<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
IKON OFFICE SOLUTIONS, INC.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
IKON OFFICE SOLUTIONS, INC.
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
IKON OFFICE SOLUTIONS, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JANUARY 22, 1998
----------------
To the Shareholders of IKON Office Solutions, Inc. ("IKON" or the "Company"):
You are invited to be present either in person or by proxy at the annual
meeting of shareholders of IKON to be held at the Company's offices at 70
Valley Stream Parkway, Malvern, Pennsylvania 19355 on Thursday, January 22,
1998 at 9:00 a.m. to consider and act upon the following proposals:
1. To elect nine directors to serve for a one-year term; and
2. To transact such other business as may properly come before the
meeting.
Shareholders of IKON of record at the close of business on November 24, 1997
are entitled to vote at the annual meeting and any adjournments thereof. All
shareholders are urged to attend the meeting or to vote by proxy.
If you do not expect to attend the meeting in person, please sign and return
the accompanying proxy in the enclosed postage prepaid envelope. If you later
find that you can be present or for any other reason desire to revoke your
proxy, you can do so at any time before the voting.
/s/ John E. Stuart
Chairman and Chief Executive Officer
Valley Forge, Pennsylvania
December 9, 1997
<PAGE>
IKON Office Solutions, Inc.
P.O. Box 834
Valley Forge, Pennsylvania 19482-0834
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of IKON Office Solutions, Inc. ("IKON" or the "Company") of
proxies to be voted at its annual meeting of shareholders on January 22, 1998
and all adjournments thereof. The proxy statement and proxy card will be first
mailed to shareholders on or about December 12, 1997.
Only holders of record of common stock and serial preferred stock at the
close of business on November 24, 1997 will be entitled to vote. On that date,
there were 133,885,346 shares of common stock and 38,772 shares of preferred
stock outstanding. The holders of all shares will vote together as a class.
Each share of common stock or preferred stock entitles the holder thereof to
one vote.
I. ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
A board consisting of nine directors is proposed to be elected for a one-
year term, except that, if elected, Mr. Gerrity will begin service on May 1,
1998. Unless authority to do so is specifically withheld, the persons named in
the accompanying proxy will vote for the election as directors of the nominees
named below. The nine nominees who receive the most votes at the meeting will
be elected as directors. All of the nominees are now directors of IKON,
holding office until election of their successors, except Mr. Gerrity, who is
being proposed for election for the first time.
<TABLE>
<CAPTION>
YEAR
BECAME
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT FOR PAST FIVE YEARS DIRECTOR AGE
---- ------------------------------------------------------ -------- ---
<S> <C> <C> <C>
James R. Birle.......... Chairman, Resolute Partners, Inc., a private merchant 1996 61
bank (1994-Present); General Partner, The Blackstone
Group (1988-1994) (also a director of Massachusetts Mu-
tual Life Insurance Company, Drexel Industries, Inc.,
The Connecticut Health and Education Facilities Author-
ity and Transparency International)
Philip E. Cushing....... Group Chief Executive (1996-Present), Group Managing Di- 1997 47
rector (1995-1996), Director--Services Businesses (1992-
1995), Inchcape PLC, an international distribution busi-
ness (also a director of Bunzl PLC)
Kurt E. Dinkelacker..... Executive Vice President and Chief Financial Officer 1996 44
(1997-Present; 1993-1995), President (1995-1997) and
Chief Operating Officer (1996-1997), IKON Office Solu-
tions, Inc. (also a member of the Finance Committee of
Crozer-Keystone Health System)
William F. Drake, Jr. .. Vice Chairman (1984-Present) and General Counsel (1996- 1969 65
Present), IKON Office Solutions, Inc.; Of Counsel (1996-
Present), Partner (1984-1996), Montgomery, McCracken,
Walker & Rhoads (also a director of Nocopi Technologies,
Inc.)
Thomas P. Gerrity....... Dean and Professor, The Wharton School of the University 56
of Pennsylvania (1990-Present) (also a director of CVS
Corporation, Digital Equipment Corporation, Fannie Mae,
Reliance Group Holdings, Inc., Sun Company, Inc. and
Union Carbide Corporation)
Frederick S. Hammer..... Chairman, Inter-Atlantic Group (1994-Present); Chairman, 1986 61
Chief Executive Officer and a director, Mutual of Amer-
ica Capital Management Corporation (1993-1994); Presi-
dent, SEI Asset Management Services Group (1989-1993)
(also a director of Tri-Arc Financial Services and Na-
tional Media Corporation)
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
YEAR
BECAME
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT FOR PAST FIVE YEARS DIRECTOR AGE
---- ------------------------------------------------------ -------- ---
<S> <C> <C> <C>
Barbara Barnes Chairman of Independent Directors, IKON Office Solutions,
Hauptfuhrer............ Inc. (also a director of The Vanguard Group of Invest- 1988 69
ment Companies and of each of the mutual funds in the
Group (1972-Present), The Great Atlantic and Pacific Tea
Co., Inc. (1975-Present), Knight Ridder, Inc. (1979-
Present), Massachusetts Mutual Life Insurance Co. (1979-
Present) and Raytheon Company (1987-Present))
Richard A. Jalkut....... President and Chief Executive Officer, PathNet, a tele- 1996 52
communications company; President and Group Executive
(1992-1997), Nynex Telecommunications Group; President
and Chief Executive Officer, New York Telephone (prede-
cessor to Nynex Telecommunications) (1991-1992) (also a
director of Marine Midland Bank)
John E. Stuart.......... Chairman (1995-Present) and Chief Executive Officer 1993 53
(1993-Present), President (1993-1996), Vice President
(1989-1993), Group President, Office Products Group
(1985-1993), IKON Office Solutions, Inc. (also a direc-
tor of Foster Wheeler Corporation)
</TABLE>
SECURITY OWNERSHIP
As of November 24, 1997, shares of common stock of IKON were beneficially
owned (as determined by rules of the Securities and Exchange Commission,
although in certain cases the persons may disclaim beneficial ownership), by
the current directors and nominees, by each of the individuals named in the
Summary Compensation Table (on page 8), and by all current directors and
executive officers of IKON as a group, as follows:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-----------------------------------------------
SOLE VOTING SHARED VOTING ACQUIRABLE
AND AND/OR WITHIN
INVESTMENT POWER INVESTMENT POWER(3) 60 DAYS(4)
---------------- ------------------- ----------
<S> <C> <C> <C>
James R. Birle.............. 12,468 0 3,390
Philip E. Cushing........... 0 0 0
Kurt E. Dinkelacker......... 40,644 7,389 162,097
William F. Drake, Jr........ 152,139 2,363 16,218
James J. Forese............. 78,824 58 148,830
David M. Gadra.............. 994 54 2,395
Thomas P. Gerrity (1)....... 0 0 0
Frederick S. Hammer......... 14,022 0 37,431
Barbara Barnes Hauptfuhrer
(2)........................ 4,431 0 49,110
Richard A. Jalkut........... 4,268 0 3,619
John E. Stuart.............. 141,088 63,731 660,095
All directors and executive
officers as a group (17
persons)................... 585,804 128,887 1,170,762
</TABLE>
--------
(1) On December 1, 1997, Mr. Gerrity purchased 1,000 shares of IKON common
stock.
(2) From time to time, various mutual funds in the Vanguard Group of
Investment Companies (the "Vanguard Group") own shares of IKON common
stock. As a director of The Vanguard Group and of each of the funds
therein, Mrs. Hauptfuhrer shares voting and investment power over these
shares of IKON common stock with eight other directors. Mrs.
Hauptfuhrer disclaims beneficial ownership of these shares.
(3) Includes all shares held under IKON's Retirement Savings Plan,
Executive Deferred Compensation Plan Trust, and, where applicable,
shares owned by spouses or minor children.
(4) Represents shares which may be acquired within 60 days of November 24,
1997 through the exercise of stock options, vesting under IKON's
Partners' Stock Purchase Plan, or the conversion of preferred stock.
2
<PAGE>
As of November 24, 1997, for each of the individuals named on the previous
page, the percentage of common stock beneficially owned was less than 1%. The
percentage of common stock beneficially owned by all current directors and
executive officers as a group was approximately .53%. As of November 24, 1997,
IKON employees, through direct ownership or employee benefit plans, owned
approximately 8.5% of the outstanding shares of IKON common stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
For the fiscal year ended September 30, 1997, all reports required to be
filed pursuant to Section 16(a) of the Securities Exchange Act of 1934 on
behalf of IKON's directors and officers to reflect beneficial ownership of
IKON's securities were timely filed.
COMMITTEES OF THE BOARD OF DIRECTORS; MEETINGS
During fiscal 1997, there were four standing committees of the Board of
Directors: the Audit Committee, the Human Resources Committee, the Investment
Committee and the Interim Committee. Between meetings of the Board of
Directors, its powers may be exercised by these standing committees, and they,
as well as the Board of Directors, sometimes act by unanimous written consent.
The Audit Committee (Messrs. Jalkut, Birle, Hammer and Mrs. Hauptfuhrer) met
four times during the fiscal year ended September 30, 1997. Its functions are
to review the report of IKON's independent auditors relating to their audit of
the financial statements of IKON, to review and discuss internal financial
controls with both the independent auditors and internal auditors, and to
direct that special studies relating to the adequacy of financial controls and
accounting procedures be made from time to time as the Committee deems
desirable.
The Human Resources Committee (Mrs. Hauptfuhrer and Messrs. Birle, Jalkut
and Hammer) met five times during the fiscal year. It is responsible for
reviewing and evaluating persons who are suggested as nominees for election as
members of the Board of Directors, and for making recommendations to the Board
of Directors concerning such nominees. The Human Resources Committee is also
responsible for setting policies regarding executive compensation and for
determining the salaries and other compensation of each of the executive
officers of IKON (See "Human Resources Committee Report on Executive
Compensation" on page 5). The Committee also has all of the powers and
exercises all of the duties of the Board of Directors as described in IKON's
stock option, stock purchase, deferred compensation and other similar plans.
During the fiscal year, the Board of Directors met seven times. Each
director attended at least 75% of the total number of the meetings of the
Board of Directors and the meetings of all committees on which he or she
served.
3
<PAGE>
PERFORMANCE OF IKON COMMON STOCK
The following graph compares the cumulative total shareholder return of IKON
common stock with the cumulative total return of: (i) the Standard & Poor's
500 Stock Index, and (ii) an industry peer group based on the S&P 500 Office
Equipment & Supplies SubIndex (the "SubIndex"). Cumulative total shareholder
return is measured by assuming an investment of $100 made on January 2, 1997
(with dividends reinvested).
[GRAPH APPEARS HERE]
Date IKON S&P 500 Subindex
1/2/97 $100.00 $100.00 $100.00
3/31/97 80.79 103.20 104.90
6/30/97 60.23 121.21 121.15
9/30/97 61.83 121.15 141.79
On December 31, 1996, Alco Standard Corporation ("Alco", which was the name
under which the Company formerly operated), completed a spin-off of its
wholly-owned subsidiary, Unisource Worldwide, Inc. ("Unisource"), its paper
and supply systems distribution business, which comprised 63.2% of the
Company's revenues and 30.3% of its operating income for fiscal 1996. The
spin-off was accomplished by the Company's distribution of a tax-free dividend
to the Company's shareholders consisting of all of the common shares of
Unisource. On January 2, 1997 (the first business day after the effective date
of the distribution), Unisource began trading on the New York Stock Exchange
as a separate public company. On January 23, 1997, the Company changed its
name from Alco Standard Corporation to IKON Office Solutions, Inc.
Because of the material contribution of Unisource to the Company's total
shareholder return (as measured by stock price performance, with dividends
reinvested) for fiscal years 1993 through 1996, the performance graph shown
above does not include fiscal years prior to 1997, and, for 1997, includes
only the nine-month period beginning on January 2, 1997. Also, in prior years,
the Company's performance graph included an industry peer group based on a
combination of the S&P 500 Office Equipment and Supplies SubIndex and the S&P
500 Paper and Forest Products SubIndex (weighted on the basis of the
respective operating income contributions of the Company's office equipment
and paper distribution groups). Because of the Unisource spin-off, the
performance graph shown above includes only the S&P 500 Office Equipment &
Supplies SubIndex.
4
<PAGE>
EXECUTIVE COMPENSATION
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
IKON's executive compensation program is administered by the Human Resources
Committee of the Board of Directors, which has responsibility for all aspects
of the compensation program for the executive officers of IKON. The Human
Resources Committee (the "Committee") is comprised of the four directors
listed at the end of this report, none of whom is an employee of IKON and each
of whom qualifies as a non-employee director for purposes of Rule 16b-3 under
the Securities Exchange Act of 1934 and an outside director for purposes of
Section 162(m) of the Internal Revenue Code (the "Code").
The Committee's primary objective is to establish and administer programs
which attract and retain key executives, and to align their compensation with
IKON's performance, business strategies and growth in shareholder value. To
this end, the Committee has established and the Board of Directors has
endorsed an executive compensation philosophy which includes the following
elements:
--A "pay-for-performance" orientation under which compensation reflects
corporate, business unit and individual performance;
--An emphasis on stock incentives to closely align the interest of
executives with the long-term interests of shareholders;
--An emphasis on total compensation under which base salaries are generally
set at or near competitive levels but which motivates and rewards executives
with total compensation, including incentive programs, at or above competitive
levels if corporate or individual performance is superior;
--An appropriate balance of short and long-term compensation which
facilitates retention of talented executives, rewards long-term strategic
planning, and encourages IKON stock ownership;
--Recognition that as an executive's level of responsibility increases, a
greater portion of the total compensation opportunity should be based on stock
and other performance incentives and less on salary and benefits; and
--Recognition that selective use of executive employment and noncompete
agreements will enable IKON to attract and retain talented key executives and
will enable management to place its exclusive focus on strategic planning and
operational issues affecting the business.
As a matter of policy, the Committee has generally structured the Company's
executive compensation plans so that payments under such plans will be
excluded from compensation subject to the $1,000,000 deduction limit of
Section 162(m) of the Code.
The primary components of IKON's executive compensation program are (a) base
salaries; (b) annual cash bonus opportunities; (c) long-term incentive
opportunities; and (d) executive employment and noncompete agreements.
BASE SALARIES
Base salaries for executive officers are reviewed annually and, except for
Messrs. Stuart's, Dinkelacker's and Gadra's salaries, which are set at certain
minimum levels pursuant to their employment contracts, are subject to
adjustment on the basis of individual, corporate, and business unit
performance, as well as competitive, inflationary and internal equity
considerations. Base salaries generally are fixed at or near the 50th
percentile of predicted executive salaries paid by comparable companies based
upon survey data compiled by IKON's independent compensation consultants. The
Committee does not consider the market for determining the compensation of
IKON's executives to be limited to the companies included in the industry peer
group used for the performance graph on page 4. The companies considered to be
comparable to IKON for compensation purposes include a broad cross-section of
companies which are representative of distribution companies generally and
companies which have operating margins similar to IKON's operating margins.
In continuing the $900,000 base salary of Mr. Stuart for fiscal 1997, the
Committee evaluated the factors described above which are used for setting
compensation generally, as well as Mr. Stuart's record and leadership
abilities as Chairman and Chief Executive Officer of the Company during fiscal
1996, including growth in
5
<PAGE>
revenues from continuing operations of 32.6% and growth in operating income
from continuing operations of 56.2% in fiscal 1996 compared with fiscal 1995
(excluding transformation costs).
ANNUAL BONUS
Annual bonus payments to executive officers are awarded pursuant to the IKON
Office Solutions, Inc. Annual Bonus Plan, and are based on corporate or
business unit performance compared to the targets established for the year.
These annual bonus payments are in amounts equal to a percentage of base
salary. They generally range from 0% for threshold, 30-50% for target, and 60-
100% for maximum performance. For the individuals named in the Summary
Compensation Table, annual bonus potential (as a percentage of base salary) is
0% for threshold, 50% for target and 100% for maximum performance. For
performance between threshold and maximum levels, bonus awards are prorated on
a straight-line basis. For corporate officers, targets for fiscal 1997 were
based upon growth in "economic value per share," a concept which measures
growth in economic value under a variation of the Holt financial model. As
used in this model, "economic value" reflects the results of the performance
factors and investment variables which are within management's control. It
disregards macro-economic factors such as interest rates and taxes which also
affect market prices for IKON common stock. As a result, changes in "economic
value per share" may not be accompanied by corresponding increases or
decreases in stock prices over the measurement period. For fiscal 1997, the
annual bonus plan for corporate officers was based on increases in economic
value per share over this value at the end of fiscal 1996. The threshold,
target and maximum increases were fixed at 15%, 17.5% and 20%, respectively.
For fiscal 1997, IKON achieved growth in economic value per share of 8.9% over
this value at the end of fiscal 1996. Because of this performance, Messrs.
Stuart, Dinkelacker, Forese and Drake did not receive bonuses for fiscal 1997.
Mr. Gadra, who commenced employment as Senior Vice President and Chief
Information Officer of IKON on August 1, 1996, received a first-year bonus of
$157,500 during fiscal 1997 pursuant to his employment contract.
LONG TERM INCENTIVE COMPENSATION
LTIP Awards
The IKON Office Solutions, Inc. Long Term Incentive Compensation Plan
("LTIP") is intended to align the long-term interests of IKON's executives
with those of IKON's shareholders. The LTIP motivates and rewards growth in
shareholder value by granting to eligible executives awards which vest only if
certain performance criteria are met. For corporate officers, the LTIP is
generally based on total shareholder return (stock price appreciation with
dividends reinvested). Total shareholder return ("TSR") is generally measured
over successive three-year periods (with a new three-year period beginning
every fiscal year) and awards, if vested, are paid at the end of each such
three-year period. The LTIP payout is dependent upon achievement of threshold,
target and maximum performance targets. For performance between threshold and
maximum, the payout is prorated on a straight-line basis.
On December 31, 1996, the Company completed the tax-free distribution of all
of the common stock of Unisource to the Company's shareholders. Because of the
material contribution of Unisource to the Company's 1995 and 1996 financial
results, the Committee determined that continuous measurement of the Company's
TSR over the three-year periods ending September 30, 1997 (for the 1995-1997
plan period) and September 30, 1998 (for the 1996-1998 plan period) was not
appropriate. Therefore, in November 1996, the Committee determined that
performance for the first two years of the 1995-1997 plan period (1995 and
1996) and the first year of the 1996-1998 plan period (1996) would be
determined separately from performance for the remainder of the respective
periods. The Committee also determined that prorated awards to corporate
officers for these two-year and one-year separated periods had, in fact,
already been earned, based on compound growth in economic value and cash flow
of the office equipment group (as a separate internal business unit of the
Company) as determined under the Company's internal shareholder value model.
Therefore, these earned awards, which were attributable to fiscal 1995 and
1996 performance, became vested and were scheduled for payment at the end of
the 1995-1997 and 1996-1998 plan periods, respectively. In addition, the
Committee determined that, because of the spin-off, a nine-month TSR
measurement (January 1 through September 30, 1997) would be used for fiscal
1997 and that
6
<PAGE>
the customary twelve-month TSR measurement would be used for all fiscal years
thereafter. Also, beginning with the 1997-1999 plan period, LTIP payout
entitlements will be measured by calculating TSR performance over the entire
plan period.
In November 1997, the Committee authorized the payment of vested LTIP awards
(described on the foregoing page) for the portion of 1995-1997 plan period
which consisted of the two-year period ended September 30, 1996. The Committee
also evaluated whether IKON had met the criteria for prorated LTIP payouts for
the portion of the 1995-1997 plan period which consisted of the nine-month
period ended September 30, 1997. The targets (under the Company's internal
shareholder value model) for the two-year period were 19.67% for threshold
performance, 21.05% for target performance and 22.63% for maximum performance.
The office equipment group (as a separate internal business unit of the
Company) achieved a two-year performance of 31.4% for this period. Because of
this performance, Messrs. Stuart and Dinkelacker received LTIP payouts of
$575,540 and $236,990, respectively, for this period.
For the nine-month period ended September 30, 1997, performance targets for
corporate officers were based on IKON's TSR as compared to the TSR of the S&P
500. In order for an award to be paid for this period, IKON's TSR (expressed
as a percentage of the S&P 500 TSR) must have equaled or exceeded 100% of the
S&P 500 TSR. In fact, IKON's TSR for this nine-month period was 48.1% of the
S&P 500 TSR. Therefore, no LTIP awards were paid during fiscal 1997 to
corporate officers for this nine-month period.
Stock Options
Stock options are granted as a reward for past performance and as motivation
for future performance which maximizes shareholder value. Stock options are
generally granted for ten-year terms and vest over specified employment
periods. The exercise price of these stock options is the fair market value of
IKON common stock on the date of grant.
In fiscal 1997, Mr. Dinkelacker's receipt of an option to purchase 200,000
shares was in recognition of his significant contribution to the outstanding
financial performance of the Company during fiscal 1996. Mr. Drake's receipt
of an option to purchase 75,000 shares reflected his appointment to the
position of General Counsel. In addition, as a motivation for future long-term
performance, during fiscal 1997, Mr. Stuart received an option to purchase
20,000 shares, Mr. Dinkelacker received an option to purchase 10,000 shares,
each of Mr. Forese and Mr. Drake received an option to purchase 5,000 shares,
and Mr. Gadra received an option to purchase 4,000 shares.
During fiscal 1997, the Committee authorized the execution of employment
contracts with Messrs. Stuart and Dinkelacker, pursuant to which Mr. Stuart
received a grant of options to purchase 250,000 shares of IKON common stock,
and Mr. Dinkelacker received a grant of options to purchase 50,000 shares of
IKON common stock. The options have an extended vesting schedule, so that 40%
of the options vest in 2002, and 60% of the options vest in 2006. For further
information on Messrs. Stuart's and Dinkelacker's employment contracts, see
"Employment Contracts," below, and "Change in Control Arrangements and
Executive Employment Contracts" on page 12.
EMPLOYMENT CONTRACTS
During fiscal 1997, the Committee determined, after consultation with
independent compensation consultants, that certain key senior executives
should be requested to enter into employment and noncompete contracts with the
Company. The Committee believes that this selective use of employment
contracts provides leadership continuity which will benefit the Company's
shareholders and employees, and insures that key executives who terminate
employment with IKON will not enter into competing businesses. In addition,
such contracts allow senior management to focus exclusively on strategic
planning and financial and operational issues affecting the business, and
create an incentive for the executive to drive performance which will
contribute to shareholder value and future growth. Accordingly, during fiscal
1997, the Committee authorized the execution of employment and noncompete
contracts with Messrs. Stuart and Dinkelacker. In addition, Mr. Gadra entered
7
<PAGE>
into an employment and noncompete contract when he commenced employment with
IKON in August 1996. The Committee expects that additional contracts with
other corporate officers will be executed from time to time. For further
information on executive employment and noncompete contracts see "Change in
Control Arrangements and Executive Employment Contracts" on page 12.
THE HUMAN RESOURCES COMMITTEE OF THE BOARD OF DIRECTORS
Barbara Barnes Hauptfuhrer (Chairman)
James R. Birle
Frederick S. Hammer
Richard A. Jalkut
--------------------------------
SUMMARY OF EXECUTIVE COMPENSATION
The following table provides a summary of all compensation for the five most
highly compensated officers of IKON during the fiscal years ended September
30, 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
- ----------------------------------------------------------------------------------------
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-----------------------------------------------------------------
AWARDS
NAME ---------- ALL OTHER
AND SECURITIES COMPEN-
PRINCIPAL FISCAL UNDERLYING LTIP SATION
POSITION(1) YEAR SALARY($) BONUS($) OPTIONS(2) PAYOUTS($)(3) ($)(4)
----------- ------ ---------- --------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
John E. Stuart 1997 900,000 0 270,000 575,540 377,627
Chairman and 1996 900,000 900,000 24,684 1,586,923 251,909
Chief Executive 1995 850,000 850,000 0 826,821 208,160
Officer
Kurt E. Dinkelacker 1997 350,000 0 260,000 236,990 124,226
Executive Vice 1996 350,000 350,000 11,108 680,096 100,741
President and Chief 1995 350,000 350,000 0 354,340 89,143
Financial Officer
James J. Forese 1997 425,000 0 5,000 0 183,841
Executive Vice 1996 487,500 487,500 388,773 0 46,411
President and 1995 0 0 4,574 0 18,200
President of
International
Operations
William F. Drake, Jr. 1997 325,000 0 80,000 0 60,721
Vice Chairman and 1996 100,000 0 0 0 15,000
General Counsel 1995 100,000 0 0 0 19,796
David M. Gadra 1997 225,000 157,500 4,250 0 19,178
Senior Vice 1996 37,500 75,000 11,725 0 125,377
President and Chief 1995 0 0 0 0 0
Information Officer
</TABLE>
(1) In April 1997, Mr. Dinkelacker, who had been serving as President and
Chief Operating Officer, assumed the position of Executive Vice President
and Chief Financial Officer. In January 1996, Mr. Forese, who had been
serving as an independent director of the Company, was named Executive
Vice President and Chief Operating Officer, and in November 1996, he
assumed the position described above. In October 1996, Mr. Drake, who had
been serving as IKON's Vice Chairman, also assumed the role of General
Counsel. Mr. Gadra commenced employment with IKON in the position
described above on August 1, 1996.
(2) Option awards for fiscal 1996 and fiscal 1995 have been adjusted to
reflect the spin-off of Unisource.
8
<PAGE>
(3) LTIP payouts were distributed in the form of shares of common stock. The
values above are based on the fair market value of the Company's common
stock on September 30, 1997, September 30, 1996 and September 30, 1995,
the last day of the respective plan periods. For fiscal 1997, LTIP payouts
represent vested awards attributable to fiscal 1995 and 1996 performance
(see "Long-Term Incentive Compensation--LTIP Awards" on page 6).
(4) Includes the value of shares of IKON common stock purchased with matching
company contributions under IKON's Partners' Stock Purchase Plan and
Retirement Savings Plan, calculated as of the date of purchase, as
follows: John E. Stuart--$263,129 (1997), $247,073 (1996), and $200,356
(1995); Kurt E. Dinkelacker-- $101,631 (1997), $99,907 (1996), and $83,878
(1995); James J. Forese--$114,719 (1997), $46,411 (1996), and $4,924
(1995); William F. Drake, Jr.--$36,594 (1997), $15,000 (1996), and $14,564
(1995); David M. Gadra--$19,178 (1997) and $377 (1996). For Messrs.
Stuart, Dinkelacker, Forese and Drake, the remaining amounts represent
above-market interest earned on deferred compensation. For Mr. Gadra, the
remaining amounts represent a one-time payment of $100,000 to compensate
Mr. Gadra for the forfeiture of stock options attributable to his previous
employment, and $25,000 in relocation compensation.
OPTION GRANTS
The following table shows option grants to the five individuals named in the
Summary Compensation Table during the fiscal year ended September 30, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OPTIONS
OF SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE GRANT
OPTIONS IN FISCAL PRICE EXPIRATION DATE
NAME GRANTED (#) YEAR (%) ($/SH) DATE VALUE ($)
---- ------------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
John E. Stuart........ 20,000(1) 1.46 44.625 1/23/07 308,361
250,000(3) 18.25 26.75 5/1/07 2,202,500
Kurt E. Dinkelacker... 10,000(1) .73 44.625 1/23/07 155,962
200,000(2) 14.6 44.625 1/23/07 3,073,606
50,000(3) 3.65 26.75 5/1/07 440,500
James J. Forese....... 5,000(1) .36 44.625 1/23/07 78,849
William F. Drake, Jr.
..................... 5,000(1) .36 44.625 1/23/07 84,150
75,000(2) 5.47 44.625 1/23/07 1,161,232
David M. Gadra ....... 4,000(1) .29 44.625 1/23/07 62,458
250(2) .02 44.625 1/23/07 3,934
</TABLE>
(1) These stock options were granted at an exercise price equal to fair market
value of IKON common stock on the date of grant, and become exercisable 33
1/3% on the third, fourth and fifth anniversaries of the date of grant,
but may be accelerated if certain performance criteria are met; the
present value of these options was calculated using the Black-Scholes
option valuation methodology, based on the following assumptions: (a) ten-
year option term; (b) the options become exercisable as described above;
(c) 6.58% expected risk-free rate of return; (d) 27.26% expected
volatility; and (e) .36% expected dividend yield. Based upon these
assumptions, the value of each incentive stock option was $16.83 on the
date of grant and the value of each non-qualified stock option was $15.24
on the date of grant. Optionees received both types of options in amounts
determined by current requirements under the Internal Revenue Code (the
"Code").
(2) These stock options were granted at an exercise price equal to fair market
value of IKON common stock on the date of grant and become exercisable 20%
on the first five anniversaries of the date of grant; the present value of
these options was calculated using the Black-Scholes option valuation
methodology, based upon the same assumptions used in (1), above, except
that, for these options, the methodology assumes that the options become
exercisable 20% per year. Based upon these assumptions, the value of each
incentive stock option was $16.96 on the date of grant and the value of
each non-qualified stock option was $15.35 on the
9
<PAGE>
date of grant. Optionees received both types of options in amounts
determined by current requirements under the Code.
(3) These non-qualified stock options were granted in connection with Messrs.
Stuart's and Dinkelacker's employment and noncompete agreements at an
exercise price equal to fair market value of IKON common stock on the date
of grant. For Mr. Stuart, options to purchase 100,000 shares become
exercisable on April 30, 2002, and options to purchase the remaining
150,000 shares become exercisable on November 30, 2006. For Mr.
Dinkelacker, options to purchase 20,000 shares become exercisable on April
30, 2002, and options to purchase the remaining 30,000 shares become
exercisable on November 30, 2006. The present value of these options was
calculated using the Black-Scholes option valuation methodology, based
upon the following assumptions: (a) ten-year option term; (b) the options
become exercisable as described in the foregoing sentence; (c) 6.71%
expected risk-free rate of return; (d) 38.81% expected volatility and (e)
.60% expected dividend yield. Based upon these assumptions, the value of
each non-qualified stock option was $8.81 on the date of grant.
LONG TERM INCENTIVE COMPENSATION PLAN
The following table shows the LTIP awards granted to each of the named
individuals under the Long Term Incentive Compensation Plan during the fiscal
year ended September 30, 1997 and the cash awards which will become payable,
if earned, after fiscal 1999 upon attainment of threshold, target and maximum
performance levels.
LONG TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
CASH PERIOD UNTIL ESTIMATED FUTURE PAYOUTS (CASH)(2)
AWARD MATURATION OR ------------------------------------
NAME ($)(1) PAYMENT THRESHOLD ($) TARGET ($) MAXIMUM ($)
---- ------- -------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
John E. Stuart... 892,500 1/1/97-9/30/99 0 446,250 892,500
Kurt E.
Dinkelacker..... 446,250 1/1/97-9/30/99 0 223,125 446,250
James J. Forese.. 223,125 1/1/97-9/30/99 0 111,526 223,125
William F. Drake,
Jr. ............ 223,125 1/1/97-9/30/99 0 111,526 223,125
David M. Gadra .. 178,500 1/1/97-9/30/99 0 89,250 178,500
</TABLE>
(1) Represents the LTIP cash award granted, which, if vested, will entitle the
participant to receive a cash payout. For a description of the LTIP and
the basis for the awards shown in the above table, see "Human Resources
Committee Report on Executive Compensation" on page 5.
(2) Represents the cash payout which will be received upon attainment of
threshold, target and maximum performance. For performance between
threshold and maximum, the cash award to be received will be prorated on a
straight-line basis.
10
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
No options were exercised by any of the individuals named in the Summary
Compensation Table during the fiscal year ended September 30, 1997. The
following table shows fiscal year-end option values for each of the
individuals named in the Summary Compensation Table for the fiscal year ended
September 30, 1997:
OPTION VALUES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF VALUE OF
SECURITIES SECURITIES UNEXERCISED VALUE OF
UNDERLYING UNDERLYING IN-THE- UNEXERCISED
UNEXERCISED UNEXERCISED MONEY IN-THE-MONEY
OPTIONS AT OPTIONS AT OPTIONS AT OPTIONS AT
FY-END FY-END FY-END FY-END
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#)(1) (#)(1) ($)(2) ($)(2)
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John E.Stuart............ 529,865 541,771 4,287,445 1,412,236
Kurt E. Dinkelacker...... 94,787 320,476 689,048 281,990
James J. Forese.......... 74,052 319,721 0 0
William F. Drake, Jr..... 741 80,000 8,435 0
David M. Gadra........... 2,345 13,630 0 0
</TABLE>
(1) Options granted prior to January 1, 1997 have been adjusted to reflect the
spin-off of Unisource.
(2) Value of unexercised options equals fair market value of IKON common stock
as of September 30, 1997 less exercise price, multiplied by the number of
shares underlying the stock options.
PENSION PLAN AND SUPPLEMENTAL RETIREMENT PLANS
Certain executive officers of IKON (including the individuals named in the
Summary Compensation Table on page 8) are participants in a pension plan (the
"pension plan") for salaried employees which provides to eligible retired
employees at age 65 annual pension benefits equal to the number of years of
credited service multiplied by 1% of average annual compensation earned during
the three consecutive years within the employee's last ten years of
participation in the pension plan which yield the highest average. All pension
plan costs are paid by IKON and the pension plan and benefits are funded on an
actuarial basis. The years of credited service as of September 30, 1997 for
the individuals named in the Summary Compensation Table were: John E. Stuart--
11.9 years; Kurt E. Dinkelacker--12.3 years; James J. Forese--1.8 years;
William F. Drake, Jr.--28.8 years; David M. Gadra--1.2 years.
IKON also has a Supplemental Executive Retirement Plan ("SERP"). Coverage
under the SERP is limited to participants in the IKON pension plan who are not
commissioned sales employees and whose benefits under the pension plan are
limited because of (a) restrictions imposed by the Code on the amount of
benefits which may be paid from a tax-qualified plan, (b) restrictions imposed
by the Code on the amount of an employee's compensation that may be taken into
account in calculating benefits to be paid from a tax-qualified plan, or
(c) any reductions in the amount of compensation taken into account under the
pension plan because of an employee's participation in certain deferred
compensation plans sponsored by IKON or one of its subsidiaries. The SERP
provides for a supplement to the annual pension paid under the pension plan to
participants who attain early or normal retirement under the pension plan or
who suffer a total and permanent disability while employed by IKON or one of
its subsidiaries and to the pre-retirement death benefits payable under the
pension plan on behalf of such participants who die with a vested interest in
the pension plan. The amount of the supplement will be the difference, if any,
between the pension or pre-retirement death benefit paid under the pension
plan and that which would otherwise have been payable but for the restrictions
imposed by the Code and any reduction in the participant's compensation for
purposes of the pension plan because of his participation in certain deferred
compensation plans of IKON or one of its subsidiaries. The maximum amount of
annual compensation upon which such supplement may be based is $500,000 per
participant.
11
<PAGE>
The following table shows estimated annual retirement benefits that would be
payable to participants under IKON's pension plan and, if applicable, the
SERP, upon normal retirement at age 65 under various assumptions as to final
average annual compensation and years of credited service and on the
assumption that benefits will be paid in the form of a single life annuity.
The benefits are not subject to any deduction for Social Security benefits.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS
-----------------------------------------------------------------------------
YEARS OF CREDITED SERVICE
FINAL AVERAGE -------------------------------------------
COMPENSATION 5 10 20 30 35
------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$200,000......................... $10,000 $ 20,000 $ 40,000 $ 60,000 $ 70,000
250,000......................... 12,500 25,000 50,000 75,000 87,500
300,000......................... 15,000 30,000 60,000 90,000 105,000
400,000......................... 20,000 40,000 80,000 120,000 140,000
500,000 or above................ 25,000 50,000 100,000 150,000 175,000
</TABLE>
Covered compensation under the pension plan and SERP of each of the named
individuals includes salary and bonus as set forth in the Summary Compensation
Table.
CERTAIN TRANSACTIONS
IKON has adopted a loan program which encourages persons designated as
"partners" to purchase and retain IKON stock. It offers to make loans to
partners with the requirement that the loan be secured by the borrower's
pledge of IKON stock having a value at the time of the loan of not less than
twice the amount of the loan. The loans are payable upon demand and bear
interest at an annual rate of 6%. As of November 24, 1997, loans were
outstanding to 27 partners in an aggregate amount of approximately $4.3
million. From October 1, 1996 to November 24, 1997, the indebtedness of the
following individuals and groups under the loan program was as follows:
<TABLE>
<CAPTION>
LARGEST AMOUNT OUTSTANDING AMOUNT OUTSTANDING AT
NAME OR GROUP DURING PERIOD($) NOVEMBER 24, 1997($)
- -------------------------------------------------------------------------------
<S> <C> <C>
John E. Stuart.............. 713,000 713,000
Kurt E. Dinkelacker......... 695,000 695,000
James J. Forese............. 0 0
William F. Drake, Jr. ...... 120,000 120,000
David M. Gadra.............. 0 0
All current executive
officers
as a group................. 2,116,000 2,116,000
</TABLE>
Mr. Drake, who serves as Vice Chairman and a director of the Company, was
also elected its General Counsel effective October 1, 1996. He became Of
Counsel to Montgomery, McCracken, Walker & Rhoads following his resignation as
a Partner of that firm on September 30, 1996. Montgomery, McCracken, Walker &
Rhoads rendered legal services to IKON and its subsidiaries during the 1997
fiscal year, and is expected to continue performing legal services during
fiscal 1998.
CHANGE IN CONTROL ARRANGEMENTS AND EXECUTIVE EMPLOYMENT CONTRACTS
Change in Control Arrangements--Employee Benefit Plans and Executive
Arrangements
During fiscal 1997, with the advice of independent compensation consultants,
the Human Resources Committee evaluated the Company's employee benefit plans
in order to ensure that employee benefits would be adequately protected in the
event of a change in control, and also reviewed IKON's change in control
arrangements for senior executives. As a result of these evaluations, the
Board approved amendments to IKON's Partners' Stock Purchase Plan, stock
option plans, deferred compensation plans and supplemental executive
retirement plan to provide for accelerated vesting (and, for certain plans,
accelerated payout of benefits) for all
12
<PAGE>
participants upon a change in control, and also approved accelerated vesting
and payout of accrued LTIP benefits upon a change in control. In addition, the
Committee approved accelerated vesting for participants in the Company's
401(k) plan and master pension plan upon a change in control followed by the
participant's involuntary employment termination within two years following
the change in control.
The Committee's evaluation of executive change in control arrangements was
performed for the purpose of adopting measures, if needed, which would
reinforce and encourage the continued attention and dedication of key
executives to their duties during circumstances which might give rise to a
change in control, without distraction by reason of personal circumstances.
The Committee determined, after consultation with independent compensation
consultants, that existing arrangements were not sufficient to meet such
purpose. As a result, the Committee authorized agreements with corporate
officers, including Messrs. Forese, Drake and Gadra, which provide that, in
the event of a change in control (or, in some circumstances, a potential
change in control) followed by the executive's involuntary termination of
employment (or termination of employment by the executive for good reason)
within two years after such change in control, the executive will receive the
following: 1) full vesting in IKON's Stock Option Plan, Partners' Stock
Purchase Plan and Retirement Savings Plan, 2) the executive's target annual
bonus award for the year in which termination occurs, prorated to the date of
termination, 3) an accelerated maximum LTIP payout for all outstanding LTIP
plan periods, 4) a severance benefit equal to two times salary and two times
target bonus, 5) continued group hospitalization, health, dental care, life
insurance and disability insurance for two years, 6) an amount equal to the
benefit associated with two years of credited service under the Company's
pension plans, 7) an amount equal to the value of two years of company
contributions under the Retirement Savings Plan and/or Partners' Stock
Purchase Plan, 8) a one-year extension of any partner's loan repayment
obligation to the Company, and 9) reimbursement for excise taxes (if any)
payable as a result of benefits received upon a change in control. In the
event that the terms of any employee benefit plan require vesting or payment
upon an earlier date than the executive's change in control agreement, the
earlier date will prevail.
The employment contracts for Messrs. Stuart and Dinkelacker (described
below) contain change in control provisions which are identical to the
provisions in the executive change in control arrangements described above,
except that Messrs. Stuart and Dinkelacker will receive a severance benefit
equal to three times salary and three times target bonus upon involuntary
employment termination after a change in control (or, in some circumstances, a
potential change in control), welfare benefit continuation for three years,
and an amount equal to three years of company contributions or credited
service under the Company's Retirement Savings Plan and/or Partners' Stock
Purchase Plan and pension plans. In addition, Messrs. Stuart and Dinkelacker
are subject to a one-year noncompetition restriction upon voluntary employment
termination or termination for cause following a change in control.
Executive Employment Contracts
During fiscal 1997, the Committee determined, after consultation with IKON's
independent compensation consultants, that employment contracts should be
entered into with Messrs. Stuart and Dinkelacker. The contracts, which were
effective on May 1, 1997, provide that Messrs. Stuart and Dinkelacker will
remain in the employ of IKON for three years. On each anniversary date of the
contract, commencing May 1, 2000, the contract term shall be automatically
renewed for a one-year period, unless either the Company or the executive
provides appropriate notice of an intention not to renew. The contracts set
Mr. Stuart's and Mr. Dinkelacker's salaries at an amount at least equal to
their current salaries, and provide, for Mr. Stuart, that his percentage
participation in any long-term or incentive compensation program shall be at
the highest level provided to any participant in such program, and, for Mr.
Dinkelacker, that his percentage participation in any such program shall be at
the highest level provided to any participant other than the Chief Executive
Officer. Mr. Stuart's and Mr. Dinkelacker's employment contracts further
provide that they shall be entitled to participate in all employee benefit
plans or programs (including, but not limited to, the Long-Term Incentive
Compensation Plan, Partners' Stock Purchase Plan, deferred compensation plans,
Partners' Loan Program, and Supplemental Executive Retirement Plan) for which
the most senior executives of the Company are eligible. If Mr. Stuart or
13
<PAGE>
Mr. Dinkelacker voluntarily terminates employment (or is terminated for cause
or due to disability or death), no severance benefit is provided, except that,
in the event of termination due to disability or death, the executive (or his
estate) will receive an amount equal to target bonus, prorated to the date of
termination. If the executive leaves employment voluntarily, or due to
disability, or is terminated for cause, he may not compete with IKON for a
one-year period following employment termination, and, unless otherwise
determined by the Board, will forfeit any unvested options granted in
connection with the employment contract.
The employment contracts further provide that if Mr. Stuart's or Mr.
Dinkelacker's employment is terminated without cause (or due to constructive
discharge or the Company's failure to renew), the executive will receive a
severance benefit equal to three times annual base salary (payable in equal
bimonthly installments over a three-year period) and accrued bonus for the
year of termination. The executive may not compete with IKON for a one-year
period following such termination. If he competes with IKON during the second
or third year following such termination, he forfeits all remaining severance
payments.
As consideration for Mr. Stuart's and Mr. Dinkelacker's agreement to enter
into the employment contracts, Mr. Stuart received a grant of options to
purchase 250,000 shares of IKON common stock and Mr. Dinkelacker received a
grant of options to purchase 50,000 shares of IKON common stock. The options
were granted at an exercise price equal to the fair market value of IKON
common stock on the date of grant and have a ten-year term. Mr. Stuart will
receive accelerated vesting of 100,000 stock options if his employment
terminates involuntarily without cause (or due to constructive discharge,
retirement after age 55 or the Company's failure to renew) prior to April 30,
2002, and will receive acceleration of vesting of the remaining 150,000 stock
options if his employment terminates involuntarily without cause (or due to
constructive discharge, retirement after age 55 or the Company's failure to
renew) prior to November 30, 2006. Mr. Dinkelacker will receive accelerated
vesting of 20,000 stock options if his employment terminates involuntarily
without cause (or due to constructive discharge or the Company's failure to
renew) prior to April 30, 2002, and will receive accelerated vesting of the
remaining 30,000 stock options if his employment terminates involuntarily
without cause (or due to constructive discharge or the Company's failure to
renew) prior to November 30, 2006.
Mr. Stuart's and Mr. Dinkelacker's employment contracts contain certain
additional provisions regarding payment of benefits upon employment
termination following a change in control, which are further described under
"Change in Control Arrangements--Employee Benefit Plans and Executive
Arrangements," beginning on page 12.
Mr. Gadra executed a three-year employment contract upon his commencement of
employment with IKON on August 1, 1996. The contract provides for a guaranteed
annual salary of at least $225,000, a one-time payment of $100,000 (to
compensate Mr. Gadra for the forfeiture of options attributable to his
previous employment), relocation compensation of $25,000, a guaranteed fiscal
1996 bonus of $75,000, and a fiscal 1997 bonus of $157,500. In addition, Mr.
Gadra received a grant of options to purchase 11,725 shares of IKON common
stock in connection with his employment contract. Such options vest and become
exercisable 20% on the first five anniversaries of the date of grant. If Mr.
Gadra's employment is involuntarily terminated by the Company without cause
during the contract term, he will receive a severance benefit equal to the
base salary he would have received for the remainder of the contract term
(payable in equal bimonthly installments for the remainder of the contract
term), accrued bonus for the fiscal year in which his employment terminates,
continued vesting under the Company's Stock Option Plan, Partners' Stock
Purchase Plan and Retirement Savings Plan, and continued participation in the
Company's group hospitalization, health, dental care, life insurance and
disability plans until the end of the term. If Mr. Gadra voluntarily
terminates employment during the term, or his employment terminates due to
disability or death, or for cause, he shall be entitled to receive unpaid base
salary until the date of termination, and any unpaid accrued benefits under
IKON's benefit plans as of the date of termination. Unless otherwise
determined by the Board, all unvested options will be forfeited upon any
termination of employment.
Mr. Gadra's contract further provides that, if Mr. Gadra's employment with
the Company is terminated for any reason, he will not compete with the Company
for a two-year period following the date of employment
14
<PAGE>
termination. Mr. Gadra is also subject to a change in control arrangement,
which is further described under "Change in Control Arrangements--Employee
Benefit Plans and Executive Arrangements," beginning on page 12. In addition,
Mr. Gadra's employment contract contains provisions which state that in the
event of a change in control during the term, Mr. Gadra will receive the
benefits he would receive under the employment contract following his
involuntary termination without cause. In the event that benefits become
payable upon a change in control both under Mr. Gadra's employment contract
and his change in control arrangement, Mr. Gadra has the right to choose
whether to receive benefits under the employment contract or the change in
control arrangement.
DIRECTORS' COMPENSATION
In fiscal 1997, all independent directors were entitled to receive fees of
$25,000 per year for service on the Board of Directors, and attendance fees of
$1,000 for each board and committee meeting attended. Committee members also
received $3,000 per committee per year and committee chairmen received $3,000
per chairmanship per year. In addition, independent directors who served as
trustees for the Company's employee benefit plans received $3,000 per year for
services rendered to the plans, $3,000 per year for trustee chairmanship, and
attendance fees of $1,000 for each trustees' meeting attended. In addition,
Mrs. Hauptfuhrer, who has been a member of the Board since 1988, received
$25,000 during fiscal 1997 for her services as Chairman of the Independent
Directors. In this position, Mrs. Hauptfuhrer coordinates an annual evaluation
of the performance of the Chief Executive Officer and holds periodic meetings
of the independent directors.
All of IKON's current directors have elected to receive a portion of their
directors' fees (excluding attendance fees) in the form of options to purchase
IKON common stock, pursuant to the terms of IKON's Stock Option Plan for Non-
Employee Directors (the "Directors' Plan"), which enables directors of IKON to
receive all or a portion of their directors' fees in the form of options to
purchase IKON common stock at an exercise price equal to 75% of the fair
market value of IKON common stock on the date such options are granted. The
Directors' Plan provides for an annual grant of such discounted stock options
to each director who has filed with IKON an election to receive such options
in lieu of all or a portion of his or her Board, committee and trustee fees.
The options are exercisable for twenty years (except in the case of death),
but generally may not be exercised prior to the twelve-month anniversary of
the date of grant.
In addition to the above options, on January 23, 1997, each independent
director received an automatic annual grant of options to purchase 800 shares
of IKON common stock pursuant to the Directors' Plan. Options were granted at
an exercise price equal to the fair market value of IKON common stock on the
date of grant. Options are immediately exercisable and remain exercisable for
a period of ten years from the date of grant.
After the December 31, 1996 Unisource spin-off, the continuing directors of
IKON retained independent compensation consultants to evaluate the Company's
director compensation practices in order to ensure that directors'
compensation practices continued to be competitive with other companies of
IKON's size and scope. As a result of this evaluation, a new directors'
compensation program was adopted, whereby directors will receive a greater
portion of their compensation in the form of stock-based incentives, and a
lesser portion of their compensation in the form of cash. The new program will
be effective on January 22, 1998, and has the following components:
Directors' Fees
Effective January 22, 1998, each independent director will be entitled to
receive fees of $30,000 per year for service on the Board of Directors and
committees thereof, and $3,000 per year for service as a committee chairman or
for services as chairman of the trustees for IKON's employee benefit plans. No
attendance fees will be paid for attendance at regular Board and committee
meetings, but a fee of $1,000 will be paid for attendance at special meetings.
In addition, the Chairman of the Independent Directors will receive a fee of
$5,000 per year.
15
<PAGE>
Annual Options
Effective January 22, 1998, the automatic annual option grant to directors
will increase from 800 to 2,000 options to purchase shares of IKON common
stock.
Elimination of Directors' Retirement Plan and Award of Restricted Stock
Prior to May 1, 1997, independent directors who completed at least five full
years of service as a director and who were not otherwise entitled to receive
a pension benefit from IKON were entitled to receive a monthly retirement
benefit after retiring from the Board of Directors. Payment of such benefit
was to begin upon the later of the director's 70th birthday or his or her
separation from service on the Board of Directors. The amount of such monthly
benefit would have been equal to one-twelfth of the annual retainer in effect
for such director (excluding committee fees, chairmanship fees, trustee fees
and attendance fees) immediately preceding his or her separation from service
on the Board of Directors. On May 1, 1997, in accordance with the
recommendation of IKON's independent compensation consultants, the Human
Resources Committee terminated the Directors' Retirement Plan. In lieu of the
benefits offered by the Directors' Retirement Plan, each director will receive
an annual award of 400 shares of restricted common stock (which will vest over
a five-year period).
As a result of the termination of the Director's Retirement Plan, Mrs.
Hauptfuhrer and Mr. Hammer (who have each completed five full years of
service) will be entitled to receive their respective accrued actuarial
benefit under the plan ($210,264 and $105,564, respectively). The accrued
benefit will be converted to shares of IKON restricted common stock (7,861
shares and 3,947 shares, respectively), based on the closing price of IKON
common stock on May 1, 1997, the date of plan termination, and will be paid
upon retirement from the Board.
New Director Options
In accordance with the new directors' compensation program, each non-
employee director of IKON also receives a one-time grant of 25,000 options to
purchase IKON common stock. Accordingly, on May 1, 1997, Messrs. Birle,
Hammer, Jalkut and Mrs. Hauptfuhrer each received an option to purchase 25,000
shares of IKON common stock, and on November 6, 1997, Mr. Cushing received an
option to purchase 25,000 shares of IKON common stock. The options were
granted at an exercise price equal to the fair market value of IKON common
stock on the date of grant, vest 20% on the first five anniversaries of the
date of grant, and have a ten-year term. Each new non-employee director will
receive a grant of 25,000 options to purchase IKON common stock on the date of
his or her appointment to the Board.
II. GENERAL AND OTHER MATTERS
The Board of Directors knows of no matter, other than as referred to in this
proxy statement, which will be presented at the annual meeting of
shareholders. However, if other matters properly come before the meeting or
any of its adjournments, the person or persons voting the proxies will vote
them in accordance with their judgment in such matters. The Board of Directors
is not aware that any nominee named herein will be unable or unwilling to
accept nomination or election. Should any nominee for the office of director
become unable to accept nomination or election, the persons named in the proxy
will vote for the election of such other person, if any, as the Board of
Directors may recommend.
As the independent auditors for IKON, Ernst & Young LLP audited the
financial statements of IKON for the fiscal year ended September 30, 1997 and
will audit certain of its employee benefit plans as of that date. The Audit
Committee of the Board of Directors has appointed Ernst & Young LLP as the
auditors for IKON for the 1998 fiscal year. Representatives of Ernst & Young
LLP are expected to be present at the meeting, and will have the opportunity
to make a statement if they desire to do so and are expected to be available
to respond to questions.
The cost of soliciting proxies will be borne by IKON. Employees of IKON may
solicit proxies personally or by telephone. In addition to solicitation by
mail and by employees, arrangements have been made with
16
<PAGE>
Corporate Investor Communications, Inc. to solicit proxies, at an expected
cost of $7,000 (plus out-of-pocket expenses).
Votes are tabulated by National City Bank, IKON's transfer agent. Shares
represented by abstentions are counted in determining the number of shares
present at a meeting, but are not counted as a vote in favor of a proposal,
and therefore have the same effect as a vote withheld. Broker non-votes are
counted in determining the number of shares present at a meeting.
You are urged to sign and return your proxy promptly to make certain your
shares will be voted at the meeting. If you sign and return your proxy, but do
not vote on any director nominee, your shares will be voted in accordance with
the recommendation of the Board of Directors. You may revoke the proxy at any
time before it is voted by giving notice to the Secretary of IKON, and if you
attend the meeting, you may vote your shares in person. For your convenience,
a return envelope is enclosed, requiring no additional postage if mailed in
the United States.
1999 ANNUAL MEETING
If a shareholder desires to propose a matter for inclusion in the proxy
material for the annual meeting of shareholders to be held in 1999, or to
recommend nominees for election to IKON's Board of Directors, the Secretary of
IKON must receive any such proposal or recommendation no later than August 11,
1998 at its principal office in Valley Forge, Pennsylvania.
Karin M. Kinney
Secretary
December 9, 1997
17
<PAGE>
PROMPTLY COMPLETE AND RETURN THE
PROXY/VOTING INSTRUCTION FORM BELOW
IN THE ENVELOPE PROVIDED
Carefully fold & detach along perforation
- --------------------------------------------------------------------------------
PROXY/VOTING INSTRUCTION CARD
IKON OFFICE SOLUTIONS, INC.
The undersigned hereby appoints William F. Drake, Jr. and Karin M. Kinney,
or either of them, each with power of substitution, as proxies for the
undersigned to vote all shares of Common Stock or Preferred Stock of IKON
Office Solutions, Inc. which the undersigned is entitled to vote at the
Annual Meeting of Shareholders to be held on January 22, 1998, and any
adjournments thereof, as hereinafter specified and, in their discretion, upon
such other matters as may properly come before the meeting. The undersigned
hereby revokes all proxies heretofore given.
For employees of IKON Office Solutions, Inc., this proxy also provides
voting instructions for shares held for the account of the undersigned in the
IKON Office Solutions, Inc. Retirement Savings Plan. The trustees for the
Plan will vote these shares as directed provided you sign and return a proxy
containing your voting instructions by January 19, 1998. IF NO VOTING
INSTRUCTIONS ARE RECEIVED, THE TRUSTEES OF THE PLAN MAY VOTE YOUR SHARES IN
THEIR DISCRETION (IN THE ABSENCE OF VOTING INSTRUCTIONS, THE TRUSTEES WILL
GENERALLY VOTE YOUR SHARES IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD
OF DIRECTORS). SHARES OWNED BY YOU OTHER THAN THOSE HELD IN THE PLAN WILL BE
VOTED ONLY IF YOU SIGN AND RETURN A PROXY, OR ATTEND THE MEETING AND VOTE BY
BALLOT. IF YOU RETURN A PROXY AND FAIL TO SPECIFY A CHOICE ON ANY MATTER,
YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD
OF DIRECTORS.
1. Election of Directors (Mark only one)
[_] Vote FOR all nominees listed below [_] Vote WITHHELD from all nominees
and recommended by the Board of
Directors
(except as directed to the contrary below)
James R. Birle, Philip E. Cushing, Kurt E. Dinkelacker, William F. Drake,
Jr., Thomas P. Gerrity, Frederick S. Hammer, Barbara Barnes Hauptfuhrer,
Richard A. Jalkut, John E. Stuart
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
--------------------------------------------------------------------------
(continued, and to be signed, on other side)
<PAGE>
PROMPTLY COMPLETE AND RETURN THE
PROXY/VOTING INSTRUCTION FORM BELOW
IN THE ENVELOPE PROVIDED
Carefully fold & detach along perforation
- --------------------------------------------------------------------------------
(continued from other side)
NO.
SPECIAL ACTION
SEE
WILL ATTEND COMMENTS
ANNUAL MEETING* BELOW
[ ] [ ]
*Admission tickets will be mailed to
any shareholder who indicates an intention
to attend. Shareholders will be admitted
to the meeting only upon presentation of an
admission ticket.
-
PLEASE SIGN, DATE, DETACH AND RETURN THIS PROXY,
USING THE ENCLOSED POSTAGE PREPAID REPLY ENVELOPE.
Dated ______________ SIGN HERE ____________________________
When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If the signer is a
corporation, sign the full corporate name by duly authorized
officer.
