided in the Agreement, this Note is subject to voluntary prepayment and mandatory repayment prior to the Maturity Date, in whole or in part. In case an Event of Default shall occur and be continuing, the principal of and accrued interest on this Note may become or be declared to be due and payable in the manner and with the effect provided in the Agreement. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ALCO STANDARD CORPORATION By ------------------------------- Title: Principal Date of Repayment Principal Amount Date of Loan Amount of Loan Loan Currency of Loan of Loan - ------------ -------------- ------------- ----------------- -------- Repaid Notation Made By - ------- ---------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT C --------- FORM OF NOTE ISSUED BY A BORROWING SUBSIDIARY --------------------------------------------- [Amount] New York, New York , 19 ------------ -- FOR VALUE RECEIVED, _______________________________________, a [jurisdiction] corporation (the "Borrower"), hereby promises to pay to the order of __________ or its registered assigns (the "Bank"), in lawful money of the United States of America and/or other applicable jurisdictions, in immediately available funds, at the office of Deutsche Bank AG, New York Branch (the "Agent"), located at 31 West 52nd Street, New York, NY 10019, on the Maturity Date the principal sum of _____________ dollars or its equivalent in U.S. Dollars and/or other applicable Loan Currency, or, if less, the then unpaid principal amount of the Loans initially evidenced by this Note and made by the Bank pursuant to the Agreement. The Borrower also promises to pay interest on the unpaid principal amount hereof in like money at such office from the date hereof until paid at the rates and at the times provided in Section 2.07 of the Agreement. This Note is one of the Notes referred to in the Credit Agreement, dated as of August 30, 1996, among Alco Standard Corporation (the "Company"), certain of its Subsidiaries (including the Borrower), the financial institutions from time to time party thereto (including the Bank) and Deutsche Bank AG, New York Branch (the "Agent") (as amended, modified or supplemented from time to time, the "Agreement"; capitalized terms used herein and not otherwise defined herein having the respective meanings given to such terms in the Agreement), and is entitled to the benefits thereof, including, without limitation, the guaranty of the Company provided in Section 11 thereof. As provided in the Agreement, this Note is subject to voluntary prepayment and mandatory repayment prior to the Maturity Date, in whole or in part. In case an Event of Default shall occur and be continuing, the principal of and accrued interest on this Note may become or be declared to be due and payable in the manner and with the effect provided in the Agreement. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. [BORROWER] By -------------------------------- Title: Principal Date of Repayment Principal Amount Date of Loan Amount of Loan Loan Currency of Loan of Loan - ------------ -------------- ------------- ----------------- -------- Repaid Notation Made By - ------- ---------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT D --------- [LETTERHEAD OF ALCO STANDARD GENERAL COUNSEL APPEARS HERE] [Effective Date] To the Agent and each of the Banks party to the Credit Agreement referred to below Ladies and Gentlemen: As General Counsel to Alco Standard Corporation, an Ohio corporation (the "Company"), I have served as counsel to the Company in connection with the execution and delivery of the Credit Agreement, dated as of August 30, 1996 (the "Credit Agreement"), among the Alco Standard Corporation, certain of its Subsidiaries, the Banks from time to time party thereto (the "Banks") and Deutsche Bank AG, New York Branch, as Agent, and the transactions contemplated thereby. This opinion is delivered to you at the request of the Company pursuant to Section 5.01 of the Credit Agreement. Unless otherwise indicated, capitalized terms used herein but not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. In connection with this opinion, I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents as I have deemed necessary or appropriate as a basis for the opinions set forth herein. In my examination I have assumed the genuineness of all signatures (other than as to the Company or any of its Subsidiaries), the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as certified or photostatic copies and the authenticity of the originals of such copies. As to questions of fact not independently verified by me I have relied, to the extent I deemed appropriate, upon representations and certificates of officers of the Company and each of its Subsidiaries, public officials and other appropriate persons. Based upon the foregoing, I am of the opinion that: 1. Each of the Company and each of its Subsidiaries (i) is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its organization, (ii) has the corporate power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (iii) is duly qualified and is authorized to do business and is in good standing in all jurisdictions where the failure to be so qualified could reasonably be expected to have a Material Adverse Effect. 2. The Company has the corporate power and authority to execute, deliver and carry out the terms and provisions of, and has taken all necessary corporate action to authorize the execution, delivery and performance of, the Credit Agreement. The Company has duly executed the Credit Agreement. Each Borrower Subsidiary has the corporate power and authority to execute, deliver and carry out the terms and provisions of any Note or Borrower Subsidiary Agreement subsequently executed by such Borrower Subsidiary. 3. The Credit Agreement constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). 4. None of the execution, delivery or performance by the Company of the Credit Agreement, the compliance by it with the terms and provisions thereof or the consummation of the transactions contemplated therein, (i) will contravene any applicable pro vision of any law, statute, rule or regulation (including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System) or any order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict or be inconsistent with or result in any breach of, any of the terms, covenants, conditions or pro visions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Company or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement, loan agreement or other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of its property or assets are bound or to which it may be subject or (iii) will violate any provision of any charter document of the Company or any of its Subsidiaries. 5. No order, consent, approval, license, authorization or validation of, filing, recording or registration with, or exemption by, any foreign or domestic governmental or public body or authority, or any subdivision thereof, or any other third party (except as have been obtained or made prior to the date hereof), is required to authorize, or is required in connection with, (i) the execution, delivery and performance of the Credit Agreement by the Company or (ii) the legality, validity, binding effect or enforceability against the Company of the Credit Agreement. 6. There are no actions, suits or proceedings pending or, to the best of my knowledge, threatened (i) with respect to the Company or any of its Subsidiaries that would reasonably be expected to have a Material Adverse Effect or (ii) against the Company or any of its Subsidiaries with respect to the Credit Agreement or the transactions contemplated thereby and there does not exist any judgment, order or injunction prohibiting or imposing any material adverse condition upon the rights or remedies of any Bank or the Agent under the Credit Agreement or on the ability of the Company to perform its obligations to any Bank or the Agent under the Credit Agreement. 7. Neither the Company nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 8. Neither the Company nor any of its Subsidiaries is not a "holding company", a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. This opinion is being furnished only to the addressees and is solely for their benefit and the benefit of their participants and assigns in connection with the above transaction. This opinion may not be relied upon for any other purpose, or relied upon by any other person, firm or corporation for any purpose, without our prior written consent. Very truly yours, EXHIBIT E --------- FORM OF SECRETARY'S CERTIFICATE ------------------------------- I, the undersigned, [Chairman/President/Vice President/Finance/Controller] of [Borrower], a corporation organized and existing under the laws of ___________ (the "Borrower"), do hereby certify on behalf of the Borrower that: 1. This Certificate is furnished pursuant to the Credit Agreement, dated as of August 30, 1996, among Alco Standard Corporation, certain of its Subsidiaries, the Banks from time to time party thereto and Deutsche Bank AG, New York Branch, as Agent (such Credit Agreement, as in effect on the date of this Certificate, being herein called the "Credit Agreement"). Unless otherwise defined herein, capitalized terms used in this Certificate shall have the meanings set forth in the Credit Agreement. 2. The following named individuals are elected officers of the Borrower, each holds the office of the Borrower set forth opposite his or her name and has held such office since __________, 19__./ / The signature written opposite the name and title of each such officer is his or her genuine signature. / / Insert a date prior to the time of any corporate action relating to the Credit Documents or related documentation.
Name/ / Office Signature - ---------- ------ ---------
/ / Include name, office and signature of each officer who will sign any Credit - --- Document, including the officer who will sign the certification at the end of this Certificate or related documentation. 3. Attached hereto as Exhibit A is a certified copy of the Certificate of Incorporation/ / of the Borrower, as filed in the Office of the Secretary of State of __________/ / on ___________, 19__, together with all amendments thereto adopted through the date hereof. / / Revise as appropriate for the relevant Borrower. / / Revise as appropriate for the relevant Borrower. 4. Attached hereto as Exhibit B is a true and correct copy of the By- Laws/ / of the Borrower which were duly adopted, are in full force and effect on the date hereof, and have been in effect since _____________, 19__./ / / / Revise as appropriate for the relevant Borrower. / / Insert date on or prior to the date of the initial action taken by the Borrower with respect to any Credit Document. 5. Attached hereto as Exhibit C is a true and correct copy of resolutions which were duly adopted on __________, 19__ [by unanimous written consent of the Board of Directors of the Borrower] [by a meeting of the Board of Directors of the Borrower at which a quorum was present and acting throughout],/ / and such resolutions have not been rescinded, amended or modified. Except as attached hereto as Exhibit C, no resolutions have been adopted by the Board of Directors/ / of the Borrower which deal with the execution, delivery or performance of any Credit Document to which the Borrower is party./ / / / Revise as appropriate for the relevant Borrower. / / Revise as appropriate for the relevant Borrower. / / Revise this paragraph as appropriate if a form of corporate authorization other than the adoption of specific authorizing resolutions has been used. 6. On the date hereof, all of the applicable conditions set forth in Sections 5.02, 5.03, 5.04, 5.05 and 6.01 of the Credit Agreement have been satisfied. 7. On the date hereof, the representations and warranties contained in the Credit Agreement with respect to the Borrower are true and correct in all material respects with the same effect as though such representations and warranties had been made on the date hereof, both before and after giving effect to the incurrence of Loans on the date here of and the application of the proceeds thereof, unless stated to relate to a specific earlier date, in which case such representations and warranties were true and correct in all material respects as of such earlier date. 8. On the date hereof, no Default or Event of Default has occurred and is continuing or would result from the Borrowing to occur on the date hereof or from the application of the proceeds thereof. 9. As of the date hereof, nothing has occurred which has or could reasonably be expected to have a material adverse effect on the rights or remedies of the Agent or any of the Banks under or with respect to the Credit Agreement. 10. There is no proceeding that has been instituted or is currently taking place for the dissolution or liquidation of the Borrower or threatening the existence of the Borrower. IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of __________, 19__. [BORROWER] ------------------------------ Name: Title: I, the undersigned, [Secretary/Assistant Secretary] of the Borrower, do hereby certify on behalf of the Borrower that: 1. [Name of Person making above certifications] is the duly elected and qualified [Chairman/President/Vice President/Finance/Controller] of the Borrower and the signature above is [his] [her] genuine signature. 2. The certifications made by [name of Person making above certifications] on behalf of the Borrower in Items 2, 3, 4, 5 and 10 above are true and correct. IN WITNESS WHEREOF, I have hereunto set my hand this _____ day of _________, 19__. [BORROWER] ---------------------------- Name: Title: EXHIBIT F --------- FORM OF BORROWING SUBSIDIARY AGREEMENT -------------------------------------- BORROWING SUBSIDIARY AGREEMENT, dated as of __________, 19___, between ___________, a ________ corporation (the "New Borrower"), and ALCO STANDARD CORPORATION, an Ohio corporation (the "Company"), in favor of DEUTSCHE BANK AG, NEW YORK BRANCH, as Agent, for the benefit of the Banks party to the Credit Agreement (as hereinafter defined). Except as otherwise defined herein, terms used herein and defined in the Credit Agreement shall be used herein as therein defined. W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Company, certain of its Subsidiaries, various Banks from time to time party thereto (the "Banks") and Deutsche Bank AG, New York Branch, as Agent, have entered into a Credit Agreement, dated as of August 30, 1996 (as in effect from time to time, the "Credit Agreement"); WHEREAS, pursuant to the Credit Agreement, the Banks have agreed, upon the terms and subject to the conditions therein set forth, to make Loans to the Company and to Subsidiaries of the Company which execute and deliver to the Agent a Borrowing Subsidiary Agreement; WHEREAS, the undersigned Subsidiary and the Company desire for the undersigned Subsidiary to become a Borrowing Subsidiary; NOW, THEREFORE, in consideration of the benefits accruing to each of the undersigned, including, with respect to the New Borrower, being able to borrow under the Credit Agreement upon the terms and subject to the conditions set forth therein, the receipt and sufficiency of which are hereby acknowledged, each of the undersigned covenants and agrees as follows: 1. New Borrower's Obligations. The New Borrower agrees that from and -------------------------- after the date of this Agreement it will be, and will be liable for the observance and performance of all obligations of, a Borrowing Subsidiary under the Credit Agreement (including as a Borrower thereunder), as the same may be amended from time to time, to the same extent as if it had been one of the original parties to the Credit Agreement. 2. Company's Obligations. (a) The Company represents to the Banks --------------------- that the New Borrower is a Subsidiary of the Company. (b) The Company hereby covenants and agrees with each Bank that, so long as this Agreement shall remain in effect, the New Borrower shall continue to be a Subsidiary of the Company. (c) The Company acknowledges and agrees that from the date hereof the New Borrower will be a Borrowing Subsidiary under the Credit Agreement and that, as such, any borrowings made by the New Borrower pursuant to the Credit Agreement will constitute Borrowings. The Company also acknowledges and agrees that all Loans and other indebtedness of the New Borrower under the Credit Agreement shall be guaranteed by the Company pursuant to Section 11 thereof. 3. Miscellaneous. (a) If at any time no Loans are outstanding to ------------- the New Borrower and no amounts or other obligations are owed to the Agent or any Bank from the New Borrower, then this Agreement can be terminated by notice from the Company and the New Borrower to the Agent; otherwise, this Agreement may not be amended or terminated without the prior written consent of the Agent and the Required Banks. (b) Notices to the New Borrower under the Credit Agreement shall be made as follows: [Address] Attention: ----------------------- Telephone: ----------------------- Facsimile: ----------------------- (c) This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their authorized officers as of the date first appearing above. [NEW BORROWER] By ------------------------------------------- Title: ALCO STANDARD CORPORATION By ------------------------------------------- Title: Accepted as of the date first above written: DEUTSCHE BANK AG, NEW YORK BRANCH, as Agent By ---------------------------------------------- Title: By ---------------------------------------------- Title: EXHIBIT G --------- FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT ------------------------------------------- Date __________, 19__ Reference is made to the Credit Agreement described in Item 1 of Annex I hereto (as such Credit Agreement may hereafter be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). Unless defined in Annex I hereto, terms defined in the Credit Agreement are used herein as therein defined. ___________ (the "Assignor") and __________ (the "Assignee") hereby agree as follows: 1. The Assignor hereby sells and assigns to the Assignee without recourse and without representation or warranty (other than as expressly provided herein), and the Assignee hereby purchases and assumes from the Assignor, that interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the date hereof which represents the percentage interest specified in Item 4 of Annex I hereto (the "Assigned Share") of all of the outstanding rights and obligations under the Credit Agreement relating to the facilities listed in Item 4 of Annex I hereto, including, without limitation, all rights and obligations with respect to the Assigned Share of the Assignor's Commitment and of any outstanding Loans. After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the outstanding Loans owing to the Assignee will be as set forth in Item 4 of Annex I hereto. 2. The Assignor (a) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (b) makes no representation or warranty and assumes no responsibility with respect to any statement, warranty or representation made in or in connection with the Credit Agreement or the other Credit Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or the other Credit Documents or any other instrument or document furnished pursuant thereto; and (c) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company, any other Borrower or any of their respective Subsidiaries or the performance or observance by the Company, any other Borrower or any of their respective Subsidiaries of any of their respective obligations under the Credit Agreement or the other Credit Documents or any other instrument or document furnished pursuant thereto. 3. The Assignee (a) confirms that it has received a copy of the Credit Agreement and the other Credit Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption Agreement; (b) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (c) confirms that it is an Eligible Transferee under Section 12.04(b) of the Credit Agreement; (d) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Credit Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; [and] (e) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank[; and (f) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty]/ /. / / Include if the Assignee is organized under the laws of a jurisdiction outside of the United States. 4. Following the execution of this Assignment and Assumption Agreement by the Assignor and the Assignee, an executed original hereof (together with all attachments) will be delivered to the Agent. The effective date of this Assignment and Assumption Agreement shall be the date of execution hereof by the Assignor and the Assignee and the receipt of the consent of the Borrowers to the extent required by Section 12.04(b) of the Credit Agreement, unless otherwise specified in Item 5 of Annex I hereto (the "Settlement Date"). 5. Upon the delivery of a fully executed original hereof to the Agent, as of the Settlement Date, (a) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Assumption Agreement, have the rights and obligations of a Bank thereunder and under the other Credit Documents and (b) the Assignor shall, to the extent provided in this Assignment and Assumption Agreement, relinquish its rights and be released from its obligations under the Credit Agreement and the other Credit Documents. 6. It is agreed that upon the effectiveness hereof, the Assignee shall be entitled to (a) all interest on the Assigned Share of the Loans at the rates specified in Item 6 of Annex I and (b) all Facility Fees (if applicable) on the Assigned Share of the Commitment at the rate specified in Item 7 of Annex I hereto, which, in each case, accrue on and after the Settlement Date, such interest and, if applicable, Facility Fee to be paid by the Agent directly to the Assignee. It is further agreed that all payments of principal made on the Assigned Share of the Loans which occur on and after the Settlement Date will be paid directly by the Agent to the Assignee. Upon the Settlement Date, the Assignee shall pay to the Assignor an amount specified by the Assignor in writing which represents the Assigned Share of the principal amount of the respective Loans made by the Assignor pursuant to the Credit Agreement which are outstanding on the Settlement Date, net of any closing costs, and which are being assigned hereunder. The Assignor and the Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Settlement Date directly between themselves on the Settlement Date. 7. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Assignment and Assumption Agreement, as of the date first above written, such execution also being made on Annex I hereto. [NAME OF ASSIGNOR], as Assignor By____________________________________ Title: [NAME OF ASSIGNEE], as Assignee By____________________________________ Title: [Acknowledged and Agreed: [BORROWER] By____________________________________ Title: [BORROWER] By____________________________________ Title: ]/ / / / The consents of the Borrowers are required for certain assignments pursuant to Section 12.04(b) of the Credit Agreement. If required, each Borrower should execute the Acknowledgement. ANNEX I TO ASSIGNMENT AND ASSUMPTION AGREEMENT ----------------------------------- 1. Name and Date of Credit Agreement: Credit Agreement, dated as of August 30, 1996, among Alco Standard Corporation, certain of its Subsidiaries, the Banks from time to time party thereto and Deutsche Bank AG, New York Branch, as Agent, as amended to the date hereof. 2. Borrowers: ______________________________ ______________________________ ______________________________ 3. Date of Assignment and Assumption Agreement: 4. Assigned Share Amounts (as of date of Item #3 above):
Outstanding Principal of Total Commitment Loans (U.S. $ Equivalent) ---------------- ------------------------- a. Aggregate Amount $__________ $_________ for all Banks b. Assigned Share __________% _________% c. Amount of $__________ $_________ Assigned Share
Assigned Share in Loan Currencies (as of date of Item #3 above):
Borrower Loan Amount Assigned Share - ---------- ----------------------------- ----------------------------- (in applicable Loan Currency) (in applicable Loan Currency) ========================================================================
5. Settlement Date: 6. Rate of Interest to the Assignee: As set forth in Section 2.07 of the Credit Agreement (unless otherwise agreed to by the Assignor and the Assignee)/ / / / The Borrower and the Agent shall direct the entire amount of the interest to the Assignee at the rate set forth in Section 2.07 of the Credit Agreement, with the Assignor and Assignee effecting the agreed upon sharing of the interest through payments by the Assignee to the Assignor. 7. Facility Fee: As set forth in Section 3.01(a) (unless otherwise agreed to by the Assignor and the Assignee)/ / / / Insert "Not Applicable" in lieu of text if no portion of the Commitment is being assigned. Otherwise, the Borrowers and the Agent shall direct the entire amount of the Commitment Commission to the Assignee at the rate set forth in Section 3.01(a) of the Credit Agreement, with the Assignor and the Assignee effecting the agreed upon sharing of the Commitment Commission through payment by the Assignee to the Assignor. 8. Notice: ASSIGNOR: _____________________ _____________________ _____________________ _____________________ Attention: Telephone: Telecopier: Reference: ASSIGNEE: _____________________ _____________________ _____________________ _____________________ Attention: Telephone: Telecopier: Reference: 9. Payment Instructions: ASSIGNOR: _____________________ _____________________ _____________________ _____________________ Attention: Reference: ASSIGNEE: _____________________ _____________________ _____________________ _____________________ Attention: Reference: Accepted and Agreed: [NAME OF ASSIGNEE] [NAME OF ASSIGNOR] By_______________________________ By______________________________ Name: Name: Title: Title: AMENDMENT NO. 1 TO THE CREDIT AGREEMENT --------------------------------------- AMENDMENT NO. 1 TO THE CREDIT AGREEMENT (this "Amendment"), dated as of April 1, 1997, among IKON Office Solutions, Inc. (formerly known as Alco Standard Corporation, and referred to herein as the "Company"), IKON Office Solutions, S.A. (formerly known as Axion, S.A., and referred to herein as "IKON France"), IKON Office Solutions Europe PLC ("IKON U.K." and, together with the Company and IKON France, collectively referred to herein as the "Borrowers"), various banks (the "Banks") and Deutsche Bank AG, New York Branch, as agent (the "Agent"). All capitalized terms defined in the hereinafter defined Credit Agreement shall have the same meaning when used herein unless otherwise defined herein. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Borrowers, the Banks and the Agent entered into a Credit Agreement, dated as of August 30, 1996 (as in effect on the date hereof, the "Credit Agreement"); WHEREAS, the parties hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: 1. Amendment to the Credit Agreement. The Commitment amount set --------------------------------- forth opposite Deutsche Bank AG, New York Branch and Cayman Islands Branch, on Schedule I to the Credit Agreement is hereby amended to $50,000,000. 2. Representations and Warranties. In order to induce the Banks and ------------------------------ the Agent to enter into this Amendment, each Borrower hereby represents and warrants that: (a) no Default or Event of Default exists or will exist as of the date hereof and after giving effect to this Amendment; and (b) as of the date hereof, after giving effect to this Amendment, all representations, warranties and agreements of the Borrower contained in the Credit Agreement will be true and correct in all material respects. 3. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF ------------- THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 4. Agreement Not Otherwise Amended. This Amendment is limited ------------------------------- precisely as written and shall not be deemed to be an amendment, consent, waiver or modification of any other term or condition of the Credit Agreement, any other Credit Document or any of the instruments or agreements referred to therein, or prejudice any right or rights which the Banks, the Agent or any of them may now have or may have in the future under or in connection with the Credit Agreement, any other Credit Document or any of the instruments or agreements referred to therein. Except as expressly modified hereby, the terms and provisions of the Credit Agreement shall continue in full force and effect. Whenever the Credit Agreement is referred to in the Credit Agreement, any other Credit Document or any of the instruments, agreements or other documents or papers executed and delivered in connection therewith, it shall be deemed to be a reference to the Credit Agreement as modified hereby. 5. Counterparts. This Amendment may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective duly authorized officers as of the date first above written. IKON OFFICE SOLUTIONS, INC. By ------------------------------- Title: IKON OFFICE SOLUTIONS, S.A. By ------------------------------- Title: IKON OFFICE SOLUTIONS EUROPE PLC By ------------------------------- Title: DEUTSCHE BANK AG, NEW YORK BRANCH AND CAYMAN ISLANDS BRANCH By ------------------------------- Title: By ------------------------------- Title: DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT By ------------------------------- Title: By ------------------------------- Title: EX-10.5 4 AMENDED AND RESTATED RECEIVABLES TRANSFER AGREEMENT Exhibit 10.5 AMENDED AND RESTATED RECEIVABLES TRANSFER AGREEMENT Dated as of March 31, 1997 Among IKON FUNDING, INC. as Transferor ------------- and IKON CAPITAL, INC. as initial Servicer ------------------- and TWIN TOWERS INC. as Transferee ------------- and DEUTSCHE BANK AG, NEW YORK BRANCH as Agent --------
TABLE OF CONTENTS Section Page - ------- ---- ARTICLE I THE COMMITMENT.................... 2 1.01. Commitment................................................. 2 1.02. Limits on Commitment....................................... 3 1.03. Transfer Procedure......................................... 3 1.04. Commitment Termination Date................................. 3 1.05. Voluntary Termination of Commitment or Reduction of Maximum Investment......................................... 4 ARTICLE II TRANSFEREE'S INTEREST................. 4 2.01. Assignment of Transferee's Interest........................ 4 2.02. Transferee's Percentage.................................... 4 2.03. Rate Tranches; Selection of Yield Periods.................. 5 ARTICLE III SETTLEMENT...................... 6 3.01. Non-Pay Out Settlement Procedures for Collections.......... 6 3.02. Pay Out Settlement Procedures for Collections.............. 9 3.03. Dilutions.................................................. 11 3.04. Optional Reduction of Transferee's Investment.............. 12 3.05. Reporting by Servicer...................................... 13 3.06. Delivery of Deemed Collections; Collections Held in Trust...................................................... 13 ARTICLE IV PAYMENT PROCEDURES; FEES AND YIELD PROTECTION.............. 14 4.01. Payments and Computations.................................. 14 4.02. Interest on Overdue Amounts................................ 14 4.03. Fees....................................................... 14 4.04. Yield Protection........................................... 15 4.05. Interest Rate Hedging Agreements........................... 17 ARTICLE V CONDITIONS PRECEDENT................. 18 5.01. Conditions Precedent to Amendment and Restatement.......... 18 5.02. Conditions Precedent to All Transfers and Reinvestments .......................................................... 20
ARTICLE VI REPRESENTATIONS AND WARRANTIES............. 21 6.01. Representations and Warranties of the Transferor........... 21 6.02. Representations and Warranties of IKON Capital............. 25 ARTICLE VII GENERAL COVENANTS................... 28 7.01. Affirmative Covenants...................................... 28 7.02. Reporting Requirements..................................... 30 7.03. Negative Covenants......................................... 31 7.04. Separate Corporate Existence............................... 33 ARTICLE VIII ADMINISTRATION AND COLLECTION............. 35 8.01. Designation of Servicer.................................... 35 8.02. Duties of Servicer......................................... 36 8.03. Rights of the Agent........................................ 38 8.04. Responsibilities of Transferor............................. 39 8.05. Further Action Evidencing Transfers........................ 39 8.06. Application of Obligors' Payments.......................... 41 ARTICLE IX SECURITY INTEREST................... 41 9.01. Grant of Security Interest................................. 41 9.02. Further Assurances......................................... 41 9.03. Remedies................................................... 41 ARTICLE X TERMINATION EVENTS.................. 42 10.01. Termination Events......................................... 42 10.02. Remedies................................................... 44 ARTICLE XI THE AGENT....................... 45 11.01. Authorization and Action................................... 45 11.02. Agent's Reliance, Etc...................................... 45 11.03. Agent and Affiliates....................................... 46 ARTICLE XII ASSIGNMENTS...................... 46 12.01. Restrictions on Assignments................................ 46 12.02. Documentation; Notice of Assignment........................ 47 12.03. Rights of Assignee......................................... 47
-ii- 12.04. Allocation of Payments..................................... 48 12.05. Calculation of Earned Discount After Assignment............ 48 12.06. Rights of Collateral Agent................................. 48 ARTICLE XIII INDEMNIFICATION.................... 49 13.01. Indemnities by the Transferor.............................. 49 ARTICLE XIV MISCELLANEOUS..................... 52 14.01. Amendments, Etc............................................ 52 14.02. Notices, Etc............................................... 52 14.03. No Waiver; Remedies........................................ 52 14.04. Binding Effect; Survival................................... 53 14.05. Costs, Expenses and Taxes.................................. 53 14.06. No Proceedings............................................. 54 14.07. Confidentiality of Transferor Information.................. 54 14.08. Confidentiality of Program Information..................... 56 14.09. No Recourse Against Other Parties.......................... 59 14.10. Definitions; Other Terms................................... 59 14.11. Captions and Cross References.............................. 59 14.12. Integration................................................ 59 14.13. Governing Law.............................................. 59 14.14. Waiver Of Jury Trial....................................... 60 14.15. Consent To Jurisdiction; Waiver Of Immunities.............. 60 14.16. Execution in Counterparts.................................. 60 14.17. Syndication of Liquidity................................... 60 14.18. Tax Treatment.............................................. 60 APPENDIX A DEFINITIONS..........................................A-1
-iii- APPENDIX APPENDIX A Definitions SCHEDULES SCHEDULE 5.01(f) Filing Jurisdictions SCHEDULE 6.01(m) List of Offices of Transferor where Records Are Kept SCHEDULE 6.01(n) List of Designated Account Banks and Post Office Boxes SCHEDULE 6.01(o)-1 Forms of Contracts SCHEDULE 6.01(o)-2 Description of Credit and Collection Policy SCHEDULE 6.02(i) Description of Material Adverse Changes SCHEDULE 14.02 Addresses for Notice SCHEDULE A-1 Marketplaces EXHIBITS EXHIBIT 1.03 Form of Transfer Request EXHIBIT 3.05(a) Form of Periodic Report EXHIBIT 5.01(f) Form of UCC Financing Statement EXHIBIT 5.01(h) Form of Designated Account Agreement EXHIBIT 5.01(i) Form of Opinion of Counsel for Transferor EXHIBIT 5.01(j) Form of Opinion of Counsel for Agent EXHIBIT 5.01(k) Form of UCC Financing Statement - Dealer EXHIBIT 5.01(l) Form of Power of Attorney EXHIBIT 5.01(o) Form of IKON Office Letter EXHIBIT A Form of Post Office Box Agreement
-iv- AMENDED AND RESTATED RECEIVABLES TRANSFER AGREEMENT AMENDED AND RESTATED RECEIVABLES TRANSFER AGREEMENT, dated as of March 31, 1997, among IKON FUNDING, INC., a Delaware corporation (the "Transferor"), as ---------- transferor, IKON CAPITAL, INC. (formerly Alco Capital Resource, Inc.), a Delaware corporation ("IKON Capital"), as initial Servicer (as defined herein), ------------ TWIN TOWERS INC., a Delaware corporation (the "Transferee"), as transferee, and ---------- DEUTSCHE BANK AG, a banking corporation organized under the laws of the Federal Republic of Germany ("Deutsche Bank"), acting through its NEW YORK BRANCH ------------- ("DBNY"), as agent for the Transferee (in such capacity, the "Agent"). Unless ---- ----- otherwise indicated, capitalized terms used in this Agreement are defined in Appendix A. - ---------- Background ---------- 1. IKON Capital, Transferee and the Agent entered into a Receivables Transfer Agreement, dated as of September 23, 1994 (as heretofore amended, the "Original Receivables Agreement"). - ------------------------------- 2. Transferor, IKON Capital, Transferee and the Agent desire to amend and restate the Original Receivables Agreement in its entirety as set forth herein in order to, among other things, provide for the substitution of IKON Funding, Inc., as Transferor. 3. The Transferor has, and expects to have, Pool Receivables in which the Transferor intends to transfer an undivided interest. The Transferor has requested the Transferee, and the Transferee has agreed, subject to the terms and conditions contained in this Agreement, to acquire from the Transferor such undivided interest, herein referred to as the Transferee's Interest, in one or more Transfers from time to time during the Reinvestment Period. 4. The Transferor and the Transferee also desire that, subject to the terms and conditions of this Agreement, certain of the daily Collections in respect of the Transferee's Interest be reinvested in Pool Receivables so that the Transferee may maintain its Transferee's Investment fully invested in uncollected Pool Receivables. 5. The Transferee expects generally to fund its Transfers and Reinvestments through the issuance of Commercial Paper Notes. The Transferee has entered into a Liquidity Agreement providing for the making by the Liquidity Banks of loans secured by the Transferee's Interest in the event the Transferee is unable to fund its Transfers or Reinvestments pursuant to this Agreement by the issuance of Commercial Paper Notes or otherwise prefers to fund such Transfers or Reinvestments under the Liquidity Agreement rather than by the issuance of Commercial Paper Notes, or is unable to pay such Commercial Paper Notes at maturity from its share of collections on Pool Receivables. The Transferee has also entered into an Enhancement Agreement with the Enhancement Bank providing for the issuance of a letter of credit to a trustee for the holders of Commercial Paper Notes, and for the making of loans to the Transferee, to provide funds for the payment of Commercial Paper Notes in the circumstances described above when funding is not available under the Liquidity Agreement. 6. The Transferee has appointed DBNY as its agent to perform certain administrative duties for the Transferee, including, among other things, the arrangement of the transactions provided for hereunder, the administration of the funding of such transactions and the making of certain determinations hereunder and in connection herewith. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto hereby amend and restate the Original Receivables Agreement in its entirety and hereby agree as follows: ARTICLE I THE COMMITMENT SECTION 1.01. Commitment. On the terms and subject to the conditions set ---------- forth in this Agreement (including Article V): --------- (a) Transfers. Pursuant to Section 1.03, from time to time during the --------- ------------ Reinvestment Period, upon request by the Transferor, the Transferee shall acquire from the Transferor, in one or more transactions, an undivided interest in the Pool Receivables and Related Property. Each of the initial acquisitions of the Transferee's Interest hereunder and each subsequent acquisition increasing the Transferee's Interest is herein called a "Transfer". -------- (b) Reinvestments. Pursuant to Section 3.01, during the Reinvestment ------------- ------------ Period, the Transferee shall permit the Servicer to cause certain of the Collections in respect of the Transferee's Interest to be paid to Transferor for reinvestment in the Pool Receivables and Related Property. Each such payment is herein called a "Reinvestment". ------------ The Transferee's obligation to make such Transfers and Reinvestments is herein called the "Commitment". ---------- 2 SECTION 1.02. Limits on Commitment. Under no circumstances shall the -------------------- Transferee accept any Transfer to the extent that, after giving effect to such Transfer: (a) the Transferee's Investment would exceed the Maximum Investment; or (b) the Unadjusted Transferee's Percentage would exceed the Maximum Percentage. SECTION 1.03. Transfer Procedure. (a) Transfer Request. Each Transfer ------------------ ---------------- from the Transferor by the Transferee shall be made on written request by the Transferor to the Transferee and the Agent, substantially in the form of Exhibit ------- 1.03 (a "Transfer Request"), received by the Agent not later than 11:00 a.m. - ---- ---------------- (New York City time) on the second Business Day preceding the date of such proposed Transfer. Each such request shall specify the desired amount and date of such Transfer. (b) Amount of Transfer Price. The amount of the transfer price paid by the ------------------------ Transferee for each Transfer shall be equal to the lesser of (x) the amount proposed by the Transferor pursuant to Section 1.03(a) and (y) the maximum --------------- amount permitted under Section 1.02. ------------ (c) Funding of Transfer. On the date of each Transfer, the Transferee ------------------- shall, upon satisfaction of the applicable conditions set forth in Article V, --------- make available to the Agent in immediately available funds, at its office at 31 West 52nd Street, New York, New York 10019, the amount of the transfer price to be paid for such Transfer (determined pursuant to Section 1.03(b)) and after --------------- receipt by the Agent of such funds, the Agent will make such funds immediately available to the Transferor at such office. SECTION 1.04. Commitment Termination Date. (a) The "Commitment --------------------------- ---------- Termination Date" shall be the earlier to occur of (i) March 30, 1998 (herein, - ---------------- as the same may be extended, called the "Scheduled Commitment Termination -------------------------------- Date"), and (ii) the date of termination of the Commitment pursuant to Section - ---- ------- 1.04(c), 1.05 or 10.02. - ------- ---- ----- (b) The Scheduled Commitment Termination Date may be extended from time to time by delivery of a written request for such extension to the Transferee and the Agent not less than 60 days prior to the then Scheduled Commitment Termination Date. Within 30 days prior to the then Scheduled Commitment Termination Date, the Transferee and the Agent shall notify the Transferor as to whether they have given their consent to such extension (which consent may be given or withheld by either such party in its sole discretion). As a condition to any such extension, the 3 Transferor and the Servicer shall deliver such certificates, opinions of counsel or other documents as the Transferee or the Agent may require. If such extension is approved, the Scheduled Commitment Termination Date shall be extended for 364 days from the effective date of such consent. (c) The Commitment shall terminate, and the Transferee shall have no obligation to accept any further Transfers or make any further Reinvestments hereunder, on the scheduled date of termination of either (A) the Liquidity Banks' commitments under the Liquidity Agreement or (B) the Enhancement Bank's commitment under the Enhancement Agreement. The Transferee agrees to give the Transferor at least 30 days' prior written notice of the termination of the Commitment pursuant to the foregoing sentence, but no failure to give or delay in giving such notice shall prevent or delay such termination. SECTION 1.05. Voluntary Termination of Commitment or Reduction of Maximum ----------------------------------------------------------- Investment. The Transferor may, upon at least ten Business Days' notice to the - ---------- Agent, terminate the Commitment in whole or reduce in part the unused portion of the Maximum Investment; provided, however, that (a) each partial reduction shall -------- ------- be in an amount equal to $5,000,000 or an integral multiple thereof and (b) after giving effect to such reduction, the remaining Maximum Investment will not be less than $25,000,000. ARTICLE II TRANSFEREE'S INTEREST SECTION 2.01. Assignment of Transferee's Interest. The Transferor hereby ----------------------------------- assigns and transfers to the Transferee, effective on and as of the date of the initial Transfer hereunder and, with respect to any increase in the Transferee's Interest effected by an additional Transfer hereunder, on the date of such additional Transfer, an undivided ownership interest, in a percentage equal to the Transferee's Percentage as determined from time to time in accordance with Section 2.02, in all Pool Receivables and Related Property, whether now existing - ------------ or hereafter arising or acquired by the Transferor from time to time. Such undivided ownership interest as in effect from time to time is herein called the "Transferee's Interest". --------------------- SECTION 2.02. Transferee's Percentage. The Transferee's Interest shall ----------------------- be in a percentage (the "Transferee's Percentage") equal at any time to the ----------------------- quotient obtained by dividing (a) the sum of (i) the Transferee's Investment, (ii) the Discount Factor, (iii) the Default and Dilution Reserve 4 and (iv) the Servicer's Fee Reserve (such sum being herein sometimes called the "Transferee's Allocation"), by ----------------------- -- (b) the Net Pool Balance, as most recently computed in accordance with this Section 2.02 (such quotient, ------------ expressed as a percentage, before giving effect to the following proviso, being ------- the "Unadjusted Transferee's Percentage"); provided, however, ---------------------------------- -------- ------- (1) the Transferee's Percentage shall not be greater than 100%; (2) during the Pay Out Period, the Transferee's Percentage shall be the greater of (x) the Transferee's Percentage in effect immediately before the commencement of the Pay Out Period and (y) the Transferee's Percentage as otherwise determined in accordance with this Section 2.02; and ------------ (3) the Transferee's Percentage shall become zero at such time as (A) the Transferee shall have received the accrued Earned Discount, shall have recovered the Transferee's Investment and shall have received all other amounts payable to the Transferee pursuant to this Agreement and (B) the Servicer shall have received the accrued Servicer's Fee. The Transferee's Percentage shall initially be computed by the Servicer as of the opening of business of the Servicer on the date of each Transfer, as of the most recent Month End Date, and shall be recomputed in each Periodic Report and each Pay Out Statement; provided, however, the Agent may from time to time -------- ------- request the Servicer to deliver a Periodic Report for the purpose of recalculating the Transferee's Percentage, and the Servicer shall deliver such Periodic Report within 10 Business Days after its receipt of such request. The Transferee's Percentage shall remain constant from the time as of which any such computation or recomputation is made until the time as of which the next such recomputation, if any, shall be made. SECTION 2.03. Rate Tranches; Selection of Yield Periods. (a) From time ----------------------------------------- to time, for purposes of determining the Yield Periods applicable to different portions of the Transferee's Interest, and of calculating the Earned Discount and Servicer's Fee with respect thereto, the Agent shall allocate the Transferee's Interest to one or more tranches (each a "Rate Tranche"), each ------------ representing a portion of the Transferee's Investment (with respect to each Rate Tranche, the "Transferee's Tranche Investment"). At any time, each Rate Tranche ------------------------------- shall have only one Yield Period and one Transferee Rate applicable for 5 purposes of calculating Earned Discount, and shall be funded by (i) an issue of Commercial Paper Notes, (ii) a Funding Advance, (iii) a borrowing of Liquidity Loans funded by the Liquidity Banks ratably and having the same Yield Period, or (iv) an Enhancement Draw, but not by more than one of the foregoing at the same time. (b) The Agent shall select the duration of the initial, and each subsequent, Yield Period for each Rate Tranche in its discretion; provided that, -------- so long as no Termination Event shall have occurred and be continuing, the Agent shall use reasonable efforts, taking into account market conditions, to accommodate the Transferor's preferences. (c) From time to time the Agent shall notify the Servicer of the number of Rate Tranches, the Transferee's Tranche Investment of each Rate Tranche, the Transferee Rate for such Rate Tranche and the duration of the current Yield Period selected by it for each Rate Tranche. ARTICLE III SETTLEMENT SECTION 3.01. Non-Pay Out Settlement Procedures for Collections. (a) ------------------------------------------------- Daily Procedure. On each day during the Reinvestment Period, the Servicer shall - --------------- deem an amount equal to the Transferee's Share of Collections of Pool Receivables received or deemed received on such day to be received in respect of the Transferee's Interest, and, out of the Transferee's Share of such Collections, shall: (i) hold in trust for the benefit of the Transferee an amount equal to (A) the aggregate of the aggregate Earned Discount and Servicer's Fee accrued through such day, less (B) the amount, if any, theretofore set ---- aside and then so held for the benefit of the Transferee in respect of such Earned Discount and Servicer's Fee; (ii) set aside and hold in trust for the Transferee an amount equal to the excess, if any, of (A) the greatest of (I) if the Transferor shall have elected to reduce the Transferee's Investment under Section 3.04, the amount of the ------------ proposed reduction, 6 (II) if the Transferee's Investment shall exceed the Maximum Investment, the amount of such excess, (III) if the Unadjusted Transferee's Percentage shall exceed the Maximum Percentage, an amount equal to the minimum reduction of the Transferee's Investment which (based on the Transferee Rates currently in effect, and assuming that such reduction will be applied to reduce the Transferee's Tranche Investments of the Rate Tranches having the shortest remaining Yield Periods first) would result in the Transferee's Percentage being no greater than the Maximum Percentage, and (IV) if any of the conditions precedent to Reinvestment set forth in Section 5.02 shall not be met, the Transferee's ------------ Investment, over ---- (B) the aggregate of the amounts theretofore set aside and then so held for the benefit of the Transferee pursuant to this clause ------ (ii); and ---- (iii) subject to Section 5.02, pay the remainder, if any, of such ------------ Collections to the Transferor for application to Reinvestment, for the benefit of the Transferee, in the Transferee's Interest in accordance with Section 1.01(b). --------------- The Servicer shall first, apply the Transferor's Share of such Collections to ----- any other amounts (other than Earned Discount and Transferee's Investment) then due to Transferee or the Agent and second, pay any remaining portion of the ------ Transferor's Share of such Collections to the Transferor. (b) Settlement Date Procedure. Prior to the Pay Out Period, on each ------------------------- Settlement Date, the Servicer shall deposit to the Agent's Account: (i) out of the amounts set aside pursuant to clause (i) of Section ---------- ------- 3.01(a), an amount equal to the Earned Discount and Servicer's Fee accrued ------- during the related Yield Period with respect to the related Rate Tranche; and (ii) out of the amount, if any, set aside pursuant to clause (ii) of ----------- Section 3.01(a) and not theretofore reinvested in accordance with Section --------------- ------- 3.01(d) or deposited to the Agent's Account pursuant to this Section ------- ------- 3.01(b), an amount equal to the lesser of such amount and the Transferee's ------- Tranche Investment of the related Rate Tranche; 7 provided, however, that if the Agent gives its consent (which consent may be - -------- ------- revoked at any time), the Servicer may retain amounts which would otherwise be deposited in respect of Servicer's Fee, in which case no distribution shall be made in respect of Servicer's Fee under clause (c) below. ---------- In addition, if, on such Settlement Date, after reducing the Transferee's Tranche Investment of the related Rate Tranche by the amount deposited pursuant to clause (ii) above, the Transferee's Investment would be greater than the ----------- Maximum Investment or the Unadjusted Transferee's Percentage would be greater than the Maximum Percentage, then the Transferor shall pay to the Servicer, and the Servicer shall deposit to the Agent's Account, an amount equal to the least of (x) the minimum reduction of the Transferee's Investment which would result in the Unadjusted Transferee's Investment not exceeding the Maximum Investment and the Unadjusted Transferee's Percentage not exceeding the Maximum Percentage, (y) the Transferee's Tranche Investment of the related Rate Tranche and (z) the Transferor's Collection Amount. (c) Order of Application. Upon receipt by the Agent of funds deposited -------------------- pursuant to subsection (b) on a Settlement Date for any Rate Tranche, the Agent -------------- shall distribute them to the Persons, for the purposes and in the order of priority set forth below: (i) to the Transferee in payment of the accrued and unpaid Earned Discount for such Rate Tranche; (ii) to the Servicer in payment of the accrued and unpaid Servicer's Fee payable with respect to such Rate Tranche; and (iii) to the Transferee in reduction of the Transferee's Tranche Investment of such Rate Tranche. (d) Unreinvested Collections. During the Reinvestment Period, if on any ------------------------ date the amount of Collections theretofore set aside and then held by the Servicer for the benefit of the Transferee pursuant to clause (ii) of Section ----------- ------- 3.01(a) shall exceed the maximum amount then required to be set aside and so - ------- held pursuant to such clause (ii), then, subject to the applicable conditions ----------- precedent set forth in Section 5.02, the Servicer shall pay to the Transferor ------------ the amount of such excess Collections, for application to Reinvestment in accordance with Section 1.01(b). To the extent and for so long as such --------------- Collections may not be so reinvested, the Servicer shall hold such Collections in trust for the benefit of the Transferee in a separate deposit account containing only such Collections and no other funds. On each Settlement Date with respect to any Rate 8 Tranche, the Servicer shall pay to the Agent for the account of the Transferee, in reduction of the Transferee's Investment, the amount of Collections then held in trust pursuant to the next preceding sentence or, if less, the Transferee's Tranche Investment of such Rate Tranche; any such amounts remaining after such application shall continue to be held in trust pursuant to this paragraph (d) ------------- and shall be applied on the next successive Settlement Dates until such amount has been reduced to zero. The Transferee's Investment shall not be deemed reduced by any amount held in trust pursuant to this subsection (d) unless and -------------- until, and then only to the extent that, such amount is finally paid to the Agent in accordance with the next preceding sentence. SECTION 3.02. Pay Out Settlement Procedures for Collections. (a) Daily --------------------------------------------- ----- Procedure. During the Pay Out Period, on each day, the Servicer shall (i) set - --------- aside and hold in trust for the Transferee the Transferee's Share of the Collections of Pool Receivables received by the Servicer, and (ii) first, apply ----- the Transferor's Share of such Collections to any other amounts (other than Earned Discount and Transferee's Investment) then due to Transferee or the Agent and second, pay any remaining portion of the Transferor's Share of such ------ Collections to the Transferor. (b) Settlement Date Procedure. During the Pay Out Period, on each ------------------------- Settlement Date for any Rate Tranche, subject to Section 3.02(d), the Servicer --------------- shall deposit to the Agent's Account the amounts set aside pursuant to Section ------- 3.02(a), but not to exceed the sum of (i) the accrued and unpaid Earned Discount - ------- with respect to such Rate Tranche, (ii) the Transferee's Tranche Investment of such Rate Tranche, (iii) the aggregate of other amounts (other than the Transferee's Investment, Earned Discount and Servicer's Fee) owed hereunder by the Transferor to the Transferee or the Agent, and (iv) the accrued Servicer's Fee payable with respect to such Rate Tranche. Any amounts in excess of the amount required to be deposited in the Agent's Account pursuant to the previous sentence shall continue to be set aside and held in trust by the Servicer for application on the next succeeding Settlement Date(s). (c) Order of Application. Upon receipt of funds deposited to the Agent's -------------------- account pursuant to Section 3.02(b), subject to Section 3.02(d), the Agent shall --------------- --------------- distribute them to the Persons, for the purposes and in the order of priority set forth below: (i) to the Transferee in payment of the accrued and unpaid Earned Discount for such Rate Tranche; (ii) if the Servicer is a Person other than IKON Capital or an Affiliate of IKON Capital, to the Servicer in payment of the accrued and unpaid Servicer's Fee with respect to such Rate Tranche; 9 (iii) to the Transferee in reduction of the Transferee's Tranche Investment with respect to such Rate Tranche; (iv) to the Transferee or the Agent (as the case may be) in payment of any other amounts owed by the Transferor hereunder to the Transferee or the Agent (other than the Transferee's Investment, Earned Discount and Servicer's Fee); and (v) to the Servicer in payment of the accrued Servicer's Fee payable with respect to such Rate Tranche, to the extent not paid pursuant to clause (ii) above. ----------- (d) Priorities in Event of Funding Advances, Liquidity Loans or ----------------------------------------------------------- Enhancement Draw. If on any day during the Pay Out Period any Rate Tranche is - ---------------- funded by a Funding Advance, a borrowing of Liquidity Loans or an Enhancement Draw, then: (i) if the aggregate amount of Collections set aside and held in trust pursuant to Section 3.02(a) is less than the aggregate accrued and --------------- unpaid Earned Discount with respect to all Rate Tranches, then such Collections shall be allocated first to accrued and unpaid Earned Discount ----- on Rate Tranches funded by Funding Advances, second to accrued and unpaid ------ Earned Discount on Rate Tranches funded by Liquidity Loans, third to ----- accrued and unpaid Earned Discount on Rate Tranches funded by Commercial Paper Notes, and fourth to accrued and unpaid Earned Discount on Rate ------ Tranches funded by Enhancement Draws, and, in the case of each of clauses ------- first, second, third and fourth above, first to the Rate Tranches having ----- ------ ----- ------ the shortest remaining Yield Periods, to the extent that funds have not been set aside or deposited with the Agent in respect thereof; and (ii) no Collections shall be deposited in the Agent's Account (unless requested by the Agent for later distribution in accordance with this Section 3.02(d)) or distributed by the Agent to the Transferee (A) in --------------- respect of the Transferee's Tranche Investment of any Rate Tranche funded by Liquidity Loans unless the Transferee's Tranche Investments of all Rate Tranches funded by Funding Advances shall have been reduced to zero, or Collections equal to such Transferee's Tranche Investments shall have been deposited in the Agent's Account for distribution to the Transferee in reduction of such Transferee's Tranche Investments, (B) in respect of the Transferee's Tranche Investment of any Rate Tranche funded by Commercial Paper Notes unless the Transferee's Tranche Investments of all Rate Tranches funded by Funding Advances or Liquidity Loans 10 shall have been reduced to zero, or Collections equal to such Transferee's Tranche Investments shall have been deposited in the Agent's Account for distribution to the Transferee in reduction of such Transferee's Tranche Investments, or (C) in respect of the Transferee's Tranche Investment of any Rate Tranche funded by any Enhancement Draw unless the Transferee's Tranche Investments of all Rate Tranches funded by Funding Advances, Liquidity Loans or Commercial Paper Notes shall have been reduced to zero, or Collections equal to such Transferee's Tranche Investments shall have been deposited in the Agent's Account for distribution to the Transferee in reduction of such Transferee's Tranche Investments. SECTION 3.03. Dilutions. (a) If on any day the Unpaid Balance of any --------- Pool Receivable is (i) reduced as a result of any defective, rejected or returned merchandise or services, any cash discount, any allowances or billing errors, any trade-in or trade-up, or any adjustment by the Transferor, any Affiliate of the Transferor or by the Servicer or any early termination, refinancing, prepayment, consolidation or replacement of the Contract related to such Pool Receivable, (ii) reduced or cancelled as a result of a setoff in respect of any claim or dispute by the Obligor thereof against the Transferor or any Affiliate of the Transferor (individually or as Servicer) or any other Person (whether such claim arises out of the same or a related or an unrelated transaction), (iii) reduced on account of the obligation of the Transferor or an Affiliate of the Transferor (individually or as Servicer) to pay to the related Obligor any rebate or refund, or (iv) determined by the Agent, the Servicer or the Transferor to have been less than the Unpaid Balance of such Receivable used in calculating the Net Pool Balance for purposes of the most recent Periodic Report or Settlement Statement, then, on such day, the Transferor shall be deemed to have received a Collection of such Pool Receivable in the amount of such reduction or cancellation or, in the case of clause (iv) above, by the amount of the difference between the ----------- actual Unpaid Balance and the Unpaid Balance as so reported. (b) If on any day (i) any of the representations or warranties of the Transferor set forth in Section 6.01(k) or (o) --------------- --- 11 shall not be true with respect to a Pool Receivable (other than solely by reason of such Pool Receivable's being a Defaulted Receivable), or (ii) when the Servicer or the Transferor delivers any Periodic Report or Settlement Statement, any Pool Receivable the Unpaid Balance of which is included in the computation of the Net Pool Balance therein shall not be an Eligible Receivable, then, on such day, the Transferor shall be deemed to have received a Collection of such Pool Receivable in the amount of the Unpaid Balance of such Pool Receivable. SECTION 3.04. Optional Reduction of Transferee's Investment. The --------------------------------------------- Transferor may at any time elect to cause the reduction of the Transferee's Investment as follows: (a) the Transferor shall give the Agent at least 10 Business Days' prior written notice of such reduction (including the amount of such proposed reduction and the proposed date on which such reduction will commence); (b) on the proposed date of commencement of such reduction and on each day thereafter, the Servicer shall set aside Collections and hold them in trust for the Transferee under clause (ii) of Section 3.01(a) until the ----------- --------------- amount so set aside shall equal the desired amount of reduction; and (c) the Servicer shall set aside and hold such Collections for the benefit of the Transferee and, on each Settlement Date with respect to any Rate Tranche, shall pay to the Agent for the benefit of the Transferee, in reduction of the Transferee's Investment, the amount of such Collections so held or, if less, the Transferee's Tranche Investment of such Rate Tranche (it being understood that the Transferee's Investment shall not be deemed reduced by any amount set aside or held pursuant to this Section 3.04 unless and until, and then only to the extent that, such amount is finally paid to the Agent as aforesaid); provided that, - -------- (i) the amount of any such reduction shall be not less than $5,000,000 and shall be an integral multiple of $1,000,000, and the Transferee's Investment after giving effect to such reduction shall be not less than $10,000,000 (unless the Transferee's Investment shall thereby be reduced to zero), (ii) the Transferor shall use reasonable efforts to attempt to choose a reduction amount, and the date of commencement thereof, so that such reduction shall commence and conclude in a single Yield Period with respect to a Rate Tranche, and 12 (iii) such proposed reduction shall be applied, unless the Agent shall consent otherwise, to the Rate Tranche with the shortest remaining Yield Period. SECTION 3.05. Reporting by Servicer. (a) On or prior to the 15th day --------------------- (or if such day is not a Business Day, on the next Business Day) of each month, the Servicer shall prepare and forward to the Agent a Periodic Report, executed by an Authorized Servicing Officer, relating to the Transferee's Interest as of the close of business of the Servicer on the next preceding Month End Date. In addition, if at any time the Agent shall so request, then, within 10 Business Days after the later of (i) the date of such request and (ii) such other date as the Agent may designate in such request as the effective date of the requested report, the Servicer shall prepare and deliver to the Agent a Periodic Report, executed by an Authorized Servicing Officer, relating to the Transferee's Interest as of the close of business on the date of such request or such other effective date, as applicable. (b) During the Pay Out Period, on the Settlement Date of each Settlement Period for each Rate Tranche, the Servicer shall prepare and forward to the Agent a Pay Out Statement as of the close of business of the Servicer on such Settlement Date. SECTION 3.06. Delivery of Deemed Collections; Collections Held in Trust. --------------------------------------------------------- (a) Whenever the Transferor is deemed to receive Collections pursuant to Section 3.03, the Transferor shall forthwith deliver to the Servicer the amount - ------------ of such deemed Collections, and the Servicer shall set aside and hold or distribute such Collections as and to the same extent as if such Collections had actually been received on the date of such delivery to Servicer. If Collections are then being paid to the Agent, or lock boxes or accounts directly or indirectly owned or controlled by the Agent, the Servicer shall forthwith cause such deemed Collections to be paid to the Agent or to such lock boxes or accounts, as applicable. (b) So long as the Transferor shall hold any Collections or deemed Collections required to be paid to the Servicer or the Agent, it shall hold such Collections in trust and separate and apart from its own funds and shall clearly mark its records to reflect such trust. 13 ARTICLE IV PAYMENT PROCEDURES; FEES AND YIELD PROTECTION SECTION 4.01. Payments and Computations. (a) All amounts to be ------------------------- paid or deposited by the Transferor or the Servicer to or for the account of the Transferee or the Agent hereunder shall be paid or deposited in accordance with the terms hereof no later than 11:00 a.m. (New York City time) on the day when due in lawful money of the United States of America in immediately available funds to account #104636460008 or such other account as the Agent may designate (the "Agent's Account") at DBNY's office at 31 West 52nd Street, New York, New --------------- York 10019 or at such other place in New York City as the Agent may designate. (b) All computations of interest, Earned Discount, Negative Spread Fee and any other fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed. SECTION 4.02. Interest on Overdue Amounts. The Transferor or --------------------------- Servicer, as applicable, shall, to the extent permitted by law, pay to the Agent interest on all amounts not paid or deposited when due hereunder at 1% per annum --- ----- above the Alternate Base Rate, payable on demand, provided, however, that such -------- ------- interest rate shall not at any time exceed the maximum rate permitted by applicable law. SECTION 4.03. Fees. (a) Certain Fees. The Transferor shall pay to ---- ------------ the Agent and the Transferee the fees in the amounts and at the times set forth in the letter from the Agent to the Transferor, dated as of the date hereof (as amended from time to time, the "Fee Letter"). ---------- (b) Note Fee. From the date hereof until the Final Pay Out Date, the -------- Transferor shall pay to the Agent for the account of the Transferee a commercial paper transaction fee ("Note Fee") in an amount equal to the product of (x) the -------- amount of the per-trade fee paid or payable by the Transferee to the Depository Trust Company (or any other or successor clearing corporation through which the Commercial Paper Notes may be issued) in connection with the issuance, payment or redemption of Commercial Paper Notes, as notified by the Agent to the Transferor and the Servicer from time to time, times (y) the number of ----- transactions in Commercial Paper Notes issued by the Transferee to fund the Transferee's Interest hereunder during the period for which such Note Fee is payable and to which such per-trade fee applies, as notified by the Agent to the Transferor and the Servicer. Such Note Fee shall be paid in arrears on the last Business Day of each February of each calendar year and on the Final Pay Out Date for the number of Commercial Paper Note trades that were 14 consummated, to fund the Transferee's Interest hereunder during the twelve month period ending on the last day of the immediately preceding December, or in the case of the Final Pay Out Date, other period then ending and for which no Note Fee shall have theretofore been paid. The Agent shall notify the Transferor and the Servicer on or prior to the last day of each January of the Note Fee due on the last Business Day of the following February. SECTION 4.04. Yield Protection. (a) If (i) Regulation D or (ii) any ---------------- Regulatory Change occurring after the date hereof (A) shall subject an Affected Party to any tax, duty or other charge with respect to the Transferee's Interest or any portion thereof, or any obligations or right to accept or make Transfers or Reinvestments or to provide funding therefor, or shall change the basis of taxation of payments to the Affected Party of any of the Transferee's Investment or Earned Discount owned by, owed to or funded by it or any other amounts due under this Agreement in respect of the Transferee's Interest or any portion thereof or its obligations or rights, if any, to accept or make Transfers or Reinvestments or to provide funding therefor (except for changes in the rate of tax on the overall net income of such Affected Party imposed by the United States of America, by the jurisdiction in which such Affected Party's principal executive office is located and, if such Affected Party's principal executive office is not in the United States of America, by the jurisdiction where such Affected Party's principal office in the United States is located); or (B) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Federal Reserve Board, but excluding any reserve included in the determination of Earned Discount), special deposit or similar requirement against assets of any Affected Party, deposits or obligations with or for the account of any Affected Party or with or for the account of any affiliate (or entity deemed by the Federal Reserve Board to be an affiliate) of any Affected Party, or credit extended by any Affected Party; or (C) shall change the amount of capital maintained or required or requested or directed to be maintained by any Affected Party; or (D) shall impose any other condition affecting the Transferee's Interest or any portion thereof owned or funded by any Affected Party, or its obligations or rights, if any, to accept or make Transfers or Reinvestments or to provide funding therefor; or 15 (E) shall change the rate for, or the manner in which the Federal Deposit Insurance Corporation (or any successor thereto) assesses, deposit insurance premiums or similar charges, or shall impose on any Affected Party a requirement to maintain deposit insurance; and the result of any of the foregoing is or would be (x) to increase the cost or to impose a cost on (I) an Affected Party accepting or funding or making or maintaining any Transfers or Reinvestments, any loans or other extensions of credit under the Liquidity Agreement, or any Enhancement Draw, or any commitment of such Affected Party with respect to any of the foregoing, or (II) the Agent for continuing its or the Transferor's relationship with the Transferee, (y) to reduce the amount of any sum received or receivable by an Affected Party under this Agreement or any other Transaction Document, or under the Liquidity Agreement or the Enhancement Agreement with respect thereto, or (z) in the sole determination of such Affected Party, to reduce the rate of return on the capital of an Affected Party as a consequence of its obligations hereunder or arising in connection herewith to a level below that which such Affected Party could otherwise have achieved (taking into consideration the policies of such Affected Party with respect to capital adequacy) by an amount deemed by such Affected Party to be material, then, within thirty days after demand by such Affected Party (which demand shall be accompanied by a statement setting forth the basis of such demand), the Transferor shall pay directly to such Affected Party such additional amount or amounts as will compensate such Affected Party for such additional or increased cost or such reduction. (b) Each Affected Party will promptly notify the Transferor and the Agent of any event of which it has knowledge which occurs after the date hereof and will entitle such Affected Party to compensation pursuant to this Section ------- 4.04; provided, however, no failure to give or delay in giving such notification - ---- -------- ------- shall adversely affect the rights of any Affected Party to such compensation. (c) In determining any amount provided for or referred to in this Section 4.04, an Affected Party may use any reasonable averaging and attribution - ------------ methods that it (in its sole discretion) shall deem applicable. Any Affected Party when making a claim under this Section 4.04 shall submit to the ------------ 16 Transferor a statement as to such increased cost or reduced return (including calculation thereof in reasonable detail), which statement shall, in the absence of manifest error, be conclusive and binding upon the Transferor. SECTION 4.05. Interest Rate Hedging Agreements. Promptly after the -------------------------------- Commitment Termination Date, the Transferee will enter into, and will maintain throughout the Pay Out Period, one or more interest rate swap agreements, interest rate collars, interest rate caps or other interest rate hedging arrangements, with one or more financial institutions, including the Agent, whose long-term unsecured debt obligations are rated at least Aaa by Moody's or AAA by S&P, with an amortizing notional amount equal to Transferee's good faith determination of its outstanding Transferee's Investment from time to time during the Pay Out Period (the "Hedging Arrangements"). Such Hedging -------------------- Arrangements shall protect Transferee from differences between a fixed interest rate equal to the interpolated yield to maturity of the Treasury security with a maturity equal to the then Average Maturity and a floating interest rate equal to the Commercial Paper Rate or Eurodollar Rate (Reserve Adjusted). The Agent and the Transferee agree to use their reasonable efforts to obtain such Hedging Arrangements at a commercially reasonable cost, in light of the circumstances of such transaction. The Agent will consult in good faith with the Servicer, and the Servicer agrees to cooperate with the Agent (including providing information on the historical amortization of the portfolio) in order for the Agent to promptly determine an amortization schedule for the Hedging Arrangements. Transferor and IKON Capital, jointly and severally, hereby agree to pay, or to reimburse Transferee for, on demand, any and all costs, expenses and liabilities of Transferee incurred in connection with such Hedging Arrangements (other than periodic net payments of fixed rate interest due to the counterparty thereof), including any arrangement fees, legal costs and early termination payments with respect thereto; provided, that, to the extent that the notional amount of such -------- Hedging Arrangements exceeds the then Transferee's Investment, Transferee shall assign to IKON Capital, and IKON Capital shall accept, the portion of such Hedging Arrangement related to such excess, in which event, IKON Capital shall be responsible for all obligations, and be entitled to all benefits, associated with such portion of the Hedging Arrangements. Notwithstanding the foregoing, if (i) the unsecured short term obligations of IKON Capital are rated at least A-1+ by S&P and P-1 by Moody's, (ii) Transferor has requested that the Transferee accept Transferor's recourse obligation for Earned Discount and IKON Capital's guaranty of such recourse obligation and (iii) Transferor has executed and delivered to the Transferee and the Agent an agreement pursuant to which Transferor agrees to pay, on a recourse basis, Earned Discount as and when due, and IKON Capital has executed and delivered to the Transferee and the 17 Agent a guaranty, reasonably satisfactory to the Agent, of such obligation, then, for so long as IKON Capital maintains the ratings described in the foregoing clause (i), the Transferee shall accept such agreement in place of ---------- maintaining Hedging Arrangements. ARTICLE V CONDITIONS PRECEDENT SECTION 5.01. Conditions Precedent to Amendment and Restatement. ------------------------------------------------- The amendment and restatement of the Original Receivables Agreement hereby is subject to the condition precedent that the Agent shall have received the following, each (unless otherwise indicated) dated (or dated as of) the date this amendment and restatement shall become effective and in form and substance satisfactory to the Agent: (a) This Agreement, duly executed by the Transferor and the initial Servicer; (b) A copy of the resolutions of the Board of Directors of the Transferor approving this Agreement, and the other Transaction Documents to be delivered by it and the transactions contemplated hereby and thereby, certified by its Secretary or Assistant Secretary; a copy of the resolutions of the Board of Directors of IKON Capital approving this Agreement, and the other Transaction Documents to be delivered by it and the transactions contemplated hereby and thereby, certified by its Secretary or Assistant Secretary; a copy of the resolutions of the Board of Directors of IKON Office approving the Support Agreement, certified by its Secretary or Assistant Secretary; (c) Good standing certificates for IKON Office issued by the Secretaries of State of Pennsylvania and Ohio; good standing certificates for the Transferor issued by the Secretary of State of Delaware; good standing certificates for IKON Capital issued by the Secretaries of State of Delaware, Georgia, Washington, Minnesota, Michigan, Texas and Colorado, in each case dated as of a recent date acceptable to the Agent; (d) A certificate of the Secretary or an Assistant Secretary of each of the Transferor and IKON Capital certifying the names and true signatures of the officers authorized on its behalf to sign this Agreement and the other Transaction Documents to be delivered by it (on which certificate the Agent and the Transferee may conclusively 18 rely until such time as the Agent shall receive from the Transferor a revised certificate meeting the requirements of this subsection (d)); -------------- (e) The Articles of Incorporation of the Transferor, IKON Capital and IKON Office, duly certified by the Secretary of State of Delaware and the Secretary of State of Ohio, as applicable, as of a recent date acceptable to Agent, together with a copy of the By-laws of the Transferor, IKON Capital and IKON Office, duly certified by the Secretary or an Assistant Secretary of the Transferor, IKON Capital or IKON Office, as the case may be; (f) Acknowledgment copies of proper Financing Statements (Form UCC-1), substantially in the forms attached hereto as Exhibit 5.01(f) (with such --------------- modifications, if any, as may be necessary or appropriate to conform to the law, customary practice or standard forms of a particular jurisdiction), filed on or prior to the date of this amendment and restatement, naming (i) the Transferor as the debtor and transferor of Pool Receivables or an undivided interest therein and the Transferee as the secured party and transferee and (ii) IKON Capital as debtor and transferor of Pool Receivables, Transferor as the secured party and transferee and Transferee as assignee, or other, similar instruments or documents, as may be necessary or, in the opinion of the Agent, desirable under the UCC or any comparable law of all appropriate jurisdictions (including those jurisdictions listed on Schedule 5.01(f) hereto) to perfect the ---------------- Transferee's Interest and the security interest granted to the Transferee under Article IX hereof; - ---------- (g) A search report or reports provided in writing to the Agent by LEXIS Document Services, Inc. as of a recent date (or dates) acceptable to the Agent, listing all effective financing statements that name the Transferor or IKON Capital (including any prior names of such Persons) as debtor and that are filed in the jurisdictions in which filings were made pursuant to subsection (f) -------------- above and in such other jurisdictions that the Agent shall reasonably request, together with copies of such financing statements (none of which shall cover any Pool Receivables or Contracts related thereto or interests therein or Collections or proceeds of any thereof); (h) Duly executed copies of Designated Account Agreements with each of the Designated Account Banks; duly executed copies of Post Office Box Agreements with respect to each Post Office Box; 19 (i) A favorable opinion of Karin M. Kinney, counsel to the Transferor, IKON Capital and IKON Office, in substantially the form of Exhibit 5.01(i); --------------- (j) A favorable opinion of Mayer, Brown & Platt, counsel for the Agent, substantially in the form of Exhibit 5.01(j); --------------- (k) Acknowledgment copies of proper Financing Statements (Form UCC- 1), substantially in the form attached hereto as Exhibit 5.01(k) (with such --------------- modifications, if any, as may be necessary or appropriate to conform to the law, customary practice or standard forms of a particular jurisdiction), filed on or prior to the date of the amendment and restatement in the jurisdictions of the principal places of business of the dealers listed on Schedule A-1, naming such dealers, respectively, as debtors and transferors ------------ of Receivables, IKON Capital as the secured party and transferee and Transferee as the assignee, or other, similar instruments or documents, as may be necessary or, in the opinion of the Agent, desirable under the UCC or any comparable law of all appropriate jurisdictions to perfect IKON Capital's interest in the Receivables; (l) Such powers of attorney as the Agent shall reasonably request to enable the Agent to collect all amounts due under any and all Pool Receivables, which powers of attorney shall be substantially in the form of Exhibit 5.01(l) or in such other form as the Agent may reasonably request; --------------- (m) A Periodic Report as of the most recent Month End Date (in which the Transferee's Interest and the components thereof shall be calculated after giving effect to the amendment and restatement); (n) A copy of the Support Agreement, certified as true, correct and complete by an officer of IKON Office; (o) A letter executed by IKON Office substantially in the form of Exhibit 5.01(o); --------------- (p) An amendment to the interest rate protection agreement between Transferor and DBNY, and an assignment agreement related thereto; and (q) The Transfer Agreement duly executed by IKON Capital and the Transferor. SECTION 5.02. Conditions Precedent to All Transfers and Reinvestments. ------------------------------------------------------- Each Transfer (including the initial Transfer) 20 and each Reinvestment hereunder shall be subject to the further conditions precedent that on the date of such Transfer or Reinvestment the following statements shall be true (and the Transferor by accepting the amount of such Transfer or by receiving the proceeds of such Reinvestment shall be deemed to have certified that): (a) The representations and warranties contained in Article VI are ---------- correct on and as of such day as though made on and as of such day and shall be deemed to have been made on such day, (b) No event has occurred and is continuing, or would result from such Transfer or Reinvestment, that constitutes a Termination Event or Unmatured Termination Event, (c) In the case of a Reinvestment, the amount of the Reinvestment will not exceed the amount available therefor under Section 3.01, and in ------------ the case of a Transfer, after giving effect thereto, the Transferee's Investment will not exceed the Maximum Investment and the Unadjusted Transferee's Percentage will not exceed the Maximum Percentage, and (d) The Commitment Termination Date shall not have occurred; provided, however, the absence of the occurrence and continuance of an Unmatured - -------- ------- Termination Event shall not be a condition precedent to any Reinvestment or to any Transfer on any day which does not cause the Transferee's Investment, after giving effect to such Transfer, to exceed the Transferee's Investment as of the opening of business on such day. ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.01. Representations and Warranties of the Transferor. The ------------------------------------------------ Transferor represents and warrants as follows: (a) Organization and Good Standing. The Transferor has been duly ------------------------------ organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and had at all relevant times, and now has, all necessary power, authority, and legal right to acquire and own the Pool Receivables. 21 (b) Due Qualification. The Transferor is duly qualified to do business as ----------------- a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualification, licenses or approvals. (c) Power and Authority; Due Authorization. The Transferor (i) has all -------------------------------------- necessary power, authority and legal right to execute and deliver this Agreement and the other Transaction Documents, to carry out the terms of the Transaction Documents and to transfer and assign the Transferee's Interest on the terms and conditions herein provided, and (ii) has duly authorized by all necessary corporate action the execution, delivery and performance of this Agreement and the other Transaction Documents and the transfer and assignment of the Transferee's Interest on the terms and conditions herein provided. (d) Valid Transfer; Binding Obligations. This Agreement constitutes a ----------------------------------- valid transfer and assignment of the Transferee's Interest to the Transferee, enforceable against creditors of, and purchasers from, the Transferor and IKON Capital; and this Agreement constitutes, and each other Transaction Document to be signed by the Transferor when duly executed and delivered will constitute, a legal, valid and binding obligation of the Transferor enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) No Violation. The execution, delivery and performance by the ------------ Transferor of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the articles of incorporation or by-laws of the Transferor, or any indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument to which the Transferor is a party or by which it or any of its properties is bound, (ii) result in the creation or imposition of any Lien upon any of the Transferor's properties pursuant to the terms of any such indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument, other than this Agreement, or (iii) violate any law or any order, rule, or 22 regulation applicable to the Transferor of any court or of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over the Transferor or any of its properties. (f) No Proceedings. There are no proceedings or investigations pending, -------------- or threatened, before, and there has been no injunction, decree or other decision issued or made by, any court, regulatory body, administrative agency, or other tribunal or governmental agency or instrumentality (i) asserting the invalidity of this Agreement or any other Transaction Document, (ii) seeking to prevent the transfer and assignment of the Transferee's Interest or any portion thereof or the consummation of any of the other transactions contemplated by this Agreement or any other Transaction Document, (iii) seeking any determination or ruling that might have a Material Adverse Effect or (iv) seeking to adversely affect the federal income tax attributes of the Transfers hereunder. (g) Bulk Sales Act. No transaction contemplated hereby requires -------------- compliance with any bulk sales act or similar law. (h) Government Approvals. No authorization or approval or other action -------------------- by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Transferor of this Agreement or any other Transaction Document, except for the ------ filing of the UCC Financing Statements referred to in Article V, all of which, --------- at the time required in Article V, shall have been duly made and shall be in --------- full force and effect. (i) Financial Condition. (x) The balance sheets of the Transferor as at ------------------- December 31, 1996, and the related statements of income, cash flows and shareholders' equity of the Transferor for the fiscal year then ended, certified by the Transferor's chief financial officer, copies of which have been furnished to the Agent, fairly present the financial condition, business, business prospects and operations of the Transferor as at such dates and the results of the operations of the Transferor for the period ended on such dates, all in accordance with generally accepted accounting principles consistently applied, and (y) since December 31, 1996 there has been no material adverse change in any such condition, business, business prospects or operations. (j) Margin Regulations. The use of all funds obtained by the Transferor ------------------ under this Agreement will not conflict 23 with or contravene any of Regulations G, T, U and X promulgated by the Board of Governors of the Federal Reserve System from time to time. (k) Quality of Title. (i) Each Pool Receivable, together with the Related ---------------- Property, is owned by the Transferor free and clear of any Lien (other than any Lien arising solely as the result of any action taken by the Transferee (or any assignee thereof) or by the Agent) except as created hereby; (ii) each Pool Receivable, together with the Related Property, was transferred by Transferor from IKON Capital pursuant to the Transfer Agreement, which transfer is enforceable against all creditors of, and purchasers from, IKON Capital, and, Transferor took all steps necessary to perfect its interest in such Pool Receivable, together with the Related Property, against IKON Capital; (iii) when the Transferee accepts a Transfer, it shall have acquired and shall at all times thereafter continuously maintain a valid and perfected first priority undivided percentage ownership interest, in a percentage equal to the Transferee's Percentage in effect from time to time, in each Pool Receivable and in the Related Property, free and clear of any Lien (other than any Lien arising solely as the result of any action taken by the Transferee (or any assignee thereof) or by the Agent); and (iv) no effective financing statement or other instrument similar in effect covering any Pool Receivable, any interest therein or any of the Related Property is on file in any recording office except such as may be filed (A) in favor of IKON Capital in accordance with the Contracts or against the dealers, (B) in favor of Transferor in accordance with the terms of the Transfer Agreement, (C) in favor of the Transferee or the Agent in accordance with this Agreement or in connection with any Lien arising solely as the result of any action taken by the Transferee (or any assignee thereof) or by the Agent, or (D) in favor of DBNY, as Collateral Agent, or any successor in such capacity, as described in Section 12.01. ------------- (l) Accurate Reports. No Periodic Report or Pay Out Statement (if ---------------- prepared by the Transferor, or to the extent that information contained therein was supplied by the Transferor) or other information, exhibit, financial statement, document, book, record or report furnished or to be furnished by the Transferor to the Agent or the Transferee in connection with this Agreement was or will be inaccurate in any material respect as of the date it was or will be dated or (except as otherwise disclosed to the Agent or the Transferee, as the case may be, at such time) as of the date so furnished, or contained or will contain any material misstatement of fact or omitted or will omit to 24 state a material fact or any fact necessary to make the statements contained therein not materially misleading. (m) Offices. The chief place of business and chief executive office ------- of the Transferor are located at the address of the Transferor referred to in Section 14.02, and the offices where the Transferor keeps all its books, ------------- records and documents evidencing or included in the Pool Receivables and Related Property are located at the addresses specified in Schedule 6.01(m) ---------------- (or at such other locations, notified to the Agent in accordance with Section 7.01(f), in jurisdictions where all action required by Section 8.05 --------------- ------------ has been taken and completed). (n) Designated Accounts; Post Office Boxes. The names and addresses -------------------------------------- of all the Designated Accounts Banks, together with the account numbers of the Designated Accounts of the Transferor at such Designated Account Banks, are specified in Schedule 6.01(n) (or have been notified to the Agent in ---------------- accordance with Section 7.03(d)). The addresses and numbers of all Post --------------- Office Boxes are specified in Schedule 6.01(n) (as have been notified to ---------------- the Agent in accordance with Section 7.03(d)). --------------- (o) Eligible Receivables. Each Receivable included in the Net Pool -------------------- Balance as an Eligible Receivable on any date shall be an Eligible Receivable on such date. SECTION 6.02. Representations and Warranties of IKON Capital. IKON ---------------------------------------------- Capital represents and warrants as follows: (a) Organization and Good Standing. IKON Capital has been duly ------------------------------ organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted. (b) Due Qualification. IKON Capital is duly qualified to do business ----------------- as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualification, licenses or approvals. (c) Power and Authority; Due Authorization. IKON Capital (i) has all -------------------------------------- necessary power, authority and legal right to execute and deliver this Agreement and the other Transaction Documents, to carry out the terms of the Transaction Documents and (ii) has duly authorized by all necessary corporate action the execution, delivery and 25 performance of this Agreement and the other Transaction Documents. (d) Valid and Binding Obligations. This Agreement constitutes, and ----------------------------- each other Transaction Document to be signed by IKON Capital when duly executed and delivered will constitute, a legal, valid and binding obligation of IKON Capital enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) No Violation. The execution, delivery and performance by IKON ------------ Capital of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the articles of incorporation or by-laws of IKON Capital, or any indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument to which IKON Capital is a party or by which it or any of its properties is bound, (ii) result in the creation or imposition of any Lien upon any of IKON Capital's properties pursuant to the terms of any such indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument, other than the Transfer Agreement, or (iii) violate any law or any order, rule, or regulation applicable to IKON Capital of any court or of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over IKON Capital or any of its properties. (f) No Proceedings. There are no proceedings or investigations -------------- pending, or threatened, before, and there has been no injunction, decree or other decision issued or made by, any court, regulatory body, administrative agency, or other tribunal or governmental agency or instrumentality (i) asserting the invalidity of this Agreement or any other Transaction Document and (ii) seeking any determination or ruling that might have a Material Adverse Effect. (g) Bulk Sales Act. No transaction contemplated hereby requires -------------- compliance with any bulk sales act or similar law. 26 (h) Government Approvals. No authorization or approval or other -------------------- action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by IKON Capital of this Agreement or any other Transaction Document, except ------ for the filing of the UCC Financing Statements referred to in Article V, --------- all of which, at the time required in Article V, shall have been duly made --------- and shall be in full force and effect. (i) Financial Condition. (x) The consolidated balance sheets of IKON ------------------- Capital and its consolidated subsidiaries as at September 30, 1996, and the related statements of income, cash flows and shareholders' equity of IKON Capital and its consolidated subsidiaries for the fiscal year then ended, certified by Ernst & Young, independent certified public accountants, and the consolidated balance sheets of IKON Capital and its consolidated subsidiaries as at December 31, 1996, and the related statements of income, cash flows and shareholders' equity of IKON Capital and its consolidated subsidiaries for the periods then ended, in each case, copies of which have been furnished to the Agent, fairly present the consolidated financial condition, business, business prospects and operations of IKON Capital and its consolidated subsidiaries as at such dates and the consolidated results of the operations of IKON Capital and its consolidated subsidiaries for the period ended on such dates, all in accordance with generally accepted accounting principles consistently applied, and (y) since September 30, 1996 there has been no material adverse change in any such condition, business, business prospects or operations except as described in Schedule -------- 6.02(i). ------- (j) Accurate Reports. No Periodic Report or Pay Out Statement (if ---------------- prepared by IKON Capital, or to the extent that information contained therein was supplied by IKON Capital) or other information, exhibit, financial statement, document, book, record or report furnished or to be furnished by IKON Capital to the Agent or the Transferee in connection with this Agreement was or will be inaccurate in any material respect as of the date it was or will be dated or (except as otherwise disclosed to the Agent or the Transferee, as the case may be, at such time) as of the date so furnished, or contained or will contain any material misstatement of fact or omitted or will omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading. (k) Offices. The chief place of business and chief executive office ------- of IKON Capital are located at the address of IKON Capital referred to in Section 14.02, and the ------------- 27 offices where IKON Capital keeps all its books, records and documents evidencing or included in the Pool Receivables and Related Property are located at the addresses specified in Schedule 6.01(m) (or at such other ---------------- locations, notified to the Agent in accordance with Section 7.01(f), in --------------- jurisdictions where all action required by Section 8.05 has been taken and ------------ completed). (l) Servicing Programs. Any and all programs used by IKON Capital in ------------------ the servicing of the Receivables Pool are owned by it and not leased or licensed, except for all licensed IBM operating system software. No license or approval is required for the Agent's use of any program used by the Servicer in the administration of the Receivables, other than those which have been obtained and are in full force and effect. ARTICLE VII GENERAL COVENANTS SECTION 7.01. Affirmative Covenants. From the date hereof until the --------------------- Final Pay Out Date, each of IKON Capital and the Transferor will, unless the Agent shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply in all material respects with ------------------------- all applicable laws, rules, regulations and orders applicable to it, including those with respect to the Pool Receivables and related Contracts. (b) Preservation of Corporate Existence. Subject to Section 7.03(e), ----------------------------------- --------------- preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would have a Material Adverse Effect. (c) Audits. (i) At any time and from time to time during regular ------ business hours, upon reasonable notice, permit the Agent, or its agents or representatives, (A) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under its control relating to Pool Receivables, including, without limitation, the related Contracts and purchase orders and other agreements, and (B) to visit its offices and properties for the purpose of examining such materials 28 described in clause (i)(A) next above, and to discuss matters relating to ------------- Pool Receivables or its performance hereunder or under any other Transaction Document with any of its officers or employees having knowledge of such matters; and (ii) without limiting the provisions of clause (i) ---------- next above, from time to time on request of the Agent given not more than once in each calendar year so long as no Termination Event or Unmatured Termination Event shall have occurred and be continuing, permit certified public accountants or other auditors, selected by it and reasonably acceptable to the Agent, to conduct, at its expense, a review of its books and records with respect to the Pool Receivables. (d) Keeping of Records and Books of Account. Maintain and implement --------------------------------------- administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Pool Receivables (including, without limitation, records adequate to permit the daily identification of each new Pool Receivable and all Collections of and adjustments to each existing Pool Receivable). (e) Performance and Compliance with Receivables and Contracts. At --------------------------------------------------------- IKON Capital's expense timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables and all purchase orders and other agreements related to such Pool Receivables. (f) Location of Records. Keep its chief place of business and chief ------------------- executive office, and the offices where it keeps its records concerning the Pool Receivables, all related Contracts and all purchase orders and other agreements related to such Pool Receivables (and all original documents relating thereto), at its address(es) referred to in Section 6.01(m) or, --------------- upon 30 days' prior written notice to the Agent, at such other locations in jurisdictions where all action required by Section 8.05 shall have been ------------ taken and completed. (g) Credit and Collection Policies. Comply in all material respects ------------------------------ with its Credit and Collection Policy in regard to each Pool Receivable and the related Contract. 29 (h) Collections. Instruct all Obligors to cause all Collections of ----------- Pool Receivables to be sent directly to a Post Office Box, and deposit all Collections received into a Designated Account. SECTION 7.02. Reporting Requirements. From the date hereof until the ---------------------- Final Pay Out Date, IKON Capital and the Transferor will, unless the Agent shall otherwise consent in writing, furnish to the Agent: (a) Quarterly Financial Statements. As soon as available and in any ------------------------------ event within 60 days after the end of each of the first three quarters of each fiscal year of each of IKON Office, IKON Capital and the Transferor, copies of the financial statements of the Transferor, IKON Capital and its Subsidiaries and IKON Office and its Subsidiaries, in each case, prepared on a consolidated basis, in conformity with generally accepted accounting principles, duly certified by the chief financial officer, any vice- president, the treasurer or the controller of IKON Capital, the Transferor or IKON Office, as the case may be; (b) Annual Financial Statements. As soon as available and in any --------------------------- event within 90 days after the end of each fiscal year of the Transferor, IKON Capital and IKON Office copies of the financial statements of the Transferor, IKON Capital and its Subsidiaries and IKON Office and its Subsidiaries, in each case prepared on a consolidated basis, in conformity with generally accepted accounting principles, duly certified by independent certified public accountants of recognized standing selected by the Transferor, IKON Capital or IKON Office, as the case may be; (c) Reports to Holders and Exchanges. Copies of any reports or -------------------------------- registration statements that the Transferor, IKON Capital or IKON Office files with the Securities and Exchange Commission or any national securities exchange other than registration statements relating to employee benefit plans and registrations of securities for selling security holders and statements filed on Form S-1 or S-4; (d) ERISA. Promptly after the filing or receiving thereof, copies of ----- all reports and notices with respect to any Reportable Event defined in Article IV of ERISA as to which the Pension Benefit Guaranty Corporation has not waived the 30-day notice requirement which the Transferor, IKON Capital or IKON Office files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which the Transferor, IKON Capital or IKON Office receives from the Pension Benefit Guaranty Corporation; 30 (e) Termination Events. As soon as possible and in any event within ------------------ five days after the occurrence of each Termination Event and each Unmatured Termination Event, a written statement of the chief financial officer or chief accounting officer of the IKON Capital and Transferor setting forth details of such event and the action that IKON Capital and the Transferor propose to take with respect thereto; (f) Litigation. As soon as possible and in any event within three ---------- Business Days of its knowledge thereof, notice of (i) any litigation, investigation or proceeding which may exist at any time which could have a Material Adverse Effect and (ii) any material adverse development in previously disclosed litigation; and (g) Other. Promptly, from time to time, such other information, ----- documents, records or reports respecting the Receivables or the condition or operations, financial or otherwise, of the Transferor, IKON Office or IKON Capital as the Agent may from time to time reasonably request in order to protect the interests of the Agent or the Transferee under or as contemplated by this Agreement. SECTION 7.03. Negative Covenants. From the date hereof until the Final ------------------ Pay Out Date, each of IKON Capital and the Transferor will not, without the prior written consent of the Agent (provided that it is agreed clauses (h), (i) ----------- --- and (j) of this Section 7.03 shall only apply to the Transferor): --- ------------ (a) Sales, Liens, Etc. Except as otherwise provided herein, sell, ----------------- assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien upon or with respect to, any Pool Receivable or Related Property, or any interest therein, or any post office box or account to which any Collections of any Pool Receivable are sent, or any right to receive income from or in respect of any of the foregoing. (b) Extension or Amendment of Receivables. Except as otherwise ------------------------------------- permitted in Section 8.02, extend, amend, terminate or otherwise modify the ------------ terms of any Pool Receivable, or amend, modify, terminate or waive any term or condition of any Contract related thereto. (c) Change in Business or Credit and Collection Policy. Make any -------------------------------------------------- change in the character of its business or in the Credit and Collection Policy, which change would, in either case, impair the collectibility of the Pool Receivables (other than an immaterial portion thereof) or otherwise adversely affect the interests, rights or remedies 31 of the Transferee under this Agreement or any other Transaction Document. (d) Change in Payment Instructions to Obligors. Add or terminate any ------------------------------------------ Post Office Box from those listed in Schedule 6.01(o) or make any change in ---------------- its instructions to Obligors regarding payments to be made to the Transferor or the Servicer or payments to be made to any Post Office Box unless the Agent shall have received (i) notice of such addition, termination or change and (ii) duly executed copies of Post Office Box Agreements with respect to each new Post Office Box. Deposit or transfer any Collections received in any Post Office Box or otherwise to any account other than a Designated Account. (e) Mergers, Acquisitions, Sales, etc. Be a party to any merger or --------------------------------- consolidation, or purchase or otherwise acquire all or substantially all of the assets or any stock of any class of, or any partnership or joint venture interest in, any other Person, or, except in the ordinary course of its business, sell, transfer, convey or lease all or any substantial part of its assets, or permit any Subsidiary to do any of the foregoing, except for any such merger or consolidation, sale, transfer, conveyance, lease or assignment with respect to IKON Capital (i) of or by any wholly-owned Subsidiary (other than Transferor) into IKON Capital or into, with or to any other wholly-owned Subsidiary, (ii) any such purchase or other acquisition by IKON Capital or any wholly-owned Subsidiary (other than the Transferor) of the assets or stock of any wholly-owned Subsidiary and (iii) pursuant to which IKON Capital is the survivor, provided that no Termination Event or Unmatured Termination Event has occurred and is continuing or would result therefrom. (f) Support Agreement. Amend, modify or terminate the Support ----------------- Agreement. (g) Transfer Agreement. Amend, waive, terminate or modify the ------------------ Transfer Agreement or the Company Note or amend the Transferor's articles of incorporation. (h) Incurrence of Indebtedness. Incur or suffer to exist any -------------------------- Indebtedness other than its obligations to Servicer, the Transferee and the Agent hereunder, its obligations under the Old Line Agreement and its obligations to IKON Capital under the Transfer Agreement. (i) Restricted Payments. (i) Declare or pay any dividends, (ii) lend ------------------- or advance any funds or (iii) repay any loans or advances to, for or from IKON Capital or any other 32 Affiliated Party (including making any payment pursuant to the Transfer Agreement) (all of the foregoing, "Restricted Payments"), provided that ------------------- -------- Transferor may make payments under the Transfer Agreement in accordance with its terms and pay dividends, in each case, from Collections paid or released to Transferor pursuant to Section 3.01 or 3.02, so long as no ------------ ---- Termination Event or Unmatured Termination Event has occurred and is continuing or would result therefrom, and after giving effect thereto, the Transferor's Tangible Net Worth is not less than $10,000,000. (j) Change of Name. Change its corporate name or the name under or -------------- by which it does business unless Transferor shall have given the Agent at least 30 days' prior written notice thereof and unless, prior to any such change, Transferor shall have filed, or caused to be filed, such financing statements or amendments as the Agent determines may be necessary to continue the perfection of Transferee's interest in the Pool Receivables and Related Property. Section 7.04. Separate Corporate Existence. Transferor and IKON Capital ---------------------------- hereby acknowledge that the Transferee and the Agent are entering into the transactions contemplated by this Agreement in reliance upon the Transferor's identity as a legal entity separate from the other Affiliated Parties. Therefore, Transferor and IKON Capital shall take the steps described in this Section 7.04 and any other steps that the Agent reasonably requests to continue - ------------ the Transferor's identity as such a separate legal entity and to make it apparent to third Persons that the Transferor is an entity with assets and liabilities distinct from those of the other Affiliated Parties and those of any other Person, and not a division of the other Affiliated Parties or any other Person: (a) The Transferor will be a limited purpose corporation whose primary activities are restricted in its articles of incorporation to accepting transferred Receivables from IKON Capital, entering into agreements for the servicing of such Receivables, transferring undivided interests in the Receivables, and conducting such other activities as it reasonably deems necessary or appropriate to carry out its primary activities and entering into similar arrangements with other Persons; (b) No director or officer of the Transferor shall at any time serve as a trustee in bankruptcy for any other Affiliated Party; (c) Any employee, consultant or agent of the Transferor will be paid by the Manager for services provided to the Transferor, which payment shall be charged to 33 Transferor's account, except as provided in this Agreement in respect of the Servicing Fee and in the Old Line Agreement for the servicing fee paid thereunder. The Transferor will engage no agents other than a Servicer for the Receivables, which Servicer (if an Affiliated Party) will be fully compensated for its services to the Transferor by payment of the Servicing Fee and the servicing fee paid under the Old Line Agreement, and the Manager pursuant to the Management Agreement, which Manager's fees shall not exceed $10,000 in any calendar year; (d) The Transferor's operating expenses will not be paid by any other Affiliated Party; (e) The Transferor will have its own separate mailing address, stationery and, if used, bank checks and, if it uses premises leased, owned or occupied by any other Affiliated Party, its portion of such premises will be defined and separately identified; (f) The Transferor's books and records will be maintained separately from those of every other Affiliated Party; (g) Any financial statements of any other Affiliated Party which are consolidated to include the Transferor will contain detailed notes clearly stating that (A) all of the Transferor's assets are owned by the Transferor, and (B) the Transferor is a separate corporate entity with its own separate creditors which will be entitled to be satisfied out of the Transferor's assets prior to any value in the Transferor becoming available to the Transferor's equity holders; (h) The assets of the Transferor will be maintained in a manner that facilitates their identification and segregation from those of any other Affiliated Party; (i) The Transferor will strictly observe corporate formalities in its dealings with each other Affiliated Party, and funds or other assets of the Transferor will not be commingled or pooled with those of any other Affiliated Party; (j) The Transferor shall not maintain joint bank accounts with any other Affiliated Party or other depository accounts to which any other Affiliated Party (other than IKON Capital in its capacity as Servicer) has independent access; 34 (k) The Transferor shall not, directly or indirectly, be named and shall not enter into any agreement to be named as a direct or contingent beneficiary or loss payee on any insurance policy covering the property of any other Affiliated Party; (l) The Transferor will maintain arm's length relationships with each other Affiliated Party. Any other Affiliated Party which renders or otherwise furnishes services or merchandise to the Transferor will be compensated by the Transferor at market rates for such services or merchandise; and (m) Neither the Transferor, on the one hand, nor any other Affiliated Party, on the other hand, will be or will hold itself out to be responsible for the debts of the other or the decisions or actions respecting the daily business and affairs of the other. ARTICLE VIII ADMINISTRATION AND COLLECTION SECTION 8.01. Designation of Servicer. (a) IKON Capital as Initial ----------------------- ----------------------- Servicer. The servicing, administering and collection of the Pool Receivables - -------- shall be conducted by the Person designated as the servicer hereunder (the obligations as the Servicer hereunder, in which case such notice may be given at any time in the Agent's discretion. If IKON Capital disputes the occurrence of a Termination Event or other event described above, IKON Capital may take appropriate action to resolve such dispute; provided that IKON Capital must -------- terminate its activities hereunder as the Servicer and allow the newly designated Servicer to perform such activities on the date provided by the Agent as described above, notwithstanding the commencement or continuation of any proceeding to resolve the aforementioned dispute. (c) Subcontracts. The Servicer may, with the prior written consent of the ------------ Agent, subcontract with any other person for servicing, administering or collecting the Pool Receivables; provided that the Servicer shall remain liable -------- for the performance of the duties and obligations of the Servicer pursuant to the terms hereof; and provided, further, that any funds received by any -------- ------- subcontractor pursuant to the subcontract shall be deemed to have been received by the Servicer. SECTION 8.02. Duties of Servicer. (a) Appointment; Duties in General. ------------------ ------------------------------ Each of the Transferor, the Transferee and the Agent hereby appoints as its agent the Servicer, as from time to time designated pursuant to Section 8.01, ------------ (i) to enforce its rights and interests in and under the Pool Receivables, the Contracts and other Related Property, (ii) to take or cause to be taken all such actions as may be necessary or advisable to collect each Pool Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy, and (iii) to take such other actions and exercise such other powers on behalf of the Transferee and the Agent under this Agreement as are delegated to the Servicer by the terms hereof. (b) Allocation of Collections; Segregation. The Servicer shall set aside -------------------------------------- and hold in trust for the account of the Transferor and the Transferee their respective allocable shares of the Collections of Pool Receivables in accordance with Sections 3.01 and 3.02, but shall not be required (unless otherwise ------------- ---- requested by the Agent) to segregate the funds constituting such portions of such Collections prior to the remittance thereof in accordance with said Sections. If instructed by the Agent, the Servicer shall segregate and deposit with a bank designated by the Agent such allocable shares of Collections of Pool Receivables, set aside for the Transferee and any assignee from the Transferee of the Transferee's Interest (or any portion thereof), on the first Business Day following receipt by the Servicer of such Collections in immediately available funds. 36 (c) Modification of Receivables. So long as no Termination Event or --------------------------- Unmatured Termination Event shall have occurred and be continuing, IKON Capital, while it is Servicer, may, in accordance with the Credit and Collection Policy, (i) extend the maturity or adjust the Unpaid Balance of any Defaulted Receivable as IKON Capital may determine to be appropriate to maximize Collections thereof; provided that, no such extension shall be for more than 30 days and, after - -------- ---- giving effect to such extension of maturity or such adjustment, the Unadjusted Transferee's Percentage will not exceed the Maximum Percentage, and (ii) adjust the Unpaid Balance of any Receivable to reflect the reductions or cancellations described in Section 3.03(a). IKON Capital will not terminate, nor allow the --------------- prepayment of, any Contract related to a Pool Receivable unless, after giving effect to such termination or prepayment, any payment of a deemed Collection as a result of such termination or prepayment pursuant to Section 3.03 and the ------------ inclusion of any new Eligible Receivables in the Receivables Pool, the Unadjusted Transferee's Percentage, as of such date, does not exceed the Maximum Percentage. (d) Documents and Records. IKON Capital shall deliver to the Servicer, and --------------------- the Servicer shall hold in trust for the Transferor and the Transferee in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) that evidence or relate to Pool Receivables. (e) Power of Attorney. The Transferor hereby grants to the Servicer an ----------------- irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of the Transferor all steps which are necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by the Transferor or transmitted or received by the Transferee (whether or not from the Transferor) in connection with any Receivable. (f) Certain Duties to the Transferor. The Servicer shall, as soon as -------------------------------- practicable following receipt, turn over to the Transferor (i) that portion of Collections of Pool Receivables representing its undivided interest therein, less, the sum of (a) in the event IKON Capital is no longer the Servicer, all reasonable and appropriate out-of-pocket costs and expenses of the Servicer of servicing, collecting and administering the Pool Receivables to the extent not covered by the Servicer's Fee received by it and (b) any amounts, other than Transferee's Investment and Earned Discount, then due to the Transferee or the Agent, and (ii) the Collections of any Receivable that is not a Pool Receivable. The Servicer, if other than IKON Capital, shall, at the Transferor's expense, as soon as practicable upon demand, deliver to the Transferor all documents, instruments and records in its possession that evidence or relate to Receivables 37 of the Transferor other than Pool Receivables, and copies of documents, instruments and records in its possession that evidence or relate to Pool Receivables. (g) Termination. The Servicer's authorization under this Agreement shall ----------- terminate on the Final Pay Out Date. SECTION 8.03. Rights of the Agent. (a) Notice to Obligors; Segregation. At ------------------- ------------------------------- any time when a Termination Event or an Unmatured Termination Event shall have occurred, the Agent may notify the Obligors of Pool Receivables, or any of them, of the ownership of the Transferee's Interest by the Transferee. At any time the Agent may require the Transferor to establish a new Designated Account into which no funds are deposited other than Collections, and to deposit, or cause to be deposited, all Collections into such new Designated Account. (b) Notice to Post Office Boxes and Designated Banks. At any time when a ------------------------------------------------ Termination Event or an Unmatured Termination Event shall have occurred, (i) the Agent is hereby authorized to give notice, as provided in the Post Office Box Agreements, of the transfer to the Agent of dominion and control over the Post Office Boxes to which the Obligors of Pool Receivables make payments, (ii) the Agent is hereby authorized to give notice to the Designated Account Banks, as provided in the Designated Account Agreements, of the transfer to the Agent of dominion and control over the Designated Accounts and (iii) the Agent may notify, or may require the Servicer to notify, the Obligors to send their payments to a lock-box located at DBNY or other bank approved by the Agent, under the dominion and control of the Agent. (c) Rights on Designation of New Servicer. At any time following the ------------------------------------- designation of a Servicer other than IKON Capital pursuant to Section 8.01: ------------ (i) The Agent may direct the Obligors of Pool Receivables, or any of them, to pay all amounts payable under any Pool Receivable directly to the Agent or its designee. (ii) IKON Capital shall, at the Agent's request and at IKON Capital's expense, give notice of such ownership to each said Obligor and direct that payments be made directly to the Agent or its designee. (iii) Each of the Transferor and IKON Capital shall, at the Agent's request, (A) assemble all of the documents, instruments and other records (including, without limitation, computer programs, tapes and disks) which evidence the Pool Receivables and Related Property, or which 38 are otherwise necessary or desirable to collect such Pool Receivables, and make the same available to the Agent at a place selected by the Agent or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Pool Receivables in a manner acceptable to the Agent and shall, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Agent or its designee. (d) Authorization and Power of Attorney. Each of the Transferor and the ----------------------------------- Transferee hereby authorizes the Agent and hereby appoints the Agent as its attorney-in-fact (which appointment is coupled with an interest and is irrevocable), from time to time upon and after the designation of a successor Servicer in accordance with Section 8.01, to take any and all steps in the ------------ Transferor's name and on behalf of the Transferor and the Transferee which are necessary or desirable, in the determination of the Agent, to collect all amounts due under any and all Pool Receivables and Related Property, including, without limitation, endorsing the Transferor's name on checks and other instruments representing Collections and enforcing such Pool Receivables and the related Contracts. SECTION 8.04. Responsibilities of Transferor. Anything herein to the ------------------------------ contrary notwithstanding: (a) The Transferor shall perform (or cause IKON Capital to perform under the Transfer Agreement) all of its obligations under the Contracts related to the Pool Receivables and under the related purchase orders and other agreements to the same extent as if the Transferee's Interest had not been transferred hereunder and the exercise by the Agent of its rights hereunder shall not relieve the Transferor from such obligations. (b) Neither the Agent nor the Transferee shall have any obligation or liability with respect to any Pool Receivables, Contracts related thereto or any other related purchase orders or other agreements, nor shall any of them be obligated to perform any of the obligations of the Transferor thereunder. SECTION 8.05. Further Action Evidencing Transfers. (a) The Transferor ----------------------------------- agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action that the Agent may reasonably request in order to perfect, protect or more fully evidence the Transfers hereunder and the resulting Transferee's Interest, or to enable the Transferee or the Agent to exercise or enforce any of their respective rights hereunder 39 or under the other Transaction Documents. Without limiting the generality of the foregoing, the Transferor will upon the request of the Agent: (i) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate; (ii) mark conspicuously each Contract evidencing each Pool Receivable with a legend, acceptable to the Agent, evidencing the transfer of the Transferee's Interest; and (iii) mark its master data processing records evidencing such Pool Receivables and related Contracts with such legend. (b) The Transferor hereby authorizes the Agent to file in the name of the Transferor, to the extent permitted by applicable law, one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Pool Receivables and Related Property now existing or hereafter arising. If the Transferor fails to perform any of its agreements or obligations under this Agreement, the Agent may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the expenses of the Agent incurred in connection therewith shall be payable by the Transferor as provided in Section 13.01. ------------- (c) Without limiting the generality of subsection (a), the Transferor -------------- will, not earlier than six (6) months and not later than three (3) months from the fifth anniversary of the date of filing of the financing statements referred to in Sections 5.01(f) and 5.01(k) or any other financing statement filed ---------------- ------- pursuant to this Agreement or in connection with any Transfer hereunder, unless the Final Pay Out Date shall have occurred: (i) execute and deliver and file or cause to be filed an appropriate continuation statement with respect to each such financing statement; and (ii) deliver or cause to be delivered to the Agent an opinion of the counsel for the Transferor referred to in Section 5.01(i) (or other counsel --------------- for the Transferor reasonably satisfactory to the Agent), in form and substance reasonably satisfactory to the Agent, confirming and updating the opinion delivered pursuant to Section 5.01(i) with respect to perfection --------------- issues and otherwise to the effect that the Transferee's Interest hereunder continues to be a valid and perfected interest subject to no Liens of 40 record except as provided herein or otherwise permitted hereunder. SECTION 8.06. Application of Obligors' Payments. (a) Any payment by an --------------------------------- Obligor in respect of any indebtedness owed by it to the Transferor or IKON Capital shall, except as otherwise specified by such Obligor or otherwise required by contract or law and unless the Agent instructs otherwise, be applied as a Collection of any Pool Receivable or Receivables of such Obligor to the extent of any amounts then due and payable thereunder before such payment is applied to any other indebtedness of such Obligor. (b) Except or as otherwise required by law or the underlying Contract, all Collections received from an Obligor of any Receivable shall be applied to Pool Receivables then outstanding of such Obligor in the order of the age of such Pool Receivables, starting with the oldest such Pool Receivable; provided, -------- however, that, if payment is designated by such Obligor for application to - ------- specific Receivables, it shall be applied to such specified Receivables. ARTICLE IX SECURITY INTEREST SECTION 9.01. Grant of Security Interest. To secure all obligations of -------------------------- the Transferor arising in connection with this Agreement and each other Transaction Document, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent, including, without limitation, Indemnified Amounts, payments on account of Collections received or deemed to be received, fees and Earned Discount, in each case pro rata according to the --- ---- respective amounts thereof, the Transferor hereby assigns and grants to the Transferee, for its benefit and the benefit of the Agent, the Affected Parties and the Indemnified Parties, a security interest in all of the Transferor's right, title and interest (including specifically any undivided interest retained by the Transferor hereunder) now or hereafter existing in, to and under all the Pool Receivables and Related Property. SECTION 9.02. Further Assurances. The provisions of Section 8.05 shall ------------------ ------------ apply to the security interest granted under Section 9.01 as well as to the ------------ Transfers and the Transferee's Interest hereunder. SECTION 9.03. Remedies. Upon the occurrence of a Termination Event, the -------- Transferee, for its own benefit and for the benefit of the Agent, the Affected Parties and the 41 Indemnified Parties, shall have, with respect to the collateral granted pursuant to Section 9.01, and in addition to all other rights and remedies available to ------------ the Transferee, the Agent, the Affected Parties or the Indemnified Parties under this Agreement or other applicable law, all the rights and remedies of a secured party upon default under the UCC. ARTICLE X TERMINATION EVENTS SECTION 10.01. Termination Events. Each of the following events shall be ------------------ a "Termination Event": ----------------- (a) (i) The Servicer (if IKON Capital or an Affiliate of IKON Capital is the Servicer) shall fail to perform or observe any term, covenant or agreement hereunder (other than as referred to in clause (ii) next ----------- following) and such failure shall remain unremedied for three Business Days or (ii) the Servicer (if IKON Capital or an Affiliate of IKON Capital is the Servicer) or the Transferor shall fail to make any payment or deposit to be made by it hereunder when due; or (b) Any representation or warranty made or deemed to be made by the Transferor or IKON Capital (or any of its officers) under or in connection with this Agreement, any other Transaction Document or any Periodic Report or Pay Out Statement or other information or report delivered pursuant hereto shall prove to have been false or incorrect in any material respect when made; or (c) The Transferor or IKON Capital shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or any other Transaction Document on its part to be performed or observed and any such failure shall remain unremedied for ten Business Days after written notice thereof shall have been given by the Agent to the Transferor or IKON Capital, as the case may be; or (d) A default shall have occurred and be continuing under any instrument or agreement evidencing, securing or providing for the issuance of indebtedness for borrowed money of, or guaranteed by, IKON Capital, the Transferor or any Affiliate thereof (provided, that in the case of IKON Office, such indebtedness is in excess of $5,000,000), which default is a payment default or if unremedied, uncured, or unwaived (with or without the passage of time or the giving of notice or both) would permit acceleration of the maturity 42 of such indebtedness and such default shall have continued unremedied, uncured or unwaived for a period long enough to permit such acceleration and any notice of default required to permit acceleration shall have been given; or any default under any agreement or instrument relating to the purchase or transfer of receivables of IKON Capital or the Transferor, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default is to terminate, or permit the termination of, the commitment of any party to such agreement or instrument to purchase or acquire receivables or the right of the IKON Capital or Transferor to reinvest in receivables the principal amount paid by any party to such agreement or instrument for an interest in receivables; or (e) An Event of Bankruptcy shall have occurred and remained continuing with respect to IKON Capital, the Transferor or any Affiliate thereof; or (f) (i) Any litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings not disclosed in writing by IKON Capital or the Transferor to the Agent and the Transferee prior to the date of execution and delivery of this Agreement is pending against IKON Capital, the Transferor or any Affiliate thereof, or (ii) any material development not so disclosed has occurred in any litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings so disclosed, which, in the case of clause (i) or (ii), in the ---------- ---- opinion of the Agent, is likely to have a Material Adverse Effect; or (g) The Internal Revenue Service shall file notice of a lien pursuant to Section 6323 of the Internal Revenue Code with regard to any of the assets of IKON Capital or the Transferor and such lien shall not have been released within 5 days, or the Pension Benefit Guaranty Corporation shall, or shall indicate its intention to, file notice of a lien pursuant to Section 4068 of the Employee Retirement Income Security Act of 1974 with regard to any of the assets of IKON Capital, the Transferor or IKON Office; or (h) There shall have occurred or shall exist any event or condition which has, or would have a material possibility of causing, a Material Adverse Effect; or the warranty in Section 6.01(i)(y) or 6.02(i)(y) shall not be true at any ------------------ ---------- time; or 43 (i) the Unadjusted Transferee's Percentage shall exceed the Maximum Percentage, and such event shall continue for more than 5 Business Days; or (j) The Losses to Liquidations Ratio (1) for any one month period exceeds 9% or (2) for any six consecutive month period exceeds 7.5%; or (k) The average of the Delinquency Ratios for any three consecutive calendar months exceeds 5% or the average of the Default Ratios for any three consecutive calendar months exceeds 4%; or (l) a default shall occur under the Support Agreement, or the Support Agreement shall terminate or cease to be in effect for any reason; or (m) There shall have been entered against IKON Capital or the Transferor one or more judgments, awards or decrees which, in the case of IKON Capital, exceed $2,500,000 at any one time outstanding, excluding judgments, awards or decrees for which there is full insurance and with respect to which the insurer has assumed a responsibility in writing; or (n) IKON Capital ceases to have a long term unsecured debt rating of at least BBB- from S&P and Baa3 from Moody's; or (o) Transferee shall cease to have a valid, perfected first priority ownership interest in the Receivables and the Related Property for any reason; or (p) Transfer Termination Event shall occur under the Transfer Agreement. SECTION 10.02. Remedies. (a) Optional Termination. Upon the occurrence of -------- -------------------- a Termination Event (other than a Termination Event described in subsection (e) -------------- or (i) of Section 10.01), the Agent shall, at the request, or may with the --- ------------- consent, of the Transferee, by notice to the Transferor declare the Commitment Termination Date to have occurred. (b) Automatic Termination. Upon the occurrence of a Termination Event --------------------- described in subsection (e) or (i) of Section 10.01, the Commitment Termination -------------- --- ------------- Date shall be deemed to have occurred automatically upon the occurrence of such event; provided that, if the Commitment Termination Date shall have occurred by -------- reason of a Termination Event described in subsection (i) and subsequent to such -------------- date the Unadjusted Transferee's Percentage shall not exceed the Maximum Percentage, upon written 44 notice by the Agent to the Transferor, the Commitment shall be reinstated. (c) Additional Remedies. Upon any termination of the Commitment pursuant ------------------- to this Section 10.02, the Agent and the Transferee shall have, in addition to ------------- all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of each applicable jurisdiction and other applicable laws, which rights shall be cumulative. Without limiting the foregoing or the general applicability of Article XIII hereof, (i) the ------------ occurrence of a Termination Event shall not deny to the Transferee any remedy in addition to termination of the Commitment to which the Transferee may be otherwise appropriately entitled, whether at law or in equity, and (ii) following the occurrence of any Termination Event the Transferee may elect to assign to any Person the Transferee's Interest, or any portion thereof. ARTICLE XI THE AGENT SECTION 11.01. Authorization and Action. The Transferee has appointed the ------------------------ Agent as its agent pursuant to a Servicing Agreement between the Transferee and DBNY, and hereby authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof and of said Servicing Agreement, together with such powers as are reasonably incidental thereto. SECTION 11.02. Agent's Reliance, Etc. Neither the Agent nor any of its --------------------- directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or the Agent under or in connection with this Agreement (including, without limitation, the servicing, administering or collecting Pool Receivables as the Servicer pursuant to Section 8.01), except ------------ for its or their own gross negligence or willful misconduct, and except for any breach by the Servicing Agent of its obligations to the Transferee expressly set forth in the Servicing Agreement referred to in Section 11.01. Without limiting ------------- the generality of the foregoing, the Agent: (a) may consult with legal counsel (including counsel for the Transferor or IKON Capital), independent certified public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to the Transferee or any other holder of any interest in Pool Receivables and shall not be responsible to the Transferee or any such other holder for any statements, warranties or 45 representations made by any Person (other than the Servicing Agent) in or in connection with this Agreement; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Transferor or IKON Capital or to inspect the property (including the books and records) of the Transferor or IKON Capital, except for its duties to the Transferee as set forth in the Servicing Agreement referred to above; (d) shall not be responsible to the Transferee (except for any breach by the Servicing Agent of its duties set forth in the Servicing Agreement referred to above) or to any other holder of any interest in Pool Receivables for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Transaction Document; and (e) shall incur no liability under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by facsimile or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 11.03. Agent and Affiliates. Deutsche Bank and its Affiliates may -------------------- generally engage in any kind of business with IKON Capital, the Transferor or any Obligor, any of their respective Affiliates and any Person who may do business with or own securities of IKON Capital, the Transferor or any Obligor or any of their respective Affiliates, all as if Deutsche Bank were not the Agent and without any duty to account therefor to the Transferee or any other holder of an interest in Pool Receivables. ARTICLE XII ASSIGNMENTS SECTION 12.01. Restrictions on Assignments. (a) None of IKON Capital, the --------------------------- Transferor or the Transferee may assign its rights hereunder or any interest herein without the prior written consent of the Agent, and the Transferee may not assign the Transferee's Interest (or any portion thereof) to any Person without the prior written consent of the Transferor, which consent shall not be unreasonably withheld; provided, however, that -------- ------- (i) the Transferee may assign, or grant a security interest in, the Transferee's Interest (or any portion thereof) to Deutsche Bank, the Liquidity Banks (or any successor of any thereof by merger, consolidation or otherwise), or any Affiliate of Deutsche Bank or any of the Liquidity Banks (which may then assign the Transferee's Interest (or any portion thereof so assigned) or any 46 interest therein to such party or parties as it may choose); and (ii) the Transferee may assign and grant a security interest in the Transferee's Interest and the Transferee's rights and interests in, to and under this Agreement and the other Transaction Documents to DBNY, as Collateral Agent, and any successor in such capacity, to secure the Transferee's obligations under or in connection with the Commercial Paper Notes, the Liquidity Agreement, the Enhancement Agreement and any letter of credit issued thereunder, and certain other obligations of the Transferee incurred in connection with the funding of the Transfers and Reinvestments hereunder, which assignment and grant of a security interest shall not be considered an "assignment" for purposes of Section 12.01(b), Section 12.03 ---------------- ------------- or 12.04 or, prior to the enforcement of such security interest, for ----- purposes of any other provision of this Agreement. (b) The Transferor agrees to advise the Agent within five Business Days after notice to the Transferor of any proposed assignment by the Transferee of the Transferee's Interest (or any portion thereof), not otherwise permitted under subsection (a), of the Transferor's consent or non-consent to such -------------- assignment. If the Transferor does not consent to such assignment, the Transferee may immediately assign the Transferee's Interest (or such portion) to Deutsche Bank, any of the Liquidity Banks or any Affiliate of Deutsche Bank or any of the Liquidity Banks. All of the aforementioned assignments shall be upon such terms and conditions as the Transferee and the assignee may mutually agree. SECTION 12.02. Documentation; Notice of Assignment. (a) Any assignment of ----------------------------------- the Transferee's Interest (or any portion thereof) to any Person may be evidenced by such instruments or documents as may be satisfactory to the Transferee, the Agent and the assignee. (b) The Transferee shall provide notice to the Transferor of any assignment of the Transferee's Interest (or any portion thereof) by the Transferee to any assignee (other than the assignment and grant of a security interest referred to in Section 12.01(a)(ii)). -------------------- SECTION 12.03. Rights of Assignee. Upon the assignment by the Transferee ------------------ of the Transferee's Interest (or any portion thereof) in accordance with this Article XII, the assignee receiving such assignment shall have all of the rights - ----------- of the Transferee hereunder with respect to the Transferee's Interest (or the portion thereof so assigned); subject, however, to Sections 12.04 and 12.05. ------- ------- -------------- ----- 47 SECTION 12.04. Allocation of Payments. If on any date there are ---------------------- sufficient funds in the Agent's Account to distribute a portion, but not all, of the amounts payable pursuant to subsection (c)(i) of either Section 3.01 or ----------------- ------------ Section 3.02 and, due to any assignment of the Transferee's Interest (or any - ------------ portion thereof), such amounts are payable to more than one Person, then, unless otherwise agreed between such Persons, and subject to Section 3.02(d), the Agent --------------- shall distribute funds to such Persons pro rata based upon the amounts so --- ---- payable to such Persons. SECTION 12.05. Calculation of Earned Discount After Assignment. ----------------------------------------------- Upon and after the assignment of the Transferee's Interest (or any portion thereof) pursuant to this Article XII, the Transferee Rate used to calculate ----------- Earned Discount from time to time with respect to the Transferee's Interest (or the portion thereof so assigned) for each applicable Yield Period beginning after the effective date of such assignment shall be the Bank Rate, unless the Transferee, the Transferor and the assignee may agree in writing upon to use a different Transferee Rate for calculating such Earned Discount. If (i) the Transferor fails to consent to any assignment of the Transferee's Interest (or any portion thereof) proposed by the Transferee, (ii) the Transferee makes an assignment of the Transferee's Interest (or such portion) to Deutsche Bank or any Affiliate of Deutsche Bank as permitted under Section 12.01(b), and (iii) in ---------------- the opinion of the Agent, the Transferee was required by applicable law, regulation or directive from any governmental authority to make such assignment, then the Earned Discount with respect to the Transferee's Interest (or the portion thereof so assigned) shall immediately begin to accrue at the Bank Rate for the remainder of any then applicable Yield Period. SECTION 12.06. Rights of Collateral Agent. Each of IKON Capital and -------------------------- the Transferor hereby agrees that, upon notice to the Transferor, the Collateral Agent referred to in Section 12.01 may exercise all the rights of the Agent ------------- hereunder with respect to the Transferee's Interest (or all portions thereof, and Collections with respect thereto, which are owned by the Transferee), and all other rights and interests of the Transferee in, to or under this Agreement or any other Transaction Document. Without limiting the foregoing, upon such notice such Collateral Agent may request the Servicer to segregate the Transferee's allocable share of Collections from the Transferor's allocable share in accordance with Section 8.02(a), may give a notice designating a new --------------- Servicer pursuant to Section 8.01(a), may give or require the Agent to give --------------- notice to the Post Office Boxes and Designated Account Banks as referred to in Section 8.03(a), and may direct the Obligors of Pool Receivables to make - --------------- payments in respect thereof directly to an account or lockbox designated by it, in each case, to the same extent as the Transferee or the Agent might have done. 48 ARTICLE XIII INDEMNIFICATION SECTION 13.01. Indemnities by the Transferor. (a) General ----------------------------- ------- Indemnity. Without limiting any other rights which any such Person may have - --------- hereunder or under applicable law, the Transferor hereby agrees to indemnify each of the Agent, the Transferee, the Liquidity Banks, the Enhancement Bank, Deutsche Bank, each of their respective Affiliates, successors, transferees, participants and assigns and all officers, directors, shareholders, controlling persons, employees and agents of any of the foregoing (each an "Indemnified ----------- Party"), forthwith on demand, from and against any and all damages, losses, - ----- claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them ------------------- arising out of or relating to this Agreement or the ownership or funding of the Transferee's Interest (or any portion thereof) or in respect of any Receivable or any Contract, excluding, however, (a) Indemnified Amounts to the extent --------- ------- resulting from gross negligence or willful misconduct on the part of the Agent, the Transferee or such Indemnified Party or (b) recourse (except as otherwise specifically provided in this Agreement) for Defaulted Receivables. Without limiting the foregoing, and subject to the foregoing exclusions, the Transferor shall indemnify each Indemnified Party for Indemnified Amounts arising out of or relating to: (i) the transfer by the Transferor of any interest in any Receivable other than the transfer of the Transferee's Interest to the Transferee pursuant to this Agreement and the grant of a security interest to the Transferee pursuant to Section 9.01; ------------ (ii) the breach of any representation or warranty made by the Transferor (or any of its officers) under or in connection with this Agreement, any Periodic Report or Pay Out Statement or any other information or report delivered by the Transferor or the Servicer pursuant hereto, which shall have been false or incorrect in any material respect when made or deemed made; (iii) the failure by the Transferor to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract, or the nonconformity of any Pool Receivable or the related Contract with any such applicable law, rule or regulation; 49 (iv) the failure to vest and maintain vested in the Transferee an undivided percentage ownership interest, to the extent of the Transferee's Interest, in the Receivables in, or purporting to be in, the Receivables Pool, together with all Related Property, free and clear of any Lien, other than an Lien arising solely as a result of an act of the Transferee or the Agent, whether existing at the time of any Transfer or Reinvestment or at any time thereafter; (v) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Pool Receivables or Related Property, whether at the time of any Transfer or Reinvestment or at any time thereafter; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy) of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services; (vii) any failure of the Transferor to perform its duties or obligations in accordance with the provisions of this Agreement; (viii) any products liability claim arising out of or in connection with merchandise or services that are the subject of any Pool Receivable; or (ix) any tax or governmental fee or charge (but not including taxes upon or measured by net income), all interest and penalties thereon or with respect thereto, and all out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the transfer or ownership of the Transferee's Interest, any portion thereof or any other interest in the Pool Receivables or Related Property or in any goods which secure any such Pool Receivables. (b) Indemnities by Servicer. Without limiting any other rights ----------------------- which any such Person may have hereunder or under applicable law, Servicer hereby agrees to indemnify each of the Indemnified Parties, forthwith on demand, from and against any 50 and all Indemnified Amounts awarded against or incurred by any of them arising out or related to: (i) the fact that any representation or warranty made by the Servicer (or any of its officers) under or in connection with this Agreement, any Periodic Report or any other information or report delivered by the Servicer pursuant hereto shall have been false or incorrect in any material respect when made or deemed made; (ii) the failure by the Servicer to comply with any applicable law, rule or regulation with respect to the servicing or collection of any Pool Receivable or the related Contract; (iii) the failure of the Servicer or any subservicer to perform its duties or obligations in accordance with the provisions of this Agreement; and (iv) any dispute, claim, offset or defense of the Obligor to the payment of any Pool Receivable by reason of the action or inaction of the Servicer or any subservicer of the Servicer. (c) Contest of Tax Claim; After-Tax Basis. If any Indemnified ------------------------------------- Party shall have notice of any attempt to impose or collect any tax or governmental fee or charge for which indemnification will be sought from the Transferor under Section 13.01(a)(ix), such Indemnified Party shall give prompt -------------------- and timely notice of such attempt to the Transferor and the Transferor shall have the right, at its expense, to participate in any proceedings resisting or objecting to the imposition or collection of any such tax, governmental fee or charge. Indemnification hereunder shall be in an amount necessary to make the Indemnified Party whole after taking into account any tax consequences to the Indemnified Party of the payment of any of the aforesaid taxes and the receipt of the indemnity provided hereunder or of any refund of any such tax previously indemnified hereunder, including the effect of such tax or refund on the amount of tax measured by net income or profits which is or was payable by the Indemnified Party. (d) Contribution. If for any reason the indemnification provided ------------ above in this Section 13.01 is unavailable to an Indemnified Party or is ------------- insufficient to hold an Indemnified Party harmless, then the Transferor or IKON Capital, as the case may be, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and the Transferor or IKON Capital, as the case may 51 be, on the other hand but also the relative fault of such Indemnified Party as well as any other relevant equitable considerations. ARTICLE XIV MISCELLANEOUS SECTION 14.01. Amendments, Etc. No amendment or waiver of any --------------- provision of this Agreement nor consent to any departure by the Transferor or IKON Capital therefrom shall in any event be effective unless the same shall be in writing and signed by (a) the Transferor, IKON Capital, the Agent and the Transferee (with respect to an amendment) or (b) the Agent and the Transferee (with respect to a waiver or consent by them) or the Transferor or IKON Capital (with respect to a waiver or consent by the Transferor or IKON Capital), as the case may be, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 14.02. Notices, Etc. All notices and other communications ------------ provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by express mail or courier, or by certified mail, postage prepaid, or by facsimile, to the intended party at the address or facsimile number of such party set forth in Schedule 14.02 hereto or at such other address or facsimile number as shall -------------- be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, (a) if personally delivered or sent by express mail or courier, when received, (b) if sent by certified mail, three Business Days after having been deposited in the mail, postage prepaid, and (c) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means, except that notices and communications pursuant to Article I shall not be effective until received. --------- SECTION 14.03. No Waiver; Remedies. No failure on the part of the ------------------- Agent, any Affected Party, any Indemnified Party, the Transferee or any assignee of the Transferee's Interest or any portion thereof to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Without limiting the foregoing, Deutsche Bank is hereby authorized by the Transferor at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any 52 time held and other indebtedness at any time owing by Deutsche Bank to or for the credit or the account of the Transferor, now or hereafter existing under this Agreement, to the Agent, any Affected Party, any Indemnified Party or the Transferee, or their respective successors and assigns. SECTION 14.04. Binding Effect; Survival. This Agreement shall be ------------------------ binding upon and inure to the benefit of the Transferor, IKON Capital, the Agent, the Transferee and their respective successors and assigns, and the provisions of Section 4.04 and Article XIII shall inure to the benefit of the ------------ ------------ Affected Parties and the Indemnified Parties, respectively, and their respective successors and assigns; provided, however, nothing in the foregoing shall be -------- ------- deemed to authorize any assignment not permitted by Section 12.01. This ------------- Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time as the Final Pay Out Date shall have occurred. The rights and remedies with respect to any breach of any representation and warranty made by the Transferor or IKON Capital pursuant to Article VI and the provisions of ---------- Article XIII, Section 4.04 and Sections 14.05 through 14.09 shall be continuing - ------------ ------------ -------------- ----- and shall survive any termination of this Agreement. SECTION 14.05. Costs, Expenses and Taxes. In addition to its ------------------------- obligations under Article XIII, the Transferor and IKON Capital jointly and ------------ severally agree to pay on demand: (a) all costs and expenses incurred by the Agent, the Transferee, Deutsche Bank and their respective Affiliates in connection with the negotiation, preparation, execution and delivery, the administration (including periodic auditing) or the enforcement of, or any actual or claimed breach of, this Agreement and the other Transaction Documents, including, without limitation (i) the reasonable fees and expenses of counsel to any of such Persons incurred in connection with any of the foregoing or in advising such Persons as to their respective rights and remedies under any of the Transaction Documents, and (ii) all reasonable out-of-pocket expenses (including reasonable fees and expenses of independent accountants) incurred in connection with any review of the Transferor's or IKON Capital's books and records either prior to the execution and delivery hereof or pursuant to Section 7.01(c); and --------------- (b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or any or the other Transaction Documents (and the Transferor agrees to indemnify each Indemnified Party against any liabilities 53 with respect to or resulting from any delay in paying or omission to pay such taxes and fees). Transferor also agrees to pay a pro rata share of Transferee's general operating costs and expenses, including, but not limited to, rating agency fees, management fees and the fees and expenses of counsel, which pro rata share shall be determined by dividing the daily average annual Transferee's Investment by the daily average Commercial Paper Notes issued by Transferee, provided, -------- however, that in no event shall such pro rata share exceed .01% per annum of the - ------- average annual Transferee's Investment. Such fee shall be payable on the last day of each February for the calendar year ending on the immediately preceding December 31. SECTION 14.06. No Proceedings. The Transferor, IKON Capital and -------------- Deutsche Bank, individually and as Agent, each hereby agrees that it will not institute against or join any other Person in instituting against, the Transferee, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any Federal or state bankruptcy or similar law, for one year and a day after the latest maturing Commercial Paper Note is paid. The foregoing shall not limit the Transferor's or IKON Capital's right to file any claim in or otherwise take any action with respect to any insolvency proceeding that was instituted by any Person other than the Transferor or IKON Capital. SECTION 14.07. Confidentiality of Transferor Information. (a) ----------------------------------------- Confidential Information. Each of the Transferee and the Agent acknowledges - ------------------------- that certain of the information provided to such party by or on behalf of the Transferor or IKON Capital in connection with this Agreement and the transactions contemplated hereby is or may be confidential, and each such party severally agrees that, unless the Transferor or IKON Capital shall otherwise agree in writing, and except as provided in subsection (b), such party will not -------------- disclose to any other person or entity: (i) any information regarding, or copies of, any Periodic Reports, Pay Out Statements, and any non-public financial statements, reports and other information, furnished by the Transferor or IKON Capital to the Transferee or the Agent pursuant to this Agreement, or (ii) any other information regarding the Transferor or IKON Capital which is designated by the Transferor or IKON Capital to such party in writing or otherwise as confidential; the information referred to in clauses (i) and (ii) above, is collectively -------------------- referred to as the "Transferor Information"; provided, however, "Transferor ---------------------- -------- ------- ---------- Information" shall not include - ----------- 54 (A) any information which is or becomes generally available to the general public or to such party on a nonconfidential basis from a source other than the Transferor or IKON Capital or which was known to such party on a nonconfidential basis prior to its disclosure by the Transferor or IKON Capital, or (B) general information regarding the nature of this Agreement, the basic terms hereof (including without limitation the amount and nature of the Commitment and the Transferee's Investments hereunder and of the recourse or other credit enhancement provided by hereunder), the nature, amount and status of the Pool Receivables, and the current and/or historical ratios of losses to liquidations and/or outstandings with respect to the Receivables Pool, and the identity of the Transferor and IKON Capital. (b) Disclosure. Notwithstanding subsection (a), each party may ---------- -------------- disclose any Transferor Information: (i) to any of such party's attorneys, consultants and auditors, and to such of the Liquidity Banks, the Enhancement Bank, any dealer or placement agent for the Transferee's commercial paper, and any actual or potential assignees of, or participants in, any of the rights or obligations of the Transferee, the Liquidity Banks, the Enhancement Bank or Deutsche Bank under or in connection with this Agreement, who (A) are informed by such party of the confidential nature of the Transferor Information and the terms of this Section ------- 14.07, and (B) are subject to confidentiality restrictions generally ----- consistent with this Section 14.07, ------------- (ii) to any rating agency that maintains a rating for the Transferee's commercial paper or is considering the issuance of such a rating, for the purposes of reviewing the credit of the Transferee in connection with such rating, (iii) to any other party to this Agreement, for the purposes contemplated hereby, (iv) to any Person whom any dealer or placement agent for the Transferee shall have identified as an actual or potential investor in Commercial Paper Notes, and who shall have agreed with Deutsche Bank in writing to keep such information confidential and use it only in connection with considering or monitoring such investments, subject to applicable legal requirements (it being understood that such Person may also receive the information excluded from the 55 definition of "Transferor Information" pursuant to clause (B) of ---------- subsection (a)), -------------- (v) as may be required by any municipal, state, federal or other regulatory body having or claiming to have jurisdiction over such party, in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party, or (vi) subject to subsection (c), in the event such party is -------------- legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand or similar process) to disclose such Transferor Information. (c) Legal Compulsion. In the event that any party hereto (other ---------------- than the Transferor or IKON Capital) or any of its representatives is requested or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Transferor Information, such party will (or will cause its representatives to) (i) provide the Transferor or IKON Capital with prompt written notice of such request or legal compulsion; and (ii) at IKON Capital's expense, use its reasonable efforts to cooperate with the Transferor and IKON Capital in making an appropriate objection to disclosure, seeking a protective order or taking such other actions as may be lawful and appropriate in order to maintain the confidentiality of such Transferor Information. (d) Survival. This Section 14.07 shall survive termination of this -------- ------------- Agreement. SECTION 14.08. Confidentiality of Program Information. (a) Program -------------------------------------- ------- Information. Each party hereto (other than DBNY) acknowledges that DBNY regards - ----------- the structure of the transactions contemplated by this Agreement, and by the Liquidity Agreement, the Enhancement Agreement and the other Program Documents referred to therein, to be proprietary, and each such party severally agrees that: (i) unless DBNY shall otherwise agree in writing, and except as provided in subsection (b), such party will not disclose to any -------------- other person or entity: (A) any information regarding, or copies of, this Agreement or any transaction contemplated hereby, 56 (B) any information regarding, or copies of, the Liquidity Agreement, the Enhancement Agreement, any of the other Program Documents referred to therein, or any transaction contemplated thereby, (C) any information regarding the organization or business of the Transferee generally, or (D) any information regarding Deutsche Bank which is designated by DBNY to such party in writing or otherwise as confidential or not otherwise available to the general public (the information referred to in clauses (A), (B), (C) and (D) above, whether ----------- --- --- --- furnished by the Transferee, DBNY, any Liquidity Bank, the Enhancement Bank, any assignee of or participant in any rights or obligations of the Transferee, any Liquidity Bank or the Enhancement Bank, or any attorney for or other representative of any of the foregoing (each a "Program Information Provider"), ---------------------------- is collectively referred to as the "Program Information"; provided, however, ------------------- -------- ------- "Program Information" shall not include any information which is or becomes - -------------------- generally available to the general public or to such party on a nonconfidential basis from a source other than DBNY or any other Program Information Provider, or which was known to such party on a nonconfidential basis prior to its disclosure by DBNY or any other Program Information Provider); (ii) such party will make the Program Information available to only such of its officers, directors, employees and agents who (A) in the good faith belief of such party, have a need to know such Program Information, (B) are informed by such party of the confidential nature of the Program Information and the terms of this Section 14.08, and ------------- (C) are subject to confidentiality restrictions consistent with this Section 14.08; ------------- (iii) such party will use the Program Information solely for the purposes of evaluating, administering and enforcing the transactions contemplated by this Agreement and making any necessary business judgments with respect thereto; and (iv) such party will, upon demand, return (and cause each of its officers, directors, employees, agents, attorneys, consultants or auditors (collectively, "representatives") to return) to DBNY, or to --------------- such other Program Information Provider as shall have furnished it with any Program Information, all documents or other written material received from DBNY or such other Program Information Provider which constitute or contain any 57 Information described in subclause (B), (C), or (D) of clause (i) ------------- --- --- ---------- above and all copies of such documents or other material in its possession or in the possession of any of its representatives, and will not retain any copy, summary or extract thereof on any storage medium whatsoever. (b) Disclosure. Notwithstanding clause (i) of subsection (a), each ---------- ---------- -------------- party may disclose any Program Information: (i) to its attorneys, consultants and auditors who (A) in the good faith belief of such party, have a need to know such Program Information, (B) are informed by such party of the confidential nature of the Program Information and the terms of this Section 14.08, and ------------- (C) are subject to confidentiality restrictions consistent with this Section 14.08, ------------- (ii) to any other party to this Agreement, for the purposes contemplated hereby, (iii) as may be required by any municipal, state, federal or other regulatory body having or claiming to have jurisdiction over such party, in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party (provided that -------- prior to making any required filing of this agreement with the Securities and Exchange Commission, Transferor and IKON Capital shall apply for confidential treatment and shall expurgate those provisions requested by the Agent), or (iv) subject to subsection (c), in the event such party is -------------- legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand or similar process) to disclose such Program Information. (c) Legal Compulsion. In the event that any party hereto (other ---------------- than DBNY) or any one to whom such party or its representatives transmits the Program Information is requested or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Program Information, such party will (or will cause its representatives to) (i) provide DBNY with prompt written notice of such request or legal compulsion; (ii) unless DBNY agrees that such Program Information may be disclosed, make a timely objection to the request or compulsion to provide such Program Information on the basis that such Program Information is confidential and subject to the agreements contained in this Section 14.08; and ------------- 58 (iii) at the expense of DBNY or any other Program Information Provider, take any action as DBNY or such other Program Information Provider may reasonably request to seek a protective order or other appropriate remedy and otherwise to maintain the confidentiality of such Program Information. (d) Survival. This Section 14.08 shall survive termination of this -------- ------------- Agreement. SECTION 14.09. No Recourse Against Other Parties. No recourse under --------------------------------- any obligation, covenant or agreement of the Transferee contained in this Agreement shall be had against any stockholder, employee, officer, director, or incorporator of the Transferee, provided, however, that nothing in this Section -------- ------- ------- 14.09 shall relieve any of the foregoing Persons from any liability which such - ----- Person may otherwise have for such Person's gross intentional misrepresentation or willful misconduct. SECTION 14.10. Definitions; Other Terms. Unless otherwise defined ------------------------ herein, all capitalized terms used in this Agreement shall have the meanings set forth in Appendix A attached to this Agreement and by this reference made a part ---------- hereof. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. SECTION 14.11. Captions and Cross References. The various captions ----------------------------- (including, without limitation, the table of contents) in this Agreement are provided solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement. Unless otherwise indicated, references in this Agreement to any Section, Appendix, Schedule or Exhibit are to such Section of or Appendix, Schedule or Exhibit to this Agreement, as the case may be, and references in any Section, subsection, or clause to any subsection, clause or subclause are to such subsection, clause or subclause of such Section, subsection or clause. SECTION 14.12. Integration. This Agreement and the other ----------- Transaction Documents contain a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings. SECTION 14.13. Governing Law. THIS AGREEMENT, INCLUDING THE RIGHTS ------------- AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION (AND THE 59 EFFECT OF PERFECTION OR NONPERFECTION) OF THE INTERESTS OF THE TRANSFEREE IN THE RECEIVABLES OR THE RELATED PROPERTY IS GOVERNED BY THE LAWS OF THE JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 14.14. Waiver Of Jury Trial. EACH OF THE TRANSFEROR AND -------------------- IKON CAPITAL HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY BE IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY. SECTION 14.15. Consent To Jurisdiction; Waiver Of Immunities. EACH --------------------------------------------- OF THE TRANSFEROR, IKON CAPITAL AND TRANSFEREE HEREBY ACKNOWLEDGES AND AGREES THAT: (a) IT IRREVOCABLY (i) SUBMITS TO THE JURISDICTION, FIRST, OF ANY UNITED STATES FEDERAL COURT, AND SECOND, IF FEDERAL JURISDICTION IS NOT AVAILABLE, OF ANY NEW YORK STATE COURT, IN EITHER CASE SITTING IN NEW YORK CITY, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, (ii) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED ONLY IN SUCH NEW YORK STATE OR FEDERAL COURT AND NOT IN ANY OTHER COURT, AND (iii) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING. (b) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH THIS AGREEMENT. SECTION 14.16. Execution in Counterparts. This Agreement may be ------------------------- executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. SECTION 14.17. Syndication of Liquidity. Each of IKON Capital and ------------------------ the Transferor agrees to cooperate with DBNY in connection with the syndication of the Liquidity Agreement. SECTION 14.18. Tax Treatment. It is the intent of Transferor and ------------- Transferee that, for federal, state and local 60 income and franchise tax purposes, the Transferee's Interest will be treated as evidence of indebtedness secured by the Receivables, Related Security and Collections and other proceeds thereof. Transferor, by entering into this Agreement, and Transferee agree to treat the Transferee's Interest for federal, state and local income and franchise tax purposes as indebtedness. The provisions of this Agreement and all related Transaction Documents shall be construed to further such intentions of the parties. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 61 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. TWIN TOWERS INC., as Transferee By ------------------------------- Name Printed: ------------------ Title: ------------------------- DEUTSCHE BANK AG, NEW YORK BRANCH, as Agent By ------------------------------- Name Printed: Robert M. Lupoli Title: Attorney-in-Fact IKON FUNDING, INC., as Transferor By ------------------------------- Name Printed: ------------------ Title: ------------------------- IKON CAPITAL, INC., as Servicer By ------------------------------- Name Printed: ------------------ Title: ------------------------- S-1 APPENDIX A DEFINITIONS This is Appendix A to the Amended and Restated Receivables Transfer ---------- Agreement, dated as of March 31, 1997, among IKON Funding, Inc., IKON Capital, Inc., as initial Servicer, Twin Towers Inc. and Deutsche Bank AG, New York Branch, as Agent (as amended, supplemented or otherwise modified from time to time, this "Agreement"). Each reference in this Appendix A to any Section, --------- ---------- Appendix or Exhibit refers to such Section of or Appendix or Exhibit to this Agreement. As used in this Agreement, unless the context requires a different meaning, the following terms have the meanings indicated hereinbelow: "Adjusted Average Maturity" means, on any day, the sum of (a) 45 days plus ------------------------- --- ---- (b) the Average Maturity for such day. "Affected Party" means each of the Transferee, the Liquidity Banks, the -------------- Enhancement Bank, any permitted assignee of the Transferee, any assignee of or participant in any of the Transferee's obligations to the Liquidity Banks or the Enhancement Bank, Deutsche Bank (including any branch or agency thereof) and any successor to Deutsche Bank or DBNY as the Agent. "Affiliate" when used with respect to a Person means any other Person --------- controlling, controlled by, or under common control with, such Person. "Affiliated Party" means each of IKON Capital and each of its Affiliates. ---------------- "Agent" has the meaning set forth in the preamble. ----- -------- "Agent's Account" has the meaning set forth in Section 4.01(a). --------------- --------------- "Alternate Base Rate" means, on any date, a fluctuating rate of interest ------------------- per annum equal to the higher of - --- ----- (a) 1.00% above the rate of interest most recently announced by Deutsche Bank as its prime lending rate for unsecured commercial loans within the United States; and (b) 1.00% above the rate per annum at which DBNY, as a branch of a --- ----- foreign bank, in its sole discretion, can acquire federal funds in the interbank overnight federal A-1 funds market, including through brokers of recognized standing. The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by Deutsche Bank or DBNY in connection with extensions of credit. "Authorized Servicing Officer" means (i) chief financial officer, chief ---------------------------- accounting officer, controller or president, if IKON Capital is the Servicer and (ii) such other officer as the Agent may agree to, if IKON Capital is not the Servicer. "Average Maturity" means, on any day, that time period (expressed in days) ---------------- equal to the weighted average maturity of the Pool Receivables as shall be calculated by the Servicer, as set forth in the most recent Periodic Report in accordance with the provisions thereof. If the Agent shall disagree with any such calculation, the Agent may recalculate the Average Maturity for such day, which calculation shall, absent manifest error, be binding upon the Servicer, the Transferor and the Transferee. "Bank Rate" for any Yield Period for any Rate Tranche means a rate per --------- --- annum equal to the sum of (a) .30% per annum, plus (b) the Eurodollar Rate - ----- --- ----- ---- (Reserve Adjusted) for such Yield Period; provided, however, that if (i) it -------- ------- shall become unlawful for the Agent, any Liquidity Bank or the Enhancement Bank to obtain funds in the London interbank market in order to fund any Transfer or to maintain any Rate Tranche, or if such funds shall not be reasonably available to the Agent, any Liquidity Bank or the Enhancement Bank, or (ii) there shall not be time prior to the commencement of an applicable Yield Period to determine a Eurodollar Rate in accordance with its terms, then the "Bank Rate" for any --------- Yield Period for such Rate Tranche shall be equal to a rate of (x) .425% per --- annum, plus (y) the Domestic CD Rate (Adjusted) for such Yield Period. - ----- ---- "Business Day" means a day on which both (a) the Agent at its principal ------------ office in New York City, New York is open for business and (b) commercial banks in New York City are not authorized or required to be closed for business. "Collections" means, with respect to any Receivable, all funds which either ----------- (a) are received by IKON Capital, the Transferor or the Servicer from or on behalf of the related Obligors in payment of any amounts owed (including, without limitation, purchase prices, finance charges, interest and all other charges) in respect of such Receivable, or applied to such amounts owed by such Obligors (including, without limitation, insurance payments that IKON Capital, the Transferor or Servicer applies in the ordinary course of its business to amounts owed in respect of such Receivable and net proceeds of sale or other A-2 disposition of repossessed or returned Equipment or other collateral or property of the Obligor or any other party directly or indirectly liable for payment of such Receivable and available to be applied thereon), (b) are received by IKON Capital, the Transferor or the Servicer in payment of the purchase price of such Receivable or recourse obligations of any Person related to such Receivable, whether pursuant to arrangements with the dealers or otherwise, or (c) are deemed to have been received by IKON Capital, the Transferor or any other Person as a Collection pursuant to Section 3.03; provided that, so long as IKON Capital ------------ -------- ---- or an Affiliate of IKON Capital is the Servicer, late payment charges, collection fees and extension fees shall not be deemed to be Collections. "Commercial Paper Notes" means short-term promissory notes issued or to be ---------------------- issued by the Transferee to fund its investments in accounts receivable or other financial assets. "Commercial Paper Rate" for any Yield Period for any Rate Tranche means a --------------------- rate per annum equal to the sum of (i) the rate or, if more than one rate, the --- ----- weighted average of the rates, determined by converting to an interest-bearing equivalent rate per annum the discount rate (or rates) at which Commercial Paper --- ----- Notes having a term equal to such Yield Period and to be issued to fund the Transfer of or to maintain such Rate Tranche by the Transferee (including, without limitation, the Transferee's Tranche Investment and accrued and unpaid Earned Discount) may be sold by any placement agent or commercial paper dealer selected by the Agent, as agreed between each such agent or dealer and the Agent, plus (ii) the commissions and charges charged by such placement agent or ---- commercial paper dealer with respect to such Commercial Paper Notes, expressed as a percentage of the face amount of such Commercial Paper Notes and converted to an interest-bearing equivalent rate per annum. --- ----- "Commitment" has the meaning set forth in Section 1.01. ---------- ------------ "Commitment Termination Date" has the meaning set forth in Section 1.04. --------------------------- ------------ "Company Note" has the meaning set forth in the Transfer Agreement. ------------ "Concentration Limit" for any Obligor at any time means the greater of (a) ------------------- the Special Concentration Limit, if any, for such Obligor and (b) 2.0% of the Transferee's Investment at such time. "Contingent Obligation" as to any Person means any obligation of such --------------------- Person guaranteeing or in effect guaranteeing any indebtedness, leases, dividends or other contractual obligations ("primary obligations") of any other ------------------- Person (the A-3 "primary obligor") in any manner, whether directly or indirectly, including, --------------- without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof; provided, however, that -------- ------- the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. "Contract" means a lease, conditional sale agreement or other contract -------- between IKON Capital and any Person pursuant to or under which such Person shall be obligated to make payments to IKON Capital from time to time. "Credit and Collection Policy" means those credit and collection policies ---------------------------- and practices relating to Contracts and Receivables described in Schedule -------- 6.01(o)-2, as modified without violating Section 7.03(c). - --------- --------------- "DBNY" has the meaning set forth in the preamble. ---- -------- "Dealer Terminations" means Pool Receivables that have been terminated or ------------------- prepaid in connection with a trade in or trade up or any other reason (other than a default under such Pool Receivable) in a circumstance where the Obligor did not make a cash payment to the Transferor in an amount at least equal to the Unpaid Balance of such Pool Receivable. "Dealer Termination Ratio" means the ratio (expressed as a percentage) ------------------------ computed as of the last day of each month by dividing (x) the aggregate amount of the Unpaid Balance of all Dealer Terminations that were terminated or prepaid during such month by (y) the Collections of Pool Receivables during such month. "Default Ratio" means the ratio (expressed as a percentage) computed as of ------------- the last day of each month by dividing (x) the aggregate Unpaid Balance of all Pool Receivables that are A-4 Defaulted Receivables as of such date by (y) the aggregate Unpaid Balance of all Pool Receivables on such date. "Default and Dilution Reserve" on any day means an amount equal to the ---------------------------- product of (a) the Reserve Percentage at the close of business of the Transferee on such day, times (b) the sum of (i) the Transferee's Investment at the opening ----- of business of the Transferee on such day plus (ii) the Discount Factor on such ---- day; provided that from and after the Commitment Termination Date, the Default -------- and Dilution Reserve shall be the greater of (1) the foregoing amount and (2) 6.5% of the sum described in the foregoing clause (b), calculated as of the ---------- Month End Date immediately preceding such Commitment Termination Date. "Default Reserve Percentage" means, on any day, the greater of (a) 2.75 -------------------------- times the highest average of the sum of the Delinquency Ratio plus the Default ---- Ratio for three consecutive months during the 12 calendar months preceding or ending on such day, and (b) four times the highest Losses-to-Liquidations Ratio on the last day of any of the 12 calendar months preceding or ending on such day. "Defaulted Receivable" means a Receivable: (a) as to which any payment, or -------------------- part thereof, remains unpaid for 90 or more days from the original due date for such payment, (b) as to which the Obligor thereof is the Obligor on any other Defaulted Receivable, (c) as to which an Event of Bankruptcy has occurred and remains continuing with respect to the Obligor thereunder, (d) as to which payments have been extended, or the terms of payment thereof rewritten, without the Agent's consent, except as set forth herein or (e) which, consistent with the Credit and Collection Policy, would be written off the Transferor's or IKON Capital's books as uncollectible. "Delinquency Ratio" means the ratio (expressed as a percentage) computed as ----------------- of the last day of each month by dividing (x) the aggregate Unpaid Balance of all Pool Receivables that were Delinquent Receivables at the end of such month by (y) the aggregate Unpaid Balance of all Pool Receivables on such date. "Delinquent Receivable" means a Receivable that is not a Defaulted --------------------- Receivable and: (a) as to which any payment, or part thereof, remains unpaid for 60 days or more from the original due date for such payment; or (b) which, consistent with the Credit and Collection Policy, would be classified as delinquent by IKON Capital. "Designated Account" means any bank account into which collections from ------------------ Pool Receivables are deposited. A-5 "Designated Account Agreement" means a letter agreement, in substantially ---------------------------- the form of Exhibit 5.01(h), among the Transferor, IKON Capital and any --------------- Designated Account Bank. "Designated Account Bank" means any of the banks holding one or more ----------------------- Designated Accounts. "Designated Obligor" means, at any time, all Obligors except any Obligor as ------------------ to which the Agent has, at least three Business Days prior to the date of determination, given notice to the Transferor that such Obligor shall not be considered a Designated Obligor. "Deutsche Bank" has the meaning set forth in the preamble. ------------- -------- "Dilution Percentage" means, for any day, 15% times the highest Dealer ------------------- Termination Ratio occurring for the immediately preceding three months. "Dilution Reserve Percentage" means, for any day, the sum of the Dilution --------------------------- Percentages for each of the 12 months ending on or preceding such day divided by 12. "Discount Amount" at any time means an amount equal to (i) the aggregate --------------- Unpaid Balance of all Eligible Receivables at such time minus (ii) the aggregate ----- Present Value of all Eligible Receivables at such time. "Discount Factor" at any time means an amount equal to the sum of the --------------- aggregate accrued and unpaid Earned Discount with respect to all Rate Tranches at such time. "Dollars" means dollars in lawful money of the United States of America. ------- "Domestic CD Rate (Adjusted)" for any Yield Period for any Rate Tranche --------------------------- means a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of --------- 1%) determined pursuant to the following formula: Domestic CD Rate = Domestic CD Rate + Assessment (Adjusted) ---------------- Rate 1-Reserve Requirement where: - ----- "Domestic CD Rate" means, with respect to any Yield Period for any ---------------- Rate Tranche, a rate of interest equal to the average of the secondary market morning offering rates in the United States for time certificates of deposit of major United States money market banks for a A-6 period approximately equal to such Yield Period in an amount substantially equal to the Transferee's Tranche Investment of such Rate Tranche, as such offering rate is quoted to the Agent by the Federal Reserve Bank of New York during the morning of the first day of such Yield Period; provided, however, that if the Agent shall not -------- ------- receive any such quote by the Federal Reserve Bank of New York by 11:00 a.m., New York City time, on the morning of the first day of any Yield Period, then "Domestic CD Rate" shall mean, with respect to such ---------------- Yield Period, the rate of interest determined by the Agent to be the average (rounded upwards, if necessary, to the nearest 1/100 of 1%) of the bid rates quoted to the Agent in the secondary market at approximately 11:00 a.m., New York City time (or as soon thereafter as practicable), on the first day of such Yield Period by two certificate of deposit dealers in New York or New York City of recognized standing selected by the Agent in its sole discretion for the purchase from the Agent at face value of certificates of deposit issued by the Agent in an amount approximately equal or comparable to such Transferee's Tranche Investment and having a maturity equal to such Yield Period. "Assessment Rate" for any Yield Period means the annual assessment --------------- rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) applicable to the Agent on its insured deposits, on the Business Day immediately preceding the first day of such Yield Period, under the Federal Deposit Insurance Act, determined by annualizing the most recent assessment levied on the Agent by the Federal Deposit Insurance Corporation (together with any successor, the "FDIC") with respect to ---- such deposits after giving effect to the most recent rebate granted to the Agent by the FDIC with respect to deposit insurance as well as the loss to the Agent (determined in the good faith judgment of the Agent) of the use of such rebate prior to the date a credit is taken by the Agent with respect to such rebate. "Reserve Requirement" means, with respect to any Yield Period, a ------------------- percentage (expressed as a decimal) equal to the daily average during such Yield Period of the aggregate reserve requirement (including all basic, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements during such period) specified under Regulation D, as applicable to the class of banks of which the Agent is a member, on deposits of the types used as a reference in A-7 determining the Domestic CD Rate and having a maturity approximately equal to such Yield Period. "Earned Discount" for any Rate Tranche for each day in a Yield Period --------------- applicable to such Rate Tranche means an amount equal to the sum of (a) the product of (i) the Transferee's Tranche Investment of such Rate Tranche on such day, times (ii) the Transferee Rate for such Rate Tranche on such day, times ----- ----- (iii) 1/360, plus (b) the Negative Spread Fee, if any, for such Rate Tranche on ---- such day. No provision of the Agreement shall require the payment or permit the collection of Earned Discount in excess of the maximum permitted by applicable law. Earned Discount for any Rate Tranche shall not be considered paid by any distribution if at any time such distribution is rescinded or must otherwise be returned for any reason. "Eligible Contract" means a Contract in one of the forms set forth in ----------------- Schedule 6.01(o)-1, with such variations as IKON Capital shall approve in its - ------------------ reasonable business judgment and as shall not result in materially lesser rights for IKON Capital as such forms, or otherwise approved by the Agent. "Eligible Receivable" means, at any time, a Receivable: ------------------- (a) generated by IKON Capital in the ordinary course of its business that was transferred to the Transferor pursuant to the Transfer Agreement; (b) which constitutes an account, chattel paper or general intangible as defined in the Uniform Commercial Code as in effect in the jurisdiction that governs the perfection of the Transferee's undivided ownership interest in such Receivable; (c) the Obligor of which is a United States resident, is not an Affiliate of IKON Capital, and is not a government or a governmental subdivision or agency; (d) which is denominated and payable only in Dollars in the United States; (e) the Obligor of which is a Designated Obligor; (f) which arises under a Contract (i) in respect of which the related Equipment has been delivered and unconditionally accepted by the Obligor, (ii) under which the Obligor has made at least one regularly scheduled payment and (iii) which is not cancelable by the Obligor before the end of its scheduled termination date; (g) which is not a Defaulted Receivable; A-8 (h) with regard to which the warranty of the Transferor in Section 6.01(l) --------------- is true and correct; (i) the transfer of an undivided interest in which does not contravene or conflict with any law or require the consent or approval of, or notice to, any Person, including the Obligor; (j) which arises under an Eligible Contract that has been duly authorized and that, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable enforceable against such Obligor in accordance with its terms and is not subject to any dispute, offset, counterclaim or defense whatsoever; (k) which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Contract related thereto is in violation of any such law, rule or regulation in any material respect if such violation would impair the collectibility of such Receivable; (l) which (i) satisfies all applicable requirements of the Credit and Collection Policy and (ii) complies with such other criteria and requirements (other than those relating to the collectibility of such Receivable) as the Agent may from time to time specify to the Transferor following thirty days' notice; (m) which is an account receivable, chattel paper or general intangible representing all or part of the sales price of merchandise, insurance and services within the meaning of section 3(c)(5) of the Investment Company Act of 1940, as amended; (n) which arises out of a current transaction, or the proceeds of which have been or are to be used for current transactions, within the meaning of section 3(a)(3) of the Securities Act of 1933, as amended; (o) which arises under a Contract (i) requiring payment within 30 days of billing therefor, and (ii) providing for periodic payments in substantially equal amounts over the scheduled term of the Contract that fully amortize the initial lease or principal balance; (p) which is evidenced by a Contract that constitutes either (i) a true lease pursuant to which the Transferor owns the A-9 Equipment free of any Liens other than such Contract and the Transferee's Interest or (ii) a conditional sale contract pursuant to which the Transferor has a first priority, perfected security interest in the related Equipment; and (q) as to which the Agent has not notified the Transferor that the Agent has determined, in its sole discretion, that such Receivable (or class of Receivables) is not acceptable for purchase hereunder. "Enhancement Agreement" means and includes (a) the Enhancement Agreement --------------------- dated as of September 14, 1993 among the Transferee, the Agent and DBNY and (b) any other agreement (other than the Liquidity Agreement or another agreement of the type described in clause (b) of the definition thereof) hereafter entered ---------- into by the Transferee providing for the issuance of one or more letters of credit for the account of the Transferee, the making of loans to the Transferee or any other extensions of credit to or for the account of the Transferee to support all or any part of the Transferee's payment obligations under its Commercial Paper Notes or to provide an alternate means of funding the Transferee's investments in accounts receivable or other financial assets, in each case, as amended, supplemented or otherwise modified from time to time. "Enhancement Bank" means and includes DBNY as lender to the Transferee and ---------------- issuer of a letter of credit for the Transferee's account under the Enhancement Agreement, and any other or additional bank or other financial institution now or hereafter extending credit or having a commitment to extend credit to or for the account of the Transferee under the Enhancement Agreement. "Enhancement Draw" means a drawing under a letter of credit issued pursuant ---------------- to the Enhancement Agreement for the account of the Transferee, a loan to the Transferee under the Enhancement Agreement or any other advance or disbursement of funds to the Transferee or for the Transferee's account pursuant to the Enhancement Agreement or any such letter of credit, in each case to the extent such drawing, loan, advance or disbursement has not been repaid or reimbursed to the Enhancement Bank in accordance with the Enhancement Agreement. "ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as ----- amended from time to time. "Equipment" means office equipment. --------- "Eurodollar Rate (Reserve Adjusted)" means, with respect to any Yield --------------------------------- Period for any Rate Tranche, a rate per annum (rounded A-10 upwards, if necessary, to the nearest 1/100 of 1%) determined pursuant to the following formula: Eurodollar Rate = Eurodollar Rate (Reserve Adjusted) --------------- 1-Eurodollar Reserve Percentage where: - ----- "Eurodollar Rate" means, with respect to any Yield Period for any Rate --------------- Tranche, the rate per annum at which Dollar deposits in immediately available funds are offered to the Eurodollar Office of the Agent two Eurodollar Business Days prior to the beginning of such period by prime banks in the interbank eurodollar market at or about 11:00 a.m., New York City time for delivery on the first day of such Yield Period, for the number of days comprised therein and in an amount equal or comparable to the amount of the Transferee's Tranche Investment of such Rate Tranche. "Eurodollar Business Day" means a day of the year on which dealings ----------------------- are carried on in the eurodollar interbank market of the Agent's Eurodollar Office and banks are open for business in London and are not required or authorized to close in New York City. "Eurodollar Office" shall mean the Cayman Islands office of the Agent ----------------- or such other office or offices of the Agent (as designated from time to time by notice from the Agent to the Transferor) or such other office or offices through which the Agent determines the Eurodollar Rate. A Eurodollar Office of the Agent may be, at the option of the Agent, either a domestic or foreign office. "Eurodollar Reserve Percentage" means, with respect to any Yield ----------------------------- Period, the then applicable percentage (expressed as a decimal) prescribed by the Federal Reserve Board for determining reserve requirements applicable to "Eurocurrency Liabilities" pursuant to Regulation D. "Event of Bankruptcy" shall be deemed to have occurred with respect to a ------------------- Person if either: (a) a case or other proceeding shall be commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such Person, the appointment of a A-11 trustee, receiver, custodian, liquidator, assignee, sequestrator or the like for such Person or all or substantially all of its assets, or any similar action with respect to such Person under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and such case or proceeding shall continue undismissed, or unstayed and in effect, for a period of 30 consecutive days; or an order for relief in respect of such Person shall be entered in an involuntary case under the federal bankruptcy laws or other similar laws now or hereafter in effect; or (b) such Person shall commence a voluntary case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other similar law now or hereafter in effect, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) for, such Person or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail to, or admit in writing its inability to, pay its debts generally as they become due, or, if a corporation or similar entity, its board of directors shall vote to implement any of the foregoing. "Federal Reserve Board" means the Board of Governors of the Federal Reserve --------------------- System, or any successor thereto or to the functions thereof. "Fee Letter" has the meaning set forth in Schedule 4.03(a). ---------- ---------------- "Final Pay Out Date" means the date, after the Commitment Termination Date, ------------------ when the Transferee's Percentage has been reduced to zero in accordance with clause (3) of Section 2.02. - ---------- ------------ "Financing Lease(s)" shall mean (a) any lease of property, real or ------------------ personal, the then present value of the minimum rental commitment of which should, in accordance with general accepted accounting principles, be capitalized on a balance sheet of the lessee, and (b) any other such lease the obligations under which are capitalized on a consolidated balance sheet of IKON Capital and its Subsidiaries. "Funding Advance" means an advance (other than a daylight overdraft --------------- advance) made by the Agent, in its sole discretion, to the Transferee for the purpose of funding the Transferee's acquisition or maintenance of the Transferee's Interest or a portion thereof. A-12 "Funding Advance Rate" on any day means a rate per annum equal to the -------------------- --------- Alternate Base Rate in effect on such day, provided that, with respect to any -------- Funding Advance made in an amount less than $5,000 to fund the "tag end" of any Rate Tranche funded by the issuance of Commercial Paper Notes, the Funding Advance Rate shall mean the Commercial Paper Rate for such Rate Tranche. "IKON Capital" has the meaning set forth in the preamble. ------------ "IKON Office" means IKON Office Solutions, Inc., an Ohio corporation ----------- (formerly Alco Standard Corporation). "Indemnified Amounts" has the meaning set forth in Section 13.01. ------------------- ------------- "Indebtedness" of a Person, at a particular date, means any of the ------------ following at such date, without duplication, (a) indebtedness of such Person for borrowed money or evidenced by notes, bonds, debentures or like instruments, (b) indebtedness of such Person for the deferred purchase price of property or services, except current accounts payable and accrued expenses arising in the ordinary course of business, (c) obligations of such Person under any Financing Lease, (d) indebtedness of such Person arising under acceptance facilities, (e) unreimbursed draws on letters of credit and (f) Contingent Obligations. "Indemnified Party" has the meaning set forth in Section 13.01. ----------------- ------------- "Lien" means a lien, security interest, charge, or encumbrance, or other ---- right or claim of any Person other than (a) a potential claim or right (that has not yet been asserted) of a trustee appointed for an Obligor in connection with any Event of Bankruptcy or (b) an unfiled lien for taxes accrued but not yet payable. "Liquidity Agreement" means and includes (a) the Amended and Restated ------------------- Liquidity Loan Agreement dated as of March 31, 1997 among the Transferee, as borrower, the Agent, DBNY, as lender, and DBNY, as agent for such lender, and (b) any other agreement hereafter entered into by the Transferee providing for the making of loans or other extensions of credit to the Transferee secured by a security interest in the Transferee's Interest (or any portion thereof), to support all or part of the Transferee's payment obligations under the Commercial Paper Notes or to provide an alternate means of funding the Transferee's Interest, and under which the amount available from such loans or other extensions of credit is limited to an amount calculated by reference to the value or unpaid balance of the Pool Receivables or any portion or category thereof or the level of credit A-13 enhancement available with respect thereto, in each case as amended, supplemented or otherwise modified from time to time. "Liquidity Bank" means and includes DBNY as lender under the Liquidity -------------- Agreement, and any other or additional bank or other financial institution hereafter extending credit to or for the account of the Transferee under the Liquidity Agreement. "Liquidity Loan" means a loan made by a Liquidity Bank to the Transferee -------------- pursuant to the Liquidity Agreement. "Losses" means the aggregate Unpaid Balance of Pool Receivables (a) as to ------ which any payment, or part thereof, remains unpaid for 120 or more days from the original due date for such payment or (b) as to which the Obligor thereof is subject to a proceeding under Chapter 7 of the Bankruptcy Reform Act of 1978, 11 U.S.C. 101 et seq., as amended. -- --- "Losses to Liquidations Ratio" means the percentage that (x) the aggregate ---------------------------- Losses recognized during the one or six, as applicable, month period ending on the most recent Month End Date was of (y) Collections of Pool Receivables during such period. "Management Agreement" means the Management Agreement, dated as of March -------------------- 31, 1997, between IKON Capital and the Transferor, as it may be amended, supplemented or otherwise modified from time to time. "Manager" means IKON Capital, in its capacity as manager pursuant to the ------- Management Agreement. "Material Adverse Effect" means, with respect to any event, condition or ----------------------- circumstance, a material adverse effect on: (i) the business, assets, financial condition, operations or prospects of the Transferor, IKON Capital or the Servicer; (ii) the ability of the Servicer, IKON Capital or the Transferor to perform its obligations under this Agreement or any other Transaction Document; (iii) the validity, enforceability or collectibility of this Agreement, any other Transaction Document, the Receivables or the related Contracts; (iv) the status, existence, perfection, priority or enforceability of the Transferee's Interest; or (v) the collectibility of the Pool Receivables. A-14 "Maximum Investment" means $125,000,000, as such amount may be reduced at ------------------ the option of the Transferor pursuant to Section 1.05. ------------ "Maximum Percentage" means 100%. ------------------ "Month End Date" means the last day of each calendar month. -------------- "Moody's" means Moody's Investors Service, Inc. ------- "Negative Spread Fee" means, for any Rate Tranche on any day in a Yield ------------------- Period applicable to such Rate Tranche (computed without regard to clause (C) of ---------- the proviso to the definition of "Yield Period"), the sum of: ------- (a) if such day occurs during a period in which a downgraded Liquidity Bank shall have placed funds in escrow pursuant to the Liquidity Agreement, an amount designated by the Agent to enable, when taken together with other amounts similarly designated with respect to other Rate Tranches, the Transferee to compensate such Liquidity Bank for the excess, if any, of (x) the Earned Discount which would have accrued on funds in such escrow account at the Bank Rate if such funds had been designated as a Liquidity Loan over (y) the income actually earned by investing such funds, plus ---- (b) if all or any part of such Yield Period falls in the Pay Out Period, the amount, if any, by which: (i) the additional Earned Discount (calculated without taking into account any Negative Spread Fee) which would have accrued on the reductions of the Transferee's Tranche Investment of such Rate Tranche during such Yield Period if such reductions had remained as the Transferee's Investment, exceeds ------- (ii) the income, if any, received by the Transferee from investing the proceeds of such reductions of the Transferee's Investment. "Net Pool Balance" at any time means an amount equal to ---------------- (a) the aggregate Present Value of the Eligible Receivables in the Receivables Pool at such time, minus ----- (b) the aggregate (for all Obligors) of the amounts by which (i) the Unpaid Balance of all Pool Receivables of each Obligor exceeds (ii) the Concentration Limit for such Obligor at such time, minus ----- A-15 (c) the aggregate amount of security deposits and prepaid rents related to the Pool Receivables. "Obligor" means a Person obligated to make payments with respect to a ------- Receivable. In the case of an Obligor which is an Affiliate of any other Obligor, the Concentration Limit, the Special Concentration Limit, if any, and the aggregate Unpaid Balance of Pool Receivables of such Obligors shall be calculated as if such Obligors were one Obligor. "Old Line Agreement" means the Receivables Transfer Agreement, dated as of ------------------ September 30, 1996, among the Transferor, IKON Capital, Old Line Funding Corp. and Royal Bank of Canada, as it may be amended, supplemented or otherwise modified from time to time. "Original Receivable Agreement" has the meaning set forth in the ----------------------------- Background. "Pay Out Period" means the period from and including the Commitment -------------- Termination Date and to and including the Final Pay Out Date. "Pay Out Servicer's Fee" at any time means an amount equal to the product ---------------------- of (a) the Transferee's Investment at such time, times ----- (b) (i) the percentage per annum set forth in clause (a)(x) of the --- ----- ------------- definition of the "Servicer's Fee", or (ii) if the Servicer's Fee is calculated pursuant to clause (b) of such definition, the percentage per ---------- --- annum determined for each day by dividing the amount of the Servicer's Fee ----- accrued for such day by the Transferee's Investment at the close of business on such day, multiplying the quotient by 360 and expressing the product as a percentage, times ----- (c) a fraction, the numerator of which is the then Adjusted Average Maturity of the Receivables Pool and the denominator of which is 360. "Pay Out Statement" means a statement substantially in such form as shall ----------------- be proposed by the Agent and agreed to by the Transferor, such agreement not to be unreasonably withheld. "Periodic Report" means a report in substantially the form of Exhibit --------------- ------- 3.05(a). - ------- "Person" means an individual, partnership, corporation (including a ------ business trust), joint stock company, trust, A-16 unincorporated association, joint venture, government or any agency or political subdivision thereof or any other entity. "Pool Receivable" means a Receivable in the Receivables Pool. --------------- "Post Office Box" means any U.S. post office box to which the Obligors are --------------- directed to, or do, send payments under the Pool Receivables. "Post Office Box Agreement" means an executed and undated notice, in ------------------------- substantially the form of Exhibit A from the Transferor and IKON Capital to the --------- applicable U.S. postal office. "Present Value" of any Receivable means, at any time, the present value of ------------- the Unpaid Balance thereof, discounted to the date of determination, at a rate equal to (i) 2.50% plus (ii) the greater of (a) the one month Eurodollar Rate ---- (Reserve Adjusted) and (b) the interpolated yield to maturity of the Treasury security with a maturity equal to the then Average Maturity; provided that if -------- the Transferee has entered into (1) an interest rate swap agreement, the rate for purposes of this clause (ii) will be the fixed interest rate that the ----------- Transferee is obligated to pay pursuant to such agreement or (2) an interest rate cap, the rate for purposes of this clause (ii) will be the strike price of ----------- such cap. "Program Fee" has the meaning set forth in Fee Letter. ----------- "Program Fee Rate" has the meaning set forth in the Fee Letter. ---------------- "Program Information" has the meaning set forth in Section 14.08. ------------------- ------------- "Program Information Provider" has the meaning set forth in Section 14.08. ---------------------------- ------------- "Rate Tranche" has the meaning set forth in Section 2.03. ------------ ------------ "Receivable" means any right to payment from a Person, whether constituting ---------- an account, chattel paper, instrument or general intangible, arising from the sale or lease by IKON Capital (or by a dealer on behalf of IKON Capital) of Equipment, and includes the right to payment of any interest or finance charges and other obligations of such Person with respect thereto. "Receivables Pool" means at any time all then outstanding Receivables which ---------------- (a) were or are generated at any time in any of the marketplaces listed on Schedule A-1, (as such list may be - ------------- A-17 amended from time to time with the written consent of IKON Capital, the Transferor and the Agent) and such other marketplaces as designated from time to time by IKON Capital and Transferor and approved in writing by the Agent, and (b) as to which the Obligors thereunder are Designated Obligors. "Regulation D" means Regulation D of the Federal Reserve Board, or any ------------ other regulation of the Federal Reserve Board that prescribes reserve requirements applicable to nonpersonal time deposits or "Eurocurrency Liabilities" as presently defined in Regulation D, as in effect from time to time. "Regulatory Change" means, relative to any Affected Party ----------------- (a) any change in (or the adoption, implementation, phase-in or commencement of effectiveness of) any (i) United States federal or state law or foreign law applicable to such Affected Party; (ii) regulation, interpretation, directive, requirement or request (whether or not having the force of law) applicable to such Affected Party of (A) any court, government authority charged with the interpretation or administration of any law referred to in clause ------ (a)(i) or of (B) any fiscal, monetary or other authority having ------ jurisdiction over such Affected Party; or (iii) generally accepted accounting principles or regulatory accounting principles applicable to such Affected Party and affecting the application to such Affected Party of any law, regulation, interpretation, directive, requirement or request referred to in clause (a)(i) or (a)(ii) above; or ------------- ------- (b) any change in the application to such Affected Party of any existing law, regulation, interpretation, directive, requirement, request or accounting principles referred to in clause (a)(i), (a)(ii) or (a)(iii) ------------- ------- -------- above; or (c) the issuance, publication or release of any regulation, interpretation, directive, requirement or request of a type described in clause (a)(ii) above to the effect that the obligations of a Liquidity Bank -------------- under the Liquidity Agreement are not entitled to be included in the zero percent category of off-balance sheet assets for purposes of any risk- weighted capital guidelines applicable to such Liquidity Bank or any related Affected Party. "Reinvestment" has the meaning set forth in Section 1.01. ------------ ------------ A-18 "Reinvestment Period" means the period from and including the date hereof ------------------- to but excluding the Commitment Termination Date. "Related Property" means, with respect to any Pool Receivable: (a) all of ---------------- the Transferor's and IKON Capital's right, title and interest in and to all Contracts, purchase orders or other agreements or documents that evidence, secure or otherwise relate to such Pool Receivable; (b) all of the Transferor's and IKON Capital's interest in the Equipment (including returned Equipment), the sale or lease of which gave rise to such Pool Receivable; (c) all Liens from time to time purporting to secure payment of such Pool Receivable, whether pursuant to the Contract related to such Pool Receivable or otherwise, and all property subject to such Liens; (d) all UCC financing statements covering any collateral securing payment of such Pool Receivable (to the extent of the interest of the Transferee in the related Pool Receivable); (e) all guarantees and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Pool Receivable whether pursuant to the Contract related to such Pool Receivable or otherwise; (f) all of Transferor's rights and claims under the Transfer Agreement; (g) all books and records evidencing or otherwise relating to any Pool Receivables or any of the foregoing; (h) all lock-boxes, post office boxes and accounts to which Collections are sent or deposited, to the extent of such Collections and (i) all Collections with respect to, and other proceeds of, such Pool Receivables and any of the property described above. "Reserve Percentage" means, on any day the greater of (a) the sum of the ------------------ Default Reserve Percentage plus the Dilution Reserve Percentage and (b) 15%. ---- "Scheduled Commitment Termination Date" has the meaning set forth in ------------------------------------- Section 1.04. - ------------ "Servicer" has the meaning set forth in Section 8.01. -------- ------------ "Servicer's Fee" accrued for any day means -------------- (a) an amount equal to (x) .75% per annum, times (y) the amount of --- ----- ----- the Transferee's Investment at the close of business on such day, times (z) ----- 1/360; or (b) on and after the Servicer's reasonable request made at any time when IKON Capital shall no longer be the Servicer, an alternative amount specified by Servicer not exceeding (x) 115% of the Servicer's cost and expenses of performing its obligations under the Agreement during the Yield Period when such day occurs, divided by (y) the number of days in such Yield Period. A-19 With respect to any Rate Tranche, the Servicer's Fee allocable thereto shall be equal to the Servicer's Fee determined as set forth above times a fraction, the ----- numerator of which is the Transferee's Tranche Investment of such Rate Tranche and the denominator of which is the Transferee's Investment. "Servicer's Fee Reserve" at any time means an amount equal to the sum of ---------------------- (a) the aggregate accrued and unpaid Servicer's Fee (with respect to all Rate Tranches), plus (b) the Pay Out Servicer's Fee at such time. ---- "Settlement Date" means the last day of each Settlement Period. --------------- "Settlement Period" for any Rate Tranche means ----------------- (a) each period commencing on the first day of each Yield Period for such Rate Tranche and ending on the last day of such Yield Period; and (b) on and after the Commitment Termination Date, such period (including, without limitation, a period of one day) as shall be selected from time to time by the Agent or, in absence of any such selection, each period of thirty days from the next preceding Settlement Date; provided, however, that - -------- ------- (i) with respect to any Yield Period of one day, the related Settlement Period shall be the first day following such Yield Period; (ii) any Settlement Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day; and (iii) the last Settlement Period shall end on the Final Pay Out Date. "S&P" means Standard & Poor's Ratings Group. --- "Special Concentration Limit" for any Obligor at any time means the amount, --------------------------- if any, most recently designated by the Agent in a writing delivered to the Transferor as the Special Concentration Limit for such Obligor. "Subsidiary" means a corporation of which IKON Capital and/or its other ---------- Subsidiaries own, directly or indirectly, such number of outstanding shares as have more than 50% of the ordinary voting power for the election of directors. A-20 "Support Agreement" means the Amended and Restated 1996 Support Agreement, ----------------- dated as of October 22, 1996, between IKON Capital and IKON Office, as it may be amended, supplemented or otherwise modified from time to time. "Tangible Net Worth" means tangible net worth as determined in accordance ------------------ with generally accepted accounting principles. "Termination Event" has the meaning set forth in Section 10.01. ----------------- ------------- "Transaction Documents" means this Agreement, the Transfer Agreement, the --------------------- Company Note and the other documents to be executed and delivered in connection herewith or therewith. "Transfer" has the meaning set forth in Section 1.01(a). -------- --------------- "Transfer Agreement" means the First Tier Transfer Agreement, dated as of ------------------ March 31, 1997, between IKON Capital and Transferor, as the same may be amended, supplemented or otherwise modified from time to time. "Transfer Request" has the meaning set forth in Section 1.03. ---------------- ------------ "Transferee" has the meaning set forth in the preamble. ---------- -------- "Transferee Rate" for any Yield Period for any Rate Tranche means: --------------- (a) in the case of a Rate Tranche other than one referred to in clause (b) or (c) of this definition, the Commercial Paper Rate for such ------ --- --- Rate Tranche for such Yield Period; (b) in the case of a Rate Tranche funded by a Funding Advance, a rate per annum equal for each day in such Yield Period to the Funding Advance --------- Rate in effect on such day; and (c) in the case of a Rate Tranche funded pursuant to the Liquidity Agreement or by an Enhancement Draw, the Bank Rate for such Rate Tranche for such Yield Period; provided, however, that on any day when any Termination Event shall have - -------- ------- occurred and be continuing, the Transferee Rate shall mean a rate per annum --- ----- equal to the sum of the applicable rate pursuant to clause (a), (b) or (c) above ---------- --- --- on such day plus .70% per annum. --- ----- A-21 "Transferee's Allocation" has the meaning set forth in Section 2.02. ----------------------- ------------ "Transferee's Interest" has the meaning set forth in Section 2.01. --------------------- ------------ "Transferee's Investment" at any time means an amount equal to ----------------------- (a) the aggregate of the amounts theretofore paid to the Transferor for the acquisition of the Transferee's Interest by Transfer pursuant to Sections 1.01(a) and 1.03, less ---------------- ---- ---- (b) the aggregate amount of Collections theretofore received by the Servicer and actually distributed to the Agent for the account of the Transferee on account of such Transferee's Investment pursuant to Sections -------- 3.01 and 3.02; ---- ---- provided, however, the Transferee's Investment shall not be considered reduced - -------- ------- by any distribution of any portion of Collections if at any time such distribution is rescinded or must otherwise be returned for any reason. "Transferee's Percentage" has the meaning set forth in Section 2.02. ----------------------- ------------ "Transferee's Share" of any Collections means a portion of such Collections ------------------ in an amount equal to the product of (a) the amount of such Collections, times ----- (b) the Transferee's Percentage as in effect on the date of determination. "Transferee's Tranche Investment" has the meaning set forth in Section ------------------------------- ------- 2.03. - ---- "Transferor" has the meaning set forth in the preamble. ---------- -------- "Transferor Information" has the meaning set forth in Section 14.07. ---------------------- ------------- "Transferor's Collection Amount" at any time means an amount equal to the ------------------------------ excess, if any, if (a) the aggregate of the amounts theretofore paid by the Servicer to the Transferor for Reinvestment pursuant to Section 3.01(a)(iii), -------------------- over (b) the aggregate of the amounts, if any, theretofore paid by the - ---- Transferor to the Servicer pursuant to the last sentence of Section 3.01(b). --------------- "Transferor's Share" of any Collections means a portion of such Collections ------------------ equal to the amount of such Collections less the Transferee's Share thereof. ---- A-22 "UCC" means the Uniform Commercial Code as from time to time in effect in --- the applicable jurisdiction or jurisdictions. "Unadjusted Transferee's Percentage" has the meaning set forth in Section ---------------------------------- ------- 2.02. - ---- "Unmatured Termination Event" means any event which, with the giving of --------------------------- notice or lapse of time or both, would, unless cured or waived, become a Termination Event. "Unpaid Balance" of any Receivable means at any time the aggregate -------------- scheduled lease or debt service payments that the Obligor is obligated to make thereunder during the period from the date such Receivable is included in the Receivables Pool to the date that is 60 months thereafter, but excluding all --------- late payment charges, delinquency charges, extension or collection fees and sales tax payments. "Yield Period" means with respect to any Rate Tranche, each period ------------ (a) commencing on, and including, the date of creation of such Rate Tranche pursuant to Section 2.03, or the last day of the immediately ------------ preceding Yield Period for such Rate Tranche (whichever is later); and (b) ending on, and excluding, the date that falls (i) in the case of a Rate Tranche funded by the issuance of Commercial Paper Notes, except as provided in clause (iii) below, ------------ such number of days (not to exceed 180 days or, after the occurrence and during the continuance of any Termination Event, 60 days) thereafter as the Agent shall select, after consultation with the Transferor; (ii) in the case of a Rate Tranche funded by Liquidity Loans or by an Enhancement Draw, (A) if the Transferee Rate for such Yield Period is based on the Domestic CD Rate (Adjusted), 1, 7, 14, 30, 60 or 90 days thereafter, and (B) if the Transferee Rate for such Yield Period is based on the Eurodollar Rate (Reserve Adjusted), one day, one week, one month, two months or three months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), in either case as the Agent may select; and (iii) in the case of (A) any Rate Tranche funded by a Funding Advance, and (B) any other Rate Tranche, if the Transferee Rate for such Yield Period is based A-23 on the Alternate Base Rate, such number of days thereafter as the Agent may select in its sole discretion; provided, however, that - -------- ------- (A) any Yield Period (other than a Yield Period consisting of one day) which would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day (unless the Transferee Rate for the related Rate Tranche for such Yield Period shall be based on the Eurodollar Rate (Reserve Adjusted), in which case if such succeeding Business Day is in a different calendar month, such Yield Period shall instead be shortened to the next preceding Business Day); (B) any Yield Period of one day for any Rate Tranche, (I) if such Yield Period is the initial Yield Period for a new Rate Tranche created in connection with a Transfer, shall be the day of the Transfer of such Rate Tranche, and (II) if such Yield Period is not the initial Yield Period for such Rate Tranche (or, in the case of a Rate Tranche created by division or combination pursuant to Section 2.03, any predecessor Rate Tranche), (x) if ------------ the immediately preceding Yield Period is more than one day, shall be the last day of such immediately preceding Yield Period, and (y) if the immediately preceding Yield Period is one day, shall be the next day following such immediately preceding Yield Period; (C) any Yield Period which commences before the Commitment Termination Date and would otherwise end after the Commitment Termination Date shall end on the Commitment Termination Date; and (D) subject to clause (ii) above, each Yield Period which commences ----------- on or after the Commitment Termination Date shall be of such duration as the Agent may select in its sole discretion. The "related" Yield Period for any Rate Tranche at any time means the Yield ------- Period pursuant to which Earned Discount is then accruing for such Rate Tranche. A-24 EX-10.6 5 FIRST TIER TRANSFER AGREEMENT Exhibit 10.6 FIRST TIER TRANSFER AGREEMENT Dated as of March 31, 1997 between IKON CAPITAL, INC. and IKON FUNDING, INC. TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE I DEFINITIONS AND RELATED MATTERS 1.1. Defined Terms.................................................... 1 1.2. Other Interpretive Matters....................................... 1 ARTICLE II CONTRIBUTION OF POOL RECEIVABLES; AGREEMENT TO TRANSFER; TRANSFER PRICE 2.1. Contribution of Pool Receivables................................. 2 2.2. Agreement to Transfer............................................ 2 2.3. Timing of Purchases and Contributions............................ 2 2.4. Transfer Price for Pool Receivables Transferred by Originator....................................................... 3 2.5. Transfer Termination Date........................................ 4 2.6. No Recourse or Assumption of Obligations......................... 4 2.7. Intention of the Parties......................................... 4 2.8. Advances by the Company to Originator............................ 5 ARTICLE III ADMINISTRATION AND COLLECTION 3.1. Originator to Act as Servicer.................................... 5 3.2. Deemed Collections............................................... 5 3.3. Actions Evidencing Purchases..................................... 6 3.4. Application of Collections....................................... 7 3.5. Rights of the Company............................................ 7 3.6. Responsibilities of Originator................................... 7 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ORIGINATOR 4.1. Organization and Good Standing................................... 8 4.2. Due Qualification................................................ 8 4.3. Power and Authority; Due Authorization........................... 8 4.4. Valid Transfer or Contribution; Binding Obligations.............. 8 4.5. No Violation..................................................... 8 4.6. No Proceedings................................................... 9 4.7. Bulk Sales Act................................................... 9 4.8. Government Approvals............................................. 9
-i-
4.9. Financial Condition.............................................. 9 4.10. Litigation....................................................... 10 4.11. Margin Regulations............................................... 10 4.13. Accuracy of Information.......................................... 10 4.14. Offices.......................................................... 11 4.15. Trade Names...................................................... 11 4.16. Compliance with Applicable Laws.................................. 11 4.17. Solvency......................................................... 11 4.18. Eligibility of Pool Receivables.................................. 11 ARTICLE V COVENANTS OF ORIGINATOR 5.1. Affirmative Covenants............................................ 12 5.2. Reporting Requirements........................................... 13 5.3. Negative Covenants............................................... 13 ARTICLE VI TRANSFER TERMINATION EVENTS 6.1. Transfer Termination Events...................................... 15 6.2. Remedies......................................................... 15 ARTICLE VII INDEMNIFICATION 7.1. Indemnities by Originator........................................ 16 ARTICLE VIII MISCELLANEOUS 8.1. Amendments, Waivers, etc......................................... 18 8.2. Notices, etc..................................................... 18 8.3. Binding Effect; Assignability.................................... 18 8.4. Survival......................................................... 19 8.5. Governing Law.................................................... 19 8.6. Costs, Expenses and Taxes........................................ 19 8.7. No Proceedings................................................... 19 8.8. Waiver of Jury Trial............................................. 19 8.9. Execution in Counterparts........................................ 19
-ii- SCHEDULES --------- SCHEDULE 4.14 Office Locations SCHEDULE 4.15 Trade Names EXHIBITS -------- EXHIBIT A Form of Transfer Report EXHIBIT B Form of Company Note EXHIBIT C Closing Date Report -iii- FIRST TIER TRANSFER AGREEMENT THIS FIRST TIER TRANSFER AGREEMENT (as amended, supplemented or modified from time to time, this "Agreement"), dated as of March 31, 1997, is --------- between IKON CAPITAL, INC., a Delaware corporation ("Originator"), as transferor ---------- and contributor, and IKON FUNDING, INC., a Delaware corporation (the "Company"), ------- as transferee and contributee. Background ---------- 1. On the Closing Date, Originator is transferring certain Pool Receivables and Related Property to the Company as a capital contribution to the Company. From time to time Originator may transfer additional Pool Receivables and Related Property to the Company as a capital contribution to the Company. 2. In order to finance its business, Originator wishes to transfer certain Pool Receivables and Related Property from time to time to the Company, and the Company is willing, on the terms and subject to the conditions set forth herein, to accept such Pool Receivables and Related Property from Originator. 3. The Company intends to obtain a Commitment from the Transferee pursuant to the Receivables Transfer Agreement in order to finance the transfers of Pool Receivables and Related Property hereunder. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND RELATED MATTERS 1.1. Defined Terms. Unless otherwise indicated, certain terms that are ------------- capitalized and used throughout this Agreement are defined in Appendix A to the ---------- Amended and Restated Receivables Transfer Agreement of even date herewith (as amended, supplemented or otherwise modified from time to time, the "Receivables ----------- Transfer Agreement"), among the Company, as Seller, the Originator, as Servicer, - ------------------ Twin Towers Inc., as Transferee, and Deutsche Bank AG, acting through its New York Branch, as agent for the Transferee (the "Agent"). ----- 1.2. Other Interpretive Matters. In this Agreement, unless -------------------------- -1- otherwise specified: (a) references to any Section or Annex refer to such Section of, or Annex to, this Agreement, and references in any Section or definition to any subsection or clause refer to such subsection or clause of such Section or definition; (b) "herein", "hereof", "hereto", "hereunder" and ------ ------ ------ --------- similar terms refer to this Agreement as a whole and not to any particular provision of this Agreement; (c) "including" means "including without --------- ----------------- limitation", and other forms of the verb "to include" have correlative meanings; - ---------- ---------- (d) the word "or" is not exclusive; and (e) captions are solely for convenience of reference and shall not affect the meaning of this Agreement; ARTICLE II CONTRIBUTION OF POOL RECEIVABLES; AGREEMENT TO TRANSFER; TRANSFER PRICE 2.1. Contribution of Pool Receivables. On the Closing Date, Originator -------------------------------- hereby assigns and transfers to the Company, as a contribution of capital, Pool Receivables and Related Property with respect thereto consisting of each Pool Receivable of Originator that existed and was owing to Originator on the Closing Date, beginning with the oldest of such Pool Receivables and continuing chronologically thereafter, and all or an undivided interest in the most recent of such Pool Receivables such that the aggregate Fair Market Value (as defined below) of all such Pool Receivables shall be equal to the amount set forth on Exhibit C. In addition, from time to time Originator may assign and transfer to - --------- the Company, as a contribution of capital, Pool Receivables and Related Property with respect thereto as designated by Originator. 2.2. Agreement to Transfer. On the terms and subject to the conditions --------------------- set forth in this Agreement, Originator hereby transfers and assigns to the Company, and the Company hereby accepts from Originator, all of Originator's right, title and interest in and to the Pool Receivables, the Related Property and all proceeds of the foregoing, other than those Pool Receivables and Related Property contributed to the Company pursuant to Section 2.1.. ----------- 2.3. Timing of Purchases and Contributions. Originator's entire right, ------------------------------------- title and interest in each Pool Receivable that existed and was owing to Originator as of the close of Originator's business on March 28, 1997 (the "Closing Date") shall be deemed to have been transferred and/or contributed to ------------ the Company on such date. After the Closing Date, each Pool Receivable created or purchased by Originator shall be transferred to and owned by the Company (without any further action) upon the -2- creation of such Pool Receivable or the purchase thereof by the Originator. The Related Property with respect to each Pool Receivable (and proceeds of such Pool Receivable and Related Property) shall be transferred and/or contributed at the same time as such Pool Receivable, whether such Related Property (or proceeds) exist at such time or arise or are acquired thereafter. 2.4. Transfer Price for Pool Receivables Transferred by Originator. (a) ------------------------------------------------------------- Calculation of Transfer Price. The transfer price for each Pool Receivable and - ----------------------------- the Related Property with respect thereto transferred to the Company shall equal the Fair Market Value of such Pool Receivable at the time of transfer. The "Fair ---- Market Value" of a Pool Receivable shall equal (i) the aggregate unpaid - ------------ scheduled debt service or lease payments that the Obligor is obligated to make thereunder, but excluding unearned finance charges, minus (ii) that portion of ----- Originator's loss contingency reserve on the date of transfer which is allocable to such Pool Receivable. (b) Initial Transfer Price Payment. On the terms and subject to the ------------------------------ conditions set forth in this Agreement, the Company agrees to pay to Originator the transfer price for the Pool Receivables to be transferred to the Company on the Closing Date (i) by taking such Pool Receivables subject to the Lien of the Original Receivables Agreement and assuming Originator's obligations thereunder, (ii) in cash, to the extent of funds obtained by the Company on such date under the Receivables Transfer Agreement, and (iii) by issuing to Originator a subordinated promissory note in the form of Exhibit B (as such promissory note --------- may be amended, supplemented, endorsed or otherwise modified from time to time, together with all promissory notes issued from time to time in substitution therefor or renewal thereof, the "Company Note") in an initial principal amount ------------ equal to the transfer price for such Pool Receivables minus the amount paid ----- under clauses (i) and (ii) above. The initial purchase price for the Pool ----------- ---- Receivables and Related Property with respect thereto transferred to the Company on the Closing Date shall be set forth on Exhibit C. --------- (c) Subsequent Transfer Price Payments. On each Business Day falling ---------------------------------- after the Closing Date and on or prior to the Transfer Termination Date, on the terms and subject to the conditions set forth in this Agreement, the Company shall pay to Originator the transfer price for the Pool Receivables transferred by Originator to the Company on such Business Day, in cash, to the extent of any funds made available to the Company for such purpose under Section 3.01 of the ------------ Receivables Transfer Agreement after satisfying the Company's obligations under the Receivables Transfer Agreement and -3- after netting any amounts owed to the Company by the Originator hereunder (including amounts owed under Section 3.2 to the extent permitted thereby), and ----------- to the extent any of such transfer price remains unpaid, such remaining portion of such transfer price shall be paid by increasing the outstanding principal amount of the Company Note. (d) Transfer Reports. On or prior to the 15th day (or if such day is ---------------- not a Business Day, the next Business Day) of each month (the "Reporting Date"), -------------- Originator agrees to prepare and deliver to the Company a signed report, in substantially in the form of Exhibit A or in such other form as the parties may --------- agree on from time to time with the written approval of the Agent (each, a "Transfer Report"). Each Transfer Report shall set forth a summary of --------------- information as to the Pool Receivables transferred hereunder, collections on Pool Receivables and other charges or credits as may be required by this Agreement during the month ending on the preceding Month End Date. (e) Company Note. Servicer shall make all appropriate record keeping ------------ entries with respect to the Company Note or otherwise to reflect the foregoing payments and adjustments pursuant to Section 3.2, and Servicer's books and ----------- records shall constitute rebuttable presumptive evidence of the principal amount of and accrued interest on the Company Note at any time. Furthermore, Servicer shall hold the Company Note for the benefit of Originator, and all payments under the Company Note shall be made to the Servicer for the account of the applicable payee thereof. Originator hereby irrevocably authorizes Servicer to mark the Company Note "CANCELLED" and to return the Company Note to the Company upon the final payment thereof after the occurrence of the Transfer Termination Date. 2.5. Transfer Termination Date. The "Transfer Termination Date" means ------------------------- ------------------------- the earliest of (a) the date of termination of this Agreement pursuant to Section 6.2(i) or (ii), (b) the Final Pay Out Date and (c) the date of any Event - -------------- ---- of Bankruptcy with respect to the Company. 2.6. No Recourse or Assumption of Obligations. Except as specifically ---------------------------------------- provided in this Agreement, the transfer of Pool Receivables and Related Property under this Agreement shall be without recourse to Originator. Originator and the Company intend the transactions hereunder to constitute true absolute transfers and true contributions of Pool Receivables and the Related Property by Originator to the Company, providing the Company with the full risks and benefits of ownership of the Pool Receivables and Related Property (such that the Pool Receivables and the -4- Related Property would not be property of Originator's estate in the event of Originator's bankruptcy). The Company shall not have any obligation or liability with respect to any Pool Receivables or Related Property, nor shall the Company have any obligation or liability to any Obligor or other customer or client of Originator (including any obligation to perform any of the obligations of Originator under any Pool Receivables or Related Property). 2.7. Intention of the Parties. It is the express intent of the parties ------------------------ hereto that the transfers of the Pool Receivables and Related Property by Originator to the Company as contemplated by this Agreement be, and be treated as, absolute transfers and capital contributions, respectively, and not as secured loans secured by the Pool Receivables and Related Property. If, however, notwithstanding the intent of the parties, such transactions are deemed to be loans, Originator hereby grants to the Company a security interest in all of the Originator's right, title and interest in and to the Pool Receivables and the Related Property now existing and hereafter created, and all proceeds thereof, to secure all of Originator's obligations hereunder. 2.8. Advances by the Company to Originator. The Company may make ------------------------------------- advances to Originator from time to time if so agreed between such parties and to the extent the Company has funds available for that purpose after satisfying its obligations under this Agreement and the Receivables Transfer Agreement. Any such advances shall be payable upon demand and the Company may net any payments to be made to Originator hereunder against any such outstanding advances. ARTICLE III ADMINISTRATION AND COLLECTION 3.1. Originator to Act as Servicer. Notwithstanding the transfer of ----------------------------- Pool Receivables pursuant to this Agreement, Originator shall continue to be responsible for the servicing, administration and collection of the Pool Receivables, all on the terms set out in (and subject to any rights to terminate Originator as servicer pursuant to) the Receivables Transfer Agreement. 3.2. Deemed Collections. (a) If on any day the Unpaid Balance of any ------------------ Pool Receivable is (i) reduced as a result of any -5- defective, rejected or returned merchandise or services, any cash discount, any allowances or billing errors, any trade-in or trade-up, any adjustment by Originator or any Affiliate of Originator or any early termination, refinancing, prepayment, consolidation or replacement of the Contract related to such Pool Receivable, (ii) reduced or cancelled as a result of a setoff in respect of any claim or dispute by the Obligor thereof against Originator or any Affiliate of Originator or any other Person (whether such claim arises out of the same or a related or an unrelated transaction), or (iii) reduced on account of the obligation of Originator or an Affiliate of Originator to pay to the related Obligor any rebate or refund, then, on such day, Originator shall be deemed to have received a Collection of such Pool Receivable in an amount equal to such reduction or cancellation. (b) If on any day it is determined that any of the representations or warranties of Originator set forth in Section 4.4, 4.12 or 4.19 are not true as ------- --- ---- ---- to any Pool Receivable, Originator shall be deemed to have received a Collection of such Pool Receivable in the amount of the Unpaid Balance of such Pool Receivable. To the extent that the Company subsequently receives Collections with respect to any such Pool Receivable, the Company shall pay Originator an amount equal to the amount so collected. (c) Not later than the first Business Day after Originator is deemed, pursuant to this Section 3.2, to have received any Collections, the amount of ----------- any such Collections shall be applied as a credit for the account of the Company against the transfer price of Pool Receivables subsequently transferred to the Company from the Originator hereunder; provided, however, if the transfer price -------- ------- for such subsequent transfers of Pool Receivables is less than the amount of such credit, the amount of such credit (i) shall be paid in cash to the Company by Originator, or (ii) shall be deducted from the principal amount outstanding under the Company Note; provided further, however, that at any time (y) on or -------- ------- ------- after a Termination Event under the Receivables Transfer Agreement or (z) on or after the Transfer Termination Date, the amount of any such credit shall be paid by Originator to the Company by deposit in immediately available funds into such account as is designated by the Company or the Agent for application by Servicer to the same extent as if Collections of the applicable Pool Receivable in such amount had actually been received on such date. (d) Each Transfer Report shall include a calculation of the aggregate reductions described in Section 3.2(a) or (b) relating to the Pool Receivables since the last Transfer Report delivered hereunder. -6- 3.3. Actions Evidencing Purchases. (a) On or prior to the Closing Date, ---------------------------- Originator shall mark its master data processing records evidencing Pool Receivables and Contracts with a legend, acceptable to the Company, evidencing that the Pool Receivables have been transferred and contributed in accordance with this Agreement. In addition, Originator agrees that from time to time, at its expense, it shall promptly execute and deliver all further instruments and documents, and take all further action, that the Company or its assigns may reasonably request in order to perfect, protect or more fully evidence the transfers and contributions hereunder, or to enable the Company or its assigns to exercise or enforce any of their respective rights with respect to the Pool Receivables and the Related Property. Without limiting the generality of the foregoing, Originator shall upon the request of the Company or the Agent: (i) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate; and (ii) mark conspicuously each Contract evidencing each Pool Receivable with a legend, acceptable to the Company, evidencing that the related Pool Receivables have been transferred in accordance with this Agreement. (b) Originator hereby authorizes the Company or the Agent (i) to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Pool Receivables and the Related Property now existing or hereafter arising in the name of Originator and (ii) to the extent permitted by the Receivables Transfer Agreement, to notify Obligors of the assignment of the Pool Receivables and the Related Property. (c) Without limiting the generality of Section 3.3(a), Originator -------------- shall, not earlier than six months and not later than three months prior to the fifth anniversary of the date of filing of the financing statements filed in connection with the Closing Date or any other financing statement filed pursuant to this Agreement: (i) execute and deliver and file or cause to be filed appropriate continuation statements; and (ii) deliver or cause to be delivered to Agent an opinion of counsel reasonably satisfactory to the Company and the Agent, in form and substance reasonably satisfactory to the Company and the Agent, confirming and updating the opinion delivered in connection with the Closing Date relating to the validity, perfection and priority of the Company's interests in the Pool Receivables. 3.4. Application of Collections. Any payment by an Obligor in respect -------------------------- of any indebtedness owed by it to Originator -7- shall, except as otherwise specified by such Obligor or otherwise required by the related Contract or law, be applied first, as a Collection of any Pool ----- Receivables of such Obligor, in the order of the age of such Pool Receivables, starting with the oldest of such Pool Receivables (provided that if payment is -------- designated by such Obligor for application to specific Receivables, it shall be applied to such specified Receivables), and second, to any other indebtedness of ------ such Obligor to Originator. 3.5. Rights of the Company. Originator hereby authorizes the Company --------------------- and the Servicer (if other than Originator) or their respective designees to take any and all steps in Originator's name necessary or desirable, in their respective determination, to collect all amounts due under any and all Pool Receivables and Related Property, including endorsing Originator's name on checks and other instruments representing Collections and enforcing such Pool Receivables and the provisions of the related Contracts that concern payment and/or enforcement of rights to payment. 3.6. Responsibilities of Originator. Anything herein to the contrary ------------------------------ notwithstanding, Originator shall repurchase from the Company all merchandise repossessed by the Company (or the Servicer on its behalf) with respect to Pool Receivables in default, at a price equal to the price at which such merchandise is resold to a dealer. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ORIGINATOR Originator, in its capacity as transferor and/or contributor under this Agreement, hereby makes the representations and warranties set forth in this Article IV. - ---------- 4.1. Organization and Good Standing. Originator has been duly organized ------------------------------ and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted. 4.2. Due Qualification. Originator is duly qualified to do business as ----------------- a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of its property or -8- the conduct of its business requires such qualification, licenses or approvals and where the failure to have such qualification, license or approval would have a Material Adverse Effect. 4.3. Power and Authority; Due Authorization. Originator (a) has all -------------------------------------- necessary power, authority and legal right (i) to execute and deliver, and perform its obligations under, each Transaction Document to which it is a party, and (ii) to generate, own, transfer, contribute and assign Pool Receivables and Related Property on the terms and subject to the conditions herein provided; and (b) has duly authorized such execution, delivery and, performance of such obligations by all necessary corporate action. 4.4. Valid Transfer or Contribution; Binding Obligations. Each --------------------------------------------------- transfer or contribution, as the case may be, of Pool Receivables and Related Property made by Originator pursuant to this Agreement shall constitute a valid transfer and assignment or contribution, as the case may be, thereof to the Company, enforceable against creditors of, and purchasers from, Originator; and this Agreement constitutes, and each other Transaction Document to be signed by Originator, when duly executed and delivered, will constitute, a legal, valid, and binding obligation of Originator, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. 4.5. No Violation. The execution, delivery and performance by ------------ Originator of the Transaction Documents to which it is a party and the consummation of the transactions contemplated thereby will not (a) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under (i) Originator's articles of incorporation or by-laws, or (ii) any indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument to which it is a party or by which it or any of its properties is bound, (b) result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument, other than the Transaction Documents, or (c) violate any law or any order, rule, or regulation applicable to it of any court or of any federal, state or foreign regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over it or any of its properties. -9- 4.6. No Proceedings. There are no proceedings or investigations -------------- pending, or threatened, before, and there has been no injunction, decree or other decision issued or made by, any court, regulatory body, administrative agency, or other tribunal or governmental agency or instrumentality (i) asserting the invalidity of this Agreement or any other Transaction Document, (ii) seeking to prevent the transfer or contribution of the Pool Receivables and Related Property to the Company or any portion thereof or the consummation of any of the other transactions contemplated by this Agreement or any other Transaction Document or (iii) seeking any determination or ruling that might have a Material Adverse Effect. 4.7. Bulk Sales Act. No transaction contemplated hereby or by any other -------------- Transaction Documents requires compliance with any bulk sales act or similar law. 4.8. Government Approvals. No authorization or approval or other action -------------------- by, and no notice to or filing with, any governmental authority or regulatory body is required for Originator's due execution, delivery and performance of any Transaction Document to which it is a party, except for the filing of certain UCC financing statements, all of which shall have been duly made and shall be in full force and effect. 4.9. Financial Condition. (x) The audited consolidated balance sheets ------------------- of Originator and its consolidated subsidiaries as at September 30, 1996, and the related statements of income, cash flows and shareholders' equity of Originator and its consolidated subsidiaries for the fiscal year then ended, certified by Ernst & Young, independent certified public accountants, and the consolidated balance sheets of Originator and its consolidated subsidiaries as at December 31, 1996, and the related statements of income, cash flows and shareholders' equity of Originator and its consolidated subsidiaries for the period then ended, copies of each of which have been furnished to the Agent, fairly present the consolidated financial condition, business, business prospects and operations of Originator and its consolidated subsidiaries as at such dates and the consolidated results of the operations of Originator and its consolidated subsidiaries for the period ended on such dates, all in accordance with generally accepted accounting principles consistently applied, and (y) since September 30, 1996 there has been no material adverse change in any such condition, business, business prospects or operations except as described in Schedule 6.02(i) to the Receivables Transfer Agreement. -10- 4.10. Litigation. No injunction, decree or other decision has been ---------- issued or made by any court, governmental agency or instrumentality thereof that prevents, and no threat by any person has been made to attempt to obtain any such decision that would prevent, Originator from conducting a significant part of its business operations. 4.11. Margin Regulations. No use of any funds obtained by Originator ------------------ under this Agreement will conflict with or contravene any of Regulations G, T, U and X promulgated by the Board of Governors of the Federal Reserve System from time to time. 4.12. Quality of Title. ---------------- (a) Each Pool Receivable (together with the Related Property) which is to be transferred or contributed to the Company hereunder is or shall be owned by Originator, free and clear of any Lien. Whenever the Company or accepts a transfer or a contribution hereunder, it shall have acquired a valid and perfected ownership interest (free and clear of any Lien) in all Pool Receivables generated by Originator and all Collections related thereto, and in Originator's entire right, title and interest in and to the other Related Property with respect thereto. (b) No effective financing statement or other instrument similar in effect covering any Pool Receivable, any interest therein or any of the Related Property is on file in any recording office except such as may be filed in favor of the Company or Originator, as the case may be, in accordance with this Agreement or in favor of the Transferee (or any assignee thereof) or the Agent in accordance with the Receivables Transfer Agreement. 4.13. Accuracy of Information. No information furnished or to be ----------------------- furnished in writing by Originator to the Company, the Agent or the Transferee for purposes of or in connection with any Transaction Document will be inaccurate in any material respect as of the date it was furnished or will be furnished or (except as otherwise disclosed to the Company, the Agent or the Transferee at or prior to such time) as of the date as of which such information is dated, or contained or will contain any material misstatement of fact or omitted or will omit to state any material fact necessary to make such information contained therein was made, not materially misleading. 4.14. Offices. Originator's principal place of business and chief ------- executive office is located at the address set forth on -11- Schedule 4.14, and the offices where Originator keeps all its books, records and - ------------- documents evidencing or included in the Pool Receivables are located at the addresses specified on Schedule 4.14 (or at such other locations, notified to ------------- Servicer (if other than Originator) and the Agent in accordance with Section ------- 5.3(d), in jurisdictions where all action required by Section 5.3(d) has been - ------ -------------- taken and completed). 4.15. Trade Names. Except as disclosed on Schedule 4.15, Originator ----------- ------------- does not use any trade name other than its actual corporate name. From and after the date that fell five (5) years before the date hereof, Originator has not been known by any legal name other than its corporate name as of the date hereof, nor has Originator been the subject of any merger or other corporate reorganization except as disclosed on Schedule 4.15. ------------- 4.16. Compliance with Applicable Laws. Originator is in compliance, in ------------------------------- all material respects, with the requirements of all applicable laws, rules, regulations, and orders of all governmental authorities (including Regulation Z, laws, rules and regulations relating to usury, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy and all other consumer laws applicable to the Pool Receivables and related Contracts). 4.17. Solvency. Originator is not insolvent, does not have unreasonably -------- small capital with which to carry on its business and is able to pay its debts generally as they become due and payable, and its liabilities do not exceed its assets. 4.18. Eligibility of Pool Receivables. Unless otherwise identified to ------------------------------- the Company on the date of the contribution and/or transfer hereunder, each Pool Receivable contributed and/or transferred hereunder is on the date of contribution and/or transfer an Eligible Receivable and, so long as Originator is the Servicer, each Pool Receivable included as an Eligible Receivable in the calculation of Net Pool Balance is an Eligible Receivable as of the date of such calculation. ARTICLE V COVENANTS OF ORIGINATOR 5.1. Affirmative Covenants. From the date hereof until the Final Pay --------------------- Out Date, Originator will, unless the Company and the Agent shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply in all material -------------------------- -12- respects with all applicable laws, rules, regulations and orders, including those with respect to the Pool Receivables and the related Contracts. (b) Preservation of Corporate Existence. Preserve and maintain its ----------------------------------- corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification could reasonably be expected to have a Material Adverse Effect. (c) Audits. (i) At any time and from time to time during regular ------ business hours, upon reasonable notice, permit the Agent, or its agents or representatives, (A) to examine and make copies of and abstracts from all books, records and documents (including computer tapes and disks) in the possession or under the control of such party relating to Pool Receivables, including the related Contracts and purchase orders and other agreements, and (B) to visit the offices and properties of Originator for the purpose of examining such materials, and to discuss matters relating to Pool Receivables or Originator's performance hereunder with any of the officers or employees of such party having knowledge of such matters; and (ii) without limiting the provisions of clause ------ (i) next above, from time to time on request of the Agent (given not more than - --- once in each calendar year so long as no Termination Event or Unmatured Termination Event shall have occurred and be continuing under the Receivables Transfer Agreement), permit certified public accountants or other auditors acceptable to the Agent to conduct, at Originator's expense, a review of the Originator's books and records with respect to the Pool Receivables. (d) Keeping of Records and Books of Account. Maintain and implement --------------------------------------- administrative and operating procedures (including an ability to recreate records evidencing Pool Receivables in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Pool Receivables (including records adequate to permit the daily identification of each new Pool Receivable and all Collections of and adjustments to each existing Pool Receivable). (e) Performance and Compliance with Pool Receivables and Contracts. At -------------------------------------------------------------- its expense timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables and all purchase orders and all other agreements -13- related to such Pool Receivables. (f) Location of Records. Keep its chief place of business and chief ------------------- executive office, and the offices where it keeps its records concerning or related to Pool Receivables and all purchase orders and other agreements related to the Pool Receivables, all related Contracts and all required documents relating thereto), at the address(es) referred to in Schedule 4.14 or, upon 30 ------------- days' prior written notice to the Company and the Agent, at such other locations in jurisdictions where all action required by the Servicer or the Agent to continue the perfection of the Company's and the Transferee's interests in the Pool Receivables and the Related Property have been taken. (g) Credit and Collection Policies. Comply in all material respects ------------------------------ with its Credit and Collection Policy in regard to each Pool Receivable and the related Contract. (h) Collections. Instruct all Obligors to cause all Collections of ----------- Pool Receivables to be sent directly to a Post Office Box, and deposit all Collections received into a Designated Account within one Business Day after receipt. (i) Transaction Documents. Perform and comply in all material respects --------------------- with all of its covenants and agreements set forth in the Transaction Documents to which it is a party. 5.2. Reporting Requirements. From the date hereof until the first day ---------------------- following the Final Pay Out Date, Originator shall, unless the Agent and the Company shall otherwise consent in writing, furnish to the Company and the Agent the information set forth in Section 7.02 of the Receivables Transfer Agreement ------------ (to the extent such information relates to Originator). 5.3. Negative Covenants. From the date hereof until the Final Pay Out ------------------ Date, unless the Agent and the Company shall otherwise consent in writing, it shall not: (a) Sales, Liens, Etc. Except as otherwise provided herein, sell, ------------------ assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien upon or with respect to, any Pool Receivable or Related Property, or any interest therein, or any post office box or account to which any Collections of any Pool Receivables are sent, or any right to receive income from or in respect thereof, or the Company Note or any shares of capital stock of the Company. (b) Extension or Amendment of Pool Receivables. Extend, ------------------------------------------ -14- amend, terminate or otherwise modify the terms of any Pool Receivable, or amend, modify, terminate or waive any term or condition of any Contract related thereto, unless permitted pursuant to Section 8.02 of the Receivables Transfer Agreement. (c) Change in Business or Credit and Collection Policy. Make any change -------------------------------------------------- in the character of its business or in its Credit and Collection Policy, which change would, in either case, impair the collectibility of any Pool Receivable (other than an immaterial portion thereof) or otherwise adversely affect the interests, rights or remedies of the Company or the Transferee under any Transaction Document. (d) Change in Name. Change its corporate name or the name under or by -------------- which it does business, unless Originator shall have given the Company and the Agent at least 30 days' prior written notice thereof and unless, prior to any such change in name, Originator shall have filed (or shall have caused to be filed) such financing statements or amendments as the Servicer or the Agent determines may be necessary to continue the perfection of the Company's and the Transferee's interest in the Pool Receivables and Related Property. (e) Negative Pledges. Enter into or assume any agreement (other than ---------------- this Agreement and the other Transaction Documents) prohibiting the creation or assumption of any Lien upon any Pool Receivables or Related Property, whether now owned or hereafter acquired by Originator, as contemplated by the Transaction Documents, or otherwise prohibiting or restricting any transaction contemplated hereby or by the other Transaction Documents. (f) Mergers, Acquisitions, Sales, etc. Be a party to any merger or --------------------------------- consolidation, or purchase or otherwise acquire all or substantially all of the assets or any stock of any class of, or any partnership or joint venture interest in, any other Person, or, except in the ordinary course of its business, sell, transfer, convey or lease all or any substantial part of its assets, or permit any Subsidiary to do any of the foregoing except for any such merger or consolidation, sale, transfer, conveyance, lease or assignment of or by any wholly-owned Subsidiary (other than the Company) into Originator or into, with or to any other wholly-owned Subsidiary, any such purchase or other acquisition by Originator or any wholly-owned Subsidiary (other than the Company) of the assets or stock of any wholly-owned Subsidiary and pursuant to which Originator is the survivor, provided that no Termination Event or -------- Unmatured Termination Event has occurred and is continuing or would result therefrom. -15- (g) Corporate Separateness Take any action that is inconsistent with ---------------------- the terms of Section 7.04 of the Receivables Transfer Agreement. ARTICLE VI TRANSFER TERMINATION EVENTS 6.1. Transfer Termination Events. Each of the following events or --------------------------- occurrences described in this Section 6.1 shall constitute a "Transfer ----------- -------- Termination Event": - ----------------- (a) A Termination Event shall have occurred under the Receivables Transfer Agreement and the Agent shall have declared the Commitment Termination Date to have occurred; or (b) Originator shall fail to make any payment or deposit to be made by it hereunder when due and such failure shall remain unremedied for one Business Day; or (c) Any representation or warranty made or deemed to be made by Originator (or any of its officers) under or in connection with this Agreement, any other Transaction Document or any other information or report delivered pursuant hereto or thereto shall prove to have been false or incorrect in any material respect when made or deemed made and, if such breach of representation or warranty is capable of cure, it shall have continued for thirty days after written notice thereof shall have been given by the Servicer, the Agent or the Company to Originator; or (d) Originator shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for thirty days after written notice thereof shall have been given by Servicer, the Agent or the Company to Originator; or (e) An Event of Bankruptcy shall have occurred and remained continuing with respect to Originator. 6.2. Remedies. -------- (i) Automatic Termination. The agreement of the Originator to transfer --------------------- Pool Receivables hereunder, and the agreement of the Company to accept Pool Receivables from the Originator hereunder, shall terminate automatically (and the Transfer Termination Date shall be deemed to have occurred) on the occurrence of a Transfer -16- Termination Event of the type described in Section 6.1(e). -------------- (ii) Optional Termination. Upon the occurrence of a Transfer -------------------- Termination Event, the Company, with the consent of the Agent, shall have the option by notice to Originator (with a copy to the Agent) to declare the Transfer Termination Date to have occurred. (iii) Remedies Cumulative. Upon any termination pursuant to this ------------------- Section 6.2, the Company shall have, in addition to all other rights and - ----------- remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of each applicable jurisdiction and other applicable laws, which rights shall be cumulative. ARTICLE VII INDEMNIFICATION 7.1. Indemnities by Originator. Without limiting any other rights that ------------------------- any such Person may have hereunder or under applicable law, Originator hereby agrees to indemnify the Company and each of its successors, transferees and assigns and all officers, directors, shareholders, controlling persons, employees and agents of any of the foregoing (each of the foregoing Persons being individually called a "First Tier Indemnified Party"), forthwith on ---------------------------- demand, from and against any and all damages, losses, claims, judgments, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (collectively, the "First Tier Indemnified Amounts") awarded ------------------------------ against or incurred by any of them arising out of or as a result of the following: (a) the transfer by Originator of an interest in any Pool Receivable or Related Property to any Person other than the Company; (b) the breach of any representation or warranty made by Originator pursuant to this Agreement, or any information or report delivered by Originator pursuant hereto or thereto which shall have been false or incorrect in any respect when made or deemed made; (c) the failure by Originator to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract, or the nonconformity of any Pool Receivable or the related Contract with any such applicable law, rule or regulation; -17- (d) the failure to vest and maintain vested in the Company an ownership interest in the Pool Receivables generated by Originator and Related Property free and clear of any Lien, other than a Lien arising solely as a result of an act of the Company, whether existing at the time of the transfer or contribution of such Pool Receivables or at any time thereafter; (e) any claim resulting from the sale of the merchandise or services related to any Pool Receivable or the furnishing or failure to furnish such merchandise or services; or any products liability claim arising out of or in connection with merchandise or services that are the subject of any Pool Receivable; (f) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of transfers hereunder or the ownership of, or in respect of, any Pool Receivables, Related Property or Contract; (g) any tax or governmental fee or charge (other than any tax band upon or measured by net income), all interest and penalties thereon or with respect thereto, and all out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the transfer, contribution or ownership of the Pool Receivables or any Related Property connected with any such Pool Receivables; (h) any failure of Originator to perform its duties or obligations in accordance with the provisions of this Agreement; and (i) any dispute, claim, offset or defense (other than discharge in bankruptcy) of the Obligor to the payment of any Pool Receivable (including, without limitation, a defense based on such Pool Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms); excluding, however, (i) First Tier Indemnified Amounts to the extent resulting - --------- ------- from gross negligence or willful misconduct on the part of a First Tier Indemnified Party and (ii) any indemnification which has the effect of recourse to Originator for non-payment of the Pool Receivables due to credit reasons (except as otherwise specifically provided in this Agreement). If for any reason the indemnification provided above in this Section ------- 7.1 is unavailable to a First Tier Indemnified Party or is insufficient to hold - --- such First Tier Indemnified Party harmless, -18- then Originator shall contribute to the amount paid or payable by such First Tier Indemnified Party as a result of such loss, claim, damage or liability to the maximum extent permitted under applicable law. ARTICLE VIII MISCELLANEOUS 8.1. Amendments, Waivers, etc. No amendment of this Agreement or waiver ------------------------ of any provision hereof or consent to any departure by either party therefrom shall be effective without the written consent of the party that is sought to be bound. Any such waiver or consent shall be effective only in the specific instance given. No failure or delay on the part of either party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Originator acknowledges that institutions providing financing (by way of accepting transfers of Pool Receivables or interests therein) pursuant to the Receivables Transfer Agreement may rely upon the terms of this Agreement, and the terms of this Agreement may not be amended, nor any material waiver of those terms be granted, without the consent of the Agent. 8.2. Notices, etc. All notices and other communications provided for ------------ hereunder shall, unless otherwise stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by express mail or courier or by certified mail, postage-prepaid, or by facsimile, to the intended party at the address or facsimile number of such party set forth under its name on the signature pages hereof or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, (i) if personally delivered or sent by express mail or courier or if sent by certified mail, when received, (ii) if sent by certified mail, three Business Days after having been deposited in the mail, postage prepaid and (iii) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means. 8.3. Binding Effect; Assignability. This Agreement shall be binding ----------------------------- upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall also, -19- to the extent provided herein, inure to the benefit of the parties to the Receivables Transfer Agreement. Originator may not assign its rights hereunder or any interest herein without the prior consent of the Company and the Agent. Originator acknowledges that the Company's rights under this Agreement may be assigned to the Transferee under the Receivables Transfer Agreement and consents to such assignment and to the exercise of those rights directly by the Transferee or the Agent on its behalf. 8.4. Survival. The rights and remedies with respect to any breach of -------- any representation and warranty made by Originator or the Company pursuant to Article IV and the indemnification and payment provisions of Article VII and - ---------- ----------- Section 8.6 shall be continuing and shall survive any termination of this - ----------- Agreement. 8.5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED ------------- IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF NEW YORK. 8.6. Costs, Expenses and Taxes. In addition to its obligations under ------------------------- Article VII, Originator agrees to pay on demand (a) all costs and expenses - ----------- incurred by the Company and its assigns in connection with the enforcement of, or any actual or claimed breach of, this Agreement, including the reasonable fees and expenses of counsel to any of such Persons incurred in connection with any of the foregoing or in advising such Persons as to their respective rights and remedies under this Agreement in connection with any of the foregoing and (b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement. 8.7. No Proceedings. Originator agrees, for the benefit of the parties -------------- to the Receivables Transfer Agreement, that it will not institute against the Company or the Transferee, or join any other Person in instituting against the Company or the Transferee, any Event of Bankruptcy until one year and one day after the Final Pay Out Date (in relation to the Company) or for one year and one day after the date when the latest maturing Commercial Paper Note is paid (in relation to the Transferee). In addition, all amounts payable by the Company to Originator pursuant to this Agreement shall be payable solely from funds available for that purpose (after the Company has satisfied all obligations then due and owing under the Receivables Transfer Agreement). 8.8. Waiver of Jury Trial. EACH PARTY HERETO EXPRESSLY WAIVES ANY RIGHT -------------------- TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT. -20- 8.9. Execution in Counterparts. This Agreement may be executed in any ------------------------- number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. -21- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. IKON CAPITAL, INC. By: --------------------------------------------- Name: Title: 1738 Bass Road Macon, Georgia 31210 Attention: Harry C. Kozee Telephone: (912) 471-2306 Facsimile: (912) 471-2369 with a copy to: IKON Office Solutions, Inc. 825 Duportail Road Wayne, Pennsylvania 19087 Attention: Jack Quinn Facsimile: (610) 296-3248 IKON FUNDING, INC. By: --------------------------------------------- Name: Title: 501 Silverside Road, Suite 28 Wilmington, Delaware 19809 Attention: Robert McLain Facsimile: (302) 798-2779 First Tier Transfer Agreement S-1 Acknowledged and consented by: IKON CAPITAL, INC., as Servicer By: --------------------------------- Name: ------------------------------- Title: ------------------------------ 1738 Bass Road Macon, Georgia 31210 Attention: Harry C. Kozee Telephone: (912) 471-2306 Facsimile: (912) 471-2369 with a copy to: IKON Office Solutions, Inc. 825 Duportail Road Wayne, Pennsylvania 19087 Attention: Jack Quinn Facsimile: (610) 296-3248 First Tier Transfer Agreement S-2 SCHEDULE 4.14 OFFICE LOCATIONS IKON Capital, Inc. 1738 Bass Road Macon, Georgia 31210 First Tier Transfer Agreement S-3 SCHEDULE 4.15 TRADE NAMES None. First Tier Transfer Agreement S-4 EXHIBIT A FORM OF TRANSFER REPORT (See attached) First Tier Transfer Agreement S-5 EXHIBIT B FORM OF COMPANY NOTE (See attached) First Tier Transfer Agreement S-6 EXHIBIT C CLOSING DATE REPORT I. Calculation of Fair Market Value of Pool Receivables transferred on Closing Date: (i) aggregate unpaid scheduled debt service or lease payments (excluding financing charges): $_______________, minus ----- (ii) allocated loss contingency reserve: $_____________ Total Fair Market Value: $_______________ II. Fair Market Value of contributed Pool Receivables: $________________ Fair Market Value of transferred Pool Receivables: _____________ (i) Outstanding Transferee's Investment under Original Receivables Agreement: $______________ (ii) Cash transfer price: $______________ (iii) Initial principal amount of Company Note: $_____________ First Tier Transfer Agreement S-7 EX-10.7 6 RECEIVABLES TRANSFER AGREEMENT Exhibit 10.7 AMENDMENT 1 TO RECEIVABLES TRANSFER AGREEMENT AMENDMENT, dated as of October 7, 1997, to the Receivables Transfer Agreement, dated as of September 30, 1996 (the "Receivables Agreement"), among IKON FUNDING --------------------- INC., a Delaware corporation (the "Transferor"), IKON CAPITAL INC., a Delaware ---------- corporation (the "Originator" and, in its capacity as Collection Agent, the ---------- "Collection Agent"), OLD LINE FUNDING CORP., a Delaware corporation (the ---------------- "Issuer"), and ROYAL BANK OF CANADA, a Canadian chartered bank acting through its New York Branch, as agent (the "Agent") for the Transferees. ----- RECITALS WHEREAS, the Transferor, the Originator, the Issuer and the Agent have agreed, subject to the terms and conditions of this Amendment, to amend the Receivables Agreement as hereinafter set forth. Terms used herein but not defined herein shall have the meaning assigned thereto in the Receivables Agreement. NOW, THEREFORE, the parties agree as follows: 1 Amendment of Receivables Agreement. The Receivables Agreement ---------------------------------- shall be and is hereby amended, as of the date hereof, as follows: (a) The definition of "Applicable Percentage" in Exhibit I to the --------------------- Receivables Agreement shall be amended in its entirety to read as follows: "Applicable Percentage" means, with respect to the Consideration --------------------- payable with respect to Receivables, a percentage equal to the product of (a) four, (b) the weighted average life of such Receivables expressed in years and fractions thereof and as reported in the most recent Transferor Report and (c) the Default Ratio as reported in the most recent Transferor Report. (b) The definition of "Default Ratio" in Exhibit I to the Receivables ------------- Agreement shall be amended by deleting the phrase "aggregate Outstanding Balance" in clause (i) thereof and replacing it with the phrase "the total Periodic Payments due to the Transferor over the remaining term calculated as of the last day of the current calendar month" and by deleting the phrase "aggregate Outstanding Balance" in clause (ii) thereof and replacing it with the phrase "the total Periodic Payments due to the Transferor over the remaining term calculated as of the last day of the prior calendar month less all cash Collections and payments received from Dealers or Obligors on terminated Contracts received during such current calendar month." (c) The definition of "Defaulted Receivable" in Exhibit I to the -------------------- Receivables Agreement shall be amended by deleting the phrase "from the original due date" in clause (i) and replacing it with the phrase "after the invoice date." (d) The definition of "Delinquency Ratio" in Exhibit I to the Receivables ----------------- Agreement shall be amended by deleting the phrase "aggregate amount of all" in clause (i) and replacing it with the phrase "total Periodic Payments due to Transferor over the remaining term of all Related Contracts having one or more" and by deleting the phrase "aggregate Outstanding Balance" in clause (ii) and replacing it with the phrase "the total Periodic Payments due to the Transferor over the remaining term calculated as of the last day of the prior calendar month less all cash Collections and payments received from Dealers or Obligors on terminated Contracts received during such current calendar month." (e) The definition of "Delinquent Receivable" in Exhibit I to the --------------------- Receivables Agreement shall be amended by deleting the phrase "30 or more days from the original due date" in clause (i) and replacing it with the phrase "one or more days after the invoice date." (f) The definition of "Fixed Period" in Exhibit I to the Agreement is ------------ hereby amended by deleting the number "270" in clause (i) and replacing it with the number "78." (g) The definition of "Outstanding Balance" in Exhibit I to the Agreement ------------------- is hereby amended by deleting the word "net" in the first line thereof. (h) The definition of "Parent" in Exhibit I to the Agreement shall be ------ amended in its entirety to read as follows: "Parent" means "IKON ------ Office Solutions, Inc." 2. Execution in Counterparts, Etc. This Amendment may be executed ------------------------------ in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same amendment. The delivery of a signed signature page to this Amendment by telecopy transmission shall constitute due execution and delivery of this Amendment for all purposes. 3. Receivables Agreement in Full Force and Effect. Except as ---------------------------------------------- amended by this Amendment, all of the provisions of the Receivables Agreement and all of the provisions of all other documentation required to be delivered with respect thereto shall remain in full force and effect from and after the date hereof. 4. References to Receivables Agreement. From and after the date ----------------------------------- hereof, (a) all references in the Receivables Agreement to "this Agreement," "hereof," "herein," or similar terms and (b) all references to the Receivables Agreement in each agreement, instrument and other document executed or delivered in connection with the Receivables Agreement, shall mean and refer to the Receivables Agreement, as amended by this Amendment. 5. Further Assurances. The parties hereto agree to execute and ------------------ deliver any and all further agreements, certificates and other documents reasonably necessary to implement the provisions of this Amendment. 6. Governing Law. This Amendment shall be governed by, and ------------- construed in accordance with, the law of the State of New York without giving effect to the conflict of laws principles thereof. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. TRANSFEROR: IKON FUNDING INC. By: ---------------------------- Name: Title: ORIGINATOR: IKON CAPITAL INC. By: ---------------------------- Name: Title: AGENT: ROYAL BANK OF CANADA, as Agent for the Issuer By: ---------------------------- Name: Title: By: ---------------------------- Name: Title: EX-10.13 7 DISTRIBUTION AGREEMENT JUNE 4, 1997 Exhibit 10.13 [Execution Copy] U.S. $2,017,750,000 IKON CAPITAL, INC. MEDIUM-TERM NOTES, SERIES C DISTRIBUTION AGREEMENT June 4, 1997 Lehman Brothers Lehman Brothers Inc. 3 World Financial Center, 12th Floor New York, New York 10285-1200 Chase Securities Inc. 270 Park Avenue New York, New York 10017 Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281 Dear Sirs: IKON Capital, Inc., a Delaware corporation (the "Company"), confirms its agreement with each of you (individually, an "Agent" and collectively, the "Agents") with respect to the issuance and sale by the Company of up to an aggregate of $2,017,750,000 in gross proceeds of its Medium-Term Notes, Series C (the "Notes"). The Notes are to be issued from time to time pursuant to an indenture, dated as of June 30, 1995, and a first supplemental indenture, dated as of June 4, 1997 (together, and as supplemented or amended from time to time, the "Indenture"), between the Company and The Chase Manhattan Bank, as trustee (the "Trustee"). The Notes shall have the maturity ranges, applicable interest rates or interest rate formulas, specified currency, issue price, redemption and repayment provisions and other terms set forth in the Prospectus referred to in Section 1(a) as it may be amended or supplemented from time to time, including any supplement providing for the interest rate, maturity and other terms of any Note (a "Pricing Supplement"). The Notes will be issued, and the terms thereof established, from time to time, by the Company in accordance with the Indenture and the Procedures referred to below. This Agreement shall only apply to sales of the Notes and not to sales of any other securities or evidences of indebtedness of the Company and only on the specific terms set forth herein. Subject to the terms and conditions stated herein and to the reservation by the Company of the right to sell its Notes directly on its own behalf, the Company hereby (i) appoints each of the Agents as the agent of the Company for the purpose of soliciting and receiving offers to purchase Notes from the Company and (ii) agrees that whenever the Company determines to sell Notes directly to an Agent as principal it will enter into a separate agreement (each a "Purchase Agreement"). Each such Purchase Agreement, whether oral (and confirmed in writing, which may be by facsimile transmission) or in writing, shall be with respect to such information (as applicable) as specified in Exhibit C hereto, relating to such sale in accordance with Section 2(e) hereof. Section 1. Representations and Warranties The Company represents and warrants to each Agent as of the date hereof, as of the Closing Date (defined herein) and as of the times referred to in Sections 6(a) and 6(b) hereof (the Closing Date and each such time being hereinafter sometimes referred to as a "Representation Date"), as follows: (a) General. Registration statements (No. 33-59227 and No. 333-27141) on Form S-3 with respect to the Notes have been prepared and filed by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder, and have become effective under the Act. The Indenture has been qualified under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). As used in this Agreement (i) "Registration Statement" means such registration statements when they became effective under the Act, and as from time to time amended or supplemented thereafter (if any post-effective amendment to such registration statements have been filed with the Commission prior to the execution and delivery of this Agreement, the time the most recent such amendment has been declared effective by the Commission); (ii) "Basic Prospectus" means the prospectus (including all documents incorporated therein by reference) included in the Registration Statement; and (iii) "Prospectus" means the Basic Prospectus (together with all documents incorporated therein by reference) and any amendments or supplements thereto (including the applicable Pricing Supplement) relating to the Notes, as filed with the Commission pursuant to paragraph (b) of Rule 424 of the Rules and Regulations. The Commission has not issued any order preventing or suspending the use of the Prospectus. Any reference in this Agreement to amending or supplementing the Prospectus shall be deemed to include the filing of materials incorporated by reference in the Prospectus after the Closing Date (defined herein) and any reference in this Agreement to any amendment or supplement to the Prospectus shall be deemed to include any such materials incorporated by reference in the Prospectus after the Closing Date (defined herein). (b) Registration Statement, Prospectus and Indenture: Contents. The Registration Statement and each Prospectus conformed, and the Registration Statement and each Prospectus will conform as of the applicable Representation Date and at all times during each period during which, in the opinion of counsel for the Agents, a prospectus relating to the Notes is required to be delivered under the Act (each a "Marketing Period"), in all respects to the requirements of the Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Trust Indenture Act, and the rules and regulations of the Commission under such Acts; the Indenture, including any amendments and supplements thereto, conforms with the requirements of the Trust Indenture Act and the rules and regulations of the Commission thereunder; and the Registration Statement and each Prospectus do not, and will not as of the applicable Representation Date and at all times during each Marketing Period, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company makes no representation or warranty as to information contained in or omitted from the Registration Statement or any Prospectus in reliance upon and in conformity with written information furnished to the Company by the Agents specifically for inclusion therein or to any statements in or omissions from the statement of eligibility and qualification on Form T-1 (the "Form T-1") of the Trustee under the Trust Indenture Act. (c) No Defaults. The Company is not in violation of its corporate charter or by-laws or in default under any agreement, indenture or instrument, the effect of which violation or default would be material to the Company; the execution, delivery and performance of this Agreement, the Indenture, the Notes, the Support Agreement, dated October 22, 1996 (the "1996 Support Agreement") between the Company and IKON Office Solutions, Inc. ("IKON"), and each applicable Purchase Agreement, if any, and compliance by the Company with the provisions of the Notes and the Indenture have been duly authorized by all necessary corporate action and will not conflict with, result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company pursuant to the terms of, or constitute a default under, any agreement, indenture or instrument, or result in a violation of the corporate charter or by-laws of the Company or any order, rule or regulation of any court or governmental agency having jurisdiction over the Company or its properties; and except as required by the Act, the Trust Indenture Act, the Exchange Act and applicable state securities laws, no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the execution, delivery and performance of the transactions contemplated by this Agreement, the Notes, the 1996 Support Agreement, each applicable Purchase Agreement, if any, or the Indenture. The Company has no subsidiaries within the meaning of Rule 405 of the Rules and Regulations. (d) Material Changes or Material Transactions. Except as described in the Registration Statement and each Prospectus, (i) there has not been any material adverse change in, or any adverse development which materially affects, the business, properties, condition (financial or other), results of operations or prospects of the Company, and (ii) there has been no material transaction entered into by the Company other than those in the ordinary course of business. (e) Accountants. Ernst & Young LLP, whose report appears in the Company's Annual Report on Form 10-K which is incorporated by reference in each Prospectus, are independent public accountants with respect to the Company as required by the Act and the Rules and Regulations. (f) Validity of the Indenture and the Notes. (i) The Indenture has been duly authorized, executed and delivered by the Company and constitutes the valid and legally binding obligation of the Company, enforceable in accordance with its terms; (ii) the Notes have been validly authorized for issuance and sale pursuant to this Agreement and, when the terms of the Notes and of their issue and sale have been duly established in accordance with the Indenture and this Agreement so as not to violate any applicable law or agreement or instrument binding on the Company, and the Notes have been duly executed, authenticated, delivered and paid for as provided in this -3- Agreement and the Indenture, the Notes will be validly issued and outstanding, and will constitute valid and legally binding obligations of the Company entitled to the benefits of the Indenture and enforceable in accordance with their terms and the terms of the Indenture; and (iii) the Notes and the Indenture conform to the descriptions thereof contained in each Prospectus. The validity, enforceability and legally binding nature of the Indenture and the Notes are subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (g) Due Incorporation and Qualification. The Company has been duly incorporated, is validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which its ownership of properties or the conduct of its businesses requires such qualification (except where the failure to obtain such qualification would not have a material adverse effect on the Company), and has the power and authority necessary to own or hold its properties and to conduct the businesses in which it is engaged, as described in each Prospectus. (h) Validity of the Support Agreements. (i) Each of the 1996 Support Agreement, and the Maintenance Agreement, dated August 15, 1991 (the "Maintenance Agreement") and the Operating Agreement dated August 15, 1991 (the "Operating Agreement") between the Company and IKON has been duly authorized, executed and delivered by each of the Company and IKON and constitutes the valid and legally binding obligation of the Company and IKON, enforceable in accordance with its terms; and (ii) such agreements conform to the descriptions thereof contained in each Prospectus. The validity, enforceability and legally binding nature of such agreements are subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (i) Ownership of Property. The Company owns, or has valid rights to use, all items of real and personal property which are material to the business of the Company, free and clear of all liens, encumbrances and claims which may materially interfere with the business, properties, financial condition or results of operations of the Company. (j) Legal Proceedings. Except as described in each Prospectus, there is no material litigation or governmental proceeding pending or, to the knowledge of the Company, threatened against the Company which might result in any material adverse change in the condition (financial or other), results of operations, business, property, or prospects of the Company or which is required to be disclosed in the Registration Statement. (k) Financial Statements. The audited financial statements included or incorporated by reference in each Prospectus present and will present fairly, as of the applicable Representation Date and at all times during each Marketing Period, the financial condition, results of operations, changes in shareholder's equity and cash flows of the entities purported to be shown thereby in conformity with generally accepted accounting principles, at the dates and for the periods indicated, and have been, and will be as of the applicable Representation Date and at all times during each Marketing Period, prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the period or periods involved; and the -4- supporting schedules, if applicable, included or incorporated by reference in each Prospectus present, and will present as of the applicable Representation Date and at all times during each Marketing Period, fairly the information required to be stated therein. The unaudited financial statements of the Company, if any, and the related notes, included or incorporated by reference in each Prospectus present fairly and will present fairly at all times during each period specified in Section 3(c) hereof the financial position of the Company at the dates and for the periods indicated in conformity with generally accepted accounting principles (except for the absence of notes) applied on a consistent basis throughout the periods shown, subject to normally recurring changes, and prepared in accordance with the instructions to Form 10-Q. (l) Documents Incorporated by Reference. The documents incorporated by reference into any Prospectus have been, and will be as of the applicable Representation Date and at all times during each Marketing Period, prepared by the Company in conformity with the applicable requirements of the Act and the Rules and Regulations and the Exchange Act and the rules and regulations of the Commission thereunder; and none of such documents contained, or will contain as of the applicable Representation Date and at all times during each Marketing Period, an untrue statement of a material fact or omitted, or will omit, to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and such documents have been, or will be, as of the applicable Representation Date and at all times during each Marketing Period, timely filed as required thereby. (m) Exhibits to Registration Statement. There are no contracts or other documents which are required to be filed as exhibits to the Registration Statement by the Act or by the Rules and Regulations, or which were required to be filed as exhibits to any document incorporated by reference in any Prospectus by the Exchange Act or the rules and regulations of the Commission thereunder, which have not been filed as exhibits to the Registration Statement or to such document or incorporated therein by reference as permitted by the Rules and Regulations or the rules and regulations of the Commission under the Exchange Act, as the case may be. (n) Licenses, Approvals and Consents. The Company has all licenses, approvals and consents for the conduct of its business the failure of which to have would have a material adverse effect on the business, properties, financial condition or results of operations of the Company. (o) Investment Company Act. The Company is not required to register under the provisions of the Investment Company Act of 1940, as amended (the "Investment Company Act"), and no action need be taken with respect to or under the Investment Company Act by reason of the issuance of the Notes by the Company. (p) Rating. The Notes have been rated by a "nationally recognized statistical rating agency" (as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act), including one or both of Moody's Investor Services, Inc. and Standard & Poor's Corporation. (q) Doing Business with Cuba. The Company confirms as of the date hereof, and each acceptance by the Company of an offer to purchase Notes will be deemed to be an affirmation, that the Company is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the Company further agrees that if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), -5- whichever date is later, or if the information reported in the Prospectus, if any, concerning the Company's business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. (r) True and Complete Documents. The certificates delivered pursuant to paragraph (f) of Section 5 hereof and all other documents delivered by the Company or its representatives in connection with the issuance and sale of the Notes were on the dates on which they were delivered, or will be on the dates on which they are to be delivered, true and complete in all material respects. Section 2. Solicitations as Agent; Purchases as Principal (a) Appointment. Subject to the terms and conditions stated herein, the Company hereby appoints each of the Agents as the agent of the Company for the purpose of soliciting or receiving offers to purchase the Notes from the Company by others. On the basis of the representations and warranties contained herein, but subject to the terms and conditions herein set forth, each Agent agrees, as the agent of the Company, to use its reasonable efforts to solicit offers to purchase the Notes upon the terms and conditions set forth in the Prospectus. The Company may offer the Notes for sale from time to time otherwise than through an Agent. However, so long as this Agreement is in effect the Company shall not solicit offers to purchase Notes through any agent without (i) amending this Agreement to appoint such agent as an additional Agent hereunder on the same terms and conditions as provided herein for the Agents (the consent of the then current Agents shall not be necessary for such purpose) and (ii) delivering 2 days prior written notice thereof to the Agents. The Company may, however, accept offers to purchase Notes through an agent other than an Agent, provided that (i) the Company shall not have solicited such offers, (ii) the Company and such agent shall have executed an agreement with respect to such purchases having the same terms and conditions (including, without limitation, commission and discount rates) as those which would apply to such purchases under this Agreement if such agent were an Agent (which may be accomplished by incorporating by reference in such agreement the terms and conditions of this Agreement) and (iii) the Company shall provide the Agents with a copy of such agreement promptly following the execution thereof. Each Agent may also purchase Notes from the Company as principal for purposes of resale, as more fully described in paragraph (e) of this Section. (b) Suspension of Solicitation. The Company reserves the right, in its sole discretion, to suspend solicitation of offers to purchase the Notes commencing at any time for any period of time or indefinitely. Upon receipt of at least one business day's prior written notice from the Company, the Agents will forthwith suspend solicitation of offers to purchase Notes from the Company until such time as the Company has advised the Agents that such solicitation may be resumed. For the purpose of the foregoing sentence, "business day" shall mean any day which is not a Saturday or Sunday and which is not a day on which (i) banking institutions are generally authorized or obligated by law to close in The City of New York and (ii) the New York Stock Exchange, Inc. is closed for trading. Upon receipt of notice from the Company as contemplated by Section 3(c) hereof, each Agent shall suspend its solicitation of offers to purchase Notes until such time as the Company shall have furnished it with an amendment or supplement to the Registration Statement or the -6- Prospectus, as the case may be, contemplated by Section 3(c) and shall have advised such Agent that such solicitation may be resumed. (c) Agent's Commission. Promptly upon the closing of the sale of any Notes sold by the Company as a result of a solicitation made by or offer to purchase received by an Agent, the Company agrees to pay such Agent a commission, in the form of a discount, in accordance with the schedule set forth in Exhibit A hereto. (d) Solicitation of Offers. The Agents are authorized to solicit offers to purchase the Notes only in denominations as are specified in the Prospectus at a purchase price as shall be specified by the Company. Each Agent shall communicate to the Company, orally or in writing, each reasonable offer to purchase Notes received by it as an Agent. The Company shall have the sole right to accept offers to purchase the Notes and may reject any such offer in whole or in part. Each Agent shall have the right, in its discretion reasonably exercised without advising the Company, to reject any offer to purchase the Notes received by it, in whole or in part, and any such rejection shall not be deemed a breach of its agreement contained herein. No Note which the Company has agreed to sell pursuant to this Agreement shall be deemed to have been purchased and paid for, or sold by the Company, until such Note shall have been delivered to the purchaser thereof against payment by such purchaser. (e) Purchases as Principal. Each sale of Notes to any Agent as principal, for resale to one or more investors or to another broker-dealer (acting as principal for purposes of resale), shall be made in accordance with the terms of this Agreement and a Purchase Agreement whether oral (and confirmed in writing by such Agent to the Company, which may be by facsimile transmission) or in writing, which will provide for the sale of such Notes to, and the purchase thereof by, such Agent. A Purchase Agreement may also specify certain provisions relating to the reoffering of such Notes by such Agent. The commitment of any Agent to purchase Notes from the Company as principal shall be deemed to have been made on the basis of the representations and warranties of the Company herein contained and shall be subject to the terms and conditions herein set forth. Each Purchase Agreement shall specify the principal amount and terms of the Notes to be purchased by an Agent, the time and date (each such time and date being referred to herein as a "Time of Delivery") and place of delivery of and payment for such Notes and such other information (as applicable) as is set forth in Exhibit C hereto. The Company agrees that if any Agent purchases Notes as principal for resale such Agent shall receive such compensation, in the form of a discount or otherwise, as shall be indicated in the applicable Purchase Agreement or, if no compensation is indicated therein a commission in accordance with Exhibit A hereto. Any Agent may utilize a selling or dealer group in connection with the resale of such Notes. In addition, any Agent may offer the Notes it has purchased as principal to other dealers. Any Agent may sell Notes to any dealer at a discount and, unless otherwise specified in the applicable Pricing Supplement, such discount allowed to any dealer will not be in excess of the discount to be received by such Agent from the Company. Such Purchase Agreement shall also specify any requirements for delivery of opinions of counsel, accountant's letters and officers' certificates pursuant to Section 5 hereof. (f) Administrative Procedures. Administrative procedures respecting the sale of Notes (the "Procedures") are set forth in Exhibit B hereto and may be amended in writing from time to time by the Agents and the Company. Each Agent and the Company agree to perform the respective duties and obligations specifically provided to be performed by each of them herein and in the -7- Procedures. The Procedures shall apply to all transactions contemplated hereunder including sales of Notes to any Agent as principal pursuant to a Purchase Agreement, unless otherwise set forth in such Purchase Agreement. (g) Delivery of Documents. The documents required to be delivered by Section 5 hereof shall be delivered at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, not later that 10:00 A.M., New York City time, on the date of this Agreement or at such later time as may be mutually agreed upon by the Company and the Agents, which in no event shall be later than the time at which the Agents commence solicitation of offers to purchase Notes hereunder (the "Closing Date"). Section 3. Covenants of the Company The Company covenants and agrees: (a) Delivery of Signed Registration Statement. To furnish promptly to the Agents and to their counsel a signed copy of the Registration Statement as originally filed and each amendment or supplement thereto. (b) Delivery of Other Documents. To deliver promptly to the Agents, and in such number as they may request, each of the following documents: (i) conformed copies of the Registration Statement (excluding exhibits other than the computation of the ratio of earnings to fixed charges, the Indenture, this Agreement and such other exhibits that the Agents may request), (ii) the Basic Prospectus, (iii) each Prospectus and (iv) any documents incorporated by reference in the Prospectus. (c) Revisions to Prospectus - Material Changes. If, during any Marketing Period, any event occurs as a result of which the Prospectus would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading, or if it is necessary at any time to amend any Prospectus to comply with the Act, to notify the Agents promptly, in writing, to suspend solicitation of purchases of the Notes; and if the Company shall decide to amend or supplement the Registration Statement or any Prospectus, to promptly advise the Agents by telephone (with confirmation in writing) and to promptly, in writing, prepare and file with the Commission an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance; provided, however, that if during the period referred to above any Agent shall own any Notes which it has purchased from the Company as principal with the intention of reselling them, the Company shall promptly prepare and timely file with the Commission any amendment or supplement to the Registration Statement or any Prospectus that may, in the judgment of the Company or the Agents, be required by the Act or requested by the Commission. (d) Commission Filings. To timely file with the Commission during any Marketing Period, all documents (and any amendments to previously filed documents) required to be filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act. (e) Copies of Filings with Commission. Prior to filing with the Commission during any Marketing Period, (i) any amendment or supplement to the Registration Statement, (ii) any amendment or supplement to any Prospectus or (iii) any document incorporated by reference in -8- any of the foregoing or any amendment of or supplement to any such incorporated document, to furnish a copy thereof to the Agents. (f) Notice to Agent of Certain Events. To advise the Agents immediately (i) when any post-effective amendment to the Registration Statement relating to or covering the Notes becomes effective, (ii) of any request or proposed request by the Commission for an amendment or supplement to the Registration Statement, to any Prospectus, to any document incorporated by reference in any of the foregoing or for any additional information and the Company will afford the Agents a reasonable opportunity to comment on any such proposed amendment or supplement, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any part thereof or any order directed to any Prospectus or any document incorporated therein by reference or the initiation or threat of any stop order proceeding or of any challenge to the accuracy or adequacy of any document incorporated by reference in any Prospectus, (iv) of receipt by the Company of any notification with respect to the suspension of the qualification of the Notes for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose, (v) of any downgrading in the rating of the Notes or any other debt securities of the Company, or any proposal to downgrade the rating of the Notes or any other debt securities of the Company, by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading of such rating) as soon as the Company learns of any such downgrading, proposal to downgrade or public announcement and (vi) of the happening of any event which makes untrue any statement of material fact made in the Registration Statement or any Prospectus or which requires the making of a change in the Registration Statement or any Prospectus in order to make any material statement therein not misleading. (g) Stop Orders. If, during any Marketing Period, the Commission shall issue a stop order suspending the effectiveness of the Registration Statement, to make every reasonable effort to obtain the lifting of that order at the earliest possible time. (h) Earnings Statements. As soon as practicable, but not later than 18 months, after the date of each acceptance by the Company of an offer to purchase Notes hereunder, to make generally available to its security holders an earnings statement covering a period of at least 12 months beginning after the later of (i) the effective date of the Registration Statement, (ii) the effective date of the most recent post-effective amendment to the Registration Statement to become effective prior to the date of such acceptance and (iii) the date of the Company's most recent Annual Report on Form 10-K filed with the Commission prior to the date of such acceptance which will satisfy the provisions of Section 11(a) of the Act (including, at the option of the Company, Rule 158 of the Rules and Regulations under the Act). (i) Copies of Reports, Releases and Financial Statements. So long as any of the Notes are outstanding, to furnish to the Agents, not later than the time the Company makes the same available to others, copies of all public reports or releases and all reports and financial statements furnished by the Company to any securities exchange on which the Notes are listed pursuant to requirements of or agreements with such exchange or to the Commission pursuant to the Exchange Act or any rule or regulation of the Commission thereunder. -9- (j) Blue Sky Qualifications. To endeavor, in cooperation with the Agents, to qualify the Notes for offering and sale under the securities laws of such jurisdictions as the Agents may designate, and to maintain such qualifications in effect for as long as may be required for the distribution of the Notes; and to file such statements and reports as may be required by the laws of each jurisdiction in which the Notes have been qualified as above provided. (k) Holdback. Between the date of a Purchase Agreement and the date of delivery of the Notes with respect thereto, the Company will not offer or sell, or enter into any agreement to sell, any of its debt securities, other than borrowings under the Company's revolving credit agreements and lines of credit, the private placement of securities and issuances of its commercial paper. (l) Pricing Supplement. To prepare, with respect to any Notes to be sold through or to the Agents pursuant to this Agreement, a Pricing Supplement with respect to such Notes in a form previously approved by the Agents and to file such Pricing Supplement timely pursuant to Rule 424 under the Act with the Commission. Section 4. Payment of Expenses The Company will pay: (i) the costs incident to the authorization, issuance, sale and delivery of the Notes and any taxes payable in that connection, (ii) the costs incident to the preparation, printing and filing under the Act of the Registration Statement and any amendments and exhibits thereto, (iii) the costs incident to the preparation, printing and filing of any document and any amendments and exhibits thereto required to be filed by the Company under the Exchange Act, (iv) the costs of distributing the Registration Statement as originally filed, and each amendment and post-effective amendment thereof (including exhibits), the Basic Prospectus, each Prospectus, any supplement or amendment to any Prospectus and any documents incorporated by reference in any of the foregoing documents, (v) the fees and disbursements of the Trustee, any paying agent, any calculation agent, any exchange agent and any other agents appointed by the Company, and their respective counsel, (vi) the costs and fees in connection with the listing of the Notes on any securities exchange, (vii) the cost and fees in connection with any filings with the National Association of Notes Dealers, Inc., (viii) the fees and disbursements of counsel to the Company and counsel to the Agents, -10- (ix) the fees paid to rating agencies in connection with the rating of the Notes, (x) the fees and expenses of qualifying the Notes under the securities laws of the several jurisdictions as provided in Section 3(j) hereof and of preparing and printing a Blue Sky Memorandum and a memorandum concerning the legality of the Notes as an investment (including fees and expenses of counsel for the Agents in connection therewith), (xi) all advertising expenses in connection with the offering of the Notes incurred with the consent of the Company, and (xii) all other costs and expenses arising out of the transactions contemplated hereunder and incident to the performance of the Company's obligations under this Agreement or otherwise in connection with the activities of the Agents under this Agreement. Section 5. Conditions of Obligations of Agent The obligation of the Agents, as agents of the Company, under this Agreement to solicit offers to purchase the Notes, the obligation of any person who has agreed to purchase Notes to make payment for and take delivery of Notes, and the obligation of any Agent to purchase Notes pursuant to any Purchase Agreement, is subject to the accuracy, on each Representation Date, of the representations and warranties of the Company contained herein, to the accuracy of the statements of the Company's officers made in any certificate furnished pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, and to each of the following additional terms and conditions: (a) Registration Statement. The Prospectus as amended or supplemented (including the Pricing Supplement) with respect to such Notes shall have been filed with the Commission pursuant to Rule 424(b) under the Act within the applicable time period prescribed for such filing by the Rules and Regulations and in accordance with Section 3(1) hereof; no stop order suspending the effectiveness of the Registration Statement or any part thereof nor any order directed to any document incorporated by reference in any Prospectus have been issued and no stop order proceeding shall have been initiated or threatened by the Commission and no challenge shall have been made to the accuracy or adequacy of any document incorporated by reference in any Prospectus; any request of the Commission for inclusion of additional information in the Registration Statement or any Prospectus or otherwise shall have been complied with; and the Company shall not have filed with the Commission any amendment or supplement to the Registration Statement or any Prospectus (or any document incorporated by reference therein) without the consent of the Agents. (b) No Suspension of Sale of the Notes. No order suspending the sale of the Notes in any jurisdiction designated by the Agents pursuant to Section 3(j) hereof shall have been issued, and no proceeding for that purpose shall have been initiated or threatened. (c) No Material Omissions or Untrue Statements. The Agents shall not have discovered and disclosed to the Company that the Registration Statement or any Prospectus contains an untrue -11- statement of a fact which, in the opinion of counsel for the Agents, is material or omits to state a fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading. (d) Legal Matters Satisfactory to Counsel. All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Notes, the Indenture, the form of the Registration Statement, each Prospectus (other than financial statements and other financial data) and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be satisfactory in all respects to counsel for the Agents and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters. (e) Opinion of Company Counsel. At the Closing Date, the Agents shall have received the opinion, addressed to the Agents and dated the Closing Date, of William F. Drake, Jr., General Counsel of IKON, in form and substance satisfactory to the Agents and counsel, to the effect that: (i) The Company has been duly incorporated and is validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business and in good standing as a foreign corporation in all jurisdictions in which its ownership of properties or the conduct of its businesses requires such qualification (except where the failure to so qualify would not have a material adverse effect on the Company), and has all power and authority necessary to own its properties and conduct the businesses in which it is engaged, as described in the Prospectus; (ii) Such counsel has no reason to believe that the Registration Statement, as of its effective date, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or the Prospectus contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made not misleading, it being understood that such counsel need express no opinion as to the financial statements or other financial information contained or incorporated therein or omitted therefrom, or the Form T-1 that is an exhibit to the Registration Statement; (iii) Such counsel does not know, after reasonable investigation, of any litigation or any governmental proceeding pending or threatened against the Company which would affect the subject matter of this Agreement or is required to be disclosed in the Prospectus which is not disclosed and correctly summarized therein; (iv) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated herein except such as have been obtained under the Act and such as may be required under the blue sky laws of any jurisdiction in connection with the sale of the Notes as contemplated by this Agreement and such other approvals (specified in such opinion) as have been obtained; (v) Such counsel does not know, after reasonable investigation, of any contracts or other documents which are required to be filed as exhibits to the Registration Statement by the Act or by the Rules and Regulations, or which are required to be filed -12- by the Exchange Act or the rules and regulations of the Commission thereunder as exhibits to any document incorporated by reference in the Prospectus, which have not been filed as exhibits to the Registration Statement or to such document or incorporated therein by reference as permitted by the Rules and Regulations or the rules and regulations of the Commission under the Exchange Act; (vi) To the best of such counsel's knowledge, the Company is not in violation of its corporate charter or by-laws, or in default (except where such default would not have a material adverse effect upon the Company) under any agreement, indenture or instrument; (vii) The execution, delivery and performance of this Agreement, the 1996 Support Agreement and the Purchase Agreements, if any, and compliance by the Company with the provisions of the Notes and the Indenture did not and will not conflict with, or result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company pursuant to the terms of, or constitute a default under, any agreement, indenture or instrument known to such counsel, or result in a violation of the corporate charter or by-laws of the Company (as in effect on the date of such opinion) or any order, rule or regulation (also as in effect on the date of such opinion) of any court or governmental agency having jurisdiction over the Company or its properties; and no consent, authorization or order of, or filing or registration with, any court or governmental agency was or is required for the execution, delivery and performance by the Company of this Agreement, the 1996 Support Agreement and the Purchase Agreements, if any, except such as may be required by the Act, the Trust Indenture Act, the Exchange Act or state securities laws; (viii) The Indenture has been duly authorized by the Company, duly executed and delivered by the Company and the Trustee and duly qualified under the Trust Indenture Act and is a valid and legally binding obligation of the Company enforceable in accordance with its terms; (ix) The Notes are in a form contemplated by the Indenture and have been duly authorized by all necessary corporate action and, when the terms of the Notes and of their issue and sale have been duly established in accordance with the Indenture and this Agreement so as not to violate any applicable law or agreement or instrument then binding on the Company, and when the Notes have been duly executed and authenticated as specified in the Indenture and delivered against payment therefor in accordance with this Agreement, the Notes will be legal, valid and binding obligations of the Company enforceable in accordance with their terms, and entitled to the benefits of the Indenture; (x) The Notes and the Indenture conform to the statements concerning each of them in the Registration Statement and the Prospectus; (xi) Each of the 1996 Support Agreement, the Operating Agreement and the Maintenance Agreement has been duly authorized, executed and delivered by each of the Company and IKON and constitutes the valid and legally binding obligation of the Company and IKON in accordance with its terms; and (ii) such agreements conform to the descriptions thereof contained in each Prospectus; -13- (xii) The Registration Statement has become effective under the Act and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose is pending or threatened by the Commission; (xiii) To the knowledge of such counsel, after reasonable investigation, no order directed to any document incorporated by reference in the Prospectus has been issued and no challenge has been made to the accuracy or adequacy of any such document; and they have no reason to believe that any of such documents, when they became effective or were so filed, as the case may be, contained, in the case of a registration statement which became effective under the Act, an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and, in the case of other documents which were filed under the Act or the Exchange Act with the Commission, an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading; (xiv) The Registration Statement and the Prospectus (except that no opinion need be expressed as to the financial statements and other financial data contained therein or the Form T-1 that is an exhibit thereto) comply as to form in all material respects with the requirements of the Act and the Trust Indenture Act and the rules and regulations of the Commission under said Acts and the documents incorporated by reference in the Prospectus (except that no opinion need be expressed as to the financial statements and other financial data contained therein) comply as to form in all material respects with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder; (xv) The statements made in the Prospectus under the captions "Description of Debt Securities" and "Description of Notes," insofar as they purport to summarize the provisions of documents or agreements specifically referred to therein, fairly present the information called for with respect thereto by Form S-3; (xvi) The Company has the corporate power and authority necessary to execute and deliver this Agreement and to perform its obligations (including the sale and delivery of the Notes under this Agreement) hereunder; and this Agreement has been duly authorized, executed and delivered by the Company; (xvii) The Company is not required to register under the provisions of the Investment Company Act, and no action need be taken with respect to or under the Investment Company Act by reason of the issuance of the Notes by the Company; and (xviii) The description contained in the Prospectus under the heading "Certain United States Federal Income Tax Consequences" while not purporting to discuss all possible income tax ramifications of the proposed issuance, is correct in all material respects. The opinions set forth in paragraphs (viii), (ix) and (xi) above are subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws -14- relating to or affecting creditors' rights generally, general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (f) Officers' Certificate. The Company shall have furnished to the Agents on the Closing Date a certificate, dated the Closing Date, of its President or a Vice President and its Treasurer or an Assistant Treasurer stating that: (i) The representations, warranties and agreements of the Company in Section 1 hereof are true and correct as of the Closing Date; the Company has complied with all its agreements contained herein; and the conditions set forth in Sections 5(a) and 5(b) hereof have been fulfilled; and (ii) They have carefully examined the Registration Statement and the Prospectus and, in their opinion, (A) the Registration Statement, as of its effective date, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (B) the Prospectus does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (C) since the effective date of the Registration Statement there has not occurred any event required to be set forth in an amended or supplemented prospectus which has not been so set forth. (g) Accountant's Letter. The Company shall have furnished to the Agents on the Closing Date a letter of Ernst & Young LLP, addressed jointly to the Company and the Agents and dated the Closing Date, of the type described in the American Institute of Certified Public Accountants' Statement on Auditing Standards No. 72, in form and substance reasonably satisfactory to the Agents confirming that they are independent accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating in effect that: (i) In their opinion, the financial statements examined by them and incorporated by reference in the prospectus contained in the Registration Statement comply in form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; (ii) They have made a review of any unaudited financial statements incorporated by reference in the Prospectus in accordance with standards established by the American Institute of Certified Public Accountants; (iii) On the basis of the review referred to in (ii) above and a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: (A) the unaudited financial statements, if any, incorporated by reference in the Prospectus do not comply in form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations are not in conformity with generally accepted accounting principles -15- applied on a basis substantially consistent with that of the audited financial statements incorporated by reference in the Prospectus; (B) the unaudited capsule information, if any, included in the Prospectus does not agree with the amounts set forth in the unaudited financial statements from which it was derived or was not determined on a basis substantially consistent with that of the audited financial statements incorporated by reference in the Prospectus; (C) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than five days prior to the Closing Date, there was any change in the capital stock, any increase in short-term indebtedness or long-term debt of the Company or, at the date of the latest available balance sheet read by such accountants, there was any decrease in net assets as compared with amounts shown on the latest balance sheet incorporated by reference in the Prospectus; or (D) for the period from the date of the latest income statement included in the Prospectus to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period of the previous year in revenues, income before income taxes and cumulative effect of accounting change, or net income, or in the ratio of earnings to fixed charges; except in all cases set forth in clauses (C) and (D) above for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (iv) They have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Prospectus (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. All financial statements included in material incorporated by reference into the Prospectus shall be deemed included in the Prospectus for purposes of this subsection. (h) The Agents shall have received from Sullivan & Cromwell, counsel to the Agents, such opinion or opinions, dated the Closing Date, with respect to the issuance and sale of the Notes, the Indenture, the Registration Statement, the Prospectus and other related matters as the Agents may reasonably require, and the Company shall have furnished to such counsel such documents as they may request for the purpose of enabling them to pass upon such matters. (i) Additional Conditions. There shall not have occurred: (i) any change in the capital stock or long-term debt of the Company or any of its Subsidiaries or any change, or any -16- development involving a prospective change, in or affecting the general affairs, management, shareholder's equity, business, properties, condition (financial or other), results of operations or prospects of the Company which in the opinion of the Agents materially impairs the investment quality of the Notes; (ii) a suspension or material limitation in trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the over-the-counter market or the establishment of minimum prices on such exchanges or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction; (iii) a general moratorium on commercial banking activities declared by Federal or New York State authorities; (iv) any downgrading in the rating accorded the Company's debt securities by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (v) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national calamity or emergency; or (vi) any material adverse change in the existing financial, political or economic conditions in the United States, including any effect of international conditions on the financial markets in the United States, that in the judgment of the Agents makes it impracticable or inadvisable to proceed with the solicitation of offers to purchase Notes or the purchase of Notes from the Company as principal pursuant to the applicable Purchase Agreement, as the case may be. (j) Other Information and Documentation. Prior to the Closing Date, the Company shall have furnished to the Agents such further information, certificates and documents as the Agents or counsel to the Agents may reasonably request. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in the form and substance satisfactory to counsel for the Agents. Section 6. Additional Covenants of the Company The Company covenants and agrees that: (a) Acceptance of Offer Affirms Representations and Warranties. Each acceptance by it of an offer for the purchase of Notes shall be deemed to be an affirmation that the representations and warranties of the Company contained in this Agreement and in any certificate theretofore given to the Agents pursuant hereto are true and correct at the time of such acceptance, and an undertaking that such representations and warranties will be true and correct at the time of delivery to the purchaser or his agent of the Notes relating to such acceptance as though made at and as of each such time (and such representations and warranties shall relate to the Registration Statement and the Prospectus as amended or supplemented to each such time). (b) Subsequent Delivery of Officers' Certificates. The Company agrees that during each Marketing Period, each time that the Registration Statement or any Prospectus shall be amended or supplemented (other than by a Pricing Supplement providing solely for the interest rates or maturities of the Notes or the principal amount of Notes remaining to be sold or similar changes), each time the Company sells Notes to an Agent as principal and the applicable Purchase Agreement specifies the delivery of an officers' certificate under this Section 6(b) as a condition to the -17- purchase of Notes pursuant to such Purchase Agreement or the Company files with the Commission any document incorporated by reference into any Prospectus, the Company shall submit to the Agents a certificate, (i) as of the date of such amendment, supplement, Time of Delivery relating to such sale or filing or (ii) if such amendment, supplement or filing was not filed during a Marketing Period, as of the first day of the next succeeding Marketing Period, representing that the statements contained in the certificate referred to in Section 5(f) hereof which was last furnished to the Agents are true and correct at the time of such amendment, supplement or filing, as the case may be, as though made at and as of such time (except that such statements shall be deemed to relate to the Registration Statement and each Prospectus as amended and supplemented to such time). (c) Subsequent Delivery of Legal Opinions. The Company agrees that during each Marketing Period, each time that the Registration Statement or any Prospectus shall be amended or supplemented (other than by a Pricing Supplement providing solely for the interest rates or maturities of the Notes or the principal amount of Notes remaining to be sold or similar changes), each time the Company sells Notes to an Agent as principal and the applicable Purchase Agreement specifies the delivery of a legal opinion under this Section 6(c) as a condition to the purchase of Notes pursuant to such Purchase Agreement or the Company files with the Commission any document incorporated by reference into any Prospectus, the Company shall, (i) concurrently with such amendment, supplement, Time of Delivery relating to such sale or filing or (ii) if such amendment, supplement or filing was not filed during a Marketing Period, on the first day of the next succeeding Marketing Period, furnish the Agents and their counsel with the written opinions of the General Counsel of the Company, each addressed to the Agents and dated the date of delivery of such opinion, in form satisfactory to the Agents, of the same effect as the opinions referred to in Section 5(e) hereof, but modified, as necessary, to relate to the Registration Statement and each Prospectus as amended or supplemented to the time of delivery of such opinion; provided, however, that in lieu of such opinion, such counsel may furnish the Agents with a letter to the effect that the Agents may rely on such prior opinion to the same extent as though it was dated the date of such letter authorizing reliance (except that statements in such prior opinion shall be deemed to relate to the Registration Statement and each Prospectus as amended or supplemented to the time of delivery of such letter authorizing reliance). (d) Subsequent Delivery of Accountant's Letters. The Company agrees that during each Marketing Period, each time that the Registration Statement or any Prospectus shall be amended or supplemented to include additional financial information, each time the Company sells Notes to an Agent as principal and the applicable Purchase Agreement specifies the delivery of a letter under this Section 6(d) as a condition to the purchase of Notes pursuant to such Purchase Agreement or the Company files with the Commission any document incorporated by reference into any Prospectus which contains additional financial information, the Company shall cause Ernst & Young LLP (or other independent accounts of the Company acceptable to the Agents) to furnish the Agents, (i) concurrently with such amendment, supplement, Time of Delivery relating to such sale or filing or (ii) if such amendment, supplement, or filing was not filed during a Marketing Period, on the first day of the next succeeding Marketing Period, a letter, addressed jointly to the Company and the Agents and dated the date of delivery of such letter, in form and substance reasonably satisfactory to the Agents, of the same effect as the letter referred to in Section 5(g) hereof but modified to relate to the Registration Statement and each Prospectus, as amended and supplemented to the date of such letter, with such changes as may be necessary to reflect changes in the financial statements and other information derived from the accounting records of the Company; provided, however, that if the Registration Statement or any Prospectus -18- is amended or supplemented solely to include financial information as of and for a fiscal quarter, such accountants may limit the scope of such letter to the unaudited financial statements included in such amendment or supplement unless there is contained therein any other accounting, financial or statistical information that, in the reasonable judgment of the Agents, should be covered by such letter, in which event such letter shall also cover such other information. (e) Opinion on Settlement Date. On any settlement date for the sale of Notes, the Company shall, if requested by the Agent that solicited or received the offer to purchase any Notes being delivered on such settlement date, furnish such Agent with a written opinion of the General Counsel of the Company, dated such settlement date, in form satisfactory to such Agent, to the effect set forth in Section 5(e) hereof, but modified, as necessary, to relate to the Prospectus relating to the Notes to be delivered on such settlement date; provided, however, that in lieu of such opinion, such counsel may furnish the Agents with a letter to the effect that the Agents may rely on such prior opinion to the same extent as though it was dated such settlement date (except that statements in such prior opinion shall be deemed to relate to the Registration Statement and such Prospectus as amended or supplemented to the time of delivery of such letter authorizing reliance). Section 7. Indemnification and Contribution (a) Indemnification of Agents. The Company shall indemnify and hold harmless each Agent and each person, if any, who controls any Agent within the meaning of the Act from and against any loss, claim, damage or liability, joint or several, and any action in respect thereof, to which such Agent or controlling person may become subject, under the Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus, or arises out of, or is based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse each Agent and controlling person for any legal and other expenses reasonably incurred by such Agent or controlling person in investigating or defending or preparing to defend against any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in the Form T-1 or made in the Registration Statement or the Prospectus in reliance upon and in conformity with written information furnished to the Company by the Agents specifically for inclusion therein; provided further, that as to any prospectus included in the Registration Statement before it became effective under the Act (a "Preliminary Prospectus") this indemnity agreement shall not inure to the benefit of any Agent on account of any loss, claim, damage, liability or action arising from the sale of Notes to any person by that Agent if that Agent failed to send or give a copy of the Prospectus, as the same may be amended or supplemented, to that person within the time required by the Act, and the untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in such Preliminary Prospectus was corrected in the Prospectus, unless such failure resulted from non-compliance by the Company with Section 3(b). The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to any Agent or controlling person. -19- (b) Indemnification of the Company. Each Agent shall indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement and any person who controls the Company within the meaning of the Act from and against any loss, claim, damage or liability, joint or several, and any action in respect thereof, to which the Company or any such director, officer or controlling person may become subject, under the Act, the Exchange Act or federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus, or arises out of, or is based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Agent specifically for inclusion therein, and shall reimburse the Company or any such director, officer or controlling person for any legal and other expenses reasonably incurred by such indemnified party in investigating or defending or preparing to defend against any such loss, claim, damage, liability or action. The foregoing indemnity agreement is in addition to any liability which any Agent may otherwise have to the Company or any of its directors, officers or controlling persons. (c) Notice. Promptly after receipt by an indemnified party under this Section of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party in writing of the claim or the commencement of action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the Agents shall have the right to employ counsel to represent the Agents who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Agents against the Company under this Section if, in the reasonable judgment of the Agents, it is advisable for the Agents to be represented by separate counsel, and in that event the fees and expenses of such counsel shall be paid by the Company. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity -20- could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) Contribution. If the indemnification provided for in this Section 7 shall for any reason be unavailable to an indemnified party under Section 7(a) or 7(b) hereof in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and any Agents on the other from the offering of the Notes or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and any Agents on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and any Agents on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Notes (before deducting expenses) received by the Company bears to the total commissions received by the such Agent with respect to such offering. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or any Agent, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Agents agree that it would not be just and equitable if contributions pursuant to this Section 7(d) were to be determined by pro rata allocation (even if the Agents were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7(d) shall be deemed to include, for purposes of this Section 7(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7(d), no Agent shall be required to contribute any amount in excess of the amount by which the total price at which the Notes sold through such Agent and distributed to the public were offered to the public exceeds the amount of any damages which such Agent has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligations of each of the Agents under this subsection (d) to contribute are several in proportion to the respective purchases made by or through it to which loss, claim, damage or liability (or action in respect thereof) relates and are not joint. Section 8. Status of Each Agent In soliciting offers to purchase the Notes from the Company pursuant to this Agreement (other than in respect of any Purchase Agreement), each Agent is acting individually and not jointly and is acting solely as agent for the Company and not as principal. Each Agent will make reasonable efforts to assist the Company in obtaining performance by each purchaser whose offer -21- to purchase Notes from the Company has been solicited by such Agent and accepted by the Company but such Agent shall have no liability to the Company in the event any such purchase is not consummated for any reason. If the Company shall default in its obligations to deliver Notes to a purchaser whose offer it has accepted, the Company shall (i) hold the Agents harmless against any loss, claim or damage arising from or as a result of such default by the Company, and (ii) in particular, pay to the Agents any commission to which they would be entitled in connection with such sale. Section 9. Representations, Warranties and Obligations to Survive Delivery The respective indemnities, agreements, representations, warranties and other statements of the Company and the Agents contained in this Agreement, or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Agent or any person controlling such Agent or by or on behalf of the Company, and shall survive each delivery of and payment for any of the Notes. Section 10. Termination This Agreement may be terminated for any reason with respect to any party hereto, at any time, by any party hereto upon the giving of one day's written notice of such termination to the other parties hereto; provided, however, if such terminating party is an Agent, such termination shall be effective only with respect to such terminating party. If, at the time of a termination, an offer to purchase any of the Notes has been accepted by the Company but the time of delivery to the purchaser has not occurred, the provisions of this Agreement shall remain in effect until such Notes are delivered. The provisions of Sections 2(c), 3(d), 3(h), 3(i), 4, 7, 8 and 9 hereof shall survive any termination of this Agreement. Section 11. Sales of Notes Denominated in a Foreign Currency and Indexed Notes If at any time the Company and any of the Agents shall determine to issue and sell Notes denominated in a currency or currency unit other than U.S. Dollars, which other currency may include a composite currency, or with respect to which an index is used to determine the amounts of payments of principal and any premium or interest, the Company and any such Agent shall execute and deliver an Amendment (a "Foreign Currency Amendment" or "Indexed Note Amendment," as the case may be) in the form attached hereto as Exhibit D. Such amendment shall establish, as appropriate, additions and modifications that shall apply to the sales, whether offered on an agency or principal basis, of the Notes covered thereby. The Agents are authorized to solicit offers to purchase Notes with respect to which an index is used to determine the amounts of payments of principal and any premium and interest, and the Company shall agree to any sales of such Notes (whether offered on an agency or principal basis), only in a minimum aggregate amount of $2,500,000. -22- Section 12. Notices Except as otherwise provided herein, all notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Agents shall be directed to them as follows: Lehman Brothers Inc., 3 World Financial Center, New York, New York 10285-1200, Attention: Medium Term Note Department, 12th Floor, Telephone No.: (212) 526-2040, Telecopy No.: (212) 528- 1718; Chase Securities Inc., 270 Park Avenue - 8th Floor, New York, New York 10017, Attention: Medium-Term Note Desk, Telephone No.: (212) 834-4421, Telecopy No.: (212) 834-6081; Goldman, Sachs & Co., MTN Desk, 85 Broad Street, New York, New York 10004, Attention: Karen Robertson, Telephone No.: (212) 902-1482, Telecopy No.: (212) 902-6658; Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, World Financial Center, North Tower, 10th Floor, New York, New York 10281-1310, Attention: MTN Product Management, Telephone No.: (212) 449-7476, Telecopy No.: (212) 449-2234; notices to the Company shall be directed to it as follows: IKON Capital, Inc., c/o IKON Office Solutions, Inc., P.O. Box 834, Valley Forge, PA 19482, Attention: Treasury Department, Telephone No.: (610) 296-8000, Telecopy No.: (610) 296-3248. Section 13. Binding Effect; Benefits This Agreement shall be binding upon each Agent, the Company, and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (a) the representations, warranties, indemnities and agreements of the Company contained in this Agreement shall also be deemed to be for the benefit of the person or persons, if any, who control any Agent within the meaning of Section 15 of the Act, and (b) the indemnity agreement of the Agents contained in Section 7 hereof shall be deemed to be for the benefit of directors of the Company, officers of the Company who have signed the Registration Statement and any person controlling the Company. Nothing in this Agreement is intended or shall be construed to give any persons other than the person referred to in this Section, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. Section 14. Governing Law; Counterparts This Agreement shall be governed by and construed in accordance with the laws of the State of New York. This Agreement may be executed in counterparts and the executed counterparts shall together constitute a single instrument. Section 15. Paragraph Headings The paragraph headings used in this Distribution Agreement are for convenience of reference only, and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. -23- If the foregoing correctly sets forth our agreement, please indicate your acceptance hereof in the space provided for that purpose below. Very truly yours, IKON CAPITAL, INC. By:________________________ Authorized Signatory CONFIRMED AND ACCEPTED as of the date first above written: LEHMAN BROTHERS INC. By:___________________________ Authorized Signatory CHASE SECURITIES INC. By:___________________________ GOLDMAN, SACHS & CO. By:___________________________ MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By:___________________________ Exhibit A IKON CAPITAL, INC. Medium-Term Notes, Series C SCHEDULE OF PAYMENTS The Company agrees to pay each Agent a commission equal to the following percentage of the aggregate U.S. dollar equivalent of the principal amount of Notes sold by it:
=============================================================== TERM COMMISSION RATE 9 months to less than 12 months .125% - --------------------------------------------------------------- 12 months to less than 18 months .150% - --------------------------------------------------------------- 18 months to less than 2 years .200% - --------------------------------------------------------------- 2 years to less than 3 years .250% - --------------------------------------------------------------- 3 years to less than 4 years .350% - --------------------------------------------------------------- 4 years to less than 5 years .450% - --------------------------------------------------------------- 5 years to less than 6 years .500% - --------------------------------------------------------------- 6 years to less than 7 years .550% - --------------------------------------------------------------- 7 years to less than 10 years .600% - --------------------------------------------------------------- 10 years to less than 15 years .625% - --------------------------------------------------------------- 15 years to less than 20 years .650% - --------------------------------------------------------------- 20 years to 30 years .750% More than 30 years Determined at time of issue ===============================================================
Exhibit B IKON CAPITAL, INC. Medium-Term Notes, Series C Administrative Procedures Medium-Term Notes, Series C, with maturities of nine months or more from date of issue (the "Notes") are to be offered on a continuing basis by IKON Capital, Inc. (the "Company"). Lehman Brothers, Lehman Brothers Inc., Goldman, Sachs & Co., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Chase Securities Inc., as agents (each an "Agent" and collectively, the "Agents"), have each agreed to use their reasonable best efforts to solicit offers to purchase the Notes. The Notes are being sold pursuant to a Distribution Agreement between the Company and the Agents dated June 4, 1997 (as it may be supplemented or amended from time to time, the "Distribution Agreement") to which these administrative procedures are attached as an exhibit. The Notes will be issued under the Company's Indenture, dated as of June 30, 1995, and First Supplemental Indenture, dated as of June 4, 1997 (together, the "Indenture"), between the Company and The Chase Manhattan Bank, as trustee (the "Trustee"), as heretofore supplemented. The Notes will rank equally with all other unsecured and unsubordinated indebtedness of the Company and will have been registered with the Securities and Exchange Commission (the "Commission"). Terms defined in the Prospectus relating to the Notes (the "Prospectus," which term shall include any Prospectus Supplement relating to the Notes and any Pricing Supplement relating to an applicable Note) and in the Distribution Agreement shall have the same meaning when used in this exhibit. The Notes will be issued either (a) in certificated form (each, a "Certificated Note") delivered to the purchaser thereof or a person designated by such purchaser or (b) in book-entry form (each, a "Book-Entry Note") represented by one or more fully registered global Notes (each, a "Global Security") delivered to the Trustee, as agent for The Depository Trust Company ("DTC"), and recorded in the book-entry system maintained by DTC. Owners of beneficial interests in Book-Entry Notes will be entitled to physical delivery of Certificated Notes equal in principal amount to their respective beneficial interests only in certain limited circumstances described in the Prospectus. General procedures relating to the issuance of all Notes are set forth in Part I hereof. Certificated Notes will be issued in accordance with the procedures set forth in Part II, as supplemented, in the case of Certificated Notes denominated other than in U.S. dollars ("Multi-Currency Notes"), by Part III. Book-Entry Notes will be issued in accordance with the procedures set forth in Part IV. Administrative responsibilities, document control and record-keeping functions to be performed by the Company will be performed by its [Treasurer]. Administrative procedures for the offering are explained below. PART I: Procedures of General Applicability Price to Public Each Note will be issued at 100% of principal amount, unless otherwise determined by the Company. Date of Issuance Each Note will be dated and issued as of the date of its authentication by the Trustee. Maturities Each Note will mature on a day at least nine months or more from the date of issuance selected by the purchaser and agreed upon by the Company. Each Floating Rate Note (as defined below) will mature on an Interest Payment Date (as defined below). Registration Notes will be issued only in fully registered form as either a Book-Entry Note or a Certificated Note. Interest Payments Each Note bearing interest at a fixed rate (a "Fixed Rate Note") will bear interest from its issue date at the annual rate stated on the face thereof, payable in the case of Fixed Rate Notes other than Amortizing Notes, unless otherwise specified in an applicable Pricing Supplement, on June 15 and December 15 of each year (each an "Interest Payment Date" with respect to such Fixed Rate Note) and at Stated Maturity or upon redemption, if applicable. Special provisions are set forth in the Prospectus relating to Notes bearing interest at a rate or rates determined by reference to an interest rate formula ("Formula Rate Notes") at a rate determined pursuant to the formula stated on the face thereof, payable in arrears on such dates as are specified therein (each an "Interest Payment Date" with respect to such Floating Rate Note). Unless otherwise specified in an applicable Pricing Supplement, interest on Fixed Rate Notes will be calculated and paid on the basis of a 360-day year of twelve 30-day months. Unless otherwise specified in an applicable Pricing Supplement, interest will be payable to the person in whose name such Note is registered at the close of business on May 31 or November 30 (whether or not a Business Day) with respect to Fixed Rate Notes other than Amortizing Notes (as hereinafter defined) or the fifteenth day (whether or not a Business Day) next preceding an Interest Payment Date with respect to Floating Rate Notes (the "Record Dates"); provided, however, that interest payable at Stated Maturity will be payable to the person to whom principal shall be payable. Payments of principal and interest on Notes for which payments of principal and interest are made in equal installments over the life of the security ("Amortizing Notes") will be made either quarterly on each March 15, June 15, September 15 and December 15 or semiannually on each June 15 and December 15 as set forth in the applicable Pricing Supplement, and at maturity or upon earlier redemption or repayment. Payments with respect to Amortizing Notes will be applied first to interest due and payable thereon and then to the reduction of the unpaid principal amount thereof. A table setting forth repayment information in respect of each Amortizing Note will be provided to the original purchaser and will be available, upon request, to subsequent Holders. Any payment of principal and interest on any such Note required to be paid on an Interest Payment Date or at Stated Maturity or upon redemption, if B-2 applicable, which is not a Business Day shall be postponed to the next day which is a Business Day. The first payment of interest on any Note originally issued between a Record Date and an Interest Payment Date will be made on the Interest Payment Date following the next succeeding Record Date. All interest payments (and, in the case of Amortizing Notes, principal payments) excluding interest payments and, in the case of Amortizing Notes, principal payments made at Stated Maturity or upon redemption, if applicable, will be made by check mailed to the person entitled thereto as provided above, or, at the option of the Company, by wire transfer to an account maintained by such person with a bank located in the United States. Notwithstanding the foregoing, the holder of $10 million or more in aggregate principal amount of Notes of like tenor and terms with the same Interest Payment Date may request payment by wire transfers. On the fifth Business Day immediately preceding each Interest Payment Date, the Trustee will furnish the Company with the total amount of the interest payments and, in the case of Amortizing Notes, principal payments, to be made on such Interest Payment Date. The Trustee (or any duly selected paying agent) will provide monthly to the Company's Treasury Department a list of the principal and interest to be paid on Notes maturing in the next succeeding month. The Company will provide to the Trustee not later than the payment date sufficient moneys to pay in full all principal and interest payments due on such payment date. The Trustee will assume responsibility for withholding taxes on interest paid as required by law. Acceptance and Rejection of Offers The Company shall have the sole right to accept offers to purchase Notes and may reject any such offer in whole or in part. Each Agent shall promptly communicate to the Company, orally or in writing, each reasonable offer to purchase Notes from the Company received by it other than those rejected by such Agent. Each Agent shall have the right, in its discretion reasonably exercised without advising the Company, to reject any offers in whole or in part. Settlement The receipt of immediately available funds in U.S. dollars by the Company in payment for a Note (less the applicable commission) and the authentication and issuance of such Note shall, with respect to such Note, constitute "Settlement." All offers accepted by the Company will be settled on the third Business Day next succeeding such date of acceptance, unless the Company accepts an offer to purchase Notes after 4:30 p.m. on such date in which case Settlement will occur on the fourth Business Day next succeeding such date of acceptance, pursuant to the timetable for Settlement set forth below, unless otherwise agreed to by the Company and the purchaser; provided, however, that the Company will so notify the Trustee of any such other date on or before the Business Day immediately prior to the Settlement date. Procedures for Establishing the Terms of the Notes The Company and the Agents will discuss from time to time the rates to be borne by the Notes that may be sold as a result of the solicitation of offers by the Agents. Once any Agent has recorded any indication of interest in Notes upon certain terms, and communicated with the Company, if the Company B-3 accepts an offer to purchase Notes upon such terms, it will prepare a Pricing Supplement in the form previously approved by the Agents, reflecting the terms of such Notes and, after approval from the Presenting Agent, will arrange to have 10 copies of such Pricing Supplement (together with the Prospectus, if amended or supplemented) filed with the Commission and will supply an appropriate number of copies of the Prospectus, as then amended or supplemented, together with such Pricing Supplement, to the Presenting Agent. See "Delivery of Prospectus." No settlements with respect to Notes upon such terms may occur prior to such filing and the Presenting Agent will not, prior to such filing, mail confirmations to customers who have offered to purchase Notes upon such terms. After such filing, sales, mailing of confirmations and settlements may occur with respect to Notes upon such terms, subject to the provisions of "Delivery of Prospectus" below. If the Company decides to post rates and a decision has been reached to change interest rates, the Company will promptly notify each Agent. Each Agent will forthwith suspend solicitation of purchases. At that time, the Agents will recommend and the Company will establish rates to be so "posted." Following establishment of posted rates and prior to the filing described in the following sentence, the Agents may only record indications of interest in purchasing Notes at the posted rates. Once any Agent has recorded any indication of interest in Notes at the posted rates and communicated with the Company, if the Company accepts an offer at the posted rate, it will prepare a Pricing Supplement reflecting such posted rates and, after approval from the Presenting Agent, will arrange to have 10 copies of such Pricing Supplement (together with the Prospectus if amended or supplemented) filed with the Commission and will supply an appropriate number of copies of the Prospectus, as then amended or supplemented, to the Presenting Agent. See "Delivery of Prospectus." No settlements at the posted rates may occur prior to such filing and the Presenting Agent will not, prior to such filing, mail confirmations to customers who have offered to purchase Notes at the posted rates. After such filing, sales, mailing of confirmations and settlements may resume, subject to the provisions of "Delivery of Prospectus" below. Suspension of Solicitation; Amendment or Supplement In the event that at the time the Agents, at the direction of the Company, suspend solicitation of offers to purchase from the Company there shall be any orders outstanding which have not been settled, the Company will promptly advise the Agents and the Trustee whether such orders may be settled and whether copies of the Prospectus as theretofore amended and/or supplemented as in effect at the time of the suspension may be delivered in connection with the settlement of such orders. The Company will have the sole responsibility for such decision and for any arrangements which may be made in the event that the Company determines that such orders may not be settled or that copies of such Prospectus may not be so delivered. Delivery of Prospectus A copy of the Prospectus as most recently amended or supplemented on the date of delivery thereof, together with the applicable Pricing Supplement, must be delivered to a purchaser prior to or together with the earlier of the delivery by the Agents of (i) the written confirmation of a sale sent to a purchaser or his agent and (ii) any Note purchased by such purchaser. The Company shall ensure that the Presenting Agent receives copies of the Prospectus and each amendment or supplement thereto (including the applicable Pricing Supplement) in such quantities and within such time limits as will enable the Presenting Agent to deliver such confirmation or Note to a purchaser as contemplated by these procedures B-4 and in compliance with the preceding sentence. Copies of Pricing Supplements should be delivered by 11:00 A.M. on the Business Day following the applicable trade date by telecopy to (i) Lehman Brothers Inc., c/o ADP, Prospectus Services, 536 Broad Hollow Road, Melville, New York 11747, Attention: Eric Johnson, Telephone: (516) 254-7106, Telecopy: (516) 249-7942 and by hand to Lehman Brothers Inc., 3 World Financial Center, 9th Floor, New York, New York 10285-0900, Attention: Brunie Vazquez, Telephone: (212) 526-8400; (ii) Chase Securities Inc., 270 Park Ave., 8th Floor, New York, New York 10017, Attention: Medium-Term Note Desk, Telephone No.: (212) 834-4421, Telecopy No.: (212) 834- 6081; (iii) Goldman, Sachs & Co., MTN Desk, 85 Broad Street, New York, New York 10004, Attention: Karen Robertson, Telephone No.: (212) 902-1482, Telecopy No.: (212) 902-6658; or (iv) Merrill Lynch & Co. - Tritech Services, 4 Corporate Place, Corporate Park 287, Piscataway, New Jersey 08854; Attention: Final Prospectus Unit/Nachman Kimerling, Telephone No.: (908) 878-6525/26/27, Telecopy No.: (908) 878-6530; also, for record keeping purposes, send a copy to: Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Merrill Lynch World Headquarters, World Financial Center, North Tower 10th Floor, 250 Vesey Street, New York, New York 10281-1310, Attention: MTN Product Management. If, since the date of acceptance of a purchaser's offer, the Prospectus shall have been supplemented solely to reflect any sale of Notes on terms different from those agreed to between the Company and such purchaser or a change in posted rates not applicable to such purchaser, such purchaser shall not receive the Prospectus as supplemented by such new supplement, but shall receive the Prospectus as supplemented to reflect the terms of the Notes being purchased by such purchaser and otherwise as most recently amended or supplemented on the date of delivery of the Prospectus. The Company will make all such deliveries with respect to all Notes sold directly by the Company. Redemption and Repayment Unless one or more Redemption Dates are specified in the applicable Pricing Supplement, the Notes will not be redeemable prior to their Stated Maturity. If one or more Redemption Dates are so specified with respect to any Note, the applicable Pricing Supplement will also specify one or more redemption prices (expressed as a percentage of the principal amount of such Note) ("Redemption Prices") and the redemption period or periods ("Redemption Periods") during which such Redemption Prices shall apply. Unless otherwise specified in the Pricing Supplement, any such Note shall be redeemable at the option of the Company at the specified Redemption Price applicable to the Redemption Period during which such Note is to be redeemed, together with interest accrued to the Redemption Date. Unless otherwise specified in the applicable Pricing Supplement, the Notes will not be subject to any sinking fund. The Company may redeem any of the Notes that are redeemable and remain outstanding either in whole or from time to time in part, upon not less than 30 nor more than 60 days' notice. In the event of a redemption in part of any Note, a new Note for the amount of the unredeemed portion shall be issued in the name of the Holder upon cancellation of the redeemed Note. The Pricing Supplement relating to each Note will indicate either that such Note cannot be repaid prior to Stated Maturity or that such Note will be repayable at the option of the holder on a date or dates specified prior to Stated Maturity at a price or prices set forth in the applicable Pricing Supplement, together with accrued interest to the date of repayment. In order for a Note that is subject to repayment at the option of the Holder to be repaid, the Paying Agent must receive at least 30 days but not more than 45 days prior to the repayment date (a) appropriate wire instructions and (b) either (i) the Note with the form entitled "Option to Elect Repayment" attached B-5 to the Note duly completed or (ii) a telegram, telex, facsimile transmission or letter from a member of a national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or trust company in the United States setting forth the name of the Holder of the Note, the principal amount of the Note, the portion of the principal amount of the Notes to be repaid, the certificate number or a description of the tenor and terms of the Note, a statement that the option to elect repayment is being exercised thereby and a guarantee that the Note to be repaid with the form entitled "Option to Elect Repayment" attached to the Note duly completed will be received by the Paying Agent not later than five Business Days after the date of such telegram, telex, facsimile transmission or letter and such Note and form duly completed must be received by the Paying Agent by such fifth Business Day. Exercise of the repayment option by the Holder of a Note shall be irrevocable, except as otherwise described under "Interest Rate Reset" and "Extension of Maturity" in the Prospectus Supplement. The repayment option may be exercised by the Holder of a Note for less than the entire principal amount of the Note provided that the principal amount of the Note remaining outstanding after repayment is an authorized denomination. No registration of, transfer or exchange of any Note (or, in the event that any Note is to be repaid in part, the portion of the Note to be repaid) will be permitted after exercise of a repayment option. All questions as to the validity, eligibility (including time of receipt) and acceptance of any Note for repayment will be determined by the Company, whose determination will be final, binding and non-appealable. If a Note is represented by a Global Security, the Depositary's nominee will be the Holder of such Note and therefore will be the only entity that can exercise a right to repayment. In order to ensure that the Depositary's nominee will timely exercise a right to repayment with respect to a particular Note, the beneficial owner of such Note must instruct the broker or other direct or indirect participant through which it holds an interest in such Note to notify the Depositary of its desire to exercise a right to repayment. Different firms have different cut-off times for accepting instructions from their customers and, accordingly, each beneficial owner should consult the broker or other direct or indirect participant through which it holds an interest in a Note in order to ascertain the cut-off time by which such an instruction must be given in order for timely notice to be delivered to the Depositary. Unless otherwise specified in the applicable Pricing Supplement, if a Note is an Original Issue Discount Note, the amount payable on such Note in the event of redemption or repayment prior to its Stated Maturity shall be the Amortized Face Amount of such Note, as specified in the applicable Pricing Supplement, as of the Redemption Date or the date of repayment, as the case may be. Authenticity of Signatures The Company will cause the Trustee to furnish the Agents from time to time with the specimen signatures of each of the Trustee's officers, employees and agents who have been authorized by the Trustee to authenticate Notes, but the Agents will have no obligation or liability to the Company or the Trustee in respect of the authenticity of the signature of any officer, employee or agent of the Company or the Trustee on any Note. Advertising Costs The Company will determine with the Agents the amount and nature of advertising that may be appropriate in offering the Notes. Advertising expenses incurred with the consent of the Company will be paid by the Company. B-6 Business Day "Business Day" shall mean, with respect to any particular location, each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions and trust companies in such location are authorized or required by law, regulation or executive order to close and, with respect to Notes as to which LIBOR is an applicable Base Rate, is also a London Banking Day (as defined in the Prospectus). PART II: Procedures For Certificated Notes Prior to any issuance of Certificated Notes, the Company will deliver to the Trustee an adequate supply of 4-ply notes meeting the specifications set forth herein. Currency Certificated Notes will be denominated in U.S. dollars or in one or more foreign currencies or foreign currency units, as specified in the applicable Pricing Supplement. For special procedures relating to Multi-Currency Notes, see Part III hereof. Registration Certificated Notes may be presented for registration of transfer or exchange at the Trustee's drop facility in The City of New York. Denominations Except as provided in the applicable Pricing Supplement, Certificated Notes will be issued and payable in U.S. dollars in the denomination of $1,000 and any larger denomination which is an integral multiple of $1,000. Maturity Upon presentation of each Certificated Note at Maturity the Trustee (or any duly appointed Paying Agent) will pay the principal amount thereof, together with accrued interest due at maturity. Such payment shall be made in immediately available funds in U.S. dollars, provided that the Certificated Note is presented to the Trustee (or any such Paying Agent) in time for the Trustee (or such Paying Agent) to make payments in such funds in accordance with its normal procedures. The Company will provide the Trustee (and any such Paying Agent) with funds available for immediate use for such purpose. Certificated Notes presented at Maturity will be cancelled by the Trustee as provided in the Indenture. B-7 Settlement Procedures In the event of a purchase of Certificated Notes by an Agent, as principal, appropriate Settlement details will be as set forth below unless such details are set forth in the applicable Purchase Agreement to be entered into between such Agent and the Company pursuant to the Distribution Agreement. In the event of the sale of a Certified Note that is a Multi-Currency Note or an Indexed Note, whether the sale is through an Agent or to an Agent, as principal, additional or different Settlement details may be set forth in an amendment to these administrative procedures to be entered into between such Agent and the Company. Other than as contemplated above, settlement procedures with regard to each Certificated Note sold through each Agent shall be as follows: A. Such Agent (the "Presenting Agent") will advise the Company by telephone, telex or facsimile, of the following Settlement information: 1. Exact name in which the Note is to be registered ("Registered Owner"). 2. Exact address of the Registered Owner and address for payment of principal and interest, if any. 3. Taxpayer identification number of the Registered Owner. 4. Principal amount of the Note (and, if multiple Notes are to be issued, denominations thereof). 5. Settlement date. 6. Stated Maturity and, if the Company has the option to extend the Stated Maturity, the Extension Periods and the Final Maturity Date. 7. Issue Price and any OID information. 8. Trade Date/Original Issue Date. 9. If such Note is a Fixed Rate Note, whether such Note is an Amortizing Note. 10. Interest rate (including, if appropriate, such interest rate information applicable to any Extension Period): (a) Fixed Rate Certificated Notes: (i) interest rate (ii) interest payment dates, if other than as specified above (iii) date or dates, if any, on which the interest rate may be reset and the basis or formula, if any, for such resetting (iv) overdue rate, if any B-8 (b) Floating Rate Certificated Notes: (i) interest rate basis (ii) initial interest rate (iii) spread or spread multiplier, if any (iv) date or dates, if any, on which the spread or spread multiplier may be reset and the basis or formula, if any, for such resetting (v) interest rate reset periods (vi) interest payment dates (vii) index maturity (viii) maximum and minimum interest rates, if any (ix) record dates (x) interest determination dates (xi) overdue rate, if any 11. The date on or after which the Certificated Notes are redeemable at the option of the Company or are to be repaid at the option of the Holder, and additional redemption or repurchase provisions, if any. 12. Wire transfer information. 13. Presenting Agent's commission (to be paid in the form of a discount from the proceeds remitted to the Company upon Settlement). 14. That the Note will be a Certificated Note. B. The Company will confirm the above Settlement information to the Trustee by telephone, telex or facsimile, and the Trustee will assign a Note number to the transaction. If the Company rejects an offer, the Company will promptly notify the Presenting Agent and the Trustee by telephone. C. The Trustee will complete the first page of the preprinted 4-ply Certificated Note packet, the form of which was previously approved by the Company, the Agents and the Trustee. D. The Trustee will deliver the Certificated Note (with the attached white confirmation) and the yellow and blue stubs to the Presenting Agent at one of the following addresses: (i) The Chase Manhattan Bank, Four New York Plaza, Ground Floor, Physical Delivery Window, SAO Lehman Brothers; (ii) Chase Securities Inc., 55 Water Street, 2nd floor, Room 226, Windows 17 and 18, New York, New York 10004, Attention: Receive and Deliver; (iii) Goldman, Sachs & Co., 85 Broad Street, 6th Floor, New York, New York 10004, Attention: Edward Bissoth; or (iv) Merrill Lynch, Pierce, Fenner & Smith Incorporated, Money Market Clearance - MTNs, 75 Barclay Street, Window C, New York, New York 10080, Attention: Kevin Brennan. The Presenting Agent will acknowledge receipt of the Certificated Note by completing the yellow stub and returning it to the Trustee. E. The Presenting Agent will cause to be wire transferred to a bank account designated by the Company immediately available funds in U.S. dollars in the amount of the principal amount of the Certificated Note, less the applicable commission or discount, if any. B-9 F. The Presenting Agent will deliver the Certificated Note (with the white confirmation) to the purchaser against payment in immediately available funds in the amount of the principal amount of the Certificated Note. The Presenting Agent will deliver to the purchaser a copy of the most recent Prospectus applicable to the Certificated Note with or prior to any written offer of Certificated Notes, delivery of the Certificated Note and the confirmation and payment by the purchaser for the Certificated Note. G. The Presenting Agent will obtain the acknowledgment of receipt for the Certificated Note and Prospectus by the purchaser through the purchaser's completion of the blue stub. H. The Trustee will mail the pink stub to the Company's Treasurer. Settlement Procedures Table For offers to purchase Certificated Notes accepted by the Company, Settlement procedures "A" through "H" set forth above shall be completed on or before the respective times set forth below:
=============================================================== Settlement Time (New York) Procedure =============================================================== A 5 PM on the Trade Date - --------------------------------------------------------------- B 3 PM on the Business Day prior to Settlement Date - --------------------------------------------------------------- C-D 12 Noon on the Settlement Date - --------------------------------------------------------------- E 2:15 PM on the Settlement Date - --------------------------------------------------------------- F-G 3 PM on the Settlement Date - --------------------------------------------------------------- H 5 PM on the Business Day after the Settlement Date ================================================================
Fails In the event that a purchaser of a Certificated Note shall either fail to accept delivery of or make payment for such Certificated Note on the date fixed by the Company for Settlement, the Presenting Agent will immediately notify the Trustee and the Company's Treasurer by telephone, confirmed in writing, of such failure and return the Certificated Note to the Trustee. Upon the Trustee's receipt of the Certificated Note from the Presenting Agent, the Company will promptly return to the Presenting Agent an amount of immediately available funds in U.S. dollars equal to any amount previously transferred to the Company in respect of the Certificated Note pursuant to advances made by the Agent. Such returns will be made on the Settlement Date, if possible, and in any event not later than 12 noon (New York City time) on the Business Day following the Settlement Date. The Company will reimburse the Presenting Agent on an equitable basis for its loss of the use of the funds during the period when the funds were credited to the account of the Company. Upon receipt of the Certificated Note in respect of which the default occurred, the Trustee will mark the Certificated Note "cancelled," make appropriate entries in its records and deliver the Certificated Note to the Company with an appropriate debit advice. The Presenting Agent will not be B-10 entitled to any commission with respect to any Certificated Note which the purchaser does not accept or make payment for. PART III: Special Administrative Procedures For Multi-Currency Notes Unless otherwise set forth in an applicable Foreign Currency Amendment, the following procedures and terms shall apply to Multi-Currency Notes in addition to, and to the extent inconsistent therewith in replacement of, the procedures and terms set forth above. Denominations The authorized denominations of any Multi-Currency Note will be the amount of the Specified Currency for such Multi-Currency Note equivalent, at the noon buying rate in the City of New York for cable transfers for such Specified Currency (the "Market Exchange Rate") on the first Business Day in the City of New York and the country issuing such currency (or, in the case of ECUs, Brussels) next preceding the date on which the Company accepts the offer to purchase such Multi-Currency Note, to U.S. $1,000 (rounded down to an integral multiple of 10,000 units of such Specified Currency) and any greater amount that is an integral multiple of 10,000 units of such Specified Currency. Currencies Unless otherwise specified in the applicable Pricing Supplement, payments of principal of (and premium, if any) and interest on all Multi-Currency Notes will be made in the applicable Specified Currency, provided, however, that payments of principal of (and premium, if any) and interest on Multi-Currency Notes denominated in other than U.S. dollars will nevertheless be made in U.S. dollars (i) at the option of the Holders thereof under the procedures described below and (ii) at the option of the Company in the case of imposition of exchange controls or other circumstances beyond the control of the Company as described below. Payment of Principal and Interest If so specified in the applicable Pricing Supplement, except as provided in the next paragraph, payments of interest and principal (and premium, if any) with respect to any Multi-Currency Note will be made in U.S. dollars if the Holder of such Note on the relevant Regular Record Date or at Maturity, as the case may be, has transmitted a written request for such payment in U.S. dollars to the Trustee at its Corporate Trust Office on or prior to such Regular Record Date or the date 15 days prior to Maturity, as the case may be. Such request may be in writing (mailed or hand delivered) or by cable, telex or other form of facsimile transmission. Any such request made with respect to any Multi-Currency Note by a Holder will remain in effect with respect to any further payments of interest and principal (and premium, if any) with respect to such Multi-Currency Note payable to such Holder, unless such request is revoked on or prior to the relevant Regular Record Date or the date 15 days prior to Maturity, as the case may be. Holders of Multi-Currency Notes denominated in other than U.S. dollars whose Notes are registered in B-11 the name of a broker or nominee should contact such broker or nominee to determine whether and how an election to receive payments in U.S. dollars may be made. The U.S. dollar amount to be received by a Holder of a Multi-Currency Note who elects to receive payments in U.S. dollars will be based on the highest bid quotation in The City of New York received by the Currency Determination Agent (as defined below) as of noon New York City time on the third Business Day next preceding the applicable payment date from three recognized foreign exchange dealers (one of which may be the Currency Determination Agent) for the purchase by the quoting dealer of the Specified Currency for U.S. dollars for settlement on such payment date in the aggregate amount of the Specified Currency payable to all Holders of Multi-Currency Notes electing to receive U.S. dollar payments and at which the applicable dealer commits to execute a contract. If three such bid quotations are not available on the third Business Day preceding the date of payment of principal (and premium, if any) or interest with respect to any such Multi-Currency Note, such payment will be made in the Specified Currency. All currency exchange costs associated with any payment in U.S. dollars on any such Multi-Currency Note will be borne by the Holder thereof by deductions from such payment. Unless otherwise provided in the applicable Pricing Supplement, Lehman Brothers Inc. will be the Currency Determination Agent (the "Currency Determination Agent") with respect to the Multi-Currency Notes. Payment Currency If the principal of (and premium, if any) or interest on any Multi-Currency Note is payable in any currency other than U.S. dollars and such Specified Currency is not available due to the imposition of exchange controls or other circumstances beyond the control of the Company, the Company will be entitled to satisfy its obligations to Holders of the Multi-Currency Notes by making such payment in U.S. dollars on the basis of the Market Exchange Rate on the last date such Specified Currency was available (the "Conversion Date"). Any payment made under such circumstances in U.S. dollars where the required payment is in other than U.S.dollars will not constitute an Event of Default under the Indenture. If payment in respect of a Note is required to be made in any currency unit (e.g., ECU) and such currency unit is unavailable due to the imposition of exchange controls or other circumstances beyond the Company's control, then all payments in respect of such Multi-Currency Note shall be made in U.S. dollars until such currency unit is again available. The amount of each payment in U.S. dollars shall be computed on the basis of the equivalent of the currency unit in U.S. dollars, which shall be determined by the Company or its agent on the following basis. The component currencies of the currency unit for this purpose (the "Component Currencies") shall be the currency amounts that were components of the currency unit as of the Conversion Date for such currency unit. The equivalent of the currency unit in U.S. dollars shall be calculated by aggregating the U.S. dollar equivalents of the Component Currencies. The U.S. dollar equivalent of each of the Component Currencies shall be determined by the Company or such agent on the basis of the Market Exchange Rate for each such Component Currency that is available as of the third Business Day prior to the date on which the relevant payment is due and for each such Component Currency that is unavailable, if any, as of the Conversion Date for such Component Currency. If the official unit of any Component Currency is altered by way of combination or subdivision, the number of units of that currency as a Component Currency shall be divided or multiplied in the same proportion, if two or more Component Currencies are consolidated into a single currency, the amounts of those currencies as Component Currencies shall be replaced by an amount in such single currency equal to the sum of the amounts of the consolidated Component Currencies expressed in such single currency. B-12 If any Component Currency is divided into two or more currencies, the amount of the original Component Currency shall be replaced by the amounts of such two or more currencies, the sum of which shall be equal to the amount of the original Component Currency. Outstanding Multi-Currency Notes For purposes of calculating the principal amount of any Multi-Currency Note for any purpose under the Indenture, the principal amount of such Multi-Currency Note at any time Outstanding shall be deemed to be the U.S. dollar equivalent at the Market Exchange Rate, determined as of the date of the original issuance of such Multi-Currency Note, of the principal amount of such Multi-Currency Note. Details for Settlement of Multi-Currency Notes In addition to the Settlement information specified in "Settlement Procedures" above, the Presenting Agent shall communicate to the Company in the manner set forth in "Settlement Procedures" the following information: 1. Specified Currency 2. Denominations 3. Wire transfer and overseas bank account information (if holder has elected payment in a Specified Currency). Whether the sale is through an Agent or to the Agent, as principal, additional or different Settlement details may be set forth in an amendment to these administrative procedures to be agreed to by the Agent and the Company. PART IV: Special Administrative Procedures for Book-Entry Notes In connection with the qualification of the Book-Entry Notes for eligibility in the book-entry system maintained by DTC, the Trustee will perform or cause to be performed the custodial, document control and administrative functions described below, in accordance with its respective obligations under a Letter of Representations from the Company and the Trustee to DTC and a Medium-Term Note Certificate Agreement previously entered into between the Trustee and DTC, and its obligations as a participant in DTC, including DTC's Same-Day Funds Settlement System ("SDFS"). Except as otherwise set forth in this Exhibit B, Book-Entry Notes will be issued in accordance with the administrative procedures set forth below. Issuance On any date of settlement (as defined under "Settlement" below) for one or more Fixed Rate Book-Entry Notes, the Company will issue a single Global Security in fully registered form without coupons representing up to $200,000,000 principal amount, or the equivalent thereof in any Specified Currency, other than U.S. dollars, at the Market Exchange Rate used to determine the denomination of such Book-Entry Note as described below (rounded down to an integral multiple of 10,000 units of such Specified B-13 Currency), of all of such Notes that have the same original issuance date, interest rate, redemption or repayment provisions and Stated Maturity. Similarly, on any settlement date for one or more Floating Rate Book-Entry Notes, the Company will issue a single Global Security representing up to $200,000,000 principal amount, or the equivalent thereof in any Specified Currency, other than U.S. dollars, at the Market Exchange Rate used to determine the denomination of such Book-Entry Note as described below (rounded down to an integral multiple of 10,000 units of such Specified Currency), of all of such Notes that have the same interest rate formula, original issuance date, Initial Interest Rate, Interest Payment Dates, Index Maturity, Spread, Spread Multiplier, minimum interest rate (if any), maximum interest rate (if any), redemption or repayment provisions and Stated Maturity. Each Global Security will be dated and issued as of the date of its authentication by the Trustee. Each Global Security will have an interest accrual date (the "Interest Accrual Date"), which will be (i) with respect to an original Global Security (or any portion thereof), its original issuance date and (ii) with respect to any Global Security (or portion thereof) issued subsequently upon exchange of a Global Security or in lieu of a destroyed, lost or stolen Global Security, the most recent Interest Payment Date to which interest has been paid or duly provided for on the predecessor Global Security or Securities (or if no such payment or provision has been made, the original issuance date of the predecessor Global Security), regardless of the date of authentication of such subsequently issued Global Security. No Global Security will represent (i) both Fixed Rate and Floating Rate Book-Entry Notes or (ii) any Certificated Note. Identification Numbers The Company will arrange, on or prior to commencement of a program for the offering of Book-Entry Notes, with the CUSIP Service Bureau of Standard & Poor's Ratings Services (the "CUSIP Service Bureau") for the reservation of a series of CUSIP numbers (including tranche numbers), consisting of approximately 900 CUSIP numbers and relating to Global Securities representing the Book-Entry Notes. The Company will obtain a written list of such series of reserved CUSIP numbers and will deliver to the Trustee and DTC such written list of 900 CUSIP numbers of such series. The Company will assign CUSIP numbers to Global Securities as described below under Settlement Procedure "B." DTC will notify the CUSIP Service Bureau periodically of the CUSIP numbers that the Company has assigned to Global Securities. When fewer than 100 of the reserved CUSIP numbers remain unassigned to Global Securities, and if it deems necessary, the Company will reserve additional CUSIP numbers for assignment to Global Securities representing Book-Entry Notes. Upon obtaining such additional CUSIP numbers the Company shall deliver such additional CUSIP numbers to the Trustee and DTC. Registration Each Global Security will be registered in the name of Cede & Co., as nominee for DTC, on the Securities Register maintained under the Indenture governing such Global Security. The beneficial owner of a Book-Entry Note (or one or more indirect participants in DTC designated by such owner) will designate one or more participants in DTC with respect to such Book-Entry Note (the "Participants") to act as agent or agents for such owner in connection with the book-entry system maintained by DTC, and DTC will record in book-entry form, in accordance with instructions provided by such Participants, a credit balance with respect to such Book-Entry Note in the account of such Participants. The ownership interest of such beneficial owner in such Book-Entry Note will be recorded through the records of such Participants or through the separate records of such Participants and one or more indirect participants in DTC. B-14 Voting In the event of any solicitation of consents from or voting by holders of the Book-Entry Notes, the Company or the Trustee shall establish a record date for such purposes (with no provision for revocation of consents or votes by subsequent holders) and shall, to the extent possible, send notice of such record date to DTC not less than 15 calendar days in advance of such record date. Transfers Transfers of a Book-Entry Note will be accomplished by book entries made by DTC and, in turn, by Participants (and in certain cases, one or more indirect participants in DTC) acting on behalf of beneficial transferors and transferees of such Book-Entry Note. Consolidation and Exchange The Trustee may deliver to DTC and the CUSIP Service Bureau at any time a written notice of consolidation specifying (i) the CUSIP numbers of two or more Outstanding Global Securities that represent (A) Fixed Rate Book-Entry Notes having the same original issuance date, interest rate, redemption and repayment provisions and Stated Maturity and with respect to which interest has been paid to the same date or (B) Floating Rate Book-Entry Notes having the same interest rate formula, original issuance date, Initial Interest Rate, Interest Payment Dates, Index Maturity, Spread or Spread Multiplier, minimum interest rate (if any), maximum interest rate (if any), redemption and repayment provisions and with respect to which interest has been paid to the same date, (ii) a date, occurring at least thirty days after such written notice is delivered and at least thirty days before the next Interest Payment Date for such Book-Entry Notes, on which such Global Securities shall be exchanged for a single replacement Global Security and (iii) a new CUSIP number, obtained from the Company, to be assigned to such replacement Global Security. Upon receipt of such a notice, DTC will send to its Participants (including the Trustee) a written reorganization notice to the effect that such exchange will occur on such date. Prior to the specified exchange date, the Trustee will deliver to the CUSIP Service Bureau a written notice setting forth such exchange date and the new CUSIP number and stating that, as of such exchange date, the CUSIP numbers of the Global Securities to be exchanged will no longer be valid. On the specified exchange date, the Trustee will exchange such Global Securities for a single Global Security bearing the new CUSIP number and a new Interest Accrual Date, and the CUSIP numbers of the exchanged Global Securities will, in accordance with CUSIP Service Bureau procedures, be cancelled and not immediately reassigned. Notwithstanding the foregoing, if the Global Securities to be exchanged exceed $200,000,000 (or the equivalent thereof in any Specified Currency other than U.S. dollars at the Market Exchange Rate used to determine the denomination of such Book-Entry Note as described below (rounded down to an integral multiple of 10,000 units of such Specified Currency)) in aggregate principal amount, one Global Security will be authenticated and issued to represent each $200,000,000 (or the equivalent thereof in any Specified Currency other than U.S. dollars at the Market Exchange Rate used to determine the denomination of such Book-Entry Note as described below (rounded down to an integral multiple of 10,000 units of such Specified Currency)) of principal amount of the exchanged Global Securities and an additional Global Security will be authenticated and issued to represent any remaining principal amount of such global Securities (see "Denominations" below). B-15 Notice of Redemption and Repayment Dates The Trustee will give notice to DTC prior to each redemption date or repayment date (as specified in the Book-Entry Note), if any, at the time and in the manner set forth in the letter of representations. Denominations Book-Entry Notes denominated in U.S. dollars will be issued in principal amounts of $1,000 or any amount in excess thereof that is an integral multiple of $1,000. The authorized denomination of any Book-Entry Notes denominated in other than U.S. dollars will be the amount of the Specified Currency for such Book-Entry Note equivalent, at the Market Exchange Rate on the first Business Day in the City of New York and the country issuing such currency (or, in the case of ECUs, Brussels) next preceding the date on which the Company accepts the offer to purchase such Book-Entry Note, to U.S. $1,000 (rounded down to an integral multiple of 10,000 units of such Specified Currency) and any greater amount that is an integral multiple of 10,000 units of such Specified Currency. Global Securities representing one or more Book-Entry Notes will be denominated in principal amounts not in excess of $200,000,000, or the equivalent thereof in any Specified Currency other than U.S. dollars at the Market Exchange Rate used to determine the denomination of such Book-Entry Note (rounded down to an integral multiple of 10,000 units of such Specified Currency). If one or more Book-Entry Notes having an aggregate principal amount in excess of $200,000,000 (or the equivalent thereof in any Specified Currency other than U.S. dollars at the Market Exchange Rate used to determine the denomination of such Book-Entry Note down to an integral multiple of 10,000 units of such Specified Currency)) would, but for the preceding sentence, be represented by a single Global Security, then one Global Security will be issued to represent each $200,000,000 principal amount, or the equivalent thereof in any Specified Currency other than U.S. dollars at the Market Exchange Rate used to determine the denomination of such Book-Entry Note (rounded down to an integral multiple of 10,000 units of such Specified Currency), of such Book-Entry Note or Notes and an additional Global Security will be issued to represent any remaining principal amount of such Book-Entry Note or Notes. In such a case, each of the Global Securities representing such Book-Entry Note or Notes shall be assigned the same CUSIP number. Interest General. Interest on each Book-Entry Note will accrue from the date of issue of the Global Security representing such Note or from and including the last date in respect of which interest has been paid or duly provided for. Each payment of interest on a Book-Entry Note will include interest accrued through the day preceding, as the case may be, the Interest Payment Date or the date of Maturity, redemption or repayment; provided, however, that if the Interest Reset Dates with respect to any such Note are daily or weekly, interest payable on any Interest Payment Date, other than interest payable on any date on which principal for such Note is payable, will include interest accrued from the date of issue of the Global Security, or from and including the last Interest Payment Date as the case may be, to and including the regular record date immediately preceding the applicable Interest Payment Date except that at the Stated Maturity the interest payments will include accrued interest from and including the date of issue, or from and including the last day in respect of which interest has been paid or duly provided for, as the case may be, to, but excluding, the Stated Maturity. Interest payable at the Maturity or upon earlier redemption or repayment of a Book-Entry Note will be payable to the person to whom the principal of such Note is payable. Standard & Poor's Ratings Services will use the information received in the pending deposit B-16 message described under Settlement Procedure "C" below in order to include the amount of any interest payable and certain other information regarding the related Global Security in the appropriate weekly bond report published by Standard & Poor's Ratings Services. Floating Rate Note Notices. On the first Business Day of January, April, July and October of each year, the Trustee will deliver to the Company and DTC a written list of Regular Record Dates and Interest Payment Dates that will occur with respect to Floating Rate Book-Entry Notes during the six-month period beginning on such first Business Day. Promptly after each Interest Determination Date (as defined in Appendix A hereto) for Floating Rate Notes, the Company will notify the Trustee, and the Trustee in turn will notify Standard & Poor's Ratings Services, of the interest rates determined on such Interest Determination Date. Payments of Principal and Interest Payments of Interest Only. Promptly after each Regular Record Date, the Trustee will deliver to the Company and DTC a written notice specifying by CUSIP number the amount of interest to be paid on each Global Security on the following Interest Payment Date (other than an Interest Payment Date coinciding with Maturity or an earlier redemption or repayment date) and the total of such amounts. DTC will confirm the amount payable on each Global Security on such Interest Payment Date by reference to the daily bond reports published by Standard & Poor's Ratings Services. The Company will pay to the Trustee, as paying agent, the total amount of interest due on such Interest Payment Date (other than at Maturity), and the Trustee will pay such amount to DTC at the times and in the manner set forth below under "Manner of Payment." Promptly after each Interest Determination Date for Floating Rate Book-Entry Notes, the Calculation Agent will notify the Trustee and Standard & Poor's Ratings Services of the interest rates determined on such Interest Determination Date. Payments at Maturity or Upon Redemption or Repayment. On or about the first Business Day of each month, the Trustee will deliver to the Company and DTC a written list of principal and interest to be paid on each Global Security maturing either at maturity or any redemption or repayment date in the following month. The Company, the Trustee and DTC will confirm the amounts of such principal and interest payments with respect to each such Global Security on or about the fifth Business Day preceding the Maturity or redemption or repayment date of such Global Security. The Company will pay to the Trustee, as the paying agent, the principal amount of such Global Security, together with interest due at such Maturity or redemption or repayment date, as the case may be. The Trustee will pay such amount to DTC at the times and in the manner set forth below under "Manner of Payment." Promptly after payment to DTC of the principal and interest due at the Maturity of such Global Security, the Trustee will cancel such Global Security in accordance with the Indenture and deliver to the Company an appropriate debit advice. On the first Business Day of each month, the Trustee will prepare a written statement indicating the total principal amount of Outstanding Global Securities for which it serves as paying agent as of the immediately preceding Business Day. Manner of Payment. The total amount of any principal and interest due on global Securities on any Interest Payment Date or at Maturity or upon redemption or repayment shall be paid by the Company to the Trustee in funds available for use by the Trustee as of 9:30 A.M. (New York City time) on such date. The Company will make such payment on such Global Securities by instructing the Trustee to withdraw funds from an account maintained by the Company at the Trustee. For maturity, redemption or any other B-17 principal payments: prior to 10 A.M. (New York City time) on such date or as soon as possible thereafter, the Trustee will make such payments to DTC in same day funds in accordance with DTC's Same Day Funds Settlement Paying Agent Operating Procedures. For interest payments: the Trustee will make such payments to DTC in accordance with existing arrangements between DTC and the Trustee. DTC will allocate such payments to its Participants in accordance with its existing operating procedures. Neither the Company, the Trustee (as Trustee or as Paying Agent nor any other Paying Agent) shall have any direct responsibility or liability for the payment by DTC to such Participants of the principal of and interest on the Book-Entry Notes. Withholding Taxes. The amount of any taxes required under applicable law to be withheld from any interest payment on a Book-Entry Note will be determined and withheld by the Participant, indirect participant in DTC or other person responsible for forwarding payments and materials directly to the beneficial owner of such Note. Settlement Procedures In the event of a purchase of Book-Entry Notes by an Agent, as principal, Settlement details will be as set forth below unless such details are set forth in the applicable Purchase Agreement to be entered into between such Agent and the Company pursuant to the Distribution Agreement. In the event of a sale of a Book-Entry Note that is a Multi-Currency Note or an Indexed Note, whether the sale is through an Agent or to an Agent, as principal, additional or different Settlement details may be set forth in an amendment to the administrative procedures to be entered into between the such Agent and the Company. Other than as contemplated above, settlement procedures with regard to each Book-Entry Note sold by the Company through an Agent, as agent, shall be as follows: A. The Presenting Agent will advise the Company by telephone, telex or facsimile, of the following settlement information: 1. Principal amount of the Book-Entry Note (and, if multiple Notes are to be issued, denominations thereof). 2. Settlement date. 3. Stated Maturity and, if the Company has the option to extend the Stated Maturity, the Extension Periods and the Final Maturity Date. 4. Issue Price and any OID information. 5. Trade date. 6. If such Book-Entry Note is a Fixed Rate Note, whether such Note is an Amortizing Note. 7. The DTC Participant account number of such Agent. B-18 8. Interest rate (including, if appropriate, such interest rate information applicable to any Extension Period): (a) Fixed Rate Notes: (i) interest rate (ii) interest payment dates, if other than as specified above (iii) date or dates, if any, on which the interest rate may be reset and the basis or formula, if any, for such resetting (iv) overdue rate, if any (b) Floating Rate Notes: (i) interest rate basis (ii) initial interest rate (iii) spread or spread multiplier, if any (iv) date or dates, if any, on which the spread or spread multiplier may be reset and the basis or formula, if any, for such resetting (v) interest rate reset periods (vi) interest payment dates (vii) index maturity (viii) maximum and minimum interest rates, if any (ix) record dates (x) interest determination dates (xi) overdue rate, if any 9. The date on or after which the Book-Entry Notes are redeemable at the option of the Company or are to be repaid at the option of the Holder, and additional redemption or repurchase provisions, if any. 10. Wire transfer information. 11. Presenting Agent's commission (to be paid in the form of a discount from the proceeds remitted to the Company upon settlement). 12. That the Note will be a Book-Entry Note. B. The Company will assign a CUSIP number to the Global Security representing such Note and then advise the Trustee by telephone (confirmed in writing at any time on the same date) or electronic transmission of the information set forth in Settlement Procedure "A" above, such CUSIP number and the name of such Agent. C. The Trustee will enter a pending deposit message through DTC's Participant Terminal System, providing the following settlement information to DTC, the Presenting Agent, Standard & Poor's Ratings Services and, upon request, the Trustee under the Indenture pursuant to which such Note is to be issued: B-19 1. The information set forth in Settlement Procedure "A." 2. Identification as a Fixed Rate Book-Entry Note or a Floating Rate Book-Entry Note. 3. Initial Interest Payment Date for such Note, number of days by which such date succeeds the related "DTC Record Date" (which term means the Regular Record Date except in the case of floating rate notes which reset daily or weekly in which case it means the date five (5) calendar days immediately preceding the Interest Payment Date) and amount of interest payable on such Interest Payment Date. 4. Frequency of interest payments (monthly, semiannually, quarterly, etc.). 5. CUSIP number of the Global Security representing such Book-Entry Note. 6. Whether such Global Security will represent any other Book-Entry Note (to the extent known at such time). 7. The number of Participant accounts to be maintained by DTC on behalf of the Agents or the Trustee. D. The Trustee, as Trustee will complete and authenticate the note certificate evidencing the Global Security representing such Book-Entry Note. E. DTC will credit such Book-Entry Note to the Trustee's participant account at DTC. F. The Trustee will enter an SDFS deliver order through DTC's Participant Terminal System instructing DTC to (i) debit such Book-Entry Note to the Trustee's participant account and credit such Note to the Presenting Agent's participant account and (ii) debit the Presenting Agent's settlement account and credit the Trustee's settlement account for an amount equal to the price of such Book-Entry Note less the Presenting Agent's commission. G. The Presenting Agent will enter an SDFS deliver order through DTC's Participant Terminal System instructing DTC (i) to debit such Book-Entry Note to the Presenting Agent's participant account and credit such Note to the participant accounts of the Participants with respect to such Book-Entry Note and (ii) to debit the settlement accounts of such Participants and credit the settlement account of the Presenting Agent for an amount equal to the price of such Note. H. Transfers of funds in accordance with SDFS deliver orders described in Settlement Procedures "F" and "G" will be settled in accordance with SDFS operating procedures in effect on the settlement date. I. The Trustee will credit to an account of the Company maintained at the Trustee funds available for immediate use in the amount transferred to the Trustee in accordance with Settlement Procedure "F." B-20 J. The Presenting Agent will deliver to the purchaser a copy of the most recent Prospectus applicable to the Book-Entry Note with or prior to any written offer of Book-Entry Notes and the confirmation and payment by the purchaser of the Book-Entry Note. The Presenting Agent will confirm the purchase of such Book-Entry Note to the purchaser either by transmitting to the Participants with respect to such Book-Entry Note a confirmation order or orders through DTC's institutional delivery system or by mailing a written confirmation to such purchaser. Settlement Procedures Timetable For offers to purchase Book-Entry Notes solicited by an Agent, as agent, and accepted by the Company for settlement, Settlement Procedures "A" through "J" set forth above shall be completed as soon as possible but not later than the respective times (New York City time) set forth below:
======================================================== Settlement Time Procedures ======================================================== A-B 11:00 A.M. on the Sale date - -------------------------------------------------------- C 2:00 P.M. on the Sale date - -------------------------------------------------------- D 3:00 P.M. on date before Settlement date - -------------------------------------------------------- E 10:00 A.M. on Settlement date - -------------------------------------------------------- F-G 2:00 P.M. on Settlement date - -------------------------------------------------------- H 4:45 P.M. on Settlement date - -------------------------------------------------------- I-J 5:00 P.M. on Settlement date ========================================================
If a sale is to be settled more than one (1) Business Day after the sale date, Settlement Procedures "A," "B" and "C" shall be completed as soon as practicable but no later than 11:00 A.M., 11:00 A.M. and 2:00 P.M., as the case may be, on the first Business Day after the sale date. If the initial interest rate for a Floating Rate Book-Entry Note has not been determined at the time that Settlement Procedure "A" is completed, Settlement Procedures "B" and "C" shall be completed as soon as such rate has been determined but not later than 11:00 A.M. and 12:00 Noon, respectively, on the second Business Day before the settlement date. Settlement Procedure "I" is subject to extension in accordance with any extension of Fedwire closing deadlines and in the other events specified in the SDFS operating procedures in effect on the settlement date. If settlement of a Book-Entry Note is rescheduled or canceled, the Trustee will deliver to DTC, through DTC's Participant Terminal System, a cancellation message to such effect by no later than 2:00 P.M. on the Business Day immediately preceding the scheduled settlement date. B-21 Failure To Settle If the Trustee fails to enter an SDFS deliver order with respect to a Book- Entry Note pursuant to Settlement Procedure "F," the Trustee may deliver to DTC, through DTC's Participant Terminal System, as soon as practicable a withdrawal message instructing DTC to debit such Book-Entry Note to the Trustee's participant account. DTC will process the withdrawal message, provided that the Trustee's participant account contains a principal amount to be debited. If a withdrawal message is processed with respect to all the Book-Entry Notes represented by a Global Security, the Trustee will mark such Global Security "canceled," make appropriate entries in the Trustee's records and send such canceled Global Security to the Company. The CUSIP number assigned to such Global Security shall, in accordance with CUSIP Service Bureau procedures, be canceled and not immediately reassigned. If a withdrawal message is processed with respect to one or more, but not all, of the Book-Entry Notes represented by a Global Security, the Trustee will exchange such Global Security for two Global Securities, one of which shall represent such Book-Entry Note or Notes and shall be canceled immediately after issuance and the other of which shall represent the other Book-Entry Notes previously represented by the surrendered Global Security and shall bear the CUSIP number of the surrendered Global Security. If the purchase price for any Book-Entry Note is not timely paid to the Participants with respect to such Book-Entry Note by the beneficial purchaser thereof (or a person, including an indirect participant in DTC, acting on behalf of such purchaser), such Participants and, in turn, the Agent for such Book- Entry Note may enter SDFS deliver orders through DTC's Participant Terminal System reversing the orders entered pursuant to Settlement Procedures "F" and "G," respectively. Thereafter, the Trustee will deliver the withdrawal message and take the related actions described in the preceding paragraph. Notwithstanding the foregoing, upon any failure to settle with respect to a Book-Entry Note, DTC may take any actions in accordance with its SDFS operating procedures then in effect. In the event of a failure to settle with respect to one or more, but not all, of the Book-Entry Notes to have been represented by a Global Security, the Trustee will provide, in accordance with Settlement Procedure "D," for the authentication and issuance of a Global Security representing the other Book-Entry Notes to have been represented by such Global Security and will make appropriate entries in its records. B-22 Exhibit C PURCHASE AGREEMENT IKON CAPITAL, INC. [Date] 1738 Bass Road Macon, Georgia 31210 Attention: Treasurer The undersigned agrees to purchase the following principal amount of the Notes described in the Distribution Agreement dated June 4, 1997 (as it may be supplemented or amended from time to time, the "Distribution Agreement"):
Principal Amount: $__________ Specified Currency: Denominated and Indexed Currencies: Interest Rate: ____% Discount: ____% of Principal Amount Aggregate Price to be Paid to $__________ Company (in immediately available Funds): Settlement Date: Other Terms:
Terms defined in the Prospectus relating to the Notes and in the Distribution Agreement shall have the same meaning when used herein. [In the case of Notes issued in a Specified Currency other than U.S. dollars, payments of principal of (and premium, if any) and interest on all Notes will be made in the applicable Specified Currency, provided, however, that payments of principal of (and premium, if any) and interest on Notes denominated in other than U.S. dollars will nevertheless be made in U.S. dollars (i) at the option of the Holders thereof; (ii) at the option of the Company in the case of imposition of exchange controls or other circumstances beyond the control of the Company as described below; or (iii) if so specified in the applicable Pricing Supplement. The U.S. dollar amount to be received by a Holder of a Note denominated in other than U.S. dollars who elects to receive payments in U.S. dollars will be based on the highest bid quotation in The City of New York received by the Currency Determination Agent (as defined below) as of noon New York City time on the third Business Day next preceding the applicable payment date from three recognized foreign exchange dealers (one of which may be the Currency Determination Agent) for the purchase by the quoting dealer of the Specified Currency for U.S. dollars for settlement on such payment date in the aggregate amount of the Specified Currency payable to all Holders of Notes electing to receive U.S. dollar payments and at which the applicable dealer commits to execute a contract. If three such bid quotations are not available on the third Business Day preceding the date of payment of principal (and premium, if any) or interest with respect to any Note, such payment will be made in the Specified Currency. All currency exchange costs associated with any payment in U.S. dollars on any such Note will be borne by the Holder thereof by deductions from such payment.] Our obligation to purchase Notes hereunder is subject to the continued accuracy of your representations and warranties contained in the Distribution Agreement and to your performance and observance of all applicable covenants and agreements contained therein, including, without limitation, your obligations pursuant to Section 7 thereof. Our obligation hereunder is subject to the further condition that we shall receive (a) the opinions required to be delivered pursuant to Sections 5(e) and 5(h) of the Distribution Agreement, (b) the certificate required to be delivered pursuant to Section 5(f) of the Distribution Agreement, (c) the letter referred to in Section 5(g) of the Distribution Agreement in each case dated as of the above Settlement Date and (d) [insert other conditions as appropriate]. In further consideration of our agreement hereunder, you agree that between the date hereof and the above Settlement Date, you will not offer or sell, or enter into any agreement to sell, any debt securities of the Company [, other than borrowings under your revolving credit agreements and lines of credit, the private placement of securities and issuances of your commercial paper]. We may terminate this Agreement, immediately upon notice to you, at any time prior to the Settlement Date, if prior thereto there shall have occurred: (i) any change, or any development involving a prospective change, in or affecting the general affairs, management, shareholder's equity, business, properties, condition (financial or other), results of operations or prospects of the Company which in our opinion materially impairs the investment quality of the Notes; (ii) a suspension or material limitation in trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the over-the-counter market, or the establishment of minimum prices on such exchanges or such markets; (iii) a general moratorium on commercial banking activities declared by Federal or New York State authorities; (iv) any downgrading in the rating accorded the Company's debt securities by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (v) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national calamity or emergency; or (vi) any material adverse change in the existing financial, political or economic conditions in the United States, including the effect of international conditions on the financial markets in the United States, or you are unable to provide any of the opinions, certificates or letters referred to in the second preceding paragraph. In the event of such termination, no party shall have any liability to the other party hereto, except as provided in Sections 4, 7 and 13 of the Distribution Agreement. C-2 This Agreement shall be governed by and construed in accordance with the laws of New York. [Insert Name[s] of Agent[s]] By:____________________________________ [Title] Accepted: , IKON CAPITAL, INC. By:____________________________________ [Authorized Signatory] C-3 Exhibit D [INDEXED NOTE] AMENDMENT NO. ___ TO DISTRIBUTION AGREEMENT DATED JUNE __, 1997, AS AMENDED [Insert Title of the Denominated and Indexed Currencies] The undersigned hereby agree that for the purposes of the issue and sale of Notes denominated in [title of currency or currency unit] (the "Denominated Currency") and indexed to [title of currency or currency unit] (the "Indexed Currency") pursuant to the Distribution Agreement, dated June 4, 1997, as it may be amended (the "Distribution Agreement"), the following additions and modifications shall be made to the Distribution Agreement. The additions and modifications adopted hereby shall be of the same effect for the sale under the Distribution Agreement of all Notes denominated in the Denominated Currency and indexed to the Indexed Currency, whether offered on an agency or principal basis, but shall be of no effect with respect to Notes denominated in any currency or currency unit other than the Applicable Foreign Currency. Except as otherwise expressly provided herein, all terms used herein which are defined in the Distribution Agreement shall have the same meanings as in the Distribution Agreement. The terms Agent or Agents, as used in the Distribution Agreement, shall be deemed to refer [only] to the undersigned Agents for purposes of this Amendment. [Insert appropriate additions and modifications to the Distribution Agreement, for example, to opinions of counsel, conditions to obligation and settlement procedures, etc.] _________________, 19__ IKON Capital, Inc. By:_______________________________________ Name: Title: [Name(s) of Agent(s) Participating In the Offering of the Indexed Notes] By:_______________________________________ Name: Title: EX-10.21 8 PARTNERS' STOCK PURCHASE PLAN Exhibit 10.21 IKON OFFICE SOLUTIONS, INC. PARTNERS' STOCK PURCHASE PLAN (Amended and Restated as of January 1, 1997) 1. Purpose. The purpose of this Partners' Stock Plan (the "Plan") of IKON Office Solutions, Inc. ("IKON") is to secure for IKON and its stockholders the benefits of the incentive which an interest in the ownership of common stock of IKON will provide to key employees, directors and consultants who will be responsible for IKON's future growth and continued success. 2. Participation. Only "Eligible Persons" (as hereinafter defined) shall be entitled to participate in the Plan. An "Eligible Person" shall be a director of IKON, or a full-time or part-time employee of IKON, or a subsidiary, or a consultant to IKON or a subsidiary, who shall have been designated as a "Partner of IKON" by the Board of Directors of IKON. A subsidiary whose employees or consultants may be considered for participation in the Plan is any present or future corporation of which IKON or a subsidiary of IKON owns stock representing fifty percent or more of the combined voting power of all classes of stock of such corporation ("Subsidiary"). An Eligible Subsidiary, for this purpose, may be either a domestic or foreign corporation, provided, however, that participation by employees of a foreign corporation is subject to approval by the Board of Directors. An Eligible Person may become a participant in the Plan ("Participant") by enrolling in the Plan through the Plan's automated enrollment process. The first election, and any election thereafter, shall be effective as soon as administratively practicable. 3. Contributions by Participants. All contributions by Participants shall be through payroll deduction. The amount of such deduction shall be not less than 1% and not more than 15% (in whole percentages) of the Participant's "Base Compensation," provided, however, that a Participant shall also be entitled to contribute an amount which is within the foregoing percentages of the Participant's annual cash bonus compensation (including annual cash bonus amounts deferred pursuant to any deferred compensation plan) which may be payable on an annual basis to the Participant after September 30 of each year as a percentage of Base Compensation. In the event a Participant is also making contributions to the IKON Retirement Savings Plan, the foregoing 15% contribution limitation shall be reduced by the percentage which is used as the basis for calculation of matching company contributions under such plan. "Base Compensation" shall mean (a) monthly base salary, including: i) amounts deferred pursuant to the IKON Retirement Savings Plan, ii) base salary amounts set aside in any cafeteria plan qualified under Section 125 of the Internal Revenue Code, and iii) base salary amounts deferred pursuant to any deferred compensation plan maintained by IKON or any Subsidiary; (b) annual director, committee and trustee fees, including amounts deferred pursuant to the IKON Directors' Stock Option Plan; or (c) consulting fees in the case of consultants. 4. Contributions by IKON. Participants in the Plan are eligible to receive two types of matching company contributions: 1) automatic company contributions each month in an amount equal to 66 2/3% of the Participant's monthly investment ("Regular Company Contributions"); and 2) if earned, an additional annual company contribution in an amount equal to 33 1/3% of the Participant's annual investment during the previous fiscal year ("Extra Company Contribution"). Thus, IKON may contribute to each Participant's account a maximum annual amount of up to 100% of the Participant's annual fiscal-year investments. Regular Company Contributions will be made automatically each month in an amount equal to 66 2/3% of the Participant's monthly investment and will be applied to the purchase of IKON common shares. If earned, the 33 1/3% Extra Company Contribution will be made on an annual basis and will be calculated on the basis of investments made by the Participant during the preceding 12-month period from October 1 to September 30 (the "Previous Fiscal Year"), and shall only be earned if the Business Unit (as hereafter defined) employing the Participant has achieved Target Performance as contemplated by the annual bonus plan in effect for the Participant's Business Unit. "Business Unit" means IKON or each division, subsidiary or other grouping within IKON, as the case may be. "Target Performance" shall have the meaning set forth in the IKON bonus plan as from time to time in effect for each Business Unit. The Extra Company Contribution shall be made as soon as administratively practicable after September 30 of each year and shall be applied to the purchase of IKON common shares. In order to be eligible to receive the IKON Extra Contribution, the Participant must be an employee of IKON or a Subsidiary and a Partner on September 30 of the Previous Fiscal Year. 5. Trustee. The Board of Directors (the "Board") shall name and designate a Trustee or Trustees (hereinafter "Trustee"), who shall enter into a Trust Agreement with IKON in a form approved by the Board of Directors. The Board shall have the power to approve amendments to the Trust Agreement, remove any Trustee, and designate a successor Trustee or Trustees. The assets of the Plan shall be held in trust by the Trustee for use in accordance with the terms of the Plan in providing for the benefits hereunder. Before the satisfaction of all liabilities under the Plan in the event of termination of the Plan, none of the assets held by the Trustee shall be used for or diverted to purposes other than for the exclusive benefit of Participants and their beneficiaries except as expressly provided in this Plan and in the Trust Agreement. No persons shall have any interest in, or right to, any part of the assets or income held by the Trustee, except as and to the extent expressly provided in this Plan and the Trust Agreement. 6. Purchases of IKON Common Stock. As soon as is practicable after the end of each month, the Trustee shall allocate to the account of each Participant, out of shares of IKON common stock acquired by the Trustee for such purpose, such number of full shares and such fractional interest in a share of IKON common stock as may be purchased by funds contributed by the Participant and by IKON or a Subsidiary during the preceding month. Such allocation of shares shall be at the average cost to the Trustee of the shares allocated to all Participants' accounts at such time. Shares purchased with funds contributed by the Participant shall be registered in the name of the Participant or in such other name or names as the Participant may have designated. Shares purchased with funds contributed by IKON or a Subsidiary shall be registered in the name of the Trustee. Any dividends shall be paid on all full shares held in the Plan at the close of business on the record date for such dividend. Shares of IKON common stock shall be purchased by the Trustee from time to time out of funds received by the Trustee under the Plan, either (a) on the open market, or (b) in private transactions, including, without limitation, from IKON or a Subsidiary, any corporation or individual or any employee benefit plan. The Trustee shall also hold for the purpose of allocation to accounts of Participants, as provided above, shares of IKON common stock forfeited under the provisions of Paragraph 14 herein. 7. Stock Rights, Stock Splits and Stock Dividends. The Trustee, in its discretion, may exercise or sell any rights to purchase any securities appertaining to shares of common stock held by the Trustee, whether or not allocated to individual accounts. The accounts of Participants shall be appropriately 2 credited. Securities received by the Trustee by reason of a stock split, a stock dividend or other distribution shall also be appropriately allocated to the accounts of Participants. 8. Voting of Common Stock. The Trustee shall vote all shares of common stock purchased with the contributions of IKON or a Subsidiary and held by the Trustee in such manner as the Trustee shall, in the Trustee's discretion, determine. In the event of a tender offer for shares of common stock held by the Trustee, the Trustee shall tender or not tender shares held by the Plan in the Trustee's discretion. 9. Unisource Spin-Off. As a result of the spin-off of Unisource Worldwide, Inc. ("Unisource") from Alco Standard Corporation ("Alco"), IKON's predecessor corporation, Participants who participated in the Plan prior to January 1, 1997 (and who had unvested shares of Alco common stock in their Plan accounts) may have unvested common shares of both IKON (formerly Alco) and Unisource in their Plan accounts. These shares, which are attributable to company contributions made prior to the Unisource Spin-Off, will continue to vest in accordance with the terms of the Plan (see "Interest of Participant in Shares," below). Such shares of IKON and Unisource will be distributed to Participants as they vest, subject to the forfeiture provisions described in "Termination of Participation," below. 10. Interest of Participant in Shares. An account will be maintained for each Participant showing the number of shares of IKON common stock purchased by the Participant and the number of shares of IKON common stock attributable to company contributions. An account will also be maintained for each Participant showing the number of shares of Unisource stock, if any, attributable to company contributions. A Participant shall at all times have a vested interest in the shares of common stock in his account purchased with his contributions. A Participant's interest in the shares purchased with company contributions shall not be immediately vested but shall vest in five equal annual installments, beginning January 2 of the second calendar year following the calendar year such shares were purchased. The foregoing vesting schedule is subject to the provisions of Paragraph 14 hereof regarding termination of participation in the Plan. 11. Conversion of Unisource shares into IKON shares. Participants who have unvested shares of Unisource common stock in their accounts may convert such unvested Unisource shares into unvested IKON shares by directing the Trustee to sell any or all unvested Unisource shares and to use the proceeds to purchase unvested shares of IKON common stock. Any such purchases and sales will be made at a price equal to the closing prices of IKON and Unisource, respectively, on the New York Stock Exchange on the last day of the month in which the Participant's election to convert is made. Any such conversions will not affect the vesting schedule of the shares in the Participant's account. 12. Voting Rights. Each Participant is entitled to exercise full voting rights with respect to common stock which has been distributed from the Plan. Voting rights with respect to common stock purchased with funds contributed by IKON, its Subsidiaries or Alco which have not vested may be exercised only by the Trustees. 13. Share Certificates and Distribution of Dividends. On a monthly basis, a stock certificate shall be distributed to each Participant representing the number of whole shares of IKON common stock purchased during the preceding calendar month from funds contributed by the Participant. The Participant may elect to have IKON's transfer agent, National City Bank, hold such certificate for the Participant's account though its book entry system. As of the first business day of each January, stock certificates shall be distributed to each Participant who was a Partner as of September 30 of the previous year representing the number of whole shares of 3 IKON and/or Unisource common stock attributable to company contributions in which the Participant's interest shall have vested. The Participant may elect to have IKON's transfer agent, National City Bank, hold such certificate(s) for the Participant's account through its book entry system. Concurrently, there shall be furnished to each Participant a statement which shall reflect the amount of his or her contributions to date, the corresponding company contributions to date, the number of full and fractional shares of IKON and Unisource common stock which have vested and been distributed to the Participant, and the number of such shares in which the Participant's interest shall not have vested. Ordinary cash dividends on all shares of common stock, whether or not such shares have vested, will be distributed currently. 14. Termination of Participation. If a Participant ceases to be an Eligible Person because of retirement, total disability (as defined by the IKON Long Term Disability Plan) or death, his participation in the Plan shall automatically terminate as of the end of the calendar month of his retirement, total disability or death, and the Participant's interest in all unvested IKON and Unisource shares in his account shall immediately vest and there shall be delivered to the Participant, or to the estate of a deceased Participant (a) a stock certificate registered in the name of the Participant, or such other name or names as he may have designated in the prescribed election form, representing any whole shares of IKON common stock in the Participant's account purchased from funds contributed by the Participant which have not been previously distributed to him; (b) stock certificate(s) registered in the name of the Participant, or such other name or names as he may have designated, representing the whole shares of IKON common stock and any shares of Unisource common stock in the Participant's account purchased from funds contributed by IKON, a Subsidiary or Alco; and (c) cash representing the value of any fractional share to which the Participant is entitled as of the effective date of termination of his participation in the Plan. The term "retirement" as used above shall mean (a) as to an employee, termination of employment with IKON or a Subsidiary at or after age 55, or (b) as to a director or consultant, termination of such status at any time. If a Participant ceases to be an Eligible Person because of any reason other than retirement, total disability or death, his participation in the Plan shall automatically terminate as of the end of the calendar month of his cessation as an Eligible Person, unless otherwise determined by the Plan Committee or the Board of Directors. Upon such termination of participation, the Participant shall receive stock certificate(s) representing any vested shares, together with cash representing the value of any fractional share to which the Participant is entitled. The Participant's interest will terminate in all IKON shares and Unisource shares (if any) which have not yet vested, unless otherwise determined by the Plan Committee or the Board of Directors. The common shares in the Participant's account which have not vested will thereafter be available to reduce the number of shares otherwise required to be purchased in the future with company contributions. 15. Change in Control. Upon the occurrence of a "Change in Control" (as defined below), the Participant's interest in all unvested IKON and Unisource shares in his account shall immediately vest and there shall be delivered to the Participant (a) a stock certificate registered in the name of the Participant, or such other name or names as he may have designated in the prescribed election form, representing any whole shares of IKON common stock in the Participant's account purchased from funds contributed by the Participant which have not been previously distributed to him; (b) stock certificate(s) registered in the name of the Participant, or such other name or names as he may have designated, representing the whole shares of IKON common stock and any shares of Unisource common stock in the Participant's account purchased from funds contributed by IKON, a Subsidiary or Alco; and (c) cash representing the value of any fractional share to which the Participant is entitled as of the effective date of the Change in Control. 4 The term "Change in Control" as used above shall mean any of the following events: (A) any Person, together with its affiliates and associates (as such terms are used in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 15% or more of the then outstanding shares of IKON common stock; or (B) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on September 30, 1997, constituted the Board and any new director whose appointment or election by the Board or nomination for election by IKON's shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors on September 30, 1997 or whose appointment, election or nomination for election was previously so approved; or (C) IKON consolidates with, or merges with or into, any other Person (other than a wholly owned subsidiary of IKON), or any other Person consolidates with, or merges with or into, IKON, and, in connection therewith, all or part of the outstanding shares of common stock shall be changed in any way or converted into or exchanged for stock or other securities or cash or any other property; or (D) a transaction or series of transactions in which, directly or indirectly, IKON shall sell or otherwise transfer (or one or more of its subsidiaries shall sell or otherwise transfer) assets (i) aggregating more than 50% of the assets (measured by either book value or fair market value) or (ii) generating more than 50% of the operating income or cash flow of IKON and its subsidiaries (taken as a whole) to any other Person or group of Persons. Notwithstanding the foregoing, no "Change in Control" shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of IKON common stock immediately prior to such transaction or series of transactions own a majority of the outstanding voting shares and in substantially the same proportion in an entity which owns all or substantially all of the assets of IKON immediately following such transaction or series of transactions. The term "Person" in the foregoing definition shall have the meaning given in Section 3(a) (9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) IKON or any of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act), (ii) a trustee or other fiduciary holding securities under an employee benefit plan of IKON or any of its affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of IKON in substantially the same proportions as their ownership of IKON stock. 16. Expenses. In addition to its contributions, IKON or its Subsidiary will pay all fees and expenses incurred in connection with the Plan. No charge or deduction for any expenses will be made to a Participant upon the termination of his participation under the Plan or upon the distribution of common stock certificates. 17. Administration. The Board of Directors shall administer the Plan. In its discretion, the Board of Directors may appoint a Plan Committee, which Plan Committee shall consist of at least three persons to serve at the pleasure of the Board. The Board or the Plan Committee, in its discretion, shall appoint an 5 Administrator, who shall be responsible for the general administration of the Plan under the policy guidance of the Plan Committee. The Administrator shall be in the employ of IKON and shall receive no special or additional compensation, other than reimbursement of expenses, for his service as Administrator. The Administrator and Plan Committee shall have all powers and duties necessary to administer the Plan in accordance with its terms and applicable law. Any construction, interpretation, or application of the Plan by the Administrator or the Plan Committee shall be final, conclusive and binding on all persons. 18. Powers and Duties of Plan Committee. In addition to any duties and powers described elsewhere herein, the Plan Committee shall have the following specific duties and powers: (i) to retain such consultants, accountants and attorneys, as deemed necessary or advisable, to render statements, reports and advice with respect to the Plan and to assist the Plan Committee in complying with all applicable rules and regulations affecting the Plan (such consultants, accountants or attorneys may be the same as those retained by IKON); (ii) to decide appeals from adverse determinations of the Administrator with respect to eligibility for or amounts of benefits under the Plan; and (iii) to supervise the duties of the Administrator. 19. Powers and Duties of Administrator. In addition to the duties and powers described elsewhere herein, the Administrator shall have the following specific duties and powers: (i) under the supervision of the Plan Committee, to establish rules, regulations and procedures to carry out the provisions of the Plan; (ii) to resolve questions or disputes relating to eligibility for benefits or the amount of benefits under the Plan; (iii) to conduct the day-to-day administration of the Plan subject to the control and guidance of the Plan Committee; (iv) to interpret the provisions of the Plan; (v) to evaluate administrative procedures; (vi) to retain such consultants, accountants and attorneys, as deemed necessary or advisable, to render statements, reports and advice with respect to the Plan and to assist the Administrator in complying with all applicable rules and regulations affecting the Plan (such consultants, accountants or attorneys may be the same as those retained by IKON); and (vii) to delegate such duties and powers as the Administrator shall determine from time to time, to any person or persons. 6 20. Functioning of Administrator and Plan Committee. The Administrator and Plan Committee shall keep accurate records and minutes of meetings, interpretations and decisions. The Plan Committee shall act by majority vote of the members. 21. Adverse Determinations. If, at any time, the Administrator makes a determination adverse to a Participant or other claimant with respect to a written claim for benefits or participation under the Plan, the Administrator shall notify the claimant in writing of such determination. 22. Appeals from Adverse Determinations. A Participant or any other claimant who receives notice of an adverse determination by the Administrator with respect to his claim may request in writing, within 60 days of receipt of such notice, a review of the Administrator's determination by the Plan Committee. The Plan Committee shall render a decision within 90 days of receipt of a request for review. 23. Deemed Denials. If for any reason the written notice of denial described in Paragraph 20 is not furnished within 90 days of the Administrator's receipt of a claim for benefits, the claim shall be deemed denied. Likewise, if for any reason the written decision on review described in Paragraph 21 is not furnished within the time prescribed, the claim shall be deemed to be denied on review. 24. Indemnification. The Administrator, each member of the Plan Committee and each Trustee shall be indemnified by IKON against expenses (other than amounts paid in settlement to which IKON does not consent) reasonably incurred by him in connection with any action to which he may be a party by reason of his performance of administrative functions and duties under the Plan, except in relation to matters as to which he shall be adjudged in such action to be personally guilty of willful misconduct or gross negligence in the performance of his duties. The foregoing right to indemnification shall be in addition to such other rights as the Administrator, Plan Committee member or Trustee may enjoy as a matter of law or by reason of insurance coverage of any kind. Rights granted hereunder shall also be in addition to and not in lieu of any rights to indemnification to which the Administrator, the Plan Committee member or Trustee may be entitled pursuant to the Code of Regulations of IKON. 25. Amendment and Termination. The Board of Directors of IKON may terminate the Plan at any time and may amend the Plan from time to time in any respect; provided, however, that upon any termination of the Plan, all unvested common shares in Participants' accounts shall become fully vested, and shall be distributed to Participants as soon as administratively practicable, and provided further that no amendment to the Plan shall materially affect the right of a Participant to receive his interest in his account, whether vested or unvested. 26. Government and Other Regulations. The obligation of IKON or a Subsidiary to make contributions under the Plan, and the obligation of IKON or a Subsidiary to purchase or sell common stock under the Plan, or to distribute assets from the Participants' accounts, shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies as may be required. 27. Non-Alienation. No Participant shall be permitted to assign, alienate, sell, transfer, pledge, or otherwise encumber his interest under the Plan prior to the distribution of stock certificates to him. Any attempt to assign, alienate, sell, transfer, pledge, or otherwise encumber a Participant's interest under the Plan prior to distribution of stock certificates shall be void and of no effect. 7 EX-10.24 9 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN Exhibit 10.24 IKON OFFICE SOLUTIONS, INC. NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN ARTICLE I Purpose The purpose of this Non-Employee Directors' Stock Option Plan (the "Plan") is to enable IKON Office Solutions, Inc. (the "Company") to offer Non-Employee Directors of the Company the opportunity to acquire equity interests in the Company, thereby attracting, retaining and rewarding such persons, and strengthening the mutuality of interests between such persons and the Company's shareholders. ARTICLE II Definitions For purposes of this Plan, the following terms shall have the following meanings: 2.1 "Annual Option" shall mean an option to purchase shares ------------- of Common Stock granted pursuant to Section 6.2. 2.2 "Board" shall mean the Board of Directors of the Company. ----- 2.3 "Change in Control Event" shall mean any of the following ----------------------- events: (A) any Person, together with its affiliates and associates (as such terms are used in Rule 12b-2 of the Exchange Act), is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 15% or more of the then outstanding shares of common stock of the Company; or (B) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on September 30, 1997 constituted the Board and any new director whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors on September 30, 1997 or whose appointment, election or nomination for election was previously so approved; or (C) the Company consolidates with, or merges with or into, any other Person (other than a wholly owned subsidiary of the Company), or any other Person consolidates with, or merges with or into, the Company, and, in connection therewith, all or part of the outstanding shares of common stock shall be changed in any way or converted into or exchanged for stock or other securities or cash or any other property; or (D) a transaction or series of transactions in which, directly or indirectly, the Company shall sell or otherwise transfer (or one or more of its subsidiaries shall sell or otherwise transfer) assets (i) aggregating more than 50% of the assets (measured by either book value or fair market value) or (ii) generating more than 50% of the operating income or cash flow of the Company and its subsidiaries (taken as a whole) to any other Person or group of Persons. Notwithstanding the foregoing, no "Change in Control Event" shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions own a majority of the outstanding voting shares and in substantially the same proportion in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. 2.4 "Code" shall mean the Internal Revenue Code of 1986, as ---- amended. 2.5 "Common Stock" shall mean the Common Stock, no par value, of ------------ the Company. 2.6 "Company" shall mean IKON Office Solutions, Inc. ------- 2.7 "Director" shall mean a member of the Board. -------- 2.8 "Discretionary Option" shall mean an option to purchase -------------------- shares of Common Stock granted pursuant to Section 6.3. 2.9 "Exchange Act" shall mean the Securities Exchange Act of ------------ 1934, as amended from time to time. 2.10 "Fair Market Value" as of any date shall mean, unless ----------------- otherwise required by any applicable provision of the Code or any regulations issued thereunder, the closing sales price of a share of Common Stock for the applicable trading day as reported on the New York Stock Exchange Composite Tape. 2.11 "New Director Option" shall mean an option to purchase ------------------- shares of Common Stock granted pursuant to Section 6.1. 2.12 "Non-Employee Director" shall mean a Director who is not an --------------------- employee of IKON or any parent or subsidiary of IKON (as defined in Section 425 of the Code). 2.13 "Participant" shall mean a person to whom an Option has been ----------- granted under this Plan. 2.14 "Person" shall have the meaning given in Section 3(a)(9) of ------ the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act), (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company. 2.15 "Potential Change in Control Event" shall mean the --------------------------------- occurrence of any one of the following: (A) the Company enters into an agreement, the consummation of which will result in the occurrence of a Change in Control Event; 2 (B) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control Event; or (C) the Board adopts a resolution to the effect that a Potential Change in Control Event has occurred. 2.16 "Retainer Option" shall mean an option to purchase shares of --------------- Common Stock granted pursuant to Section 6.4. 2.17 "Stock Option" or "Option" shall mean a New Director Option, ------------ ------ an Annual Option, a Discretionary Option or a Retainer Option granted pursuant to Article VI. ARTICLE III Administration 3.1 Administration. The Plan shall be administered and -------------- interpreted by the Board. 3.2 Guidelines. Subject to Article VII hereof, the Board shall ---------- have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing this Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of this Plan and any Option granted under this Plan (and any agreements relating thereto); and to otherwise supervise the administration of this Plan. The Board may correct any defect, supply any omission or reconcile any inconsistency in this Plan or in any Option in the manner and to the extent it shall deem necessary to carry this Plan into effect. 3.3 Decisions Final. Any decision, interpretation or other --------------- action made or taken in good faith by the Board arising out of or in connection with the Plan shall be final, binding and conclusive on the Company, all employees, Directors and Participants and their respective heirs, executors, administrators, successors and assigns. ARTICLE IV Share Limitations 4.1 Shares. The maximum aggregate number of shares of Common ------ Stock that may be issued under this Plan shall be 1,252,756 (subject to any increase or decrease pursuant to Section 4.2), which may be either authorized and unissued Common Stock or issued Common Stock reacquired by the Company. If any Option granted under this Plan expires, terminates or is cancelled for any reason without having been exercised in full, the number of unpurchased shares shall again be available for the purposes of the Plan. 4.2 Adjustments. If the outstanding shares of Common Stock are ----------- increased, decreased or exchanged for a different number or kind of shares or other securities, or if additional shares or other property (other than ordinary cash dividends) are distributed with respect to such shares of Common Stock or other securities, through merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, dividend, stock split, reverse stock split, spin off, split off, or other distribution with respect to such shares of Common Stock, or other securities, an appropriate and proportionate adjustment shall be made in (i) the maximum number and kind of shares that may be issued under the Plan, (ii) the number of shares with respect to which future New Director 3 Options and Annual Options are to be granted, (iii) the number and kind of shares or other securities subject to then outstanding Options, and (iv) the price for each share subject to any then outstanding Options. No fractional shares will be issued under the Plan on account of any such adjustments. ARTICLE V Eligibility 5.1 Any person who is a Non-Employee Director, or who is then becoming a Non-Employee Director, is eligible to be granted New Director Options, Annual Options, Discretionary Options and Retainer Options in accordance with the terms of this Plan. ARTICLE VI Stock Options 6.1 New Director Options. For as long as this Plan remains in -------------------- effect, each Non-Employee Director shall, upon his or her initial election to the Board, be granted a New Director Option to purchase 25,000 shares of Common Stock (subject to adjustment as provided in Section 4.2). 6.2 Annual Options. Each year for as long as this Plan remains -------------- in effect, each person who is elected a Director at the Company's annual meeting of shareholders and who is a Non-Employee Director shall automatically be granted an Annual Option to purchase 2000 shares of Common Stock (subject to adjustment as provided in Section 4.2). 6.3 Discretionary Options. The Board shall have full authority --------------------- to grant Discretionary Options to any Non-Employee Director, including the authority: (a) to select the Non-Employee Directors to whom Discretionary Options may from time to time be granted; (b) to determine whether and to what extent Discretionary Options are to be granted to such Non-Employee Directors; (c) to determine the number of shares of Common Stock to be covered by each Discretionary Option granted; and (d) to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Discretionary Option granted (including, but not limited to, the exercise price of the Option, the term of the Option, any restriction or limitation affecting the exercisability of the Option and any conditions under which the exercisability of the Option will be accelerated). 6.4 Retainer Options. Each year for as long as this Plan remains ---------------- in effect, Retainer Options shall be granted automatically on the date of the Board's annual organizational meeting (generally following the Company's annual meeting of shareholders) to any Non-Employee Director who has filed with the Company an election to receive stock options in lieu of the Annual Retainer (as defined below), or some portion thereof, to be earned by such Director in each Plan Year (as defined below) during which he or she shall serve as a Director. 4 (a) Option Formula. The number of shares of Common Stock -------------- subject to the Retainer Options granted to any Director for a Plan Year shall be equal to the nearest number of whole shares obtained by dividing (i) the Director's Annual Retainer (as defined below) by (ii) the difference between the Fair Market Value of a share of Common Stock on the date of grant and the option price determined pursuant to Section 6.5(b)(iii). (b) Annual Retainer. For purposes of this Plan, "Annual --------------- Retainer" shall mean the amount of fees which the Director will be entitled to receive during a Plan Year for serving as a Director or a chairperson of one or more committees of the Board or a chairperson of the trustees of any of the Company's employee benefit plan trusts; provided, however, that if a Director elects to receive a stock option in lieu of only a portion of the Annual Retainer, the Annual Retainer for purposes of the formula set forth in Section 6.4(a) shall equal the portion of the Annual Retainer so elected. For purposes of this Plan, "Annual Retainer" shall not include fees for any other services to be provided to the Company except as set forth herein. (c) Plan Year. For purposes of this Plan, "Plan Year" --------- shall mean the twelve-month period beginning each February 1 and ending on the last day of January. 6.5 Terms of Options. Options granted under this Plan shall be ---------------- subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Board shall deem desirable: (a) Stock Option Award. Each Stock Option shall be ------------------ evidenced by, and subject to the terms of, a Stock Option Award. The Stock Option Award shall specify the number of shares of Common Stock subject to the Stock Option, the option price, the option term, and the other terms and conditions applicable to the Stock Option. (b) Option Price. The option price per share of Common ------------ Stock purchasable upon exercise of a Stock Option shall be determined as follows: (i) in the case of New Director Options and Annual Options, the option price shall be 100% of the Fair Market Value of a share of Common Stock on the date of grant; (ii) in the case of Discretionary Options, the option price shall be determined by the Board at the time of grant; and (iii) in the case of Retainer Options, the option price shall be 75% of the Fair Market Value of a share of Common Stock on the date of grant. (c) Option Term. The term of each Stock Option shall be ----------- as follows: (i) in the case of New Director Options and Annual Options, the term shall be ten years; (ii) in the case of Discretionary Options, the term shall be fixed by the Board at the time of grant; and (iii) in the case of Retainer Options, the term shall be twenty years. (d) Exercisability. Unless otherwise specified in a Stock -------------- Option Award, Stock Options shall be exercisable as follows: (i) New Director Options shall become exercisable in five equal annual installments, beginning on the first anniversary of the date of grant; (ii) Annual Options shall be immediately exercisable beginning the day after the date of grant; (iii) Discretionary Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Board at the time of grant; and (iv) Retainer Options shall be exercisable beginning on the first anniversary of the date of grant. Notwithstanding the foregoing, the Board may waive the vesting provisions of any Stock Option, in whole or in part, at any time after the date of grant, based on such factors as the Board shall, in its sole discretion, deem appropriate. 5 (e) Method of Exercise. Subject to any applicable vesting ------------------ provisions, Stock Options may be exercised in whole or in part at any time during the option term, by giving written notice of exercise to the Company specifying the number of shares of Common Stock to be purchased and the option price for such shares. The option price shall be paid in full by: i) delivering cash or a check payable to the order of the Company prior to the delivery of the shares, ii) making arrangements for a broker-assisted exercise (in which the broker forwards the exercise price), or iii) making payment using shares of Common Stock owned by the Participant for at least six months preceding the exercise date. Upon exercise of the Option, a stock certificate or stock certificates representing the number of shares of Common Stock to which the Participant is entitled shall be delivered to the Participant (or, for broker-assisted exercises, to the broker). A Participant shall not be deemed to be the holder of Common Stock, or to have the rights of a holder of Common Stock, with respect to shares subject to the Option, until the Option has been exercised. (f) Termination. Unless otherwise determined by the ----------- Board, or provided in the particular Stock Option Award, Stock Options held by a Participant who ceases to be a Director shall be exercisable as follows: (i) In the case of a Participant who ceases to be a Director because of death, all Options that were outstanding on the date of the Participant's death may be exercised by the legal representative of the Participant's estate for a period of one year after the date of death or until the expiration of the stated term of the Option, whichever period is shorter. (ii) In the case of a Participant who ceases to be a Director for any other reason (including retirement because of age or disability), all Options that were outstanding on the date on which the Participant ceased to be a Director may be exercised by the Participant in accordance with the vesting provisions of the applicable Stock Option Award, until the expiration of the stated term of the Option; provided, however, that any portion of a Retainer Option that is attributable to a portion of an Annual Retainer that is not earned due to the Participant's ceasing to be a Director (for any reason) shall automatically be forfeited. (iii) Any Option not exercised during the periods specified in subsections (i) or (ii) shall terminate at the end of such period; provided, however, that the Board may accelerate the exercisability of any Option, extend the one-year period specified in subsection (i), or make such other modifications to the Stock Option Award, not inconsistent with legal requirements, as the Board shall, in its sole discretion, deem appropriate. (g) Change of Control. All outstanding options shall automatically become fully exercisable upon the occurrence of a Potential Change in Control Event. ARTICLE VII Termination or Amendment 7.1 Termination or Amendment of the Plan. The Board may at any ------------------------------------ time terminate this Plan or amend all or any part of this Plan; provided, however, that, unless otherwise required by law, and subject to Article IV, the rights of a Participant with respect to Options granted prior to such termination or amendment may not be materially impaired without the consent of such Participant. 7.2 Amendment of Options. The Board may amend the terms of any -------------------- outstanding Option, prospectively or retroactively, but, subject to Article IV, no such amendment or other action by 6 the Committee shall materially impair the rights of any Participant without the Participant's consent. ARTICLE VIII General Provisions 8.1 Nonassignment. Except as otherwise provided in this Plan, ------------- Options granted hereunder and the rights and privileges conferred thereby shall not be sold, transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. 8.2 Legend. All certificates representing shares of Common Stock ------ delivered upon exercise of Options granted under this Plan shall be subject to such stock transfer orders and other restrictions as the Board may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is listed or traded, any applicable federal or state securities law, and any applicable corporate law, and the Board may cause a legend or legends to be put on stock certificates to make appropriate reference to such restrictions. 8.3 Other Plans. Nothing contained in this Plan shall prevent ----------- the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. 8.4 No Right to Continue as Director. Neither this Plan nor the -------------------------------- grant of any Option shall constitute evidence of any agreement or understanding, express or implied, that a Director will continue as a member of the Board, or that IKON will nominate any Director for reelection by IKON's shareholders. 8.5 Withholding of Taxes. The Company shall have the right, -------------------- prior to delivering a stock certificate representing the shares of Common Stock otherwise deliverable to a Participant upon exercise of an Option, to (i) require the Participant to remit to the Company an amount sufficient to satisfy all federal, state, local and non-U.S. tax withholding requirements (including social security and Medicare withholding requirements, if applicable), (ii) reduce the number of shares of Common Stock otherwise deliverable to the Participant by an amount that would have a Fair Market Value on the date of exercise equal to the amount of all federal, state, local and non-U.S. taxes (including social security and Medicare taxes, if applicable) required to be withheld, or (iii) deduct the amount of such taxes from cash payments otherwise to be made to the Participant. In connection with such withholding, the Board may make such arrangements as are consistent with this Plan as it may deem appropriate. 8.6 Listing and Other Conditions. ---------------------------- (a) The issuance of any shares of Common Stock upon exercise of an Option shall be conditioned upon such shares being listed on the New York Stock Exchange. The Company shall have no obligation to issue any shares of Common Stock unless and until the shares are so listed, and the right to exercise any Option shall be suspended until such listing has been effected. (b) If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock upon exercise of an Option is or may under the circumstances be unlawful or result in the imposition of excise taxes under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make 7 any application or to effect or to maintain any qualification or registration under the Securities Act of 1933 or otherwise with respect to shares of Common Stock or Options, and the right to exercise any Option shall be suspended until, in the opinion of such counsel, such sale or delivery shall be lawful or shall not result in the imposition of excise taxes. (c) Upon termination of any period of suspension under this Section 8.6, any Option affected by such suspension which shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares which would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Option. 8.7 Governing Law. This Plan and actions taken in connection ------------- herewith shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania. 8.8 Construction. Wherever any words are used in this Plan in ------------ the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. 8.9 Other Benefits. The grant of an Option shall not be deemed -------------- compensation for purposes of computing benefits under any retirement plan nor affect any benefits under any other benefit plan now or hereafter in effect under which the availability or amount of benefits is related to the level of compensation. 8.10 Costs. Unless otherwise determined by the Board, the Company ----- shall bear all expenses incurred in administering this Plan, including expenses of issuing Common Stock upon the exercise of Options. 8.11 Severability. If any part of this Plan shall be determined ------------ to be invalid or void in any respect, such determination shall not affect, impair, invalidate or nullify the remaining provisions of this Plan, which shall continue in full force and effect. 8.12 Successors. This Plan shall be binding upon and inure to the ---------- benefit of any successor or successors of the Company. 8.13 Headings. Article and section headings contained in this -------- Plan are included for convenience only and are not to be used in construing or interpreting this Plan. ARTICLE IX Effective Date of Plan 9.1 Effective Date. This Plan shall become effective as of July -------------- 29, 1997. ARTICLE X Term of Plan 10.1 Term. No Stock Option shall be granted pursuant to this Plan ---- on or after July 29, 2007, but Options granted prior to such date may extend beyond that date. 8 EX-10.25 10 EXECUTIVE EMPLOYMENT CONTRACTS Exhibit 10.25 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (the "Agreement"), entered into on August __, 1997, made by and between IKON Office Solutions, Inc., an Ohio corporation with its principal offices located at Malvern, Pennsylvania (the "Company"), and John E. Stuart (the "Executive"), effective as of May 1, 1997. WHEREAS, the Executive is currently the Chairman and Chief Executive Officer of the Company; WHEREAS, the Company considers it essential to the best interests of its shareholders to facilitate the recruitment and foster the continuous employment of senior executive officers; WHEREAS, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control*/ exists and that such possibility, and the uncertainty and questions which it raises, may result in the departure or distraction of the Company's senior executive officers to the detriment of the Company and its shareholders; WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of the Company's senior executive officers, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control; and WHEREAS, the Executive is willing to continue to serve as Chairman and Chief Executive Officer of the Company, and the Company desires to retain the Executive in such capacities on the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. Employment. The Company agrees to continue to employ Executive, ---------- and the Executive agrees to be employed by the Company, upon the terms and conditions herein provided, for an initial period commencing as of May 1, 1997 and ending on April 30, 2000. On each anniversary date of this Agreement, commencing May 1, 2000, the Term shall be automatically extended for one additional year unless not less than six months prior to such anniversary date either party gives written notice of his or her intent not to extend the Term for an additional one-year period (a "Notice of Nonrenewal"); provided, however, -------- ------- that the Term shall not be extended beyond Executive's 65th birthday unless affirmatively extended in writing - ---------------------- */ The definitions of capitalized terms not otherwise identified are set forth in Section 20 of the Agreement. by the Company and Executive. In the event either party gives the other Notice of Nonrenewal, the other party may elect to terminate this Agreement as of the date of such Notice. In such event Executive agrees that, if requested by the Board of Directors, he shall be reasonably available for a period ending on the date on which such Notice of Nonrenewal was intended to become effective to assist in the orderly transition of his duties and responsibilities to such person or persons as shall be designated by the Board of Directors. 2. Position and Duties. During the Term, the Company agrees to ------------------- employ the Executive to serve as Chairman and Chief Executive Officer of the Company. The Executive will have such powers and duties as are commensurate with such positions and as may be conferred upon him by the Board. During the Term, and except for illness or incapacity and reasonable vacation periods consistent with the discharge of the Executive's duties and responsibilities hereunder, the Executive shall devote substantially all of his business time, attention, skill and efforts exclusively to the business and affairs of the Company and its subsidiaries and affiliates, provided, however, that the Executive may devote such time as is reasonably required for charitable and personal activities, in accordance with the Company's practices and policies, and serve on other boards as a director or trustee if such service does not interfere with his ability to discharge his duties and responsibilities to the Company. 3. Compensation. For all services rendered by the Executive in any ------------ capacity required hereunder during the Term, including, without limitation, services as an executive, officer, director, or member of any committee of the Company, or any subsidiary, affiliate or division thereof, the Executive shall be compensated as follows: (a) Base Salary. The Company shall pay the Executive a fixed ----------- salary of $900,000 per annum or such higher annual amount as is being paid from time to time pursuant to the terms hereof . Such fixed salary, together with all adjustments, is referred to herein as the "Base Salary." The Executive's Base Salary shall not be decreased at any time from the amount then in effect, unless the Executive otherwise agrees in writing. The Base Salary shall be subject to such periodic review (which shall occur at least annually) and such periodic increases as the Board shall deem appropriate in accordance with the Company's customary procedures and practices regarding the salaries of senior officers. Base Salary shall be payable in accordance with the customary payroll practices of the Company, but in no event less frequently than monthly. (b) Incentive Compensation. The Executive shall be entitled to ---------------------- receive annual and long-term incentive compensation awards, if earned, under the policies and plans maintained by the Company providing for the payment of incentive compensation to key officers based upon the performance of the Company and, if applicable, the officer's individual performance. The Executive's percentage participation, target percentage or other similar measure under any such policy or plan during the Term shall be at least at the highest level provided to any participant under such policy or plan. -2- (c) Stock Options. The Executive shall be eligible to receive ------------- grants under the Company's stock option plan(s) including grants relating to the Company's Long-Term Incentive Compensation Plan ( the "LTIP"), at the sole discretion of the Human Resources Committee of the Board (the "Human Resources Committee"), subject to such terms and conditions as such Committee may decide, and in accordance with the grant letter for such options. In connection with this Agreement, Executive has been granted 250,000 options on May 1, 1997, with 100,000 options to vest on April 30, 2002 and the balance to vest on November 30, 2006, if the Executive is an employee of the Company on such date. In addition: (i) The 100,000 options scheduled to vest on April 30, 2002 shall vest prior to April 30, 2002 (i.e., on the date of employment termination) in the event the Executive's employment hereunder terminates due to the Executive's death or Disability, a Without Cause Termination, a Constructive Discharge, or the Company's election not to renew. (ii) The 150,000 options scheduled to vest on November 30, 2006 shall vest prior to such date (i.e., on the date of employment termination) ---- if Executive is employed by the Company after April 30, 2002, and after such date the Executive's employment hereunder terminates due to the Executive's death or Disability, a Without Cause Termination, a Constructive Discharge, or the Company's election not to renew. (iii) All of such options shall vest upon a termination of employment after the Executive has satisfied the requirements for Early Retirement; provided, however, that the number of options that vest in such -------- ------- event shall be reduced by the sum of (A) the total number of options granted pursuant to Section 3(c) multiplied by a percentage equal to the percentage used to reduce the Executive's pension payable at normal retirement under the Company's Pension Plan, based on the terms of the Pension Plan in effect on the date hereof, to determine the pension payments payable to the Executive upon his Early Retirement; and (B) the number of such options previously vested under other provisions of this Agreement. (iv) All options which become vested hereunder or under any other provisions of this Agreement shall be exercisable by the Executive at any time during the Executive's employment with the Company in accordance with the terms and conditions of the option plan, and for a period of twelve months following the Date of Termination. For purposes of this paragraph, in the event of the Company's election not to extend the Term of this Agreement, the Executive's employment shall be deemed to terminate on the date such election is intended to become effective, notwithstanding that the Executive elects, in accordance with Section 1 hereof, to terminate his employment as of the date of the Notice of Nonrenewal. (d) Additional Benefits. Except as modified by this Agreement, ------------------- the Executive (and the Executive's family, if applicable) shall be entitled to participate in all compensation or employee benefit plans or programs (currently including, but not limited to, the LTIP, the 1994 Deferred Compensation Plan, the Executive Deferred Compensation Plan, the 1991 Deferred Compensation Plan, the Partners Stock Purchase Plan, the Annual Bonus Plan, the Supplemental -3- Retirement Plan, and the Partners Loan Program) and to receive all benefits, perquisites and emoluments, for which the most senior executive employees of the Company are eligible under any plan or program now or hereafter established and maintained by the Company for senior officers, to the fullest extent permissible under the general terms and provisions of such plans or programs and in accordance with the provisions thereof, including group hospitalization, health, dental care, life or other insurance, tax-qualified pension, savings, thrift and profit-sharing plans, termination pay programs, sick-leave plans, travel or accident insurance, disability insurance, automobile allowance or automobile lease plans, and executive contingent compensation plans, including, without limitation, capital accumulation programs and stock purchase, restricted stock and stock option plans. Notwithstanding the foregoing, nothing in this Agreement shall preclude the amendment or termination of any such plan or program, provided that such amendment or termination is applicable generally to the senior officers of the Company or any subsidiary or affiliate. Because of the severance benefits provided in this Agreement, Executive shall not participate in any general severance program established by the Company for its executives. (e) Recognition of Past Service. If the Executive becomes a --------------------------- participant in any employee benefit plan, practice or policy of the Company or its affiliates, the Executive shall be given credit under such plan, practice or policy for all service in the employ of the Company and any predecessors thereto or affiliates thereof prior to the date hereof, for purposes of eligibility and vesting, benefit accrual and for all other purposes for which service is either taken into account or recognized under the terms of such plan, practice or policy, on terms no less favorable than are applicable to other senior executives of the Company. (f) Office. During the Term, the Executive shall be entitled to ------ a private office, and such secretarial services as have been previously provided to the Executive, and such other assistance and accommodations as shall be suitable to the character of the Executive's position with the Company and adequate for the performance of the Executive's duties hereunder. (g) Automobile. During the Term, the Company shall continue to ---------- provide the Executive with a leased automobile for use by the Executive consistent with the past practices and shall continue to pay or reimburse the Executive for the maintenance and operation of such automobile upon receipt of itemized vouchers therefor and such other supporting information that the Company shall reasonably require. (h) Telephone. During the Term, the Company shall continue to --------- provide the Executive with a cellular telephone and related telephone service or a cellular telephone allowance consistent with past practices. (i) Place of Performance. In connection with his employment by -------------------- the Company, the Executive shall at all times be entitled to maintain his office at the principal executive offices of the Company, which shall not be more than fifteen (15) miles of their current -4- location, subject to the Executive's obligation to engage in such travel reasonably related to the performance of his duties hereunder. 4. Business Expenses. The Company shall pay or reimburse the ----------------- Executive for all reasonable travel or other expenses incurred by the Executive (and his spouse where there is a legitimate business reason for his spouse to accompany him) in connection with the performance of his duties and obligations under this Agreement, including, without limitation, expenses for entertainment, travel (including automobile operating expenses), meals, hotel accommodations and the like, in accordance with such rules and policies relating thereto as the Company may from time to time adopt. Reimbursement shall be subject to the Executive's presentation of appropriate vouchers in accordance with such procedures as the Company may from time to time establish for senior officers and to preserve any deductions for Federal income taxation purposes to which the Company may be entitled. 5. Effect of Termination of Employment Other Than in Connection with ----------------------------------------------------------------- a Change in Control. - ------------------- (a) Certain Terminations. In the event the Executive's -------------------- employment hereunder terminates due to (i) a Without Cause Termination, (ii) a Constructive Discharge, or (iii) the Company's election not to renew, the Company shall, as severance pay, continue, subject to the provisions of Section 7 below, to pay the Executive's Base Salary as in effect at the Date of Termination during the Separation Period. In addition, earned but unpaid Base Salary as of the Date of Termination shall be payable in full within seven days of the Date of Termination. The salary continuation payments shall be offset to the extent of the Executive's earnings from full-time employment with another employer during the Separation Period (with any such payments and any other payments arising from employment activities to be reported to the Company by the Executive). Group hospitalization, health, dental care, life or other insurance, travel or accident insurance, and disability insurance shall continue through the end of the Separation Period, provided that the Company may cease to provide such benefits if Executive obtains comparable coverage in connection with subsequent employment during the Separation Period, and provided further that in the event the Company is precluded from providing coverage under any such program by applicable law or regulation, it shall provide Executive with a lump- sum payment equal to an amount that would enable Executive after payment of applicable taxes on such lump-sum amount to purchase comparable coverage. The Executive shall be entitled to a pro rata award for any annual bonus award in Section 3(b) for the fiscal year in which the Executive's termination occurs based on actual results for the full year, payable at the same time as the award is paid to other senior executives of the Company, and to outplacement assistance at the Company's expense from an experienced third party vendor. Except as the Human Resources Committee may otherwise determine at its discretion or except as otherwise provided in the applicable plan, upon termination of employment, the Executive shall not be entitled to any further benefits or vesting under the Company's long term incentive plans, retirement or savings plans, deferred compensation or stock purchase plans, or stock option plans following the Date of Termination. -5- (b) Other Terminations. In the event that the Executive's ------------------ employment hereunder terminates due to Disability, a termination for Cause, or the Executive's death, or the Executive voluntarily terminates employment with the Company for reasons other than a Constructive Discharge or Disability (with voluntary retirement or termination following Executive's delivery of a Notice of Nonrenewal being a voluntary termination for purposes of this Agreement), earned but unpaid Base Salary as of the Date of Termination shall be payable in full. In the event of the Executive's Disability, Company shall pay to the Executive, and in the event of the Executive's death, the Company shall pay to the Executive's surviving spouse or to such other person or entity as Executive may designate in writing on notice filed with the Company (or to his estate, if he has made no such written designation and is not survived by a spouse), the annual bonus award in Section 3(b) for the fiscal year in which his Disability or death occurs, prorated to the date of the Executive's Disability or death. However, except as the Human Resources Committee may otherwise determine at its discretion or except as otherwise provided in the applicable plan, no other payments shall be made, or benefits provided, by the Company under this Agreement except for stock options to the extent already exercisable hereunder, vested benefits payable under the terms of Company's retirement and savings plans, and any other benefits which the Executive is entitled to receive under the terms of any other employee benefit programs maintained by the Company or its affiliates for its employees. (c) A Notice of Termination shall be the sole means by which the Company or the Executive may terminate the Executive's employment during the Term. Any purported termination of the Executive's employment (other than by reason of death) shall be communicated by a written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. (d) A Notice of Termination for Cause shall include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the voting membership of the Board at a meeting of the Board which considered such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct specifically included in the definition of Cause, and specifying the particulars thereof in detail. In any Board deliberations or votes concerning determinations under this paragraph, Executive shall recuse himself from such deliberations and votes. 6. Effect of Termination of Employment in Connection with a Change in ------------------------------------------------------------------ Control Event. - ------------- (a) For purposes of this Section 6, if preceded by a Potential Change in Control Event, any of the following events shall be deemed to be a Termination upon a Change in Control Event: (i) the Executive's employment is terminated without Cause and such termination was at the request or direction of, or pursuant to negotiations with, a Person who has entered into an agreement with the Company the consummation of which will constitute a -6- Change in Control Event; (ii) the Executive terminates his employment due to Constructive Discharge and the circumstance or event which constitutes Constructive Discharge occurs at the request or direction of, or pursuant to negotiations with, such Person; or (iii) the Executive's employment is terminated without Cause and such termination is otherwise in connection with or in anticipation of a Change in Control Event which actually occurs. (b) Payments for Termination upon a Change in Control Event. ------------------------------------------------------- In the event of the termination of Executive's employment in circumstances constituting a Termination upon a Change in Control Event, the Company shall pay to the Executive in a single payment in cash (without any discount or reductions, except as otherwise specifically provided herein, for the time value of money) and/or provide to the Executive, as applicable, the following: (i) the Executive's earned but unpaid Base Salary as of the Date of Termination; (ii) the target annual bonus award in Section 3(b) for the year in which termination occurs, prorated to the Date of Termination, assuming all target performance goals have been or will be achieved; (iii) the benefits, if any, to which the Executive is entitled as a former employee under the employee benefit programs and compensation plans and programs maintained for the benefit of the Company's officers and employees; (iv) continued group hospitalization, health, dental care, life or other insurance, travel or accident insurance and disability insurance, for the Separation Period, with coverage substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any amendment to such benefits made subsequent to a Change in Control Event which amendment adversely affects in any manner the Executive's entitlement to or the amount of such benefits); provided, -------- however, that (A) except as provided in subsection (B) of this paragraph, unless - ------- the Executive consents to a different method (after taking into account the effect of such method on the calculation of "parachute payments" pursuant to Section 6(c) hereof), such health insurance benefits shall be provided through a third-party insurer, and provided further (B) in the event the Company is precluded from providing coverage under any such program by applicable law or regulation, it shall provide Executive with a lump-sum payment equal to an amount that would enable Executive after payment of applicable income and employment taxes on such lump-sum amount to purchase comparable coverage. Benefits otherwise receivable by the Executive pursuant to this Section shall be reduced to the extent comparable benefits are actually received by the Executive without cost during the Separation Period (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). (v) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to -7- the Executive, an amount equal to the Base Salary and annual bonus the Executive would have earned during the Separation Period if the Executive had continued working for the Company at the highest annual rate of Base Salary that the Executive achieved before the Date of Termination, and received an annual target percentage bonus for each year and part thereof at the target potential award level, assuming all target performance goals have been or will be achieved. (vi) an amount equal to the excess of (A) the present value of the benefits to which the Executive would be entitled under the Company's Pension Plan and Company's Supplemental Retirement Plan (and any successor thereto) if the Executive had continued working for the Company during the Separation Period at the highest annual rate of Base Salary achieved during the Executive's period of actual employment with the Company, and the Pension Plan continued in force during the Separation Period, over (B) the present value of the benefits to which the Executive is actually entitled under the Company's Pension Plan and Supplemental Retirement Plan, each computed as of the date of the Executive's Date of Termination, with present values to be determined using the discount rate used by the Pension Benefits Guaranty Corporation to calculate the benefit liabilities under the Pension Plan in the event of a plan termination on the Date of Termination, compounded monthly, the mortality tables prescribed in the Company's Pension Plan for determining actuarial equivalence, and the reduction factor (if any) for early commencement of pension payments based on the Executive's age on the last day of the Separation Period; (vii) an amount equal to the Company's contributions to which the Executive would have been entitled under the Company's Retirement Savings Plan (or any successor thereto) if the Executive had continued working for the Company and the Retirement Savings Plan continued in force during the Separation Period at the highest annual rate of Base Salary achieved during the Executive's period of actual employment with the Company, and making the maximum amount of employee contributions, if any, as are required under such plans; (viii) Notwithstanding any provision of the Company's LTIP or the Partners' Stock Purchase Plan to the contrary, the Executive shall be fully vested in the Company contributions credited to him under the Partners' Stock Purchase Plan, and the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (A) any incentive compensation which has been allocated or awarded to the Executive for a measuring period which commenced prior to the Date of Termination under the LTIP but which, as of the Date of Termination, is contingent only upon the continued employment of the Executive to a subsequent date and/or upon achievement of performance goals and which otherwise has not been paid, computed as if all performance goals have been or will be achieved to the maximum extent, in lieu of any payment of such incentive compensation under the LTIP, and without proration; (B) the amount of a 100% match on purchases made under the Partners' Stock Purchase Plan in the year in which the Date of Termination occurs, less the amount of the match actually made under the Partners' Stock Purchase Plan for the portion of the year prior to the Date of Termination; and (C) the amount of a 100% match on purchases the Executive could have made under the -8- Partners' Stock Purchase Plan during the Separation Period (assuming no increase or decrease in the purchase price under the Plan following the Date of Termination) if the Executive had continued working for the Company and the Partners' Stock Purchase Plan continued in force during the Separation Period at the pay and bonus levels specified in (v) above; (ix) Full vesting in all stock options, including the stock options described in Section 3(c), and including stock options granted after the date of this Agreement which, to the extent not previously vested, shall be exercisable beginning on the date of the Termination upon a Change in Control Event; and (x) A one-year extension of any loan repayment obligation under the Company's Partners Loan Program (subject to interest accrual pursuant to the terms of such Plan). (c) Adjustment for Excess Parachute Payments. ---------------------------------------- (i) If any payment or benefit received or to be received by the Executive in connection with a Change in Control Event or the termination of the Executive's employment whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control Event or any Person affiliated with the Company or such Person (with all such payments and benefits, including the severance payments, hereinafter called "Total Payments") will be subject (in whole or part) to the Excise Tax, then the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment shall be equal to the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income and employment taxes at the highest marginal rate of federal income and employment taxation in the calendar year in which the Gross- Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation, including any surtax in the state and locality of the Executive's residence on the Date of Termination (or, if inapplicable, the date of the Change of Control Event, with the relevant date hereinafter referred to as the "Payment Date"), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (ii) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) all of the Total Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, unless in the opinion of tax counsel (the "Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm (the "Auditor") which was, immediately prior to the Change in Control Event, the Company's independent auditor, such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (B) all "excess parachute payments" within the meaning of -9- section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or part) represent reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (C) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of section 280G(d)(3) and (4) of the Code. Prior to the payment date set forth in Section 6(d) hereof, the Company shall provide the Executive with its calculation of the amounts referred to in this Section and such supporting materials as are reasonably necessary for the Executive to evaluate the Company's calculations. If the Executive disputes the Company's calculations (in whole or in part), the opinion of Tax Counsel with respect to the matter in dispute shall prevail. (iii) In the event that (A) amounts are paid to the Executive pursuant to subsection (i) of this Section, and (B) the Excise Tax is subsequently determined to be less than the amount taken into account hereunder on the Payment Date, the Executive shall repay to the Company, within 90 days following the date on which the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in determining the amount of the Gross-Up Payment at the time of the Payment Date (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment to the Executive in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess and such portion) within 90 days following the date on which the amount of such excess is finally determined at the rate provided in section 1274(b)(2)(B) of the Code. (d) The payments provided for in subsections (i), (ii), (v), (vi), (vii) and (viii) of Section 6(b) hereof and subsections (i), (ii) and, if applicable, (iii) of Section 6(c) hereof shall be made not later than the twentieth (20) day following the Date of Termination; provided, however, that if -------- ------- the amounts of such payments, or, if applicable, the Excise Tax, cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive or, in the case of Gross-Up Payments under Section 6(c) hereof, in accordance with Section 6(c)(ii) hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in section 1274(b)(2) (B) of the Code). At the time that payments are made under this Section and Section 6(c), the Company shall provide the Executive with a written statement setting forth the manner in which such payments were -10- calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from outside counsel, auditors or consultants (and any such opinions or advice which are in writing shall be attached to the statement). In the event the Company should fail to pay when due the amounts described in Section 6(b) hereof or subsections (i), (ii) and, if applicable, (iii) of Section 6(c), the Executive shall also be entitled to receive from the Company an amount representing interest on any unpaid or untimely paid amounts from the due date, as determined under this Section, to the date of payment at the rate provided in section 1274(b)(2)(B) of the Code after such due date. (e) The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in (i) the negotiation and execution of this Agreement, and (ii) following a Change in Control Event (including a termination of employment following a Potential Change in Control Event if the Executive alleges in good faith that such termination will be deemed to have occurred following a Change in Control Event pursuant to Section 6(a) hereof) in disputing in good faith any issue relating to the termination of the Executive's employment or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made as such fees and expenses are incurred by the Executive, but in no event later than five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 7. Other Duties of the Executive During and After Term. --------------------------------------------------- (a) Confidential Information. Executive acknowledges that by ------------------------ reason of his employment with the Company he has and will hereafter, from time to time during the Term, become exposed to and/or become knowledgeable about proposals, plans inventions, practices, systems, programs, formulas, processes, methods, techniques, research, records, supplier sources, customer lists, and other forms of business information which are not known to the Company's competitors and which are not recognized as being encompassed within standard business or management practices and which are kept secret and confidential by the Company (the "Confidential Information"). The Executive therefore agrees that at no time during or after the period of his employment by the Company will he disclose or use the Confidential Information except to the extent such information becomes public through no fault of the Executive, as required by law, as authorized by the Board, or as may be required in the prudent course of business for the benefit of the Company; provided, that no payment required to be made by the Company under the terms of this Agreement after termination of the employment of the Executive shall be subject to any right of set-off, counterclaim, defense, abatement, suspension, deferment or reduction by reason of any claim against the Executive based upon breach of the covenant in this Section 7(a) other than upon execution of an unsatisfied judgment rendered by a court of competent jurisdiction. -11- (b) Non-Compete. In consideration of the mutual terms and ----------- agreements set forth in this Agreement and the grant of stock options under Section 3(c) hereof, the Executive hereby agrees that (i) while the Executive is employed during the Term, (ii) during such time after the Term as the Executive is employed by the Company and (iii) for a period of one year after the Executive's Date of Termination, he will not, unless authorized in writing to do so by the Company, directly or indirectly own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed or otherwise connected in any substantial manner with any business which directly or indirectly competes to a material extent with any line of business of the Company or its subsidiaries which was operated by the Company or its subsidiaries at the Date of Termination; provided, that nothing in this -------- paragraph shall prohibit the Executive from acquiring up to 5% of any class of outstanding equity securities of any corporation whose equity securities are regularly traded on a national securities exchange or in the "over-the-counter market," and provided further, that the foregoing restriction of this Section -------- ------- 7(b) shall not apply following a Change of Control Event or a Potential Change in Control Event if (v) the Executive's employment has been terminated by the Company without Cause, (w) the Executive terminates his employment as the result of a Constructive Discharge or (x) the Company elects not to extend the Term of this Agreement. The Executive agrees that for a period ending three years after the Date of Termination hereunder, the Executive will not (y) recruit any employee of the Company or solicit or induce, or attempt to solicit or induce, any employee of the Company to terminate his or her employment with, or otherwise cease his or her relationship with, the Company, or (z) solicit, divert or take away, or attempt to solicit, divert or take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Company that were contacted, solicited or served by the Executive while employed by the Company. (c) Remedies. The Company and the Executive confirm that the -------- restrictions contained in Sections 7(a) and 7(b) hereof are, in view of the nature of the business of the Company, reasonable and necessary to protect the legitimate interests of the Company and that any violation of any provision of Section 7(a) or 7(b) will result in irreparable injury to the Company. The Executive hereby agrees that, in the event of any breach or threatened breach of the terms or conditions of this Agreement by the Executive, the Company's remedies at law will be inadequate and, in any such event, the Company shall be entitled to commence an action for preliminary and permanent injunctive relief and other equitable relief in any court of competent jurisdiction. The Executive further irrevocable consents to the jurisdiction of any Pennsylvania state court or federal court located in the Commonwealth of Pennsylvania over any suit, action or proceeding arising out of or relating to this Section 7(c) and hereby waives, to the fullest extent permitted by law, any objection that he may now or hereafter have to such jurisdiction or to the laying of venue of any such suit, action or proceeding brought in such a court and any claim that such suit, action or proceeding has been brought in an inconvenient forum. In addition, if the Executive at any time during the Separation Period Executive engages in conduct described in Section 7(b) (whether or not within the one-year period after the termination of his employment with the Company), the Company shall be entitled to discontinue the payments and benefits provided under Section 5(a). The Executive's Agreement as set forth in this Section 7 shall: (x) -12- survive the termination of this Agreement, and continue throughout the duration of the Executive's employment with the Company, except as amended or modified by written agreement of the parties; and (y) survive the Executive's termination of employment with the Company for the periods specified in Section 7(b) hereof. (d) Modification of Terms. If any restriction in this Section --------------------- 7 of the Agreement is adjudicated to exceed the time, geographic, service or other limitations permitted by applicable law in any jurisdiction, the Executive agrees that such may be modified and narrowed, either by a court or the Company, to the maximum time, geographic, service or other limitations permitted by applicable law so as to preserve and protect the Company's legitimate business interest, without negating or impairing any other restrictions or undertaking set forth in the Agreement. 8. Withholding Taxes. The Company may directly or indirectly withhold ----------------- from any payments made under this Agreement all Federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 9. Consolidation, Merger, or Sale of Assets. Nothing in this Agreement ---------------------------------------- shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term "Company" as used herein shall mean such other corporation and this Agreement shall continue in full force and effect. 10. Notices. All notices, requests, demands and other communications ------- required or permitted hereunder shall be given in writing and shall be deemed to have been duly given if delivered or mailed, postage prepaid, by same day or overnight mail as follows: (a) To Company: General Counsel IKON Office Solutions, Inc. 70 Valley Stream Parkway Malvern, PA 19355 (b) To the Executive: John E. Stuart 890 West Strasburg Road West Chester, PA 19382 or to such other address as either party shall have previously specified in writing to the other. -13- 11. No Attachment. Except as required by law, no right to receive ------------- payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect; provided, however, that nothing in this Section -------- ------- 11 shall preclude the assumption of such rights by executors, administrators or other legal representatives of the Executive or his estate and their assigning any rights hereunder to the person or persons entitled thereto. 12. No Mitigation. The Executive shall not be required to mitigate the ------------- amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor except as otherwise specifically provided in this Agreement shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by other employment or otherwise. 13. Source of Payment. All payments provided for under this Agreement ----------------- shall be paid in cash from the general funds of the Company. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the Company shall make any investments to aid it in meeting its obligations hereunder, the Executive shall have no right, title or interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and the Executive or any other person. To the extent that any person acquires a right to receive payments from the Company hereunder, such right, without prejudice to rights which employees may have, shall be no greater than the right of an unsecured creditor of the Company. 14. Severability. If any provision of this Agreement or application ------------ thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. 15. Contents of Agreement. This Agreement supersedes all prior --------------------- agreements and sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment approved by the parties hereto. Unless otherwise required by law, in the event of a conflict between this Agreement and any plan, program, stock option award, LTIP award, or Company policy, the terms of this Agreement shall be controlling. 16. Governing Law. The validity, interpretation, performance, and ------------- enforcement of this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania (and -14- Federal laws to the extent applicable), and Executive consents to the jurisdiction of the state and federal courts of Pennsylvania in any dispute arising under this Agreement. 17. Survival of Benefits. Any Section of this Agreement which provides -------------------- a benefit to the Executive and which does not expressly provide for its termination upon the expiration of the Term shall survive the expiration of the Term and the obligation to provide benefits to the Executive as set forth in such Section shall remain binding upon the Company until such time as the Executive's employment relationship with the Company is terminated and the benefits provided under such Section are paid in full to the Executive. 18. Miscellaneous. All section headings are for convenience only. This ------------- Agreement may be executed in any number of counterparts, each of which when executed shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. It shall not be necessary in marking proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 19. Settlement of Disputes; Arbitration. Except with respect to actions ----------------------------------- for preliminary and permanent injunctive relief and other equitable relief under Section 7, any controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall be settled by arbitration in accordance with the terms of this Section 19. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing within thirty (30) days and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within thirty (30) days after notification by the Board that the Executive's claim has been denied. Any further dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation or alleged breach thereof, shall be settled by arbitration in accordance with the Center for Public Resources, Inc. Non-Administered Arbitration Rules, by three arbitrators, none of whom shall be appointed by either party. The arbitration shall be governed by United States Arbitration Act 9 U.S.C. (S). 1-16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of the arbitration shall be Philadelphia, Pennsylvania. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 20. Definitions. For purposes of this Agreement, the following terms ----------- have the following meanings: -15- (a) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code. (b) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. (c) "Cause," prior to a Change of Control Event or a Potential Change of Control Event, shall mean termination by the Company of the Executive's employment due to (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has failed to substantially perform the Executive's duties, and which provides Executive with at least a 30-day period to correct such failure, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Board determines, by an affirmative vote of not less than three-quarters (3/4) of the voting membership of the Board, that Cause has been established by clear and convincing evidence. In any Board deliberations or votes concerning a determination under this paragraph, Executive shall recuse himself from such deliberations and votes. Following a Change in Control Event or a Potential Change in Control Event, "Cause" shall mean a judicial determination that the Executive has committed fraud, misappropriation or embezzlement against the Company; or a nonappealable conviction of, or entry of a plea of nolo contendere for, an act by the Executive constituting a felony or misdemeanor which, as determined by the Board in the good faith, constitutes a crime involving moral turpitude and results in material harm to the Company. Any dispute by the Executive of a Board determination under this paragraph shall be resolved in accordance with Section 19 hereof. (d) "Change in Control Event" shall mean any of the following events: (i) any Person, together with its affiliates and associates (as such terms are used in Rule 12b-2 of the Exchange Act), is or becomes the Beneficial Owner, directly or indirectly, of 15% or more of the then outstanding shares of common stock of the Company; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least a -16- majority of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved; or (iii) the Company consolidates with, or merges with or into, any other Person (other than a wholly owned subsidiary of the Company), or any other person consolidates with, or merges with or into, the Company, and, in connection therewith, all or part of the outstanding shares of common stock shall be changed in any way or converted into or exchanged for stock or other securities or cash or any other property; or (iv) a transaction or series of transactions in which, directly or indirectly, the Company shall sell or otherwise transfer (or one or more of its subsidiaries shall sell or otherwise transfer) assets (A) aggregating more than 50% of the assets (measured by either book value or fair market value) or (B) generating more than 50% of the operating income or cash flow of the Company and its subsidiaries (taken as a whole) to any other Person or group of Persons. Notwithstanding the foregoing, no "Change in Control Event" shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions own a majority of the outstanding voting shares and in substantially the same proportion in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. Reference to any section or subsection of the Code includes references to any comparable or succeeding provision of any legislation which amends, supplements, or replaces such section or subsection. (f) "Constructive Discharge" shall mean a termination by the Executive of the Executive's employment as a result of the occurrence (without the Executive's express written consent) of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (i), (v), (vi) or (vii) below, such act or failure to act is corrected prior to the Date of Termination: (i) the assignment to the Executive of duties inconsistent with the Executive's status as a senior executive officer of the Company or a substantial alteration in the nature or status of the Executive's responsibilities other than any such alteration primarily attributable to the fact that the Company may no longer be a public company; (ii) a reduction by the Company in the Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time; -17- (iii) the relocation of the Company's principal executive offices to a location more than 15 miles from the then location of such offices without the Executive's written consent or the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations; (iv) the failure by the Company to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven (7) days of the date such compensation is due after written demand from the Executive has been received therefor; (v) following a Change in Control Event or a Potential Change in Control Event, the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control Event or the Potential Change in Control Event which is material to the Executive's total compensation, including but not limited to the Company's stock option, incentive compensation, deferred compensation, stock purchase, bonus and other plans or any substitute plans adopted prior to the Change in Control Event, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation, relative to other participants, as existed immediately prior to the Change in Control Event or the Potential Change in Control Event; (vi) following a Change in Control Event or a Potential Change in Control Event, the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control Event or the Potential Change in Control Event, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control Event or a Potential Change in Control Event, or the failure by the Company to maintain a vacation policy with respect to the Executive that is at least as favorable as the vacation policy (whether formal or informal) in place with respect to the Executive immediately prior to the Change in Control Event or the Potential Change in Control Event; or (vii) following a Change in Control Event, or a Potential Change of Control Event, any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination; or -18- (viii) any breach by the Company of any material provision of this Agreement. The Executive's right to terminate employment due to Constructive Discharge shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Constructive Discharge hereunder. For purposes of any determination regarding a Constructive Discharge, a claim by the Executive of a Constructive Discharge shall be presumed to be correct unless the Board determines, by an affirmative vote of not less than three-quarters (3/4) of the voting membership of the Board, that a Constructive Discharge has not occurred by clear and convincing evidence. In any Board deliberations or votes concerning a determination under this paragraph, Executive shall recuse himself from such deliberations and votes. Any dispute by the Executive of a Board determination under this provision shall be resolved in accordance with Section 19. (g) "Date of Termination," with respect to any purported termination of the Executive's employment, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period); and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than thirty (30) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). (h) "Disability" shall mean termination by the Company of the Executive's employment upon or following Executive's commencement of benefits under the Company's long-term disability plan. (i) "Early Retirement" shall mean attainment of age 55, and completion of ten years of service with the Company as determined under the Company's Pension Plan. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (k) "Excise Tax" shall mean any excise tax imposed under section 4999 or the Code. -19- (l) "Gross-Up Payment" shall have the meaning set forth in Section 6(c) hereof. (m) "Notice of Termination" shall mean a notice indicating the specific termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (n) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act), (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company. (o) "Potential Change in Control Event" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) the Company enters into an agreement, the consummation of which will result in the occurrence of a Change in Control Event; (ii) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, will constitute a Change in Control Event; or (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control Event has occurred. (p) "Separation Period" shall mean the three-year period (or such longer period as the Human Resources Committee may determine) beginning on the Date of Termination. (q) "Term" shall mean the initial period commencing as of May 1, 1997 and ending on April 30, 2000, and any additional one-year periods for which this Agreement is extended in accordance with Section 1 hereof. (r) "Termination upon a Change in Control Event" shall mean a termination of employment: -20- (i) initiated by Company for any reason, including delivery of Notice of Nonrenewal, other than termination for Cause, upon or within two years after a Change in Control Event; or (ii) initiated by the Executive due to a Constructive Discharge, upon or within two years after a Change in Control Event; or (iii) under circumstances described in Section 6(a) hereof. A termination due to death, Disability, or for Cause shall not constitute a Termination upon a Change in Control Event, and payments in the event of such a termination shall be determined under Section 5(b) hereof. (s) "Total Payments" shall mean those payments described in Section 6(c) hereof. (t) "Without Cause Termination" shall mean a termination of the Executive's employment by the Company, other than due to Disability, voluntary retirement, expiration of the Term or for Cause. -21- IN WITNESS WHEREOF, and intending to be legally bound, the Company has caused this Agreement to be executed by its duly authorized officers and the Executive has signed this Agreement as of the date first above written. IKON OFFICE SOLUTIONS, INC. By: ------------------------------ Authorized Signatory --------------------------------- JOHN E. STUART -22- EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (the "Agreement"), entered into on August __, 1997, made by and between IKON Office Solutions, Inc., an Ohio corporation with its principal offices located at Malvern, Pennsylvania (the "Company"), and Kurt E. Dinkelacker (the "Executive"), effective as of May 1, 1997. WHEREAS, the Executive is currently the Chief Financial Officer of the Company; WHEREAS, the Company considers it essential to the best interests of its shareholders to facilitate the recruitment and foster the continuous employment of senior executive officers; WHEREAS, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control*/ exists and that such possibility, and the uncertainty and questions which it raises, may result in the departure or distraction of the Company's senior executive officers to the detriment of the Company and its shareholders; WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of the Company's senior executive officers, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control; and WHEREAS, the Executive is willing to continue to serve as Chief Financial Officer of the Company, and the Company desires to retain the Executive in such capacity on the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. Employment. The Company agrees to continue to employ Executive, and ---------- the Executive agrees to be employed by the Company, upon the terms and conditions herein provided, for an initial period commencing as of May 1, 1997 and ending on April 30, 2000. On each anniversary date of this Agreement, commencing May 1, 2000, the Term shall be automatically extended for one additional year unless not less than six months prior to such anniversary date either party gives written notice of his or her intent not to extend the Term for an additional one-year period (a "Notice of Nonrenewal"); provided, however, -------- ------- that the Term shall not be extended beyond Executive's 65th birthday unless affirmatively extended in writing by the Company and Executive. In the event either party gives the other Notice of Nonrenewal, - --------------------- */ The definitions of capitalized terms not otherwise identified are set forth in Section 20 of the Agreement. the other party may elect to terminate this Agreement as of the date of such Notice. In such event Executive agrees that, if requested by the Board of Directors, he shall be reasonably available for a period ending on the date on which such Notice of Nonrenewal was intended to become effective to assist in the orderly transition of his duties and responsibilities to such person or persons as shall be designated by the Board of Directors. 2. Position and Duties. During the Term, the Company agrees to employ ------------------- the Executive to serve as Chief Financial Officer of the Company. The Executive will have such powers and duties as are commensurate with such position and as may be conferred upon him by the Board. During the Term, and except for illness or incapacity and reasonable vacation periods consistent with the discharge of the Executive's duties and responsibilities hereunder, the Executive shall devote substantially all of his business time, attention, skill and efforts exclusively to the business and affairs of the Company and its subsidiaries and affiliates, provided, however, that the Executive may devote such time as is reasonably required for charitable and personal activities, in accordance with the Company's practices and policies, and serve on other boards as a director or trustee if such service does not interfere with his ability to discharge his duties and responsibilities to the Company. 3. Compensation. For all services rendered by the Executive in any ------------ capacity required hereunder during the Term, including, without limitation, services as an executive, officer, director, or member of any committee of the Company, or any subsidiary, affiliate or division thereof, the Executive shall be compensated as follows: (a) Base Salary. The Company shall pay the Executive a fixed ----------- salary of $350,000 per annum or such higher annual amount as is being paid from time to time pursuant to the terms hereof . Such fixed salary, together with all adjustments, is referred to herein as the "Base Salary." The Executive's Base Salary shall not be decreased at any time from the amount then in effect, unless the Executive otherwise agrees in writing. The Base Salary shall be subject to such periodic review (which shall occur at least annually) and such periodic increases as the Board shall deem appropriate in accordance with the Company's customary procedures and practices regarding the salaries of senior officers. Base Salary shall be payable in accordance with the customary payroll practices of the Company, but in no event less frequently than monthly. (b) Incentive Compensation. The Executive shall be entitled to ---------------------- receive annual and long-term incentive compensation awards, if earned, under the policies and plans maintained by the Company providing for the payment of incentive compensation to key officers based upon the performance of the Company and, if applicable, the officer's individual performance. The Executive's percentage participation, target percentage or other similar measure under any such policy or plan during the Term shall be at least at the level provided to other senior executives of the Company (other than the Chief Executive Officer) under such policy or plan. -2- (c) Stock Options. The Executive shall be eligible to receive ------------- grants under the Company's stock option plan(s) including grants relating to the Company's Long-Term Incentive Compensation Plan ( the "LTIP"), at the sole discretion of the Human Resources Committee of the Board (the "Human Resources Committee"), subject to such terms and conditions as such Committee may decide, and in accordance with the grant letter for such options. In connection with this Agreement, Executive has been granted 50,000 options on May 1, 1997, with 20,000 options to vest on April 30, 2002 and the balance to vest on November 30, 2006, if the Executive is an employee of the Company on such date. In addition: (i) The 20,000 options scheduled to vest on April 30, 2002 shall vest prior to April 30, 2002 (i.e., on the date of employment ---- termination) in the event the Executive's employment hereunder terminates due to the Executive's death or Disability, a Without Cause Termination, a Constructive Discharge, or the Company's election not to renew. (ii) The 30,000 options scheduled to vest on November 30, 2006 shall vest prior to such date (i.e., on the date of employment termination) ---- if Executive is employed by the Company after April 30, 2002, and after such date the Executive's employment hereunder terminates due to the Executive's death or Disability, a Without Cause Termination, a Constructive Discharge, or the Company's election not to renew. (iii) All options which become vested hereunder or under any other provisions of this Agreement shall be exercisable by the Executive at any time during the Executive's employment with the Company in accordance with the terms and conditions of the option plan, and for a period of twelve months following the Date of Termination. For purposes of this paragraph, in the event of the Company's election not to extend the Term of this Agreement, the Executive's employment shall be deemed to terminate on the date such election is intended to become effective, notwithstanding that the Executive elects, in accordance with Section 1 hereof, to terminate his employment as of the date of the Notice of Nonrenewal. (d) Additional Benefits. Except as modified by this Agreement, ------------------- the Executive (and the Executive's family, if applicable) shall be entitled to participate in all compensation or employee benefit plans or programs (currently including, but not limited to, the LTIP, the 1994 Deferred Compensation Plan, the Executive Deferred Compensation Plan, the 1991 Deferred Compensation Plan, the Partners Stock Purchase Plan, the Annual Bonus Plan, the Supplemental Retirement Plan, and the Partners Loan Program) and to receive all benefits, perquisites and emoluments, for which the most senior executive employees of the Company are eligible under any plan or program now or hereafter established and maintained by the Company for senior officers, to the fullest extent permissible under the general terms and provisions of such plans or programs and in accordance with the provisions thereof, including group hospitalization, health, dental care, life or other insurance, tax-qualified pension, savings, thrift and profit-sharing plans, termination pay programs, sick-leave plans, travel or accident insurance, disability insurance, automobile allowance or automobile lease plans, and executive contingent compensation plans, including, without limitation, capital accumulation programs and stock purchase, restricted stock -3- and stock option plans. Notwithstanding the foregoing, nothing in this Agreement shall preclude the amendment or termination of any such plan or program, provided that such amendment or termination is applicable generally to the senior officers of the Company or any subsidiary or affiliate. Because of the severance benefits provided in this Agreement, Executive shall not participate in any general severance program established by the Company for its executives. (e) Recognition of Past Service. If the Executive becomes a --------------------------- participant in any employee benefit plan, practice or policy of the Company or its affiliates, the Executive shall be given credit under such plan, practice or policy for all service in the employ of the Company and any predecessors thereto or affiliates thereof prior to the date hereof, for purposes of eligibility and vesting, benefit accrual and for all other purposes for which service is either taken into account or recognized under the terms of such plan, practice or policy, on terms no less favorable than are applicable to other senior executives of the Company. (f) Office. During the Term, the Executive shall be entitled ------ to a private office, and such secretarial services as have been previously provided to the Executive, and such other assistance and accommodations as shall be suitable to the character of the Executive's position with the Company and adequate for the performance of the Executive's duties hereunder. (g) Automobile. During the Term, the Company shall continue to ---------- provide the Executive with a leased automobile for use by the Executive consistent with the past practices and shall continue to pay or reimburse the Executive for the maintenance and operation of such automobile upon receipt of itemized vouchers therefor and such other supporting information that the Company shall reasonably require. (h) Telephone. During the Term, the Company shall continue to --------- provide the Executive with a cellular telephone and related telephone service or a cellular telephone allowance consistent with past practices. 4. Business Expenses. The Company shall pay or reimburse the Executive ----------------- for all reasonable travel or other expenses incurred by the Executive (and his spouse where there is a legitimate business reason for his spouse to accompany him) in connection with the performance of his duties and obligations under this Agreement, including, without limitation, expenses for entertainment, travel (including automobile operating expenses), meals, hotel accommodations and the like, in accordance with such rules and policies relating thereto as the Company may from time to time adopt. Reimbursement shall be subject to the Executive's presentation of appropriate vouchers in accordance with such procedures as the Company may from time to time establish for senior officers and to preserve any deductions for Federal income taxation purposes to which the Company may be entitled. 5. Effect of Termination of Employment Other Than in Connection with a ------------------------------------------------------------------- Change in Control. - ----------------- -4- (a) Certain Terminations. In the event the Executive's -------------------- employment hereunder terminates due to (i) a Without Cause Termination, (ii) a Constructive Discharge, or (iii) the Company's election not to renew, the Company shall, as severance pay, continue, subject to the provisions of Section 7 below, to pay the Executive's Base Salary as in effect at the Date of Termination during the Separation Period. In addition, earned but unpaid Base Salary as of the Date of Termination shall be payable in full within seven days of the Date of Termination. The salary continuation payments shall be offset to the extent of the Executive's earnings from full-time employment with another employer during the Separation Period (with any such payments and any other payments arising from employment activities to be reported to the Company by the Executive). Group hospitalization, health, dental care, life or other insurance, travel or accident insurance, and disability insurance shall continue through the end of the Separation Period, provided that the Company may cease to provide such benefits if Executive obtains comparable coverage in connection with subsequent employment during the Separation Period, and provided further that in the event the Company is precluded from providing coverage under any such program by applicable law or regulation, it shall provide Executive with a lump-sum payment equal to an amount that would enable Executive after payment of applicable taxes on such lump-sum amount to purchase comparable coverage. The Executive shall be entitled to a pro rata award for any annual bonus award in Section 3(b) for the fiscal year in which the Executive's termination occurs based on actual results for the full year, payable at the same time as the award is paid to other senior executives of the Company, and to outplacement assistance at the Company's expense from an experienced third party vendor. Except as the Human Resources Committee may otherwise determine at its discretion or except as otherwise provided in the applicable plan, upon termination of employment, the Executive shall not be entitled to any further benefits or vesting under the Company's long term incentive plans, retirement or savings plans, deferred compensation or stock purchase plans, or stock option plans following the Date of Termination. (b) Other Terminations. In the event that the Executive's ------------------ employment hereunder terminates due to Disability, a termination for Cause, or the Executive's death, or the Executive voluntarily terminates employment with the Company for reasons other than a Constructive Discharge or Disability (with voluntary retirement or termination following Executive's delivery of a Notice of Nonrenewal being a voluntary termination for purposes of this Agreement), earned but unpaid Base Salary as of the Date of Termination shall be payable in full. In the event of the Executive's Disability, Company shall pay to the Executive, and in the event of the Executive's death, the Company shall pay to the Executive's surviving spouse or to such other person or entity as Executive may designate in writing on notice filed with the Company (or to his estate, if he has made no such written designation and is not survived by a spouse), the annual bonus award in Section 3(b) for the fiscal year in which his Disability or death occurs, prorated to the date of the Executive's Disability or death. However, except as the Human Resources Committee may otherwise determine at its discretion or except as otherwise provided in the applicable plan, no other payments shall be made, or benefits provided, by the Company under this Agreement except for stock options to the extent already exercisable hereunder, vested benefits payable under the terms of Company's retirement and savings plans, -5- and any other benefits which the Executive is entitled to receive under the terms of any other employee benefit programs maintained by the Company or its affiliates for its employees. (c) A Notice of Termination shall be the sole means by which the Company or the Executive may terminate the Executive's employment during the Term. Any purported termination of the Executive's employment (other than by reason of death) shall be communicated by a written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. (d) A Notice of Termination for Cause shall include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the voting membership of the Board at a meeting of the Board which considered such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct specifically included in the definition of Cause, and specifying the particulars thereof in detail. In any Board deliberations or votes concerning determinations under this paragraph, Executive shall recuse himself from such deliberations and votes. 6. Effect of Termination of Employment in Connection with a Change in ------------------------------------------------------------------ Control Event. - ------------- (a) For purposes of this Section 6, if preceded by a Potential Change in Control Event, any of the following events shall be deemed to be a Termination upon a Change in Control Event: (i) the Executive's employment is terminated without Cause and such termination was at the request or direction of, or pursuant to negotiations with, a Person who has entered into an agreement with the Company the consummation of which will constitute a Change in Control Event; (ii) the Executive terminates his employment due to Constructive Discharge and the circumstance or event which constitutes Constructive Discharge occurs at the request or direction of, or pursuant to negotiations with, such Person; or (iii) the Executive's employment is terminated without Cause and such termination is otherwise in connection with or in anticipation of a Change in Control Event which actually occurs. (b) Payments for Termination upon a Change in Control Event. ------------------------------------------------------- In the event of the termination of Executive's employment in circumstances constituting a Termination upon a Change in Control Event, the Company shall pay to the Executive in a single payment in cash (without any discount or reductions, except as otherwise specifically provided herein, for the time value of money) and/or provide to the Executive, as applicable, the following: (i) the Executive's earned but unpaid Base Salary as of the Date of Termination; -6- (ii) the target annual bonus award in Section 3(b) for the year in which termination occurs, prorated to the Date of Termination, assuming all target performance goals have been or will be achieved; (iii) the benefits, if any, to which the Executive is entitled as a former employee under the employee benefit programs and compensation plans and programs maintained for the benefit of the Company's officers and employees; (iv) continued group hospitalization, health, dental care, life or other insurance, travel or accident insurance and disability insurance, for the Separation Period, with coverage substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any amendment to such benefits made subsequent to a Change in Control Event which amendment adversely affects in any manner the Executive's entitlement to or the amount of such benefits); provided, -------- however, that (A) except as provided in subsection (B) of this paragraph, unless - ------- the Executive consents to a different method (after taking into account the effect of such method on the calculation of "parachute payments" pursuant to Section 6(c) hereof), such health insurance benefits shall be provided through a third-party insurer, and provided further (B) in the event the Company is ---------------- precluded from providing coverage under any such program by applicable law or regulation, it shall provide Executive with a lump-sum payment equal to an amount that would enable Executive after payment of applicable income and employment taxes on such lump-sum amount to purchase comparable coverage. Benefits otherwise receivable by the Executive pursuant to this Section shall be reduced to the extent comparable benefits are actually received by the Executive without cost during the Separation Period (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). (v) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, an amount equal to the Base Salary and annual bonus the Executive would have earned during the Separation Period if the Executive had continued working for the Company at the highest annual rate of Base Salary that the Executive achieved before the Date of Termination, and received an annual target percentage bonus for each year and part thereof at the target potential award level, assuming all target performance goals have been or will be achieved. (vi) an amount equal to the excess of (A) the present value of the benefits to which the Executive would be entitled under the Company's Pension Plan and Company's Supplemental Retirement Plan (and any successor thereto) if the Executive had continued working for the Company during the Separation Period at the highest annual rate of Base Salary achieved during the Executive's period of actual employment with the Company, and the Pension Plan continued in force during the Separation Period, over (B) the present value of the benefits to which the Executive is actually entitled under the Company's Pension Plan and Supplemental Retirement Plan, each computed as of the date of the Executive's Date of Termination, with present values to be determined using the discount rate used by the Pension -7- Benefits Guaranty Corporation to calculate the benefit liabilities under the Pension Plan in the event of a plan termination on the Date of Termination, compounded monthly, the mortality tables prescribed in the Company's Pension Plan for determining actuarial equivalence, and the reduction factor (if any) for early commencement of pension payments based on the Executive's age on the last day of the Separation Period; (vii) an amount equal to the Company's contributions to which the Executive would have been entitled under the Company's Retirement Savings Plan (or any successor thereto) if the Executive had continued working for the Company and the Retirement Savings Plan continued in force during the Separation Period at the highest annual rate of Base Salary achieved during the Executive's period of actual employment with the Company, and making the maximum amount of employee contributions, if any, as are required under such plans; (viii) Notwithstanding any provision of the Company's LTIP or the Partners' Stock Purchase Plan to the contrary, the Executive shall be fully vested in the Company contributions credited to him under the Partners' Stock Purchase Plan, and the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (A) any incentive compensation which has been allocated or awarded to the Executive for a measuring period which commenced prior to the Date of Termination under the LTIP but which, as of the Date of Termination, is contingent only upon the continued employment of the Executive to a subsequent date and/or upon achievement of performance goals and which otherwise has not been paid, computed as if all performance goals have been or will be achieved to the maximum extent, in lieu of any payment of such incentive compensation under the LTIP, and without proration; (B) the amount of a 100% match on purchases made under the Partners' Stock Purchase Plan in the year in which the Date of Termination occurs, less the amount of the match actually made under the Partners' Stock Purchase Plan for the portion of the year prior to the Date of Termination; and (C) the amount of a 100% match on purchases the Executive could have made under the Partners' Stock Purchase Plan during the Separation Period (assuming no increase or decrease in the purchase price under the Plan following the Date of Termination) if the Executive had continued working for the Company and the Partners' Stock Purchase Plan continued in force during the Separation Period at the pay and bonus levels specified in (v) above; (ix) Full vesting in all stock options, including the stock options described in Section 3(c), and including stock options granted after the date of this Agreement which, to the extent not previously vested, shall be exercisable beginning on the date of the Termination upon a Change in Control Event; and (x) A one-year extension of any loan repayment obligation under the Company's Partners Loan Program (subject to interest accrual pursuant to the terms of such Plan). (c) Adjustment for Excess Parachute Payments. ---------------------------------------- -8- (i) If any payment or benefit received or to be received by the Executive in connection with a Change in Control Event or the termination of the Executive's employment whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control Event or any Person affiliated with the Company or such Person (with all such payments and benefits, including the severance payments, hereinafter called "Total Payments") will be subject (in whole or part) to the Excise Tax, then the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment shall be equal to the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income and employment taxes at the highest marginal rate of federal income and employment taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation, including any surtax in the state and locality of the Executive's residence on the Date of Termination (or, if inapplicable, the date of the Change of Control Event, with the relevant date hereinafter referred to as the "Payment Date"), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (ii) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) all of the Total Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, unless in the opinion of tax counsel (the "Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm (the "Auditor") which was, immediately prior to the Change in Control Event, the Company's independent auditor, such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (B) all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or part) represent reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (C) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of section 280G(d)(3) and (4) of the Code. Prior to the payment date set forth in Section 6(d) hereof, the Company shall provide the Executive with its calculation of the amounts referred to in this Section and such supporting materials as are reasonably necessary for the Executive to evaluate the Company's calculations. If the Executive disputes the Company's calculations (in whole or in part), the opinion of Tax Counsel with respect to the matter in dispute shall prevail. (iii) In the event that (A) amounts are paid to the Executive pursuant to subsection (i) of this Section, and (B) the Excise Tax is subsequently determined to be less than the amount taken into account hereunder on the Payment Date, the Executive shall repay to the Company, within 90 days following the date on which the amount of such reduction in Excise -9- Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in determining the amount of the Gross-Up Payment at the time of the Payment Date (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment to the Executive in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess and such portion) within 90 days following the date on which the amount of such excess is finally determined at the rate provided in section 1274(b)(2)(B) of the Code. (d) The payments provided for in subsections (i), (ii), (v), (vi), (vii) and (viii) of Section 6(b) hereof and subsections (i), (ii) and, if applicable, (iii) of Section 6(c) hereof shall be made not later than the twentieth (20) day following the Date of Termination; provided, however, that if -------- ------- the amounts of such payments, or, if applicable, the Excise Tax, cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive or, in the case of Gross-Up Payments under Section 6(c) hereof, in accordance with Section 6(c)(ii) hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in section 1274(b)(2) (B) of the Code). At the time that payments are made under this Section and Section 6(c), the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from outside counsel, auditors or consultants (and any such opinions or advice which are in writing shall be attached to the statement). In the event the Company should fail to pay when due the amounts described in Section 6(b) hereof or subsections (i), (ii) and, if applicable, (iii) of Section 6(c), the Executive shall also be entitled to receive from the Company an amount representing interest on any unpaid or untimely paid amounts from the due date, as determined under this Section, to the date of payment at the rate provided in section 1274(b)(2)(B) of the Code after such due date. (e) The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in (i) the negotiation and execution of this Agreement, and (ii) following a Change in Control Event (including a termination of employment following a Potential Change in Control Event if the Executive alleges in good faith that such termination will be deemed to have occurred following a Change in Control Event pursuant to Section 6(a) hereof) in disputing in good faith any issue relating to the termination of the Executive's employment or in seeking in good faith to obtain or enforce any benefit or right provided by this -10- Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made as such fees and expenses are incurred by the Executive, but in no event later than five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 7. Other Duties of the Executive During and After Term. --------------------------------------------------- (a) Confidential Information. Executive acknowledges that by ------------------------ reason of his employment with the Company he has and will hereafter, from time to time during the Term, become exposed to and/or become knowledgeable about proposals, plans inventions, practices, systems, programs, formulas, processes, methods, techniques, research, records, supplier sources, customer lists, and other forms of business information which are not known to the Company's competitors and which are not recognized as being encompassed within standard business or management practices and which are kept secret and confidential by the Company (the "Confidential Information"). The Executive therefore agrees that at no time during or after the period of his employment by the Company will he disclose or use the Confidential Information except to the extent such information becomes public through no fault of the Executive, as required by law, as authorized by the Board, or as may be required in the prudent course of business for the benefit of the Company; provided, that no payment required to be made by the Company under the terms of this Agreement after termination of the employment of the Executive shall be subject to any right of set-off, counterclaim, defense, abatement, suspension, deferment or reduction by reason of any claim against the Executive based upon breach of the covenant in this Section 7(a) other than upon execution of an unsatisfied judgment rendered by a court of competent jurisdiction. (b) Non-Compete. In consideration of the mutual terms and ----------- agreements set forth in this Agreement and the grant of stock options under Section 3(c) hereof, the Executive hereby agrees that (i) while the Executive is employed during the Term, (ii) during such time after the Term as the Executive is employed by the Company and (iii) for a period of one year after the Executive's Date of Termination, he will not, unless authorized in writing to do so by the Company, directly or indirectly own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed or otherwise connected in any substantial manner with any business which directly or indirectly competes to a material extent with any line of business of the Company or its subsidiaries which was operated by the Company or its subsidiaries at the Date of Termination; provided, that nothing in this -------- paragraph shall prohibit the Executive from acquiring up to 5% of any class of outstanding equity securities of any corporation whose equity securities are regularly traded on a national securities exchange or in the "over-the-counter market," and provided further, that the foregoing restriction of this Section ---------------- 7(b) shall not apply following a Change of Control Event or a Potential Change in Control Event if (v) the Executive's employment has been terminated by the Company without Cause, (w) the Executive terminates his employment as the result of a Constructive Discharge or -11- (x) the Company elects not to extend the Term of this Agreement. The Executive agrees that for a period ending three years after the Date of Termination hereunder, the Executive will not (y) recruit any employee of the Company or solicit or induce, or attempt to solicit or induce, any employee of the Company to terminate his or her employment with, or otherwise cease his or her relationship with, the Company, or (z) solicit, divert or take away, or attempt to solicit, divert or take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Company that were contacted, solicited or served by the Executive while employed by the Company. (c) Remedies. The Company and the Executive confirm that the -------- restrictions contained in Sections 7(a) and 7(b) hereof are, in view of the nature of the business of the Company, reasonable and necessary to protect the legitimate interests of the Company and that any violation of any provision of Section 7(a) or 7(b) will result in irreparable injury to the Company. The Executive hereby agrees that, in the event of any breach or threatened breach of the terms or conditions of this Agreement by the Executive, the Company's remedies at law will be inadequate and, in any such event, the Company shall be entitled to commence an action for preliminary and permanent injunctive relief and other equitable relief in any court of competent jurisdiction. The Executive further irrevocable consents to the jurisdiction of any Pennsylvania state court or federal court located in the Commonwealth of Pennsylvania over any suit, action or proceeding arising out of or relating to this Section 7(c) and hereby waives, to the fullest extent permitted by law, any objection that he may now or hereafter have to such jurisdiction or to the laying of venue of any such suit, action or proceeding brought in such a court and any claim that such suit, action or proceeding has been brought in an inconvenient forum. In addition, if the Executive at any time during the Separation Period Executive engages in conduct described in Section 7(b) (whether or not within the one-year period after the termination of his employment with the Company), the Company shall be entitled to discontinue the payments and benefits provided under Section 5(a). The Executive's Agreement as set forth in this Section 7 shall: (x) survive the termination of this Agreement, and continue throughout the duration of the Executive's employment with the Company, except as amended or modified by written agreement of the parties; and (y) survive the Executive's termination of employment with the Company for the periods specified in Section 7(b) hereof. (d) Modification of Terms. If any restriction in this Section 7 --------------------- of the Agreement is adjudicated to exceed the time, geographic, service or other limitations permitted by applicable law in any jurisdiction, the Executive agrees that such may be modified and narrowed, either by a court or the Company, to the maximum time, geographic, service or other limitations permitted by applicable law so as to preserve and protect the Company's legitimate business interest, without negating or impairing any other restrictions or undertaking set forth in the Agreement. 8. Withholding Taxes. The Company may directly or indirectly ----------------- withhold from any payments made under this Agreement all Federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. -12- 9. Consolidation, Merger, or Sale of Assets. Nothing in this ---------------------------------------- Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term "Company" as used herein shall mean such other corporation and this Agreement shall continue in full force and effect. 10. Notices. All notices, requests, demands and other ------- communications required or permitted hereunder shall be given in writing and shall be deemed to have been duly given if delivered or mailed, postage prepaid, by same day or overnight mail as follows: (a) To Company: General Counsel IKON Office Solutions, Inc. 70 Valley Stream Parkway Malvern, PA 19355 (b) To the Executive: Kurt E. Dinkelacker 17 Cedarbrook Road Ardmore, PA 19003 or to such other address as either party shall have previously specified in writing to the other. 11. No Attachment. Except as required by law, no right to receive ------------- payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect; provided, however, that nothing in this Section -------- ------- 11 shall preclude the assumption of such rights by executors, administrators or other legal representatives of the Executive or his estate and their assigning any rights hereunder to the person or persons entitled thereto. 12. No Mitigation. The Executive shall not be required to mitigate ------------- the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor except as otherwise specifically provided in this Agreement shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by other employment or otherwise. 13. Source of Payment. All payments provided for under this ----------------- Agreement shall be paid in cash from the general funds of the Company. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if -13- the Company shall make any investments to aid it in meeting its obligations hereunder, the Executive shall have no right, title or interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and the Executive or any other person. To the extent that any person acquires a right to receive payments from the Company hereunder, such right, without prejudice to rights which employees may have, shall be no greater than the right of an unsecured creditor of the Company. 14. Severability. If any provision of this Agreement or application ------------ thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. 15. Contents of Agreement. This Agreement supersedes all prior --------------------- agreements and sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment approved by the parties hereto. Unless otherwise required by law, in the event of a conflict between this Agreement and any plan, program, stock option award, LTIP award, or Company policy, the terms of this Agreement shall be controlling. 16. Governing Law. The validity, interpretation, performance, and ------------- enforcement of this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania (and Federal laws to the extent applicable), and Executive consents to the jurisdiction of the state and federal courts of Pennsylvania in any dispute arising under this Agreement. 17. Survival of Benefits. Any Section of this Agreement which -------------------- provides a benefit to the Executive and which does not expressly provide for its termination upon the expiration of the Term shall survive the expiration of the Term and the obligation to provide benefits to the Executive as set forth in such Section shall remain binding upon the Company until such time as the Executive's employment relationship with the Company is terminated and the benefits provided under such Section are paid in full to the Executive. 18. Miscellaneous. All section headings are for convenience only. ------------- This Agreement may be executed in any number of counterparts, each of which when executed shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. It shall not be necessary in marking proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 19. Settlement of Disputes; Arbitration. Except with respect to ----------------------------------- actions for preliminary and permanent injunctive relief and other equitable relief under Section 7, any controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall be settled by -14- arbitration in accordance with the terms of this Section 19. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing within thirty (30) days and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within thirty (30) days after notification by the Board that the Executive's claim has been denied. Any further dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation or alleged breach thereof, shall be settled by arbitration in accordance with the Center for Public Resources, Inc. Non-Administered Arbitration Rules, by three arbitrators, none of whom shall be appointed by either party. The arbitration shall be governed by United States Arbitration Act 9 U.S.C. (S)1-16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of the arbitration shall be Philadelphia, Pennsylvania. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 20. Definitions. For purposes of this Agreement, the following ----------- terms have the following meanings: (a) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code. (b) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. (c) "Cause," prior to a Change of Control Event or a Potential Change of Control Event, shall mean termination by the Company of the Executive's employment due to (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has failed to substantially perform the Executive's duties, and which provides Executive with at least a 30-day period to correct such failure, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause -15- exists shall be given effect unless the Board determines, by an affirmative vote of not less than three-quarters (3/4) of the voting membership of the Board, that Cause has been established by clear and convincing evidence. In any Board deliberations or votes concerning a determination under this paragraph, Executive shall recuse himself from such deliberations and votes. Following a Change in Control Event or a Potential Change in Control Event, "Cause" shall mean a judicial determination that the Executive has committed fraud, misappropriation or embezzlement against the Company; or a nonappealable conviction of, or entry of a plea of nolo contendere for, an act by the Executive constituting a felony or misdemeanor which, as determined by the Board in the good faith, constitutes a crime involving moral turpitude and results in material harm to the Company. Any dispute by the Executive of a Board determination under this paragraph shall be resolved in accordance with Section 19 hereof. (d) "Change in Control Event" shall mean any of the following events: (i) any Person, together with its affiliates and associates (as such terms are used in Rule 12b-2 of the Exchange Act), is or becomes the Beneficial Owner, directly or indirectly, of 15% or more of the then outstanding shares of common stock of the Company; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved; or (iii) the Company consolidates with, or merges with or into, any other Person (other than a wholly owned subsidiary of the Company), or any other person consolidates with, or merges with or into, the Company, and, in connection therewith, all or part of the outstanding shares of common stock shall be changed in any way or converted into or exchanged for stock or other securities or cash or any other property; or (iv) a transaction or series of transactions in which, directly or indirectly, the Company shall sell or otherwise transfer (or one or more of its subsidiaries shall sell or otherwise transfer) assets (A) aggregating more than 50% of the assets (measured by either book value or fair market value) or (B) generating more than 50% of the operating income or cash flow of the Company and its subsidiaries (taken as a whole) to any other Person or group of Persons. Notwithstanding the foregoing, no "Change in Control Event" shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions own a majority of the -16- outstanding voting shares and in substantially the same proportion in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. Reference to any section or subsection of the Code includes references to any comparable or succeeding provision of any legislation which amends, supplements, or replaces such section or subsection. (f) "Constructive Discharge" shall mean a termination by the Executive of the Executive's employment as a result of the occurrence (without the Executive's express written consent) of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (i), (v), (vi) or (vii) below, such act or failure to act is corrected prior to the Date of Termination: (i) the assignment to the Executive of duties inconsistent with the Executive's status as a senior executive officer of the Company or a substantial alteration in the nature or status of the Executive's responsibilities other than any such alteration primarily attributable to the fact that the Company may no longer be a public company; (ii) a reduction by the Company in the Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time; (iii) the relocation of the Company's principal executive offices to a location more than 15 miles from the then location of such offices without the Executive's written consent or the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations; (iv) the failure by the Company to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven (7) days of the date such compensation is due after written demand from the Executive has been received therefor; (v) following a Change in Control Event or a Potential Change in Control Event, the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control Event or the Potential Change in Control Event which is material to the Executive's total compensation, including but not limited to the Company's stock option, incentive compensation, deferred compensation, stock purchase, bonus and other plans or any substitute plans adopted prior to the Change in Control Event, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to -17- continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation, relative to other participants, as existed immediately prior to the Change in Control Event or the Potential Change in Control Event; (vi) following a Change in Control Event or a Potential Change in Control Event, the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control Event or the Potential Change in Control Event, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control Event or a Potential Change in Control Event, or the failure by the Company to maintain a vacation policy with respect to the Executive that is at least as favorable as the vacation policy (whether formal or informal) in place with respect to the Executive immediately prior to the Change in Control Event or the Potential Change in Control Event; or (vii) following a Change in Control Event, or a Potential Change of Control Event, any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination; or (viii) any breach by the Company of any material provision of this Agreement. The Executive's right to terminate employment due to Constructive Discharge shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Constructive Discharge hereunder. For purposes of any determination regarding a Constructive Discharge, a claim by the Executive of a Constructive Discharge shall be presumed to be correct unless the Board determines, by an affirmative vote of not less than three-quarters (3/4) of the voting membership of the Board, that a Constructive Discharge has not occurred by clear and convincing evidence. In any Board deliberations or votes concerning a determination under this paragraph, Executive shall recuse himself from such deliberations and votes. Any dispute by the Executive of a Board determination under this provision shall be resolved in accordance with Section 19. (g) "Date of Termination," with respect to any purported termination of the Executive's employment, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall -18- not have returned to the full-time performance of the Executive's duties during such thirty (30) day period); and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than thirty (30) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). (h) "Disability" shall mean termination by the Company of the Executive's employment upon or following Executive's commencement of benefits under the Company's long-term disability plan. (i) [RESERVED] (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (k) "Excise Tax" shall mean any excise tax imposed under section 4999 or the Code. (l) "Gross-Up Payment" shall have the meaning set forth in Section 6(c) hereof. (m) "Notice of Termination" shall mean a notice indicating the specific termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (n) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act), (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company. (o) "Potential Change in Control Event" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) the Company enters into an agreement, the consummation of which will result in the occurrence of a Change in Control Event; -19- (ii) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, will constitute a Change in Control Event; or (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control Event has occurred. (p) "Separation Period" shall mean the three-year period (or such longer period as the Human Resources Committee may determine) beginning on the Date of Termination. (q) "Term" shall mean the initial period commencing as of May 1, 1997 and ending on April 30, 2000, and any additional one-year periods for which this Agreement is extended in accordance with Section 1 hereof. (r) "Termination upon a Change in Control Event" shall mean a termination of employment: (i) initiated by Company for any reason, including delivery of Notice of Nonrenewal, other than termination for Cause, upon or within two years after a Change in Control Event; or (ii) initiated by the Executive due to a Constructive Discharge, upon or within two years after a Change in Control Event; or (iii) under circumstances described in Section 6(a) hereof. A termination due to death, Disability, or for Cause shall not constitute a Termination upon a Change in Control Event, and payments in the event of such a termination shall be determined under Section 5(b) hereof. (s) "Total Payments" shall mean those payments described in Section 6(c) hereof. (t) "Without Cause Termination" shall mean a termination of the Executive's employment by the Company, other than due to Disability, voluntary retirement, expiration of the Term or for Cause. -20- IN WITNESS WHEREOF, and intending to be legally bound, the Company has caused this Agreement to be executed by its duly authorized officers and the Executive has signed this Agreement as of the date first above written. IKON OFFICE SOLUTIONS, INC. By: --------------------------- Authorized Signatory ------------------------------ KURT E. DINKELACKER -21- EXECUTIVE EMPLOYMENT AGREEMENT THIS IS A VERY IMPORTANT LEGAL DOCUMENT WHICH MAY AFFECT YOUR RIGHTS TO FUTURE EMPLOYMENT. AS A RESULT, YOU SHOULD REVIEW THE DOCUMENT CAREFULLY, AND FULLY UNDERSTAND ITS TERMS AND IMPLICATIONS, BEFORE SIGNING. This Employment Agreement ("Agreement") effective August 5, 1996 is entered into among IKON OFFICE SOLUTIONS, INC., a Delaware corporation and an operating division (including its network of operating companies) of Alco Standard Corporation ("IKON") and ALCO STANDARD CORPORATION, an Ohio Corporation ("Alco") (both entities IKON and Alco also collectively referred to as the "Company"), with their principal place of business in Pennsylvania, and DAVID M. GADRA ("Executive"). In consideration of the mutual promises contained in this Executive Employment Agreement ("Agreement") including the following three items, none of which would be conferred upon Executive absent execution of this Agreement: (1) employment with the Company; (2) employment for a fixed period of time in a new executive position, subject to the terms and conditions set forth below; (3) one-time discretionary stock option award; (4) one-time special bonus; (5) eligibility to participate as an IKON Group participant in the fiscal 1997-1999 Long-Term Incentive Compensation Program granted on October 1, 1996, with respect to the three-year performance plan period from October 1, 1996 through September 30, 1999 ("LTIP"), in accordance with the additional terms of that Program; and (6) additional good and valuable consideration including but not limited to that set forth in Addendum B of this Agreement, the parties to this Agreement ("Parties"), INTENDING TO BE LEGALLY BOUND, agree as follows: ARTICLE I-TERMS OF EMPLOYMENT - ----------------------------- 1.1 DUTIES. ------ 1.1.1 DUTIES OF POSITION. IKON shall employ Executive as Senior Vice ------------------ President and CIO, IKON Office Solutions. The Parties expressly agree that the position of Senior Vice President and CIO is a key position and an executive position in the Company. Executive shall comply with his obligation set forth in this Employment Agreement and with all reasonable Company policies, now currently in force, or as may from time to time be unilaterally adopted and modified by the Company, whether or not reduced to writing. In addition, Executive shall have the duties set forth in Addendum A of the Agreement which is hereby incorporated as if fully set forth herein. Executive specifically recognizes and acknowledges that this position is one of trust and confidence and that, as a result, he will have access to, and may be given specialized education and confidential, proprietary information of the Company. 1.1.2 DUTY OF LOYALTY. Executive will (1) devote substantially all his --------------- time, attention, and energies to the business of the Company and diligently perform all duties incident to his employment; (2) use his best efforts to promote the interests and goodwill of the Company; and (3) perform such other duties commensurate with his office as the President of IKON, or his assignees from time to time assign him. Further, during the term of employment, Executive shall not engage in any activity to the detriment or embarrassment of the Company. By way of illustration and not as a limitation, Executive shall not discuss with any customer or potential customer of the Company, or any competitor of the Company, any plans by Executive or any other employees of the Company to leave the employment of the Company or to compete with the Company, and/or, Executive shall at all times in performance of his duties work in concert with, and take direction from, the President of IKON. 1.2 TERM OF AGREEMENT. Unless terminated in accordance with Article 2, ----------------- this Agreement shall remain in force until September 30, 1999 ("Term"), unless soonerterminated in accordance with the provisions of this Agreement. 1.3 COMPENSATION. During the Term of the Agreement, the Executive shall be ------------ compensated in accordance with the terms set forth in Addendum B of the Agreement which is incorporated as if fully set forth herein ("Total Compensation Package"). In the event the Company shall pay to Executive during the Term any compensation in excess of the Total Compensation Package provided for herein, the payment of such increased compensation shall not be deemed to be an amendment to this Agreement, and may be discontinued at any time without cause. 1.4 ADDITIONAL OBLIGATIONS OF EXECUTIVE. Executive understands that the ----------------------------------- obligations imposed under this Agreement are not exclusive, and that the Company may unilaterally, from time to time, impose additional reasonable Page 1 of 7 obligations upon Executive consistent with his duties and position within the Company. If Company promotes Executive, or changes Executive's areas of responsibilities during the Term of this Agreement, Company, at its option, may require Executive to execute an Addendum describing the Executive's promotion, or change of areas of Executive's responsibilities; provided, however, that in no event shall a change in area of responsibility be to a position that is less senior or without the authority that Executive has hereunder. 1.5 DISCOVERIES. Executive shall promptly disclose in writing to the Company any ----------- and all information, ideas, conceptions, inventions, discoveries, processes, methods, designs, and know-how, as well as all works of authorship (including computer programs) which are within the subject matter of copyright, which are conceived, originated, developed, made or acquired by Executive, either individually or jointly with others, during the period of Executive's employment with the Company or for one (1) year period thereafter and: (i) for which the Company provided either equipment, supplies, facilities, or confidential information; (ii) which were made or conceived on or partially on the Company's time; or (iii) which relate to IKON's core businesses or additional core businesses that IKON is in the process of developing (collectively referred to as the "Vision Discoveries") and shall assign or offer to assign to Company any and all of Executive's rights in each Vision Discovery. 1.6 COPYRIGHTS. All Vision Discoveries which are within the subject matter of ---------- copyright shall be considered a "work for hire" granting the Company full ownership to the work and components and all rights comprised therein. Should any work or component thereof not fall within the definition of a "work for hire" under copyright law, the Executive hereby transfers and assigns or, if necessary, will transfer and assign to the Company full ownership of the copyright to the work or component thereof and all rights comprised therein. The Executive will sign all applications for registrations of such copyright, and at the Company's expense, perform all other acts necessary or convenient to carry out the terms of this Provision. ARTICLE 2-TERMINATION OF AGREEMENT - ---------------------------------- 2.1 TERMINATION BY THE COMPANY -- ENUMERATED REASONS. Company may, in its sole ------------------------------------------------ discretion, terminate Executive's employment at any time during the Term of the Agreement under the following circumstances: (1) Executive fails to comply with any material Company Policy, either currently in force, or as may from time to time be adopted and modified by the Company; (2) Executive's performance falls below 80% of the stated mutually agreed-upon operational and financial goals specifically applicable to Executive; (3) Executive materially breaches his obligations under the terms of this Agreement; (4) Executive has committed an act of dishonesty, moral turpitude or theft or has breached his duties of loyalty to the Company, or an act of insubordination to any of his supervisors. It is specifically understood that, during the Term of the Agreement, Executive shall not be terminated pursuant to either 2.1 (1), (2) or (3) unless and until (a) Executive has received reasonable written notice from the Company of the applicable Company Policy, or the operational and financial goals applicable to the Executive, and (b) Executive has had reasonable opportunity to comply with such Company Policy or perform up to the standards, expectations or applicable goals set by Company. The Company may, however, immediately terminate Executive pursuant to 2.1 (4) without notice. In the event of the termination of Executive under this Article 2.1, Executive's right to the compensation and benefits provided in Addendum B shall immediately terminate and/or cease to accrue, provided, however, that Executive shall receive (i) the unpaid portion, if any, of the Base Salary computed on a pro-rata basis to the date of termination of employment and (ii) any unpaid accrued benefits owed to the Executive in accordance with the terms of any Plan or Program referenced in Addendum B. 2.2. TERMINATION BY THE COMPANY -- NOT ENUMERATED REASONS. The Company may ---------------------------------------------------- terminate the employment of Executive during the Term for reasons other than those enumerated in Article 2.1. However, in such event, the Company shall be liable to Executive for the Base Salary compensation and shall be liable for a pro-rata portion of Executive's annual qualitative bonus as of the date of termination and a pro-rata portion of Executive's annual quantitative bonus (such pro-rata quantitative bonus payment to be paid within 45 days subsequent to fiscal year end but only if Company Page 2 of 7 achieves its business plan objectives for such fiscal year) and other remaining benefits provided in Addendum B for the remainder of the Term, and, to the extent not inconsistent with applicable law and/or the terms and conditions of any Plan or Program, all other remaining benefits shall continue to accrue until the end of the Term, which shall constitute the full liquidated damages to which Executive is entitled. Executive agrees that he shall not be entitled to any other remedy at law or in equity, including but not limited to general, special, punitive or exemplary damages and/or injunctive relief. 2.3 DISABILITY AND DEATH -------------------- 2.3.1 DISABILITY. In the event that Executive is unable fully to ---------- perform his duties and responsibilities hereunder to the full extent required by the Company by reason of illness, injury or incapacity for ninety (90) consecutive days or ninety (90) working days during the Term, this Agreement may be terminated by Company and Company shall have no further liability or obligation to Executive for the compensation or benefits set forth in Addendum B, provided however, that Executive will be entitled to receive (i) salary continuation until the long-term disability benefit plan takes effect, (ii) the payments prescribed under any disability benefit plan which may be in effect for employees of the Company and in which he participated or participates and (iii) any unpaid accrued benefits owed to the Executive in accordance with the terms of any Plan or Program referenced in Addendum B. 2.3.2. DEATH. In the event that Executive dies during the Term, Company ----- shall pay to his executors, legal representatives or administrators an amount equal to the installment of his Base Salary set forth in Addendum B for the month in which he dies, and thereafter Company shall have no further liability or obligation pursuant to the Agreement to his executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through him; provided however, that Executive's estate or designated beneficiaries shall be entitled to receive (i) the payment prescribed for such recipients under any death benefit plan which may be in effect for employees of the Company and in which Executive participated and (ii) any unpaid accrued benefits owed to the Executive in accordance with the terms of any Plan or Program referenced in Addendum B. ARTICLE 3-RESTRICTION ON THE USE OF CONFIDENTIAL INFORMATION - ------------------------------------------------------------ 3.1 SCOPE OF CONFIDENTIAL INFORMATION. Executive acknowledges that the Company, --------------------------------- through IKON is engaged in the business of sales, servicing, renting and leasing of copier equipment, facsimiles, micrographic equipment, computers, shredders, offset printing, typewriters, laser printers, word processing equipment and other related office products, the business of facilities management and state-of-the-art copying and/or scanning operations, the ongoing development and implementation of additional business segments providing outsourcing and networking sales and services, and the growth through acquisitions of entities engaged in any or all of the aforementioned businesses ("OP Division business"). Executive further recognizes that the Company's OP Division business and its continued success depend upon the use and protection of a large body of confidential and proprietary information. Executive further acknowledges that he holds a position of trust and confidence by virtue of which he necessarily possesses, has access to and, as a consequence of his signing this Agreement, will continue to possess and have access to, highly valuable, confidential and proprietary information not known to employees of the Company at large or the public in general, and that it would be improper for him to make use of this information for the benefit of himself or others. All of such confidential and proprietary information now existing or to be developed in the future will be referred to in this Agreement as "Company Secrets". Company and Executive intend that the meaning of "Company Secrets" in this Agreement will be read as broadly as possible to include all information of any sort (whether merely remembered or embodied in a tangible medium) which (i) is related to OP Division business or potential future business and (ii) is not generally and publicly known. This includes, without specific limitation, information relating to the nature and operation of the OP Division business, the persons, firms and corporations which are customers or active prospects of the Company during Executive's employment by the Company, the Company's development transition and transformation plans, methodology and methods of doing business, strategic, acquisition, marketing and expansion plans, including plans regarding planned and potential acquisitions and sales, financial and business plans, employee lists, numbers and location of sales representatives, new and existing programs and services, support and those under development, prices and terms, customer service, integration processes requirements, costs of providing service, support and equipment and equipment maintenance costs; provided, however, notwithstanding the foregoing or any contrary provision hereof, the term "Company Secrets" shall not include any information (i) which is or becomes public otherwise than through a breach of this Agreement, (ii) which was known to Executive prior to disclosure thereof by the Company, or (iii) which is disclosed to Executive by a non-Company employee third party not subject to an obligation to maintain such information in confidence. Page 3 of 7 3.2 EXECUTIVE'S DUTY NOT TO DISCLOSE CONFIDENTIAL INFORMATION. Executive will --------------------------------------------------------- protect and preserve as confidential during his employment relationship with the Company and at all times after the termination of the employment relationship, all of the Company Secrets at any time known to Executive or at any time in Executive's possession or control (except for such information as Executive may be legally obligated and required to disclose pursuant to a court order, law, or other legal proceedings). Executive understands that this Agreement includes an obligation not to disclose Company Secrets to employees within the Company who do not have a right or need to know the Company Secrets. Executive will, during his employment relationship with the Company and at all times after the termination of the employment relationship, neither disclose, use, nor allow any other person or entity to use in any way, except for the benefit of the Company and as directed by the Company, any of the Company Secrets. 3.3 RETURN OF CONFIDENTIAL INFORMATION. Executive will, prior to or upon leaving ---------------------------------- employment with the Company, deliver to the Company any and all records, items and media of any type (including, without limitation, all partial or complete copies of duplicates) containing or otherwise relating to any of the Company Secrets, whether prepared or acquired by, or provided to, Executive. Executive acknowledges that all such records, items and media are and at all times will be and remain the property of Company. 3.4 ADDITIONAL AGREEMENTS REQUIRED BY THIRD PARTIES. Executive will enter into ----------------------------------------------- and comply fully with any agreement reasonably required by any of the Company's affiliates, business partners, suppliers or contractors with respect to the protection of the confidential and proprietary information of such entities. 3.5 SEVERABILITY. Executive understands that the obligations imposed under this ------------ Restriction on the Use of Confidential Information are in addition to, and independent of, any Restriction on Post-Termination Employment imposed under this Agreement or any previously executed agreement concerning post-termination employment, impose separate and distinct obligations from the Restriction on Post-Termination Employment, and may be valid even if the Restriction on Post-Termination Employment is declared invalid, in whole or in part, in any judicial or quasi-judicial forum. ARTICLE 4-RESTRICTION ON POST-TERMINATION EMPLOYMENT - ---------------------------------------------------- 4.1 ACKNOWLEDGMENTS BY EXECUTIVE. ---------------------------- 4.1.1. ACKNOWLEDGMENT OF PROTECTIBLE INTERESTS. Executive agrees that --------------------------------------- the Company has a protectible interest in the Company Secrets, goodwill and specialized knowledge acquired by Executive during the course of his employment with Company. 4.1.2. ACKNOWLEDGMENT OF CONSIDERATION. Executive acknowledges that the ------------------------------- provisions of this Article 4 are in consideration of: (1) employment with the Company; (2) employment for a fixed period of time, subject to the terms and conditions set forth below; (3) one-time discretionary stock option award; (4) one-time special bonus; (5) Executive's participation in the LTIP (as defined above) in accordance with the additional terms of that Program; and (6) additional good and valuable consideration as set forth in Addendum B of this Agreement 4.1.3. ABILITY TO EARN LIVELIHOOD. Executive expressly agrees and -------------------------- acknowledges that the Restrictions contained in this Article 4 do not preclude Executive from earning a livelihood, nor does it unreasonably impose limitations on Executive's ability to earn a living. In addition, the Executive agrees and acknowledges that the potential harm to the Company of its non-enforcement outweighs any harm to the Executive of its enforcement by injunction or otherwise. 4.2 POST-EMPLOYMENT RESTRICTIONS. Executive agrees that if Executive's ---------------------------- employment with the Company is terminated for cause, by voluntary resignation on the part of Executive, or without cause (whether by the Company, by Executive or otherwise), the Executive will not, without the express written consent of the Company, directly or indirectly, for a period of two (2) years from the date of termination, in any capacity whatsoever, including either as an employee, employer, officer, director, proprietor, partner, joint venturer, consultant, stockholder (except for investments of no greater than 5% of the total outstanding shares in any publicly funded company), on his behalf or on behalf of any other entity: (1) solicit, sell to, divert, serve, accept or receive business, which is similar to, or competitive with, the OP Division Business, from any entity which was a customer of IKON, or active prospect of IKON, during the two (2) year period immediately preceding the termination of Executive's employment, or Page 4 of 7 (2) engage or manage in any business and in any geographic area which competes with the Company's OP Division business at the time of Executive's termination, or (3) start-up, acquire, purchase, or work in any capacity whatsoever for or on behalf of, any entity which has been identified as an actual or potential acquisition of IKON during the two (2) year period immediately preceding the termination of Executive's employment, or (4) solicit, entice, or encourage any employee of the Company to leave the Company or hire or employ any such employee, or (5) Manage the business or a portion of the business, of any entity engaged in a business which is similar to, or competitive with, the OP Division business. Notwithstanding any provision in this Section 4.2 to the contrary, the Company and Executive agree to the following: (i) the following businesses shall be deemed to be directly competitive with the OP Division business and Executive shall be precluded from being hired by these companies (or any of their affiliated companies whether publicly spun off, affiliates and/or divested divisions) during the two year restricted term - Xerox, IBM, AT&T, Hewlett-Packard, Danka, Pitney Bowes Corporation, R.R. Donnelley, General Electric, Kinko's, Alpha Graphics, Staples, and Kodak Corporation; (ii) the following business situations shall be deemed not to be competitive with the Company or the OP Division business and Executive shall not be precluded from being employed by these companies during the two year restricted term - any employment position that Executive would have with a company other than those listed in clause (i) solely in the area of internal systems integration; and (iii) a determination of whether businesses that would involve a position in external systems integration shall be deemed to be competitive with IKON shall be subject to good faith and reasonable negotiation between the President of IKON and Executive. 4.3 SEVERABILITY. Executive understands that the obligations imposed under this ------------ Restriction on Post-Termination Employment are in addition to, and independent of, any Restriction on the Use of Confidential Information imposed under this Agreement and any previously executed agreement concerning post-terminated employment, impose separate and distinct obligations from the Restriction on the Use of Confidential Information, and may be valid even if the Restriction on the Use of Confidential Information is declared invalid, in whole or in part, in any judicial or quasi-judicial forum. ARTICLE 5-REMEDIES FOR BREACH - ----------------------------- 5.1 INJUNCTIONS. In the event of a breach or threatened breach of any provision ----------- of Articles 3 or 4 of this Agreement, Executive acknowledges and agrees that the Company will suffer irreparable harm and further acknowledges and agrees that the Company's remedies at law are inadequate, and that the Company shall be entitled to an immediate injunction restraining such breach or potential breach as well as other equitable relief; but nothing herein shall be construed as prohibiting the Company from pursuing any other remedy available for such breach or threatened breach. 5.2 RESTITUTION. Notwithstanding anything in this Agreement or any other ----------- agreement between the parties to the contrary and in addition to any other rights or remedies the Company may have, if at any time Executive (whether during the Employment period or thereafter as provided herein) has violated any of his obligations contained in Articles 3 and 4 above, then the obligation of the Company to pay salary, vacation pay, bonus, incentive compensation or other form of pay or compensation (other than any vested employee benefits pursuant to a Company adopted plan) shall terminate, and from and after such termination neither the Executive, his beneficiary nor any of their legal representatives or distributees shall have any right to receive any payment(s) in connection therewith. ARTICLE 6 -MISCELLANEOUS - ------------------------ 6.1 ARBITRATION. Except as permitted or provided in the foregoing Article 5, in ----------- the event Executive's employment is terminated, and Executive contends that such termination was wrongful or otherwise in violation of his rights or privileges, express or implied, whether founded in fact or in law, or any other rights or privileges, or was in violation of any express or implied condition, term, or covenant, whether founded in law or in fact, including but not limited to the covenant of good faith and fair dealing, or otherwise in violation of law, Executive and Company agree to submit the above-described disputed matter to binding arbitration. Executive and Company further expressly agree that in any such arbitration, the exclusive remedy which may be awarded by the arbitrator(s) shall be limited to back pay (including all bonuses and compensation under incentive or employee benefit plans) owing up to and including the date the arbitration award becomes final with Page 5 of 7 interest, and Executive agrees that he shall not be entitled to any other remedy at law or in equity, including but not limited to general, special, punitive or exemplary damages and/or injunctive relief. 6.2 REFORMATION. The provisions and covenants contained herein are intended to ----------- be separate and divisible and if, for any reason, any one or more of such provisions or covenants should be held to be invalid and unenforceable in whole or in part, it is agreed that the same shall not be held to affect the validity or enforceability of any other provisions and covenants of this Agreement. In the event that any restriction set forth in this Agreement is determined by a Court to be unenforceable with respect to scope, time or geographical coverage, Executive agrees that such a restriction should be modified and narrowed so as to provide the maximum protection of the Company's legally protectible interests as described in this Agreement, and without negating or impairing any other restrictions or agreements set forth herein. 6.3 REASONABLENESS. Executive acknowledges that he has carefully read this -------------- Agreement and has given careful consideration to the restraints imposed upon the Executive by this Agreement, and is in full accord as to their necessity for the reasonable and proper protection of the Company's Secrets. The Executive expressly acknowledges and agrees that each and every restraint imposed by this Agreement is reasonable with respect to subject matter, time period and geographical area. 6.4 MODIFICATION. The Parties agree that the Agreement may not be modified ------------ except by the mutual written consent of the Parties. Notwithstanding the foregoing, the parties further agree that if a judicial or quasi-judicial entity declares the agreement invalid in whole or in part, it may modify the terms of the Agreement to give affect to the Agreement as modified. 6.5 SUCCESSORS AND ASSIGNS OF THE COMPANY. This Agreement shall bind Company and ------------------------------------- Executive, and also all of their respective family members, heirs, administrators, representatives, successors, assigns, officers, directors, agents employees, shareholders, affiliates, predecessors, and also all other persons, firms, corporations, associations, partnerships, and entities in privity with or related to or affiliated with any such person, firm, corporation, association, partnership or entity; including without limitation, any person, firm, corporation, association, partnership, limited liability company and entity or combination thereof which shall acquire substantially all of the assets, or direct or indirect control of a majority of the voting stock, of the Company, or which shall in any other manner cause a majority of the current members of the Board of Directors or the President to be replaced at any time after the effective date of this Agreement (a "Change of Control"). Any termination under Section 2.1(2) within eighteen (18) months of a Change of Control or any material demotion or restriction of Executive's current duties at the time of the Change of Control or within eighteen (18) months of a Change of Control, however effected, shall not be deemed a termination under Section 2.1 and Executive shall instead be entitled to receive the benefits he would be entitled to receive under Section 2.2 of this Agreement. 6.6 SURVIVAL OF OBLIGATIONS AND PROVISIONS. Exercise of the Company's -------------------------------------- termination rights according to the provisions of Articles 2.1, 2.2. and 2.3.1 shall not affect the Company's rights or the Executive's obligations under Articles 3, 4, 5 or 6. The Parties acknowledge and agree that the provisions within Articles 3, 4, 5 or 6 survive the termination or expiration of this Agreement as well as the termination of Executive's employment relationship with the Company. 6.7 AT-WILL PRESUMPTION. Upon completion of the Term of the Agreement, the ------------------- Parties acknowledge and agree that any further employment with the Company shall be in an at-will capacity and may be terminated at any time. 6.8 EXPENSES OF ENFORCEMENT. Executive shall be liable to, and will pay the ----------------------- Company for all costs and expenses, including, but not limited to, reasonable attorneys' fees, incurred by the Company in the successful enforcement in any respect of any of its rights under this Agreement, whether in litigation or otherwise. Likewise, in the event the Company is unsuccessful in enforcing its rights under this Agreement, whether in litigation or otherwise, then the Company shall pay all of Executive's costs and expenses, including, but not limited to, reasonable attorneys' fees, incurred by Executive in defending the Company's claims. 6.9 ENTIRE AGREEMENT. The Executive acknowledges and agrees that this Agreement, ---------------- including Addendums A and B which are incorporated herein and made a part of the Agreement, together with the Alco Standard Corporation Confidentiality and Patent Agreement executed by the Executive and constitute the entire agreement between the Parties concerning the subject matter of this Agreement, and that together they supersede and replace all prior agreements, whether written or oral except the relevant benefit and compensation plans referred to elsewhere in the Agreement, which are incorporated reference; there are no other agreements, understandings, restrictions, warranties, or representations between the parties relating to this Page 6 of 7 subject matter. Executive hereby represents that, in signing the Agreement, he has not relied upon any promise, representation, or any other inducement that is not expressed herein. 6.10 APPLICABLE LAW. This Agreement, the construction of its terms, and the -------------- interpretation of the parties' rights and duties shall be governed by and construed according to the laws of the Commonwealth of Pennsylvania (the state of the principal place of business of IKON) without regard to the choice of law provisions of such law. 6.11 VENUE. The parties hereby agree that any lawsuit or proceeding instituted ----- regarding this Agreement, its interpretation, enforcement or validity shall be commenced in the Court of Common Pleas of Chester County, Pennsylvania, or in the United States District Court for the Eastern District of Pennsylvania, and the parties hereby consent to the personal jurisdiction over them of both Courts. 6.12 NOTICES. All notices and other communications concerning this Agreement ------- shall be in writing and must be given by postage prepaid, registered or certified mail, as follows: (a) If to the Company, to: (b) If to Executive, to: P.O. Box 834 P.O. Box 834 Valley Forge, PA 19482 Valley Forge, PA 19482 Attn: Law Department 6.13 UNDERSTANDING OF TERMS. Executive acknowledges that he has carefully ---------------------- reviewed the contents of this Agreement, understands its import and intent, including the restrictions on post-termination employment it imposes, and that he agrees to its terms without duress and in full and complete knowledge of its effect. 6.14 WAIVER. No omission or delay on the part of either Party of due and ------ punctual fulfillment of any obligation shall be deemed to constitute a waiver by the other Party of any of its rights to require such due and punctual fulfillment of any other obligation hereunder, whether similar or otherwise, or a waiver of any remedy it may have. IN WITNESS HEREOF, the Parties have affixed their signatures to this Agreement to be effective as of August 5, 1996. WITNESS - ----------------------------- --------------------------- DAVID M. GADRA Date: ALCO STANDARD CORPORATION IKON OFFICE SOLUTIONS, INC. - ----------------------------- --------------------------- By: Kurt E. Dinkelacker By: Kurt E. Dinkelacker Title: Vice President Title: President Date: Date: Page 7 of 7 EX-10.26 11 FORM OF CHANGE IN CONTROL AGREEMENT Exhibit 10.26 AGREEMENT THIS AGREEMENT, dated August 28, 1997, is made by and between IKON OFFICE SOLUTIONS, INC., an Ohio corporation with its principal offices located at Malvern, Pennsylvania (the "Company"), and ________________________ (the "Executive"). WHEREAS, the Company considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel; and WHEREAS, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. Defined Terms. The definitions of capitalized terms used in this ------------- Agreement are provided in the last Section hereof. 2. Company's Covenants Summarized. In order to induce the Executive to ------------------------------ remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 3 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein in the event the Executive's employment with the Company is (or, under the terms of this Agreement, is deemed to have been) terminated following a Change in Control and during the term of this Agreement. Except as provided herein, no amount or benefit shall be payable under this Agreement unless there shall have been (or, under the terms of this Agreement, there shall be deemed to have been) a termination of the Executive's employment with the Company following a Change in Control and during the term of this Agreement. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employment of the Company. 3. The Executive's Covenants. The Executive agrees that, subject to the ------------------------- terms and conditions of this Agreement, in the event of a Potential Change in Control during the term of this Agreement, the Executive will remain in the employ of the Company until the earliest of (i) - 1 - a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or retirement under the Company's applicable retirement policies or in accordance with a retirement arrangement between the Executive and the Company, or (iv) the termination by the Company of the Executive's employment for any reason. 4. Term of Agreement. This Agreement shall commence on the date hereof ----------------- and shall continue in effect for a period of twenty-four (24) months beyond the last day of the month in which a Change in Control occurs. 5. Compensation Other Than Severance Payments. ------------------------------------------ 5.1 Following a Change in Control and during the term of this Agreement, if the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's full salary to the Executive at the rate in effect at the commencement of the relevant period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefits plan, program or arrangement maintained by the Company during such period, until the Executive's employment is terminated by the Company for Disability. 5.2 If the Executive's employment is terminated for any reason following a Change in Control and during the term of this Agreement, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits to which the Executive is entitled in respect of all periods preceding the Date of Termination under the terms of the Company's compensation and benefits plans, programs or arrangements. 5.3 If the Executive's employment is terminated for any reason following a Change in Control and during the term of this Agreement, the Company shall pay the Executive's normal post-termination compensation and benefits to the Executive as such payments become due, to which Executive is entitled as a former employee. Such post- termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements maintained for the benefit of the Company's officers and employees. 6. Severance Payments. ------------------ 6.1 Subject to Section 6.2 hereof, the Company shall pay the Executive the payments described in this Section 6.1 (the "Severance Payments") upon the termination of the Executive's employment following a Change in Control and during the term of this Agreement, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof, unless such termination is (i) by the Company for Cause, (ii) by reason of the Executive's death or Disability, or (iii) by the Executive without Good Reason. Without limiting the - 2 - foregoing, if the Executive retires voluntarily without Good Reason, such retirement shall be considered a termination by the Executive without Good Reason; however, if the Company requires that the Executive retire or if the Executive retires voluntarily with Good Reason (in either case, other than on account of Cause or Disability) following a Change in Control and during the term of this Agreement, the Executive shall receive Severance Payments according to the terms of this Agreement. For purposes of this Agreement, if preceded by a Potential Change in Control, any of the following events shall be deemed to be a termination of the Executive's employment by the Company without Cause or by the Executive with Good Reason following a Change in Control: (i) the Executive's employment is terminated without Cause and such termination was at the request or direction of or pursuant to negotiations with, a Person who has entered into an agreement with the Company the consummation of which will constitute a Change in Control, (ii) the Executive terminates his employment with Good Reason and the circumstance or event which constitutes Good Reason occurs at the request or direction of, or pursuant to negotiations with, such Person, or (iii) the Executive's employment is terminated without Cause and such termination is otherwise in connection with or in anticipation of a Change in Control which actually occurs. For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Board determines, by an affirmative vote of not less than three-quarters (3/4) of the voting membership of the Board, that Cause has been established by clear and convincing evidence. In any Board deliberations or votes concerning a determination under this paragraph, Executive shall recuse himself from such deliberations and votes. In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefits otherwise payable to the Executive, the Company shall pay and/or provide to the Executive the following: (A) the Executive's target annual bonus award for the year in which the Date of Termination occurs, prorated to the Date of Termination, assuming all target performance goals have been or will be achieved; (B) continued group hospitalization, health, dental care, life or other insurance, travel or accident insurance and disability insurance, for the Separation Period, with coverage substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any amendment to such benefits made subsequent to a Change in Control which amendment adversely affects in any manner the Executive's entitlement to or the amount of such benefits); provided, -------- however, that (i) except as provided in subsection (ii) of this paragraph, - ------- unless the Executive consents to a different method (after taking into account the effect of such method on the calculation of "parachute payments" pursuant to Section 6.2 hereof), such health insurance benefits shall be provided though a third-party insurer, and provided further (ii) in the event the Company is -------- ------- precluded from providing coverage under any such program by applicable law or regulation, it shall provide Executive with a lump-sum payment equal to an amount that would enable Executive after payment of applicable income and employment taxes on such lump-sum amount to purchase comparable coverage. Benefits otherwise receivable by the Executive pursuant to this Section shall be reduced to the extent comparable benefits are actually received by the Executive without cost - 3 - during the Separation Period (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). (C) an amount equal to the Base Salary and annual bonus the Executive would have earned if the Executive had continued working for the Company during the Separation Period at the highest annual rate of Base Salary that the Executive achieved before the Date of Termination, and received an annual target percentage bonus for each year and part thereof, at the target potential award level, assuming all target performance goals have been or will be achieved. (D) an amount equal to the excess of (i) the present value of the benefits to which the Executive would be entitled under the Company's Pension Plan and Company's Supplemental Retirement Plan (and any successor thereto) if the Executive had continued working for the Company during the Separation Period, and the Pension Plan and Supplemental Retirement Plan continued in force during the Separation Period, at the highest annual rate of Base Salary achieved during the Executive's period of actual employment with the Company, over (ii) the present value of the benefits to which the Executive is actually entitled under the Company's Pension Plan and Supplemental Retirement Plan, each computed as of the date of the Executive's Date of Termination, with present values to be determined using the discount rate used by the Pension Benefits Guaranty Corporation to calculate the benefit liabilities under the Pension Plan in the event of a plan termination on the Date of Termination, compounded monthly, the mortality tables prescribed in the Company's Pension Plan for determining actuarial equivalence, and the reduction factor (if any) for early commencement of benefit payment based on the Executive's age on the last day of the Separation Period; (E) an amount equal to the Company's contributions to which the Executive would have been entitled under the Company's Retirement Savings Plan (or any successor thereto) if the Executive had continued working for the Company and the Retirement Savings Plan continued in force during the Separation Period at the highest annual rate of Base Salary achieved during the Executive's period of actual employment with the Company, and making the maximum amount of employee contributions, if any, as are required under such plans; (F) Notwithstanding any provision of the Company's LTIP or the Partners' Stock Purchase Plan to the contrary, the Executive shall be fully vested in the Company contributions credited to the Executive under the Partners' Stock Purchase Plan, and the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any incentive compensation which has been allocated or awarded to the Executive for a measuring period which commenced prior to the Date of Termination under the LTIP but which, as of the Date of Termination, is contingent only upon the continued employment of the Executive to a subsequent date and/or upon achievement of performance goals and which otherwise has not been paid, computed as if all performance goals have been or will be achieved to the maximum extent, in lieu of any payment of such incentive compensation under the LTIP, and without proration; (ii) the amount of a 100% match on purchases made under the Partners' Stock - 4 - Purchase Plan in the year in which the Date of Termination occurs, less the amount of the match actually made under the Partners' Stock Purchase Plan for the portion of the year prior to the Date of Termination; and (iii) the amount of a 100% match on purchases the Executive could have made under the Partners' Stock Purchase Plan during the Separation Period (assuming no increase or decrease in the purchase price under the Plan following the Date of Termination) if the Executive had continued working for the Company and the Partners' Stock Purchase Plan continued in force during the Separation Period at the pay and bonus levels specified in (C) above; (G) Full vesting in all stock options, including options granted after the date of this Agreement which, to the extent not previously vested, shall be exercisable beginning on the date of the termination upon a Change in Control; and (H) A one-year extension of any loan repayment obligation under the Company's Partners Loan Program (subject to interest accrual pursuant to the terms of such Plan). 6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any payment or benefit received or to be received by the Executive in connection with a Change in Control or the termination of the Executive's employment whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person (with all such payments and benefits, including the Severance Payments, hereinafter called "Total Payments") will be subject (in whole or in part) to the Excise Tax, then the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income and employment taxes at the highest marginal rate of federal income and employment taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or, if inapplicable, the date of the Change of Control, with the relevant date hereinafter referred to as the "Payment Date") net of maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, unless in the opinion of tax counsel (the "Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm (the "Auditor") which was, immediately prior to the Change in Control, the Company's independent auditor, such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section - 5 - 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or part) represent reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of section 280G(d)(3) and (4) of the Code. Prior to the payment date set forth in Section 6.3 hereof, the Company shall provide the Executive with its calculation of the amounts referred to in this Section 6.2(B) and such supporting materials as are reasonably necessary for the Executive to evaluate the Company's calculations. If the Executive disputes the Company's calculations (in whole or in part), the reasonable opinion of Tax Counsel with respect to the matter in dispute shall prevail. (C) In the event that (i) amounts are paid to the Executive pursuant to subsection (A) of this Section 6.2, and (ii) the Excise Tax is subsequently determined to be less than the amount taken into account hereunder on the Payment Date, the Executive shall repay to the Company, within 90 days following the date on which the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in determining the amount of the Gross-Up Payment at the time of the Payment Date (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment to the Executive in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess and such portion) within 90 days following the date on which the amount of such excess is finally determined at the rate provided in section 1274(b)(2)(B) of the Code. 6.3 The payments provided for in subsections (A), (C), (D), (E), and (F) of Section 6.1 hereof and Section 6.2 hereof shall be made not later than the twentieth (20th) day following the Date of Termination; provided, -------- however, that if the amounts of such payments, or, if applicable, the Excise - ------- Tax, cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive or, in the case of Gross Payments under Section 6.2 hereof, in accordance with Section 6.2(B) hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Section, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or - 6 - other advice the Company has received from outside counsel, auditors or consultants (and any such opinions or advice which are in writing shall be attached to the statement). In the event the Company should fail to pay when due the amounts described in Section 6.1 hereof, or Subsections (A), (B) and, if applicable, (C), of Section 6.2 hereof, the Executive shall also be entitled to receive from the Company an amount representing interest on any unpaid or untimely paid amounts from the due date, as determined under this Section 6.3, to the date of payment at the rate provided in section 1274(b)(2)(B) of the Code after such due date. 6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue relating to the termination of the Executive's employment following a Change in Control (including a termination of Executive's employment following a Potential Change in Control if the Executive alleges in good faith that such termination will be deemed to have occurred following a Change in Control pursuant to Section 6.1 hereof) or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made as such fees and expenses are incurred by the Executive, but in no event later than five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 7. Termination Procedures and Compensation During Dispute. ------------------------------------------------------ 7.1 Notice of Termination. After a Potential Change in Control --------------------- or Change in Control and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purpose of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the voting membership of the Board at a meeting of the Board which considered such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct specifically included in the definition of Cause, and specifying the particulars thereof in detail. In any Board deliberations or votes concerning determinations under this paragraph, Executive shall recuse himself from such deliberations and votes. 7.2 Date of Termination. "Date of Termination," with respect ------------------- to any termination of the Executive's employment after a Potential Change in Control or Change in Control and during the term of this Agreement, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the - 7 - Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than thirty (30) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 8. No Mitigation. The Company agrees that, if the Executive's ------------- employment with the Company terminates during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof. Further, the amount of any payment or benefit provided for in this Agreement (other than Section 6.1(B) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. 9. Successors; Binding Agreement. ----------------------------- 9.1 Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term "Company" as used herein shall mean such other corporation and this Agreement shall continue in full force and effect. 9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 10. Notices. All notices, requests, demands and other communications ------- required or permitted hereunder shall be given in writing and shall be deemed to have been duly given if delivered or mailed, postage prepaid, by same day or overnight mail as follows: (a) To Company: General Counsel IKON Office Solutions, Inc. 70 Valley Stream Parkway Malvern, PA 19355 - 8 - (b) To the Executive: ---------------------- ---------------------- ---------------------- 11. Miscellaneous. All section headings are for convenience only. This ------------- Agreement may be executed in any number of counterparts, each of when executed shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. It shall not be necessary in marking proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. This Agreement supersedes all prior agreements and sets forth the entire understanding among the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment approved by the parties hereto. Unless otherwise required by law, in the event of a conflict between this Agreement and any plan, program, stock option award, LTIP award, or Company policy, the terms of this Agreement shall be controlling. The Company may directly or indirectly withhold from any payments made under this Agreement all Federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 12. Severability. If any provision of this Agreement or application ------------ thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. 13. Source of Payment. All payments provided for under this Agreement ----------------- shall be paid in cash from the general funds of the Company. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the Company shall make any investments to aid it in meeting its obligations hereunder, the Executive shall have no right, title or interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and the Executive or any other person. To the extent that any person acquires a right to receive payments from the Company hereunder, such right, without prejudice to rights which employees may have, shall be no greater than the right of an unsecured creditor of the Company. 14. Other Duties of the Executive During and After Term. --------------------------------------------------- 14.1 Confidential Information. Executive acknowledges that by ------------------------ reason of his employment with the Company he has and will hereafter, from time to time during the term of this Agreement, become exposed to and/or become knowledgeable about proposals, plans inventions, practices, systems, programs, formulas, processes, methods, techniques, research, records, supplier sources, customer lists, and other forms of business information which are not -9- known to the Company's competitors and which are not recognized as being encompassed within standard business or management practices and which are kept secret and confidential by the Company (the "Confidential Information"). The Executive therefore agrees that at no time during or after the period of his employment by the Company will he disclose or use the Confidential Information except as may be required in the prudent course of business for the benefit of the Company; provided, that no payment required to be made by the Company under the terms of this Agreement after termination of the employment of the Executive shall be subject to any right of set-off, counterclaim, defense, abatement, suspension, deferment or reduction by reason of any claim against the Executive based upon breach of the covenant in this Section 14.1 other than upon execution of an unsatisfied judgment rendered by a court of competent jurisdiction. 14.2 Remedies. The Company and the Executive confirm that the -------- restrictions contained in Section 14.1 hereof are, in view of the nature of the business of the Company, reasonable and necessary to protect the legitimate interests of the Company and that any violation of any provision of Section 14.1 or 14.2 will result in irreparable injury to the Company. The Executive hereby agrees that, in the event of any breach or threatened breach of the terms or conditions of this Agreement by the Executive, the Company's remedies at law will be inadequate and, in any such event, the Company shall be entitled to commence an action for preliminary and permanent injunctive relief and other equitable relief in any court of competent jurisdiction. The Executive further irrevocable consents to the jurisdiction of any Pennsylvania state court or federal court located in the Commonwealth of Pennsylvania over any suit, action or proceeding arising out of or relating to this Section 14.3 and hereby waives, to the fullest extent permitted by law, any objection that he may now or hereafter have to such jurisdiction or to the laying of venue of any such suit, action or proceeding brought in such a court and any claim that such suit, action or proceeding has been brought in an inconvenient forum. The Executive's Agreement as set forth in this Section 14 shall: (x) survive the termination of this Agreement, and continue throughout the duration of the Executive's employment with the Company, except as amended or modified by written agreement of the parties; and (y) survive the Executive's termination of employment with the Company. 14.3 Modification of Terms. If any restriction in this Section --------------------- 14 of the Agreement is adjudicated to exceed the time, geographic, service or other limitations permitted by applicable law in any jurisdiction, the Executive agrees that such may be modified and narrowed, either by a court or the Company, to the maximum time, geographic, service or other limitations permitted by applicable law so as to preserve and protect the Company's legitimate business interest, without negating or impairing any other restrictions or undertaking set forth in the Agreement. 15. Settlement of Disputes; Arbitration. Except with respect to actions ----------------------------------- for preliminary and permanent injunctive relief and other equitable relief under Section 14, any controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall be settled by arbitration in accordance with the terms of this Section 15. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board -10- and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing within thirty (30) days and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within thirty (30) days after notification by the Board that the Executive's claim has been denied. Any further dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation or alleged breach thereof, shall be settled by arbitration in accordance with the Center for Public Resources, Inc. Non-Administered Arbitration Rules (or such other rules as may be agreed upon by the Executive and the Company), by three arbitrators, none of whom shall be appointed by either party. The arbitration shall be governed by United States Arbitration Act 9 U.S.C. (S). 1-16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of the arbitration shall be Philadelphia, Pennsylvania. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 16. Survival of Benefits. Any Section of this Agreement which provides -------------------- a benefit to the Executive and which does not expressly provide for its termination upon the expiration of the term of the Agreement shall survive the expiration of the term and the obligation to provide benefits to the Executive as set forth in such Section shall remain binding upon the Company until such time as the Executive's employment relationship with the Company is terminated and the benefits provided under such Section are paid in full to the Executive. 17. No Attachment. Except as required by law, no right to receive ------------- payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect; provided, however, that nothing in this Section -------- ------- 17 shall preclude the assumption of such rights by executors, administrators or other legal representatives of the Executive of his estate and their assigning any rights hereunder to the person or persons entitled thereto. 18. Governing Law. The validity, interpretation, performance, and ------------- enforcement of this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania, and Executive consents to the jurisdiction of the state and federal courts of Pennsylvania in any dispute arising under this Agreement. 19. Definitions. For purposes of this Agreement, the following terms ----------- shall have the meanings indicated below: -11- (A) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code. (B) "Base Salary" shall mean the annual base salary of the Executive at the time of reference. (C) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. (D) "Board" shall mean the Board of Directors of the Company. (E) "Cause" for termination by the Company of the Executive's employment shall mean a judicial determination that the Executive has committed fraud, misappropriation or embezzlement against the Company; or a nonappealable conviction of, or entry of a plea of nolo contendere for, an act by the Executive constituting a felony or misdemeanor which, as determined by the Board in the good faith, constitutes a crime involving moral turpitude and results in material harm to the Company. In the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Board determines by a vote of not less than three- quarters (3/4) of its voting membership that Cause has been established by clear and convincing evidence as provided in Section 7.1. Any dispute by the Executive of a Board determination under this paragraph shall be resolved in accordance with Section 15 hereof. (F) A "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) any Person, together with its affiliates and associates (as such terms are used in Rule 12b-2 of the Exchange Act), is or becomes the Beneficial Owner, directly or indirectly, of 15% or more of either the then outstanding shares of common stock of the Company; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved; or (iii) the Company consolidates with, or merges with or into, any other Person (other than a wholly owned subsidiary of the Company), or any other person consolidates with, or merges with or into, the Company, and, in connection therewith, all or part of the outstanding shares of common stock shall be changed in any way or converted into or exchanged for stock or other securities or cash or any other property; or -12- (iv) a transaction or series of transactions in which, directly or indirectly, the Company shall sell or otherwise transfer (or one or more of its subsidiaries shall sell or otherwise transfer) assets (x) aggregating more than 50% of the assets (measured by either book value or fair market value) or (y) generating more than 50% of the operating income or cash flow of the Company and its subsidiaries (taken as a whole) to any other Person or group of Persons. Notwithstanding the foregoing, no "Change in Control Event" shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions own a majority of the outstanding voting shares and in substantially the same proportion in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. (G) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. Reference to any section or subsection of the Code includes references to any comparable or succeeding provision of any legislation which amends, supplements, or replaces such section or subsection. (H) "Company" shall mean IKON Office Solutions, Inc. and, except in determining under Section 19(F) hereof whether or not any Change in Control of the Company has occurred, shall include its subsidiaries and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. (I) "Date of Termination" shall have the meaning stated in Section 7.2 hereof. (J) "Disability" shall mean termination by the Company of the Executive's employment upon or following Executive's commencement of benefits under the Company's long-term disability plan. (K) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (L) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. (M) "Executive" shall mean the individual named in the first paragraph of this Agreement. (N) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) after any Change in Control, or after any Potential Change in Control under the -13- circumstances described in the second sentence of Section 6.1 hereof of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI), (VII) or (VIII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (I) the assignment to the Executive of duties inconsistent with the Executive's status as a senior executive officer of the Company or a substantial alteration in the nature or status of the Executive's responsibilities other than any such alteration primarily attributable to the fact that the Company may no longer be a public company; (II) a reduction by the Company in the Executive's Base Salary as in effect on the date of the Potential Change of Control or as the same may be increased from time to time; (III) the relocation of the Company's principal executive offices to a location more than 15 miles from the then location of such offices without the Executive's written consent or the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations; (IV) the failure by the Company to pay to the Executive any portion of the Executive's current compensation, or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due after written demand from the Executive has been received therefor; (V) the failure by the Company to continue in effect any compensation plan which the Executive participates immediately prior to the Change in Control or Potential Change in Control which is material to the Executive's total compensation, including but not limited to the Company's stock option, incentive compensation, deferred compensation, stock purchase, bonus and other plans or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other -14- participants, as existed immediately prior to the Change in Control or the Potential Change in Control; (VI) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control or Potential Change in Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control or a Potential Change in Control, or the failure by the Company to maintain a vacation policy with respect to the Executive that is at least as favorable as the vacation policy (whether formal or informal) in place with respect to the Executive immediately prior to the Change in Control or Potential Change in Control; or (VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof; for purposes of this Agreement, no such purported termination shall be effective; or (VIII) any breach by the Company of any material provision of this Agreement. If the Executive's employment has not terminated on account of Disability, the Executive's right to terminate employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Board determines by an affirmative vote of not less than three-quarters (3/4) of the voting membership of the Board, by clear and convincing evidence, that Good Reason does not exist. In any Board deliberations or votes concerning a determination under the paragraph, Executive shall recuse himself from such deliberations and votes. Any dispute by the Executive of a Board determination under this provision shall be resolved in accordance with Section 15. (O) "Gross-Up Payment" shall have the meaning set forth in Section 6.2 hereof. (P) "Notice of Termination" shall have the meaning stated in Section 7.1 hereof. -15- (Q) "Pension Plan" shall mean any tax-qualified, supplemental or excess benefit pension plan maintained by the Company which is designed to provide the Executive with supplemental retirement benefits. (R) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act), (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (S) "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; or (III) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (T) "Separation Period" shall mean the two-year period (or such longer period as the Human Resources Committee of the Board may determine) beginning on the Date of Termination. (U) "Severance Payments" shall mean those payments described in Section 6.1 hereof. (V) "Total Payments" shall mean those payments described in Section 6.2 hereof. IKON OFFICE SOLUTIONS, INC. By: -------------------------------------- ----------------------------------------- [Executive] -16- EX-10.30 12 1994 DEFERRED COMPENSATION PLAN Exhibit 10.30 IKON OFFICE SOLUTIONS, INC. 1994 DEFERRED COMPENSATION PLAN (as amended and restated effective January 1, 1998) A. Purpose. The purpose of the IKON Office Solutions, Inc. 1994 Deferred Compensation Plan is to permit certain eligible employees of IKON Office Solutions, Inc. and its affiliated companies to defer a portion of their compensation and to participate in a program under which they are provided supplemental income after their retirement. The program is intended to constitute an unfunded deferred compensation arrangement for a select group of management or highly compensated employees. 2. Definition. Unless the context otherwise requires, the following words as used herein shall have the following meanings: (a) "Administrator" shall mean the person or persons so designated and acting under Paragraph 16 hereof. (b) "Affiliated Employer" shall mean any domestic corporation of which IKON (directly or through any subsidiary) owns 80% or more of the outstanding voting stock. (c) "Compensation" shall mean all salaries, bonuses, commissions and incentive compensation from IKON or an Affiliated Employer, but shall not include company contributions under IKON's Partners' Stock Purchase Plan or the IKON Retirement Savings Plan or any fringe benefits. (d) "Effective Date" shall mean January 1, 1998, the effective date of this amended and restated Plan. The rights of a Participant whose participation in the Plan commenced prior to the Effective Date and who remains a Participant on the Effective Date shall be governed by the terms of the amended and restated Plan as set forth herein. (e) "Employer" shall mean IKON or an Affiliated Employer or Unisource Worldwide, Inc. (f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (g) "IKON" shall mean IKON Office Solutions, Inc., an Ohio corporation, formerly known as Alco Standard Corporation. (h) "Participant" shall mean any person employed by an Employer who is eligible, and who has elected, to participate in the Plan. 1 (i) "Participation Agreement" shall mean the agreement executed by each Participant and IKON or an Affiliated Employer, as the case may be, setting forth certain information relating to the Participant's participation in the Plan. (j) "Plan" shall mean the IKON Office Solutions, Inc. 1994 Deferred Compensation Plan, as amended from time to time. (k) "Plan Year" shall mean the period beginning on January 1 and ending on December 31 of each year. (l) "Total Disability" shall mean a total disability as defined in the long term disability plan adopted by the Participant's Employer (or, if the Participant's Employer does not have such a plan, the long term disability plan of IKON). 3. Participation. Any person who (a) is employed by IKON or an Affiliated Employer on a full-time basis, (b) is "highly compensated" (employees who received, or who reasonably expect to receive, Compensation from IKON or an Affiliated Employer in excess of $110,000 in the calendar year immediately preceding the date on which the Participant begins to participate in the Plan are considered "highly compensated" for purposes of the Plan) or has been designated by IKON as a "Partner" and (c) is a United States taxpayer, shall be eligible to participate herein. In addition, other persons who satisfy conditions (a) and (c) of the foregoing sentence shall be eligible to participate in the Plan if selected by the Chief Executive Officer or Chief Financial Officer of IKON. A person eligible under this Paragraph 3 shall become a Participant by executing a Participation Agreement and such other forms as may be required by the Administrator. 4. Deferral of Compensation. Prior to the Effective Date and prior to the beginning of each Plan Year during the term of the Plan, an employee of IKON or an Affiliated Employer who meets the eligibility requirements of Paragraph 3 may irrevocably elect to defer or forgo a portion of his Compensation for each of the next five Plan Years (or, if less, for each of the Plan Years while he is an active employee of IKON or an Affiliated Employer). The amount of the deferral for each Plan Year may vary, subject to the minimum and maximum limitations set forth below. The amount of salary and/or annual bonus (stated as a dollar amount or as a percentage in the case of deferrals from a Participant's annual bonus) to be deferred for the first Plan Year shall be designated on the Participant's Participation Agreement, subject to the minimum and maximum limitations set forth below. For each of the next four Plan Years after a Participant's initial deferral election (or, if less, for each Plan Year while he is an active employee of IKON or an Affiliated Employer), the Participant will be given the opportunity, prior to the beginning of each Plan Year, to elect the amount of Compensation to be deferred, subject to the minimum and maximum limitations set forth below. For each Plan Year, the amount of a Participant's deferrals from salary may be no less than $3,000 and the aggregate amount of a 2 Participant's deferrals from salary and annual bonus may be no more than $100,000. In the event that a Participant fails to specify the amount to be deferred in any Plan Year, he shall be deemed to have elected to defer $3,000 of salary for such Plan Year. The Administrator shall have the right to waive the future deferral obligation for a Participant who has suffered an unforseeable emergency. The amount to be deferred for a Plan Year will be deducted from the Participant's Compensation otherwise payable by IKON or an Affiliated Employer, in substantially equal installments during the applicable deferral period in the case of deferrals from salary, and in a lump sum in the case of deferrals from annual bonuses. 5. Investment Accounts. Amounts deferred by a Participant pursuant to Paragraph 4 will be credited to an account established by IKON in the name of the Participant. A Participant's account will be credited with earnings based on the performance of various investment alternatives selected by the Participant from among those made available by IKON from time to time. A Participant may request a change in his allocation among the various investment alternatives once during any calendar month. Any such changes requested by the 25th day of the month will become effective as of the first day of the next calendar month. 6. Vesting. A Participant shall vest in the benefits to be provided hereunder (i) on the fifth anniversary of the date of his initial participation in the Plan (or, in the case of Participants whose participation in the Plan began as of July 1, 1995, on December 31, 1999), (ii) on the date of his retirement from an Employer at or after age 60, or (iii) on the date that he attains age 65, whichever shall first occur, provided the Participant has been a full-time employee of an Employer for the entire period. A Participant who incurs a Total Disability while still employed by an Employer shall become immediately vested in the benefits to be provided hereunder (as described in Paragraph 8, below). Each other Participant whose employment with an Employer terminates prior to vesting (other than on account of death, as described in Paragraph 7, below) shall be entitled to receive, in a lump sum payment, an amount equal to the lesser of (i) the Participant's deferrals to the date of termination, without interest, or (ii) the value of the Participant's account as of the last day of the calendar month coincident with or next following the date of termination. No other benefits shall be payable under the Plan to such Participant. 7. Death Benefits. If a Participant dies (whether before or after he begins to receive benefit payments), his beneficiary shall be entitled to receive, in a lump sum payment, the value of the Participant's account as of the last day of the calendar month coincident with or next following the Participant's date of death. 3 8. Disability Benefits. If a Participant incurs a Total Disability while still employed by an Employer, he shall be entitled to receive the benefits described in Paragraph 9, which shall commence in the January following the year in which he attains age 60. A Participant who has incurred a Total Disability may begin to receive benefits before reaching age 60 if the Committee (as defined in Paragraph 16) determines, upon application by the Participant, that the Participant has a financial hardship that cannot reasonably be relieved by use of other resources available to him. 9. Amount and Timing of Benefit Payments. Except as otherwise provided in Paragraphs 6, 7 and 8, payment of benefits under the Plan shall be paid in ten annual payments and shall commence in the January following the later of the Participant's attaining age 60 or the Participant's retirement from the employ of an Employer, unless the Participant has notified the Administrator, in writing, by December 31 of the second year prior to such date, of his election to defer commencement of such benefits until a later date or his election to receive benefits in five or fifteen annual payments. A. Ten Payments. If the Participant's benefits are to be paid to him in ten annual payments, such payments shall be made as follows: (a) 1/10 of the value of his account as of the preceding December 31 in the first year. (b) 1/9 of the value of his account as of the preceding December 31 in the second year. (c) 1/8 of the value of his account as of the preceding December 31 in the third year. (d) 1/7 of the value of his account as of the preceding December 31 in the fourth year. (e) 1/6 of the value of his account as of the preceding December 31 in the fifth year. (f) 1/5 of the value of his account as of the preceding December 31 in the sixth year. (g) 1/4 of the value of his account as of the preceding December 31 in the seventh year. (h) 1/3 of the value of his account as of the preceding December 31 in the eighth year. 4 (i) 1/2 of the value of his account as of the preceding December 31 in the ninth year. (j) All amounts remaining in his account in the tenth year. B. Five Payments. If the Participant elects (in accordance ------------- with the procedure specified herein) to have his benefits paid in five annual payments, such payments shall be made as follows: (a) 1/5 of the value of his account as of the preceding December 31 in the first year. (b) 1/4 of the value of his account as of the preceding December 31 in the second year. (c) 1/3 of the value of his account as of the preceding December 31 in the third year. (d) 1/2 of the value of his account as of the preceding December 31 in the fourth year. (e) All amounts remaining in his account in the fifth year. C. Fifteen Payments. If the Participant elects (in accordance ---------------- with the procedure specified herein) to have his benefits paid in fifteen annual payments, such payments shall be made as follows: (a) 1/15 of the value of his account as of the preceding December 31 in the first year. (b) 1/14 of the value of his account as of the preceding December 31 in the second year. (c) 1/13 of the value of his account as of the preceding December 31 in the third year. (d) 1/12 of the value of his account as of the preceding December 31 in the fourth year. (e) 1/11 of the value of his account as of the preceding December 31 in the fifth year. (f) 1/10 of the value of his account as of the preceding December 31 in the sixth year. 5 (g) 1/9 of the value of his account as of the preceding December 31 in the seventh year. (h) 1/8 of the value of his account as of the preceding December 31 in the eighth year. (i) 1/7 of the value of his account as of the preceding December 31 in the ninth year. (j) 1/6 of the value of his account as of the preceding December 31 in the tenth year. (k) 1/5 of the value of his account as of the preceding December 31 in the eleventh year. (l) 1/4 of the value of his account as of the preceding December 31 in the twelfth year. (m) 1/3 of the value of his account as of the preceding December 31 in the thirteenth year. (n) 1/2 of the value of his account as of the preceding December 31 in the fourteenth year. (o) All amounts remaining in his account in the fifteenth year. 10. Beneficiary Designation. A Participant shall designate in his Participation Agreement the beneficiary or beneficiaries who shall, in the event of his death, receive the benefits payable in accordance with Paragraph 7. This designation may be amended in writing and filed with the Administrator from time to time by the Participant. In the event that there is no effective beneficiary designation when such benefits are payable, payments shall be made to the members of the first surviving class of the Participant in the following priority: (a) spouse; (b) the living children (including adopted children) in equal amounts; (c) estate. 11. Incapacity of Recipient. Any payment required to be made under the Plan to a person who is under a legal disability may be made to or for the benefit of such person in such of the following ways as the Administrator shall determine: 6 (a) to such person; (b) to the legal representatives of such person; (c) to a near relative of such person to be used for his benefit; or (d) to pay the expenses of support, maintenance or education of such person. The Administrator shall not be required to see to the application by any third party of payments made pursuant to this Paragraph 11. 12. Responsibility for Payment. All benefits under the Plan shall be paid by IKON. IKON may, in its sole discretion, determine the manner in which it shall finance its obligation to pay such benefits. 13. Non-Assignment. Except as hereinafter provided with respect to marital or family support disputes, no amount payable under the Plan shall be subject to assignment, transfer, sale, pledge, encumbrance, alienation or charge by the Participant or any beneficiary. Any attempt to assign, transfer, sell, pledge, encumber, alienate or charge any amount hereunder shall be without effect. In cases of marital or family support disputes, the Administrator will observe the terms of the Plan unless and until ordered to do otherwise by a state or federal court. As a condition of participation in the Plan, the Participant shall agree to hold the Employer harmless from any claim that arises out of obeying an order of any state or federal court with respect to marital or family support disputes, whether such order effects a judgment of such court or is issued to enforce a judgment or order of another court. 14. No Funding. IKON shall not segregate or physically set aside any funds or assets as a result of this Plan. Neither a Participant, nor his beneficiary, nor any other person shall be deemed to have, pursuant to this Plan, any property interest, legal or equitable, in any specific asset of IKON or an Employer. To the extent that any person acquires any right to receive benefits under this Plan or a Participation Agreement, such right shall be no greater than, nor shall it have any preference or priority over, the rights of any unsecured general creditor of IKON or an Affiliated Employer. 15. Ownership of Life Insurance Policies. IKON may, but is not obligated to, purchase life insurance policies to assist it in meeting its obligation to pay benefits under the Plan. IKON will retain all incidents of ownership in such policies. As a condition of participation in the Plan, the Participant shall agree that IKON or an Affiliated Employer may, at their expense, purchase life insurance on the life of the Participant. 16. Administration. The Plan shall be administered by a Committee selected from time to time by the Board of Directors of IKON (the "Committee"). The Committee shall select 7 an Administrator from time to time to administer the Plan under the general policy guidance of the Committee. The Administrator shall be one or more persons who shall be responsible for: (a) maintaining any records necessary in connection with the Plan; (b) making calculations under the Plan; (c) interpreting the provisions of the Plan; and (d) otherwise administering the Plan in accordance with its terms. 17. Claims Procedures. At any time the Administrator makes a determination adverse to a Participant or beneficiary with respect to a claim for benefits or participation under the Plan, the Administrator shall notify the claimant in writing of such determination, setting forth: (a) the specific reason for such determination; (b) a reference to the specific provision or provisions of the Plan on which such determination is based; (c) a description of any additional material or information necessary to perfect the claim, and an explanation of the reason that such material is required; and (d) an explanation of the rights and procedures set forth in this Paragraph 17. A person who receives notice of an adverse determination by the Administrator with respect to a claim may request, within 60 days of receipt of such notice, that the Committee review the Administrator's determination. This request may be made on behalf of a claimant by a duly authorized representative. The claimant or representative may review pertinent documents and submit issues and comments with respect to the controversy to the Committee. The Committee shall render a decision within 60 days of a request for review (or within 120 days under special circumstances), which decision shall be in writing and shall set forth the specific reasons for the decision reached and the specific provisions of the Plan on which the decision is based. A copy of the ruling shall be forwarded to the claimant. 18. Employee Benefit Plans. This Plan shall not in any way affect a Participant's right to participate in any pension, profit-sharing, incentive, thrift, group health insurance, stock option, termination pay or similar plan of an Employer, which is now in effect or may hereafter be adopted, to the extent that the Participant is entitled to participate under the applicable terms and provisions of such plan, except that the amounts deferred herein shall not be included in determining a Participant's benefits under any retirement plans qualified under section 401(a) of the Internal Revenue Code. Deferrals under this Plan will be included as compensation for purposes of calculating the level of contributions under IKON's Partners' Stock Purchase Plan. 8 19. Amendment. The Board of Directors of IKON shall have the power to amend this Plan at any time; provided, however, that, except as set forth in Paragraph 20 and/or Paragraph 21, no amendment or termination of the Plan shall have a material adverse effect upon a Participant unless he consents to such amendment or termination in writing. 20. Termination. This Plan shall remain in effect until termination by the Board of Directors of IKON. The Board of Directors of IKON shall have the right to terminate the Plan in its entirety, and not in part, at any time it determines that proposed or pending tax law changes or other events cause, or are likely in the future to cause, the Plan to have an adverse financial impact upon IKON. In such event, IKON shall have no liability or obligation under the Plan or the Participant's Participation Agreement (or any other document), provided that IKON distributes to each Participant, in a lump sum payment, the value of his account, valued as of the end of the month in which such termination occurs. 21. Acceleration. IKON shall have the right at any time to (a) accelerate the vesting of benefits to be provided under the Plan or (b) cause the payment of all amounts thereafter due to a Participant to be paid in a single lump sum or in such other accelerated manner as IKON shall deem appropriate. The amount of any lump sum payment shall be the value of a Participant's account, valued as of the end of the month following IKON's determination to accelerate benefits. If IKON accelerates the payment of benefits to more than 70% of all Participants pursuant to this provision, it must accelerate the payment of benefits to all Participants under the Plan in a comparable manner. 22. Change in Control. In the event of a Change in Control (as defined below), the Plan shall terminate, and the Participant shall receive, in a lump sum payment, the value of his account, valued as of the end of the month in which such Change in Control occurs. For purposes of this Plan, the term "Change in Control" shall mean any of the following events: (A) any Person, together with its affiliates and associates (as such terms are used in Rule 12b-2 of the Exchange Act), is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 15% or more of the then outstanding shares of IKON common stock; or (B) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on September 30, 1997, constituted the Board and any new director whose appointment or election by the Board or nomination for election by IKON's shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors on September 30, 1997 or whose appointment, election or nomination for election was previously so approved; or 9 (C) IKON consolidates with, or merges with or into, any other Person (other than a wholly owned subsidiary of IKON), or any other Person consolidates with, or merges with or into, IKON, and, in connection therewith, all or part of the outstanding shares of common stock shall be changed in any way or converted into or exchanged for stock or other securities or cash or any other property; or (D) a transaction or series of transactions in which, directly or indirectly, IKON shall sell or otherwise transfer (or one or more of its subsidiaries shall sell or otherwise transfer) assets (i) aggregating more than 50% of the assets (measured by either book value or fair market value) or (ii) generating more than 50% of the operating income or cash flow of IKON and its subsidiaries (taken as a whole) to any other Person or group of Persons. Notwithstanding the foregoing, no "Change in Control" shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of IKON common stock immediately prior to such transaction or series of transactions own a majority of the outstanding voting shares and in substantially the same proportion in an entity which owns all or substantially all of the assets of IKON immediately following such transaction or series of transactions. The term "Person" in the foregoing definition shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) IKON or any of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act), (ii) a trustee or other fiduciary holding securities under an employee benefit plan of IKON or any of its affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of IKON in substantially the same proportions as their ownership of IKON stock. 23. Miscellaneous. (a) The existence of this Plan and the Participation Agreements hereunder, and any actions undertaken pursuant hereto, shall not confer upon the Participant any right to continued employment by any Employer. (b) This Plan shall be administered under and in accordance with the laws of the Commonwealth of Pennsylvania, in which IKON's principal place of business is located. (c) The terms of this Plan and the Participation Agreements and other documents executed in accordance herewith shall be binding upon IKON, its successors and assigns, and each Participant, his heirs and legal representatives. (d) Any taxes imposed on a Participant shall be the sole responsibility of the Participant. Employers shall have the right to deduct from any benefits payable under the Plan any federal, state or local taxes required to be deducted or withheld from such benefits. 10 (e) No expenses of administering the Plan shall be charged against the Participants or their benefits hereunder. (f) As used herein, the singular shall include the plural, the masculine shall include the feminine, and vice versa. 11 EX-10.31 13 EXECUTIVE DEFERRED COMPENSATION PLAN Exhibit 10.31 IKON OFFICE SOLUTIONS, INC. EXECUTIVE DEFERRED COMPENSATION PLAN (as amended and restated effective January 1, 1998) 1. Purpose. The purpose of the IKON Office Solutions, Inc. Executive Deferred Compensation Plan is to permit certain eligible employees of IKON Office Solutions, Inc. to defer a portion of their compensation and to participate in a program under which they are provided income at a specified time in the future. The program is intended to constitute an unfunded deferred compensation arrangement for a select group of management or highly compensated employees. 2. Definition. Unless the context otherwise requires, the following words as used herein shall have the following meanings: (a) "Administrator" shall mean the person or persons so designated and acting under Paragraph 16 hereof. (b) "Compensation" shall mean all salaries and bonuses payable by IKON and all shares of IKON common stock or cash payable pursuant to awards under the LTIP, but shall not include company contributions under IKON's Partners' Stock Purchase Plan or the IKON Retirement Savings Plan or any fringe benefits. (c) "Effective Date" shall mean January 1, 1998, the effective date of this amended and restated Plan. The rights of a Participant whose participation in the Plan commenced prior to the Effective Date and who remains a Participant on the Effective Date shall be governed by the terms of the amended and restated Plan as set forth herein. (d) "Election Form" shall mean the election form executed by each Participant and IKON setting forth certain information relating to the Participant's participation in the Plan. (e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (f) "IKON" shall mean IKON Office Solutions, Inc., an Ohio corporation, formerly known as Alco Standard Corporation. (g) "LTIP" shall mean IKON's Long Term Incentive Compensation Plan, as amended from time to time. (h) "Participant" shall mean any person employed by IKON who is eligible, and who has elected, to participate in the Plan. (i) "Plan" shall mean the IKON Office Solutions, Inc. Executive Deferred Compensation Plan, as amended from time to time. (j) "Plan Year" shall mean the period beginning on January 1 and ending on December 31 of each year. 3. Participation. Any person who (a) is employed by IKON, (b) is holding an unvested award under the LTIP and (c) is a United States taxpayer shall be eligible to participate herein. A person eligible under this Paragraph 3 shall become a Participant by executing an Election Form and such other forms as may be required by the Administrator. 4. Deferral of Compensation. Prior to the Effective Date and prior to the beginning of each Plan Year during the term of the Plan, an employee who meets the eligibility requirements of Paragraph 3 may irrevocably elect to defer or forgo a portion of his Compensation for the following Plan Year. The amount of the deferral for each Plan Year may vary, but cash deferrals must be projected to be no less than $5,000 for any Plan Year. The amount to be deferred for a Plan Year will be deducted from the Participant's Compensation otherwise payable by IKON. In the case of deferrals from salary, such deferrals will be made in substantially equal installments. A Participant may specify the length of time for which receipt of cash and/or shares of IKON common stock may be deferred, provided that (i) the deferral period must extend at least until the January following the end of the calendar year in which the Compensation would otherwise have been paid but for the election to defer and (ii) distributions must commence no later than the January following the year in which the Participant attains age 60 or the January following the year in which the Participant retires or otherwise terminates employment with IKON, whichever is later. A Participant may elect to defer the distribution of benefits to a later date by providing written notice of such election to the Administrator by December 31 of the second year prior to the date on which benefits would otherwise have been paid; provided, however, that such election may be made only once with respect to the deferral pursuant to any Election Form. 5. Investment Accounts. Amounts deferred by a Participant pursuant to Paragraph 4 will be credited to a cash deferral account and/or a stock deferral account established by IKON in the name of the Participant. A Participant's cash deferral account will be denominated in dollars and will be credited with earnings based on the performance of various investment alternatives selected by the Participant from among those made 2 available by IKON from time to time. A Participant's stock deferral account will initially be denominated solely in share units (representing the right to receive an equivalent number of shares of IKON common stock) and will be credited with additional share units to reflect cash dividends paid by IKON in respect of its common stock. With respect to shares deferred into a Participant's stock deferral account prior to January 1, 1997 (including shares of Unisource Worldwide, Inc. ("Unisource") common stock that were credited to the Participant's stock deferral account in connection with the December 31, 1996 spin-off distribution), a Participant may elect to convert some or all of the share units so that they will thereafter be denominated in dollars. To the extent that a Participant makes such an election, his stock deferral account will thereafter contain a separate sub-account, denominated in dollars. A Participant subject to IKON's Confidential Information and Security Trading Policy may make such a conversion election only during a trading window and the sub-account in the Participant's stock deferral account will be credited with an amount based on the value of IKON common stock or Unisource common stock, as the case may be, as of the following business day. A Participant who is not subject to IKON's Confidential Information and Security Trading Policy may make such a conversion election on or before the 25th of any month and the sub-account in the Participant's stock deferral account will be credited with an amount based on the value of IKON common stock or Unisource common stock, as the case may be, as of the last business day of such month. The sub-account in the Participant's stock deferral account will be credited with earnings based on the performance of various investment index alternatives selected by the Participant from among those made available by IKON from time to time. All amounts deferred into in a Participant's stock deferral account on or after January 1, 1997 must remain denominated in stock units and may not be converted to dollars at any time. A Participant may request a change in the allocation of his cash deferral account or the sub-account in his stock deferral account from among the various available alternatives once during any calendar month. Any such change requested by the 25th day of a month will become effective as of the first day of the next calendar month. 6. Rabbi Trust. IKON intends to contribute all Participant deferrals of IKON common stock to a "rabbi trust" (the "Trust") to be established for this purpose. Assets held in the Trust will be subject to the claims of creditors of IKON. 3 The Trust shall be deemed to be the owner of all shares held in the Trust for corporate law purposes. The trustee of the Trust (the "Trustee") shall retain all incidents of ownership in any shares held in the Trust, including the right to vote such shares and to receive dividends paid in respect of such shares. The Trustee may, but is not obligated to, reinvest any cash dividends received in respect of shares of IKON common stock held in the Trust to purchase additional shares of IKON common stock. 7. Vesting. A Participant shall be immediately vested in all amounts deferred hereunder. 8. Amount and Timing of Payments. Except as otherwise provided in Paragraphs 9 and 10, amounts to which a Participant is entitled under the Plan shall be paid to him in a lump sum in January of the year specified in his Election Form, valued as of the end of the preceding Plan Year. Alternatively, if the Participant so elects, distributions may be made in substantially equal annual installments over a period not to exceed ten years, beginning in January of the year specified in the Participant's Election Form. All distributions from the Trust shall be made (i) in shares of IKON common stock (or Unisource common stock, as the case may be) for the stock units credited to the account, unless the Participant elects, subject to the approval of the Plan Administrator, to receive such distribution(s) in cash, and (ii) in cash for all other items credited to the account. 9. Death. Notwithstanding any contrary election in a Participant's Election Form, if a Participant dies before receiving full payment of all amounts to which he is entitled under the Plan, the beneficiary or beneficiaries designated by the Participant in his Election Form shall receive the balance in the Participant's cash deferral account and stock deferral account (valued as of the end of the calendar month in which the Participant dies), in a lump sum payment, as soon as administratively practicable following the Participant's date of death. Distributions from a Participant's stock deferral account will be made (i) in shares of stock (and cash in lieu of fractional shares) for the stock units credited to the account, unless the beneficiary elects, subject to the approval of the Administrator, to have the distribution paid in cash, and (ii) in cash for all other items credited to the account. 10. Termination of Employment. Notwithstanding any contrary election in a Participant's Election Form, if a Participant terminates employment with IKON, he shall receive the balance in his cash deferral account and stock deferral account (valued as of the end of the Plan Year in which the Participant's employment terminates), in a lump sum payment, in January of the year following his employment termination date. Distributions from a participant's stock deferral account will be made (i) in 4 shares of stock (and cash in lieu of fractional shares) for the stock units credited to the account, unless the Participant elects, subject to the approval of the Administrator, to have the distribution paid in cash, and (ii) in cash for all other items credited to the account. For purposes of this Paragraph 10, a Participant will not be treated as having terminated employment with IKON if he continues to be an employee of Unisource. 11. Beneficiary Designation. A Participant shall designate in his Election Form the beneficiary or beneficiaries, who shall, in the event of his death, receive the payments to which the Participant would otherwise have been entitled. This designation may be amended in writing and filed with the Administrator from time to time by the Participant. In the event that there is no effective beneficiary designation when such amounts are payable, payment shall be made to the members of the first surviving class of the Participant in the following priority: (a) spouse; (b) the living children (including adopted children) in equal amounts; (c) estate. 12. Incapacity of Recipient. Any payment required to be made under the Plan to a person who is under a legal disability may be made to or for the benefit of such person in such of the following ways as the Administrator shall determine: (a) to such person; (b) to the legal representatives of such person; (c) to a near relative of such person to be used for his benefit; or (d) to pay the expenses of support, maintenance or education of such person. The Administrator shall not be required to see to the application by any third party of payments made pursuant to this Paragraph 12. 13. Responsibility for Payment. All amounts payable under the Plan shall be paid by IKON. IKON may, in its sole discretion, determine the manner in which it shall finance its obligation to pay such amounts. 14. Non-Assignment. Except as hereinafter provided with respect to marital or family support disputes, no amount payable 5 under the Plan shall be subject to assignment, transfer, sale, pledge, encumbrance, alienation or charge by the Participant or any beneficiary. Any attempt to assign, transfer, sell, pledge, encumber, alienate or charge any amount hereunder shall be without effect. In cases of marital or family support disputes, the Administrator will observe the terms of the Plan unless and until ordered to do otherwise by a state or federal court. As a condition of participation in the Plan, the Participant shall agree to hold IKON harmless from any claim that arises out of obeying an order of any state or federal court with respect to marital or family support disputes, whether such order effects a judgment of such court or is issued to enforce a judgment or order of another court. 15. Unsecured Obligation. Other than the assets contributed to the Trust pursuant to Paragraph 6, IKON shall not segregate or physically set aside any funds or assets as a result of this Plan. Neither a Participant, nor his beneficiary, nor any other person shall be deemed to have, pursuant to this Plan, any property interest, legal or equitable, in any specific asset of IKON or any specific asset in the Trust. To the extent that any person acquires any right to receive payments under this Plan or an Election Form, such right shall be no greater than, nor shall it have any preference or priority over, the rights of any unsecured general creditor of IKON. 16. Administration. The Plan shall be administered by a Committee selected from time to time by the Board of Directors of IKON (the "Committee"). The Committee shall select an Administrator from time to time to administer the Plan under the general policy guidance of the Committee. The Administrator shall be one or more persons who shall be responsible for: (a) maintaining any records necessary in connection with the Plan; (b) making calculations under the Plan; (c) interpreting the provisions of the Plan; and (d) otherwise administering the Plan in accordance with its terms. 17. Claims Procedures. At any time the Administrator makes a determination adverse to a Participant or beneficiary with respect to a claim for payment or participation under the Plan, the Administrator shall notify the claimant in writing of such determination, setting forth: (a) the specific reason for such determination; 6 (b) a reference to the specific provision or provisions of the Plan on which such determination is based; (c) a description of any additional material or information necessary to perfect the claim, and an explanation of the reason that such material is required; and (d) an explanation of the rights and procedures set forth in this Paragraph 17. A person who receives notice of an adverse determination by the Administrator with respect to a claim may request, within 60 days of receipt of such notice, that the Committee review the Administrator's determination. This request may be made on behalf of a claimant by a duly authorized representative. The claimant or representative may review pertinent documents and submit issues and comments with respect to the controversy to the Committee. The Committee shall render a decision within 60 days of a request for review (or within 120 days under special circumstances), which decision shall be in writing and shall set forth the specific reasons for the decision reached and the specific provisions of the Plan on which the decision is based. A copy of the ruling shall be forwarded to the claimant. 18. Employee Benefit Plans. This Plan shall not in any way affect a Participant's right to participate in any pension, profit-sharing, incentive, thrift, group health insurance, stock option, termination pay or similar plan of IKON, which is now in effect or may hereafter be adopted, to the extent that the Participant is entitled to participate under the applicable terms and provisions of such plan, except that the amounts deferred herein shall not be included in determining a Participant's benefits under any retirement plans qualified under section 401(a) of the Internal Revenue Code. Deferrals under this Plan will be included as compensation for purposes of calculating the level of contributions under IKON's Partners' Stock Purchase Plan. 19. Amendment. The Board of Directors of IKON shall have the power to amend this Plan at any time; provided, however, that, except as set forth in Paragraphs 20, 21 and 22, no amendment or termination of the Plan shall have a material adverse effect upon a Participant unless he consents to such amendment or termination in writing. 20. Termination. This Plan shall remain in effect until terminated by the Board of Directors of IKON. The Board of Directors of IKON shall have the right to terminate the Plan in whole or in part, for any reason, including pursuant to a determination that proposed or pending tax law changes or other events cause, or are likely in the future to cause, the Plan to 7 have an adverse financial impact upon IKON. In such event, IKON shall have no liability or obligation under the Plan or the Participant's Election Form (or any other document), provided that IKON distributes to each Participant, in a lump sum payment, the balance in his cash deferral account and stock deferral account, valued as of the end of the month in which such termination occurs. Distributions from a Participant's stock deferral account will be made (i) in shares of IKON common stock (and cash in lieu of fractional shares) for stock units credited to the account, unless the Participant elects, subject to the approval of the Plan Administrator, to receive such distribution in cash, and (ii) in cash for all other items credited to the account. 21. Acceleration. IKON shall have the right at any time to cause the payment of all amounts thereafter due to a Participant to be paid in a single lump sum or in such other accelerated manner as IKON shall deem appropriate. The amount of any lump sum payment shall be the value of a Participant's cash deferral account and stock deferral account, valued as of the end of the month following IKON's determination to accelerate payments. If IKON accelerates payment to more than 70% of all Participants pursuant to this provision, it must accelerate payment to all Participants under the Plan in a comparable manner. 22. Change in Control. In the event of a Change in Control (as defined below), the Plan shall terminate, and the Participant shall receive, in a lump sum payment, the balance in his cash deferral account and stock deferral account, valued as of the end of the month in which such Change in Control occurs. Distributions from a Participant's stock deferral account will be made in (i) shares of stock (and cash in lieu of fractional shares) for stock units credited to the account, unless the Participant elects, subject to the approval of the Plan Administrator, to receive such distribution in cash, and (ii) in cash for all other items credited to the account. For purposes of this Plan, the term "Change in Control" shall mean any of the following events: (A) any Person, together with its affiliates and associates (as such terms are used in Rule 12b-2 of the Exchange Act), is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 15% or more of the then outstanding shares of IKON common stock; or (B) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on September 30, 1997, constituted the Board and any new director whose appointment or election by the Board or nomination for election by IKON's shareholders was 8 approved by a vote of at least a majority of the directors then still in office who either were directors on September 30, 1997 or whose appointment, election or nomination for election was previously so approved; or (C) IKON consolidates with, or merges with or into, any other Person (other than a wholly owned subsidiary of IKON), or any other Person consolidates with, or merges with or into, IKON, and, in connection therewith, all or part of the outstanding shares of common stock shall be changed in any way or converted into or exchanged for stock or other securities or cash or any other property; or (D) a transaction or series of transactions in which, directly or indirectly, IKON shall sell or otherwise transfer (or one or more of its subsidiaries shall sell or otherwise transfer) assets (i) aggregating more than 50% of the assets (measured by either book value or fair market value) or (ii) generating more than 50% of the operating income or cash flow of IKON and its subsidiaries (taken as a whole) to any other Person or group of Persons. Notwithstanding the foregoing, no "Change in Control" shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of IKON common stock immediately prior to such transaction or series of transactions own a majority of the outstanding voting shares and in substantially the same proportion in an entity which owns all or substantially all of the assets of IKON immediately following such transaction or series of transactions. The term "Person" in the foregoing definition shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) IKON or any of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act), (ii) a trustee or other fiduciary holding securities under an employee benefit plan of IKON or any of its affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of IKON in substantially the same proportions as their ownership of IKON stock. 23. Miscellaneous. (a) The existence of this Plan and the Elections Forms hereunder, and any actions undertaken pursuant hereto, shall not confer upon the Participant any right to continued employment by IKON. 9 (b) This Plan shall be administered under and in accordance with the laws of the Commonwealth of Pennsylvania, in which IKON's principal place of business is located. (c) The terms of this Plan and the Election Forms and other documents executed in accordance herewith shall be binding upon IKON, its successors and assigns, and each Participant, his heirs and legal representatives. (d) Any taxes imposed on a Participant shall be the sole responsibility of the Participant. IKON shall have the right to deduct from any amounts payable under the Plan any federal, state or local taxes required to be deducted or withheld from such payments. (e) No expenses of administering the Plan shall be charged against the Participants or any payments made hereunder, except that IKON may, in its discretion, allocate certain taxes to the accounts of Participants. (f) As used herein, the singular shall include the plural, the masculine shall include the feminine, and vice versa. 10 EX-11 14 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 IKON OFFICE SOLUTIONS, INC. COMPUTATIONS OF EARNINGS PER SHARE (in thousands, except earnings (loss) per share)
1997 1996 ------------------------------ ---------------------------- Fully Fully Primary Diluted(1) Primary Diluted(1) ---------- ------------ ---------- ----------- Three Months September 30 Average Shares Outstanding Common shares 132,858 132,858 130,397 130,397 Preferred stock Senior Securities Convertible loan notes 287 374 Options 672 672 1,556 1,744 ---------- ------------ ---------- ----------- Total shares 133,530 133,817 131,953 132,515 ========== ============ ========== =========== Income Continuing Operations $ 32,960 $ 33,040 $ 43,814 $ 43,892 Discontinued Operations 11,131 11,131 ---------- ------------ ---------- ----------- Net income 32,960 33,040 54,945 55,023 Less: Preferred dividends 4,885 4,885 4,885 4,885 ---------- ------------ ---------- ----------- Net income available to common shareholders $ 28,075 $ 28,155 $ 50,060 $ 50,138 ========== ============ ========== =========== Earnings Per Share Continuing Operations $0.21 $0.21 $0.30 $0.30 Discontinued Operations 0.08 0.08 ========== ============ ========== =========== Earnings Per Share $0.21 $0.21 $0.38 $0.38 ========== ============ ========== =========== Fiscal Year Ended September 30 Average Shares Outstanding Common shares 133,261 133,261 125,856 125,856 Preferred stock Senior Securities 2,396 Convertible loan notes 287 374 Options 1,112 1,282 1,793 1,912 ---------- ------------ ---------- ----------- Total shares 134,373 134,830 127,649 130,538 ========== ============ ========== =========== Income Continuing Operations $ 122,362 $ 122,691 $164,893 $ 165,200 Discontinued Operations 20,151 20,151 45,848 45,848 ---------- ------------ ---------- ----------- Income before extraordinary loss 142,513 142,842 210,741 211,048 Extraordinary loss on extinguishment of debt (12,156) (12,156) ---------- ------------ ---------- ----------- Net Income 130,357 130,686 210,741 211,048 Less:Preferred Dividends 19,540 19,540 22,319 19,540 ---------- ------------ ---------- ----------- Net income available to common shareholders $ 110,817 $ 111,146 $188,422 $ 191,508 ========== ============ ========== =========== Earnings Per Share Continuing Operations $0.77 $0.76 $1.12 $1.12 Discontinued Operations 0.15 0.15 0.36 $0.35 Extraordinary Loss (0.09) (0.09) ---------- ------------ ---------- ----------- Earnings Per Share $0.83 $0.82 $1.48 $1.47 ========== ============ ========== ===========
(1) This calculation is submitted in accordance with Regulation S-K item 601 (b) (11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. EX-12.1 15 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES (dollars in thousands)
Fiscal Year Ended September 30 ------------------------------------------------------------------------------ 1997 1996 1995 1994 1993 ------------- ------------- ------------ ----------- ------------ Earnings Income from continuing operations $ 122,362 $ 164,893 $ 115,011 $ 1,996 $ 61,276 Add: Loss from unconsolidated affiliate 117,158 2,538 Provision for income taxes 90,751 107,984 75,501 41,315 40,093 Fixed charges 192,021 127,970 82,672 60,481 49,524 ------------- ------------- ------------ ----------- ------------ Earnings, as adjusted (A) $ 405,134 $ 400,847 $ 273,184 $ 220,950 $ 153,431 ============= ============= ============ =========== ============ Fixed charges Other interest expense, including interest on capital leases $ 146,117 $ 105,222 $ 61,888 $ 44,096 $ 39,044 Estimated interest component of rental expense 27,203 22,748 20,784 16,385 10,480 Prepayment penalties on early extinguishment of debt 18,701 ------------ ------------ ----------- ---------- ----------- Total fixed charges (B) $ 192,021 $ 127,970 $ 82,672 $ 60,481 $ 49,524 ============ ============ =========== ========== =========== Ratio of earnings to fixed charges (A) divided by (B) 2.1(1) 3.1(2) 3.3 3.7 3.1 === === === === ===
(1) Excluding the effect of transformation costs, the ratio of earnings to fixed charges for the fiscal year ended September 30, 1997 is 2.8. (2) Excluding the effect of transformation costs, the ratio of earnings to fixed charges for the fiscal year ended September 30, 1996 is 3.3. EX-12.2 16 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.2 IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES (EXCLUDING CAPTIVE FINANCE SUBSIDIARIES) (dollars in thousands)
Fiscal Year Ended September 30 --------------------------------------------------------------------------- 1997 1996 1995 1994 1993 --------- ------------ ------------ ------------- ------------- Earnings Income (loss) from continuing operations $ 85,897 $ 140,656 $ 100,539 $ (11,351) $ 53,174 Add: Loss from unconsolidated affiliate 117,158 2,538 Provision for income taxes 65,931 85,512 63,938 32,904 34,621 Fixed charges 92,738 59,514 42,138 32,389 25,707 ------------- ------------ ------------ ------------- ------------- Earnings, as adjusted (A) $ 244,566 $ 285,682 $ 206,615 $ 171,100 $ 116,040 ============= ============ ============ ============= ============= Fixed charges Other interest expense, including interest on capital leases $ 47,453 $ 37,179 $ 21,672 $ 16,118 $ 15,382 Estimated interest component of rental expense 26,584 22,335 20,466 16,271 10,325 Prepayment penalties on early extinguishment of debt 18,701 ------------- ------------ ------------ ------------- ------------- Total fixed charges (B) $ 92,738 $ 59,514 $ 42,138 $ 32,389 $ 25,707 ============= ============ ============ ============= ============= Ratio of earnings to fixed charges (A) divided by (B) 2.6(1) 4.8(2) 4.9 5.3 4.5 === === === === ===
(1) Excluding the effect of transformation costs, the ratio of earnings to fixed charges (excluding finance subsidiaries) for the fiscal year ended September 30, 1997 is 4.0. (2) Excluding the effects of the transformation costs, the ratio of earnings to fixed charges (excluding finance subsidiaries) for the fiscal year ended September 30, 1996 is 5.2. EX-12.3 17 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.3 IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (dollars in thousands)
Fiscal Year Ended September 30 ------------------------------------------------------------------------ 1997 1996 1995 1994 1993 ---------- ----------- ----------- ------------ --------- Earnings Income from continuing operations $ 122,362 $ 164,893 $ 115,011 $ 1,996 $ 61,276 Add: Loss from unconsolidated affiliate 117,158 2,538 Provision for income taxes 90,751 107,984 75,501 41,315 40,093 Fixed charges 192,021 127,970 82,672 60,481 49,524 ------------ ----------- ----------- ------------ --------- Earnings, as adjusted (A) $ 405,134 $ 400,847 $ 273,184 $ 220,950 $153,431 ============ =========== =========== ============ ========= Fixed charges Other interest expense, including interest on capital leases $ 146,117 $ 105,222 $ 61,888 $ 44,096 $ 39,044 Estimated interest component of rental expense 27,203 22,748 20,784 16,385 10,480 Prepayment penalties on early extinguishment of debt 18,701 ------------ ----------- ----------- ------------ --------- Total fixed charges 192,021 127,970 82,672 60,481 49,524 Preferred stock dividends, as adjusted 32,458 36,709 25,180 18,908 15,846 ------------ ----------- ----------- ------------ --------- Total fixed charges and preferred stock dividends $ 224,479 $ 164,679 $ 107,852 $ 79,389 $ 65,370 ============ =========== =========== ============ ========= Ratio of earnings to fixed charges (A) divided by (B) 1.8(1) 2.4(2) 2.5 2.8 2.3 === === === === ===
(1) Excluding the effect of transformation costs, the ratio of earnings to fixed charges for the fiscal year ended September 30, 1997 is 2.4. (2) Excluding the effect of transformation costs, the ratio of earnings to fixed charges for the fiscal year ended September 30, 1996 is 2.6. EX-12.4 18 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.4 IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (EXCLUDING CAPTIVE FINANCE SUBSIDIARIES) (dollars in thousands)
Fiscal Year Ended September 30 ------------------------------------------------------------------------- 1997 1996 1995 1994 1993 --------- ------------ ------------ ----------- ------------ Earnings Income from continuing operations $ 85,897 $ 140,656 $ 100,539 $ (11,351) $ 53,174 Add: Loss from unconsolidated affiliate 117,158 2,538 Provision for income taxes 65,931 85,512 63,938 32,904 34,621 Fixed charges 92,738 59,514 42,138 32,389 25,707 ---------- ------------ ------------ ----------- ------------ Earnings, as adjusted (A) $ 244,566 $ 285,682 $ 206,615 $ 171,100 $ 116,040 ========== ============ ============ =========== ============ Fixed charges Other interest expense, including interest on capital leases $ 47,453 $ 37,179 $ 21,672 $ 16,118 $ 15,382 Estimated interest component of rental expense 26,584 22,335 20,466 16,271 10,325 Prepayment penalties on early extinguishment of debt 18,701 ---------- ------------ ------------ ----------- ------------ Total fixed charges 92,738 59,514 42,138 32,389 25,707 Preferred stock dividends, as adjusted 32,351 35,768 24,892 18,908 15,794 ---------- ------------ ------------ ----------- ------------ Total fixed charges and preferred stock dividends $ 125,089 $ 95,282 $ 67,030 $ 51,297 $ 41,501 ========== ============ ============ =========== ============ Ratio of earnings to fixed charges (A) divided by (B) 2.0(1) 3.0(2) 3.1 3.3 2.8 === === === === ===
(1) Excluding the effect of transformation costs, the ratio of earnings to fixed charges for the fiscal year ended September 30, 1997 is 3.0. (2) Excluding the effect of transformation costs, the ratio of earnings to fixed charges for the fiscal year ended September 30, 1996 is 3.2. EX-13 19 FINANCIAL SECTION OF IKON'S ANNUAL REPORT Management's Responsibility for Financial Reporting The management of IKON Office Solutions, Inc. is responsible for the preparation and presentation of the financial statements and related financial information included in this annual report. The financial statements include amounts that are based on management's best estimates and judgments. These statements have been prepared in conformity with generally accepted accounting principles consistently applied and have been audited by Ernst & Young LLP, independent auditors. Management is also responsible for maintaining systems of internal accounting controls that are designed to provide reasonable assurance as to the integrity of the financial records and the protection of corporate assets. IKON Office Solutions, Inc. supports and manages an active program of auditing to monitor the proper functioning of its systems. The reports issued under this program, as well as comment letters from Ernst & Young LLP, are reviewed regularly by the Audit Committee of the Board of Directors, which is composed of four directors who are not employees of the Company. The Audit Committee meets periodically with Ernst & Young LLP and management to review audit scope, timing and results. /s/ John E. Stuart John E. Stuart Chairman and Chief Executive Officer /s/ Kurt E. Dinkelacker Kurt E. Dinkelacker Executive Vice President and Chief Financial Officer Report of Ernst & Young LLP, Independent Auditors To the Board of Directors and Shareholders, IKON Office Solutions, Inc. We have audited the accompanying consolidated balance sheets of IKON Office Solutions, Inc. and subsidiaries as of September 30, 1997 and 1996, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended September 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of IKON Office Solutions, Inc. and subsidiaries at September 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Philadelphia, Pennsylvania October 15, 1997, except for note 8, as to which the date is October 27, 1997 Consolidated Statements of Income - -------------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries ----------------------------------------------
Fiscal Year Ended September 30 (in thousands, except per share data) 1997 1996 1995 ====================================================================================================================== Revenues Net sales $2,841,561 $2,381,151 $1,807,408 Service and rentals 2,063,186 1,560,915 1,191,175 Finance income 223,686 157,707 93,019 - ---------------------------------------------------------------------------------------------------------------------- 5,128,433 4,099,773 3,091,602 - ---------------------------------------------------------------------------------------------------------------------- Costs and Expenses Cost of goods sold 1,828,883 1,552,183 1,189,533 Service and rental costs 1,007,060 743,110 565,131 Finance interest expense 98,664 68,043 40,216 Selling and administrative 1,806,352 1,404,958 1,084,538 Transformation costs 126,908 21,423 - ---------------------------------------------------------------------------------------------------------------------- 4,867,867 3,789,717 2,879,418 - ---------------------------------------------------------------------------------------------------------------------- Operating Income 260,566 310,056 212,184 Interest Expense 47,453 37,179 21,672 - ---------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations Before Taxes and Extraordinary Loss 213,113 272,877 190,512 Taxes on Income 90,751 107,984 75,501 - ---------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations Before Extraordinary Loss 122,362 164,893 115,011 Discontinued Operations 20,151 45,848 88,661 - ---------------------------------------------------------------------------------------------------------------------- Income Before Extraordinary Loss 142,513 210,741 203,672 Extraordinary Loss from Early Extinguishment of Debt, net of tax benefit (12,156) - ---------------------------------------------------------------------------------------------------------------------- Net Income 130,357 210,741 203,672 Less Preferred Dividends 19,540 22,319 15,209 - ---------------------------------------------------------------------------------------------------------------------- Net Income Available to Common Shareholders $ 110,817 $ 188,422 $ 188,463 ====================================================================================================================== Earnings Per Share Continuing operations $ .77 $ 1.12 $ .86 Discontinued operations .15 .36 .76 Extraordinary loss (.09) - ---------------------------------------------------------------------------------------------------------------------- $ .83 $ 1.48 $ 1.62 ====================================================================================================================== Cash Dividends Per Share of Common Stock $ .26 $ .56 $ .52
See notes to consolidated financial statements. 19 Consolidated Balance Sheets - -------------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries ------------------------------------------------
September 30 (dollars in thousands) 1997 1996 ================================================================================================= Assets Current Assets Cash $ 21,341 $ 46,056 Accounts receivable, less allowances of: 1997-$54,192; 1996-$35,308 765,660 513,378 Finance receivables, net 670,784 435,434 Inventories 442,207 350,774 Prepaid expenses 101,294 80,352 Deferred taxes 124,520 83,161 - ------------------------------------------------------------------------------------------------- Total current assets 2,125,806 1,509,155 - ------------------------------------------------------------------------------------------------- Investments and Long-Term Receivables 17,508 48,165 Long-Term Finance Receivables, net 1,331,372 878,324 Equipment on Operating Leases, net of accumulated depreciation of: 1997-$167,464; 1996-$153,909 101,900 95,043 Property and Equipment, net 239,545 188,818 Goodwill 1,348,133 1,087,210 Other Assets 159,622 88,679 Net Assets of Discontinued Operations 1,489,201 - ------------------------------------------------------------------------------------------------- $ 5,323,886 $ 5,384,595 ================================================================================================= Liabilities and Shareholders' Equity Current Liabilities Current portion of long-term debt $ 60,794 $ 62,697 Current portion of long-term debt, finance subsidiaries 251,711 314,000 Notes payable 266,979 186,462 Trade accounts payable 206,547 123,571 Accrued salaries, wages and commissions 110,628 101,632 Deferred revenues 208,612 200,225 Other accrued expenses 268,511 269,400 - ------------------------------------------------------------------------------------------------- Total current liabilities 1,373,782 1,257,987 - ------------------------------------------------------------------------------------------------- Long-Term Debt 490,235 721,923 Long-Term Debt, Finance Subsidiaries 1,494,043 813,026 Deferred Taxes 330,996 191,272 Other Long-Term Liabilities 153,182 144,883 Shareholders' Equity Series BB conversion preferred stock, no par value: 3,877,200 depositary shares issued and outstanding 290,170 290,170 Common stock, no par value: authorized 300,000,000 shares; issued 1997-135,705,000 shares; 1996-131,930,000 shares 677,681 1,305,413 Retained earnings 574,646 701,771 Foreign currency translation adjustment (728) (25,187) Cost of common shares in treasury: 1997-2,401,000 shares; 1996-374,000 shares (60,121) (16,663) - ------------------------------------------------------------------------------------------------- 1,481,648 2,255,504 - ------------------------------------------------------------------------------------------------- $ 5,323,886 $ 5,384,595 =================================================================================================
See notes to consolidated financial statements. 20 Consolidated Statements of Changes in Shareholders' Equity --------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries -------------------------------------------------
Fiscal Year Ended September 30 (in thousands, except per share data) 1997 1996 1995 ---------------------------------------------------------------------------------------------------------------------------- Shares Amounts Shares Amounts Shares Amounts ---------------------------------------------------------------------------------------------------------------------------- Series AA Convertible Preferred Stock Balance, beginning of year 4,025 $201,924 4,025 $ 199,912 Dividend accretion 503 2,012 Preferred stock conversion (4,025) (202,427) ---------------------------------------------------------------------------------------------------------------------------- Balance, end of year 4,025 $ 201,924 ============================================================================================================================ Series BB Conversion Preferred Stock Balance, beginning of year 3,877 $ 290,170 3,877 $290,170 Issued in public offering 3,877 $ 290,170 ---------------------------------------------------------------------------------------------------------------------------- Balance, end of year 3,877 $ 290,170 3,877 $290,170 3,877 $ 290,170 ============================================================================================================================ Common Stock Balance, beginning of year 131,930 $1,305,413 116,136 $643,998 112,998 $ 551,711 Series AA preferred stock conversion 8,198 368,382 Mergers, acquisitions and other 3,775 145,265 7,596 285,836 3,138 87,566 Unisource spin-off (779,770) Tax benefit relating to stock plans 6,773 7,197 4,721 ---------------------------------------------------------------------------------------------------------------------------- Balance, end of year 135,705 $ 677,681 131,930 $1,305,413 116,136 $ 643,998 ============================================================================================================================ Retained Earnings Balance, beginning of year $ 701,771 $781,536 $ 659,526 Net income 130,357 210,741 203,672 Cash dividends declared: Series AA preferred stock, per share: 1996 - $.719; 1995 - $2.875 (2,779) (11,572) Series BB preferred stock, per share: 1997 and 1996 - $5.04; 1995 - $.938 (19,540) (19,540) (3,637) Common stock, per share: 1997- $.26; 1996 - $.56; 1995 - $.52 (34,640) (70,010) (57,267) Pooled companies, prior to merger (177) (2,159) Series AA preferred stock conversion (199,108) Unisource spin-off (210,071) Credits (charges) from issuance of treasury shares and other 6,769 1,108 (7,027) ---------------------------------------------------------------------------------------------------------------------------- Balance, end of year $ 574,646 $701,771 $ 781,536 ============================================================================================================================ Foreign Currency Translation Adjustment Balance, beginning of year $ (25,187) $(21,540) $ (22,609) Translation adjustment (4,659) (3,647) 1,069 Unisource spin-off 29,118 ---------------------------------------------------------------------------------------------------------------------------- Balance, end of year $ (728) $(25,187) $ (21,540) ============================================================================================================================ Cost of Common Shares in Treasury Balance, beginning of year 374 $ (16,663) 118 $ (4,726) 148 $ (4,067) Purchases 4,486 (112,192) 2,004 (86,084) 2,783 (91,430) Reissued for: Exercise of options (50) 1,471 (395) 17,287 (544) 16,652 Sales to employee stock plans (501) 16,438 (534) 23,710 (2,267) 74,067 Mergers, acquisitions and other (1,908) 50,825 (2) 52 Series AA preferred stock conversion (819) 33,150 ---------------------------------------------------------------------------------------------------------------------------- Balance, end of year 2,401 $ (60,121) 374 $(16,663) 118 $ (4,726) ============================================================================================================================
See notes to consolidated financial statements. 21
Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries ------------------------------------------------ Fiscal Year Ended September 30 (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Operating Activities Income from continuing operations $ 122,362 $ 164,893 $ 115,011 Additions (deductions) to reconcile income from continuing operations to net cash provided by operating activities of continuing operations: Depreciation 108,037 84,447 62,064 Amortization 48,555 34,107 25,309 Provisions for losses on accounts receivable 25,724 18,296 10,051 Provision for deferred income taxes 92,063 62,174 42,106 Write-off of abandoned software and other assets due to transformation 25,342 Changes in operating assets and liabilities, net of effects from acquisitions and divestitures: Increase in accounts receivable (202,790) (83,783) (66,184) Increase in inventories (70,189) (41,445) (41,698) Increase in prepaid expenses (21,699) (52,733) (18,508) Increase in accounts payable, deferred revenues and accrued expenses 37,125 77,430 88,173 Miscellaneous 8,986 4,475 5,166 - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities of continuing operations 173,516 267,861 221,490 Net cash provided by (used in) operating activities of discontinued operations 24,176 205,914 (66,618) - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 197,692 473,775 154,872 - -------------------------------------------------------------------------------------------------------------------------------- Investing Activities Cost of companies acquired, net of cash acquired (155,907) (171,804) (260,975) Expenditures for property and equipment (193,238) (146,634) (91,112) Proceeds from sale of property and equipment 35,980 34,482 18,427 Purchase of miscellaneous assets (10,678) (19,054) (8,729) Finance receivables - additions (1,459,102) (1,005,270) (665,058) Finance receivables - collections 651,025 389,384 241,886 - -------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities of continuing operations (1,131,920) (918,896) (765,561) Net cash used in investing activities of discontinued operations (38,058) (201,356) (146,249) - -------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (1,169,978) (1,120,252) (911,810) - -------------------------------------------------------------------------------------------------------------------------------- Financing Activities Proceeds from: Issuance of long-term debt 35,605 439,149 33,377 Issuance of Series BB conversion preferred stock, net 290,170 Option exercises and sale of treasury shares 43,807 55,084 91,848 Sale of finance subsidiaries' lease receivables 103,401 202,713 66,677 Proceeds from (payments to) discontinued operations 551,834 (53,370) (217,573) Issuance (repayment) of short-term borrowings, net 75,388 (69,883) 158,569 Long-term debt repayments (328,702) (74,546) (40,394) Finance subsidiaries' debt - issuance 932,728 515,673 534,717 Finance subsidiaries' debt - repayments (314,000) (206,232) (182,014) Dividends paid (54,180) (91,826) (70,464) Purchase of treasury shares (112,192) (86,084) (91,430) - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities of continuing operations 933,689 630,678 573,483 Net cash provided by (used in) financing activities of discontinued operations 13,882 (4,558) 212,867 - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 947,571 626,120 786,350 - -------------------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash (24,715) (20,357) 29,412 Cash at beginning of year 46,056 66,413 37,001 - -------------------------------------------------------------------------------------------------------------------------------- Cash at end of year $ 21,341 $ 46,056 $ 66,413 ================================================================================================================================
See notes to consolidated financial statements. 22 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries -------------------------------------------- IKON Office Solutions, Inc. (IKON or the Company) is a leading office technology company, providing customers with total office solutions, including copier and printing systems, computer networking, print-on-demand services, copy center management, hardware and software product interfaces and electronic file conversion. IKON has locations throughout the United States and Canada and in Europe (primarily in the United Kingdom), which comprise the largest network of independent copier and office equipment dealers in North America and in the United Kingdom. The Company's name was changed from Alco Standard Corporation (Alco) to IKON Office Solutions, Inc. effective January 23, 1997. 1. Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Significant intercompany accounts and transactions have been eliminated in consolidation. The spin off of Unisource Worldwide, Inc. (Unisource), the Company's paper products and supply systems distribution business, was completed on December 31, 1996, as discussed in note 5. All of the following notes, unless otherwise stated, reflect data on a continuing operations basis. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and notes. Actual results could differ from those estimates and assumptions. Revenue Recognition Revenues are recorded at the time of shipment of products or performance of services. Revenues from service contracts are recognized over the term of the contract. The present value of payments due under sales-type lease contracts is recorded as revenues and cost of goods sold is charged with the book value of the equipment at the time of shipment. Finance income is recognized over the related lease term. Inventories Inventories are stated at the lower of cost or market using the first-in, first-out method and consist of finished goods available for sale. Goodwill Substantially all goodwill (excess of purchase price over net assets acquired) is amortized over periods ranging from 25 to 40 years using the straight-line method. The recoverability of goodwill is evaluated at the operating unit level by an analysis of operating results and consideration of other significant events or changes in the business environment. If an operating unit has current operating losses and based upon projections there is a likelihood that such operating losses will continue, the Company will evaluate whether impairment exists on the basis of undiscounted expected future cash flows from operations before interest for the remaining amortization period. If impairment exists, the carrying amount of the goodwill is reduced by the estimated shortfall of cash flows. Accumulated amortization at September 30, 1997 and 1996 was $103,000,000 and $70,000,000, respectively. Depreciation Properties and equipment are depreciated over their useful lives by the straight-line method. Earnings Per Share Earnings per share are based on 134,373,000 weighted average shares in 1997, 127,649,000 shares in 1996 and 116,474,000 shares in 1995, and include the dilutive effect of common stock equivalents, principally stock options. Common shares and per share amounts give retroactive effect to a two-for-one stock split in November 1995. Foreign Currency Translation Assets and liabilities of all material foreign subsidiaries are translated into U.S. dollars at fiscal year-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the fiscal year. The resulting translation adjustments are recorded as a component of shareholders' equity. Accounting Changes The Company adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS 121), in the first quarter of fiscal 1997. The adoption of SFAS 121 did not have a material impact on the Company's financial statements. FASB Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), requires companies to measure employee stock compensation plans based on the fair value method of accounting or to continue to apply APB No. 25, "Accounting for Stock Issued to Employees," and provide pro forma footnote disclosures under the fair value method in SFAS 123. The Company will continue to apply the principles of APB No. 25 and has provided pro forma fair value disclosures in note 9. FASB Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125), was adopted effective January 1, 1997. As a result, the Company has modified its agreements to meet the new requirements to enable it to continue recognizing transfers of certain receivables to special-purpose entities as sales, therefore, SFAS 125 did not have a material effect on the Company's financial statements. Pending Accounting Changes In February 1997, the FASB issued Statement No. 128, "Earnings Per Share" (SFAS 128), which simplifies the standards for computing earnings per share (EPS). SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997. Earlier application is not permitted. Accordingly, the Company will replace the presentation of primary EPS with a dual presentation of basic and diluted EPS. The effect of adoption will not be material on EPS previously presented. 23 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries -------------------------------------------- In June 1997, the FASB issued Statements No. 130, "Reporting Comprehensive Income" (SFAS 130), and No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in the financial statements. SFAS 131 establishes standards for reporting information about operating segments and supersedes SFAS 14, "Financial Reporting for Segments of a Business Enterprise." Both SFAS 130 and 131 will be adopted in fiscal 1999. Interest Rate and Currency Swap Agreements The Company uses interest rate and currency swap agreements for purposes other than trading and they are treated as off-balance sheet items. Interest rate swap agreements are used by the Company to modify variable rate obligations to fixed rate obligations, thereby reducing the exposure to market rate fluctuations. The interest rate swap agreements are designated as hedges, and effectiveness is determined by matching the principal balance and terms with that specific obligation. Such an agreement involves the exchange of amounts based on fixed interest rates for amounts based on variable interest rates over the life of the agreement without an exchange of the notional amount upon which payments are based. The differential to be paid or received as interest rates change is accounted for on the accrual method of accounting. The related amount payable to or receivable from counterparties is included as an adjustment to accrued interest in other accrued expenses. Currency swap agreements are used to manage exposure relating to certain intercompany debt denominated in one foreign currency that will be repaid in another foreign currency. Currency swap agreements are designated as hedges of firm commitments to pay interest and principal on debt, which would otherwise expose the Company to foreign currency risk. Current translation gains and losses on the principal swapped are offset by corresponding translation gains and losses on the related foreign denominated assets. Gains and losses on terminations of interest rate and currency swap agreements are deferred as an adjustment to the carrying amount of the outstanding obligation and amortized as an adjustment to interest expense related to the obligation over the remaining term of the original contract life of the terminated swap agreement. In the event of early extinguishment of the obligation, any realized or unrealized gain or loss from the swap would be recognized in income at the time of extinguishment. Business Segment Information As a result of the spin-off of Unisource, the Company operates in a single industry segment. The Company provides its customers with integrated solutions for copier, office equipment, outsourcing and networking needs. Reclassifications Certain prior-year amounts have been reclassified to conform with the current-year presentation. 2. Transformation Costs At the end of fiscal 1995, the Company announced its transformation program to change its organization into a more cohesive and efficient network by building a uniform information technology system and implementing best practices for critically important management functions throughout the IKON companies. In March 1997, the Company announced that it was accelerating the transformation program. As a result, the Company began to separately disclose these costs as a component of operating expenses on the Statements of Income. The Company expects to substantially complete the transformation program by the end of fiscal 1998. The transformation involves a variety of activities that the Company believes will significantly lower administrative costs and improve margins. These activities include consolidating purchasing, inventory control, logistics and other activities into thirteen customer service centers in the U.S., establishing a single financial processing center, building a common information technology system, adopting a common name and creating marketplace-focused field operations with greater attention to customer sales and services. Costs charged to transformation expense in fiscal 1997 of $126,908,000 relate principally to the write-off of costs related to the abandoned SAP computer pilot program and technology conversion costs ($37,297,000), severance and other employee related costs, including temporary labor and costs related to consultants assisting with the transformation ($53,866,000), facility consolidation costs, including lease buyouts and write-offs of leasehold improvements ($24,738,000), and costs incurred in connection with the adoption of the IKON name worldwide ($11,007,000). Transformation costs of $21,423,000 for fiscal 1996 consist primarily of severance and other employee related costs, including costs related to consultants assisting with the transformation ($18,702,000), technology conversion costs ($1,428,000) and facility consolidation costs ($1,293,000). The Company estimates the total remaining costs of its transformation program, excluding capital costs, to be from $50,000,000 to $70,000,000, all of which is expected to be expended in fiscal 1998. 3. Mergers During the second quarter of fiscal 1996, the Company completed two mergers accounted for as poolings-of-interests by issuing common stock for all of the shares of Legal Copies International, Inc. and JMM Enterprises, Inc. Total common shares issued in connection with these mergers were 3,953,990. 24 Components of the operating results from continuing operations for periods prior to the merger were:
Three Months Ended December 31, 1995 Fiscal Year Ended (in thousands) (unaudited) September 30, 1995 - ------------------------------------------------------------------------------- Revenues IKON Office Solutions, Inc. $852,396 $2,911,626 Pooled companies 48,183 179,976 - ------------------------------------------------------------------------------- $900,579 $3,091,602 =============================================================================== Income from continuing operations IKON Office Solutions, Inc. $ 35,186 $ 114,071 Pooled companies 1,751 940 - ------------------------------------------------------------------------------- $ 36,937 $ 115,011 ===============================================================================
The mergers reduced fiscal 1995 earnings per share by $.02. 4. Acquisitions In fiscal 1997, the Company made 89 acquisitions for an aggregate purchase price of $317,864,000 in cash and stock. Total assets related to these 89 acquisitions were $438,954,000, including goodwill of $277,209,000. In addition, $9,608,000 was paid and capitalized in fiscal 1997 relating to prior years' acquisitions. In addition to the mergers described in note 3, 97 acquisitions were made in fiscal 1996 for an aggregate purchase price of $358,568,000 in cash, notes and stock. Total assets related to these 97 acquisitions were $499,729,000, including goodwill of $313,495,000. The Company also issued 486,304 common shares for an acquisition accounted for as a pooling-of-interests whose results of operations were included from the beginning of the fiscal year. An additional $4,086,000 was paid and capitalized in fiscal 1996 relating to prior years' acquisitions. In June 1995, the Company purchased all of the outstanding shares of Southern Business Group PLC for approximately $133,800,000. This business sells, leases, services and remanufactures copiers and other office equipment in southern England. Total assets acquired were $163,359,000, which includes goodwill of $119,556,000. In addition, 99 other acquisitions were made in fiscal 1995 for an aggregate purchase price of $228,258,000 in cash, notes and stock. Total assets related to these 99 acquisitions were $313,966,000, including goodwill of $218,549,000. The Company also issued 675,106 common shares for two acquisitions accounted for as poolings-of-interests and their results of operations were included from the beginning of the fiscal year. In fiscal 1995, $4,648,000 of additional cash was paid and capitalized relating to prior years' acquisitions. All acquisitions, unless otherwise noted, are included in results of operations from their dates of acquisition. Had the purchase acquisitions been made at the beginning of the fiscal year prior to their acquisition, unaudited pro forma results from continuing operations would have been: Fiscal Year Ended September 30 (in thousands except per share data)
(unaudited) 1997 1996 1995 - ------------------------------------------------------------------------------- Revenues $5,383,303 $4,961,482 $3,847,045 Income from continuing operations 132,078 180,934 146,589 Earnings per share from continuing operations .83 1.19 .95 - -------------------------------------------------------------------------------
5. Discontinued Operations On June 19, 1996, the Company announced that it would separate Unisource, its paper products and supply systems distribution business from IKON, its office solutions business, with each business operating as a stand-alone, publicly traded company. In order to effect the separation of these businesses, the Company declared a dividend payable to holders of record of Alco common stock at the close of business on December 13, 1996 (the Record Date) of one share of common stock, $.001 par value, of Unisource common stock, for every two shares of Alco stock owned on the Record Date. The distribution resulted in 100% of the outstanding shares of Unisource common stock being distributed to Alco shareholders on December 31, 1996. The Internal Revenue Service issued a ruling letter which provided that, except for any cash received in lieu of fractional shares, the spin-off of Unisource was tax-free to Alco and to Alco's U.S. shareholders. In conjunction with the separation of their businesses, Unisource and the Company entered into various agreements that address the allocation of assets and liabilities between them and define their relationship after the separation, including a Distribution Agreement (Distribution Agreement), a Benefits Agreement (Benefits Agreement) and a Tax Sharing and Indemnification Agreement (Tax Sharing Agreement). The Distribution Agreement provides for, among other things, the principal transactions required to effect the Distribution, the conditions to the Distribution, the allocation between the Company and Unisource of certain assets and liabilities and cooperation by the Company and Unisource in the provision of information and certain facilities necessary to perform the administrative functions incident to their respective businesses. The Distribution Agreement includes cross-indemnification provisions pursuant to which Unisource and the Company indemnify each other for damages that may arise out of a breach of their respective obligations under the agreement. Under the Benefits Agreement, Unisource's obligation to provide benefits includes all obligations with respect to Unisource employees under pension plans, savings plans and multiemployer plans, welfare plans (retiree medical plans), supplemental benefit plans, certain deferred compensation plans, incentive plans, stock-based plans and other plans covering Unisource employees and includes liabilities that arose while the individuals were employed by Alco. The Benefits Agreement requires the Company to reimburse Unisource for a portion of any payments made by Unisource to former Unisource employees under Alco's 1985, 1991 and 1994 deferred compensation plans. Unisource assumed certain Alco pension plans cover- 25 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries -------------------------------------------- ing Unisource employees, and assets and liabilities attributable to Unisource employees under Alco's participating companies pension plan and Alco's 401(k) plan have been transferred to new Unisource pension and 401(k) plans, respectively. Under the Tax Sharing Agreement, Unisource will bear its respective share of (i) the Company's federal consolidated income tax liability (or benefit), (ii) any unitary state income tax liability, and (iii) the Company's consolidated personal property tax liability for all tax periods that end before or that include the Distribution Date. Unisource is responsible for paying any tax liabilities arising for any tax return that it files separately. If any tax year ending before or including the Distribution Date is subsequently examined by the IRS, and an adjustment results from such examination, then Unisource's share of the Company's additional federal consolidated income tax liability (or benefit for that tax year) will be computed and agreed to by the parties. The Tax Sharing Agreement generally provides that in the event either the Company or Unisource takes any action inconsistent with, or fails to take any action required by, or in accordance with the qualification of the Distribution as tax-free, then the Company or Unisource, as the case may be, will be liable for and indemnify and hold the other harmless from any tax liability resulting from such action. The Company has accounted for Unisource as a discontinued operation for all periods presented in these financial statements. Prior-year amounts for Unisource have been restated to reflect interest and other expenses allocated by the Company. Unisource has been charged corporate interest expense based on the relationship of its net assets to total Company net assets, excluding corporate debt, in amounts of $7,203,000 in the first quarter of fiscal 1997, $29,572,000 in fiscal 1996 and $26,586,000 in fiscal 1995. The Company recorded a charge against earnings of $50,000,000 in the third quarter of fiscal 1996 for new restructuring activities at Unisource. The charge includes facility closures costs of $33,000,000 and severance costs for approximately 900 employees of $17,000,000 associated with the announced regional realignment from ten to five regions in the United States and facilities mergers in the U.S. and Canada. An $18,000,000 charge against earnings was recorded in the third quarter of fiscal 1996 for costs associated with the spin-off of Unisource consisting primarily of investment banking fees, legal and accounting fees, filing fees and employee termination costs directly related to the spin-off. The Company has owned several manufacturing and industrial businesses, all of which have been sold. There are currently environmental remediation claims pending for manufacturing or landfill sites in the United States that relate to these discontinued operations. As a result of several environmental remediation claims, and increased estimated costs associated with existing environmental remediation sites, primarily related to discontinued manufacturing operations divested by the Company in 1991 and prior, the Company took a fourth quarter charge in fiscal 1995 to increase its liabilities for environmental remediation. The discontinued operations charge was $23,630,000 ($16,541,000 net of tax or $.14 per share). During 1995, the Company agreed to pay $10,000,000 to settle a claim by a former subsidiary, which had asserted that the Company was liable for certain employee liabilities. This amount was primarily charged against existing reserves for discontinued operations. The Company paid $5,000,000 during 1995, $2,000,000 in 1996 and $1,500,000 in 1997 with the remaining $1,500,000 to be paid over the next two years. The results of discontinued operations were:
Fiscal Year Ended September 30 Three Months Ended ------------------------------ (in thousands) December 31, 1996 1996 1995 - --------------------------------------------------------------------------------------------- Revenues (Unisource) $ 1,728,533 $ 7,022,808 $ 6,987,274 ============================================================================================= Income (loss) before taxes Unisource (including $50,000 restructuring charge in 1996) $ 34,743 $ 103,003 $ 172,745 Spin-off costs (18,000) Environmental charge (23,630) - --------------------------------------------------------------------------------------------- 34,743 85,003 149,115 Tax expense (benefit) Unisource 14,592 43,005 67,543 Spin-off costs (3,850) Environmental charge (7,089) - --------------------------------------------------------------------------------------------- 14,592 39,155 60,454 Net income (loss) Unisource 20,151 59,998 105,202 Spin-off costs (14,150) Environmental charge (16,541) - --------------------------------------------------------------------------------------------- $ 20,151 $ 45,848 $ 88,661 =============================================================================================
The net assets of discontinued operations at September 30, 1996 consist of:
(in thousands) - ------------------------------------------------------------------------------ Working capital $ 750,792 Net property and equipment 224,168 Other assets 637,062 Long-term debt and other liabilities (122,821) - ------------------------------------------------------------------------------ Unisource equity and intercompany debt $1,489,201 ==============================================================================
In December 1996, Unisource repaid $553,500,000 of intercompany debt outstanding with the Company and the Unisource common stock was distributed to Alco shareholders. Equity of the Company was reduced by $960,723,000, which was the equity of Unisource at December 31, 1996, adjusted for post-closing tax and pension adjustments. 26 6. Finance Receivables The Company's wholly owned finance subsidiaries are engaged in purchasing office equipment from Company dealers and leasing the equipment to customers under direct financing leases. Components of finance receivables, net, are as follows:
September 30 (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Gross receivables $ 2,491,817 $ 1,538,183 Unearned income (607,533) (272,279) Unguaranteed residuals 194,639 108,338 Allowance for doubtful accounts (76,767) (60,484) - -------------------------------------------------------------------------------- Lease receivables 2,002,156 1,313,758 Less: Current portion 670,784 435,434 - -------------------------------------------------------------------------------- Long-term lease receivables $ 1,331,372 $ 878,324 ================================================================================
At September 30, 1997, future minimum lease payments to be received under direct financing leases were: 1998 - $850,079,000; 1999 - $717,633,000; 2000 - $512,561,000; 2001 - $292,177,000; 2002 - $117,662,000; thereafter - $1,705,000; while future minimum lease payments to be received under operating leases were: 1998 - $42,066,000; 1999 - $29,857,000; 2000 - $20,845,000; 2001 - $11,863,000; 2002 - $5,461,000; thereafter - $15,000. IKON's U.S. finance subsidiary has entered into asset securitization agreements for $275,000,000 of eligible direct financing lease receivables that expire in March 1998 ($125,000,000) and September 1998 ($150,000,000). The agreements contain limited recourse provisions that require the finance subsidiary to assign an additional amount of undivided interest in leases as a reserve to cover any potential losses to the purchaser due to uncollectible leases. As collections reduce previously sold interests, new leases can be sold up to the agreement amount. In fiscal year 1997, the finance subsidiary sold an additional $103,401,000 in leases, replacing leases liquidated during the year, under the agreements. The changes in the finance subsidiary servicing liabilities relating to the asset securitization agreements for the fiscal years ended September 30, 1997 and 1996, are as follows:
(in thousands) 1997 1996 - -------------------------------------------------------------------------------- Beginning of period $ 8,467 $ 4,187 Additions 3,170 6,050 Less: Amortization (3,389) (1,770) - -------------------------------------------------------------------------------- Balance at September 30 $ 8,248 $ 8,467 ================================================================================
The estimated fair value of the servicing liabilities aggregated $7,485,000 at September 30, 1997 and $7,587,000 at September 30, 1996. 7. Property and Equipment Property and equipment, at cost, consisted of:
September 30 (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Land $ 6,797 $ 9,412 Buildings and improvements 101,773 72,709 Furniture and equipment 353,790 276,113 - -------------------------------------------------------------------------------- 462,360 358,234 Less: accumulated depreciation 222,815 169,416 - -------------------------------------------------------------------------------- $239,545 $188,818 ================================================================================
8. Notes Payable and Long-Term Debt Notes payable consisted of:
September 30 (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Notes payable to banks at average interest rate: 1997 - 6.1%; 1996 - 6.0% $259,464 $184,358 Other notes payable at average interest rate: 1997 - 8.8%; 1996 - 8.2% 7,515 2,104 - -------------------------------------------------------------------------------- $266,979 $186,462 ================================================================================
Long-term debt consisted of:
September 30 (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Bond issue at stated interest rate of 6.75%, net of discount (1997- $4,467;1996 - $4,519), due 2025, effective interest of rate 6.87% $295,533 $295,481 Bond issue at interest rate of 8 7/8% due 2001 43,819 150,000 Private placement debt at average interest rate: 1997 - 7.2%; 1996 - 7.7%, due 2005 55,000 105,000 Bank debt at average interest rate: 1997 - 7.7%; 1996 - 7.6%, due 2000 71,641 72,721 Notes payable to insurance company at average interest rate of 9.7% 60,000 Sundry notes, bonds and mortgages at average interest rate: 1997 - 7.7%; 1996 - 6.9%, due 1998 - 2003 52,876 74,929 Present value of capital lease obligations (gross amount: 1997 - $36,494; 1996 - $30,201) 32,160 26,489 - -------------------------------------------------------------------------------- 551,029 784,620 Less current maturities 60,794 62,697 - -------------------------------------------------------------------------------- $490,235 $721,923 ================================================================================
After giving effect to interest rate swaps, the average effective interest rate on the Company's long-term bank debt was 7.7% and 7.6% at September 30, 1997 and September 30, 1996, respectively, compared to average rates of 3.5% and 4.8% as the stated variable rate at September 30, 1997 and September 30, 1996, respectively. 27 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries -------------------------------------------- Long-term debt, finance subsidiaries consisted of:
September 30 (in thousands) 1997 1996 - ------------------------------------------------------------------------------------ Medium term notes at average interest rate: 1997 - 6.6%; 1996 - 6.8% $1,542,250 $ 969,900 Notes payable to banks at average interest rate: 1997 and 1996 - 6.4% 203,504 157,126 - ------------------------------------------------------------------------------------ 1,745,754 1,127,026 Less current maturities 251,711 314,000 - ------------------------------------------------------------------------------------ $1,494,043 $ 813,026 ====================================================================================
Long-term debt and long-term debt, finance subsidiaries mature as follows:
Long-Term Debt, Finance (in thousands) Long-Term Debt Subsidiaries - --------------------------------------------------------------- (fiscal year) 1998 $ 60,794 $251,711 1999 11,724 629,828 2000 6,555 346,257 2001 75,372 428,673 2002 45,120 80,964 2003 - 2025 351,464 8,321 - ---------------------------------------------------------------
On December 2, 1996, Unisource borrowed under its new credit facility to repay $553,500,000 of intercompany debt with the Company. The Company prepaid debt in the amount of $514,000,000 from these funds. Early repayment of this debt resulted in certain prepayment penalties. Total prepayment penalties of $18,701,000 and related tax benefits of $6,545,000 are reflected as an extraordinary loss on early extinguishment of debt on the Statement of Income for fiscal 1997. On December 16, 1996, the Company entered into a credit agreement with several banks under which it may borrow up to $400,000,000. This multicurrency facility replaced a $500,000,000 credit facility that was due to expire December 1, 1999 and a $100,000,000 credit facility that was canceled on December 2, 1996. The reduced credit commitment reflects the spin-off of the Unisource business that was effective December 31, 1996 (see note 5). The new agreement, that expires December 15, 2001, includes a facility fee that could range from 6.5 to 9.0 basis points per annum on the commitment, based upon the Company's current long-term debt rating (8 basis points per annum at September 30, 1997). The agreement provides that loans may be made under either domestic or Eurocurrency notes at rates computed under a selection of rate formulas including prime or Eurocurrency rates. At September 30, 1997, short-term borrowings supported by the credit agreement totaled $248,100,000 leaving $151,900,000 unused and available. On October 27, 1997, the Company completed a $250,000,000 underwritten public debt offering consisting of $125,000,000 6.75% notes due November 1, 2004 and $125,000,000 7.3% notes due November 1, 2027. The 6.75% notes were sold at a discount to yield 6.794% and carry a make-whole call provision with a five basis-points premium. The 7.3% notes were also sold at a discount to yield 7.344% and carry a make-whole call provision with a 15 basis-points premium. The proceeds of the offering were used to repay short-term borrowings. The wholly owned U.S. finance subsidiary of the Company may offer notes to the public from time to time under its medium term notes program. These notes are offered at varying maturities of nine months or more from their dates of issue and may be subject to redemption at the option of the finance subsidiary, in whole or in part, prior to the maturity date in conjunction with meeting specified provisions. Interest rates are determined based on market conditions at the time of issuance. At September 30, 1997, $1,646,750,000 is available for issuance under this program. The Company is in compliance with all covenants, including financial, for all loan agreements. Capital lease obligations and mortgages are secured by property and equipment that had a net book value of $18,444,000 at September 30, 1997. Interest paid, including finance subsidiaries and corporate interest allocated to discontinued operations, approximated $151,000,000, $119,000,000 and $84,000,000 for fiscal years 1997, 1996 and 1995, respectively. 9. Shareholders' Equity During the first quarter of fiscal 1996, 432,130 common shares were issued for Series AA Preferred Stock conversions by holders. On February 9, 1996, the Company redeemed the balance of its Series AA Preferred Stock for common stock at the conversion rate of 2.2402 shares of common stock for each depositary share. Common shares totaling 8,585,423 were issued in connection with this redemption. On July 25, 1995, the Company sold 3,877,200 depositary shares, each representing 1/100th of a share of Series BB conversion preferred stock, for $77.375 per depositary share totaling $299,998,350, and used the net proceeds to reduce debt. Dividends are cumulative at $5.04 per year per depositary share. The Series BB Preferred Stock has one vote per share (equivalent to 1/100th vote per depositary share) and has a liquidation preference of $77.375 per depositary share plus an amount equal to accrued and unpaid dividends. Prior to October 1, 1998, each depositary share is convertible at the option of the holder into 2.0468 shares of common stock of the Company. On October 1, 1998, unless previously converted at the option of the holder, each of the outstanding depositary shares will automatically convert into a number of shares of common stock of the Company equal to (a) 2.0468 shares of common stock per depositary share if the current 28 market price of the Company's common stock is greater than or equal to $37.80 per share, (b) the number of shares of common stock (per depositary share) having a value (determined at the current market price) equivalent to $77.375, if the current market price is less than $37.80, but greater than $30.98 and (c) 2.4972 shares of common stock per depositary share if the current market price of the Company's common stock is at or below $30.98 per share. The current market price to be used in the conversion calculation will be the average closing price per share of common stock of the Company on the twenty trading days immediately prior to, but not including, October 1, 1998. At September 30, 1997, 7,935,853 shares of common stock were reserved for conversion of the Series BB conversion preferred stock. Employee stock options are granted at the market price at dates of grant which does not require the Company to recognize any compensation expense. These options expire in ten years and generally vest over five years. The proceeds of options exercised are credited to shareholders' equity. As permitted by SFAS 123, the Company continues to account for its stock options in accordance with APB 25. A plan for the Company's directors enables participants to receive their annual directors' fees in the form of options to purchase shares of common stock at a discount. The discount is equivalent to the annual directors' fees and is charged to expense. Changes in common shares under option were:
Weighted Average Shares Price - ---------------------------------------------------------------- September 30, 1994 4,664,586 $17.35 Granted 822,236 30.07 Exercised (854,250) 14.67 Cancelled (46,214) 23.44 - ---------------------------------------------------------------- September 30, 1995 4,586,358 20.07 Granted 1,582,767 43.17 Exercised (813,408) 15.77 Cancelled (72,077) 35.25 - ---------------------------------------------------------------- September 30, 1996 5,283,640 27.45 Unisource Spin-off Adjustment 952,043 23.53 Granted 1,395,757 38.96 Exercised (894,601) 16.85 Cancelled Unisource Spin-off (943,103) 32.34 Other (219,045) 26.39 - ---------------------------------------------------------------- September 30, 1997 5,574,691 $26.53 ================================================================ Available for Grant 4,654,902 - ----------------------------------------------------------------
In connection with the separation of Unisource from Alco, stock options that were not exercised prior to the effective date of the Distribution were adjusted. Optionholders who remain employees of IKON retained their options to purchase IKON shares. The number of shares subject to, and the exercise price of, each IKON option was adjusted based upon a formula that preserved the inherent intrinsic value and vesting and term provisions of such options. Optionholders who became employees of Unisource after the Distribution were given the opportunity to receive options to purchase shares of Unisource Common Stock in lieu of their Alco options or had their options cancelled. The following is provided to comply with the disclosure requirements of SFAS 123. If the Company had elected to recognize compensation costs based on the fair value at the date of grant for awards in fiscal years 1997 and 1996, consistent with the provisions of SFAS 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts: Fiscal year ended September 30 (in thousands, except per share data)
1997 1996 - ------------------------------------------------------------------------------------------------- Income from continuing operations before extraordinary loss $ 117,615 $ 162,932 Income from discontinued operations 19,871 45,116 Income before extraordinary loss 137,486 208,048 Earnings per share Continuing operations $ .73 $ 1.10 Discontinued operations .15 .35 Extraordinary loss (.09) - ------------------------------------------------------------------------------------------------- Net Income $ .79 $ 1.45 =================================================================================================
The pro forma effect on net income for fiscal 1997 and 1996 may not be representative of the pro forma effect on net income of future years because the SFAS 123 method of accounting for pro forma compensation expense has not been applied to options granted prior to October 1, 1995. The weighted-average fair values at date of grant for options granted during fiscal years 1997 and 1996 were $15.49 and $14.75, respectively, and were estimated using the Black-Scholes option-pricing model. The following assumptions were applied for periods before the Unisource spin-off and subsequent to the Unisource spin-off, respectively: (i) expected dividend yields of 1.4% and .6%, (ii) expected volatility rates of 29.1% and 31.8%, and (iii) expected lives The following table summarizes information about stock options outstanding at September 30, 1997:
Options Outstanding Options Exercisable - ------------------------------------------------------------------------------------------------------------------------------------ Number Weighted-Average Weighted-Average Number Weighted-Average Range of Outstanding Remaining Exercise Exercisable Exercise Exercise Prices at 9/30/97 Contractual Life Price at 9/30/97 Price $ 7.85 - $13.01 972,984 3.2 years $12.07 972,984 $ 12.07 14.18 - 19.90 1,199,454 5.8 18.11 783,571 17.67 22.84 - 29.18 1,169,981 8.1 25.16 337,799 24.27 30.03 - 38.79 1,676,810 8.4 35.71 254,024 35.27 44.63 - 59.99 555,462 9.2 45.17 43,566 50.96
29 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries -------------------------------------------- of 5.4 years and 5.7 years. The risk-free interest rates applied for fiscal 1997 and 1996 were 5.9% and 6.4%, respectively. In fiscal 1995, with Board of Director and shareholder approvals, the Company amended and restated its Long-Term Incentive Compensation Plan (LTIP). The plan is intended to motivate, recognize and reward key management employees for long-term performance. Under the plan, key management employees are granted stock or cash awards, which are earned upon achieving predetermined performance objectives during three-year intervals. The value of these awards is charged to expense over the related plan period. In fiscal 1995, the Company granted 198,706 stock awards under the plan. At December 31, 1996, 85,302 awards were transferred to Unisource. The remaining 113,404 stock awards were adjusted to 139,963 as a result of the spin-off, of which 80,660 awards were earned and 59,303 awards were cancelled. In 1996, the Company changed the form of the LTIP award granted from a stock award to a fixed cash award. In fiscal 1997 and 1996, cash awards totaling $4,819,500 and $3,910,419, respectively, were granted to LTIP participants. In connection with these plans, the Company expensed $3,111,000 in fiscal 1997, $7,500,000 in fiscal 1996 and $6,596,000 in fiscal 1995. IKON amended its Rights Agreement (Rights Plan) as of June 18, 1997. The Rights Plan, which was scheduled to expire in accordance with its terms on February 10, 1998, was extended as amended for an additional ten-year term expiring June 18, 2007. The Rights Plan established a new exercise price of $204.00 per preferred stock purchase right (individually, a "Right," and collectively, the "Rights"). A Right entitles holders thereof to buy 1/100th of a share of Series 12 Preferred Stock of the Company (the "Preferred Shares"). The Rights Plan provides that the Rights will be exercisable and will trade separately from shares of the Company's common stock only if a person or group (an "Acquiring Person") acquires beneficial ownership of 15% or more of the shares of the Company's common stock or commences a tender or exchange offer that would result in such a person or group owning 15% or more of the shares of the Company's common stock (a "Flip-in Event"). Only when one or more of these events occur will shareholders receive certificates for the Rights. If any person actually acquires 15% or more of the shares of common stock, other than through a tender or exchange offer for all shares of common stock that provides a fair price and other terms for such shares, or if a 15%-or-more shareholder engages in certain "self-dealing" transactions or engages in a merger or other business combination in which the Company survives and shares of its common stock remain outstanding, the other shareholders will be able to exercise the Rights and buy shares of common stock of the Company having twice the value of the exercise price of the Rights. A provision has been added to the Rights Plan that allows shareholders, upon action by a majority of the Continuing Directors (Continuing Directors are, in general, directors who were members of the Board of Directors prior to a Flip-in Event), to exercise their Rights for 50% of the shares of common stock otherwise purchasable upon surrender to the Company of the Rights so exercised and without other payment of exercise price. The Rights Plan has also reduced the price at which the Board of Directors can redeem the Rights to $.01. The Rights, in general, may be redeemed at any time prior to the tenth day following public announcement that a person has acquired a 15% ownership position in shares of common stock of the Company. 10. Taxes on Income Provision for income taxes:
Fiscal Year Ended September 30 (in thousands) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Current Deferred Current Deferred Current Deferred - --------------------------------------------------------------------------------------------------------------------- Federal $(2,983) $78,770 $21,144 $58,540 $8,832 $41,723 Foreign (361) 8,353 13,496 528 8,923 1,653 State 2,032 4,940 11,170 3,106 15,640 (1,270) - --------------------------------------------------------------------------------------------------------------------- Taxes on income $(1,312) $92,063 $45,810 $62,174 $33,395 $42,106 =====================================================================================================================
The components of deferred income tax assets and liabilities, including finance subsidiaries, were as follows:
September 30 (in thousands) 1997 1996 - --------------------------------------------------------------- Deferred tax liabilities: Depreciation and amortization $45,891 $32,284 Lease income recognition 344,553 227,003 - --------------------------------------------------------------- Total deferred tax liabilities 390,444 259,287 Deferred tax assets: Accrued liabilities 144,324 137,982 Net operating loss carryforwards 28,766 17,939 AMT credit carryforwards 38,792 7,600 Other-net 15,341 14,302 - --------------------------------------------------------------- Total deferred tax assets 227,223 177,823 Valuation allowance 43,255 26,647 - --------------------------------------------------------------- Net deferred tax assets 183,968 151,176 - --------------------------------------------------------------- Net deferred tax liabilities $206,476 $108,111 ===============================================================
Net operating loss carryforwards consist primarily of state carryforwards of $457,000,000 principally expiring in years 1998 through 2012. A full valuation allowance has been established against this amount. Credit carryforwards consist principally of federal and state alternative minimum tax (AMT) credits of approximately $38,792,000 (with no expiration date) and affordable housing credits of approximately $1,017,000 (expiring in 2012). Components of the effective income tax rate:
Fiscal Year Ended September 30 1997 1996 1995 - ------------------------------------------------------------------------------- Federal 35.0% 35.0% 35.0% State 3.8 3.4 4.9 Goodwill 5.0 2.1 2.5 Foreign including credits (.6) (.3) 1.2 Other (.6) (.6) (4.0) - ------------------------------------------------------------------------------- Effective income tax rate 42.6% 39.6% 39.6% ===============================================================================
Net income tax payments (refunds) for all operations, including discontinued, amounted to $(22,081,000) in 1997, $46,231,000 in 1996 and $30,436,000 in 1995. Undistributed earnings of the Company's foreign subsidiaries were approximately $65,110,000 at September 30, 1997. Those earnings are considered to be indefinitely reinvested and, therefore, no provision has been recorded for U.S. federal and state income taxes. 11. Leases Equipment acquired under capital leases is included in property and equipment in the amount of $44,465,000 in 1997 and $33,141,000 in 1996 and the related amounts of accumulated amortization are $26,021,000 in 1997 and $11,491,000 in 1996. Related obligations are in long-term debt and related amortization is included in depreciation. At September 30, 1997, future minimum lease payments under noncancelable operating leases with initial or remaining terms of more than one year were: 1998 - $79,979,000; 1999 - $62,493,000; 2000 - $46,857,000; 2001 - $35,434,000; 2002 - $27,628,000; thereafter - $34,181,000. Total rental expense was $81,608,000 in 1997, $67,006,000 in 1996 and $61,398,000 in 1995. 12. Contingencies There are contingent liabilities for taxes, guarantees, lawsuits, environmental remediation claims relating to discontinued operations (see note 5) and various other matters occurring in the ordinary course of business. On the basis of information furnished by counsel and others, management believes that none of these contingencies will materially affect the Company. 13. Pension and Stock Purchase Plans The Company sponsors defined benefit pension plans for the majority of its employees. The benefits generally are based on years of service and compensation. The Company funds at least the minimum amount required by government regulations. The cost of these plans, together with contributions to multiemployer and defined contribution pension plans ($861,000 in 1997, $1,338,000 in 1996 and $1,346,000 in 1995) charged to continuing operations amounted to $17,623,000 for 1997, $20,215,000 for 1996 and $12,846,000 for 1995. The components of net periodic pension cost for the Company-sponsored defined benefit pension plans were:
Fiscal Year Ended September 30 (in thousands) 1997 1996 1995 - ----------------------------------------------------------------------------------------------- Service cost $ 19,208 $ 15,734 $ 10,610 Interest cost on projected benefit obligation 18,373 7,448 7,429 Actual return on plan assets (30,949) (15,663) (18,409) Net amortization and deferral 10,130 11,358 11,870 - ----------------------------------------------------------------------------------------------- Net pension cost $ 16,762 $ 18,877 $ 11,500 ===============================================================================================
31 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries -------------------------------------------- Assumptions used in accounting for the Company-sponsored defined benefit pension plans were:
1997 1996 1995 - ----------------------------------------------------------------------------- Weighted average discount rates 7.75% 7.75% 7.50% Rates of increase in compensation levels 6.25% 6.25% 6.00% Expected long-term rate of return on assets 10.00% 10.00% 10.00%
The funded status and amounts recognized in the Consolidated Balance Sheets for the Company-sponsored defined benefit pension plans were:
September 30 (in thousands) 1997 1996 - ------------------------------------------------------------------------------------- Actuarial present value of benefit obligations Vested $ 212,332 $ 198,061 ===================================================================================== Accumulated $ 218,585 $ 204,457 ===================================================================================== Projected $ 260,959 $ 237,043 Plan assets at fair value 259,243 224,265 - ------------------------------------------------------------------------------------- Plan assets less than projected benefits (1,716) (12,778) Items not yet recognized Net gain (42,864) (34,231) Prior service cost 12,705 12,526 Net asset existing at transition date (7,494) (8,742) Adjustment required to recognize minimum liability (4,535) (4,603) - ------------------------------------------------------------------------------------- Net pension liability $ (43,904) $ (47,828) =====================================================================================
Under the Benefits Agreement with Unisource, the Company assumed certain benefit obligations and related assets for retirees and terminated vested employees of Unisource which totaled approximately $105,000,000. Substantially all of the plan assets at September 30, 1997 are invested in listed stocks, including common stock of the Company having a fair value of $30,675,600. The majority of the Company's employees were eligible to participate in the Company's Stock Participation Plan through fiscal 1995, under which they were permitted to invest 2% to 6% of regular compensation before taxes. The Company contributed an amount equal to two-thirds of the employees' investments and all amounts were invested in the Company's common shares. Effective October 2, 1995, the Stock Participation Plan was replaced by a Retirement Savings Plan (RSP). The RSP allows employees to invest 1% to 16% of regular compensation before taxes in six different investment funds. The Company contributes an amount equal to two-thirds of the employees' investments, up to 6% of regular compensation, for a maximum company match of 4%. All Company contributions are invested in the Company's common shares. Employees vest in a percentage of the Company's contribution after two years of service, with full vesting at the completion of five years of service. There is a similar plan for eligible management employees. The cost of the plans charged to continuing operations amounted to $31,026,000 in 1997, $23,596,000 in 1996 and $16,983,000 in 1995. 14. Geographic Information Revenues, income before taxes and identifiable assets by geographic area from continuing operations for the fiscal years ended September 30 were as follows:
(in millions) 1997 1996 1995 - ---------------------------------------------------------------- Revenues Domestic $4,467.6 $3,559.7 $2,802.2 Europe 375.8 360.6 178.4 Canada 270.7 177.7 111.0 Other 14.3 1.8 - ---------------------------------------------------------------- Total $5,128.4 $4,099.8 $3,091.6 ================================================================ Income Before Taxes Domestic $ 233.4 $ 251.1 $ 186.7 Europe 10.0 38.3 9.0 Canada 17.5 20.6 16.5 Other (.3) .1 - ---------------------------------------------------------------- Operating 260.6 310.1 212.2 Interest expense (47.5) (37.2) (21.7) - ---------------------------------------------------------------- Total $ 213.1 $ 272.9 $ 190.5 ================================================================ Assets Domestic $4,340.4 $3,096.2 $2,313.4 Europe 566.3 560.2 300.5 Canada 405.1 227.5 161.5 Other 12.1 11.5 - ---------------------------------------------------------------- Total $5,323.9 $3,895.4 $2,775.4 ================================================================
15. Financial Instruments The Company uses financial instruments in the normal course of its business, including derivative financial instruments, for purposes other than trading. These financial instruments include debt, commitments to extend credit and interest rate and currency swap agreements. The notional or contractual amounts of these commitments and other financial instruments are discussed below. Concentration of Credit Risk The Company is subject to credit risk through trade receivables, lease receivables and short-term cash investments. Credit risk with respect to trade receivables is minimized because of a large customer base and its geographic dispersion. Short-term cash investments are placed with high-credit quality financial institutions and in short duration corporate and government debt securities funds. By policy, the Company limits the amount of credit exposure in any one type of investment instrument. Interest Rate and Currency Swap Agreements The Company has interest rate swap agreements relating to finance subsidiaries' financial instruments having a total principal/notional amount of $105,000,000 with fixed rates from 5.77% to 7.08%. The Company also has Canadian dollar denominated interest rate swap agreements having a total principal/notional amount of $71,092,000 (CN$98,248,000) with fixed rates from 7.43% to 7.74%. The Company is required to make payments to the 32 counterparties at the fixed rate stated in the agreements and in return the Company receives payments at variable rates. The Company has also entered into cross-currency swap agreements to exchange Canadian dollars (CN$98,248,000) for pounds sterling ((Pounds)46,500,000). The Company is required to make pounds sterling payments at fixed rates from 9.53% to 9.90% in exchange for Canadian dollar payments at fixed rates from 9.02% to 9.38%. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the swap agreements. However, the Company does not anticipate nonperformance by the counterparties. The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments. Cash, Notes Payable and Long-Term Receivables The carrying amounts reported in the consolidated balance sheets approximate fair value. Long-Term Debt The fair value of long-term debt instruments is estimated using a discounted cash flow analysis. For more information on these instruments, refer to note 8. Off-Balance-Sheet Instruments Fair values for the Company's off-balance-sheet instruments (interest rate and currency swaps) are based on the termination of the agreements. The carrying amounts and fair values of the Company's financial instruments were as follows:
1997 1996 September 30 (in thousands) Carrying Amount Fair Value Carrying Amount Fair Value - ---------------------------------------------------------------------------------------------------------------- Long-term debt: Bond issues $ 339,352 $ 327,869 $ 445,481 $ 423,667 Private placement debt 55,000 55,791 105,000 103,538 Bank debt 71,641 74,269 72,721 73,406 Notes payable to insurance company 60,000 61,813 Sundry notes, bonds and mortgages 52,876 54,581 74,929 75,900 Finance subsidiaries' debt 1,745,754 1,750,298 1,127,026 1,124,395 Interest rate and currency swaps (7,183) (5,074)
Financial Review - -------------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries -------------------------------------------- On June 19, 1996, the Company announced that it would split its two operating units into independent companies by spinning off Unisource, its paper products and supply systems distribution group, as a separate publicly owned company. The Company accomplished the transaction through a U.S. tax-free distribution of Unisource stock to Company shareholders on December 31, 1996. As a result of the spin-off of Unisource, the Company has accounted for Unisource as a discontinued operation. Continuing operations of the Company consist of IKON, which sells, rents and leases photocopiers, digital printers and other automated office equipment for use in both traditional and integrated office environments. IKON also provides outsourcing and imaging services and offers consulting, design, computer networking and technology training for the networked office environment. Results of Operations Revenues and income before taxes for continuing operations for fiscal years ended September 30, 1997, 1996 and 1995 and the percentage change for 1997 versus 1996 and 1996 versus 1995 were:
(in millions) 1997 1996 % Change 1996 1995 % Change - --------------------------------------------------------------------------------------------------------------------------- Revenues $5,128 $4,100 25.1% $4,100 $3,092 32.6% =========================================================================================================================== Income before taxes: Operating income, excluding transformation costs $387.5 $331.5 16.9% $331.5 $212.2 56.2% Transformation costs (126.9) (21.4) (21.4) - --------------------------------------------------------------------------------------------------------------------------- Operating income 260.6 310.1 (16.0%) 310.1 212.2 46.1% Interest expense (47.5) (37.2) (37.2) (21.7) - --------------------------------------------------------------------------------------------------------------------------- $213.1 $272.9 (21.9%) $272.9 $190.5 43.3% ===========================================================================================================================
33 Financial Review - -------------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries -------------------------------------------- Fiscal 1997 Compared to Fiscal 1996 The Company's revenues increased approximately $1.0 billion, or 25.1% in fiscal 1997 compared to fiscal 1996, of which $554 million relates to current and prior-year acquisitions and $474 million to base companies' internal growth. Revenues from the Company's operations outside the U.S. were $660 million in fiscal 1997 compared to $540 million in fiscal 1996. The Company's European operations accounted for $15 million of the increase, while Canadian revenues increased $93 million as a result of acquisitions and internal growth in base companies. Other foreign companies added $12 million of revenue in fiscal 1997. The Company's worldwide internal revenue growth was 12% in fiscal 1997 compared to 14% in fiscal 1996. The internal revenue growth has been negatively impacted by short-term issues related to the acceleration of the Company's transformation initiative and its impact on operations both in the U.S. and U.K. In fiscal 1997, IKON completed 89 acquisitions with annualized trailing revenues of $528 million. Of the companies acquired, 27 were outsourcing and imaging companies, 28 were technology services companies and 34 were traditional copier companies. This year, as part of its total solutions strategy, IKON has emphasized the acquisition of technology services and outsourcing companies to build its capabilities in these areas. The Company's operating income decreased by $49.5 million compared to the prior year. However, excluding transformation costs, operating income increased $56.0 million, or 16.9% over the prior year. Operating income from foreign operations was $27.1 million for fiscal 1997 compared to $59.0 million in the prior year. European operations posted a $28.3 million decline in operating income in fiscal 1997, relating primarily to revenue declines in the U.K. and transformation costs. Canadian operating income decreased $3.2 million and other foreign operations decreased $.4 million. These declines are also primarily the result of transformation costs. There was no material effect of foreign currency exchange rate fluctuations on the results of operations in fiscal 1997 compared to fiscal 1996. Finance subsidiaries contributed 23.5% of IKON's operating income in fiscal 1997 compared to 15.1% in fiscal 1996. The Company's operating margins were 5.1% in fiscal 1997 compared to 7.6% in fiscal 1996. Excluding transformation costs, the Company's operating margins were 7.6% in fiscal 1997, compared to 8.1% in fiscal 1996. Costs associated with the Company's transformation program increased $105 million in fiscal 1997 compared to fiscal 1996, primarily relating to the write-off of costs associated with the SAP computer platform that was abandoned during the second quarter and technology conversion costs ($36 million), severance and other employee related costs, including temporary labor and costs related to consultants assisting with the transformation ($35 million), facility consolidations costs, including lease buyouts and write-offs of leasehold improvements ($23 million) and costs incurred in connection with the adoption of the IKON name worldwide ($11 million). Interest expense increased $10.3 million in fiscal 1997, primarily the result of increased borrowing levels when adjusted for the Unisource intercompany debt repayment made in December 1996. Income from continuing operations before taxes decreased by $59.8 million from the prior year, primarily reflecting the combined result of internal growth from base companies along with earnings contributed by acquisitions, net of increased transformation and interest costs. The effective income tax rate is 42.6% in fiscal 1997 compared to 39.6% in fiscal 1996. The Company used the proceeds of a December 2, 1996 $553.5 million intercompany debt repayment from its discontinued operation, Unisource, to prepay $514 million of corporate debt. The Company recorded an extraordinary charge of $12.2 million after tax ($18.7 million pretax) in the first quarter of fiscal 1997 primarily for prepayment penalties relating to its early extinguishment of certain corporate debt. Earnings per share from continuing operations, excluding the extraordinary charge, decreased from $1.12 per share in fiscal 1996 to $.77 per share in fiscal 1997. Excluding transformation costs, earnings per share from continuing operations would have increased 12.2% from $1.23 per share in fiscal 1996 to $1.38 per share in fiscal 1997. Including the loss per share of $.09 on the extraordinary charge and the earnings per share of $.15 on discontinued operations, earnings per share of the Company were $.83 for fiscal 1997 compared to $1.48 (which includes $.36 for discontinued operations) for fiscal 1996. Weighted average shares of 134.4 million in fiscal 1997 were 6.8 million shares greater than the 127.6 million weighted average shares in fiscal 1996, primarily the result of stock issued for acquisitions (5.8 million weighted shares) and conversion of the Series AA Preferred Stock effective February 9, 1996 (2.4 million weighted shares), net of treasury share repurchases (2.4 million weighted shares). Fiscal 1996 Compared to Fiscal 1995 The Company's revenues increased $1 billion, or 32.6% in fiscal 1996 compared to fiscal 1995, of which $675 million relates to current and prior-year acquisitions and $333 million is internal growth. In fiscal 1996, IKON completed 100 acquisitions with annualized trailing revenues of $714 million. Revenues from the Company's operations outside the U.S. were $540 million in fiscal 1996 compared to $289 million in fiscal 1995. The Company's European operations accounted for $182 million of the increase, primarily the result of the acquisitions in the latter half of fiscal 1995, while Canadian revenues increased $67 million as a result of acquisitions and internal growth. Operating income increased by $97.9 million, or 46.1% over the prior year. Current and prior-year acquisitions accounted for $55.8 million, while the remaining $42.1 million was the result of internal growth, net of transformation costs. Excluding transformation costs, fiscal 1996 operating income increased $119.3 million, or 56.2% over fiscal 1995. Finance subsidiaries contributed 15.1% of operating income in fiscal 1996 compared to 12.3% in fiscal 1995. IKON's operating margins were 7.6% in fiscal 1996 compared to 34 6.9% in fiscal 1995. Excluding transformation costs, fiscal 1996 operating margins were 8.1%. Operating income from foreign operations was $59 million in fiscal 1996, up $33.5 million from the prior year of which $29.3 million is attributable to European operations and $4.1 million is attributable to Canadian operations. Costs associated with the Company's transformation program related primarily to severance and other employee related costs, including temporary labor and costs related to consultants assisting with the transformation ($19 million). Interest expense, net of corporate interest allocated to discontinued operations, increased $15.5 million in fiscal 1996, primarily the result of increased borrowing levels. Income from continuing operations before taxes increased by $82.4 million, or 43.3% over the prior year, primarily reflecting the combined result of internal growth along with earnings contributed by acquisitions, net of increased interest costs. The effective income tax rate is 39.6% in both fiscal 1996 and fiscal 1995. Earnings per share from continuing operations increased 30.2% from $.86 per share in fiscal 1995 to $1.12 per share in fiscal 1996. Weighted average shares of 127.6 million in fiscal 1996 were 11.1 million shares greater than the 116.5 million weighted average shares in fiscal 1995, primarily the result of stock issued for acquisitions (4.7 million weighted shares) and conversion of the Series AA Preferred Stock effective February 9, 1996 (6.6 million weighted shares). Discontinued Operations The Company spun-off Unisource, its paper products and supply systems distribution group, at the end of the first quarter of fiscal 1997. Revenues of Unisource increased $13 million or .7% in the first quarter of fiscal 1997 compared to the first quarter of fiscal 1996. This change was due to increases associated with current and prior-year acquisitions of $152 million, which were offset by revenue declines of $139 million in base operations. The decline in base operations was principally due to an estimated decrease in average paper prices of 17% compared to the same period in fiscal 1996. The price deflation was partially offset by volume gains in the base operations. Income before income taxes decreased $8.5 million to $34.7 million for the first quarter of fiscal 1997 compared to $43.3 million in the first quarter of fiscal 1996. This decrease is primarily related to price decreases, net of volume increases in base operations and operating income contributed by acquisitions, plus additional interest expense of $3.5 million in the first quarter of fiscal 1997 compared to the first quarter of fiscal 1996. Revenues of Unisource were flat at $7 billion in both fiscal 1996 and 1995 as a result of price and volume declines, net of $528 million contributed by acquisitions. Income before income taxes decreased $69.7 million to $103 million in fiscal 1996 compared to $172.7 million in fiscal 1995. This decrease consists of a $50 million restructuring charge recorded in the third quarter of fiscal 1996 and an operating income decrease of $21.8 million, primarily related to the price and volume decreases experienced during the year, net of operating income contributed by acquisitions, while a reduction in interest expense of $2.1 million in fiscal 1996 slightly offset the operating income decline. An $18 million charge against earnings was recorded in the third quarter of fiscal 1996 for costs associated with the spin-off of Unisource consisting primarily of investment banking fees, legal and accounting fees, filing fees and employee termination costs directly related to the spin-off. Year 2000 Costs In July 1996, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus on Issue 96-14, Accounting for the Costs Associated with Modifying Computer Software for the Year 2000, which provides that costs associated with modifying computer software for the year 2000 be expensed as incurred. The Company is assessing the extent of the necessary modifications to its computer software. Financial Condition and Liquidity Net cash provided by operating activities of continuing operations for fiscal 1997 was $174 million, primarily the result of net income from continuing operations before the extraordinary loss, plus noncash charges to income, offset by increases in working capital. During the same period, the Company used $1.1 billion in cash for investing activities, which included finance subsidiary activity of $808 million, acquisition activity at a cash cost of $156 million and capital expenditures of $193 million. Investing activities were funded primarily through financing activities. Cash provided by financing activities included $552 million of intercompany debt repayments by Unisource that was used primarily to prepay corporate debt of the Company and $619 million of additional net funding for finance subsidiaries. Financing activities also included $112 million use of cash for the purchase of treasury shares. Debt, excluding finance subsidiaries, was $818 million at September 30, 1997, a decrease of $153 million from the continuing operations debt balance at September 30, 1996 of $971 million. At September 30, 1997, debt as a percentage of capitalization, excluding finance subsidiaries, was 35.6%, compared to 31.4% in the prior year, while the current ratio was 1.5 to 1. The increased debt to capital ratio reflects the effects of higher working capital, which the Company is currently managing to lower levels as the transformation proceeds, and the effects of the share repurchase program. At the end of fiscal 1997, the Company's commitments for capital expenditures were approximately $27 million, most of which are expected to be expended during fiscal 1998 and relate to IT initiatives. On December 16, 1996, the Company entered into a credit agreement with several banks under which it may borrow up to $400 million. This credit facility replaces a $500 million credit facility that was due to expire December 1999 and a $100 million credit facility that was canceled on December 2, 1996. The reduced credit commitment reflects 35 the spin-off of the Unisource business that was effective December 31, 1996. As of September 30, 1997, short-term borrowings totaled $248 million, leaving $152 million available under the $400 million credit facility. In October 1997, the Company completed a $250 million two tranche underwritten public offering consisting of $125 million 6.75% notes due November 1, 2004 and $125 million 7.3% notes due November 1, 2027. The 6.75% notes were sold at a discount to yield 6.794% and carry a make-whole call provision with a five basis-points premium. The 7.3% notes were also sold at a discount to yield 7.344% and carry a make-whole call provision with a 15 basis-points premium. The proceeds of the offering were used to repay short-term borrowings. The Company also has $200 million available for either stock or debt offerings under its shelf registration statement filed November 1995. Finance subsidiaries' debt grew by $618.7 million from September 30, 1996, a result of increased leasing activity. During fiscal 1997, the U.S. finance subsidiary issued an additional $853.4 million under its $3.5 billion medium term notes program that began in July 1994 (including the shelf registration filed in May 1997 for $2 billion of medium term notes). At September 30, 1997, $1.5 billion of medium term notes were outstanding with a weighted average interest rate of 6.6%, while $1.6 billion remains available under this program. Under its $275 million asset securitization programs, the U.S. finance subsidiary sold $103.4 million in direct financing leases during fiscal 1997, replacing those leases liquidated and leaving the amount of contracts sold unchanged. The Company filed shelf registrations for 10 million shares of common stock in April 1997 and 5 million shares of common stock in March 1996. Shares issued under these registration statements are being used for acquisitions. Approximately 4 million shares have been issued under these shelf registrations through September 30, 1997, leaving 11 million shares available for issuance. On April 17, 1997, the Company announced that it may repurchase from time to time as much as 5% of the outstanding IKON common stock in open market transactions. Through September 30, 1997, the Company repurchased 4.4 million common shares for $109.7 million. Approximately 2.3 million shares may still be acquired by the Company in open market transactions under this program. The Company believes that its operating cash flow together with unused bank credit facilities and other financing arrangements will be sufficient to finance current operating requirements including capital expenditures, acquisitions, dividends, stock repurchases and costs associated with the Company's transformation program. The Company estimates the total remaining costs of its transformation program to be from $50 million to $70 million, excluding capital costs. Quarterly transformation costs are expected to be in the range of $5 million to $20 million for the next four quarters. Market Risk Interest Rate Risk. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's long-term debt. The Company has no cash flow exposure due to interest rate changes for long-term debt obligations. The Company primarily enters into debt obligations to support general corporate purposes, including acquisitions, capital expenditures and working capital needs. Finance subsidiaries' long-term debt is used to fund the lease receivables portfolio. For interest rate swaps, the table presents notional amounts and weighted average interest rates by contractual maturity dates using September 30, 1997 variable rates. The carrying amounts for cash, accounts receivable, long-term receivables and notes payable reported in the consolidated balance sheets approximate fair value. The table below presents principal amounts and related average interest rates by year of maturity for the Company's long-term debt obligations:
(in thousands) 1998 1999 2000 2001 2002 Thereafter - ------------------------------------------------------------------------------------------------------------------------------------ Long-term debt Fixed rate $60,794 $11,724 $6,555 $3,731 $45,120 $351,464 Average interest rate 7.8% 8.4% 8.6% 8.6% 8.9% 6.8% Variable rate $71,641 Average interest rate 3.5% - ------------------------------------------------------------------------------------------------------------------------------------ Long-term debt, finance subsidiaries Fixed rate $251,711 $629,828 $346,257 $428,673 $80,964 $8,321 Average interest rate 7.1% 6.3% 6.7% 6.7% 6.2% 5.3% - ------------------------------------------------------------------------------------------------------------------------------------ Interest Rate Derivative Financial Instruments Related to Debt Interest rate swaps: Pay fixed/receive variable $71,092 Average pay rate 7.7% Average receive rate 3.5% ====================================================================================================================================
Foreign Exchange Risk. The Company does not have significant foreign exchange risk. Foreign denominated intercompany debt borrowed in one currency and repaid in another is fixed via currency swap agreements. Gains and losses resulting from the remeasurement of foreign financial statements into U.S. dollars did not have a significant effect on the results of operations for fiscal years 1997, 1996 or 1995. 36 Quarterly Financial Summary - -------------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries ------------------------------------------------
First Second Third Fourth (unaudited, in millions except per share data) Quarter Quarter Quarter Quarter Total - ------------------------------------------------------------------------------------------------------------------------------------ 1997 Revenues $1,140.4 $1,277.9 $1,316.3 $1,393.8 $5,128.4 Gross profit 499.3 544.6 561.4 588.5 2,193.8 Transformation costs 14.3 61.2 23.0 28.4 126.9 Income before taxes 73.2 30.1 52.6 57.2 213.1 Income (loss) Continuing operations 44.7 14.6 30.1 33.0 122.4 Discontinued operations 20.2 20.2 Extraordinary loss (12.2) (12.2) - ------------------------------------------------------------------------------------------------------------------------------------ Net income $52.7 $14.6 $30.1 $33.0 $130.4 ==================================================================================================================================== Earnings (loss) per share Continuing operations $.30 $.07 $.19 $.21 $.77 Discontinued operations .15 .15 Extraordinary loss (.09) (.09) - ------------------------------------------------------------------------------------------------------------------------------------ $.36 $.07 $.19 $.21 $.83 ==================================================================================================================================== Dividends per share $.14 $.04 $.04 $.04 $.26 Common stock price High/Low 52 1/4 - 44 3/8 46 5/8 - 32 1/2 34 7/8 - 20 5/8 29 5/8 - 21 1/2 52 1/4 - 20 5/8 - ------------------------------------------------------------------------------------------------------------------------------------ 1996 Revenues $900.6 $1,015.4 $1,059.1 $1,124.7 $4,099.8 Gross profit 383.2 417.1 460.0 476.1 1,736.4 Transformation costs .7 5.6 5.6 9.5 21.4 Income before taxes 61.3 66.3 72.8 72.5 272.9 Income (loss) Continuing operations 36.9 40.5 43.7 43.8 164.9 Discontinued operations 26.3 28.6 (20.2) (a) 11.1 45.8 (a) - ------------------------------------------------------------------------------------------------------------------------------------ Net income $63.2 $69.1 $23.5 $54.9 $210.7 ==================================================================================================================================== Earnings (loss) per share Continuing operations $.25 $.28 $.30 $.30 $1.12 Discontinued operations .22 .22 (.16) (a) .08 .36 (a) $.47 $.50 $.14 $.38 $1.48 ==================================================================================================================================== Dividends per share $.14 $.14 $.14 $.14 $.56 Common stock price High/Low 46 3/8 - 42 54 5/8 - 37 3/8 66 - 44 5/8 49 7/8 - 38 66 - 37 3/8
(a) Discontinued operations in the third quarter and year-to-date fiscal 1996 includes a pretax charge of $50,000,000 ($32,500,000 net of taxes or $.25 per share) for restructuring activities of Unisource and a pretax charge of $18,000,000 ($14,150,000 net of taxes or $.11 per share) for expenses related to the spin-off of Unisource. 37 Corporate Financial Summary - -------------------------------------------------------------------------------- IKON Office Solutions, Inc. and Subsidiaries ------------------------------------------------
Ten-Year (in millions, except per share data, Compound shareholders of record, employees) Growth 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- Continuing Operations Revenues 18.8% $5,128.4 $4,099.8 $3,091.6 $2,391.1 Gross profit 23.9 2,193.8 1,736.5 1,296.7 1,030.2 % of revenues 42.8 42.4 41.9 43.1 Selling and administrative 22.6 1,806.4 1,405.0 1,084.5 853.6 % of gross profit 82.3 80.9 83.6 82.9 Operating income 20.5 260.6 310.1 212.2 59.4 % of revenues 5.1 7.6 6.9 2.5 Income before taxes 23.4 213.1 272.9 190.5 43.3 % of revenues 4.2 6.7 6.2 1.8 Effective income tax rate (%) 42.6 39.6 39.6 95.4 Income 23.4 122.4 164.9 115.0 2.0 % of revenues 2.4 4.0 3.7 0.1 Earnings (loss) per share Primary .77 1.12 0.86 (0.09) Fully diluted (e) (e) (e) (e) Capital expenditures 20.8 193.2 146.6 91.1 79.0 Depreciation and amortization 19.2 156.6 118.6 87.4 67.4 - -------------------------------------------------------------------------------------------------------------------------------- Discontinued Operations and Extraordinary Items Income (loss) $8.0 $45.8 $88.7 $74.5 Earnings (loss) per share Primary .06 .36 0.76 0.67 Fully diluted (e) (e) (e) (e) - -------------------------------------------------------------------------------------------------------------------------------- Total Operations and Extraordinary Items Net income 4.7% $130.4 $210.7 $203.7 $76.5 Earnings (loss) per share Primary .83 1.48 1.62 0.58 Fully diluted (e) (e) (e) (e) - -------------------------------------------------------------------------------------------------------------------------------- Share Activity Dividends per share (2.1)% $0.26 $0.56 $0.52 $0.50 Per share book value 3.8 8.94 14.94 12.06 10.50 Return on shareholders' equity 7.8 13.8 15.8 15.1 Average common and common equivalent shares 134.4 127.6 116.5 111.4 Shareholders of record 15,089 15,033 15,099 14,348 - -------------------------------------------------------------------------------------------------------------------------------- Supplementary Information Days sales outstanding (g) 44.5 34.2 33.6 30.2 Inventory turns (g) 6.3 5.7 6.3 5.7 Current ratio 1.5 1.2 1.1 1.3 Pretax return on capital employed 8.5 14.8 17.1 15.9 (b) Pretax return on capital employed, excluding finance subsidiaries 10.0 19.0 21.1 18.6 (b) Working capital 10.2% $752.0 $251.2 $144.7 $171.5 Total assets 17.1 5,323.9 5,384.6 4,110.3 2,897.7 Total debt 26.9 2,563.8 2,158.4 1,499.3 949.2 % of capitalization 63.4 48.9 44.2 40.7 Total debt, excluding finance subsidiaries 14.4 818.0 1,031.4 681.7 484.3 % of capitalization 35.6 31.4 26.5 25.9 Serial preferred stock Employees (h) 40,900 43,100 39,200 33,100 - --------------------------------------------------------------------------------------------------------------------------------
(a) Continuing operations include unrelated businesses sold in 1988. (b) Excludes the effect of the sale of IMMOS in fiscal 1994 and Unisource restructuring costs in fiscal 1993. (c) Includes the sale of an automobile leasing subsidiary that resulted in a pretax gain of $17,637,000. (d) Includes unusual pretax charges relating to the Hillman Companies of $10,323,000. (e) Dilution is immaterial after 1987; therefore, no disclosure. (f) Excludes gain on sale of Alco Health Services Corporation of pretax - $96,800,000; net income - $61,900,000. (g) Continuing operations only. (h) Includes discontinued operations. Note: Unless otherwise noted, ratios and operating results include the effect of: fiscal 1994 - loss on sale of investment in IMMOS, pretax income ($115,265,000), net income ($95,086,000), earnings per share ($.85); fiscal 1993 - Unisource restructuring costs, operating income ($175,000,000), net income ($112,875,000), earnings per share ($1.14); fiscal 1997 - transformation costs, operating income ($126,908,000), net income ($82,490,000), earnings per share ($.61). 38
(in millions, except per share data, shareholders of record, employees) 1993 1992 1991 1990 - --------------------------------------------------------------------------------------------------------------- Continuing Operations Revenues $1,723.1 $1,354.2 $1,127.4 $1,018.6 Gross profit 755.2 613.2 497.8 451.8 % of revenues 43.8 45.3 44.2 44.4 Selling and administrative 635.9 523.4 440.0 418.3 % of gross profit 84.2 85.4 88.4 92.6 Operating income 116.8 96.5 57.8 28.8 % of revenues 6.8 7.1 5.1 2.8 Income before taxes 101.4 85.1 40.4 8.3 (d) % of revenues 5.9 6.3 3.6 0.8 Effective income tax rate (%) 39.6 39.4 39.0 40.7 Income 61.3 51.6 24.6 4.9 (d) % of revenues 3.6 3.8 2.2 0.5 Earnings (loss) per share Primary 0.52 0.53 0.26 0.06 (d) Fully diluted (e) (e) (e) (e) Capital expenditures 64.3 36.9 33.4 40.5 Depreciation and amortization 51.3 42.3 43.1 38.0 - --------------------------------------------------------------------------------------------------------------- Discontinued Operations and Extraordinary Items Income (loss) ($58.6) $47.5 $94.1 $88.6 Earnings (loss) per share Primary (0.59) 0.49 1.00 0.95 Fully diluted (e) (e) (e) (e) - --------------------------------------------------------------------------------------------------------------- Total Operations and Extraordinary Items Net income $2.6 $99.1 $118.7 $93.5 (d) Earnings (loss) per share Primary (0.07) 1.01 1.26 1.01 Fully diluted (e) (e) (e) (e) - --------------------------------------------------------------------------------------------------------------- Share Activity Dividends per share $0.48 $0.46 $0.44 $0.42 Per share book value 8.55 9.11 8.91 8.20 Return on shareholders' equity 11.6 11.6 15.0 13.4 Average common and common equivalent shares 98.7 97.7 94.1 93.1 Shareholders of record 13,999 13,726 14,096 14,152 - --------------------------------------------------------------------------------------------------------------- Supplementary Information Days sales outstanding (g) 32.9 32.3 33.8 34.8 Inventory turns (g) 5.1 5.2 4.8 4.7 Current ratio 1.1 1.3 1.9 1.7 Pretax return on capital employed 13.5 (b) 15.1 15.3 18.5 Pretax return on capital employed, excluding finance subsidiaries 15.8 (b) 17.5 17.6 20.9 Working capital $87.2 $140.4 $299.9 $216.9 Total assets 2,734.2 1,944.0 1,703.0 1,544.0 Total debt 1,240.0 805.4 548.1 469.2 % of capitalization 54.5 48.0 39.8 38.3 Total debt, excluding finance subsidiaries 825.7 504.9 327.4 309.6 % of capitalization 44.4 36.6 28.3 29.0 Serial preferred stock 0.3 1.6 2.9 4.9 Employees (h) 30,200 24,800 19,800 21,700 - --------------------------------------------------------------------------------------------------------------- (in millions, except per share data, shareholders of record, employees) 1989 1988 1987 - ---------------------------------------------------------------------------------------------- Continuing Operations Revenues $789.3 $667.0 (a) $917.9 (a) Gross profit 342.6 255.6 (a) 257.2 (a) % of revenues 43.4 38.3 28.0 Selling and administrative 318.7 241.0 (a) 234.5 (a) % of gross profit 93.0 94.3 91.2 Operating income 23.9 22.5 (a) 40.3 (a) % of revenues 3.0 3.4 4.4 Income before taxes 9.1 10.7 (a) 26.0 (a)(c) % of revenues 1.2 1.6 2.8 Effective income tax rate (%) 20.0 25.5 42.5 Income 7.3 8.0 (a) 14.9 (a)(c) % of revenues 0.9 1.2 1.6 Earnings (loss) per share Primary 0.08 0.08 (a) 0.16 (a)(c) Fully diluted (e) (e) 0.16 (a)(c) Capital expenditures 35.1 26.3 (a) 29.1 (a) Depreciation and amortization 32.1 25.3 (a) 27.0 (a) - ---------------------------------------------------------------------------------------------- Discontinued Operations and Extraordinary Items Income (loss) $160.2 $103.4 $67.4 Earnings (loss) per share Primary 1.70 1.04 0.73 Fully diluted (e) (e) 0.68 - ---------------------------------------------------------------------------------------------- Total Operations and Extraordinary Items Net income $167.5 $111.4 $82.3 (c) Earnings (loss) per share Primary 1.78 1.12 0.89 (c) Fully diluted (e) (e) 0.84 (c) - ---------------------------------------------------------------------------------------------- Share Activity Dividends per share $0.38 $0.34 $0.32 Per share book value 7.25 6.98 6.15 Return on shareholders' equity 16.6 (f) 17.1 16.2 Average common and common equivalent shares 94.3 99.5 92.3 Shareholders of record 13,410 14,103 12,875 - ---------------------------------------------------------------------------------------------- Supplementary Information Days sales outstanding (g) 37.6 37.9 45.0 Inventory turns (g) 4.3 4.1 3.6 Current ratio 1.5 2.2 2.4 Pretax return on capital employed 19.4 (f) 19.2 21.6 Pretax return on capital employed, excluding finance subsidiaries 21.1 (f) 20.0 22.2 Working capital $161.9 $209.8 $284.5 Total assets 1,295.8 1,182.1 1,099.8 Total debt 391.2 261.5 237.1 % of capitalization 37.8 27.4 27.9 Total debt, excluding finance subsidiaries 296.7 209.3 213.4 % of capitalization 31.5 23.2 25.9 Serial preferred stock 7.4 9.9 11.4 Employees (h) 20,500 17,900 17,800 - ----------------------------------------------------------------------------------------------
39 IKON Office Solutions - -------------------------------------------------------------------------------- Board of Directors - -------------------------------------------------------------------------------- John E. Stuart/3/ Age 53, is Chairman and Chief Executive Officer of IKON Office Solutions. Mr. Stuart was elected a director in 1993. He also serves on the board of directors of Foster Wheeler Corporation. James R. Birle/1,2,3/ Age 61, is Founder and Chairman of Resolute Partners, Inc. He is a director of Massachusetts Mutual Life Insurance Company, Drexel Industries, Inc., The Connecticut Health and Education Facilities Authority and Transparency International. Mr. Birle was elected a director in 1996. Philip E. Cushing Age 47, is Group Chief Executive of Inchcape plc. Mr. Cushing has also served as non-executive director of Bunzl plc since March 1994. He was elected to the board in 1997. Kurt E. Dinkelacker/3/ Age 44, is Executive Vice President and Chief Financial Officer of IKON Office Solutions. He is a member of the Finance Committee of Crozer-Keystone Health System in Media, Pennsylvania. Mr. Dinkelacker was elected to the board in 1996. William F. Drake, Jr./3/ Age 65, is Vice Chairman and General Counsel of IKON Office Solutions. Mr. Drake serves as a director of Nocopi Technologies and is Of Counsel to Montgomery, McCracken, Walker & Rhoads. He has been a director since 1969. Frederick S. Hammer/1,2,3/ Age 61, has been a director since 1986. His other directorships include United Student Aid Group, Inc., Tri-Arc Financial Services, Inc., Partner in Inter- Atlantic Capital Partners, Inc., and National Media Corporation. Barbara Barnes Hauptfuhrer/1,2,3/ Age 69, has been a director since 1988 and was elected Chairman of the Independent Directors in 1995. Her other directorships include The Great Atlantic and Pacific Tea Co., Inc., Massachusetts Mutual Life Insurance Co., Raytheon Company and The Vanguard Group of Investment Companies. Richard A. Jalkut/1,2,3/ Age 53, is President and Chief Executive Officer of PathNet. Mr. Jalkut serves on the Board of Directors of the Marine Midland Bank. Mr. Jalkut was named a director in 1996. 1 Audit Committee 2 Human Resources Committee 3 Investment Committee Corporate Officers - -------------------------------------------------------------------------------- John E. Stuart Chairman and Chief Executive Officer Kurt E. Dinkelacker Executive Vice President and Chief Financial Officer William F. Drake, Jr. Vice Chairman and General Counsel James J. Forese Executive Vice President and President of International Operations David M. Gadra Senior Vice President and Chief Information Officer William A. Brady Vice President, Law and Assistant Secretary O. Gordon Brewer, Jr. Vice President, Finance Michael J. Dillon Vice President and Controller Michael H. Dudek Vice President, Acquisitions Karin M. Kinney Corporate Counsel and Secretary J.F. Quinn Treasurer Beth B. Sexton Vice President, Human Resources FORWARD LOOKING INFORMATION This Report includes or incorporates by reference information which may constitute forward-looking statements within the meaning of the federal securities laws. Although the Company believes the expectations contained in such forward-looking statements are reasonable, no assurances can be given that such expectations will prove correct. Such forward-looking information is based upon management's current plans or expectations and is subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and the Company's future financial condition and results. These uncertainties and risks include, but are not limited to, those relating to successfully managing an aggressive program to acquire and integrate new companies, including companies with technical services and products that are relatively new to the Company, and also including companies outside the United States, which present additional risks relating to international operations; risks and uncertainties relating to conducting operations in a competitive environment; delays, difficulties, technological changes, management transitions and employment issues associated with a large- scale transformation project; debt service requirements (including sensitivity to fluctuation in interest rates); and general economic conditions. As a consequence, current plans, anticipated actions and future financial condition and results may differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. 40 EX-21 20 SUBSIDIARIES OF IKON Exhibit 21 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT -------------------------- The registrant is IKON Office Solutions, Inc., an Ohio corporation, which has no parent. The following sets forth information with respect to IKON's subsidiaries as of December 15, 1997.
State or other jurisdiction of %Voting Securities Incorporation or Subsidiary Owned (by whom) organization - ---------- ------------------ ---------------- Alco Office Products Group, Inc. (AOP) 100% IKON United Kingdom IKON Office Solutions Group PLC 100% AOP United Kingdom IKON Office Solutions Europe PLC 100% AOP United Kingdom Microgen Demand Publishing 100% AOP United Kingdom Alco Standard Acquisition Capital Company 100% IKON Delaware Alco Venture Capital Company 100% IKON Delaware Chesterbrook Insurance Ltd. 100% IKON Bermuda Depot Internacional S.A., Inc. 100% IKON Florida IKON Baja (US) Corporation (IBC) 100% IKON Delaware IKON Baja, S.A., De C.V. 100% IBC Mexico IKON Brands, Inc. 100% IKON Delaware IKON Capital, Inc. (ICI) 100% IKON Delaware IKON Funding, Inc. 100% ICI Delaware IKON Denmark 100% IKON Denmark Ikon, Inc. 100% IKON Delaware IKON North America, Inc. (INA) 100% IKON Delaware IKON de Mexico, S.A. de C.V. (IDM) 99% INA, 1% IKON Mexico IKON Servicos, S.A. de C.V. (IS) 99% IDM, 1% INA Mexico IKON Copiroyal, S.A. de C.V. 99% IDM, 1% IS Mexico IKON Inmuebles 99% IDM, 1% IS Mexico IKON Office Solutions Foundation, Inc. 100% IKON Delaware IKON Office Solutions Holding GmbH (IOSH) 100% IOSE Germany Hans Bode Kopiervertriebsgeraete 100% IOSE Germany B&W Bueromaschinen-Vertriebs GmbH 100% IOSE Germany IKON Office Solutions GmbH Frankfurt 100% IOSH Germany IKON Office Solutions GmbH (Weisbaden) 100% IOSH Germany IKON Office Solutions GmbH (Leasing) 100% IOSH Germany IKON Office Solutions GmbH, Leipzig 100% IOSH Germany IKON Office Solutions Australia Pty. Ltd. 100% INA Australia IKON Office Solutions Sudquest S.A. (IOSS) 100% IOSF France IKON Office Solutions STR S.A. 100% IOSS France STR Adour S.A. IKON Office Solutions, Inc. 100% IOSS France Bureau-Tech Repro LR 100% IOSF France SOMEREP S.A. (SSA) 100% IOSF France SOMEREP 30 100% SSA France SOMEREP 34 100% SSA France IMPACT (IMP) 100% IOSF France IRIS 100% IMP France
Occasion Bureautique 100% IMP France
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State or other jurisdiction of Incorporation %Voting Securities or Subsidiary Owned (by whom) organization - ---------- ------------------ --------------- IKON Office Solutions, Inc./IKON Solutions De 100% IKON Canada Bureau, Inc. (IKON-CAN) 143215 Canada, Inc. (143215) 100% IKON-CAN Canada CGS Microtechnologies 100% 143215 Canada 1254406 Ontario, Ltd. 100% IKON-CAN Canada 1254407 Ontario, Ltd. (1254407) 100% IKON-CAN Canada Connections Plus Systems, Ltd. 100% 1254407 Canada Alco Dublin Limited 100% IKON-CAN Canada Craig Technologies, Inc. 100% IKON-CAN Canada IKON Capital, Inc. 100% IKON-CAN Canada Proterm Data Systems, Ltd. 100% IKON-CAN Canada Proterm Toronto, Inc. (PTI) 100% IKON-CAN Canada Sysinct, Inc. 100% PTI Canada IKON Realty, Inc. 100% IKON Delaware Image Systems Solutions, Inc. 100% IKON Wyoming MDR Management Corporation 100% IKON Delaware Office Group, Inc. 100% IKON Delaware Office Products, Inc. 100% IKON Delaware Office World Trade, Inc. 100% IKON Delaware Partners Securities, Inc. 100% IKON Pennsylvania Pimeau B.V. (PBV) 100% INA France IKON Office Solutions (Holding) France (IOSF) 100% PBV France Bureautique Systemes S.A. 100% IOSF France Bureautique & Systemes Technologies S.A. 100% IOSF France Buro 3 100% IOSF France Buro 68 100% IOSF France Guillaume Bureautique 100% IOSF France 3D Communications, Inc. (3D) 100% IKON Utah 3D Communications of Colorado L.L.C. 100% 3D Utah BCS Integration, Inc. 100% IKON Utah Carlson Group, Inc. 100% IKON North Carolina ColourComp Corporation 100% IKON Arizona Command Services Corporation 100% IKON New York Connectivity, Inc. 100% IKON Oregon The Computer Group, Inc. 100% IKON South Carolina Executive Automation Consultants, Inc. 100% IKON Kansas IKON Office Solutions Technology Services, Inc. 100% IKON Delaware Innerset, Inc. (INN) 100% IKON Delaware Fourth Wave Technologies, Inc. 100% INN Michigan Winson Olson Co. 100% INN California Integra Technology International, Inc. (ITI) 100% IKON New York Integra Techsoft Ltd. 100% ITI India Jened Enterprises, Inc. 100% IKON Arizona Kenwood Associates, Inc. 100% IKON Illinois Micro Information Services, Inc. 100% IKON Wisconsin Mon-Wal, Inc. (dba The Waldec Group) 100% IKON Florida
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State or other jurisdiction of %Voting Securities Incorporation or Subsidiary Owned (by whom) organization - ---------- ------------------ ---------------- Nova Information Systems, Inc. 100% IKON Delaware OA Solutions, Inc. 100% IKON New York PERCOMCO, Inc. 100% IKON Indiana Professional Computing, Inc. 100% IKON California Real World Systems, Inc. 100% IKON Pennsylvania Riverbend Group, Inc. 100% IKON Virginia Strategy Group, Inc. 100% IKON Pennsylvania Sunrise Computer Systems, Inc. 100% IKON Ohio Universal Networks, Inc. 100% IKON Illinois Valinor Inc. 100% IKON Massachusetts Virtual Networks, Inc. 100% IKON California
EX-23 21 AUDITOR'S CONSENT Exhibit 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of IKON Office Solutions, Inc. of our report dated October 15, 1997 (except for Note 8, as to which the date is October 27, 1997), included in the 1997 Annual Report to the Shareholders of IKON Office Solutions, Inc. Our audits also included the financial statement schedule of IKON Office Solutions, Inc. listed in item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the incorporation by reference in the following registration statements on Form S-3, Form S-4 and Form S-8 of IKON Office Solutions, Inc. and in the related Prospectuses of our report dated October 15, 1997, (except for Note 8, as to which the date is October 27, 1997), with respect to the consolidated financial statements of IKON Office Solutions, Inc. incorporated by reference in its Annual Report (Form 10-K) for the fiscal year ended September 30, 1997, filed with the Securities and Exchange Commission.
REGISTRATION Number Filing Date Description - ------------------------------------------------------------------------ 2-66880 March 10, 1980 IKON Office Solutions, Inc. 1980 Deferred Compensation Plan 2-75296 December 11, 1982 IKON Office Solutions, Inc. 1982 Deferred Compensation Plan 33-00120 September 6, 1985 IKON Office Solutions, Inc. 1985 Deferred Compensation Plan 33-26732 January 27, 1989 IKON Office Solutions, Inc. 1989 Directors' Stock Option Plan 33-36745 September 10, 1990 IKON Office Solutions, Inc. 1991 Deferred Compensation Plan
1
REGISTRATION Number Filing Date Description - -------------------------------------------------------------------------------------------------- 33-38193 December 10, 1990 IKON Office Solutions, Inc. 1986 Stock Option Plan 33-84376 June 4, 1992 IKON Office Solutions, Inc. Stock Award Plan 33-55096 November 24, 1992 IKON Office Solutions, Inc. 1993 Directors' Stock Option Plan 33-51183 November 24, 1993 IKON Office Solutions, Inc. Partners' Stock Purchase Plan 33-54781 July 28, 1994 IKON Office Solutions, Inc. Stock Award Plan 33-56469 November 15, 1994 IKON Office Solutions, Inc. 1995 Stock Option Plan 33-56471 November 15, 1994 IKON Office Solutions, Inc. Long Term Incentive Compensation Plan 33-64177 November 14, 1995 IKON Office Solutions, Inc. $750,000,000 Debt Securities, Preferred Stock or Common Stock 33-64739 January 5, 1996 IKON Office Solutions, Inc. 10,000,000 Shares of Common Stock 333-01743 March 14, 1996 IKON Office Solutions, Inc. 5,000,000 Shares of Common Stock 333-19267 January 3, 1997 IKON Office Solutions, Inc. Retirement Savings Plan 333-24931 April 10, 1997 IKON Office Solutions, Inc. 10,000,000 Shares of Common Stock
Philadelphia, Pennsylvania December 24, 1997 2 EX-24 22 POWERS OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of IKON Office Solutions, Inc. ("IKON"). The undersigned hereby appoints each of William F. Drake, Jr., Karin M. Kinney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf, the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 24th day of December, 1997 /s/James R. Birle --------------------------------- James R. Birle POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of IKON Office Solutions, Inc. ("IKON"). The undersigned hereby appoints each of William F. Drake, Jr., Karin M. Kinney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf, the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 24th day of December, 1997 /s/Philip E. Cushing ---------------------------------- Philip E. Cushing POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of IKON Office Solutions, Inc. ("IKON"). The undersigned hereby appoints each of William F. Drake, Jr., Karin M. Kinney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf, the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 24th day of December, 1997 /s/ Kurt E. Dinkelacker -------------------------------------- Kurt E. Dinkelacker POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of IKON Office Solutions, Inc. ("IKON"). The undersigned hereby appoints each of Karin M. Kinney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf, the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 24th day of December, 1997 /s/William F. Drake, Jr. ----------------------------------- William F. Drake, Jr. POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of IKON Office Solutions, Inc. ("IKON"). The undersigned hereby appoints each of William F. Drake, Jr., Karin M. Kinney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf, the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 24th day of December, 1997 /s/Richard A. Jalkut ------------------------------------- Richard A. Jalkut POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of IKON Office Solutions, Inc. ("IKON"). The undersigned hereby appoints each of William F. Drake, Jr., Karin M. Kinney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf, the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 24th day of December, 1997 /s/ Frederick S. Hammer --------------------------------------- Frederick S. Hammer POWER OF ATTORNEY ----------------- The undersigned certifies that she is a Director of IKON Office Solutions, Inc. ("IKON"). The undersigned hereby appoints each of William F. Drake, Jr., Karin M. Kinney and Michael J. Dillon as her attorneys-in-fact, each with the power of substitution, to execute, on her behalf, the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 24th day of December, 1997 /s/Barbara Barnes Hauptfuhrer ------------------------------------- Barbara Barnes Hauptfuhrer POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of IKON Office Solutions, Inc. ("IKON"). The undersigned hereby appoints each of William F. Drake, Jr., Karin M. Kinney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf, the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 24th day of December, 1997 /s/John E. Stuart ----------------------------- John E. Stuart CERTIFICATION I, Karin M. Kinney, Secretary of IKON Office Solutions, Inc. do hereby certify that the following resolutions were duly passed by the Board of Directors of the Corporation on November 6, 1997, and that such resolutions are, as of the date hereof, in full force and effect: RESOLVED, that each of the officers and directors of the corporation is hereby authorized to appoint William F. Drake, Jr., Karin M. Kinney and Michael J. Dillon as his or her attorneys-in-fact on behalf of each of them each attorney-in-fact with the power of substitution, to execute on such officer's or director's behalf, one or more registration statements and annual reports of the corporation for filing with the Securities and Exchange Commission ("SEC"), and any and all amendments to said documents which said attorney may deem necessary or desirable to enable the corporation to register the offering of (i) serial preferred stock; (ii) common stock; (iii) debt securities; and/or (iv) participation interest in employee benefit plans under the Federal securities law, and to further enable the corporation to file such reports as are necessary under Section 13 or 15(d) of the Securities Exchange Act of 1934 and such other documents as are necessary to comply with all rules, regulations or requirements of the SEC in respect thereto; and FURTHER RESOLVED, that any officer of the corporation is hereby authorized to do and perform, or cause to be done or performed, any and all things and to execute and deliver any and all agreements, certificates, undertakings, documents or instruments necessary or appropriate in order to carry out the purpose and intent of the foregoing resolutions, it to be conclusively presumed from the taking of any such action or execution of any such document that it has been authorized hereby. IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of December, 1997. /s/Karin M. Kinney ---------------------------- Karin M. Kinney EX-27 23 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES AND IS QUALIFIED IT ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS SEP-30-1997 SEP-30-1997 21,341,000 0 819,852,000 54,192,000 442,207,000 2,125,806,000 731,724,000 390,279,000 5,323,886,000 1,373,782,000 1,984,278,000 0 290,170,000 677,681,000 513,797,000 5,323,886,000 2,841,561,000 5,128,433,000 1,828,883,000 2,934,607,000 1,933,260,000 25,724,000 47,453,000 213,113,000 90,751,000 122,362,000 20,151,000 (12,156,000) 0 130,357,000 0.83 0.82 Includes Equipment on operating leases, at cost, of $269,364,000. Includes accumulated depreciation for equipment on operating leases of $167,464,000. Includes Finance Subsidiaries interest of $98,664,000. Represents selling, general and administrative expenses and transformation costs. Continuing operations only.
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