-----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, K2iIXo+mL5lvQH0lT0SZlZSgS8/M20W8c2SYpDv6bH6dwBWqOhpvEAZ8aW8mu4MU pv0nyX7ugpESSmjj4UUwpQ== 0001036050-00-002183.txt : 20010101 0001036050-00-002183.hdr.sgml : 20010101 ACCESSION NUMBER: 0001036050-00-002183 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IOS CAPITAL INC CENTRAL INDEX KEY: 0000922255 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] IRS NUMBER: 232493042 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20405 FILM NUMBER: 797787 BUSINESS ADDRESS: STREET 1: 1738 BASS RD CITY: MACON STATE: GA ZIP: 31210 BUSINESS PHONE: 9124712300 MAIL ADDRESS: STREET 1: 1738 BASS RD CITY: MACON STATE: GA ZIP: 31210 FORMER COMPANY: FORMER CONFORMED NAME: IKON CAPITAL INC DATE OF NAME CHANGE: 19980113 FORMER COMPANY: FORMER CONFORMED NAME: ALCO CAPITAL RESOURCE INC DATE OF NAME CHANGE: 19940425 10-K 1 0001.txt IOS CAPITAL, INC. FORM 10-K IOS Capital, Inc. FORM 10-K September 30, 2000 As filed with the Securities and Exchange Commission on December 28, 2000 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X]Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended September 30, 2000 or [_]Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to FORM 10-K Commission file number 0-20405 ---------------- IOS CAPITAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 23-2493042 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1738 Bass Road, Macon, Georgia 31210 (Address of principal executive offices) (Zip Code)
(912) 471-2300 (Registrant's telephone number, including area code) ---------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share (Title of Class) 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 [_] The number of shares of common stock, par value $.01 per share, outstanding as of December 28, 2000 was 1,000, all of which were owned by IKON Office Solutions, Inc. Registered debt outstanding of the Company and all wholly owned subsidiaries as of December 28, 2000 was $2,147,535. Documents incorporated by reference: None The registrant meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing with the reduced disclosure format contemplated thereby. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS*
Page No. -------- PART I ITEM 1. BUSINESS................................................... 1 ITEM 2. PROPERTIES................................................. 8 ITEM 3. LEGAL PROCEEDINGS.......................................... 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....................................... 9 ITEM 6. SELECTED FINANCIAL DATA.................................... 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 9 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................ 12 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................. 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......... 12 ITEM 11. EXECUTIVE COMPENSATION..................................... 12 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................ 13 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ................................................. 13
* All amounts contained in this annual report on Form 10-K are in thousands unless otherwise noted. PART I Item 1. Business General IOS Capital, Inc. ("IOS Capital" or the "Company"), formerly known as IKON Capital, Inc., was formed in 1987 to provide lease financing to customers of IKON Office Solutions, Inc. ("IKON"). The Company's offices are located at 1738 Bass Road, Macon, Georgia, 31210 (telephone number 912-471-2300). The Company is a wholly-owned subsidiary of IKON. IKON is a public company headquartered in Malvern, Pennsylvania and is the largest independent distribution network of office equipment in North America. IKON has locations in the United States, Canada, Mexico and Europe. IKON provides customers with total business solutions for every office, production and outsourcing need, including copiers and printers, color solutions, distributed printing, facilities management, imaging and legal outsourcing solutions, as well as network design and consulting, e-business development, telecommunications services and technology training. IKON's fiscal 2000 revenues were approximately $5.4 billion. The Company is engaged in the business of arranging lease financing exclusively for office equipment marketed by IKON's U.S. marketplaces ("IKON marketplaces"), which sell and service copier equipment, facsimile machines and other equipment. The ability to offer lease financing on this equipment through IOS Capital is considered a competitive marketing advantage which more closely ties IKON to its customer base. During fiscal 2000, 72% of new equipment sold by IKON marketplaces was financed through the Company. The Company and IKON will seek to increase this percentage in the future, as leasing enhances the overall profit margin on equipment and is considered an important customer retention strategy. The equipment financed by the Company consists of copiers, facsimile machines, and related accessories and peripheral equipment, the majority of which are produced by major office equipment manufacturers including Canon, Ricoh and Oce. Currently 50% of the equipment financed by the Company represents copiers, 16% fax machines, and 34% other equipment. The Company provides IKON with standard lease rates for use in customer quotes. However, IKON marketplaces may charge the customer more or less than IOS Capital's standard rates, and the IKON marketplace would absorb any variances from the standard rates. The Company's customer base (which consists of end users of the equipment) is widely dispersed, with the ten largest customers representing less than 16% of the Company's total lease portfolio. The typical new lease financed by the Company averages $19 in amount and 48 months in duration. Although 95% of the leases are scheduled for regular monthly payments, customers are also offered quarterly, semi-annual, and other customized payment terms. In connection with its leasing activities, the Company performs billing, collection, property and sales tax filings, and provides quotes on equipment upgrades and lease-end notification. The Company also provides certain financial reporting services to the IKON marketplaces, such as a monthly report of marketplace leasing activity and related statistics. Types of Leases The lease portfolio of the Company includes direct financing leases and funded leases. Direct financing leases are contractual obligations between the Company and the IKON customer (the "customer") and represent the majority of the Company's lease portfolio. Funded leases are contractual obligations between the IKON marketplace and the customer which have been financed by the Company. 1 Funded leases represented approximately 13% of the Company's leases as of September 30, 2000. The IKON marketplaces have assigned to the Company, with full recourse, their rights under the underlying contracts including the right to receive lease and rental payments as well as a security interest in the related equipment. Direct financing leases and funded leases are structured as either tax leases (from the Company's perspective) or conditional sales contracts, depending on the customer's (or, for funded leases, the IKON marketplace's) needs. The customer (or the IKON marketplace for funded leases) decides which of the two structures is desired. Under either structure, the total cost of the equipment to the customer (or to the IKON marketplace) is substantially the same (assuming the exercise of the purchase option). Tax Leases Tax leases represented 97% of the Company's total lease portfolio as of September 30, 2000. The Company or the IKON marketplace is considered to be the owner of the equipment for tax purposes during the life of these leases and receives the tax benefit associated with equipment depreciation. Tax leases are structured with a fair market value purchase option. Generally, the customer may return the equipment, continue to rent the equipment or purchase the equipment for its fair market value at the end of the lease. Each tax lease has a stated equipment residual value generally ranging from 0% to 25% of retail price, depending on equipment model and lease term. As of September 30, 2000, the average equipment residual value for all leases in the Company's portfolio was 8.0%. Upon early termination of the lease or at the normal end of the lease term, the Company charges the IKON marketplace for the stated residual position, if any, and the equipment is returned to the IKON marketplace. Any gain or loss on the equipment's residual value is realized by the IKON marketplace. Conditional Sales Contracts Conditional sales contracts account for the remaining 3% of the leases in the Company's total lease portfolio. Under these arrangements, the customer is considered to be the owner of the equipment for tax purposes and would receive any tax benefit associated with equipment depreciation. Each conditional sales contract has a stated residual value of 0%. Conditional sales contracts are customarily structured with higher monthly lease payments than the tax leases and have a one-dollar purchase option for the equipment at lease-end. Thus, because of the higher monthly payments, the after-tax cost of the equipment to the customer (or, for funded leases, to the IKON marketplace) under a conditional sales contract is substantially the same as under a tax lease (assuming the exercise of the purchase option). Although the customer has the option of returning or continuing to rent the equipment at lease-end, the customer almost always exercises the one-dollar purchase option at the end of the lease term. Leased Equipment The Company also offers financing of the cost of office equipment that the IKON marketplaces maintain in inventory for short-term rental to customers. This category of leased equipment also includes equipment currently rented to customers where the rental agreements are considered to be cancelable by the customer, based on the terms and conditions of the rental contracts in effect. Under current operating guidelines, any equipment not physically on rental to customers for a period exceeding 120 continuous days must be repurchased by the IKON marketplaces at its current book value. Relationship With IKON Office Solutions, Inc. The Company, as a captive finance subsidiary of IKON, derives its customer base from the business sourced by its affiliates within IKON. There are several agreements and programs between the Company and IKON, which are described below. 2 Support Agreement The 1996 Support Agreement between the Company and IKON provides that IKON will make a cash payment to the Company (or an investment in the form of equity or subordinated notes) as needed to comply with two requirements: i) that the Company will maintain a pre-tax interest coverage ratio (income before interest expense and taxes divided by interest expense) so that the Company's pre-tax income plus interest expense will not be less than 1.25 times interest expense, and ii) that the Company will maintain a minimum tangible net worth of $1.00. The agreement also provides that IKON will maintain 100% direct or indirect ownership of the Company and limits the leverage of debt to equity to a maximum of 6 to 1. Pursuant to the indentures and other documentation governing debt incurred after June 1, 1994, the Company is not permitted to amend or terminate the 1996 Support Agreement unless: (a) all of the outstanding debt of the Company is repaid, or (b) approval of two-thirds of the debtholders (not including IKON, the Company, or their affiliates) for all amounts outstanding covered by the 1996 Support Agreement (generally, all debt entered into after June 1, 1994) is obtained. Cash Management Program The Company participates in IKON's domestic cash management program. Under this program, the Company has an account with IKON through which cash in excess of current operating requirements is temporarily placed on deposit. Similarly, amounts are periodically borrowed from IKON. Interest is paid or charged by IKON on these amounts. The Company was in a net average deposit position with IKON during fiscal 2000, 1999 and 1998 and earned interest income of $2,281, $5,956 and $5,290, respectively. Management Fee Included in general and administrative expenses are corporate overhead expenses charged by IKON of $1,500 in fiscal year 2000 and $552 in both fiscal 1999 and 1998. These corporate charges represent management's estimate of costs incurred by IKON on behalf of IOS Capital. The increase in corporate charges in fiscal 2000 is due to the increase in legal, treasury, tax, and marketing support provided by IKON as a result of the increase in the Company's financing activity. Federal Income Tax Allocation Agreement IKON and the Company participate in a Federal Income Tax Allocation Agreement dated June 30, 1989, in which the Company consents to the filing of consolidated federal income tax returns with IKON. IKON agrees to collect from or pay to the Company its allocated share of any consolidated federal income tax liability or refund applicable to any period for which the Company is included in IKON's consolidated federal income tax return. Interest on Income Tax Deferrals The Company provides substantial tax benefits to IKON through the use of the installment sales method on equipment financed through the Company. Taxes deferred by IKON due to this tax treatment totaled a cumulative amount of approximately $493,000 at the end of fiscal 2000. IKON pays the Company interest on the portion of these tax deferrals which arise from intercompany sales. In fiscal 2000, 1999 and 1998, interest was earned by the Company at a rate consistent with the Company's weighted average outside borrowing rate of interest. Under this method, the Company earned interest at an average rate of 6.7% in fiscal 2000 totaling $16,773, 6.6% in fiscal 1999 totaling $16,764 and 6.5% in fiscal 1998 totaling $15,734. 3 Lease Bonus Program The Company sponsored a lease bonus subsidy program which provided incentives to IKON marketplaces when IKON customers leased equipment from the Company. The focus of the bonus subsidy program was to reimburse IKON for third party lease payoffs incurred when buying out the equipment leases of a competitor. During fiscal 1999 and 1998, bonus payments made to IKON marketplaces or IKON totaled $12,000 and $16,400, respectively. Effective October 1, 1999, the Company and IKON agreed to terminate this program. Credit Policies and Loss Experience On October 1, 1998, the Company began the implementation of a national credit review process for all lease transactions submitted to the Company for funding. Under this process, which was fully implemented by April 1999, the Company approves the credit for all the lease transactions prior to funding the IKON marketplaces. Prior to October 1, 1999, the Company and IKON followed an operating arrangement that required, in the event of default, the IKON marketplace to repurchase the equipment at the net investment value of the lease on the default date. Default is defined as any receivable becoming 120 days past due or otherwise being reasonably declared uncollectible by the Company. At September 30, 1999 and 1998, all of the Company's accounts receivable and direct financing leases, including residual values, were subject to such repurchase terms. In view of the foregoing agreement, the Company made no provision in the accompanying financial statements for uncollectible receivables. Excluding the effect of recoveries, the gross value of leases declared uncollectible was $72,500 in fiscal 2000, $79,200 in fiscal 1999 and $98,800 in fiscal 1998. For fiscal 2000, 1999 and 1998, the gross chargebacks represented 2.6%, 3.0% and 3.9%, respectively, of the average portfolio balances during the year. On October 1, 1999, lease default reserves of $74,305 and the related deferred tax liability of $29,350 were transferred to the Company from the IKON marketplaces. During fiscal 2000, a provision for lease defaults of $58,113 was recorded to increase the reserve. Of this provision, $20,333 was recorded as an expense on the books of the Company and $37,780 was recorded as an expense on the books of the IKON marketplaces. Lease write-offs of $70,152 were recorded to reduce the reserve. As a result of the above, the lease default reserve at September 30, 2000 is $62,266. Prior to October 1, 1999, reserves for credit losses were maintained by the IKON marketplaces and IKON. On a monthly basis, the Company reported the respective net investment value of the lease portfolio to each IKON marketplace so the IKON marketplace could properly accrue the credit loss reserve balance. In accordance with IKON policy, each IKON marketplace maintained aggregate reserves of at least the loss-to-liquidation percentage of the IKON marketplace's total portfolio (including $275 of net leases sold under an asset securitization agreement being serviced by the Company). Reserves maintained for fiscal 1999 and 1998, as a percentage of the leasing portfolio at fiscal year end, were 2.8% and 3.4% respectively. Effective October 1, 1999, the Company began a shared recourse arrangement with the IKON marketplaces. This arrangement provides for net losses resultant from lease defaults to be shared equally. The lease default reserve is maintained at the Company and the provisions for lease default are shared between the Company and the IKON marketplaces. 4 During fiscal 2000 and 1999, accounts classified as current (less than 30 days outstanding) ranged from 87% to 92% of the total portfolio balance on a monthly basis. The aging of the Company's lease portfolio receivables at September 30, 2000 was as follows:
(dollars in thousands) ------------------------- Current.......................................... $ 2,892,387 87.1% Over 30 days..................................... 252,378 7.6% Over 60 days..................................... 109,585 3.3% Over 90 days..................................... 66,415 2.0% -------------- -------- $ 3,320,765 100.0% ======== Less: Unearned interest.............................. (512,526) -------------- $ 2,808,239 ==============
Funding The original amount available to be offered under the Company's medium term note program is $3,500,000. The program allows the Company to offer to the public from time to time medium term notes having an aggregate initial offering price not exceeding the total program amount. 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 Company, 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. As of September 30, 2000, $568,500 of medium term notes were outstanding with a weighted average interest rate of 6.6% and $1,123,350 remains available under the program. The Company has entered into asset securitization agreements for $275,000 of eligible direct financing lease receivables that expired in March 2000 ($125,000) and September 2000 ($150,000). The agreements contain overcollateralization to cover any potential losses to the purchaser due to uncollectible leases. As collections reduce previously sold interests, new leases could have been sold up to the agreement amount. In fiscal 1999, the Company sold an additional $152,098 in leases, replacing leases paid/collected during the year and recognized pretax gains of $12,121. On October 7, 1999, these leases were repurchased with a portion of the proceeds received from the issuance of approximately $700,000 of lease-backed notes. In December 1998, the Company entered into an asset securitization transaction whereby it sold $366,600 in direct financing lease receivables for $250,000 in cash and a retained interest in the remainder. The agreement is for an initial three-year term with certain renewal provisions and was structured as a revolving asset securitization so that as collections reduce previously sold interests in this new pool of leases, additional leases can be sold up to $250,000. The terms of the agreement require that the Company continue to service the lease portfolio. The Company recognized a pretax gain of $14,333 during the first quarter of fiscal 1999 on this agreement. On May 25, 1999, the Company repurchased the leases sold in this transaction with the proceeds from the lease-backed notes described below. On December 9, 1999, the Company pledged or transferred $311,382 in financing lease receivables for $247,600 in cash in connection with its revolving asset securitization, in a transfer accounted for as a financing. On January 20, 2000, the Company pledged or transferred $2,860 in financing lease receivables for $2,400 in cash in connection with its revolving asset securitization, in a transfer accounted for as a financing. The Company repaid $250,000 on June 2, 2000 when it issued the 2000-1 Notes described below. On June 30, 2000, the Company pledged or transferred $98,907 in financing lease receivables for $83,000 in cash in connection with its revolving asset securitization, in a transfer accounted for as a financing. In September 2000, the Company pledged or transferred $193,705 in financing lease receivables for $150,000 in cash in connection with its 5 revolving asset securitization agreements, in a transfer accounted for as a financing. As of September 30, 2000, the Company had approximately $17,000 available under its revolving asset securitization agreement. In September 2000, the Company entered into an asset securitization transaction whereby it sold $414,843 in direct financing lease receivables for $349,795 in cash and a retained interest in the remainder. The agreement is for an initial three-year term with certain renewal provisions and was structured as a revolving asset securitization so that as collections reduce previously sold interests in this new pool of leases, additional leases can be sold up to $349,795. The terms of the agreement require that the Company continue to service the lease portfolio. As of September 30, 2000, this revolving asset securitization agreement was fully drawn. IKON Receivables, LLC has issued Series 1999-1, 1999-2, and 2000-1 Lease- Backed Notes as described below:
Principal Stated Issuance Issuance Maturity Series Notes Date Amount Interest Rate Date ------ ---------- ------------ ---------- ------------- ----------- 1999-1....... Class A-1 05/25/99 $ 304,474 5.11% June, 2000 Class A-2 05/25/99 61,579 5.60% May, 2005 Class A-3 05/25/99 304,127 5.99% May, 2005 Class A-4 05/25/99 81,462 6.23% May, 2005 ---------- Sub-Total 751,642 ========== 1999-2....... Class A-1 10/07/99 235,326 6.14125% Oct, 2000 Class A-2 10/07/99 51,100 6.31% May, 2001 Class A-3a 10/07/99 100,000 6.59% Aug, 2003 Class A-3b 10/07/99 240,891 LIBOR + 0.36% Aug, 2003 Class A-4 10/07/99 72,278 6.88% Nov, 2005 ---------- Sub-Total 699,595 ========== 2000-1....... Class A-1 06/02/00 130,000 6.99625% June, 2001 Class A-2 06/02/00 54,000 7.51000% March, 2002 Class A-3 06/02/00 230,000 LIBOR + 0.19% March, 2004 Class A-4 06/02/00 84,510 LIBOR + 0.23% Sept, 2006 ---------- Sub-Total 498,510 ========== Total Issued $1,949,747 ==========
IKON Receivables, LLC has issued the following aggregate principal amounts of Lease-Backed Notes; $751,642 for 1999-1 Notes, $699,595 for 1999-2 Notes and $498,510 for 2000-1 Notes (the "Notes") on May 25, 1999, October 7, 1999, and June 2, 2000, respectively. The Notes were issued pursuant to an indenture between IKON Receivables, LLC, IOS Capital, and Bank of New York (successor in interest to Harris Trust and Savings Bank), as Indenture Trustee on the 1999-1 Notes and the 1999-2 Notes, and Bank One Trust Company, as Indenture Trustee on the 2000-1 Notes. The Notes are collateralized by a pool of office equipment leases or contracts and related assets acquired or originated by IOS Capital (together with the equipment financing portion of each periodic lease or rental payment due under the Leases on or after the related indenture date) (the "Leases"), and all related casualty payments, retainable deposits, and termination payments. Payments on the Notes are made from payments on the Leases. The Notes have certain credit enhancement features available to noteholders including reserve accounts, overcollateralization accounts and noncancellable insurance policies from Ambac Assurance Corporation with respect to the Notes. 6 The Notes bear interest from the related issuance date at the respective stated rate specified above. The variable rate 1999-2 Class A-3b, 2000-1 Class A-3 and 2000-1 Class A-4 Notes have been fixed at 6.63%, 7.802%, 7.82%, respectively, through interest rate swaps. On each payment date, to the extent funds are available from the collection of the lease receivables, principal payments will be made to noteholders in the following priority: (i) to the Class A-1 noteholders only, until the outstanding principal amount on the Class A-1 Notes has been reduced to zero, then (ii) to the Class A-2 noteholders only, until the outstanding principal amount on the Class A-2 Notes has been reduced to zero, then (iii) to the Class A-3 noteholders only, until the outstanding principal amount on the Class A-3 Notes has been reduced to zero, and then (iv) to the Class A-4 noteholders, until the outstanding principal amount on the Class A-4 Notes has been reduced to zero. Each class of Notes will be payable in full on the applicable stated maturity date as indicated above. However, if all payments are made on the Leases as scheduled, final payment on the Notes will be earlier than the stated maturity dates. IKON Receivables, LLC may, on any payment date, redeem the Notes when the total discounted lease balance is less than or equal to 10% of the total discounted lease balance as of the related indenture date. IOS Capital services the Leases pursuant to Assignment and Servicing Agreements by and among IOS Capital, as originator and servicer, IKON Receivables-1, LLC, as seller, and IKON Receivables, LLC, as issuer. IOS Capital may delegate its servicing responsibilities to one or more sub- servicers, but such delegation does not relieve IOS Capital of its liabilities with respect thereto. IOS Capital retains possession of the Leases and related files, and receives a monthly service fee from IKON Receivables, LLC for servicing the Leases. Restricted cash on the consolidated balance sheet represents cash that has been collected on the Leases, which must be used to repay the 1999-1, 1999-2 and 2000-1 Notes, respectively. As of September 30, 2000, IKON Receivables, LLC has approximately $1,501,490 available under the $2,000,000 shelf registration statement. Future maturities of the Notes, based on contractual maturities of leases for each of the succeeding fiscal years are as follows (in thousands):
1999-1 1999-2 2000-1 Series Series Series Notes Notes Notes Total -------- -------- -------- ---------- 2001................................. $185,517 $197,551 $139,879 $ 522,947 2002................................. 134,297 143,174 131,100 408,571 2003................................. 52,136 88,815 95,616 236,567 2004................................. 0 20,961 72,679 93,640 2005................................. 0 0 5,916 5,916 -------- -------- -------- ---------- $371,950 $450,501 $445,190 $1,267,641 ======== ======== ======== ==========
During fiscal 2000, income generated from the Leases was $153,097, other income earned was $4,241, while interest expense was $82,431 and administrative expenses were $8,794. Principal collections on lease receivables during fiscal 2000, were $721,855 and the Company repaid $553,412 of principal on the Notes. For the period ended September 30, 1999, income generated from the Leases was $33,348, other income earned was $501, while interest expense was $14,702 and administrative expenses were $1,573. Principal collections on lease receivables for the period ended September 30, 1999, were $115,825 and the Company repaid $128,694 of principal on the Notes. The Company's portfolio of leases has an average yield of 10.6% at September 30, 2000, while the Company's weighted average cost of debt during fiscal 2000 is 6.8%. This rate differential, in addition to the overcollateralization of the lease portfolio, gives rise to the 42% net income to revenue relationship. The differences between income and expense year to year is due to increased activity in the Company. 7 Employees At September 30, 2000, the Company had approximately 350 employees. Employee relations are considered to be good. Proprietary Matters Other than the "IOS Capital" trade name and service mark, the Company has no names, trademarks, trade names, or service marks which are used in the conduct of its business. Competition and Government Regulation The finance business in which the Company is engaged is highly competitive. Competitors include leasing companies, commercial finance companies, commercial banks and other financial institutions. The Company competes primarily on the basis of financing rates, customer convenience and quality customer service. IKON marketplaces offer financing by the Company at the time equipment is leased or sold to the customer, reducing the likelihood that the customer will contact outside funding sources. There is a communications network between the Company and the IKON marketplaces to allow prompt transmittal of customer and product information. Contract documentation is straightforward and clearly written, so that financings are completed quickly and to the customer's satisfaction. Finally, both the Company and the IKON marketplaces are firmly committed to providing excellent customer service over the duration of the contract. Certain states have enacted retail installment sales or installment loan statutes relating to consumer credit, the terms of which vary from state to state. The Company does not generally extend consumer credit as defined in those statutes. The financing activities of the Company are dependent upon sales or leases of office equipment by the IKON marketplaces, who are subject to substantial competition by both independent office equipment dealers and the direct sales forces of office equipment manufacturers. Item 2. Properties The Company's operations are located in Macon, Georgia and occupy approximately 70,000 square feet. In addition, IKON utilizes approximately 27,000 square feet in adjacent facilities owned by the Company for a corporate-wide data center and local IKON marketplace. The Company uses its facility for normal operating activities such as lease processing, customer service, billing and collections. Certain specialized services (such as legal, accounting, treasury, tax and audit services) are also performed for the Company at IKON's corporate headquarters located in Malvern, Pennsylvania. The Company's facilities are deemed adequate by management to conduct the Company's business. Item 3. Legal Proceedings A number of ordinary course legal proceedings are pending against the Company. However, there are no material pending legal proceedings to which the Company is a party (or to which any of its property is subject). To the Company's knowledge, no material legal proceedings are contemplated by governmental authorities against the Company or any of its properties. 8 Item 4. Submission of Matters to a Vote of Security Holders The information called for by this item has been omitted pursuant to General Instruction I(2)(c) of Form 10-K. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters All outstanding shares of the Company's common stock are currently owned by IKON. Therefore, there is no market for the Company's common stock. The Company paid IKON dividends of $60,000 and $30,000 in fiscal 2000 and 1999, respectively. No dividends were paid in fiscal 1998. The Company and IKON will, from time to time, determine the appropriate capitalization for the Company, which will, in part, affect any future payment of dividends to IKON or capital contributions to the Company. Item 6. Selected Financial Data The information called for by this item has been omitted pursuant to General Instruction I(2)(a) of Form 10-K. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Pursuant to General Instruction I(2)(a) of Form 10-K, the following analysis of the results of operations is presented in lieu of Management's Discussion and Analysis of Financial Condition and Results of Operations. Fiscal 2000 Compared with Fiscal 1999 Comparative summarized results of operations for the fiscal years ended September 30, 2000 and 1999 are set forth in the table below. This table also shows the increase (decrease) in the dollar amounts of major revenue and expense items between periods, as well as the related percentage change.
Fiscal Year Ended September 30 Increase (Decrease) ------------------- ---------------------- 2000 1999 Amount Percent --------- --------- ---------- ---------- (dollars in thousands) Revenues: Lease finance income............... $ 280,610 $ 225,647 $ 54,963 24.4% Rental income...................... 36,187 39,483 (3,296) (8.3)% Interest on IKON income tax deferrals......................... 16,773 16,764 9 0.1% Other income....................... 24,854 17,076 7,778 45.5% --------- --------- ---------- 358,424 298,970 59,454 19.9% Expenses: Interest........................... 149,014 114,961 34,053 29.6% Lease default...................... 20,333 20,333 General and administrative......... 61,291 67,226 (5,935) (8.9)% --------- --------- ---------- 230,638 182,187 48,451 26.6% Gain on sale of lease receivables.... 76 26,454 (26,378) (99.7)% --------- --------- ---------- Income before taxes.................. 127,862 143,237 (15,375) (10.7)% Provision for income taxes........... 48,446 54,910 (6,464) (11.8)% --------- --------- ---------- Net income........................... $ 79,416 $ 88,327 $ (8,911) (10.1)% ========= ========= ==========
9 Revenues Total revenues increased $59,454 or 19.9% in fiscal 2000 from fiscal 1999. Approximately $54,963 of this increase in revenues was a result of increased lease finance income due to continued growth in the portfolio of direct financing and funded leases, adjusted for the effects of the asset securitizations. The lease portfolio, net of lease receivables that were sold in asset securitization transactions, increased 1.0% from September 30, 1999 to September 30, 2000. Office equipment placed on rental by the IKON marketplaces to customers with cancelable terms may be purchased by the Company. During fiscal 2000 and 1999, IOS Capital purchased operating lease equipment of $19,624 and $23,792, respectively. Operating leases contributed $36,187 in rental income to total revenues during fiscal 2000 compared to $39,483 in fiscal 1999. The Company earns interest income on the deferred tax liabilities of the IKON marketplaces associated with leases funded through the Company at a rate consistent with the Company's weighted average outside borrowing rate of interest. The Company's average rate was 6.7% for fiscal 2000 and 6.6% for fiscal 1999. The deferred tax base upon which these payments are calculated decreased 3.0% to $251,000 at September 30, 2000 from $260,000 at September 30, 1999. Primarily as a result of the increased average rate of deferred tax liabilities, interest income on deferred taxes rose $9 or .1% when comparing fiscal 2000 to fiscal 1999. Other income consists primarily of late payment charges and various billing fees. The structure of these fees has remained basically unchanged from fiscal 1999. The growth in other income from fees is primarily due to the increased size of the lease portfolio upon which these fees are based. Overall, fee income from these sources grew by $7,778 or 45.5%, when comparing fiscal 2000 to fiscal 1999. Effective October 1, 1999 the Company has discontinued its policy of charging billing fees to the IKON marketplaces. Expenses Average borrowings to finance the lease portfolio in the form of loans from banks and the issuance of medium term notes and lease-backed notes in the public market increased by 29.6%, with $2,418,936 outstanding at September 30, 2000. The Company paid a weighted average interest rate on all borrowings for fiscal 2000 of 6.7% compared to 6.6% for fiscal 1999. Primarily as a result of the increased average borrowings, interest expense grew by $34,053 or 29.6%, when comparing fiscal 2000 to fiscal 1999. At September 30, 2000, the Company's debt to equity ratio was 5.9 to 1. The Company has a medium term note program which allows for the issuance of medium term notes in the public markets with varying maturities of nine months or more from their dates of issuance, through four nationally recognized investment firms. At September 30, 2000, approximately $568,500 of medium term notes were outstanding under these programs with a weighted average interest rate of 6.6%, while approximately $1,123,250 remains available under this program. At September 30, 2000 and 1999, the Company had no outstanding notes payable to banks. Total general and administrative expenses decreased by $5,935 or 8.9%, when comparing fiscal 2000 to fiscal 1999. The general and administrative expense category for fiscal 2000 includes depreciation expense on leased equipment totaling $30,233 compared to $33,602 in fiscal 1999. In addition, lease bonus subsidy payments included in the general and administrative expense categories were $0 in fiscal 2000 and $12,003 in fiscal 1999. Excluding the effects of depreciation expense on leased equipment and lease bonus subsidy payments, remaining general and administrative expenses increased approximately $9,437 or 43.6%, when comparing fiscal 2000 to fiscal 1999. This increase is due to the change in portfolio servicing costs associated with the Company's financing structures. 10 Gain on Sale of Lease Receivables In December 1998, the Company entered into an asset securitization transaction whereby it sold $366,600 in direct financing lease receivables for $250,000 in cash and a retained interest in the remainder. The agreement is for an initial three-year term with certain renewal provisions and was structured as a revolving asset securitization so that as collections reduce previously sold interests in the pool of leases, additional leases can be sold up to the agreement amount. The terms of the agreement require that the Company will continue to service the lease portfolio. The Company recognized a pretax gain of $14,333 during the first quarter of fiscal 1999 on this agreement. On May 25, 1999, the Company repurchased leases sold in this transaction with the proceeds from the lease-backed notes. The Company has entered into asset securitization agreements for $275,000 of eligible direct financing lease receivables that expired in March 2000 ($125,000) and September 2000 ($150,000). The agreements contain overcollateralization to cover any potential losses to the purchaser due to uncollectible leases. As collections reduce previously sold interests, new leases could have been sold up to the agreement amount. In fiscal 1999, the Company sold an additional $152,098 in leases, replacing leases paid/collected during the year and recognized pretax gains of $12,121. On October 7, 1999, these leases were repurchased with a portion of the proceeds received from the issuance of approximately $700,000 of lease-backed notes. Income Before Taxes Income before taxes decreased by $15,375 or 10.7%, when comparing fiscal 2000 to fiscal 1999. This decrease in income before taxes was attributed to the addition of lease default expense and the reduction of gain on sale of lease receivables. Provision for Income Taxes Income taxes for fiscal 2000 decreased by $6,464 or 11.8% compared to fiscal 1999. The decrease in income taxes is directly attributable to the decrease in income before taxes in fiscal 2000 as compared to fiscal 1999 and a decrease in the effective tax rate. During fiscal 2000, the Company's effective income tax rate was 37.9%, as compared to 38.3% in fiscal 1999. Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Company incurs debt to fund the origination of leases for IKON. The interest rates charged on the debt are determined based on current market conditions and include variable measures of interest rates such as LIBOR. The Company monitors interest rates on debt in order to mitigate exposure to unfavorable variations as compared to the interest rate earned on the pledged finance lease receivables. The objective in managing this risk is to achieve fixed-rate financing at the same time the Company establishes the rate to be received by the Company on the leases. As a result, from time to time interest rate swaps are utilized to effectively fix the rate on variable rate debt, as opposed to a direct issuance of fixed rate debt. The risk associated with the use of interest rate swaps is the possible inability of the counterparties to meet the terms of their contracts. The Company does not enter into interest rate swap agreements for trading purposes. 11 The following table presents, as of September 30, 2000, the following information regarding the interest rate swap agreements to which we are a party: (i) the notional amount of the agreement, (ii) the fixed interest rate payable by the Company, (iii) the variable rate payable by the counterparty under the agreement, (iv) the fair value of the instrument, and (v) the maturity of the agreement.
Fixed Notional Interest Variable Fair Maturity Amount Rate Interest Rate Value Date -------- -------- ------------- ------- -------- $240,891 6.6300% LIBOR + 36 bp $ 935 8/15/03 $230,000 7.8020% LIBOR + 19 bp $(3,992) 3/15/04 $ 84,510 7.8200% LIBOR + 23 bp $(2,535) 9/15/06
ITEM 8. Financial Statements and Supplementary Data The financial statements of IOS Capital are submitted herewith on Pages F-1 through F-15 of this report. Quarterly Data The following table shows comparative summarized unaudited quarterly results for fiscal 2000 and 1999.
First Quarter Second Quarter Third Quarter Fourth Quarter Total ------------- -------------- ------------- -------------- -------- (in thousands) 2000 Lease finance income.... $69,213 $67,831 $70,778 $72,788 $280,610 Interest expense........ 36,237 36,540 36,875 39,362 149,014 Income before income taxes.................. 32,084 30,479 32,985 32,314 127,862 Net income.............. 19,250 18,288 19,679 22,199 79,416
First Quarter Second Quarter Third Quarter Fourth Quarter Total ------------- -------------- ------------- -------------- -------- (in thousands) 1999 Lease finance income.... $60,527 $51,323 $54,513 $59,284 $225,647 Interest expense........ 29,202 26,607 28,339 30,813 114,961 Income before income taxes.................. 48,484 30,818 32,751 31,184 143,237 Net income.............. 28,121 17,874 21,444 20,888 88,327
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III ITEM 10. Directors and Executive Officers of the Registrant The information called for by this item has been omitted pursuant to General Instruction I(2)(c) of Form 10-K. ITEM 11. Executive Compensation The information called for by this item has been omitted pursuant to General Instruction I(2)(c) of Form 10-K. 12 ITEM 12. Security Ownership of Certain Beneficial Owners and Management The information called for by this item has been omitted pursuant to General Instruction I(2)(c) of Form 10-K. ITEM 13. Certain Relationships and Related Transactions See Item 1 hereof for information concerning the relationship between the Company, IKON and the IKON marketplaces. Any additional information called for by this item has been omitted pursuant to General Instruction I(2)(c) of Form 10-K. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)(1) and (2) Financial Statements
Page ---- Reports of Independent Accountants..................................... F-1 Consolidated Balance Sheets at September 30, 2000 and 1999............. F-3 Consolidated Statements of Income for Fiscal Years Ended September 30, 2000, 1999 and 1998................................................... F-4 Consolidated Statements of Cash Flows for Fiscal Years Ended September 30, 2000, 1999 and 1998............................................... F-5 Consolidated Statements of Changes in Shareholder's Equity for Fiscal Years Ended September 30, 2000, 1999 and 1998......................... F-6 Notes to Consolidated Financial Statements............................. F-7
Financial Statements and Schedules other than those listed above are omitted because the required information is included in the financial statements or the notes thereto or because they are inapplicable. (a)(3) Exhibits 3.1 Articles of Incorporation of the Company, filed on May 4, 1994 as Exhibit 3.1 to the Company's Registration Statement on Form 10, are incorporated herein by reference. 3.2 Bylaws of the Company, filed on May 4, 1994 as Exhibit 3.2 to the Company's Registration Statement on Form 10, are incorporated herein by reference. 4.1 Form of Fixed Rate Note and Floating Rate Note with respect to the Company's Medium Term Note Program, filed as Exhibit 4 to the Company's Form 10-Q for the fiscal quarter ended June 30, 1994, is incorporated herein by reference. 4.2 Pursuant to Regulation S-K item 601 (b)(4)(iii), the Company agrees to furnish to the Commission, upon request, a copy of instruments defining the rights of holders of long term debt of the Company. 10.1 Support Agreement, dated as of October 22, 1996, between the Company and Alco Standard Corporation, filed as Exhibit 10.4 to the Company's Form 8-K dated November 12, 1996, is incorporated herein by reference. 10.2 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, filed as Exhibit 10.10 to IKON's 10-K for the fiscal year ended September 30, 1997, is incorporated herein by reference. 10.3 First Tier Transfer Agreement dated as of March 31, 1997 between IKON Capital and IKON Funding, Inc., filed as Exhibit 10.11 to IKON's Form 10-K for the fiscal year ended September 30, 1997 is incorporated herein by reference.
13 10.4 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 4.1 to IKON's Form 10-K for the fiscal year ended September 30, 1996, is incorporated herein by reference. Amendment 1 to Receivables Transfer Agreement, dated as of October 7, 1997, filed as Exhibit 10.7 to IKON's Form 10-K for the fiscal year ended September 30, 1997, is incorporated herein by reference. 10.5 Transfer Agreement dated as of September 30, 1996, filed as Exhibit 4.3 to IKON's Form 10-K for the fiscal year ended September 30, 1996, is incorporated herein by reference. 10.6 Indenture dated as of July 1, 1995 between the Company and Chase Manhattan Bank, N.A. (formerly Chemical Bank, N.A.), as Trustee, filed as Exhibit 10.8 to IKON's Form 10-K for the fiscal year ended September 30, 1996, is incorporated herein by reference. 10.7 Indenture dated as of July 1, 1994 between the Company and Nations Bank, N.A., as Trustee, filed as Exhibit 4 to the Company's Registration Statement No. 33-53779 on Form S-3, is incorporated herein by reference. 10.8 Distribution Agreement dated as of June 4, 1997, between the Company and various distribution agents, filed as Exhibit 10.13 to IKON's Form 10-K for the fiscal year ended September 30, 1997, is incorporated herein by reference. 10.9 Distribution Agreement dated as of June 30, 1995 between the Company and various distribution agents, filed as Exhibit 10.21 to IKON's 10-K for the fiscal year ended September 30, 1995, is incorporated herein by reference. 10.10 Distribution Agreement dated July 1, 1994, filed as Exhibit 1 to the Company's Form 10-Q for the fiscal quarter ended June 30, 1994 is incorporated herein by reference. 10.11 Federal Income Tax Allocation Agreement, filed on May 4, 1994 as Exhibit 10.1 to the Company's Registration Statement on Form 10, is incorporated herein by reference. 10.12 Receivables Transfer Agreement dated as of September 19, 2000 among IOS Capital, Inc., IKON Funding-2, LLC, Park Avenue Receivables Corporation. The Chase Manhattan Bank, as agent and the several financial institutions party thereto from time to time. 10.13 Transfer Agreement dated as of September 19, 2000 between IKON Funding-2, LLC and IOS Capital, Inc. 12 Ratio of Earnings to Fixed Charges 21 Subsidiaries of the Registrant 23.1 Consent of PricewaterhouseCoopers LLP 23.2 Consent of Ernst & Young, LLP 27 Financial Data Schedule
(b) Reports on Form 8-K On October 26, 2000, the Company filed a Current Report on Form 8-K to file, under Item 5 of the Form, a press release issued by its parent, IKON, concerning IKON's anticipated results for the fourth quarter of fiscal year 2000. On November 13, 2000, the Company filed a Current Report on Form 8-K to file, under Item 5 of the Form, a press release issued by its parent, IKON, concerning IKON's earnings for the fourth quarter of fiscal year 2000 and the fiscal year ended September 30, 2000. 14 (c) The response to this portion of Item 14 is contained in Item 14(a)(3) above. (d) The response to this portion of Item 14 is contained in Items 14(a)(1) and (2) above. 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, it can give no assurances 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 risks and uncertainties that could significantly affect current plans, anticipated actions and the Company's and/or IKON's future financial condition and results. These risks and uncertainties, which apply to both the Company and IKON, include, but are not limited to, risks and uncertainties relating to: factors which may affect the Company's ability to recoup the full amount due on the 1999-1, 1999-2 and 2000-1 Leases (such as lessee defaults or factors impeding recovery efforts); conducting operations in a competitive environment and a changing industry (which includes technical services and products that are relatively new to the industry, IKON, and to the Company); delays, difficulties, management transitions and employment issues associated with consolidations and/or changes in business operations; managing the integration of acquired businesses; existing and future vendor relationships; risks relating to currency exchange; economic, legal and political issues associated with international operations; the Company's ability to access capital and its debt service requirements (including sensitivity to fluctuation in interest rates); and general economic conditions. As a consequence of these and other risks and uncertainties, 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. 15 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of IKON Office Solutions, Inc. In our opinion, the accompanying consolidated balance sheet as of September 30, 2000 and the related consolidated statements of income, cash flows and changes in shareholder's equity, present fairly, in all material respects, the financial position of IOS Capital, Inc. and its subsidiaries at September 30, 2000, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. 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 audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Philadelphia, PA December 8, 2000 F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors IKON Office Solutions, Inc. We have audited the accompanying consolidated balance sheet of IOS Capital, Inc. (a wholly-owned subsidiary of IKON Office Solutions, Inc.) as of September 30, 1999, and the related consolidated statements of income, changes in shareholder's equity, and cash flows for each of the two years in the period ended September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of IOS Capital, Inc. at September 30, 1999, and the consolidated results of its operations and its cash flows for each of the two years in the period ended September 30, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP _____________________________________ Ernst & Young LLP Philadelphia, Pennsylvania October 25, 1999, except for the first sentence of the third paragraph of Note 5, as to which the date is December 9, 1999 F-2 IOS CAPITAL, INC. CONSOLIDATED BALANCE SHEETS (in thousands except share and per share amounts)
September 30 ---------------------- 2000 1999 ---------- ---------- Assets Investments in leases (Notes 4 and 6): Direct financing leases, net of lease default reserve of: 2000-$62,266; 1999-$0........................... $2,899,456 $2,311,820 Less: Unearned income................................ (458,606) (374,269) ---------- ---------- 2,440,850 1,937,551 Funded leases, net................................... 367,389 465,188 ---------- ---------- 2,808,239 2,402,739 Cash................................................... 3,998 1,335 Restricted cash........................................ 91,914 29,625 Accounts receivable.................................... 101,689 76,805 Prepaid expenses and other assets...................... 6,160 10,018 Leased equipment--operating rentals at cost, less accumulated depreciation of: 2000--$55,595; 1999--$51,055........................... 42,993 59,681 Property and equipment at cost, less accumulated depreciation of: 2000--$8,981; 1999--$7,384............................. 9,097 10,395 ---------- ---------- Total assets....................................... $3,064,090 $2,590,598 ========== ========== Liabilities and Shareholder's Equity Accounts payable and accrued expenses.................. $ 54,583 $ 65,204 Accrued interest..................................... 15,521 23,481 Security deposits.................................... 744 1,167 Due to IKON Office Solutions, Inc. (Note 3).......... 22,834 112,649 Medium term notes (Note 5)........................... 568,500 1,242,850 Lease-backed notes (Note 5).......................... 1,267,641 622,948 Asset securitization conduit financing (Note 5 )..... 582,795 Deferred income taxes (Note 8)....................... 139,626 129,869 ---------- ---------- Total liabilities.................................. 2,652,244 2,198,168 Shareholder's equity: Common stock--$.01 par value, 1,000 shares authorized, issued, and Outstanding Contributed capital.................................. 149,415 149,415 Retained earnings.................................... 262,431 243,015 ---------- ---------- Total shareholder's equity......................... 411,846 392,430 ---------- ---------- Total liabilities and shareholder's equity......... $3,064,090 $2,590,598 ========== ==========
See notes to consolidated financial statements. F-3 IOS CAPITAL, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands)
Fiscal Year Ended September 30 -------------------------- 2000 1999 1998 -------- -------- -------- Revenues: Lease finance income (Note 2)........................ $280,610 $225,647 $223,131 Rental income........................................ 36,187 39,483 38,749 Interest on IKON income tax deferrals (Note 3)....... 16,773 16,764 15,734 Other income......................................... 24,854 17,076 11,653 -------- -------- -------- 358,424 298,970 289,267 Expenses: Interest............................................. 149,014 114,961 109,737 Lease default........................................ 20,333 General and administrative........................... 61,291 67,226 72,938 -------- -------- -------- 230,638 182,187 182,675 Gain on sale of lease receivables (Note 4)........... 76 26,454 2,724 -------- -------- -------- Income before income taxes........................... 127,862 143,237 109,316 Provision for income taxes (Note 8).................. 48,446 54,910 46,194 -------- -------- -------- Net income........................................... $ 79,416 $ 88,327 $ 63,122 ======== ======== ========
See notes to consolidated financial statements. F-4 IOS CAPITAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Fiscal Year Ended September 30 ------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Cash flows from operating activities Net income............................. $ 79,416 $ 88,327 $ 63,122 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........ 31,830 35,390 34,579 Provision for deferred taxes......... 39,107 34,754 30,938 Provision for lease default.......... 20,333 Gain on sale of lease receivables.... (76) (26,454) (2,724) Changes in operating assets and liabilities: Increase in accounts receivable.... (24,884) (13,739) (7,477) Decrease in prepaid expenses and other assets...................... 12,059 23,299 1,936 (Decrease) increase in accounts payable and accrued expenses...... (10,621) 4,275 8,188 (Decrease) increase in accrued interest.......................... (7,960) (9,986) 5,682 ----------- ----------- ----------- Net cash provided by operating activities............................ 139,204 135,866 134,244 ----------- ----------- ----------- Cash flows from investing activities Purchases of equipment for rental.... (19,624) (23,792) (63,984) Proceeds from terminations of leased equipment........................... 6,079 7,060 5,676 Purchases of property and equipment.. (420) (813) (1,213) Proceeds from sale of property and equipment........................... 122 122 175 Investment in leases: Additions............................ (1,947,885) (1,535,165) (1,676,712) Cancellations........................ 298,518 349,732 362,725 Collections.......................... 1,418,013 894,785 795,663 Lease default reserve transfer from IKON, net of deferred tax........... 44,955 Proceeds from sale................... 923 402,098 106,144 Repurchase of leases sold............ (275,000) (250,000) ----------- ----------- ----------- Net cash used in investing activities.. (474,319) (155,973) (471,526) ----------- ----------- ----------- Cash flows from financing activities Proceeds from bank borrowings........ 832,795 300,000 Payments on bank borrowings.......... (250,000) (100,000) (225,000) Proceeds from issuance of medium term notes............................... 523,500 Payments on medium term notes........ (674,350) (606,900) (216,000) Proceeds from issuance of lease- backed notes........................ 1,194,849 749,331 Payments on lease-backed notes....... (553,412) (128,694) Deposits to restricted cash.......... (62,289) (29,625) Capital contributed by IKON.......... 5,000 Dividend to IKON..................... (60,000) (30,000) ----------- ----------- ----------- Net cash provided by (used in) financing activities.................. 427,593 (145,888) 387,500 ----------- ----------- ----------- Increase (decrease) in cash and amounts due to IKON........................... 92,478 (165,995) 50,218 Cash and Due (to) from IKON at beginning of period................... (111,314) 54,681 4,463 ----------- ----------- ----------- Cash and Due (to) from IKON at end of period................................ $ (18,836) $ (111,314) $ 54,681 =========== =========== ===========
See notes to consolidated financial statements. F-5 IOS CAPITAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (in thousands)
Common Contributed Retained Stock Capital Earnings Total ------ ----------- -------- -------- Balance at October 1, 1997............... * $144,415 $121,566 $265,981 Net income............................... 63,122 63,122 Capital contributions from IKON.......... 5,000 -- 5,000 ---- -------- -------- -------- Balance at September 30, 1998............ * 149,415 184,688 334,103 Net Income............................... 88,327 88,327 Dividends to IKON........................ (30,000) (30,000) ---- -------- -------- -------- Balance at September 30, 1999............ * 149,415 243,015 392,430 Net Income............................... 79,416 79,416 Dividends to IKON........................ (60,000) (60,000) ---- -------- -------- -------- Balance at September 30, 2000............ * $149,415 $262,431 $411,846 ==== ======== ======== ========
- -------- * Amount is less than one thousand dollars. See notes to consolidated financial statements. F-6 IOS CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) 1. Business IOS Capital, Inc. (the "Company"), a wholly-owned subsidiary of IKON Office Solutions, Inc. ("IKON"), is engaged in the business of arranging lease financing exclusively for office equipment marketed by IKON's U.S. marketplaces ("IKON's marketplaces"), which sell and service copier equipment, facsimile machines and other equipment. The equipment financed by the Company consists of copiers, facsimile machines, and related accessories and peripheral equipment, the majority of which are produced by major office equipment manufacturers including Canon, Ricoh and Oce. At September 30, 2000, 50% of equipment financed by the Company represents copiers, 16% facsimile machines and 34% other equipment. The Company changed its name from IKON Capital, Inc. to IOS Capital, Inc. on January 22, 1998. 2. Significant Accounting Policies Principles of Consolidation The consolidated financial statements of IOS Capital, Inc. include the accounts of the Company and its wholly-owned subsidiaries, after elimination of all intercompany transactions, accounts and profits. 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 Unearned lease finance income is amortized into revenue using the effective interest method over the term of the lease agreements. Property and Equipment Property and equipment, including leased equipment, is carried on the basis of cost. Depreciation is principally computed using the straight-line method over the estimated useful lives of the assets. Income Taxes The Company's deferred tax expense and the related liability are primarily the result of the difference between the financial statement and income tax treatment of direct financing leases. Fair Value Disclosures FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments" (SFAS 107), requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS 107 excludes certain financial F-7 IOS CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands) instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the Company has computed and disclosed the fair value of its notes payable and interest rate swaps. Interest Rate Swap Agreements The Company uses interest rate swap agreements for purposes other than trading and which 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. Gains and losses on terminations of interest rate swap agreements are deferred and amortized 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. Pending Accounting Change The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities" which will be effective for IKON's fiscal 2001. This standard, as amended, requires that all derivative instruments be recorded on the balance sheet at their fair value and that changes in fair value be recorded each period in current earnings or comprehensive income. IKON anticipates that the adoption of SFAS 133 will result in the recording of a cumulative adjustment as of October 1, 2000 for the change in accounting required by SFAS 133. This adjustment is expected to increase current liabilities by $5,591 and other comprehensive loss, net of tax, by $3,472 as of October 1, 2000. No significant effects on future net income are expected as a result of adopting SFAS 133 because IKON's current hedging instruments are considered to be highly effective. 3. Agreements between IOS Capital and IKON Cash Management Program The Company participates in IKON's domestic cash management program. Under this program, the Company has an account with IKON wherein cash in excess of current operating requirements is temporarily placed on deposit. Similarly, amounts are periodically borrowed from IKON, with interest paid or charged at market rates on borrowed funds. The Company was in a net average deposit position with IKON during 2000, 1999 and 1998 and earned interest income of $2,281, $5,956 and $5,290 respectively (included in interest expense). The Company considers its account with IKON to represent a cash balance. Accordingly, the accompanying Consolidated Statements of Cash Flows includes the changes in Cash and "Due from (to) IKON". Management Fee Included in general and administrative expenses are corporate overhead expenses charged by IKON of $1,500 in fiscal year 2000, and $552 in both fiscal years 1999 and 1998. These corporate charges represent management's estimate of costs incurred by IKON on behalf of IOS Capital. F-8 IOS CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands) Interest on IKON Income Tax Deferrals The Company charges IKON interest on IKON's income tax deferrals associated with the Company's leasing transactions. Such charges were calculated at 6.7%, 6.6%, and 6.5% in fiscal 2000, 1999 and 1998, respectively. Lease Defaults Prior to October 1, 1999, the Company and IKON followed an operating arrangement that required, in the event of default, the IKON marketplace to repurchase the equipment at the net investment value of the lease on the default date. Default is defined as any receivable becoming 120 days past due or otherwise being reasonably declared uncollectible by the Company. At September 30, 1999 and 1998, all of the Company's accounts receivable and direct financing leases, including residual values, were subject to such repurchase terms. In view of the foregoing agreement, the Company made no provision in the accompanying financial statements for uncollectible receivables. Effective October 1, 1999, the Company began a shared recourse arrangement with the IKON marketplaces. This arrangement provides for net losses resultant from lease defaults to be shared equally. The lease default reserve is maintained at the Company and the provisions for lease default are shared between the Company and the IKON marketplaces. On October 1, 1999, lease default reserves of $74,305 and the related deferred tax liability of $29,350 were transferred to the Company from the IKON marketplaces. During fiscal 2000, a provision for lease defaults of $58,113 was recorded to increase the reserve. Of this provision, $20,333 was recorded as an expense on the books of the Company and $37,780 was recorded as an expense on the books of the IKON marketplaces. Lease write-offs of $70,152 were recorded to reduce the reserve. As a result of the above, the lease default reserve at September 30, 2000 is $62,266. The 1996 Support Agreement The 1996 Support Agreement between the Company and IKON provides that IKON will make a cash payment to the Company (or an investment in the form of equity or subordinated notes) as needed to comply with certain requirements. 4. Investments in Leases The Company's lease portfolio contains direct financing leases and funded leases. Direct financing leases include non-cancelable lease agreements which are serviced by the Company. The Company's funded leases include certain internal lease portfolios and non-cancelable rental contracts for IKON marketplaces, which have been financed by the Company. Under the terms of these financing arrangements, the IKON marketplace maintains the contractual relationship with the third-party customer. The IKON marketplaces have assigned to the Company, with full recourse, their rights under the underlying contracts including the right to receive lease and rental payments and a security interest in the related equipment. F-9 IOS CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands) At September 30, 2000, aggregate future minimum payments to be received, including guaranteed residual values, for each of the succeeding fiscal years under direct financing and funded leases are as follows:
Investment Net Leases Residual in Leases ----------- -------- ---------- 2001.................................... $ 1,118,118 $125,297 $1,243,415 2002.................................... 898,091 100,640 998,731 2003.................................... 608,942 68,237 677,179 2004.................................... 309,103 34,638 343,741 2005.................................... 107,877 12,088 119,965 ----------- -------- ---------- $ 3,042,131 $340,900 $3,383,031 Less unearned interest.................. (460,880) (51,646) (512,526) ----------- -------- ---------- 2,581,251 289,254 2,870,505 Less lease default reserve.............. (55,992) (6,274) (62,266) ----------- -------- ---------- $ 2,525,259 $282,980 $2,808,239 =========== ======== ==========
The changes in the servicing liabilities relating to the asset securitization agreements for the fiscal years ended September 30, 2000 and 1999 are as follows :
2000 1999 ------- ------- Beginning of period..................................... $ 6,913 $ 8,243 Additions............................................... 21 2,459 Less: Amortization...................................... (66) (3,789) Less: Payoff of asset securitization agreements October 7, 1999................................................ (6,868) 0 ------- ------- Balance at September 30................................. $ 0 $ 6,913 ======= =======
5. Medium Term Notes and Asset Securitization Conduit Financing The original amount available to be offered under the Company's medium term note program is $3,500,000. The program allows the Company to offer to the public from time to time medium term notes having an aggregate initial offering price not exceeding the total program amount. 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 Company, 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. As of September 30, 2000, $568,500 of medium term notes were outstanding with a weighted average interest rate of 6.6% and $1,123,350 remains available under the program. The Company has entered into asset securitization agreements for $275,000 of eligible direct financing lease receivables that expired in March 2000 ($125,000) and September 2000 ($150,000). The agreements contain overcollateralization 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 1999, the Company sold an additional $152,098 in leases, replacing leases paid/collected during the year and recognized pretax gains of $12,121. On October 7, 1999, these leases were repurchased with a portion of the proceeds received from the issuance of approximately $700,000 of lease-backed notes. In December 1998, the Company entered into an asset securitization transaction whereby it sold $366,600 in direct financing lease receivables for $250,000 in cash and a retained interest in the remainder. The agreement F-10 IOS CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands) is for an initial three-year term with certain renewal provisions and was structured as a revolving asset securitization so that as collections reduce previously sold interests in this new pool of leases, additional leases can be sold up to $250,000. The terms of the agreement require that the Company continue to service the lease portfolio. The Company recognized a pretax gain of $14,333 during the first quarter of fiscal 1999 on this agreement. On May 25, 1999, the Company repurchased the leases sold in this transaction with the proceeds from the lease-backed notes described below. On December 9, 1999, the Company pledged or transferred $311,382 in financing lease receivables for $247,600 in cash in connection with its revolving asset securitization, in a transfer accounted for as a financing. On January 20, 2000, the Company pledged or transferred $2,860 in financing lease receivables for $2,400 in cash in connection with its revolving asset securitization, in a transfer accounted for as a financing. The Company repaid $250,000 on June 2, 2000 when it issued the 2000-1 Notes described below. On June 30, 2000, the Company pledged or transferred $98,907 in financing lease receivables for $83,000 in cash in connection with its revolving asset securitization, in a transfer accounted for as a financing. In September 2000, the Company pledged or transferred $193,705 in financing lease receivables for $150,000 in cash in connection with its revolving asset securitization agreements, in a transfer accounted for as a financing. As of September 30, 2000, the Company had approximately $17,000 available under its revolving asset securitization agreement. In September 2000, the Company entered into an asset securitization transaction whereby it sold $414,843 in direct financing lease receivables for $349,795 in cash and a retained interest in the remainder. The agreement is for an initial three-year term with certain renewal provisions and was structured as a revolving asset securitization so that as collections reduce previously sold interests in this new pool of leases, additional leases can be sold up to $349,795. The terms of the agreement require that the Company continue to service the lease portfolio. As of September 30, 2000, this revolving asset securitization agreement was fully drawn. The Company must comply with certain restrictive covenants under the terms of its loan agreements. The Company agrees to maintain earnings before fixed charges of not less than 1.25 times fixed charges and a tangible net worth of not less than $1. Interest paid amounted to $156,974, $124,947 and $104,055 for the fiscal years ended September 30, 2000, 1999 and 1998, respectively. At September 30, 2000 and 1999, the fair value of the Company's medium term notes and asset securitization conduit financing is estimated to be $2,201,161 and $1,805,722, respectively, using a discounted cash flow analysis. Future maturities of all medium term notes and asset securitization conduit financing outstanding at September 30, 2000 are as follows: Fiscal 2001..................................................... $1,069,295 2002............................................................ 82,000 2003............................................................ 0 2004............................................................ 0 2005............................................................ 0 ---------- $1,151,295 ==========
F-11 IOS CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands) 6. Lease--Backed Notes IKON Receivables, LLC has issued Series 1999-1, 1999-2, and 2000-1 Lease- Backed Notes as described below:
Principal Stated Issuance Issuance Maturity Series Notes Date Amount Interest Rate Date ------ ---------- ------------ ---------- ------------- ----------- 1999-1....... Class A-1 05/25/99 $ 304,474 5.11% June, 2000 Class A-2 05/25/99 61,579 5.60% May, 2005 Class A-3 05/25/99 304,127 5.99% May, 2005 Class A-4 05/25/99 81,462 6.23% May, 2005 ---------- Sub-Total 751,642 ========== 1999-2....... Class A-1 10/07/99 235,326 6.14125% Oct, 2000 Class A-2 10/07/99 51,100 6.31% May, 2001 Class A-3a 10/07/99 100,000 6.59% Aug, 2003 Class A-3b 10/07/99 240,891 LIBOR + 0.36% Aug, 2003 Class A-4 10/07/99 72,278 6.88% Nov, 2005 ---------- Sub-Total 699,595 ========== 2000-1....... Class A-1 06/02/00 130,000 6.99625% June, 2001 Class A-2 06/02/00 54,000 7.51000% March, 2002 Class A-3 06/02/00 230,000 LIBOR + 0.19% March, 2004 Class A-4 06/02/00 84,510 LIBOR + 0.23% Sept, 2006 ---------- Sub-Total 498,510 ---------- Total Issued $1,949,747 ==========
IKON Receivables, LLC has issued the following aggregate principal amounts of Lease-Backed Notes; $751,642 for 1999-1 Notes, $699,595 for 1999-2 Notes and $498,510 for 2000-1 Notes (the "Notes") on May 25, 1999, October 7, 1999, and June 2, 2000, respectively. The Notes were issued pursuant to an indenture between IKON Receivables, LLC, IOS Capital, and Bank of New York (successor in interest to Harris Trust and Savings Bank), as Indenture Trustee on the 1999-1 Notes and the 1999-2 Notes, and Bank One Trust Company, as Indenture Trustee on the 2000-1 Notes. The Notes, respectively are collateralized by a pool of office equipment leases or contracts and related assets acquired or originated by IOS Capital (together with the equipment financing portion of each periodic lease or rental payment due under the Leases on or after the related indenture date) (the "Leases"), and all related casualty payments, retainable deposits, and termination payments. Payments on the Notes are made from payments on the Leases. The Notes have certain credit enhancement features available to noteholders including reserve accounts, overcollateralization accounts and noncancellable insurance policies from Ambac Assurance Corporation with respect to the Notes. The Notes bear interest from the related issuance date at the stated rate specified above. The variable rate 1999-2 Class A3-b, 2000-1 Class A-3 and 2000-1 Class A-4 Notes have been fixed at 6.63%, 7.802%, 7.82%, respectively, through interest rate swaps. On each payment date, to the extent funds are available from the collection of the lease receivables, principal payments will be made to noteholders in the following priority: (i) to the Class A-1 noteholders only, until the outstanding principal amount on the Class A-1 Notes has been reduced to zero, then (ii) to the Class A-2 noteholders only, until the outstanding principal F-12 IOS CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands) amount on the Class A-2 Notes has been reduced to zero, then (iii) to the Class A-3 noteholders only, until the outstanding principal amount on the Class A-3 Notes has been reduced to zero, and then (iv) to the Class A-4 noteholders, until the outstanding principal amount on the Class A-4 Notes has been reduced to zero. Each class of Notes will be payable in full on the applicable stated maturity date as indicated above. However, if all payments are made on the Leases as scheduled, final payment on the Notes will be earlier than the stated maturity dates. IKON Receivables, LLC may, on any payment date, redeem the Notes when the total discounted lease balance is less than or equal to 10% of the total discounted lease balance as of the related indenture date. IOS Capital services the Leases pursuant to Assignment and Servicing Agreements by and among IOS Capital, as originator and servicer, IKON Receivables-1, LLC, as seller, and IKON Receivables, LLC, as issuer. IOS Capital may delegate its servicing responsibilities to one or more sub- servicers, but such delegation does not relieve IOS Capital of its liabilities with respect thereto. IOS Capital retains possession of the Leases and related files, and receives a monthly service fee from IKON Receivables, LLC for servicing the Leases. Restricted cash on the consolidated balance sheet represents cash that has been collected on the Leases which must be used to repay the 1999-1, 1999-2 and 2000-1 Notes, respectively. As of September 30, 2000, IKON Receivables, LLC has approximately $1,501,490 available under the $2,000,000 shelf registration statement. Future maturities of the Notes, based on contractual maturities of leases for each of the succeeding fiscal years are as follows (in thousands):
1999-1 1999-2 2000-1 Series Series Series Notes Notes Notes Total -------- -------- -------- ---------- 2001................................. $185,517 $197,551 $139,879 $ 522,947 2002................................. 134,297 143,174 131,100 408,571 2003................................. 52,136 88,815 95,616 236,567 2004................................. 0 20,961 72,679 93,640 2005................................. 0 0 5,916 5,916 -------- -------- -------- ---------- $371,950 $450,501 $445,190 $1,267,641 ======== ======== ======== ==========
7. Lease Commitments Total rent expense under all operating leases aggregated $1,580 in 2000, $1,842 in 1999 and $2,018 in 1998. At September 30, 2000, future minimum payments under noncancelable operating leases with initial or remaining terms of more than one year were: 2001--$601; 2002--$275; 2003--$34. 8. Income Taxes Taxable income of the Company is included in the consolidated federal income tax return of IKON and all estimated tax payments and refunds, if any, are made through IKON. The provision for income taxes was determined as if the Company was a separate taxpayer. F-13 IOS CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands) Provision for income taxes:
Fiscal Year Ended September 30 -------------------------------------------------- 2000 1999 1998 ---------------- ---------------- ---------------- (in thousands) Current Deferred Current Deferred Current Deferred ------- -------- ------- -------- ------- -------- Federal...................... $8,773 $35,836 $19,389 $30,324 $15,221 $22,542 State........................ 567 3,270 767 4,430 35 8,396 ------ ------- ------- ------- ------- ------- Income Taxes................. $9,340 $39,106 $20,156 $34,754 $15,256 $30,938 ====== ======= ======= ======= ======= =======
The components of deferred income tax assets and liabilities were as follows:
September 30 -------------------- 2000 1999 --------- --------- (in thousands) Deferred tax assets: Other, net............................................. $ 56 Accrued liabilities.................................... 24,112 Net operating loss and alternative minimum tax credit carryforwards......................................... 82,444 $94,357 --------- --------- Total deferred tax assets............................ 106,612 94,357 Valuation allowance.................................... 2,150 3,661 --------- --------- Net deferred tax assets.............................. 104,462 90,696 Deferred tax liabilities: Other, net............................................. (163) Depreciation........................................... (824) (2,394) Lease income recognition............................... (243,263) (218,008) --------- --------- Total deferred tax liabilities....................... (244,087) (220,565) --------- --------- Net deferred tax liabilities........................... $(139,625) $(129,869) ========= =========
The federal net operating loss carryforward from prior years was fully utilized in the current year. Credit carryforwards consist principally of federal and state alternative minimum tax credits of approximately $80,296 (with no expiration date). The components of the effective income tax rate were as follows:
Fiscal Year Ended September 30 ---------------- 2000 1999 1998 ---- ---- ---- Taxes at federal statutory rate.......................... 35.0% 35.0% 35.0% State taxes, net of federal benefit...................... 2.8 3.6 7.7 Other.................................................... 0.1 (0.3) (0.4) ---- ---- ---- Effective income tax rate................................ 37.9% 38.3% 42.3% ==== ==== ====
The Company made net income tax payments, including amounts paid to IKON, of $20,006, $16,976, and $5,446 in fiscal years 2000, 1999 and 1998, respectively. F-14 IOS CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands) 9. Pension and Stock Purchase Plan The Company participates in IKON's defined benefit pension plan covering the majority of its employees. The Company's policy is to fund pension costs as accrued. Pension expense recorded in 2000, 1999 and 1998 was $276, $197 and $131, respectively. The majority of the Company's employees were eligible to participate in IKON's Retirement Savings Plan (RSP). The RSP allows employees to invest 1% to 16% of regular compensation before taxes in nine 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 IKON'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. The Company's cost of the plans amounted to $214, $186 and $377 in 2000, 1999 and 1998, respectively. 10. Subsequent Event On December 7, 2000, IKON Receivables, LLC publicly issued an additional $634,431 of lease-backed notes (the "2000-2 Notes") under its shelf registration statement. Class A-1 Notes totaling $193,532 have a stated interest rate of 6.66125%, Class A-2 Notes totaling $70,193 have a stated interest rate of 6.60%, Class A-3 Notes totaling $290,800 have a variable rate of LIBOR plus 0.23% (which has been fixed at 6.475% through an interest rate swap) and Class A-4 Notes totaling $79,906 have a variable rate of LIBOR plus 0.27% (which has been fixed at 6.475% through an interest rate swap). IOS Capital received approximately $633,001 in net proceeds from the sale of the 2000-2 Notes. The 2000-2 Notes are collateralized by a pool of office equipment leases or contracts and related assets and the payments on the 2000- 2 Notes are made from payments on the leases. Future maturities on the 2000-2 Notes are $183,855, $175,834, $142,492, $89,900, $42,350 in fiscal year 2001, 2002, 2003, 2004, and 2005, respectively. F-15 SIGNATURES Pursuant to the requirements of section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this Form 10-K for the fiscal year ended September 30, 2000 to be signed on its behalf by the undersigned, thereunto duly authorized. IOS CAPITAL, INC. Date: December 28, 2000 /s/ Harry G. Kozee By: _________________________________ (Harry G. Kozee) Vice President--Finance Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below on December 28, 2000 by the following persons on behalf of the registrant and in the capacities indicated.
Signatures Title ---------- ----- /s/ Russell Slack President (Principal ____________________________________ Executive Officer ) (Russell Slack) /s/ Harry G. Kozee Vice President--Finance ____________________________________ (Prinicpal Financial (Harry G. Kozee) Officer and Principal Accounting Officer) /s/ William S. Urkiel Director ____________________________________ (William S. Urkiel)
IOS Capital, Inc. 1738 Bass Road Macon, Georgia 31210 EX-10.12 2 0002.txt RECEIVABLES TRANSFER AGREEMENT DATED 09/19/00 Exhibit 10.12 EXECUTION COPY RECEIVABLES TRANSFER AGREEMENT Dated as of September 19, 2000 Among IKON FUNDING-2, LLC, As Transferor, IOS CAPITAL, INC., As Originator and Collection Agent, PARK AVENUE RECEIVABLES CORPORATION, As Conduit Transferee, THE SEVERAL FINANCIAL INSTITUTIONS PARTY HERETO FROM TIME TO TIME, as APA Transferees THE CHASE MANHATTAN BANK As Administrative Agent TABLE OF CONTENTS ----------------- ARTICLE I AMOUNTS AND TERMS OF TRANSFER................................... 1 SECTION 1.01. Facility................................................ 1 SECTION 1.02. Consideration and Terms................................. 2 SECTION 1.03. Settlement Procedures................................... 3 SECTION 1.04. Payment of Fees and Yield............................... 6 SECTION 1.05. Payments and Computations, Etc.......................... 6 SECTION 1.06. Increased Costs......................................... 7 SECTION 1.07. Requirements of Law..................................... 7 SECTION 1.08. Inability to Determine Eurodollar Rate.................. 8 SECTION 1.09. Breakage Costs.......................................... 8 SECTION 1.10. Retransfer of Receivables............................... 9 SECTION 1.11. Security Interest....................................... 10 ARTICLE II REPRESENTATIONS AND WARRANTIES; COVENANTS; TRIGGER EVENTS...... 10 SECTION 2.01. Representations and Warranties; Covenants............... 10 SECTION 2.02. Trigger Events.......................................... 10 ARTICLE III INDEMNIFICATION, REPURCHASE, ETC............................... 11 SECTION 3.01. Indemnities by the Transferor........................... 11 SECTION 3.02. Recourse for Yield...................................... 12 SECTION 3.03. Repurchase of Ineligible and Certain Other Receivables.. 13 ARTICLE IV ADMINISTRATION AND COLLECTION OF RECEIVABLES................... 13 SECTION 4.01. Designation of Collection Agent......................... 13 SECTION 4.02. Duties of Collection Agent.............................. 14 SECTION 4.03. Certain Rights of the Administrative Agent.............. 14 SECTION 4.04. Rights and Remedies..................................... 15 SECTION 4.05. Further Actions Evidencing Transfers.................... 15 SECTION 4.06. Covenants of the Collection Agent and the Originator.... 16 SECTION 4.07. Indemnities by the Collection Agent..................... 16 ARTICLE V MISCELLANEOUS.................................................. 17 SECTION 5.01. Amendments, Etc......................................... 17 SECTION 5.02. Notices, Etc............................................ 18 SECTION 5.03. Assignability........................................... 20 SECTION 5.04. Costs, Expenses and Taxes............................... 20 SECTION 5.05. No Proceedings; Limitation on Payments.................. 21 SECTION 5.06. Confidentiality......................................... 21
i SECTION 5.07. GOVERNING LAW........................................... 21 SECTION 5.08. Execution in Counterparts............................... 22 SECTION 5.09. Termination............................................. 22 SECTION 5.10. Tax Treatment........................................... 22
ii EXHIBITS EXHIBIT I - Definitions EXHIBIT II - Conditions of the Transfer EXHIBIT III - Representations and Warranties EXHIBIT IV - Covenants EXHIBIT V - Trigger Events EXHIBIT VI - Principal Place of Business and Location of Records ANNEXES ANNEX A - Form of Contract ANNEX B - Form of Transferor Report ANNEX C - Form of Transfer Notice ANNEX D - Form of Paydown Notice SCHEDULES SCHEDULE I -- Credit and Collection Policy SCHEDULE II -- Receivables iii RECEIVABLES TRANSFER AGREEMENT Dated as of September 19, 2000 CAPITAL, INC., a Delaware corporation (together with its successors and assigns, the "Originator" and in its capacity as collection agent, together with its ---------- successors and assigns in such capacity, the "Collection Agent"), PARK AVENUE ---------------- RECEIVABLES CORPORATION, a Delaware corporation (together with its successors and assigns, "PARCO"or the "Conduit Transferee"), the APA TRANSFEREES from time ----- ------------------ to time party hereto (the "APA Transferees") and THE CHASE MANHATTAN BANK --------------- (together with its successors and assigns, "Chase"), a New York state banking corporation, as administrative agent for the benefit of PARCO and the APA Transferees (in such capacity, together with its successors and assigns in such capacity, the "Administrative Agent"), agree as follows: -------------------- this Agreement. References in Exhibits to "the Agreement" refer to this Agreement, as amended, modified or supplemented from time to time. Security, and the Conduit Transferee may desire to, and the APA Transferees (if requested) shall, accept such transfer of such undivided percentage interests, subject to the terms and conditions of this Agreement. Accordingly, the parties agree as follows: ARTICLE I AMOUNTS AND TERMS OF TRANSFER SECTION 1.01. Facility. Upon the terms -------- and subject to the conditions set forth herein, prior to the Facility Termination Date, (a) the Transferor may, at its option from time to time, transfer to the Administrative Agent, on behalf of the Active Transferees, and (b) the Administrative Agent may, in its sole discretion, on behalf of PARCO (prior to an occurrence of a PARCO Termination Event), and the Administrative Agent shall on behalf of the APA Transferees (following an occurrence of a PARCO Termination Event or in the event PARCO elects not to accept such transfer) accept such transfer and assignment from the Transferor of, without recourse except as provided herein, undivided percentage ownership interests in a pool of Receivables, together with Related Security and Collections with respect thereto, from time to time (each, a "Transfer"). Under no circumstances shall -------- the Administrative Agent accept any Transfer if, after giving effect to such Transfer, the Aggregate Capital would exceed the Transfer Limit. (b) The Transferor may, upon at least 30 days' notice to the Administrative Agent, terminate this facility in whole or, from time to time, reduce in part the unused portion of the Transfer Limit; provided that each partial reduction -------- shall be in the amount of at least $10 million or an integral multiple thereof and that, unless terminated in whole, the Transfer Limit shall in no event be reduced below $100 million. Any such reduction in the Transfer Limit shall 1 4860144 simultaneously reduce the respective Commitments of the APA Transferees Pro Rata in an aggregate amount equal to 102% of the amount of such reduction in the Transfer Limit. 1 SECTION 1.02. Consideration and Terms. (a) On any date prior to the Facility ----------------------- Termination Date, the Transferor may request a Transfer, which Transfer shall be in a minimum amount of $10,000,000 and increments of $100,000 in excess thereof, by delivering to the Administrative Agent not later than 11:00 a.m. (New York time), three Business Days prior to such requested Transfer (each, a "Transfer -------- Date"), written notice in the form of Annex C specifying the proposed Transfer - ---- Date and setting forth detailed information regarding the Receivables to be included in such Transfer, including an addendum to Schedule II hereto. The total amount to be paid by the Active Transferees in respect of such Transfer shall be equal to the Aggregate Adjusted Outstanding Balance of the Related Contracts for the Receivables included in such Transfer (the "Consideration" for such Receivables). (b) Promptly upon receipt of such notice, the Administrative Agent shall deliver a copy thereof to each of the Transferees. By 3 p.m. (New York City time) on each Transfer Date, upon satisfaction of the applicable conditions set forth in Exhibit II hereto, (x) the Active Transferees shall make available to the Administrative Agent their respective Pro Rata shares of the Consideration in respect of such Transfer by deposit of such amounts in same day funds to the Administrative Agent's Account and, after the receipt by the Administrative Agent of such funds, the Administrative Agent will cause such Consideration to be paid to the Transferor in immediately available funds prior to 4:00 p.m. (New York City time) to the Transferor's account no. 21000-1177-1909 at First Union Bank, Philadelphia, Pennsylvania (ABA#0312-0146-7); provided, however, that in -------- ------- the case of each Transfer other than the initial Transfer, the applicable Consideration may be netted against all amounts on such payments of Capital to be deposited in the Administrative Agent's Account on such date by the Collection Agent pursuant to Section 1.03 and (y) the Transferor does hereby (effective on the date of each Transfer automatically and without any further documentation) transfer to the Administrative Agent for the benefit of the applicable Transferees all of the related Receivables, the Related Contracts, the Related Security and the Collections in respect thereof. The Active Transferees shall on or before the tenth day of each month (or if such day is not a Business Day, on the preceding Business Day), notify the Administrative Agent, and the Administrative Agent shall notify the Transferor, of the Yield accrued with respect to the prior Settlement Period or portion thereof. Each Transfer to the Administrative Agent on behalf of the Active Transferees hereunder shall be allocated Pro Rata to each such Transferee. (c) Each APA Transferee's obligation hereunder shall be several, such that the failure of any APA Transferee to make a payment in connection with any Transfer hereunder shall not relieve any other APA Transferee of its obligation hereunder to make payment for any Transfer. Further, in the event any APA Transferee fails to satisfy its obligation to accept a Transfer as required hereunder, upon receipt of notice of such failure from the Administrative Agent, subject to the limitations set forth herein, each of the non-defaulting APA Transferees shall accept a transfer of its respective Pro Rata share of such defaulting APA Transferee's applicable share of 4860144 the related Transfer (determined without regard to the Commitment of the defaulting APA Transferee). Notwithstanding anything in this paragraph to the contrary, no APA Transferee shall be required to accept a transfer pursuant to this paragraph for an amount which would cause the Capital of such APA Transferee (after giving effect to such transfer) to exceed its 2 Commitment. SECTION 1.03. Settlement Procedures. (a) Collection of the Receivables --------------------- shall be administered by the Collection Agent, in accordance with the terms of this Agreement. The Transferor shall provide to the Collection Agent on a timely basis all information needed for such administration. (b) The Collection Agent shall, on each day on which Collections are received by it, set aside and hold in trust for the Transferees such Collections and shall deposit into the Administrative Agent's Account, (i) on each Settlement Date, from such Collections, an amount equal to accrued and unpaid Yield and any fees owed to the Administrative Agent pursuant to Section 1.04(a); (ii) on each Settlement Date, an amount equal to the Collection Agent Fee accrued but unpaid during the preceding Settlement Period; and (iii) on each Settlement Date, from such Collections, an amount equal to the portion of Collections received during the preceding Settlement Period remaining after application pursuant to the preceding clauses (i) and (ii); provided that prior to the Facility Termination Date, the amount -------- to be deposited pursuant to this clause (iii) will not exceed the product of (A) a fraction, the numerator of which is the Required Balance and the denominator of which is the aggregate Outstanding Balance of the Related Contracts and (B) the amount of such Collections; provided, however, that the aggregate amount deposited pursuant to this - -------- ------- subsection (b) shall not exceed the sum of the Aggregate Capital of, and accrued Yield and Collection Agent Fee on, the Receivables plus the aggregate of any other amounts then owed by the Transferor to any Transferee, the Administrative Agent or Affected Person hereunder. Notwithstanding the foregoing, unless a Trigger Event or Potential Trigger Event has occurred, for so long as the Originator is the Collection Agent, the Collection Agent shall not be required to set aside Collections, but may commingle the Collections with its own funds and make the deposits required to the Administrative Agent's Account pursuant to this paragraph (b) on the dates required. For so long as the Originator is the Collection Agent, the Collection Agent shall not be required to deposit the Collection Agent Fee to the Administrative Agent's Account as required by clause (ii) of this paragraph (b) but may retain such fee from the Collections remaining after the deposits required pursuant to clause (i) of this paragraph (b). (c) (i) Upon receipt of funds deposited into the Administrative Agent's Account pursuant to subsection (b)(i) or (b)(ii) above, the Administrative Agent shall distribute such funds, together with any funds received in respect of the PARCO Cap, as follows: Pro Rata to each Transferee in payment of accrued but unpaid Yield on the Capital of such Transferee and to the Administrative Agent in respect of any fees owed pursuant to 3 Section 1.04(a). (ii) Upon receipt of funds deposited into the Administrative Agent's Account pursuant to subsection (b)(ii) above, the Administrative Agent shall distribute such funds, in an amount equal to the accrued but unpaid Collection Agent Fee, to the Collection Agent on account of the Collection Agent Fee. (iii) Upon receipt of funds deposited into the Administrative Agent's Account pursuant to subsection (b)(iii) above, the Administrative Agent shall distribute such funds as follows: first, to the Administrative Agent ----- for Pro Rata distribution to each Transferee in reduction to zero of all Capital of such Transferee, second, to the Administrative Agent for the ------ account of the Transferees, the Administrative Agent or any Affected Person, as applicable, in payment of any other amounts owed by the Transferor hereunder, and third, to the Transferor for its own account. ----- (d) For the purposes of this Section 1.03: (i) Upon discovery by the Originator or the Transferor or the Administrative Agent of a breach of any of the representations or warranties made or deemed made by the Originator in paragraph (h) of Exhibit III with respect to any Receivable or the Related Security, such party shall give prompt written notice thereof to the other party, as soon as practicable and in any event within three Business Days following such discovery. The Transferor shall be deemed to have received on such day a Collection in full of such Receivable and all other Receivables relating to the same Contract, in the amount of the Outstanding Balance of such Contract plus Yield accrued and to accrue thereon through the end of the then current Settlement Period, and the amount of each such Collection shall be applied as provided in this Section 1.03; and (ii) if and to the extent the Administrative Agent or any Transferee shall be required for any reason to pay over to an Obligor any amount received on its behalf hereunder, such amount shall be deemed not to have been so received but rather to have been retained by the Transferor and, accordingly, the Administrative Agent or such Transferee, as the case may be, shall have a claim against the Transferor for such amount, payable when and to the extent that any distribution from or on behalf of such Obligor is made in respect thereof. (e) Except as provided in paragraph (i) of Section 1.03(d), or as otherwise required by 4 4860144 applicable law or the relevant Contract, all Collections received from an Obligor of any Receivables shall be applied to the Receivables of such Obligor in the order of the age of the due but unpaid amounts with respect to such Receivables, starting with the oldest such due but unpaid amount, unless such Obligor designates its payment for application to specific Receivables. (f) The Transferor shall forthwith deliver to the Collection Agent an amount equal to all Collections deemed received by the Transferor pursuant to Section 1.03(d)(i) above and the 4 Collection Agent shall hold or distribute such Collections in accordance with Section 1.03(b). If Collections are then being paid to the Administrative Agent, the Collection Agent shall forthwith cause such deemed Collections to be paid to the Administrative Agent. If a Trigger Event or Potential Trigger Event has occurred, so long as the Transferor shall hold any Collections or deemed Collections required to be paid to the Collection Agent or the Administrative 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. (g) The Transferor may reduce the Aggregate Capital upon delivery of a notice in the form of Annex D at least ten Business Days' (in the case of reductions in excess of $25,000,000) or at least two Business Days' (in the case of reduction of $25,000,000 or less), to the Active Transferees and the Administrative Agent, by remitting to the Administrative Agent's Account (i) cash and (ii) instructions to apply such cash to the Pro Rata reduction of each Transferee's Capital and Yield accrued and to accrue thereon (until such cash can be used to pay commercial paper notes). The Transferor shall pay all breakage and other costs related to such Capital reduction; provided, however, that each of the Transferees and the Administrative Agent shall use its reasonable best efforts to minimize any breakage costs. (h) The Transferor may, upon at least ten Business Days' notice to the Administrative Agent, repurchase all of the Receivables on any Settlement Date (the "Repurchase Date") by remitting to the Administrative Agent's Account on or --------------- prior to such Repurchase Date, for distribution in accordance with subsection 1.03(c) above, cash in an amount equal to the Aggregate Capital, plus all accrued and unpaid Yield thereon, and all other amounts which are payable under this Agreement. A repurchase of Receivables made pursuant to this subsection 1.03(h) shall include the Related Security and Collections with respect thereto. SECTION 1.04. Payment of Fees and Yield. (a) Fees. The Transferor shall ------------------------- ---- pay to the Administrative Agent certain fees in the amounts and on the dates set forth in a separate fee agreement of even date herewith (as amended, supplemented or otherwise modified, the "Fee Letter") between the Transferor and ---------- the Administrative Agent. (b) Yield. On or before the tenth day of each month (or if such day is not ----- a Business Day, on the preceding Business Day), the Administrative Agent shall calculate the Tranche Rate applicable to each Tranche funded or maintained by a Transferee for each day in the prior Settlement Period and the Administrative Agent shall notify the Servicer of such rates. (c) Collection Agent Fee The Collection Agent shall be entitled to receive -------------------- a fee (the "Collection Agent Fee") of one-twelfth of 1.50% per month on the -------------------- average daily Aggregate Capital from the date of the first Transfer of Receivables until the date on which such Aggregate Capital is reduced to zero, payable on each Settlement Date. The Collection Agent Fee shall be payable solely from Collections pursuant to, and subject to the priority of payment set forth in, Section 1.03. SECTION 1.05. Payments and Computations, Etc. (a) Unless otherwise ------------------------------ specified herein, all amounts to be paid or deposited by the Transferor or the Collection Agent hereunder 5 to or for the account of the Administrative Agent, PARCO or any other Transferee shall be paid or deposited no later than 11:00 a.m. (New York City time) on the day when due in same day funds to the Administrative Agent's Account. Upon receipt of funds deposited into the Administrative Agent's Account, the Administrative Agent shall distribute such funds to the Persons entitled thereto in accordance with the provisions of this Agreement or retain such funds for its own account, as appropriate. (b) The Transferor shall, to the extent permitted by law, pay interest on any amount not paid or deposited by the Transferor (whether as Collection Agent or otherwise) when due hereunder, at an interest rate per annum equal to 2% per annum above the Base Rate, payable on demand. (c) Unless otherwise specified herein, all computations of interest under subsection (b) above and all computations of Yield, fees, and other amounts hereunder shall be made on the basis of a year of 360 days for the actual number of days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. SECTION 1.06. Increased Costs. (a) If the Administrative Agent, any --------------- Transferee, any other entity which enters into a commitment to acquire Receivables or interests therein, or any entity which provides credit enhancement or any of their respective Affiliates (each an "Affected Person") --------------- determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Affected Person and such Affected Person determines that the amount of such capital is increased by or based upon the existence of any commitment to accept transfers of or otherwise to maintain the investment in Receivables or interests therein hereunder or under any commitments to a Transferee related to this Agreement or to the funding thereof or any related liquidity facility or credit enhancement facility (or any participation therein) and other commitments of the same type, then, upon demand by such Affected Person (with a copy to the Administrative Agent), the Transferor shall immediately pay to the Administrative Agent, for the account of such Affected Person (as a third-party beneficiary), from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person in the light of such circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of any of such commitments. A certificate as to such amounts submitted to the Transferor and the Administrative Agent by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation or (ii) compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to a Transferee of agreeing to accept the Transfer of or accepting such Transfers, or maintaining the ownership of the Receivables or interests therein in respect of which Yield is 6 computed by reference to the Eurodollar Rate, then upon demand by such Transferee (with a copy to the Administrative Agent), the Transferor shall immediately pay to the Administrative Agent, for the account of such Transferee (as a third-party beneficiary), from time to time as specified by such Transferee, additional amounts sufficient to compensate such Transferee for such increased costs. A certificate as to such amounts submitted to the Transferor and the Administrative Agent by a Transferee shall be conclusive and binding for all purposes, absent manifest error. SECTION 1.07. Requirements of Law. In the event that any requirement of ------------------- law or any change therein or in the interpretation or application thereof by the relevant governmental authority to a Transferee after the date hereof or compliance by a Transferee with any request or directive (whether or not having the force of law) from any central bank or other governmental authority: (i) does or shall subject such Transferee to any tax of any kind whatsoever with respect to this Agreement or change the basis of taxation of payments to such Transferee on account of Collections, Yield or any other amounts payable hereunder (excluding taxes imposed on the income of such Transferee, and franchise taxes imposed on such Transferee, by the jurisdiction under the laws of which such Transferee is organized or a political subdivision thereof); or (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, purchases, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Transferee which are not otherwise included in the determination of the Eurodollar Rate or the Base Rate hereunder; and the result of any of the foregoing is to increase the cost to such Transferee of maintaining an interest in Receivables or to reduce any amount receivable hereunder, then, in any such case, the Transferor shall pay such Transferee, upon its demand, any additional amounts necessary to compensate such Transferee for such additional cost or reduced amount receivable with regard to such Transferee's Receivables. All such amounts shall be payable as incurred. A certificate from such Transferee or the Administrative Agent, as the case may be, to the Transferor certifying, in reasonably specific detail, the basis for, calculation of, and amount of such additional costs shall be conclusive in the absence of manifest error. SECTION 1.08. Inability to Determine Eurodollar Rate. In the event that -------------------------------------- the Administrative Agent shall have determined prior to the first day of any Settlement Period (which determination shall be conclusive and binding upon the parties hereto) by reason of circumstances affecting the interbank Eurodollar market, either (a) dollar deposits in the relevant amounts and for the relevant Settlement Period are not available, (b) adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Settlement Period or (c) the Eurodollar Rate determined pursuant hereto does not accurately reflect the cost to the Transferees (as conclusively determined by the Administrative Agent) of maintaining Receivables during 7 such Settlement Period, the Administrative Agent shall promptly give telephonic notice of such determination, confirmed in writing, to the Transferor prior to the first day of such Settlement Period. Until such notice has been withdrawn by the Administrative Agent, no further Tranches shall be funded or maintained at the Eurodollar Rate. The Administrative Agent agrees to withdraw any such notice as soon as reasonably practicable after the Administrative Agent is notified of a change in circumstances which makes such notice inapplicable. SECTION 1.09. Breakage Costs. If (a) any payment of Capital as to which -------------- Yield is computed by reference to the Eurodollar Rate or the CP Rate is made by the Transferor to or for the account of any Transferee other than on the last day of a Settlement Period, as a result of a payment pursuant to Sections 1.03, 1.10 or 3.03 or for any other reason, or (b) the Termination Date shall occur during any Settlement Period, or (c) any payment of Capital is made by the Transferor to a Transferee or an Affected Person other than on the last day of a Settlement Period upon a purchase and assumption of rights and obligations under this Agreement as a result of a demand by the Transferor, the Transferor shall, upon demand by such Transferee or Affected Person (with a copy to the Administrative Agent), immediately pay to the Administrative Agent for the account of such Transferee or Affected Person (as a third-party beneficiary) any amounts required to compensate such Transferee or Affected Person for any additional losses, costs or expenses which it may reasonably incur as a result of such payment, including, without limitation, any loss (including loss of anticipated profits), costs or expenses incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Transferee or Affected Person to fund or maintain its interest in the Receivables. A certificate as to such amounts submitted to the Transferor and the Administrative Agent by such Transferee or Affected Person shall be conclusive and binding for all purposes, absent manifest error. SECTION 1.10. Retransfer of Receivables. At any time after the Aggregate ------------------------- Capital is reduced to less than 10% of the highest amount of Aggregate Capital outstanding on or prior to the Facility Termination Date, the Transferor may, at its option, upon not less than thirty days notice to the Administrative Agent, accept the retransfer from the Administrative Agent on the Settlement Date next succeeding such thirty day period or on such other date as shall be mutually agreed to by the Administrative Agent and the Transferor (the "Retransfer ---------- Date"), of all of the Receivables and the Related Security then held by the - ---- Administrative Agent for an amount equal to the Aggregate Capital outstanding as at the Retransfer Date (after application of all Collections received on or prior to such date) plus any accrued and unpaid Yield as at such date plus any other amounts then owed by the Transferor under this Agreement. The Transferor shall be entitled to all Collections from the Receivables retransferred to the Transferor in accordance with this Section 1.10 which are received after the Retransfer Date and the Collection Agent shall set aside and hold in trust for, and shall pay forthwith to, the Transferor all such Collections. The terms and provisions of this Agreement shall continue to be effective or be reinstated, as the case may be, if any such payment is rescinded or must otherwise be returned to the Transferor upon the insolvency, bankruptcy or reorganization of the Transferor or an Obligor or otherwise, all as though such payment had never been made. On the Retransfer Date: (i) all of the Receivables and Related Security shall be retransferred to the Transferor without any representation or warranty other than that they are free and clear 8 of any Adverse Claims created by or through the Transferees or the Administrative Agent, and (ii) the Administrative Agent shall deliver to the Transferor executed UCC-3 Termination Statements, terminating the interest of the Administrative Agent in all such Receivables and Related Security, thereupon the Transferor shall be vested with all right, title and interest in such Receivables and Related Security, and the Administrative Agent and the Transferees shall no longer hold any interest in any of such Receivables or Related Security. SECTION 1.11. Security Interest. As collateral security for the ----------------- performance by the Transferor of all the terms, covenants and agreements on the part of the Transferor (whether as Transferor or otherwise) to be performed under this Agreement or any document delivered in connection with this Agreement in accordance with the terms thereof, including the punctual payment when due of all obligations of the Transferor hereunder or thereunder, whether for the payment of Capital, Yield, indemnification payments, fees, expenses or otherwise, the Transferor hereby assigns to the Administrative Agent for its benefit and the ratable benefit of the Transferees, and hereby grants to the Administrative Agent for its benefit and the ratable benefit of the Transferees, a present and continuing security interest in, all of the Transferor's right, title and interest in and to: (a) the Transfer Agreement, including, without limitation, (i) all rights of the Transferor to receive moneys due or to become due under or pursuant to the Transfer Agreement, (ii) all security interests and property subject thereto from time to time purporting to secure payment of monies due or to become due under or pursuant to the Transfer Agreement, (iii) all rights of the Transferor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Transfer Agreement (except any rights that might arise under the Support Agreement), (iv) claims of the Transferor for damages arising out of or for breach of or default under the Transfer Agreement, and (v) the right of the Transferor to compel performance and otherwise exercise all remedies thereunder, (b) all Receivables and the Related Security and Collections with respect thereto, (c) all amounts due from the cap provider under the PARCO Cap, and (d) to the extent not included in the foregoing, all proceeds of any and all of the foregoing. ARTICLE II REPRESENTATIONS AND WARRANTIES; COVENANTS; TRIGGER EVENTS SECTION 2.01. Representations and Warranties; Covenants. The Transferor ----------------------------------------- hereby makes the representations and warranties, and hereby agrees to perform and observe the covenants, set forth in Exhibits III and IV, respectively, hereto. 9 SECTION 2.02. Trigger Events. If any of the Trigger Events set forth in -------------- Exhibit V hereto shall occur and be continuing, the Administrative Agent may, by notice to the Transferor, take either or both of the following actions: (x) declare the Termination Date to have occurred, and (y) designate another Person to succeed the Originator as the Collection Agent; provided, that, automatically -------- upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in paragraph (h) of Exhibit V, the Termination Date shall occur, the Originator (if it is then serving as the Collection Agent) shall cease to be the Collection Agent, and the Administrative Agent or its designee shall become the Collection Agent. Upon any such declaration or designation or upon any such automatic termination, the Transferees and the Administrative Agent shall have, in addition to the rights and remedies which they may have under this Agreement, all other rights and remedies provided after default under the UCC of the appropriate jurisdiction or jurisdictions and under other applicable law, which rights and remedies shall be cumulative. ARTICLE III INDEMNIFICATION, REPURCHASE, ETC. SECTION 3.01. Indemnities by the Transferor. Without limiting any other ----------------------------- rights that the Administrative Agent or any Transferee or any of their respective Affiliates or its agents (each, an "Indemnified Party") may have ----------------- hereunder or under applicable law, the Transferor hereby agrees to indemnify each Indemnified Party from and against any and all claims, losses and liabilities (including reasonable attorneys' fees) (all of the foregoing being collectively referred to as "Indemnified Amounts") arising out of or resulting ------------------- from this Agreement or the use of proceeds of any Transfer or the acceptance of the transfer of the Receivables or in respect of any Receivable, Related Contract or Related Security, excluding, however, (a) Indemnified Amounts to the --------- ------- extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party, (b) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Receivables or (c) any income taxes or franchise taxes imposed on such Indemnified Party by the jurisdiction under the laws of which such Indemnified Party is organized or any political subdivision thereof, arising out of or as a result of this Agreement or the acceptance of the transfer of the Receivables or in respect of any Receivable, Related Contract or Related Security. Without limiting or being limited by the foregoing, the Transferor shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following: (i) any representation or warranty or statement made by the Transferor (or any of its officers) under or in connection with this Agreement and the other Transaction Documents which shall have been incorrect in any material respect when made; (ii) the failure by the Transferor to comply with any applicable law, rule or regulation (including, without limitation, usury or consumer law) with respect to any Receivable, the related Contract or the Related Security; or the failure of any Receivable or the related Contract to conform to any such applicable law, rule or regulation; 10 (iii) the failure of the Administrative Agent (for the benefit of the Transferees) to acquire a valid and perfected security interest in the Receivables and the Related Security and Collections in respect thereof under Article 9 of the UCC of any applicable jurisdiction, free and clear of any Adverse Claim; (iv) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables or the Related Security and Collections in respect thereof, whether at the time of the transfer of an interest therein or at any subsequent time; (v) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the lease or sale of the related Equipment or services related to such Receivable or the furnishing or failure to furnish such Equipment or other services or alleging violation by the Transferor of any laws in connection with such lease or sale activities; (vi) any failure of the Transferor to perform its duties or obligations in accordance with the provisions hereof or to perform its duties or obligations under the Related Contracts; (vii) any products or personal liability claim arising out of or in connection with any Equipment or other merchandise, services or activities which are the subject of any Related Contract; (viii) the commingling by the Transferor or any of its Affiliates (including without limitation the Originator in its capacity as Collection Agent) of Collections of Receivables at any time with other funds; (ix) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of any Transfer or the acceptance of the transfer of Receivables or in respect of any Receivable, Related Security or Related Contract; or (x) any fine, penalty, tax or other charge asserted against any Indemnified Party by any governmental authority or agency or any other Person resulting from any Obligor's use, possession or ownership of any Equipment. SECTION 3.02. Recourse for Yield. The Transferor hereby agrees to pay ------------------ to the Administrative Agent, for Pro Rata distribution to each Transferee, (a) on the last day of each Settlement Period, any deficiency between (i) Collections applied to payment of accrued but unpaid Yield on such last day pursuant to Section 1.03(b)(i), and (ii) the amount of accrued but 11 unpaid Yield on such last day on the Capital. SECTION 3.03. Repurchase of Ineligible and Certain Other Receivables. (a) ------------------------------------------------------ The Transferor shall, upon not less than two Business Days' notice from the Administrative Agent, repurchase (at the repurchase price specified in Section 3.03(b) below) on the next succeeding Settlement Date: (i) any Receivable that was not an Eligible Receivable at the time of the related Transfer; or (ii) any Receivable as to which the Administrative Agent (for the benefit of the Transferees) does not have a first priority perfected interest free and clear of any Adverse Claim. (b) Each repurchase of a Receivable under Section 3.03(a) above shall include the repurchase of all other Receivables relating to the same Contract. The repurchase price shall be an amount equal to the Outstanding Balance of the related Contract plus accrued but unpaid Yield allocable thereto to the date of repurchase. The proceeds of any such repurchase shall be deemed to be a Collection in respect of such Receivables received during the Settlement Period preceding such Settlement Date and the amount of each such Collection shall be applied as provided in Section 1.03. ARTICLE IV ADMINISTRATION AND COLLECTION OF RECEIVABLES SECTION 4.01. Designation of Collection Agent. The servicing, ------------------------------- administration and collection of the Receivables shall be conducted by the Collection Agent so designated hereunder from time to time. Until the Administrative Agent gives notice to the Transferor of the designation of a new Collection Agent, the Originator is hereby designated as, and hereby agrees to perform the duties and obligations of, the Collection Agent pursuant to the terms hereof. The Administrative Agent at any time may designate as Collection Agent any Person (including itself) to succeed the Originator or any successor Collection Agent, if such Person shall consent and agree to the terms hereof. The Collection Agent may, with the prior consent of the Administrative Agent, subcontract with any other Person for the servicing, administration or collection of the Receivables. Any such subcontract shall not affect the Collection Agent's liability for performance of its duties and obligations pursuant to the terms hereof. SECTION 4.02. Duties of Collection Agent. (a) The Collection Agent shall -------------------------- take or cause to be taken all such actions as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. The Transferor and the Administrative Agent hereby appoint the Collection Agent, from time to time designated pursuant to Section 4.01, as agent for themselves and for the Transferees to enforce their respective rights and interests in the Receivables, the Related Security and the related Contracts. In performing its duties as Collection Agent, the Collection Agent shall exercise the same care 12 and apply the same policies as it would exercise and apply if it owned such Receivables and shall act in the best interests of the Transferor and the Transferees. (b) The Collection Agent shall administer the Collections in accordance with the procedures described in Section 1.03. (c) The Collection Agent shall hold in trust for the Transferor and each Transferee, in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) which evidence or relate to Receivables. (d) The Collection Agent shall, as soon as practicable following receipt, turn over to the Transferor any cash collections or other cash proceeds received with respect to receivables not transferred to the Administrative Agent and the Transferees pursuant to this Agreement. (e) The Collection Agent shall, from time to time at the request of the Administrative Agent, furnish to the Administrative Agent (promptly after any such request) a calculation of the amounts set aside for the Administrative Agent and the Transferees pursuant to Section 1.03. (f) Prior to the 13th calendar day of each month, the Collection Agent shall prepare and forward to the Administrative Agent a Transferor Report relating to the Receivables outstanding on the last day of the immediately preceding month. SECTION 4.03. Certain Rights of the Administrative Agent. ------------------------------------------ Following the occurrence of a Trigger Event or Potential Trigger Event, (a) The Administrative Agent may direct the Obligors that all payments under the Related Contracts be made directly to the Administrative Agent or its designee. (b) At the Administrative Agent's request and at the Transferor's expense, the Transferor shall notify each Obligor of the interest of the Administrative Agent in the Receivables under this Agreement and direct that payments be made directly to the Administrative Agent or its designee. (c) At the Administrative Agent's request and at the Transferor's expense, the Transferor and the Collection Agent shall (A) assemble all of the documents, instruments and other records (including, without limitation, computer tapes and disks) that evidence or relate to the Receivables and the Related Contracts and Related Security, or that are otherwise necessary or desirable to collect the Receivables, and shall make the same available to the Administrative Agent at a place selected by the Administrative Agent or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections in a manner acceptable to the Administrative Agent and, promptly upon receipt, remit all such cash, checks and instruments, duly indorsed or with duly executed instruments of transfer, to the Administrative Agent or its designee. 13 (d) The Transferor authorizes the Administrative Agent to take any and all steps in the Transferor's name and on behalf of the Transferor that are necessary or desirable, in the determination of the Administrative Agent, to collect amounts due under the Receivables, including, without limitation, endorsing the Transferor's name on checks and other instruments representing Collections and enforcing the Receivables and the Related Security and related Contracts. SECTION 4.04. Rights and Remedies. (a) If the Collection Agent fails to ------------------- perform any of its obligations under this Agreement, the Administrative Agent may (but shall not be required to) itself perform, or cause performance of, such obligation; and the Administrative Agent's costs and expenses incurred in connection therewith shall be payable by the Transferor (if the Collection Agent that fails to so perform is the Transferor or its designee). (b) The Transferor and the Originator shall perform their respective obligations under the Related Contracts to the same extent as if the Receivables had not been transferred and the exercise by the Administrative Agent on behalf of the Transferees of their rights under this Agreement shall not release the Collection Agent or the Transferor from any of their duties or obligations with respect to any Receivables or Related Contracts. Neither the Administrative Agent nor the Transferees shall have any obligation or liability with respect to any Receivables or Related Contracts, nor shall any of them be obligated to perform the obligations of the Transferor thereunder. (c) In the event of any conflict between the provisions of Article IV of this Agreement and Article VI of the Transfer Agreement, the provisions of this Agreement shall control. SECTION 4.05. Further Actions Evidencing Transfers. The Originator ------------------------------------ agrees from time to time, at its expense, to promptly execute and deliver all further instruments and documents, and to take all further actions, that may be reasonably necessary or desirable, or that the Administrative Agent may reasonably request, to perfect, protect or more fully evidence the Receivables transferred hereunder, or to enable the Transferees or the Administrative Agent to exercise and enforce their respective rights and remedies hereunder. Without limiting the foregoing, the Originator will upon the request of the Administrative Agent (i) execute and file such financing or continuation statements, or amendments thereto, and such other instruments and documents, that may be reasonably necessary or desirable, or that the Administrative Agent may reasonably request, to perfect, protect or evidence such interests in Receivables; (ii) segregate the Related Contracts and other records in its lease files pertaining to each Receivable; and (iii) mark its master data processing records evidencing such Receivables and the Related Contracts, in each case in a manner reasonably acceptable to the Administrative Agent, evidencing that such Receivables have been transferred. SECTION 4.06. Covenants of the Collection Agent and the Originator. ---------------------------------------------------- (a) Audits. The Collection Agent will, from time to time during regular ------ business hours as requested by the Administrative Agent, permit the Administrative Agent, or its agents or representatives (including independent public accountants, which may be the Collection Agent's independent 14 public accountants), (i) to conduct periodic audits of the Receivables, the Related Security and the related books and records and collections systems of the Collection Agent, (ii) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of the Collection Agent relating to the Receivables and the Related Security, including, without limitation, the Related Contracts, and (iii) to visit the offices and properties of the Collection Agent for the purpose of examining such materials described in clause (ii) above, and to discuss matters relating to the Receivables and the Related Security or the Collection Agent's performance hereunder with any of the officers or employees of the Collection Agent having knowledge of such matters. (b) Change in Credit and Collection Policy. The Originator will not make -------------------------------------- any change in the Credit and Collection Policy that would impair the collectibility of any Receivable or the ability of the Originator (if it is acting as Collection Agent) to perform its obligations under this Agreement. SECTION 4.07. Indemnities by the Collection Agent. Without limiting ----------------------------------- any other rights that the Administrative Agent, any Transferee or any of their respective Affiliates (each, a "Special Indemnified Party") may have hereunder ------------------------- or under applicable law, and in consideration of its appointment as Collection Agent, the Collection Agent hereby agrees to indemnify each Special Indemnified Party from and against any and all claims, losses and liabilities (including reasonable attorneys' fees) (all of the foregoing being collectively referred to as "Special Indemnified Amounts") arising out of or resulting from any of the --------------------------- following (excluding, however, (a) Special Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Special Indemnified Party, (b) recourse for uncollectible Receivables or (c) any income taxes or any other tax or fee measured by income incurred by such Special Indemnified Party arising out of or as a result of this Agreement or the ownership of interests in the Receivables or in respect of any Receivable or any Contract): (i) any representation or warranty or statement made or deemed made by the Collection Agent under or in connection with this Agreement which shall have been incorrect in any material respect when made; (ii) the failure by the Collection Agent to comply with any applicable law, rule or regulation with respect to any Receivable or Contract; or the failure of any Receivable or Contract to conform to any such applicable law, rule or regulation; (iii) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables, the Related Contracts and the Related Security and Collections in respect thereof, whether at the time of any transfer or reinvestment or at any subsequent time; (iv) any failure of the Collection Agent to perform its duties or obligations in accordance with the provisions of this Agreement; 15 (v) the commingling of Collections at any time by the Collection Agent with other funds other than as specifically permitted herein; (vi) any action or omission by the Collection Agent reducing or impairing the rights of the Transferees with respect to any Receivable or the value of any Receivable; (vii) any Collection Agent Fees or other costs and expenses payable to any replacement Collection Agent, to the extent in excess of the Collection Agent Fees payable to the Collection Agent hereunder; or (viii) any claim brought by any Person other than a Special Indemnified Party arising from any activity by the Collection Agent or its Affiliates in servicing, administering or collecting any Receivable. ARTICLE V MISCELLANEOUS SECTION 5.01. Amendments, Etc. No failure or delay on the part of the --------------- Administrative Agent or any Transferee in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law. Any provision of this Agreement may be amended if, but only if, such amendment is in writing and is signed by the Transferor, the Collection Agent, the Administrative Agent and the Required Transferees and, if such amendment is material, the Rating Agencies, to the extent required by the terms and provisions of the commercial paper program of PARCO, have provided written confirmation that such amendment will not result in a reduction or withdrawal of the rating of the Commercial Paper; provided that -------- the consent of all of the Transferees hereto shall be required for any amendment, modification or supplement relating to (i) the definitions of "Eligible Receivables," "Facility Termination Date," "Required Transferees," "Required Balance," "Discount" and "Applicable Percentage" and any defined terms incorporated therein, (ii) the reduction or postponement of the time for payment of any fee or other amount payable to or on behalf of such Transferees or (iii) this Section 5.01. SECTION 5.02. Notices, Etc. All notices, demands and other communications ------------ provided for hereunder shall, unless otherwise stated herein, be in writing (which shall include electronic transmission), shall be personally delivered, express couriered, electronically transmitted (in which case a hard copy shall also be sent by regular mail) or mailed by registered or certified mail and shall, unless otherwise expressly provided herein, be effective when received at the address specified below for the listed parties or at such other address as shall be specified in a written notice furnished to the other parties hereunder. 16 If to the Transferor: IKON FUNDING-2, LLC 1738 Bass Road Macon, Georgia 31210 Attention: Russell Slack, President Telephone: Telecopy: If to the Originator or Collection Agent: IOS CAPITAL, INC. 1738 Bass Road Macon, Georgia 31210 Attention: Harry G. Kozee Telephone: (912) 471-2306 Telecopy: (912) 471-2388 with a copy to: IKON OFFICE SOLUTIONS, INC. 70 Valley Stream Parkway Malvern, Pennsylvania 19355 Attention: Jack Quinn Telephone: (610) 408-7165 Telecopy: (610) 408-7022 17 If to the Administrative Agent or the APA Transferees: THE CHASE MANHATTAN BANK 450 West 33rd Street 15th Floor New York, NY 10001 Attention: Lara Graff CFMS-PARCO Manager Telephone: (212) 946-3748 Telecopy: (212) 946-8098 with a copy to: CHASE SECURITIES INC. 270 Park Avenue, 7/th/ Floor New York, NY 10017 Attention: Paterno Luzano Telephone: (212) 834-5381 Telecopy: (212) 834-6562 If to PARCO: PARK AVENUE RECEIVABLES CORPORATION c/o Global Securitization Services, LLC 114 West 47th Street, Suite 1715 New York, New York 10036 Attention: President Telephone: (212) 302-5151 Telecopy: (212) 302-8767 With a copy to the Administrative Agent SECTION 5.03. Assignability. (a) This Agreement and each Transferee's ------------- rights and obligations herein (including rights in the Receivables) shall be assignable by each Transferee and its successors and assigns if the Administrative Agent shall have received confirmation from each of the Rating Agencies that such assignment will not result in the withdrawal or downgrade of the then-current ratings of PARCO's outstanding Commercial Paper; provided, that -------- no such confirmation shall be required if such assignment is made by PARCO to any other Transferee hereunder or to any Transferee that is a party to a liquidity facility supporting the Commercial Paper. Each assignor of Receivables or any interest therein shall notify the Administrative Agent and the Transferor of any such assignment; provided, that no such notice shall be -------- required if such assignment is made by PARCO to any other Transferee hereunder or to any Transferee that is a party to a liquidity facility supporting the commercial paper notes of PARCO. Each assignor of Receivables may, in connection with the assignment or participation, disclose to the assignee or participant any information, relating to the Transferor or the Receivables, which was furnished to 18 such assignor by or on behalf of the Transferor or by the Administrative Agent; provided that, prior to any such disclosure, the assignee or participant agrees - -------- to preserve the confidentiality of any confidential information relating to the Transferor received by it from any of the foregoing entities. (b) This Agreement and the rights and obligations of the Administrative Agent herein shall be assignable by the Administrative Agent and its successors and assigns; provided that any costs incurred by the Administrative Agent in -------- connection with such assignment shall be for the account of the Administrative Agent. (c) The Transferor may not assign its rights or obligations hereunder or any interest herein without the prior written consent of the Administrative Agent, which consent will not be unreasonably withheld. (d) Without limiting any other rights that may be available under applicable law, the rights of the Transferees may be enforced through them or by their agents. SECTION 5.04. Costs, Expenses and Taxes. (a) In addition to the rights ------------------------- of indemnification granted under Section 3.01 hereof, the Transferor agrees to pay on demand all costs and expenses of the Administrative Agent and the Transferees and their respective Affiliates in connection with the preparation, execution, delivery, amendment and administration (including periodic auditing of Receivables) of this Agreement, any transfer agreement or similar agreement relating to the transfer of interests in Receivables and the other documents and agreements to be delivered hereunder and thereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent, the Transferees and their respective Affiliates and agents with respect thereto and with respect to advising the Administrative Agent, the Transferees and their respective Affiliates and agents as to their rights and remedies under this Agreement and all costs and expenses, if any (including reasonable counsel fees and expenses) of the Administrative Agent, the Transferees and their respective Affiliates and agents, in connection with the enforcement of this Agreement, and the other documents and agreements to be delivered hereunder. (b) The Transferor shall pay any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder. The Transferor agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees, any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder. The Transferor agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 5.05. No Proceedings; Limitation on Payments. (a) Each of the -------------------------------------- Originator, the Transferor, the Administrative Agent, each Transferee, each assignee of a Receivable or any interest therein and each entity which enters into a commitment to acquire Receivables or 19 interests therein hereby agrees that it will not institute against, or join any other person in instituting against, PARCO any proceeding of the type referred to in paragraph (h) of Exhibit V so long as any Commercial Paper issued by PARCO shall be outstanding and there shall not have elapsed one year plus one day since the last day on which any such Commercial Paper shall have been outstanding. Each of the Originator, the Administrative Agent, each Transferee, each assignee of a Receivable or any interest therein and each entity which enters into a commitment to acquire Receivables or interests therein hereby agrees that it will not institute against, or join any other person in instituting against, the Transferor any proceeding of the type referred to in paragraph (h) of Exhibit V so long as any Commercial Paper issued by PARCO to finance the Capital shall be outstanding and there shall not have elapsed one year plus one day since the last day on which any such Commercial Paper shall have been outstanding. (b) Notwithstanding anything in this Agreement or any other Transaction Document to the contrary, PARCO shall have no obligation to pay any amount required to be paid by it hereunder or thereunder in excess of any amount available to PARCO after paying or making provision for the payment of its Commercial Paper. All payment obligations of PARCO hereunder are contingent on the availability of funds in excess of the amounts necessary to pay its Commercial Paper; and each of the Transferor, the Collection Agent, the Administrative Agent and the Transferees agree that they shall not have a claim under Section 101(5) of the Bankruptcy Code if and to the extent that any such payment obligation exceeds the amount available to PARCO to pay such amount after paying or making provision for the payment of its Commercial Paper. Notwithstanding anything in this Agreement or any other Transaction Document to the contrary, the Transferor shall have no obligation to pay any amount required to be paid by it hereunder or thereunder in excess of any amount available to the Transferor after paying or making provision for the payment of the items set forth in Section 1.03(c)(i), (ii) and the first clause of (iii). All payment ------------------ ---- ----- obligations of the Transferor hereunder are contingent on the availability of funds in excess of the amounts necessary to pay such items; and each of the Collection Agent, the Administrative Agent, the Transferees and the Affected Persons agree that they shall not have a claim under Section 101(5) of the Bankruptcy Code if and to the extent that any such payment obligation exceeds the amount available to the Transferor to pay such amounts after paying or making provision for the payment thereof. (c) The provisions of this Section 5.05 shall survive any termination of ------------ this Agreement. SECTION 5.06. Confidentiality . Unless otherwise required by applicable --------------- law, the Transferor agrees to maintain the confidentiality of this Agreement (and all drafts thereof) in communications with third parties and otherwise; provided, that this Agreement may be disclosed to (a) third parties to the - -------- extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the Administrative Agent, and (b) the Transferor's legal counsel and auditors if they agree to hold it confidential. SECTION 5.07. GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND ------------- CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF 20 LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF THE TRANSFEREES IN THE RECEIVABLES OR REMEDIES HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 5.08. Execution in Counterparts. This Agreement may be executed ------------------------- in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 5.09. Termination. (a) Except as provided in subsection (b) ----------- below, this Agreement shall terminate on the Termination Date. Upon the occurrence of the Termination Date, the Administrative Agent will, at the Transferor's cost and expense, take such actions as are reasonably requested to terminate this Agreement and the Transfer contemplated thereby (including, without limitation, executing UCC termination statements). (b) The provisions of Sections 1.06, 1.07, 1.08, 1.09, 3.01, 4.07, 5.04, 5.05 and 5.06 shall survive any termination of this Agreement. SECTION 5.10. Tax Treatment. It is the intention of the Transferor and ------------- the Administrative Agent that for federal, state and local income and franchise tax purposes, the Capital will be treated as evidence of indebtedness of the Transferor secured by the Receivables, the Related Security and Collections and other proceeds thereof. The Transferor, the Administrative Agent, PARCO and the other Transferees, by entering into this Agreement, intend to treat the Capital as indebtedness. SECTION 5.11. Agent Conflict Waiver. The Administrative Agent acts in --------------------- various capacities with respect to the maintenance and administration of PARCO's commercial paper program (including, as administrative agent for PARCO, as issuing and paying agent, as provider of other backup facilities, and as a provider of other services or facilities from time to time, the "Agent Roles"). ----------- Each of the parties hereto hereby acknowledges and consents to any and all Agent Roles, waives any objections it may have to any actual or potential conflict of interest caused by the Administrative Agent acting as the administrative agent for PARCO or as a related APA Transferee or as a liquidity or credit support provider under PARCO's commercial paper program and acting as or maintaining any of the Agent Roles, and agrees that in connection with any Agent Role, the Administrative Agent may take, or refrain from taking, any action which it in its discretion deems appropriate. The provisions of this Agreement and all related Transaction Documents shall be construed to further such intentions of the parties hereto. 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. TRANSFEROR: IKON FUNDING-2 LLC By: IKON FUNDING, INC., its Manager By: Name: Russell Slack Title: President S_1 ORIGINATOR IOS CAPITAL, INC. AND COLLECTION AGENT: By: Name: J. F. Quinn Title: Treasurer S_2 CONDUIT TRANSFEREE: PARK AVENUE RECEIVABLES CORPORATION By: Name: Title: S_3 ADMINISTRATIVE AGENT: THE CHASE MANHATTAN BANK By: Name: Title: S_4 APA TRANSFEREE: THE CHASE MANHATTAN BANK By: Name: Title: S_5 EXHIBIT I DEFINITIONS As used in the Agreement (including its Exhibits), the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Active Transferees" means, (i) prior to an occurrence of a PARCO ------------------ Termination Event, PARCO and (ii) following an occurrence of a PARCO Termination Event (or in the event PARCO elects not to accept a Transfer from the Transferor hereunder), the APA Transferees. "Administrative Agent" shall have the meaning assigned to such term in the -------------------- preamble. "Administrative Agent's Account" means the special account (account number ------------------------------ ###-##-####; ABA number 021-000-021) of the Administrative Agent designated "The PARCO Funding Account." "Adverse Claim" means a lien, security interest or other charge or ------------- encumbrance, or any other type of preferential arrangement. "Affected Person" has the meaning set forth in Section 1.06. --------------- "Affiliate" means, as to any Person, any other Person that, directly or --------- indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person. "Aggregate Adjusted Outstanding Balance" means, with respect to any -------------------------------------- Receivables to be transferred pursuant to Section 1.02, the aggregate Outstanding Balance of the Contracts related to such Receivables less the Discount with respect to such Receivables. "Aggregate Capital" means, at any time, the sum of the outstanding Capital ----------------- of each Transferee at such time. "Aggregate Commitment" means, at any time, the sum of the outstanding -------------------- Commitments of each Transferee at such time. "Agreement" shall have the meaning assigned to such term in the preamble. --------- "APA Transferees" shall have the meaning assigned to such term in the --------------- preamble. "Applicable Margin" shall mean on any date of determination 1.50%. ----------------- "Applicable Percentage" means, with respect to the Consideration payable --------------------- with respect to I_1 Receivables, a percentage equal to the greater of (i) 15% or (ii) the product of (a) three, (b) the weighted average life of such Receivables expressed in years and fractions thereof and as reported in the most recent Transferor Report and (c) the product of (i) average of the Default Ratios for the twelve months preceding the related Transfer Date and (ii) 12; provided, however, that after -------- ------- the occurrence of a Trigger Event, the Applicable Percentage for any date of determination shall be the greater of (i) the percentage calculated above and (ii) a percentage equal to (A) the product of (x) the aggregate Outstanding Balance of the Receivables on the date of occurrence of such Trigger Event, (y) the Applicable Percentage on the date of occurrence of such Trigger Event and (z) 0.25, divided by (B) the aggregate Outstanding Balance of the Receivables on such date of determination. "Asset Purchase Agreement" shall mean each asset purchase agreement, ------------------------ liquidity asset purchase agreement, or other similar agreement pursuant to which any bank or group of banks or financial institutions agrees to purchase or make loans secured by (or otherwise advance funds against) all or any portion of PARCO's interest in the transferred Receivables, Related Security and Collections in order to support PARCO's repayment of the Commercial Paper issued to fund or maintain such interest. "Base Rate" shall mean with respect to PARCO, a rate per annum equal to the --------- sum of (x) the greater of (i) the prime rate of interest announced by the Administrative Agent from time to time, changing when and as said prime rate changes (such rate not necessarily being the lowest or best rate charged by the Administrative Agent) and (ii) the sum of (A) 1.50% and (B) the rate equal 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 rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it and (y) the Applicable Margin. "Base Rate Tranche" means, with respect to any Transferee, a Tranche funded ----------------- or maintained by such Transferee as to which Yield is calculated at the Base Rate. "Business Day" means any day on which (i) banks are not authorized or ------------ required to close in New York City and (ii) if this definition of "Business Day" is utilized in connection with the Eurodollar Rate, dealings are carried out on the London interbank market. "Capital" means, with respect to any Transferee, the aggregate ------- Consideration paid by such Transferee for all Transfers that have occurred on or prior to such date, reduced from time to time by Collections distributed on account of Receivables and applied to reduce Capital pursuant to Section 1.03(c)(iii) of the Agreement; provided, that if such Capital shall have been -------- reduced by any distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Capital shall be increased by the amount of such rescinded or returned distribution, as though it had not been made. I_2 "Closing Date" means September 21, 2000. ------------ "Collection Agent" means at any time the Person then authorized pursuant to ---------------- Section 4.01 of the Agreement to administer and collect Receivables. "Collection Agent Fee" has the meaning specified in Section 1.04(c) of the -------------------- Agreement. "Collections" means, with respect to any Receivable, (i) all cash ----------- collections and other cash proceeds of such Receivable, including, without limitation, any proceeds resulting from the repurchase of such Receivable by IKON Office Solutions, Inc. and all cash proceeds of Related Security with respect to such Receivable (including, without limitation, payments under the related Contract due upon or in connection with (a) Obligor's default under the Contract, (b) loss, theft or damage to the related Equipment, or (c) renewal of the Contract), and (ii) any Collection of such Receivable deemed to have been received pursuant to the Agreement; provided, that Collections shall not include -------- collections which represent the payment of (x) maintenance charges or (y) insurance premiums. "Commercial Paper" means the short-term promissory notes of PARCO issued by ---------------- PARCO in the United States commercial paper market. "Commitment" means, respectively, the Commitment of each APA Transferee as ---------- set forth below such APA Transferee's name on the signature pages to the Asset Purchase Agreement or as set forth in the assignment agreement or the assumption agreement pursuant to which such APA Transferee became a party thereto. "Conduit Transferee" has the meaning set forth in the preamble. ------------------ "Consideration" has the meaning set forth in Section 1.02(a) of the ------------- Agreement. "Contract" means a closed-end lease agreement between the Originator and an -------- Obligor having an original lease/loan term not exceeding 72 months, in substantially the form of one of the forms of written contract set forth in Annex A hereto or otherwise approved by the Administrative Agent, which has been sold to Transferor pursuant to the Transfer Agreement, pursuant to or under which such Obligor shall be obligated to pay for the lease of Equipment. "CP Rate" shall mean, with respect to any CP Tranche funded or maintained ------- by PARCO, the rate equivalent to the weighted average of (i) the weighted average of the discount rates on all of PARCO's Commercial Paper issued at a discount and outstanding during the related Settlement Period, converted to an annual yield-equivalent rate on the basis of a 360-day year, which rates shall include dealer fees and commissions and (ii) the weighted average of the annual interest rates payable on all interest-bearing PARCO Commercial Paper outstanding during the related Settlement Period, on the basis of a 360-day year, which rates shall include dealer fees and commissions; provided, that to -------- the extent that the Facility is funded by a specific issuance of PARCO's Commercial Paper, the "CP Rate" shall equal the rate or weighted average of the rates applicable to such issuance. I_3 "CP Tranche" means a Tranche funded or maintained by PARCO as to which ---------- Yield is calculated at the CP Rate. "Credit and Collection Policy" means those receivables collection policies ---------------------------- and practices of the Originator in effect on the date of the Agreement and described in Schedule I hereto, as modified in compliance with the Agreement. "Debt" means (i) indebtedness for borrowed money, (ii) obligations ---- evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations to pay the deferred purchase price of property or services, (iv) obligations as Obligor under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, (v) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above, and (vi) liabilities in respect of unfunded vested benefits under plans covered by Title IV of ERISA. "Default Ratio" means the ratio (expressed as a percentage) computed as of ------------- the last day of each calendar month by dividing (i) the aggregate Outstanding Balance of all Receivables that became Defaulted Receivables during such month by (ii) the aggregate Outstanding Balance of all Receivables on the last day of such month. "Defaulted Receivable" means a Receivable: -------------------- (i) as to which any payment, or part thereof, remains unpaid for more than 120 days from the original due date for such payment; (ii) as to which the Obligor thereof or any other Person obligated thereon or owning any Related Security in respect thereof has taken any action, or suffered any event to occur, of the type described in paragraph (h) of Exhibit V; or (iii) which, consistent with the Credit and Collection Policy, would be written off the Transferor's books as uncollectible. "Delinquency Ratio" means the ratio (expressed as a percentage) computed as ----------------- of the last day of each calendar month by dividing (i) the aggregate amount of all Related Contracts having one or more Receivables that were Delinquent Receivables on such day by (ii) the aggregate amount of all Related Contracts on such day. "Delinquent Receivable" means a Receivable: --------------------- (i) as to which any payment, or part thereof, remains unpaid for 60 or more days from the original due date for such payment; or I_4 (ii) which, consistent with the Credit and Collection Policy, would be classified as delinquent by the Originator or the Transferor. "Designated Account" means an account in the name of and owned by the ------------------ Administrative Agent, designated by the Administrative Agent in a writing delivered to the Transferor, for the purpose of receiving Collections of Receivables. "Discount" means, with respect to any group of Receivables, the product of -------- (a) the aggregate Outstanding Balance of the Related Contracts relating to such Receivables and (b) the Applicable Percentage in respect of such Receivables. "Eligible Receivable" means, at any time, a Receivable: ------------------- (i) the Obligor of which is (a) a United States resident, (b) is not the Transferor or any Affiliate thereof, and (c) is not a Governmental Obligor; provided, that Obligors with respect to Contracts having an -------- aggregate Outstanding Balance of not greater than 3% of the aggregate Outstanding Balance of all Eligible Receivables may be Governmental Obligors; (ii) the Obligor of which has not been disapproved by the Administrative Agent on or prior to the date of the Transfer and which, at the time of the Transfer, is not the Obligor of any Defaulted Receivables; (iii) which is not a Defaulted Receivable or a Delinquent Receivable; which arises under a Contract duly authorized by the parties thereto (which parties had the legal capacity to enter into such Contract) which is in full force and effect and which is legal valid and binding obligation of the related Obligor, enforceable against such Obligor in accordance with its terms; (iv) (a) which arises under a Contract with a remaining term of not more than 60 months; provided, that Contracts having an aggregate -------- Outstanding Balance of not greater than 5% of the aggregate Outstanding Balance of all Eligible Receivables may have a remaining term of up to 72 months; and (b) which, according to such Contract, consists of substantially equal monthly Periodic Payments which are required to be paid within 30 days of the billing date therefor; provided, that Contracts having -------- an aggregate Outstanding Balance of not greater than 2% of the aggregate Outstanding Balance of all Eligible Receivables may have payments which are not substantially equal monthly payments; (v) which arose pursuant to a Contract which is "chattel paper" within the meaning of Section 9-105 of the UCC of the applicable jurisdictions governing the perfection of the interest created in the Receivables; I_5 (vi) which is denominated and payable in United States dollars in the United States; (vii) which arises under a Contract (a) which has not been amended, modified, or altered in any material respect (except in writing and copies of any such writing is attached to the Contract) and (b) which has been duly authorized and which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable enforceable against such Obligor in accordance with its terms and is not subject to any dispute, offset, counterclaim or defense whatsoever (except as limited by applicable bankruptcy law), (c) in respect of which, prior to the date it is transferred hereunder, the Equipment has been delivered and accepted, (d) which pursuant to its terms may not be canceled, terminated or prepaid by the Obligor before the end of its stated term (other than Contracts which contain early termination or prepayment clauses which require the Obligor to pay the remainder of all scheduled payments under such Contract upon cancellation or prepayment, and, in the case of Contracts related to Governmental Obligors, by reason of nonrenewal of appropriations), (e) which, if related to a Governmental Obligor, has not been canceled before the end of its stated term by reason of nonrenewal of appropriations, and (f) which is not a consumer lease; (viii) which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth in lending, consumer leasing, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which none of the Transferor, the Originator or the related Obligor is in violation of any such law, rule or regulation in any material respect; (ix) with regard to which there exists only one executed original Contract, which is in the possession of Transferor on the Transfer Date of such Receivable; (x) which was selected for transfer by a procedure not designed to adversely affect the credit quality of the Receivables; (xi) which represents payments due to the Originator and does not represent any payments payable for the account of any Person other than the Originator under the Contract relating to such Receivable or any sales or use tax payable under such Contract; (xii) which was originated by the Originator in accordance with, and otherwise satisfies all applicable requirements of, the Credit and Collection Policy; (xiii) which, after giving effect to the acquisition thereof, would not result in the aggregate Outstanding Balance of Related Contracts of any single Obligor exceeding 1.5% of the aggregate Outstanding Balance of all Related Contracts; I_6 (xiv) as to which, at or prior to the time of the Transfer, the Administrative Agent has not notified the Transferor that such Receivable (or class of Receivables) is not acceptable for transfer to PARCO hereunder; (xv) the transfer or assignment of which does not require the Obligor's consent, and which does not contravene any applicable law, rule or regulation; (xvi) with respect to which (a) the related Obligor has not been released, (b) the Related Contract has not been satisfied, canceled, subordinated or rescinded, and (c) no Equipment subject to the Related Contract has been released from the Related Contract; (xvii) which Equipment subject to the related Contract has not been released and such Contract requires the related Obligor to maintain insurance on such Equipment in an amount sufficient to fully insure such Equipment; (xviii) which, after giving effect to the acquisition thereof, would not result in the aggregate Outstanding Balance of Related Contracts of Obligors located in any single state exceeding 10% (except in the case of Texas, which may not exceed 21%, and California, Georgia and Pennsylvania, which may not individually exceed 15%) of the aggregate Outstanding Balance of all Related Contracts; and (xix) which has an implied interest rate of at least 7.00% per annum. "Equipment" with respect to any Receivable means office, business or other --------- equipment leased or sold to an Obligor by the Originator pursuant to a Contract (including any modifications or substitutions of equipment pursuant to the original Contract giving rise to such Receivable). "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time, and the regulations promulgated and rulings issued thereunder. "Eurocurrency Liabilities" has the meaning assigned to that term in ------------------------ Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Rate" shall mean, with respect to any Eurodollar Tranche funded --------------- or maintained by any Transferee (or any liquidity or credit support provider of PARCO), the Applicable Margin plus a rate per annum equal to the sum (rounded upwards, if necessary, to the next higher 1/100 of 1%) of (i) the rate obtained by dividing (A) the applicable LIBOR Rate by (B) a percentage equal to 100% minus the reserve percentage used for determining the maximum reserve - ----- requirement as specified in Regulation D (including, without limitation, any marginal, emergency, supplemental, special or other reserves) that is applicable to the Administrative Agent during the related Settlement Period in respect of eurocurrency or eurodollar funding, lending or liabilities (or, if more than one percentage shall be so applicable, the daily average of such percentage for those days in such Settlement Period during which any such percentage shall I_7 be applicable) plus (ii) the then daily net annual assessment rate (rounded ---- upwards, if necessary, to the nearest 1/100 of 1%) as estimated by the Administrative Agent for determining the current annual assessment payable by the Administrative Agent to the Federal Deposit Insurance Corporation in respect of eurocurrency or eurodollar funding, lending or liabilities. "Facility Termination Date" means the earlier of the Scheduled Termination ------------------------- Date, or the Termination Date. "Fee Letter" has the meaning set forth in Section 1.04. ---------- "Governmental Obligor" means an Obligor that is the federal government, the -------------------- government of any state or governmental subdivision or any agency of the federal government or the government of any state. "IKON Group" means, collectively, the Transferor, the Originator and the ---------- Parent. "Indemnified Amounts" has the meaning specified in Section 3.01 of the ------------------- Agreement. "Indemnified Party" has the meaning specified in Section 3.01 of the ----------------- Agreement. "Investment Grade" means, with respect to any entity's long-term public ---------------- senior debt securities, a rating of at least "BBB-" by S& P and of at least "Baa3" by Moody's. "LIBOR Rate" shall mean, with respect to any Eurodollar Tranche funded or ---------- maintained by any Transferee (or any liquidity or credit support provider of PARCO), the rate at which deposits in dollars are offered to the Administrative Agent, in the London interbank market at approximately 11:00 a.m. (London time) two Business Days before the first day of the related Settlement Period in an amount approximately equal to the portion of Capital to which the Eurodollar Rate is to apply and for a period of time approximately equal to the applicable Settlement Period. "Material Adverse Change" means any set of circumstances or events which ----------------------- (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of the Agreement or any other Transaction Document, (b) is or could reasonably be expected to be material and adverse to the business, properties, assets, financial condition, results of operations or prospects of the Transferor, the Collection Agent or the Originator or any of their successors or assigns (the "Transferor Parties"), (c) ------------------ impairs materially or could reasonably be expected to impair materially the ability of the Transferor Parties to duly and punctually pay or perform their respective obligations under the Agreement or any other Transaction Document, or (d) impairs materially or could reasonably be expected to impair materially the ability of the Administrative Agent or any Transferee, to the extent permitted, to enforce their legal remedies pursuant to the Agreement or any other Transaction Document. "Moody's" means Moody's Investors Service, Inc. and any successor thereto. ------- "Obligor" means a Person obligated to make payments pursuant to a Contract; ------- provided - -------- I_8 that in the event that any payments in respect of a Contract are made by any other Person, such other Person shall be deemed to be an Obligor. "Other Corporations" means the Parent, the Originator and all of the ------------------ Parent's Subsidiaries except the Transferor. "Originator" shall have the meaning assigned to such term in the preamble. ---------- "Outstanding Balance" of any Contract or Receivables with respect thereto ------------------- at any date means the net present value of the total Periodic Payments due to Transferor over the remaining term of the Contract or that have become due and payable on or prior to such date but remain unpaid on such date (net of any security deposits or advance rental payments received by Transferor) and not yet paid by the Collection Agent pursuant to the provisions of Section 1.03(b), discounted monthly at the Receivables Discount Rate in effect on the Transfer Date of such Contract or Receivable, as determined by subtracting all amounts representing unearned interest from the aggregate amount of such Periodic Payments. "PARCO" shall have the meaning assigned to such term in the preamble. ----- "PARCO Cap" means the interest rate cap or other hedging arrangement --------- entered into by the Transferor (or the rights under which have been assigned to the Transferor) for the purpose of hedging the interest rate risk associated with transferred Receivables bearing interest at a fixed rate, which cap (A) shall have a "strike price" equal to (i) the Receivables Discount Rate as of the Transfer Date of such Receivables, minus (ii) the Collection Agent Fee rate (1.50%), minus (iii) 0.25% and (B) shall be entered into with a cap provider having a short-term rating of A-1/P-1 or the equivalent. "PARCO Termination Event" means (i) the providers of PARCO's program ----------------------- liquidity and/or letter of credit facilities shall have given notice that an event of default has occurred and is continuing under their respective agreements with PARCO or (ii) the expiration of the commitments of all liquidity providers under the Asset Purchase Agreement. "Parent" means IKON Office Solutions, Inc., an Ohio corporation. ------ "Periodic Payments" means the aggregate base rental amounts coming due on a ----------------- periodic basis pursuant to the Contracts giving rise to Receivables, excluding any maintenance charges or, with respect to Contracts covering photocopiers, any per copy charges. "Person" means an individual, partnership, corporation (including a ------ business trust), limited liability company, limited liability partnership, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Potential Trigger Event" means an event that but for notice or lapse of ----------------------- time or both would constitute a Trigger Event. I_9 "Pro Rata" means, with respect to any Transferee, pro rata based on such -------- Transferee's outstanding Capital. So long as PARCO is the Active Transferee, its Pro Rata share of any amount shall be equal to 100% of such amount. "Program Fee" is defined in the Fee Letter. ----------- "Receivable" means the obligations of any Obligor under a Related Contract, ---------- and includes monies received subsequent to the related Transfer Date with respect to (i) all Periodic Payments and (ii) all obligations of such Obligor to pay interest or finance charges and other obligations of such Obligor (other than obligations in respect of taxes or insurance or similar escrow arrangements of any kind) with respect thereto, and all other payments (other than in respect of taxes or insurance or similar escrow arrangements of any kind) received by the Transferor pursuant to such Contract, excluding any maintenance charges or, with respect to Contracts covering photocopiers, any per copy charges. A Receivable arising under a Related Contract for which the Outstanding Balance has been collected shall no longer constitute a "Receivable" outstanding hereunder "Receivables Discount Rate" means, on any Transfer Date, a rate per annum ------------------------- equal to the sum of (i) the CP Rate on the third Business Day prior to such Transfer Date, (ii) the Collection Agent Fee rate (1.50%) and (iii) 0.75%. "Related Contract" means a Contract included in the List of Contracts ---------------- delivered to the Administrative Agent pursuant to paragraph (j) of Exhibit IV hereof; provided, that after the Outstanding Balance of such Contract has been -------- collected, it shall no longer constitute a "Related Contract" hereunder. "Related Security" means with respect to any Receivable: ---------------- (i) all Equipment related to such Receivable; (ii) all security interests or liens and property (including without limitation Equipment) securing or purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; (iii) all guaranties (other than the Support Agreement), insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable (or insuring for loss or liability with respect to the related Equipment), whether pursuant to the Contract related to such Receivable or otherwise and all of the Originator's and the Transferor's rights (if any) to recourse, repurchase or indemnity against any Person with respect to such Receivable; and (iv) the related Contract and all other books, records and other information I_10 (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) relating to such Receivable and the related Obligor. "Required Balance" means, with respect to any Settlement Date, an amount ---------------- equal to (a) the Aggregate Capital on such Settlement Date divided by (b) (i) one minus (ii) the Applicable Percentage. "Required Transferees" shall mean the Transferees having Commitments which, -------------------- in the aggregate, equals at least 66 2/3% of the Aggregate Commitment, or, if the Commitments have been terminated, having Capital which, in the aggregate, equals at least equal 66 2/3% of the Aggregate Capital; provided that the -------- Commitment or Capital of any APA Transferee that has not paid all amounts due and owing by it in respect of Transfers (or portions thereof) that it was obligated to make, shall not be included in any calculations made pursuant to this definition. "S&P" means Standard & Poor's Ratings Services, a division of the McGraw- --- Hill Companies, Inc. and any successor thereto. "Scheduled Termination Date" shall mean two Business Days prior to the -------------------------- Scheduled Commitment Termination Date as defined in the Asset Purchase Agreement. "Settlement Date" means the fifteenth day of each calendar month, or, if --------------- such day is not a Business Day, the next succeeding Business Day. "Settlement Period" means: (i) initially the period commencing on (and ----------------- including) the date of the initial transfer or funding of such Receivables and ending on (and including) the last day of the calendar month in which such Settlement Period began, and (ii) thereafter, each calendar month, provided, -------- that (i) any Settlement Period (other than of one day) which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day; (ii) in the case of any Settlement Period which commences before the Facility Termination Date and would otherwise end on a date occurring after the Facility Termination Date, such Settlement Period shall end on such Facility Termination Date and the duration of each Settlement Period which commences on or after the Facility Termination Date shall be of such duration as shall be selected by the Administrative Agent; and (iii) any Settlement Period in respect of which Yield is computed by reference to the CP Rate may be terminated at the election of, and upon notice thereof to the Transferee, by the Administrative Agent at any time, in which case the Receivables allocated to such terminated Settlement Period shall be allocated to a new Settlement Period commencing on (and including) the date of such I_11 termination and ending on (but excluding) the next following Settlement Date, and shall accrue Yield at the Eurodollar Rate or the Base Rate, in the Administrative Agent's sole discretion. "Special Indemnified Amounts" has the meaning specified in Section 5.07 of --------------------------- the Agreement. "Special Indemnified Party" has the meaning specified in Section 5.07 of ------------------------- the Agreement. "Subsidiary" means any corporation or other entity of which securities ---------- having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Transferor, the Originator or the Parent, as the case may be, or one or more Subsidiaries, or by the Transferor, the Originator or the Parent, as the case may be, and one or more Subsidiaries. "Support Agreement" means the operating agreement, dated as of October 22, ----------------- 1996, between the Originator and the Parent, as such agreement may be amended or supplemented or otherwise modified from time to time. "Termination Date" means the earlier of (a) the date specified pursuant to ---------------- Section 2.02 of the Agreement, and (b) the date on which each Transferee receives an amount equal to its Capital plus accrued Yield thereon plus all other amounts due to it under the Agreement and the Administrative Agent receives all amounts due to it under the Agreement. "Tranche" shall mean with respect to any Transferee, each portion of such ------- Transferee's Capital being funded or maintained by reference to a particular interest rate basis. "Tranche Rate" means, with respect to any Tranche, the rate (which shall be ------------ either the CP Rate, Base Rate, or the Eurodollar Rate as selected at the sole discretion of the Administrative Agent) at which such Tranche is funded or maintained by the applicable Transferee; it being understood that at all times on and after the occurrence and continuation of a Trigger Event, the Tranche Rate with respect to any Tranche, for any Transferee shall be equal to the Base Rate applicable to such Transferee, plus 2.00% per annum. "Transaction Document" means any of the Agreement, the Transfer Agreement -------------------- and all other agreements and documents delivered and/or related hereto or thereto. "Transfer" has the meaning specified in Section 1.01 of the Agreement. -------- "Transfer Agreement" means the Transfer Agreement dated as of the date ------------------ hereof between the Transferor and the Originator, as such agreement may be amended from time to time. "Transfer Date" has the meaning specified in Section 1.02(a) of the ------------- Agreement. "Transfer Limit" means, at any time, the Aggregate Commitment then in -------------- effect divided I_12 by 1.02. "Transferee" means PARCO and each APA Transferee, as applicable. ---------- "Transferor" shall have the meaning assigned to such term in the preamble. ---------- "Transferor Report" means a report, in substantially the form of Annex B ----------------- hereto, furnished by the Collection Agent to the Administrative Agent pursuant to Section 4.02 of the Agreement. "Trigger Event" has the meaning specified in Exhibit V. ------------- "UCC" means the Uniform Commercial Code as from time to time in effect in --- the specified jurisdiction. "Yield" means, with respect to any Transferee: ----- (a) for any Tranche for any Settlement Period with respect to any Transferee to the extent such Tranche will be funded by such Transferee during such Settlement Period through the issuance of Commercial Paper: CPR x C x ED/360 (b) for any Tranche for any Settlement Period with respect to any Transferee to the extent such Tranche will not be funded by such Transferee during such Settlement Period through the issuance of Commercial Paper: TR x C x ED/Year where: TR = the Eurodollar Rate or Base Rate, as applicable, for such Tranche for such Settlement Period with respect to such Transferee, C = the portion of the Capital and any capitalized interest allocated to such Tranche during such Settlement Period with respect to such Transferee, CPR = the CP Rate for the Tranche for such Settlement Period with respect to such Transferee, ED = the actual number of days during such Settlement Period, and Year = if such Tranche is funded based upon: (i) the Eurodollar Rate, 360 days, and (ii) the Base Rate, 365 or 366 days, as applicable, I_13 provided, that no provision of the Agreement shall require the payment or permit - -------- the collection of Yield in excess of the maximum permitted by applicable law; and provided further, that Yield for any Tranche shall not be considered paid by -------- ------- any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason. - - - - - - Other Terms. All accounting terms not specifically defined herein shall be ----------- construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York and not specifically defined herein, are used herein as defined in such Article 9. I_14 EXHIBIT II CONDITIONS OF TRANSFERS 1. Conditions Precedent to the Initial Transfer. The initial Transfer is -------------------------------------------- subject to the conditions precedent that the Administrative Agent shall have received on or before the date of such Transfer the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Administrative Agent: (a) Certified copies of the resolutions of the Board of Directors of the Transferor approving the Transaction Documents and all related actions, and certified copies of all documents evidencing other necessary limited liability company action and governmental approvals, if any, with respect to the Transaction Documents and such actions. (b) Certified copies of the resolutions of the Board of Directors of the Originator approving the Transaction Documents and all related actions, and certified copies of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Transaction Documents and such actions. (c) A certificate of the Secretary or Assistant Secretary of the Transferor certifying the names and true signatures of the officers of the Transferor, authorized to sign the Transaction Documents and the other documents to be delivered by it thereunder. (d) A certificate of the Secretary or Assistant Secretary of the Originator certifying the names and true signatures of the officers of the Originator authorized to sign the Transaction Documents and the other documents to be delivered by it thereunder. (e) A copy of the organizational documents of the Transferor, and a certificate as to the good standing of the Transferor from such Secretary of State or other official, dated as of a recent date. (f) Acknowledgment copies or time stamped receipt copies of proper statements, duly filed on or before the Initial Transfer (or such later date as determined by the Administrative Agent) under the UCC of all jurisdictions that the Administrative Agent may deem necessary or desirable in order to perfect the interests contemplated by the Agreement. (g) Acknowledgment copies or time stamped receipt copies of proper financing statements, if any, necessary to release all security interests and other rights of any Person in the (i) Receivables, Related Contracts or Related Security previously granted by the Transferor and the Originator and (ii) the collateral security referred to in Section 1.11. (h) Completed requests for information, listing all effective financing statements filed in the jurisdictions referred to in subsection (f) above that name the Transferor as debtor, together with copies of such other financing statements (none of which shall cover any Receivables, II_1 Related Contracts, Related Security or the collateral security referred to in Section 1.11). (i) An opinion of Mayer, Brown and Platt, addressed to the Administrative Agent and the Transferees, in form and substance reasonably acceptable to the Administrative Agent, regarding substantive consolidation in the event of a bankruptcy of the Originator and such other matters as the Administrative Agent may reasonably request. (j) An opinion of Mayer, Brown and Platt, addressed to the Administrative Agent and the Transferees, in form and substance reasonably acceptable to the Administrative Agent, regarding "true sale" between the Originator and the Transferor in the event of a bankruptcy of the Originator and such other matters as the Administrative Agent may reasonably request. (k) An opinion of special counsel to the Originator, addressed to the Administrative Agent and the Transferees, in form and substance reasonably acceptable to the Administrative Agent, regarding the validity, perfection and first priority of the security interest granted by the Originator to the Transferor, the validity, perfection and first priority of the security interest granted by the Transferor to the Administrative Agent, on behalf of the Transferees, and such other matters as the Administrative Agent may reasonably request. (l) An opinion of the general counsel to the Transferor and the Originator, addressed to the Administrative Agent and the Transferees, in form and substance reasonably acceptable to the Administrative Agent, regarding the enforceability of the Transaction Documents to which each is a party and the validity of the creation of the security interest. (m) An opinion of the general counsel of the Originator and the Transferor, addressed to the Administrative Agent and the Transferees, in form and substance reasonably acceptable to the Administrative Agent, regarding certain corporate matters. (n) The Fee Letter duly executed by all parties thereto, and payment of all fees required to be paid on the Closing Date, and reimbursement of the Administrative Agent and the Transferees for all costs and expenses of the closing of the transaction (including reasonable legal fees and costs). (o) The Transfer Agreement, duly executed by all parties thereto. (p) Satisfactory results of a review and audit by the Administrative Agent of the Originator's collection, operating and reporting systems, Credit and Collection Policy, historical receivables data and accounts. (q) The following financial information of the Transferor and the Collection Agent and their respective Subsidiaries: (i) audited financial statements prepared in accordance with GAAP on a consolidated and consolidating basis (consolidating statements need not be audited by such accountants) for the period January 1, 1999 through December 31, 1999 and (ii) consolidated and consolidating unaudited financial statements for the fiscal quarter ended June 30, 2000. II_2 (r) A letter from each Rating Agency rating PARCO's Commercial Paper confirming its rating of PARCO's Commercial Paper or that such rating will not be withdrawn or downgraded after giving effect to the Agreement and the transactions contemplated hereby. (s) A officer's certificate of each of the Originator and the Transferor certifying that the representations and warranties of the Originator set forth in the Transfer Agreement and of the Transferor set forth herein hereof are true and correct in all material respects as of the Closing Date. (t) A Pro Forma Transferor Report. (u) The Transferor shall have entered into, or been assigned the rights under, the PARCO Cap. Payment of the Consideration for the initial Transfer hereunder shall constitute acknowledgment by the Administrative Agent that all of the conditions set forth have been fulfilled or waived. 2. Additional Conditions Precedent. Each Transfer shall be subject to ------------------------------- the further conditions precedent that: (a) on or prior to the date of such Transfer, the Collection Agent shall have delivered to the Administrative Agent, in form and substance satisfactory to the Administrative Agent, a completed Transferor Report dated within 30 days prior to the date of such Transfer together with a listing by Obligor of all Receivables and such additional information as may reasonably be requested by the Administrative Agent; (b) on the date of such Transfer the following statements shall be true (and acceptance of the proceeds of such Transfer shall be deemed a representation and warranty by the Transferor that such statements are then true): (i) The representations and warranties of the Transferor contained in Exhibit III are correct on and as of the date of such Transfer as though made on and as of such date; (ii) The representations and warranties of the Originator contained in the Transaction Documents are correct on and as of the date of such Transfer as though made on and as of such date; (iii) No event has occurred and is continuing, or would result from such Transfer, that constitutes a Trigger Event or Potential Trigger Event; II_3 (iv) The Facility Termination Date shall not have occurred or, in the case of PARCO, no PARCO Termination Event shall have occurred; (v) The Aggregate Capital does not exceed the Transfer Limit; (vi) The outstanding Outstanding Balance of all Eligible Receivables is not less than the Required Balance. (c) the Administrative Agent shall have received such other approvals, opinions or documents as it may reasonably request; and (d) the Administrative Agent shall have received the list of the Related Contracts to be included in such Transfer that is required to be delivered pursuant to paragraph (j) of Exhibit IV hereof. II_4 EXHIBIT III REPRESENTATIONS AND WARRANTIES The Transferor represents and warrants as follows: (a) The Transferor is a limited liability company duly formed, validly existing and in good standing under the laws of Delaware, and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified. (b) The execution, delivery and performance by the Transferor of the Transaction Documents (i) are within the Transferor's limited liability company powers, (ii) have been duly authorized by all necessary limited liability company action, (iii) do not contravene (1) the Transferor's organizational documents, (2) any law, rule or regulation applicable to the Transferor, (3) any contractual restriction binding on or affecting the Transferor or its property or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Transferor or its property, and (iv) do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties (other than those created pursuant to the Transaction Documents); and no transaction contemplated by the Agreement requires compliance with any bulk sales act or similar law. Each of the Transaction Documents has been duly executed and delivered by the Transferor. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Transferor of the Transaction Documents, except for the filing of the UCC financing statements which are referred to therein. (d) Each of the Transaction Documents constitutes the legal, valid and binding obligation of the Transferor enforceable against the Transferor in accordance with its terms. (e) The balance sheets of the Originator and its Subsidiaries as at December 31, 1999 and June 30, 2000 and the related statements of income and retained earnings of the Originator and its Subsidiaries for the fiscal year then ended, copies of which have been furnished to the Administrative Agent, fairly present the financial condition of the Originator and its Subsidiaries as at such date and the results of the operations of Originator and its Subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied, and since June 30, 2000 there has been no material adverse change in the business, operations, property or financial or other condition of the Originator. Since the date of its formation, there has not been a material adverse change in the business, operations, property or financial or other condition of the Transferor. (f) There is no pending or threatened action or proceeding affecting the Originator or any of its Subsidiaries before any court, governmental agency or arbitrator which would materially adversely affect the financial condition or operations of the Originator or any of its III_1 Subsidiaries or the ability of the Transferor or the Originator to perform their respective obligations under the Transaction Documents, or which purports to affect the legality, validity or enforceability of the Transaction Documents; neither the Originator nor any Subsidiary is in default with respect to any order of any court, arbitration or governmental body. (g) No proceeds of any Transfer will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended. (h) Each Receivable transferred by the Transferor hereunder is an Eligible Receivable on the date of the related Transfer, and the Transferor has the right to transfer such Receivable and all Related Security together with the Contract related thereto, free and clear of any Adverse Claim, other than the effect of the Agreement and the transactions contemplated hereby. Upon each Transfer, the Administrative Agent (for the benefit of the Transferees) will acquire a valid and perfected first priority interest in each Receivable and in the Related Security (except to the extent noted above) and Collections with respect thereto. No effective financing statement or other instrument similar in effect covering any Related Contract or any Receivable or the Related Security or Collections with respect thereto is on file in any recording office except for those filed in favor of the Administrative Agent relating to the Agreement and those filed by the Transferor pursuant to the Transfer Agreement. (i) Each Transferor Report (if prepared by the Originator or one of its Affiliates, or to the extent that information contained therein is supplied by the Transferor, the Originator or any Affiliate thereof), information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time by or on behalf of the Transferor or the Originator to the Administrative Agent or any Transferee in connection with the Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Administrative Agent or the Transferees, as the case may be, at such time) as of the date so furnished, and no such document contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. (j) The principal place of business and chief executive office of the Transferor and the office where the Transferor keeps its records concerning the Receivables are located at the respective addresses identified on Exhibit VI. (k) The Outstanding Balance with respect to each Receivable, as of the date of Transfer of such Receivable, is correctly set forth on Schedule II (as supplemented pursuant to Section 1.02(a)). (l) Schedule II (as supplemented pursuant to Section 1.02(a)) sets forth accurately and completely in all material respects, as of the date of Transfer of each Receivable, the information with respect to each such Receivable transferred on such date. (m) Each Contract giving rise to a Receivable provides for Periodic Payments that will fully amortize such Receivable over the term of the Contract related thereto and the Transferor III_2 has not extended the maturity or adjusted the Outstanding Balance of any Receivable, or amended, modified or waived the terms of any Receivable or any Contract relating to any Receivable such that the interests of the Administrative Agent or the Transferees would be materially and adversely affected thereby. (n) The Transferor is not known by and does not use any tradename or doing- business-as name. (o) The Transferor was formed on August 29, 2000. The Transferor has no Subsidiaries. (p) (i) The fair value of the property of the Transferor is greater than the total amount of liabilities, including contingent liabilities, of the Transferor, (ii) the present fair salable value of the assets of the Transferor is not less than the amount that will be required to pay all probable liabilities of the Transferor on its debts as they become absolute and matured, (iii) the Transferor does not intend to, and does not believe that it will, incur debts or liabilities beyond the Transferor's abilities to pay such debts and liabilities as they mature and (iv) the Transferor is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which the Transferor's property would constitute unreasonably small capital. (q) With respect to each Receivable, the Transferor shall have received such Receivable from the Originator in exchange for payment (made by the Transferor to the Originator in accordance with the provisions of the Transfer Agreement) of cash in an amount which constitutes fair consideration and reasonably equivalent value. Each such transfer referred to in the preceding sentence shall not have been made for or on account of an antecedent debt owed by the Originator to the Transferor and no such transfer is or may be voidable or subject to avoidance under any section of the Federal Bankruptcy Code. (r) With respect to each Receivable transferred hereunder, such Receivable is representative of all of the Receivables owned by the Transferor. III_3 EXHIBIT IV COVENANTS Until the Termination Date, unless the Administrative Agent shall otherwise consent in writing: (a) Compliance with Laws, Etc. The Transferor will comply in all material ------------------------- respects with all applicable laws, rules, regulations and orders and preserve and maintain its limited liability company existence, rights, franchises, qualifications and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications and privileges would not materially adversely affect the collectibility of the Receivables or the ability of the Transferor to perform its obligations under the Transaction Documents. (b) Offices, Records and Books of Account. The Transferor will keep its ------------------------------------- principal place of business and chief executive office and the office where it keeps its records concerning the Receivables (and all original documents relating thereto) at the respective addresses set forth on Exhibit VI of the Agreement or, upon 30 days' prior written notice to the Administrative Agent, at any other locations in jurisdictions where all actions reasonably requested by the Administrative Agent to protect and perfect the interest in the Receivables have been taken and completed. The Transferor also will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing the Receivables and Related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of each Receivable and all Collections of and adjustments to each Receivable). (c) Performance and Compliance with Related Contracts and Credit and ---------------------------------------------------------------- Collection Policy. The Transferor will, at its expense, timely and fully - ----------------- perform and comply with all material provisions, covenants and other promises required to be observed by it under the Related Contracts, and timely and fully comply in all material respects with the Credit and Collection Policy in regard to each Receivable and the Related Contract. (d) Sales, Liens, Etc. The Transferor will not sell, assign (by operation ----------------- of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, its interest in any Receivable transferred to the Administrative Agent or the Transferees under the Agreement or any Related Security, Related Contract or Collections, or assign any right to receive income in respect thereof. (e) Extension or Amendment of the Receivables. The Transferor will not, ----------------------------------------- and will not permit the Collection Agent to, extend the maturity or adjust the Outstanding Balance of any Receivable or otherwise modify the terms of any Receivable, or amend, modify or waive any IV_1 term or condition of any Related Contract such that the interests of the Administrative Agent or the Transferees would be materially and adversely affected thereby. (f) Change in Business or Credit and Collection Policy. (i) The Transferor -------------------------------------------------- will not make any change in the character of its business, and (ii) the Transferor will not make, and will not permit the Originator to make, any change in the Credit and Collection Policy that would, in either case, materially adversely affect the collectibility of the Receivables or the ability of the Transferor or the Originator to perform their respective obligations under the Transaction Documents. (g) Change in Payment Instructions to Obligors. The Transferor will not ------------------------------------------ make any change in its instructions to Obligors of Related Contracts regarding payments to be made to the Transferor unless the Administrative Agent shall have received notice of and agreed to such addition, termination or change. (h) Further Action Evidencing the Transfer. The Transferor will from time -------------------------------------- to time, execute and deliver all further instruments and documents and take all further action that the Administrative Agent may reasonably request in order to perfect, protect or more fully evidence the interest in the Receivables, the Related Contracts, and the Related Security and Collections with respect thereto transferred to the Administrative Agent (for the benefit of the Transferees) under the Agreement or to enable the Administrative Agent or any Transferee to exercise or enforce any of its rights under the Transaction Documents. Without limiting the generality of the foregoing, the Transferor will, or will cause the Collection Agent to, (i) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate, including, without limitation, (A) filing such financing statements as may be reasonably necessary, in the Administrative Agent's opinion, to perfect the security interest of the Administrative Agent in the right, title and interest of the Transferor in Equipment granted hereunder, within 30 days of the Initial Transfer Date, and (B) provide an opinion of counsel with respect to the perfection of such security interest, in form and substance satisfactory to the Administrative Agent, within 30 days of the Initial Transfer Date; (ii) providing to the Administrative Agent, from time to time, all information regarding the location of any such Equipment as may be reasonably necessary, in the Administrative Agent's opinion, to prepare any financing statement relating to such Equipment; ; and (iii) upon the occurrence of a Trigger Event or Potential Trigger Event, (x) mark conspicuously each Related Contract with a legend, acceptable to the Administrative Agent, evidencing that an interest in the Receivable has been transferred to the Administrative Agent (for the benefit of the Transferees) under the Agreement; and (y) code the Collection Agent's master data processing records evidencing Receivables and Related Contracts to the foregoing effect. The Transferor hereby authorizes the Administrative Agent to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Receivables and the Related Security without the signature of the Transferor where permitted by law. A photocopy or other reproduction of the Agreement shall be sufficient as a financing statement where permitted by law. If the Transferor fails after notice to perform any of its agreements or obligations under the Transaction Documents, the Administrative Agent may (but shall not be required to) itself perform, or cause performance of, such agreement or IV_2 obligation, and the expenses of the Administrative Agent incurred in connection therewith shall be payable as provided in the Agreement. (i) Assembly of Documents. The Transferor will, or will cause the --------------------- Collection Agent to, at the Administrative Agent's request following the occurrence of a Trigger Event or Potential Trigger Event, (A) assemble all documents, instruments and other records (including, without limitation, computer tapes and disks) which evidence or relate to the Receivables, and the Related Contracts and Related Security, or which are otherwise necessary or desirable to collect the Receivables, and make the same available to the Administrative Agent at a place selected by the Administrative Agent or its designee, and (B) segregate all cash, checks and other instruments received by it or the Collection Agent from time to time constituting Collections of Receivables in a manner acceptable to the Administrative Agent and shall, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Administrative Agent or its designee. (j) Delivery of List of Related Contracts. The Transferor will on or prior ------------------------------------- to the date of each Transfer, deliver to the Administrative Agent a complete and accurate list of each Related Contract, together with the contract number, the name of the Obligor and the Outstanding Balance thereof. (k) Reporting Requirements. The Transferor will provide to the ---------------------- Administrative Agent (in multiple copies, if requested by the Administrative Agent) the following: (i) as soon as available and in any event within 60 days after the end of the first three quarters of each fiscal year of the Originator, balance sheets of the Originator and its Subsidiaries as of the end of such quarter and statements of income and retained earnings of the Originator and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the chief financial officer of the Originator; (ii) as soon as available and in any event within 120 days after the end of each fiscal year of the Originator, a copy of the annual report for such year for the Parent and the Annual Report on Form 10-K for the Originator and its Subsidiaries, containing financial statements for such year audited by Price Waterhousecoopers LLP, or other independent public accountants acceptable to the Administrative Agent; (iii) as soon as possible and in any event within five days after the occurrence of each Trigger Event or Potential Trigger Event, a statement of the chief financial officer of the Transferor setting forth details of such Trigger Event or Potential Trigger Event and the action that the Transferor has taken and proposes to take with respect thereto; (iv) promptly after the sending or filing thereof, copies of all reports that the Originator sends to any of its securityholders, and copies of all reports and registration statements that the Originator or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange; IV_3 (v) promptly after the filing or receiving thereof, copies of all reports and notices that the Originator or any Affiliate of either thereof files under ERISA with the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or that the Originator or any Affiliate of either thereof receives from any of the foregoing or from any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which the Originator or any Affiliate of either thereof is or was, within the preceding five years, a contributing employer, in each case in respect of the assessment of withdrawal liability or an event or condition which could, in the aggregate, result in the imposition of liability on the Originator and/or any such Affiliate in excess of $5,000,000; (vi) at least ten Business Days prior to any change in the Transferor's or Originator's name, a notice setting forth the new name and the effective date thereof; (vii) promptly, from time to time, such other information, documents, records or reports respecting the Receivables or the condition or operations, financial or otherwise, of the Transferor, the Originator or any of its subsidiaries as the Administrative Agent may from time to time reasonably request; (viii) promptly after the Transferor obtains knowledge thereof, notice of any (a) litigation, investigation or proceeding which may exist at any time between the Transferor or the Originator and any governmental authority which, in either case, if not cured or if adversely determined, as the case may be, would have a material adverse effect on the business, operations, property or financial or other condition of the Transferor or the Originator; (b) litigation or proceeding adversely affecting the Transferor's ability to perform its obligations under the Transaction Documents or the Originator's ability to perform their obligations under the Transaction Documents or (c) litigation or proceeding adversely affecting the Transferor or the Originator in which in the case of the Originator, the amount involved is $10,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought; (ix) promptly after the occurrence thereof, notice of a material adverse change in the business, operations, property or financial or other condition of the Transferor or the Originator; (x) promptly after the Transferor obtains knowledge thereof, notice of any "Event of Termination", "Incipient Event of Termination" or "Facility Termination Date" under the Transfer Agreement; (xi) so long as any Capital shall be outstanding, as soon as possible and in any event no later than the day of occurrence thereof, notice that the Originator has stopped selling or contributing to the Transferor, pursuant to the Transfer Agreement, newly arising Receivables; IV_4 (xii) at the time of the delivery of the financial statements provided for in clauses (i) and (ii) of this paragraph, a certificate of the chief financial officer or the treasurer of the Transferor to the effect that, to the best of such officer's knowledge, no Trigger Event or Potential Trigger Event has occurred and is continuing or, if any such Trigger Event or Potential Trigger Event has occurred and is continuing, specifying the nature and extent thereof; and (xiii) promptly after receipt thereof, copies of all notices received by the Transferor from the Originator under the Transfer Agreement. (l) Separateness. (i) The Transferor shall at all times be managed by an ------------ entity which has at least one independent director, who (x) is not currently and has not been during the five years preceding the date of the Agreement an officer, director or employee of an Affiliate of the Originator or any Other Corporation, (y) is not a current or former officer or employee of the Originator and (z) is not a stockholder of any Other Corporation or any of their respective Affiliates. (ii) The Transferor shall not direct or participate in the management of any other entity's operations. (iii) The Transferor shall conduct its business from an office separate from that of any other entity (but which may be located in the same facility as one or more of the Other Corporations). (iv) The Transferor shall at all times be adequately capitalized in light of its contemplated business. (v) The Transferor shall at all times provide for its own operating expenses and liabilities from its own funds. (vi) The Transferor shall maintain its assets and transactions separately from those of any other entity and reflect such assets and transactions in financial statements separate and distinct from those of any other entity and evidence such assets and transactions by appropriate entries in books and records separate and distinct from those of any other entity. The Transferor shall hold itself out to the public under the Transferor's own name as a legal entity separate and distinct from all other entities. The Transferor shall not hold itself out as having agreed to pay, or as being liable, primarily or secondarily, for, any obligations of any other entity. (vii) The Transferor shall not become liable as a guarantor or otherwise with respect to any Debt or contractual obligation of any other entity. (viii) The Transferor shall not make any payment or distribution of assets with respect to any obligation of any other entity or grant an Adverse Claim on any of its assets to secure any obligation of any other entity. IV_5 (ix) The Transferor shall not make loans, advances or otherwise extend credit to any other entity. (x) Each of the Transferor's sole member and manager shall hold regular duly noticed meetings of its respective Board of Directors and make and retain minutes of such meetings. (xi) The Transferor shall have bills of sale (or similar instruments of assignment) and, if appropriate, UCC-1 financing statements, with respect to all assets purchased from any other entity. (xii) The Transferor shall not engage in any transaction with any of the Other Corporations, except as permitted by its organizational documents. (m) Transfer Agreement. The Transferor will not amend, waive or modify any ------------------ provision of the Transfer Agreement or waive the occurrence of any "Event of Termination" under the Transfer Agreement, without in each case the prior written consent of the Administrative Agent. The Transferor will perform all of its obligations under the Transfer Agreement in all material respects and will enforce the Transfer Agreement in accordance with its terms in all material respects. (n) Nature of Business. The Transferor will not engage in any business ------------------ other than the purchase of Receivables, Related Security and Collections from the Originator and the transactions contemplated by the Agreement. The Transferor will not create or form any Subsidiary. (o) Mergers, Etc. The Transferor will not merge with or into or ------------ consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions), all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets or capital stock or other ownership interest of, or enter into any joint venture or partnership agreement with, any Person, other than as contemplated by the Agreement and the Transfer Agreement. (p) Distributions, Etc. The Transferor will not declare or make any ------------------ dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any membership interest in the Transferor, or return any capital to its members as such, or purchase, retire, defease, redeem or otherwise acquire for value or make any payment in respect of any membership interest in the Transferor or any warrants, rights or options to acquire any such shares, now or hereafter outstanding; provided, however, that -------- ------- the Transferor may declare and pay cash distributions on its membership interests to its members so long as (i) no Trigger Event or Potential Trigger Event shall then exist or would occur as a result thereof, (ii) such distributions are in compliance with all applicable law including the law of the state of Delaware, and (iii) such distribution have been approved by all necessary and appropriate action of the Transferor. IV_6 (q) Debt. The Transferor will not incur any Debt, other than any Debt ---- incurred pursuant to the Agreement and the Transfer Agreement. (r) Limited Liability Company Agreement. The Transferor will not amend or ----------------------------------- delete Section 5.1 or 5.5 of its Limited Liability Company Agreement. (s) Covenant of the Transferor and the Originator. Until the latest of the --------------------------------------------- Facility Termination Date, the date on which no Capital of or Yield on any Receivable shall be outstanding or the date all other amounts owed by the Transferor hereunder to the Transferees or the Administrative Agent are paid in full, each of the Transferor and the Originator will, at their respective expense, from time to time during regular business hours as requested by the Administrative Agent, permit the Administrative Agent or its agents or representatives (including independent public accountants, which may be the Transferor's or the Originator's independent public accountants), (i) to conduct periodic audits of the Receivables, the Related Security and the related books and records and collections systems of the Transferor or the Originator, as the case may be, (ii) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of the Transferor or the Originator, as the case may be, relating to Receivables and the Related Security, including, without limitation, the Contracts, and (iii) to visit the offices and properties of the Transferor or the Originator, as the case may be, for the purpose of examining such materials described in clause (ii) above, and to discuss matters relating to the Receivables and the Related Security or the Transferor's or the Originator's performance under the Transaction Documents or under the Contracts with any of the officers or employees of the Transferor or the Originator, as the case may be, having knowledge of such matters. In addition, upon the Administrative Agent's request at least once per year, the Transferor will, at its expense, appoint independent public accountants (which may, with the consent of the Administrative Agent, be the Transferor's regular independent public accountants), or utilize the Administrative Agent's representatives or auditors, to prepare and deliver to the Administrative Agent a written report with respect to the Receivables and the Credit and Collection Policy (including, in each case, the systems, procedures and records relating thereto) on a scope and in a form reasonably requested by the Administrative Agent. (t) Collections. At all times following the designation by the ----------- Administrative Agent of any Designated Account, the Transferor will deposit, or cause to be deposited, all Collections to such Designated Account. (u) Deposits to Designated Accounts. The Transferor and the Collection ------------------------------- Agent will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Designated Account cash or cash proceeds other than Collections of Receivables. IV_7 EXHIBIT V TRIGGER EVENTS Each of the following, unless waived in writing by the Administrative Agent (other than as set forth in clause (h) which cannot be waived), shall be a "Trigger Event": - -------------- (a) The Collection Agent (if the Originator or any of its Affiliates) (i) shall fail to perform or observe any term, covenant or agreement under the Agreement (other than as referred to in clause (ii) of this paragraph (a)) and such failure shall remain unremedied for three Business Days after receipt of notice or actual knowledge thereof or (ii) shall fail to make when due any payment or deposit to be made by it under the Agreement; or (b) The Transferor or the Originator shall fail (i) to transfer to the Administrative Agent when requested any rights pursuant to the Agreement which the Transferor or the Originator then has as Collection Agent or otherwise or (ii) to make any payment required under Section 1.03, 3.02 or 3.03 of the Agreement; or (c) Any representation or warranty made by the Transferor or the Originator (or any of their respective officers) under the Transaction Documents, or any information or report delivered by the Transferor or the Originator pursuant to the Transaction Documents shall prove to have been incorrect or untrue in any material respect when made or delivered; or (d) The Transferor shall fail to perform or observe any other term, covenant or agreement contained in the Transaction Documents on its part to be performed or observed and any such failure shall remain unremedied for ten days after written notice thereof shall have been given to the Transferor by the Administrative Agent; or (e) The Originator shall fail to perform or observe any term, covenant or agreement contained in the Transaction Documents on its part to be performed or observed and any such failure shall remain unremedied for ten days after written notice thereof shall have been given to the Originator by the Administrative Agent (or, with respect to a failure to deliver the Transferor Report pursuant to Section 4.02 of the Agreement such failure shall remain unremedied for three days, without a requirement for notice); or (f) Any member of the IKON Group or any Subsidiary thereof shall fail to pay any principal of or premium or interest on any of its Debt which is outstanding in a principal amount of at least $10,000,000 in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be V_1 declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to repay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (g) Any Transfer shall for any reason cease to create, or the interest of the Administrative Agent (for the benefit of the Transferees) in any Receivable shall for any reason cease to be, a valid and perfected first priority interest in each Receivable and the Related Security and Collections with respect thereto; or the security interest created pursuant to Section 1.11 shall for any reason cease to be a valid first priority security interest in the collateral security referred to in such Section; or (h) Any member of the IKON Group or any Subsidiary thereof shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any such member or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or any member of the IKON Group or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this paragraph (h); or (i) As of the last day of any calendar month:(i) the Default Ratio averaged over the three-month period ending on such day exceeds 1% or (ii) the Delinquency Ratio averaged over the three-month period ending on such day exceeds 18%; or (j) There shall have occurred any material adverse change in the business, operations, property or financial or other condition of the Originator since June 30, 2000 or the Transferor since the date of its formation; or there shall have occurred any event which may materially adversely affect the collectibility of the Receivables, the ability of the Collection Agent or the Transferor to collect the Receivables or the ability of the Originator or the Transferor to perform its respective obligations under the Transaction Documents; or (k) Any rating of the long-term debt obligations of the Originator are withdrawn or reduced below Investment Grade; or (l) An "Event of Termination" or "Facility Termination Date" shall occur under the Transfer Agreement, or the Transfer Agreement shall cease to be in full force and effect; or V_2 (m) All of the members' interests of the Transferor shall cease to be owned, directly or indirectly, by the Originator; or (n) On the last day of any calendar month, (a) the aggregate Outstanding Balance of all Eligible Receivables is less than (b) the Required Balance. (o) The Transferor shall fail to comply with the covenant contained in clause (k)(x) of Exhibit IV. ---------- V_3 EXHIBIT VI The principal place of business and chief executive offices of the Transferor are located at: IKON FUNDING-2, LLC 1738 Bass Road Macon, Georgia 31210 The original records concerning the Receivables (and all original documents related thereto) are located at the offices of the Collection Agent at: IOS CAPITAL, INC. 1738 Bass Road Macon, Georgia 31210 VI_1 ANNEX A Form of Contract VI_2 ANNEX B Form of Transferor Report ANNEX C FORM TRANSFER NOTICE ______________, _____ THE CHASE MANHATTAN BANK 450 West 33rd Street, 15th Floor New York, NY 10001 Attention: Lara Graff Ladies and Gentlemen: Reference is hereby made to the Receivables Transfer Agreement, dated as of September ___, 2000 (as amended, supplemented or otherwise modified, the "Receivables Transfer Agreement"), among IKON Funding-2, LLC, as Transferor, IOS - ------------------------------- Capital, Inc., as Originator and Collection Agent, Park Avenue Receivables Corporation, as Conduit Transferee, the APA Transferees from time to time party thereto and The Chase Manhattan Bank, as Administrative Agent. Capitalized terms used in this Transfer Notice and not otherwise defined herein shall have the meanings assigned thereto in the Receivables Transfer Agreement. This letter constitutes a Transfer Notice pursuant to Section 1.02(a) of --------------- the Receivables Transfer Agreement. The Transferor desires to effect a Transfer on ____________, _____ for Consideration of $___________. /1/ The Aggregate Adjusted Outstanding Balance of the Receivables to be transferred in connection herewith is $____________, as shown on the attached addendum to Schedule II to ----------- the Receivables Transfer Agreement. The Transferor hereby represents and warrants as of the date hereof, and as of the date of Transfer, as follows: (i) The representations and warranties of the Transferor contained in Exhibit III are correct on and as of the date of the Transfer as though made on and as of such date; (ii) The representations and warranties of the Originator contained in the Transaction Documents are correct on and as of the date of the Transfer as though made on and as of such date; (iii) No event has occurred and is continuing, or would result from the Transfer, that constitutes a Trigger Event or Potential Trigger Event; - ------------------------------ /1/ Minimum amount of $10,000,000 and increments of $100,000 in excess thereof. (iv) The Facility Termination Date has not have occurred or, in the case of PARCO, no PARCO Termination Event has not occurred; (v) The Aggregate Capital does not exceed the Transfer Limit; (vi) The outstanding Outstanding Balance of all Eligible Receivables is not less than the Required Balance. Attached hereto is a true and correct schedule setting forth detailed information regarding the Receivables to be included in the proposed Transfer, including an addendum to Schedule II to the Receivables Transfer Agreement. IN WITNESS WHEREOF, the undersigned has caused this Transfer Notice to be executed by its duly authorized officer as of the date first above written. IKON FUNDING-2, LLC By:_______________________________ Name: Title: ANNEX D FORM OF PAYDOWN NOTICE ______________, _____ THE CHASE MANHATTAN BANK 450 West 33rd Street, 15th Floor New York, NY 10001 Attention: Lara Graff Ladies and Gentlemen: Reference is hereby made to the Receivables Transfer Agreement, dated as of September 19, 2000 (as amended, supplemented or otherwise modified, the "Receivables Transfer Agreement"), among IKON Funding-2, LLC, as Transferor, IOS - ------------------------------- Capital, Inc., as Originator and Collection Agent, Park Avenue Receivables Corporation, as Conduit Transferee, the APA Transferees from time to time party thereto and The Chase Manhattan Bank, as Administrative Agent. Capitalized terms used in this Transfer Notice and not otherwise defined herein shall have the meanings assigned thereto in the Receivables Transfer Agreement. This letter constitutes a Paydown Notice pursuant to Section 1.03(g) of the --------------- Receivables Transfer Agreement. The Transferor desires to reduce the Aggregate Capital on ____________, _____/2/ by the application of $___________ in cash to pay the Aggregate Capital and Yield accrued and to accrue (until such cash can be used to pay Commercial Paper notes) with respect to such Aggregate Capital, together with all costs related to such reduction of Capital. IN WITNESS WHEREOF, the undersigned has caused this Transfer Notice to be executed by its duly authorized officer as of the date first above written. IKON FUNDING-2, LLC By:_______________________________ Name: Title: _____________________ /2/ Notice must be given at least ten Business Days' prior to the requested paydown date, in the case of reductions in excess of $25,000,000, or at least two Business Days' prior to the requested paydown date, in the case of reductions of $25,000,000 or less. EX-10.13 3 0003.txt TRANSFER AGREEMENT DATED 09/19/2000 Exhibit 10.13 EXECUTION COPY TRANSFER AGREEMENT Dated as of September 19, 2000 Between IOS CAPITAL, INC. As Originator ------------- And IKON FUNDING-2, LLC As Transferee ------------- TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS............................................................ 1 SECTION 1.01. Certain Defined Terms......................................... 1 Adverse Claim........................................................... 1 Affiliate............................................................... 1 Business Day............................................................ 1 Collections............................................................. 1 Event of Termination.................................................... 4 Facility................................................................ 4 Facility Termination Date............................................... 4 General Trial Balance................................................... 4 Incipient Event of Termination.......................................... 4 Indemnified Amounts..................................................... 4 Outstanding Balance..................................................... 4 Purchase Price.......................................................... 5 Receivable.............................................................. 5 Receivables Transfer Agreement.......................................... 5 Receivables Transfer Request............................................ 5 Related Contract........................................................ 5 Settlement Date......................................................... 5 Transfer................................................................ 5 Transfer Date........................................................... 5 Transferred Receivable.................................................. 5 SECTION 1.02. Other Terms................................................... 5 ARTICLE II AMOUNTS AND TERMS OF TRANSFERS AND CONTRIBUTIONS...................... 6 SECTION 2.01. Facility...................................................... 6 SECTION 2.02. Making Transfers.............................................. 6 SECTION 2.03. Collections................................................... 7 SECTION 2.04. Settlement Procedures......................................... 7 SECTION 2.05. Payments and Computations, Etc................................ 7 SECTION 2.06. True Sales and/or Contributions............................... 8 ARTICLE III CONDITIONS OF TRANSFERS.............................................. 8 SECTION 3.01. Conditions Precedent to Initial Transfer from the Originator.. 8 SECTION 3.02. Conditions Precedent to All Transfers......................... 9 ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................ 10 SECTION 4.01. A. Representations and Warranties of the Originator........... 10 ARTICLE V COVENANTS.............................................................. 13 SECTION 5.01. A. Covenants of the Originator............................... 13 B. Covenants of the Transferee............................... 17
i ARTICLE VI TRANSFER OF RECORDS................................................... 17 SECTION 6.01. Transfer of Records to Transferee............................. 17 ARTICLE VII EVENTS OF TERMINATION................................................ 18 SECTION 7.01. Events of Termination......................................... 18 ARTICLE VIII INDEMNIFICATION..................................................... 20 SECTION 8.01. Indemnities by the Originator................................. 20 ARTICLE IX MISCELLANEOUS......................................................... 20 SECTION 9.01. Amendments, Etc............................................... 20 SECTION 9.02. Notices, Etc.................................................. 20 SECTION 9.03. Binding Effect: Assignability................................. 21 SECTION 9.04. Costs, Expenses and Taxes..................................... 21 SECTION 9.05. No Proceedings................................................ 21 SECTION 9.06. Confidentiality............................................... 22 SECTION 9.07. GOVERNING LAW................................................. 22 SECTION 9.08. Third Party Beneficiary....................................... 22 SECTION 9.09. Tax Treatment................................................. 22 SECTION 9.10. Execution in Counterparts..................................... 22
EXHIBIT A Credit and Collection Policy EXHIBIT B Principal Place of Business and Location of Records ii TRANSFER AGREEMENT Dated as of September 19, 2000 (the "Transferee"), agree as follows: ---------- defined above) are defined in Article I of this Agreement. Receivables on the terms set forth herein. ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the --------------------- following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Adverse Claim" means a lien, security interest, or other charge or ------------- encumbrance, or any other type of preferential arrangement. "Affiliate" means, as to any Person, any other Person that, directly --------- or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person. "Business Day" means any day on which banks are not authorized or ------------ required to close in New York City. "Chase" means The Chase Manhattan Bank, a New York State banking ----- corporation. "Collections" means, with respect to any Receivable, (a) all cash ----------- collections and other cash proceeds of such Receivable, including, without limitation, any proceeds resulting from the repurchase of such Receivable by IKON Office Solutions, Inc. and all cash proceeds of Related Security with respect to such Receivable (including, without limitation, payments under the related Contract due upon or in connection with (i) Obligor's default under the Contract, (ii) loss, theft or damage to the related Equipment, or (iii) renewal of the Contract); provided, that Collections shall not include collections which -------- represent the payment of (x) maintenance charges or (y) insurance premiums, (b) all Collections deemed to have been received pursuant to Section 2.04 and (c) all other proceeds of such Receivable. "Eligible Receivable" means, at any time, a Receivable: ------------------- (i) the Obligor of which is (a) a United States resident, (b) is not the Originator or any Affiliate thereof, and (c) is not a Governmental Obligor; provided, that Obligors with respect to Contracts having an aggregate Outstanding Balance of not greater than 3% of the aggregate Outstanding Balance of all Eligible Receivables may be Governmental Obligors; (ii) the Obligor of which has not been disapproved by the Transferee on or prior to the date of the Transfer and which, at the time of the Transfer, is not the Obligor of any Defaulted Receivables; (iii) which is not a Defaulted Receivable or a Delinquent Receivable; which arises under a Contract duly authorized by all parties thereto (and which parties had the legal capacity to enter into such Contract) which is in full force and effect and which is legal valid and binding obligation of the related Obligor, enforceable against such Obligor in accordance with its terms; (iv) (a) which arises under a Contract with a remaining term of not more than 60 months; provided, that Contracts having an aggregate -------- Outstanding Balance of not greater than 5% of the aggregate Outstanding Balance of all Eligible Receivables may have a remaining term of up to 72 months; and (b) which, according to such Contract, consists of substantially equal monthly Periodic Payments which are required to be paid within 30 days of the billing date therefor; provided, that -------- Contracts having an aggregate Outstanding Balance of not greater than 2% of the aggregate Outstanding Balance of all Eligible Receivables may have payments which are not substantially equal monthly payments; (v) which arose pursuant to a Contract which is "chattel paper" within the meaning of Section 9-105 of the UCC of the applicable jurisdictions governing the perfection of the interest created in the Receivables; (vi) which is denominated and payable in United States dollars in the United States; (vii) which arises under a Contract (a) which has not been amended, modified, or altered in any material respect (except in writing and copies of any such writing is attached to the Contract) and (b) which has been duly authorized and which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable enforceable against such Obligor in accordance with its terms and is not subject to any dispute, offset, counterclaim or defense whatsoever (except as limited by applicable bankruptcy law), (c) in respect of 2 which, prior to the date it is transferred hereunder, the Equipment has been delivered and accepted, (d) which pursuant to its terms may not be canceled, terminated or prepaid by the Obligor before the end of its stated term (other than Contracts which contain early termination or prepayment clauses which require the Obligor to pay the remainder of all scheduled payments under such Contract upon cancellation or prepayment, and, in the case of Contracts related to Governmental Obligors, by reason of nonrenewal of appropriations), (e) which, if related to a Governmental Obligor, has not been canceled before the end of its stated term by reason of nonrenewal of appropriations, and (f) which is not a consumer lease; (viii) which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth in lending, consumer leasing, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which neither the Originator nor the related Obligor is in violation of any such law, rule or regulation in any material respect; (ix) with regard to which there exists only one executed original Contract, which is in the possession of Originator on the Transfer Date of such Receivable; (x) which was selected for transfer by a procedure not designed to adversely affect the credit quality of the Receivables; (xi) which represents payments due to the Originator and does not represent any payments payable for the account of any Person other than the Originator under the Contract relating to such Receivable or any sales or use tax payable under such Contract; (xii) which was originated by the Originator in accordance with, and otherwise satisfies all applicable requirements of, the Credit and Collection Policy; (xiii) which, after giving effect to the acquisition thereof, would not result in the aggregate Outstanding Balance of Related Contracts of any single Obligor exceeding 1.5% of the aggregate Outstanding Balance of all Related Contracts; (xiv) as to which, at or prior to the time of the Transfer, the Transferee has not notified the Originator that such Receivable (or class of Receivables) is not acceptable for transfer to PARCO hereunder; (xv) the transfer or assignment of which does not require the Obligor's consent, and which does not contravene any applicable law, rule or regulation; (xvi) with respect to which (a) the related Obligor has not been released, (b) the Related Contract has not been satisfied, canceled, subordinated or rescinded, and (c) no Equipment subject to the related Contract has been released from the Related Contract; 3 (xvii) which Equipment subject to the related Contract has not been released and such Contract requires the related Obligor to maintain insurance on such Equipment in an amount sufficient to fully insure such Equipment; (xviii) which, after giving effect to the acquisition thereof, would not result in the aggregate Outstanding Balance of Related Contracts of Obligors located in any single state exceeding 10% (except in the case of Texas, which may not exceed 21%, and California, Georgia and Pennsylvania, which may not individually exceed 15%) of the aggregate Outstanding Balance of all Related Contracts; and (xix) which has an implied interest rate of at least 7.00% per annum. "Event of Termination" has the meaning specified in Section 7.01. -------------------- "Facility" means the willingness of the Transferee to consider -------- accepting Transfers of Receivables from the Originator from time to time pursuant to the terms of this Agreement. "Facility Termination Date" means the earliest of (i) the Scheduled ------------------------- Termination Date, (ii) the date of termination of the Facility pursuant to Section 7.01 and (iii) the date which the Originator designates by at least two Business Days' notice to the Transferee. "General Trial Balance" of the Originator on any date means the --------------------- Originator's accounts receivable trial balance (whether in the form of a computer printout, magnetic tape or diskette) on such date, listing Obligors and the Receivables respectively owed by such Obligors on such date together with the aged Outstanding Balances of such Receivables, in form and substance satisfactory to the Transferee. "Incipient Event of Termination" means an event that but for notice or ------------------------------ lapse of time or both would constitute an Event of Termination. "Indemnified Amounts" has the meaning specified in Section 8.01. ------------------- "Outstanding Balance" of any Contract at any date means the net ------------------- present value of the total Periodic Payments due to Originator over the remaining term of the Contract (net of any security deposits or advance rental payments received by Originator) and not yet paid by the Obligor, discounted at the implied interest rate used by the Originator in originating such Contract, as determined by subtracting all amounts representing unearned interest from the aggregate amount of such Periodic Payments. "Purchase Price" has the meaning set forth in Section 2.02(b). -------------- "Receivables Transfer Agreement" means that certain Receivables ------------------------------ Transfer Agreement, dated as of the date hereof, among the Transferee, as transferor, Park Avenue Receivables Corporation, as Conduit Transferee, Chase, as Administrative Agent, the Originator, as Originator and Collection Agent, and the several financial institutions as may be party from time to time, as APA Transferees, as amended, supplemented or otherwise modified from time to 4 time. "Receivables Transfer Request" has the meaning specified in Section ---------------------------- 2.02(a). "Related Contract" means, with respect to a Transfer Date, any ---------------- Contract included in the Contracts transferred to the Transferee pursuant to Section 2.02 on such Transfer Date; provided, that after the Outstanding Balance of such Contract has been collected, it shall no longer constitute a "Related Contract" hereunder. "Settlement Date" means the fifteenth calendar day of each month (or --------------- if such day is not a Business Day, the immediately succeeding Business Day); provided, however, that following the occurrence of an Event of Termination, Settlement Dates shall occur on such days as are selected from time to time by the Transferee or its designee in a written notice to the Collection Agent. "Transaction Document" means any of this Agreement, the Receivables -------------------- Transfer Agreement and all other agreements and documents delivered and/or related hereto or thereto. "Transfer" means a transfer by the Originator of Receivables to the -------- Transferee pursuant to Article II. "Transfer Date" has the meaning specified in Section 2.02(a). ------------- "Transferred Receivable" means any Receivable which, pursuant to the ---------------------- procedure described in Section 2.02(d), has been identified as a Transferred Receivable. SECTION 1.02. Other Terms. Capitalized terms used and not defined ----------- herein shall have the meanings assigned to them in the Receivables Transfer Agreement. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. ARTICLE II AMOUNTS AND TERMS OF TRANSFERS AND CONTRIBUTIONS SECTION 2.01. Facility. On the terms and conditions hereinafter set -------- forth and without recourse (except to the extent as is specifically provided herein), the Transferee may accept from the Originator Eligible Receivables of the Originator from time to time during the period from the date hereof to the Facility Termination Date. Each Transfer of such Receivables shall include the transfer to the Transferee of the Related Security and Collections with respect thereto. SECTION 2.02. Making Transfers. ---------------- (a) Transfers. Each Transfer from the Originator shall be made on --------- notice from the Originator to the Transferee given no later than 10:00 a.m. (New York City time) on the date of such Transfer. Each such request for a Transfer (each a "Receivables Transfer Request") shall specify the date of such Transfer ---------------------------- (which shall be a Business Day) and the proposed Purchase Price (as determined pursuant to Section 2.02(b)) for such Transfer. On the date of each Transfer 5 (each a "Transfer Date"), the Transferee shall, upon satisfaction of the ------------- applicable conditions set forth in Article III, make available to the Originator the Purchase Price for such Transfer in accordance with Section 2.02(c). (b) Determination of Purchase Price. The "Purchase Price" for the ------------------------------- -------------- Receivables that are the subject of any Transfer hereunder shall be equal to the aggregate Outstanding Balance of such Receivables. (c) Payment of Purchase Price. On each Transfer Date, the Transferee ------------------------- shall pay to the Originator the Purchase Price for the applicable Transfer in cash, to the extent of funds obtained by the Transferee on such date under the Receivables Transfer Agreement, after satisfying the Transferee's obligations under the Receivables Transfer Agreement and after netting any amounts owed to the Transferee by the Originator hereunder (including amounts owed under Section 2.04), and to the extent such Purchase Price remains unpaid, such remaining portion of such Purchase Price shall be a true contribution to capital made by the Originator to the Transferee. (d) Identification of Transferred Receivables. On or prior to each ----------------------------------------- Transfer Date, the Originator shall deliver to the Transferee a list of Related Contracts for the Receivables to be transferred on such Transfer Date, which list shall also be delivered to the Administrative Agent in accordance with paragraph (j) of Exhibit IV of the Receivables Transfer Agreement. Such list shall evidence the Transferred Receivables for such Transfer Date. (e) Conveyance. The Originator hereby conveys to the Transferee all ---------- of its right, title and interest in the Transferred Receivables and the Related Security and Collections with respect thereto. SECTION 2.03. Collections. (a) Unless otherwise agreed, the ----------- Collection Agent shall, on each Settlement Date, deposit into an account of the Transferee or the Transferee's assignee all Collections of Transferred Receivables then held by the Collection Agent. (b) In the event that the Originator believes that Collections which are not Collections of Transferred Receivables have been deposited into an account of the Transferee or the Transferee's assignee, the Originator shall so advise the Transferee and, on the Business Day following such identification, the Transferee shall remit, or shall cause to be remitted, all Collections so deposited which are identified, to the Transferee's satisfaction, to be Collections of Receivables which are not Transferred Receivables to the Originator. SECTION 2.04. Settlement Procedures. (a) Upon discovery by the --------------------- Originator or the Transferee or the Administrative Agent of a breach of any of the representations and warranties made or deemed made by the Originator in Section 4.01(i) with respect to any Transferred Receivable, such party shall give prompt written notice thereof to the other party, as soon as practicable and in any event within three Business Days following such discovery. The Originator shall be deemed to have received a Collection in full of such Transferred Receivable, and all other Receivables relating to the same Contract, and make available to the Transferee on 6 the next succeeding Settlement Date an amount equal to the Outstanding Balance of such Transferred Receivable plus Yield accrued and to accrue thereon through the end of the then current Settlement Period. Upon such amount being made available, the Transferee shall retransfer such Transferred Receivables to the Originator. Each retransfer of a Transferred Receivable shall include the Related Security with respect to such Transferred Receivable. If the Originator is not the Collection Agent, the Originator shall pay to the Collection Agent on or prior to the next Settlement Date the amount required to be paid pursuant to this subsection. (b) Except as stated in subsection (a) of this Section 2.04, or as otherwise required by law or the underlying Contract, all Collections from an Obligor of any Transferred Receivable shall be applied to the Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates its payment for application to specific Receivables. SECTION 2.05. Payments and Computations, Etc. (a) All amounts to be ------------------------------ paid or deposited by the Originator or the Collection Agent hereunder shall be paid or deposited no later than 11:00 a.m. (New York City time) on the day when due in same day funds to an account designated in writing by the Transferee to the Originator on or prior to the initial Transfer hereunder. (b) The Originator shall, to the extent permitted by law, pay to the Transferee interest on any amount not paid or deposited by the Originator (whether as Collection Agent or otherwise) when due hereunder at an interest rate per annum equal to 2% per annum above the Base Rate, payable on demand. (c) All computations of interest and all computations of fees hereunder shall be made on the basis of a year of 360 days for the actual number of days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. SECTION 2.06. True Sales and/or Contributions. (a) Each of the ------------------------------- Originator and the Transferee intend the transactions hereunder to constitute true sales and/or true contributions of the Transferred Receivables, Related Security and Collections with respect thereto by the Originator to the Transferee providing the Transferee with all of the Originator's right, title and interest in and to the Transferred Receivables, Related Security and Collections with respect thereto, and no party hereto intends the transactions contemplated hereunder to be, or for any purpose (other than for purposes of federal or state income or franchise, sale and use or bulk sale taxes) to be characterized as, a loan from the Transferee to the Originator. (b) In the event (but only to the extent) that the conveyance of Transferred Receivables, the Related Security and Collections with respect thereto hereunder is characterized by a court, governmental authority or regulatory body as a loan rather than a sale or contribution, the Originator shall be deemed hereunder to have granted to the Transferee, and the Originator hereby assigns and grants to Transferee, a present and continuing security interest in all of the 7 Originator's right, title and interest now or hereafter existing in, to and under all Transferred Receivables, the Related Security and all Collections with respect thereto. ARTICLE III CONDITIONS OF TRANSFERS SECTION 3.01. Conditions Precedent to Initial Transfer from the ------------------------------------------------- Originator. The initial Transfer of Receivables from the Originator hereunder - ---------- is subject to the conditions precedent that the Transferee shall have received on or before the date of such Transfer the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Transferee: (a) Certified copies of the resolutions of the Board of Directors of the Originator approving this Agreement and certified copies of all documents evidencing other necessary corporate or limited liability company action and governmental approvals, if any, with respect to this Agreement. (b) A certificate of the Secretary or Assistant Secretary of the Originator certifying the names and true signatures of the officers of the Originator authorized to sign this Agreement and the other documents to be delivered by it hereunder. (c) Acknowledgment copies or time stamped receipt copies of proper financing statements, duly filed on or before the date of the initial Transfer (or such later date as determined by the Transferee), naming the Originator as the debtor and the Transferee as the secured party, or other similar instruments or documents, as the Transferee may deem necessary or desirable under the UCC of all appropriate jurisdictions or other applicable law to perfect the Transferee's security interest in the Transferred Receivables and Related Security and Collections with respect thereto. (d) Acknowledgment copies or time stamped receipt copies of proper financing statements, if any, necessary to release all security interests and other rights of any Person in the Transferred Receivables, Related Contracts or Related Security previously granted by the Originator. (e) Completed requests for information, dated on or before the date of such initial Transfer, listing all effective financing statements filed in the jurisdictions referred to in subsection (c) above that name the Originator as debtor, together with copies of such other financing statements (none of which shall cover any Transferred Receivables, Related Contracts or Related Security). (f) Payment by the Transferee to the Originator for the initial Transfer hereunder will constitute acknowledgment that the conditions set forth above have been satisfied or waived. SECTION 3.02. Conditions Precedent to All Transfers. The obligation ------------------------------------- of the Transferee to accept each Transfer (including the initial Transfer) hereunder shall be subject to the further 8 conditions precedent that: (a) With respect to any such Transfer, on or prior to the date of such Transfer, the Originator shall have delivered to the Transferee, (i) if requested by the Transferee, the Originator's General Trial Balance (which if in magnetic tape or diskette format shall be compatible with the Transferee's computer equipment) as of a date not more than 31 days prior to the date of such Transfer, and (ii) a written report identifying, among other things, the Receivables to be included in such Transfer and the then outstanding Transferred Receivables and the aged balance thereof, in each case correlated to Transfers; (b) At the request of the Transferee or its assignee, the Originator will segregate the Related Contracts and other records in its lease files pertaining to each Receivable and mark its master data processing records evidencing such Receivables and the Related Contracts, in each case in a manner reasonably acceptable to the Administrative Agent, evidencing that such Receivables have been transferred; and (c) On the date of such Transfer the following statements shall be true (and the Originator, by accepting the amount of such Transfer, shall be deemed to have certified that): (i) The representations and warranties contained in Section 4.01 are correct on and as of the date of such Transfer as though made on and as of such date; and (ii) No event has occurred and is continuing, or would result from such Transfer, that constitutes an Event of Termination or would constitute an Incipient Event of Termination. (d) The Transferee shall have received such other approvals, opinions or documents as the Transferee may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. A. Representations and Warranties of the Originator. The ------------------------------------------------ Originator represents and warrants as follows: (a) The Originator is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified, unless the failure to so qualify would not have a material adverse effect on (i) the interests of the Transferee hereunder, (ii) the collectibility of the Transferred Receivables, or (iii) the ability of the Originator or the Collection Agent to perform their respective obligations hereunder. (b) The execution, delivery and performance by the Originator of this Agreement and the other documents to be delivered by it hereunder, including the Originator's transfer of Receivables hereunder, (i) are within the Originator's corporate powers, (ii) have been duly 9 authorized by all necessary corporate action, (iii) do not contravene (1) the Originator's charter or by-laws, (2) any law, rule or regulation applicable to the Originator, (3) any contractual restriction binding on or affecting the Originator or its property or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Originator or its property, and (iv) do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties (except for the transfer of the Originator's interest in the Transferred Receivables pursuant to this Agreement). This Agreement has been duly executed and delivered by the Originator. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Originator of this Agreement or any other document to be delivered thereunder. (d) This Agreement constitutes the legal, valid and binding obligation of the Originator enforceable against the Originator in accordance with its terms. (e) The balance sheets of the Originator and its subsidiaries as at December 31, 1999 and June 30, 2000, and the related statements of income and retained earnings of the Originator and its subsidiaries for the fiscal year then ended, copies of which have been furnished to the Transferee, fairly present the financial condition of the Originator and its subsidiaries as at such date and the results of the operations of the Originator and its subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied, and since June 30, 2000 there has been no material adverse change in the business, operations, property or financial or other condition of the Originator. (f) There is no pending or threatened action or proceeding affecting the Originator or any of its subsidiaries before any court, governmental agency or arbitrator which would materially adversely affect the financial condition or operations of the Originator or any of its subsidiaries or the ability of the Originator to perform its obligations under this Agreement, or which purports to affect the legality, validity or enforceability of this Agreement. (g) No proceeds of any Transfer will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended. (h) No transaction contemplated hereby requires compliance with any bulk sales act or similar law. (i) Each Receivable transferred by the Originator hereunder is an Eligible Receivable on the date of the related Transfer and the Originator owns and has the right to transfer each Transferred Receivable, together with the Related Security and Collections with respect thereto, free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by the Transferee). When the Transferee accepts a Transfer, it shall acquire a valid and perfected first priority ownership interest in each Transferred Receivable and the Related Security and Collections with respect thereto free and clear of any Adverse Claim (other 10 than any Adverse Claim arising solely as the result of any action taken by the Transferee), and no effective financing statement or other instrument similar in effect covering any Transferred Receivable, any interest therein, the Related Security or Collections with respect thereto is on file in any recording office except for those filed in favor of the Originator, as secured party, which cover only Equipment, accessories, attachments and additions thereto (and substitutions and proceeds thereof) and such as may be filed in favor of Transferee in accordance with this Agreement or in connection with any Adverse Claim arising solely as the result of any action taken by the Transferee. (j) Each Originator Report (if prepared by the Originator, or to the extent that information contained therein is supplied by the Originator), information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time by the Originator to the Transferee in connection with this Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Transferee at such time) as of the date so furnished, and no such document contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. (k) The principal place of business and chief executive office of the Originator and the office where the Originator keeps its records concerning the Receivables are located at the respective addresses set forth on Exhibit B hereof. (l) The Originator is not known by and does not use any trade name or doing-business-as name. (m) With respect to any programs used by the Originator in the servicing of the Receivables, no sublicensing agreements are necessary in connection with the designation of a new Collection Agent so that such new Collection Agent shall have the benefit of such programs (it being understood that, however, the -- ----- ---------- ---- Collection Agent, if other than the Originator, shall be required to be bound by a confidentiality agreement reasonably acceptable to the Originator). (n) The transfers of Receivables by the Originator to the Transferee pursuant to this Agreement, and all other transactions between the Originator and the Transferee, have been and will be made in good faith and without intent to hinder, delay or defraud creditors of the Originator. (o) If less than all of the Receivables of the Originator have been transferred to the Transferee pursuant to this Agreement, no selection procedure was utilized by the Originator in selecting the Transferred Receivables to be transferred to the Transferee hereunder which is materially adverse to the interests of the Transferee or would reasonably be expected to result in the Transferred Receivables containing a higher percentage of Defaulted Receivables than the percentage of Defaulted Receivables in the Receivables retained by the Originator. With respect to each Transferred Receivable, such Receivable is representative of all of the Receivables owned by the Originator. 11 (p) Each Contract giving rise to a Receivable provides for Periodic Payments that will fully amortize such Receivable over the term of the Contract related thereto and the Originator has not extended the maturity or adjusted the Outstanding Balance of any Receivable or otherwise amended, modified or waived the terms of any Receivable or any Contract relating to any Receivable such that the interests of the Transferee would be materially and adversely affected thereby. B. Representation and Warranty of the Transferee. The Transferee is --------------------------------------------- acquiring the Transferred Receivables, the Related Security and Collections with respect thereto in good faith, without knowledge of any Adverse Claim against, interest in, or defense to the payment of such assets (other than any Adverse Claim arising solely as the result of any action taken by the Transferee). ARTICLE V COVENANTS SECTION 5.01. A. Covenants of the Originator. From the date hereof until --------------------------- the first day following the Facility Termination Date on which all of the Transferred Receivables are either collected in full or become Defaulted Receivables: (a) Compliance with Laws, Etc. The Originator will comply in all material ------------------------- respects with all applicable laws, rules, regulations and orders and preserve and maintain its corporate existence, rights, franchises, qualifications and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications, and privileges would not materially adversely affect the collectibility of the Transferred Receivables or the ability of the Originator to perform its obligations under this Agreement. (b) Offices, Records and Books of Account. The Originator will keep its ------------------------------------- principal place of business and chief executive office and the office where it keeps its records concerning the Transferred Receivables at the respective addresses set forth on Exhibit B hereof or, upon 30 days' prior written notice to the Transferee, at any other locations in jurisdictions where all actions required by Section 5.01(i) shall have been taken and completed. The Originator also will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Transferred Receivables and related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Transferred Receivables (including, without limitation, records adequate to permit the daily identification of each new Transferred Receivable and all Collections of and adjustments to each existing Transferred Receivable). The Originator shall make a notation in its books and records, including its computer files, to indicate which Receivables have been transferred to the Transferee hereunder. (c) Performance and Compliance with Contracts and Credit and Collection ------------------------------------------------------------------- Policy. The Originator will, at its expense, timely and fully perform and - ------ comply with all material provisions, covenants and other promises required to be observed by it under the Contracts 12 related to the Transferred Receivables, and timely and fully comply in all material respects with the Credit and Collection Policy in regard to each Transferred Receivable and the related Contract. (d) Sales, Liens, Etc. Except for the transfers contemplated herein, the ----------------- Originator will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any Transferred Receivable, Related Security, related Contract or Collections, or upon or with respect to any account to which any Collections of any Transferred Receivables are sent, or assign any right to receive income in respect thereof. (e) Extension or Amendment of Transferred Receivables. The Originator will ------------------------------------------------- not extend the maturity of, or adjust the Outstanding Balance of, any Transferred Receivable, or amend or otherwise modify the terms of any Transferred Receivable, or amend, modify or waive any term or condition of any Contract related thereto such that the interests of the Transferee would be materially and adversely affected thereby. (f) Change in Business or Credit and Collection Policy. The Originator -------------------------------------------------- will not make any change in the character of its business or in the Credit and Collection Policy that would, in either case, materially adversely affect the collectibility of the Transferred Receivables or the ability of the Originator to perform its obligations under this Agreement. (g) Audits. The Originator will, from time to time during regular business ------ hours as requested by the Transferee or its assigns, permit the Transferee, or its agents, representatives or assigns, (i) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of the Originator relating to Transferred Receivables and the Related Security, including, without limitation, the related Contracts, and (ii) to visit the offices and properties of the Originator for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to Transferred Receivables and the Related Security or the Originator's performance hereunder or under the Contracts with any of the officers or employees of the Originator having knowledge of such matters. (h) Change in Payment Instructions to Obligors. The Originator will not ------------------------------------------ make any change in its instructions to Obligors regarding payments to be made by it unless the Transferee shall have received notice of such change. (i) Further Assurances. ------------------ (i) The Originator agrees from time to time, at its expense, promptly to execute and deliver all further instruments and documents, and to take all further actions, that may be necessary or desirable, or that the Transferee or its assignee may reasonably request, to perfect, protect or more fully evidence the transfer of the Transferred Receivables and the Related Security and Collections with respect thereto under this Agreement, or to 13 enable the Transferee or its assignee to exercise and enforce its respective rights and remedies under this Agreement. Without limiting the foregoing, the Originator will, upon the request of the Transferee or its assignee, (1) execute and file such financing or continuation statements, or amendments thereto, and such other instruments and documents, that may be necessary or desirable to perfect, protect or evidence such Transferred Receivables, including, without limitation, (A) filing such financing statements as may be reasonably necessary, in the Transferee's opinion, to perfect its security interest in the right, title and interest of the Originator in Equipment granted hereunder, within 30 days of the Initial Transfer Date, and (B) provide an opinion of counsel with respect to the perfection of such security interest, in form and substance satisfactory to the Transferee, within 30 days of the Initial Transfer Date; (2) providing to the Transferee, from time to time, all information regarding the location of any such Equipment as may be reasonably necessary, in the Transferee's opinion, to prepare any financing statement relating to such Equipment; and (3) deliver to the Transferee copies of all Contracts relating to the Transferred Receivables and all records relating to such Contracts and the Transferred Receivables, whether in hard copy or in magnetic tape or diskette format (which if in magnetic tape or diskette format shall be compatible with the Transferee's computer equipment). (ii) The Originator authorizes the Transferee or its assignee to file financing or continuation statements, and amendments thereto and assignments thereof, relating to the Transferred Receivables and the Related Security, the related Contracts and the Collections with respect thereto without the signature of the Originator where permitted by law. A photocopy or other reproduction of this Agreement shall be sufficient as a financing statement where permitted by law. (iii) The Originator shall perform its obligations under the Contracts related to the Transferred Receivables to the same extent as if the Transferred Receivables had not been transferred. (j) Reporting Requirements. The Originator will provide to the Transferee ---------------------- the following: (i) as soon as available and in any event within 60 days after the end of the first three quarters of each fiscal year of the Originator, balance sheets of the Originator and its subsidiaries as of the end of such quarter and statements of income and retained earnings of the Originator and its subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the chief financial officer of the Originator; 14 (ii) as soon as available and in any event within 120 days after the end of each fiscal year of the Originator, a copy of the annual report for such year for Ikon Office Solutions, Inc. and the Annual Report on Form 10-K for the Originator and its subsidiaries, containing financial statements for such year audited by Price Waterhousecoopers, LLP or other independent public accountants acceptable to the Administrative Agent; (iii) as soon as possible and in any event within five days after the occurrence of each Event of Termination or Incipient Event of Termination, a statement of the chief financial officer of the Originator setting forth details of such Event of Termination or Incipient Event of Termination and the action that the Originator has taken and proposes to take with respect thereto; (iv) promptly after the sending or filing thereof, copies of all reports that the Originator sends to any of its securityholders, and copies of all reports and registration statements that the Originator or any subsidiary files with the Securities and Exchange Commission or any national securities exchange; (v) promptly after the filing or receiving thereof, copies of all reports and notices that the Originator or any Affiliate files under ERISA with the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or that the Originator or any Affiliate receives from any of the foregoing or from any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which the Originator or any Affiliate is or was, within the preceding five years, a contributing employer, in each case in respect of the assessment of withdrawal liability or an event or condition which could, in the aggregate, result in the imposition of liability on the Originator and/or any such Affiliate in excess of $5,000,000; (vi) at least ten Business Days prior to any change in the Originator's name, a notice setting forth the new name and the effective date thereof; (vii) concurrently with the delivery of each Originator Report by the Collection Agent, a statement as to whether or not all of the Receivables under all Contracts arising during the immediately preceding month have been transferred by the Originator to the Transferee and, if less than all of such Receivables have been transferred, a summary of those Receivables not transferred; and (viii) such other information respecting the Transferred Receivables or the condition or operations, financial or otherwise, of the Originator as the Transferee may from time to time reasonably request. 15 (k) Separate Conduct of Business. The Originator will: ---------------------------- (i) maintain separate corporate records and books of account from those of the Transferee; (ii) conduct its business from an office separate from that of the Transferee; (iii) ensure that all oral and written communications, including without limitation, letters, invoices, purchase orders, contracts, statements and applications, will be made solely in its own name; (iv) not hold itself out as having agreed to pay, or as being liable for, the obligations of the Transferee; (v) not engage in any transaction with the Transferee except as contemplated by this Agreement or as permitted by the Receivables Transfer Agreement; (vi) continuously maintain as official records the resolutions, agreements and other instruments underlying the transactions contemplated by this Agreement; and (vii) disclose on its annual financial statements the effects of the transactions contemplated by this Agreement in accordance with generally accepted accounting principles. B. Covenants of the Transferee. From the date hereof until the --------------------------- termination of this Agreement, the Transferee will: (a) maintain separate corporate records and books of account from those of the Originator; (b) conduct its business from an office separate from that of the Originator; (c) ensure that all oral and written communications, including without limitation, letters, invoices, purchase orders, contracts, statements and applications, will be made solely in its own name; (d) not hold itself out as having agreed to pay, or as being liable for, the obligations of the Originator; and (e) continuously maintain as official records the resolutions, agreements and other instruments underlying the transactions contemplated by this Agreement. 16 ARTICLE VI TRANSFER OF RECORDS SECTION 6.01. Transfer of Records to Transferee. Each Transfer of --------------------------------- Receivables hereunder shall include the transfer to the Transferee of all of the Originator's right and title to and interest in the records relating to such Receivables and shall include an irrevocable non-exclusive license to the use of the Originator's computer software system to access and create such records. Such license shall be without royalty or payment of any kind, is coupled with an interest, and shall be irrevocable until all of the Transferred Receivables are either collected in full or become Defaulted Receivables. The Originator shall take such action requested by the Transferee, from time to time hereafter, that may be necessary or appropriate to ensure that the Transferee has an enforceable interest in the records relating to the Transferred Receivables and rights to the use of the Originator's computer software system to access and create such records. In recognition of the Originator's need to have access to the records transferred to the Transferee hereunder, the Transferee hereby grants to the Originator an irrevocable license to access such records in connection with any activity arising in the ordinary course of the Originator's business or in performance of its duties as Collection Agent, provided that (i) the Originator shall not disrupt or otherwise interfere with the Transferee's use of and access to such records during such license period and (ii) the Originator consents to the assignment and delivery of the records (including any information contained therein relating to the Originator or its operations) to any assignees or transferees of the Transferee provided they agree to hold such records confidential. ARTICLE VII EVENTS OF TERMINATION SECTION 7.01. Events of Termination. If any of the following events --------------------- ("Events of Termination") shall occur and be continuing: --------------------- (a) The Collection Agent (if the Originator or any of its Affiliates) (i) shall fail to perform or observe any term, covenant or agreement under this Agreement (other than as referred to in clause (ii) of this subsection (a)) and such failure shall remain unremedied for three Business Days after the receipt of notice or actual knowledge thereof or (ii) shall fail to make when due any payment or deposit to be made by it under this Agreement; or (b) The Originator shall fail (i) to transfer to the Transferee when requested any rights, pursuant to this Agreement, which the Originator then has as Collection Agent, or (ii) to make any payment required under Section 2.04(a); or (c) Any representation or warranty made or deemed made by the Originator (or any of its officers) under or in connection with this Agreement or any information or report delivered by the Originator pursuant to this Agreement shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; or 17 (d) The Originator shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for 10 days after written notice thereof shall have been given to the Originator by the Transferee; or (e) Any member of the IKON Group or any Subsidiary thereof shall fail to pay any principal of or premium or interest on any of its Debt which is outstanding in a principal amount of at least 10,000,000 in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to repay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) Any member of the IKON Group or any Subsidiary thereof shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any such member or Subsidiary seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or any such member or Subsidiary shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or (g) A Trigger Event shall have occurred under the Receivables Transfer Agreement; or (h) There shall have occurred any material adverse change in the financial condition or operations of the Originator since June 30, 2000; or there shall have occurred any event which may materially adversely affect the collectibility of the Transferred Receivables or the ability of the Originator to collect Transferred Receivables or otherwise perform its obligations under this Agreement; then, and in any such event, the Transferee may (with the consent of the Administrative Agent), 18 by notice to the Originator, take either or both of the following actions: (x) declare the Facility Termination Date to have occurred (in which case the Facility Termination Date shall be deemed to have occurred) and (y) without limiting any right under this Agreement to replace the Collection Agent, designate another Person to succeed the Originator as Collection Agent; provided, that, automatically upon the occurrence of any event (without any - -------- requirement for the passage of time or the giving of notice) described in paragraph (f) of this Section 7.01, the Facility Termination Date shall occur, the Originator (if it is then serving as the Collection Agent) shall cease to be the Collection Agent, and the Transferee (or its assigns or designees) shall become the Collection Agent. Upon any such declaration or designation or upon such automatic termination, the Transferee shall have, in addition to the rights and remedies under this Agreement, all other rights and remedies with respect to the Receivables provided after default under the UCC and under other applicable law, which rights and remedies shall be cumulative. ARTICLE VIII INDEMNIFICATION SECTION 8.01. Indemnities by the Originator. Without limiting any other ----------------------------- rights which the Transferee may have hereunder or under applicable law, the Originator hereby agrees to indemnify the Transferee and its assigns and transferees (each, an "Indemnified Party") from and against any and all damages, ----------------- claims, losses, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts"), awarded against or incurred by any ------------------- Indemnified Party in connection with the transactions contemplated by this Agreement. It is expressly agreed and understood by the parties hereto (i) that the foregoing indemnification is not intended to, and shall not, constitute a guarantee of the collectibility or payment of the Transferred Receivables and (ii) that nothing in this Section 8.01 shall require the Originator to indemnify any Person (1) for Receivables which are not collected, not paid or uncollectible on account of the insolvency, bankruptcy, or financial inability to pay of the applicable Obligor, (2) for damages, losses, claims or liabilities or related costs or expenses resulting from such Person's gross negligence or willful misconduct, or (3) for any income taxes or franchise taxes incurred by such Person arising out of or as a result of this Agreement or in respect of any Transferred Receivable or any Contract. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision --------------- of this Agreement or consent to any departure by the Originator therefrom shall be effective unless in a writing signed by the Transferee and consented to by the Administrative Agent and, in the case of any amendment, also signed by the Originator, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, -------- however, that no such material amendment shall be effective until both Moody's - ------- and S&P have notified the Administrative Agent in writing that such action will not result in a reduction or withdrawal of the rating of any of the Conduit Transferee's commercial paper notes. No failure on the part of the Transferee to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. 19 SECTION 9.02. Notices, Etc. All notices and other communications ------------ hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and be faxed or delivered, to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by regular mail), and notices and communications sent by other means shall be effective when received. SECTION 9.03. Binding Effect: Assignability. (a) This Agreement shall ----------------------------- be binding upon and inure to the benefit of the Originator, the Transferee and their respective successors and assigns; provided, however, that the Originator -------- ------- may not assign its rights or obligations hereunder or any interest herein without the prior written consent of the Transferee. In connection with any assignment by the Transferee of all or a portion of the Transferred Receivables, the assignee shall, to the extent of its assignment, have all rights of the Transferee under this Agreement (as if such buyer or assignee, as the case may be, were the Transferee hereunder) except to the extent specifically provided in the agreement between the Transferee and such assignee. (b) This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time, after the Facility Termination Date, when all of the Transferred Receivables are either collected in full or become Defaulted Receivables; provided, however, that rights and remedies with respect to any -------- ------- breach of any representation and warranty made by the Originator pursuant to Article IV and the provisions of Article VIII and Sections 9.04, 9.05 and 9.06 shall be continuing and shall survive any termination of this Agreement. SECTION 9.04. Costs, Expenses and Taxes. (a) In addition to the rights of ------------------------- indemnification granted to the Transferee pursuant to Article VIII hereof, the Originator agrees to pay on demand all costs and expenses in connection with the preparation, execution and delivery of this Agreement and the other documents and agreements to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Transferee (including the reasonable allocable fees of the Transferee's in-house counsel) with respect thereto and with respect to advising the Transferee as to its rights and remedies under this Agreement, and the Originator agrees to pay all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Agreement and the other documents to be delivered hereunder excluding, however, any costs of enforcement or --------- ------- collection of Transferred Receivables. (b) In addition, the Originator agrees to pay any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and the Originator agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 9.05. No Proceedings. The Originator hereby agrees that it will -------------- not institute against the Transferee any proceeding of the type referred to in Section 7.01(f) so long as there 20 shall not have elapsed one year plus one day since the later of (i) the Facility Termination Date and (ii) the date on which all of the Transferred Receivables are either collected in full or become Defaulted Receivables. SECTION 9.06. Confidentiality. Unless otherwise required by applicable --------------- law, each party hereto agrees to maintain the confidentiality of this Agreement in communications with third parties and otherwise; provided that this Agreement may be disclosed to (i) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the other party hereto, and (ii) such party's legal counsel and auditors and the Transferee's assignees, if they agree in each case to hold it confidential. SECTION 9.07. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND ------------- CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE TRANSFEREE'S INTEREST IN THE RECEIVABLES OR REMEDIES HEREUNDER IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 9.08. Third Party Beneficiary. Each of the parties hereto hereby ----------------------- acknowledges that the Transferee may assign all or any portion of its rights under this Agreement and that such assignees may (except as otherwise agreed to by such assignees) further assign their rights under this Agreement, and the Originator hereby consents to any such assignments. All such assignees, including parties to the Receivables Transfer Agreement in the case of assignment to such parties, shall be third party beneficiaries of, and shall be entitled to enforce the Transferee's rights and remedies under, this Agreement to the same extent as if they were parties thereto, except to the extent specifically limited under the terms of their assignment. SECTION 9.09. Tax Treatment. It is the intention of the Originator and ------------- the Transferee that for federal, state and local income and franchise tax purposes, the Transferee's Interest will be treated as evidence of indebtedness of the Originator secured by the Receivables, the Related Security and Collections and other proceeds thereof. The Originator and the Transferee, by entering into this Agreement, intend to treat the Transferee's Interest as indebtedness. The provisions of this Agreement and all related Transaction Documents shall be construed to further such intentions of the parties hereto. SECTION 9.10. Execution in Counterparts. This Agreement may be executed ------------------------- in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. 21 Transfer Agreement IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. ORIGINATOR: IOS CAPITAL, INC. By:__________________________ Name: J.F. Quinn Title: Treasurer for purposes of notices, with a copy to: Ikon Office Solutions, Inc. 70 Valley Stream Pkwy. Malvern, PA 19355 Attn: J.F. Quinn Facsimile No.: (610) 408-7022 S_1 Transfer Agreement TRANSFEREE: IKON FUNDING-2, LLC By: IKON FUNDING, INC., its Manager By:__________________________________ Name: Russell Slack Title: President S_2 Transfer Agreement EXHIBIT A --------- CREDIT AND COLLECTION POLICY A_1 Transfer Agreement EXHIBIT B --------- The principal place of business and chief executive offices of the Transferor are located at: IKON FUNDING-2, LLC 1738 Bass Road Macon, Georgia 31210 The original records concerning the Receivables (and all original documents related thereto) are located at the offices of the Collection Agent at: IOS CAPITAL, INC. 1738 Bass Road Macon, Georgia 31210 B_1 EX-12 4 0004.txt RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 IOS CAPITAL, INC. RATIO OF EARNINGS TO FIXED CHARGES (dollars in thousands)
Fiscal Year Ended September 30 ---------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- --------- -------- --------- Earnings Income from continuing operations $ 79,416 $ 88,327 $ 63,122 $ 42,581 $ 31,512 Add: Provision for income taxes................................ 48,446 54,910 46,194 28,984 23,150 Fixed charges............................................. 151,822 121,531 115,699 89,560 63,538 -------- -------- --------- -------- -------- Earnings, as adjusted (A)................................... $279,684 $264,768 $ 225,015 $161,125 $118,200 ======== ======== ========= ======== ======== Fixed charges Other interest expense, including interest on capital leases..................................................... $151,295 $120,917 $ 115,026 $ 88,941 $ 63,125 Estimated interest component of rental expense.............. 527 614 673 619 413 -------- -------- --------- -------- -------- Total fixed charges (B)..................................... $151,822 $121,531 $115 ,699 $ 89,560 $ 63,538 ======== ======== ========= ======== ======== Ratio of earnings to fixed charges (A) divided by (B).......................................... 1.8 2.2 1.9 1.8 1.9 ======== ======== ========= ======== ========
EX-21 5 0005.txt SUBSIDIARIES OF REGISTRANT EXHIBIT 21 SUBSIDIARIES OF REGISTRANT The registrant is IOS Capital, Inc., a Delaware corporation, whose parent is IKON Office Solutions, Inc. The following sets forth information with respect to IOS Capital, Inc.'s subsidiaries as of December 28, 2000.
STATE OR OTHER JURISDICTION OF % VOTING SECURITIES INCORPORATION OR SUBSIDIARY OWNED (BY WHOM) ORGANIZATION - -------------- ----------------- ---------------- IKON Funding, Inc............... 100% IOS Capital Delaware IKON Funding, LLC............... 100% IOS Capital Delaware IKON Funding-1, LLC............. 100% IOS Capital Delaware IKON Funding-2, LLC............. 100% IOS Capital Delaware IKON Receivables-1, LLC......... 100% IOS Capital Delaware IKON Receivables, LLC........... 100% IKON Receivables-1, LLC Delaware IKON Receivables Funding, Inc... 100% IOS Capital Delaware
EX-23.1 6 0006.txt CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-27141) of IOS Capital, Inc. of our report dated December 8, 2000 relating to the financial statements, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Philadelphia, PA December 28, 2000 EX-23.2 7 0007.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS -------------------------------------------------- We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-27141) of IOS Capital, Inc. and in the related Prospectus of our report dated October 25, 1999 (except for the first sentence of the third paragraph of note 5, as to which the date is December 9, 1999), with respect to the financial statements of IOS Capital, Inc. included in this Annual Report (Form 10-K) for the year ended September 30, 2000, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Philadelphia, Pennsylvania December 27, 2000 EX-27 8 0008.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF IOS CAPITAL, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS SEP-30-2000 OCT-01-1999 SEP-30-2000 3,998 0 2,909,928 0 0 0 116,666 64,576 3,064,090 0 2,418,936 0 0 0 411,846 3,064,090 0 358,424 0 0 20,333 0 149,014 127,862 48,446 79,416 0 0 0 79,416 0 0 INCLUDES NET INVESTMENTS IN LEASES OF $2,808,239 AND OTHER ACCOUNTS RECEIVABLE. INCLUDES LEASED EQUIPMENT AT A COST OF $98,588 AND ACCUMULATED DEPRECIATION OF $55,595. COMMON STOCK, $.01 PAR VALUE, 1,000 SHARES OUTSTANDING. SINCE TOTAL IS LESS THAN $1,000, ZERO IS REPORTED. NOT REQUIRED AS THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY.
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