<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
IKON Office Solutions, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] 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:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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.:
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(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF IKON OFFICE SOLUTIONS, INC.]
----------------
Notice of Annual Meeting of Shareholders
March 23, 1999
----------------
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 Tuesday, March 23, 1999
at 9:00 a.m. to consider and act upon the following proposals:
1. To elect eight directors to serve for a term ending on the date of the
2000 annual meeting of shareholders; 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 January 26, 1999
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.
President and Chief Executive
Officer
Malvern, Pennsylvania
January 28, 1999
<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 March 23, 1999
and all adjournments thereof. The proxy statement and proxy card will be first
mailed to shareholders on or about January 28, 1999.
Only holders of record of common stock at the close of business on January
26, 1999 will be entitled to vote. On that date, there were 147,531,994 shares
of common stock outstanding. Each share of common stock entitles the holder
thereof to one vote.
I. ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
A board consisting of eight directors is proposed to be elected for a term
ending on the date of the 2000 annual shareholders' meeting. 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 eight
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.
<TABLE>
<CAPTION>
YEAR
BECAME
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT FOR PAST FIVE YEARS DIRECTOR AGE
---- ------------------------------------------------------ -------- ---
<S> <C> <C> <C>
Judith M. Bell.......... Proprietor, The Men's Shop at the Broadmoor (1973-Pres- 1998 62
Present); Co-Proprietor, A Short Story Inc. (1994-
Present); Managing Partner, Bell's Market Grill (1994-
Present) and Bell Retail Group (1986-Present);
President, United States Golf Association (1996-1997)
(also a director of Hayden Hays Gallery, Southern
Colorado Chapter of the Arthritis Foundation and a
Trustee for El Pomar Foundation)
James R. Birle.......... Chairman, Resolute Partners, LLC, a private merchant bank 1996 62
(1994-Present); General Partner, The Blackstone Group
(1988-1994) (also a director of Massachusetts Mutual
Life Insurance Company, Drexel Industries, Inc., The
Connecticut Health and Education Facilities Authority
and Transparency International)
Philip E. Cushing....... Group Chief Executive (1996-Present), Group Managing 1997 48
Director (1995-1996), Director-Services (1992-1995),
Inchcape PLC, a British-based international distribution
business
Kurt E. Dinkelacker..... Executive Vice President and Chief Financial Officer 1996 45
(1997-Present; 1993-1995), President (1995-1997) and
Chief Operating Officer (1996-1997), IKON Office
Solutions, Inc.
James J. Forese......... President and Chief Executive Officer (1998-Present), 1998 63
Executive Vice President of International Operations
(1996-1998), Executive Vice President and Chief Operat-
ing Officer (1996), IKON Office Solutions, Inc.; IBM
Vice President and Chairman of IBM Credit Corporation
(1993-1995); IBM Vice President-Finance (1990-1993)
(also a director of Unisource Worldwide, Inc., American
Management Systems and National Utilities Investor's
Corporation)
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Year
became
Name Principal occupation or employment for past five years director Age
---- ------------------------------------------------------ -------- ---
<S> <C> <C> <C>
Thomas P. Gerrity....... Dean and Professor, The Wharton School of the University 1998 57
of Pennsylvania (1990-Present) (also a director of CVS
Corporation, Fannie Mae, Reliance Group Holdings, Inc.,
Fiserv, Inc., Sun Company, Inc. and a trustee of MAS
Funds)
Barbara Barnes 1988 70
Hauptfuhrer............ Chairman of Independent Directors, IKON Office Solutions,
Inc. (also a director of The Vanguard Group of Invest-
ment Companies and of each of the mutual funds in the
Group (1972-1999), 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....... Non-Executive Chairman, IKON Office Solutions, Inc. 1996 53
(1998-Present); President and Chief Executive Officer,
PathNet, a telecommunications company (1997-Present);
President and Group Executive, Nynex Telecommunications
Group (1992-1997); President and Chief Executive Offi-
cer, New York Telephone (predecessor to Nynex Telecommu-
nications) (1991-1992) (also a director of Marine Mid-
land Bank and Home Wireless Network)
</TABLE>
Security Ownership
As of January 26, 1999, 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>
Ownership
-----------------------------------------------
Sole Voting Shared Voting Acquirable
and and/or within
Investment Power Investment Power(1) 60 Days(2)
---------------- ------------------- ----------
<S> <C> <C> <C>
Judith M. Bell.............. 1,534 0 3,500
James R. Birle.............. 16,088 0 16,130
Philip E. Cushing........... 1,013 0 12,400
Kurt E. Dinkelacker......... 54,419 8,488 227,857
James J. Forese............. 92,751 710 228,326
David M. Gadra.............. 5,561 451 4,790
Thomas P. Gerrity........... 2,858 0 3,500
Lynn B. Graham.............. 21,935 0 3,690
Frederick S. Hammer......... 25,337 0 48,229
Barbara Barnes Hauptfuhrer.. 14,650 0 61,863
Richard A. Jalkut........... 8,205 0 16,359
Peter W. Shoemaker.......... 22,325 16,973 90,259
John E. Stuart.............. 151,335 65,116 100,000
All directors and executive
officers as a
group (19 persons)......... 557,675 77,313 782,895
</TABLE>
--------
(1) 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.
(2) Represents shares which may be acquired within 60 days of January 26,
1999 through the exercise of stock options.
2
<PAGE>
As of January 26, 1999, for each of the individuals named on the previous
page, and for all current directors and executive officers as a group, the
percentage of common stock beneficially owned was less than 1%.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
For the fiscal year ended September 30, 1998, 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 1998, there were four standing committees of the Board of
Directors: the Audit Committee, the Human Resources Committee, the Investment
Committee and the Executive Committee (formerly the Operations 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 is chaired by Mr. Birle. Messrs. Cushing, Gerrity,
Hammer, Jalkut, Ms. Bell and Mrs. Hauptfuhrer are also members of this
Committee. The Audit Committee met four times during the fiscal year ended
September 30, 1998. 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 is chaired by Mr. Jalkut. Messrs. Birle,
Cushing, Gerrity, Hammer, Ms. Bell and Mrs. Hauptfuhrer are also members of
this Committee. The Human Resources Committee met five times during the fiscal
year ended September 30, 1998. It is responsible for reviewing and evaluating
persons who are suggested as nominees for election as members of the Board of
Directors or as executive officers of IKON, and for making recommendations to
the Board of Directors concerning such nominees. The Human Resources Committee
is also responsible for evaluating the performance of the Chief Executive
Officer, setting policies regarding executive compensation and 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 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.
The Investment Committee is chaired by Mr. Hammer. Messrs. Birle, Cushing,
Gerrity, Jalkut, Ms. Bell and Mrs. Hauptfuhrer are also members of this
Committee. The Investment Committee met four times during the fiscal year
ended September 30, 1998. Its functions are to review and approve acquisitions
and divestitures of businesses, and to recommend to the Board the issuance of
stock or debt with respect thereto, to approve capital expenditures and to
review any investment-related activity of the Company.
The Executive Committee is co-chaired by Messrs. Jalkut and Birle. Messrs.
Forese, Gerrity and Mrs. Hauptfuhrer are also members of the Committee. The
Executive Committee was constituted on July 9, 1998 (replacing the Operations
Committee) and met four times during the fiscal year. The Executive Committee
has been granted and exercises all the powers of the Board between regular
meetings of the Board.
During fiscal 1998, the independent directors of the Company met six times
in executive session in order to consider matters of importance to the
Company, including, but not limited to, the financial condition of the
Company, and the appointment of Mr. Forese to succeed Mr. Stuart as President
and Chief Executive Officer. There were also five special meetings of the
Board during fiscal 1998. The foregoing meetings were in addition to the
regular quarterly meetings of the Board of Directors, Audit Committee, Human
Resources Committee and Investment Committee. The Executive Committee will
hold special meetings between regular quarterly meetings of the Board during
fiscal 1999.
During the fiscal year, the Board of Directors met nine 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).
IKON vs. S&P 500 vs. SubIndex
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Date IKON S&P 500 SubIndex
- --------------------------------------------------------------------
<S> <C> <C> <C>
1/2/97 $100.00 $100.00 $100.00
3/31/97 83.81 103.92 105.99
6/30/97 60.07 119.71 140.89
9/30/97 58.96 128.09 150.27
12/31/97 62.81 127.37 135.37
3/31/98 81.07 149.61 187.59
6/30/98 53.60 144.34 181.77
9/30/98 18.92 143.74 167.36
- --------------------------------------------------------------------
</TABLE>
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.
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 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, noncompete and
change-in-control 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, noncompete and change-in-control
agreements.
Base Salaries
Base salaries for executive officers are established at the beginning of the
term of the executive's employment contract based on a comparison to
competitive market levels for the executive's job function. During the term of
the contract, the executive's base salary is subject to upward adjustment on
the basis of individual, corporate, and business unit performance, as well as
competitive, inflationary and internal equity considerations. Upon expiration
of the contract term, the Committee evaluates the executive's contribution to
the Company, makes a determination as to whether to continue the executive
officer in his or her current position, and reviews the executive's current
base salary (in light of current market levels and the executive's
performance) to determine whether such base salary should be adjusted upward
or downward.
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
5
<PAGE>
companies considered to be comparable to IKON for compensation purposes
include a broad cross-section of companies which are representative of
distribution companies generally.
During fiscal 1998, two individuals served as the Company's Chief Executive
Officer. Mr. Stuart served as the Company's Chief Executive Officer from
October 1, 1997 through July 8, 1998, when he resigned all positions with the
Company. Mr. Forese, who had been serving as the Company's Executive Vice
President and President of International Operations, became President, Chief
Executive Officer and a director of the Company on July 9, 1998, and continues
to serve in those capacities.
In continuing the base salary of $900,000 for Mr. Stuart for fiscal 1998,
the Committee acted in accordance with the terms of Mr. Stuart's employment
contract, which set Mr. Stuart's base salary at a minimum annual level of
$900,000. The Committee determined that, in light of the Company's poor
performance during fiscal 1997, a base salary increase for Mr. Stuart was not
warranted for fiscal 1998.
In setting the $750,000 annualized salary of Mr. Forese in his capacity as
President and Chief Executive Officer (pursuant to the negotiation of his
employment contract), the Committee evaluated the factors described above
which are used for setting compensation generally, Mr. Forese's record and
leadership abilities as Executive Vice President and President of
International Operations, and the challenges facing Mr. Forese in his new role
in light of the Company's performance during fiscal 1997 and the first nine
months of fiscal 1998.
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. For fiscal 1999, the Committee has determined that annual bonus
targets for executive officers, including the individuals named in the Summary
Compensation Table, will be based on increases in operating income, cash flow
and revenues over the previous fiscal year for IKON and/or the executive's
relevant business unit. For certain executive officers, including Messrs.
Dinkelacker and Gadra, individual objective performance criteria (established
at the beginning of the fiscal year) are also used to determine bonus
entitlement.
For fiscal 1999, Mr. Forese is eligible to receive a bonus equal to 150% of
salary, and Messrs. Dinkelacker, Shoemaker, Graham and Gadra are eligible to
receive fiscal 1999 bonuses equal to approximately 75% of salary.
In addition to the bonus entitlements described above, if certain executive
officers deliver outstanding business unit and individual performance, they
are eligible to earn a discretionary "overachievement" bonus. In order to
receive this additional overachievement bonus, the executive must demonstrate
outstanding execution of operational plan and individual performance criteria.
For the current executives named in the Summary Compensation Table, other than
Mr. Forese, annual overachievement bonus potential is 35% to 40% of base
salary. Mr. Forese is not eligible for an overachievement bonus. No
overachievement bonuses will be paid unless the executive has already earned
the full bonus entitlement described in the foregoing paragraph.
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 has motivated and rewarded growth
in shareholder value by granting to eligible executives cash awards which vest
only if certain performance criteria are met. For corporate officers, the LTIP
has generally been based on total shareholder return (stock price appreciation
with dividends reinvested). Total shareholder return ("TSR") has been measured
over successive three-year periods (with a new three-year period beginning
every fiscal year) and cash awards, if vested, are paid at the end of each
such three-year period. The LTIP payout is dependent upon achievement of
6
<PAGE>
threshold, target and maximum performance targets. For performance between
threshold and maximum, the payout is prorated on a straight-line basis.
The Committee has determined that Mr. Forese will be the only executive
officer eligible to participate in the 1999-2001 LTIP plan period (beginning
October 1, 1998 and ending September 30, 2001). Accordingly, on October 1,
1998, the Committee granted Mr. Forese a maximum LTIP award of $1,012,500.
Such award, if earned, will be paid at the end of the plan period, and is
conditioned on the following: 1) continued employment by Mr. Forese until the
end of the plan period; and 2) achievement of financial and operating
performance goals established by the Committee.
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 generally the fair
market value of IKON common stock on the date of grant, although, in order to
provide an incentive to Mr. Forese to deliver performance which increases
shareholder value, certain options granted to Mr. Forese pursuant to his
employment contract have exercise prices above fair market value (see
"Executive Employment Contracts--James J. Forese" on page 13).
On November 18, 1997, all of the individuals named in the Summary
Compensation Table except Mr. Shoemaker received option grants as an incentive
for future performance. The amounts of such option grants are set forth in the
Summary Compensation Table on page 8. In addition, during fiscal 1998, Mr.
Shoemaker received a promotional option grant of 10,000 options in connection
with his appointment as an executive officer, and Mr. Graham received an
option grant of 3,500 options in connection with the execution of his
employment contract.
Upon Mr. Forese's appointment as President and Chief Executive Officer in
July 1998, the Committee authorized the execution of an employment contract
with Mr. Forese, pursuant to which he was granted a total of 635,000 options.
For further information concerning these options and concerning Mr. Forese's
employment contract, see "Employment Contracts," below and "Executive
Employment Contracts--James J. Forese" beginning on page 13.
EMPLOYMENT CONTRACTS
The Committee believes that the selective use of employment, noncompete and
change-in-control 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,
employment, noncompete and change-in-control arrangements are in place with
Messrs. Forese, Dinkelacker, Shoemaker, Graham and Gadra. In addition, change-
in-control arrangements are in place with certain other corporate officers and
key executives. For further information on executive employment, noncompete
and change-in-control contracts see "Change-in-Control Arrangements and
Executive Employment Contracts" beginning on page 13.
SUMMARY OF COMPENSATION PHILOSOPHY
The Committee is firmly committed to the ongoing review and evaluation of
the Company's executive compensation practices. The Committee believes that
such review will insure that IKON's pay practices are in keeping with the
practices of comparable companies and will insure that such practices create
significant performance incentives for executives while maximizing shareholder
value.
7
<PAGE>
The Human Resources Committee of the Board of Directors
Richard A. Jalkut (Chairman)
Judith M. Bell
James R. Birle
Philip E. Cushing
Thomas P. Gerrity
Frederick S. Hammer
Barbara Barnes Hauptfuhrer
--------------------------------
Summary of Executive Compensation
The following table provides a summary of all compensation for the five most
highly compensated officers of IKON, and one additional individual for whom
disclosure is required, during the fiscal years ended September 30, 1998, 1997
and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
- ------------------------------------------------------------------------------------
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------------------------------
Awards
Name ----------
and Securities All Other
Principal Fiscal Underlying LTIP Compensation
Position(1) Year Salary($) Bonus($) Options Payouts($)(2) ($)(4)
----------- ------ ---------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
James J.
Forese 1998 450,000 0 13,500 194,375 37,478
President
and 1997 425,000 0 5,000 0 114,179
Chief
Executive
Officer 1996 487,500 487,500 388,773 0 46,411
Kurt E.
Dinkelacker 1998 350,000 0 15,600 116,625 36,357
Executive
Vice
President 1997 350,000 0 260,000 236,990 102,194
and Chief
Financial 1996 350,000 350,000 11,108 680,096 100,352
Officer
Peter W.
Shoemaker 1998 287,608 0 10,000 51,824 63,669
Senior Vice
President
and 1997 250,000 162,500 5,000 170,017 52,450
President of
North
American 1996 250,000 200,000 6,788 548,625 69,700
Business
Services
Lynn B.
Graham 1998 235,620 0 10,500 47,884 67,305
Senior Vice
President 1997 215,344 226,153 3,468 1,248,441(3) 42,519
and
President
of IKON 1996 208,041 265,384 0 0 38,850
Document
Services
David M.
Gadra 1998 234,167 0 9,100 0 29,956
Senior Vice
President
and 1997 225,000 157,500 4,250 0 19,178
Chief
Information
Officer 1996 37,500 75,000 11,725 0 125,377
John E.
Stuart 1998 697,192 0 40,000 0 79,052
Former
Chairman,
President 1997 900,000 0 270,000 575,540 265,149
and Chief
Executive
Officer 1996 900,000 900,000 24,684 1,586,923 249,664
</TABLE>
(1) In 1996, Mr. Forese was Executive Vice President and Chief Operating
Officer. From November 1996 through July 1998, he was Executive Vice
President and President of International Operations. In July 1998, he
assumed the above position, replacing John E. Stuart. Mr. Shoemaker was
President of IKON's Northeast Region in fiscal 1996, was Senior Vice
President in fiscal 1997 and assumed the above position in fiscal 1998.
Mr. Graham served as President of IKON Document Services in fiscal 1996,
1997 and 1998, and became Senior Vice President in addition to this role
in 1998. Mr. Gadra began employment with IKON in the above position on
August 1, 1996.
8
<PAGE>
(2) LTIP payouts for fiscal 1998 were distributed in the form of cash. For
fiscal 1997 and 1996, LTIP payouts were distributed in the form of shares
of common stock, based on the fair market value of the Company's common
stock on September 30, 1997 and September 30, 1996, respectively. For
fiscal 1997 and 1998, LTIP payouts represent awards attributable to fiscal
1995 and/or 1996 performance.
(3) Represents two LTIP awards paid to Mr. Graham as a member of the senior
management of IKON Document Services, an operating unit of IKON, for
superior operating performance. The awards were paid in IKON common stock,
valued based upon fair market value of such stock at the time of
distribution.
(4) Includes the value of unvested shares of IKON common stock purchased with
matching company contributions under IKON's stock purchase plans,
calculated as of the date of purchase, as follows: James J. Forese--
$37,478 (1998); $114,719 (1997) and $46,411 (1996); Kurt E. Dinkelacker--
$35,664 (1998), $101,631 (1997) and $99,907 (1996); Peter W. Shoemaker--
$60,926 (1998), $50,250 (1997) $65,801 (1996); Lynn B. Graham--$67,305
(1998), $42,519 (1997) and $38,850 (1996); David M. Gadra--$29,956 (1998),
$19,178 (1997) and $377 (1996); John E. Stuart--$76,798 (1998), $263,129
(1997), $247,073 (1996). Mr. Stuart has forfeited all such unvested
shares. For Messrs. Forese, Dinkelacker, Shoemaker, Graham and Stuart, the
remaining amounts represent above-market interest earned on deferred
compensation. For Mr. Gadra, the remaining amounts in 1996 represent a
one-time payment of $100,000 to compensate Mr. Gadra for the forfeiture of
stock options attributable to his previous employment, and $25,000 in
relocation compensation.
OPTION GRANTS
The following table shows option grants to the six individuals named in the
Summary Compensation Table during the fiscal year ended September 30, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OPTIONS
OF SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE GRANT
OPTIONS IN FISCAL PRICE EXPIRATION DATE
NAME GRANTED (#) YEAR (%) ($/SH) DATE VALUE ($)
---- ------------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
James J. Forese....... 13,500(1) 1.55 29.9375 11/18/07 152,420
Kurt E. Dinkelacker... 15,600(1) 1.84 29.9375 11/18/07 168,327
Peter W. Shoemaker.... 10,000(2) 1.15 11.8125 7/30/08 48,799
Lynn B. Graham........ 3,500(3) .40 29.1250 11/6/07 44,030
7,000(1) .80 29.9375 86,800
David M. Gadra........ 9,100(1) 1.04 29.9375 11/18/07 103,072
John E. Stuart........ 40,000(1) 4.60 29.9375 11/18/07 431,601
</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. 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 33-1/3% on the third, fourth and fifth
anniversaries of September 30, 1997 (the beginning of the 1998 fiscal
year), but vesting may be accelerated if LTIP performance criteria are
met; (c) 5.8% expected risk-free rate of return; (d) 36.46% expected
volatility; and (e) .53% expected dividend yield. Based upon these
assumptions, the value of each incentive stock option was $12.40 on the
date of grant and the value of each non-qualified stock option was $10.79
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. 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 20% on the first five
anniversaries of the date of grant; (c) 5.46% risk free rate of return;
9
<PAGE>
(d) 36.46% expected volatility; and (e) 1.35% dividend yield. Based upon
these assumptions, the value of each incentive stock option was $5.22 on
the date of grant and the value of each non-qualified stock option was
$4.54 on the date of grant. Mr. Shoemaker received both types of options in
amounts determined by current requirements under the Code.
(3) These incentive stock options were granted at an exercise price equal to
fair market value of IKON common stock on 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 on the first five anniversaries of the
date of grant. Based upon these assumptions, the value of each incentive
stock option was $12.58 on the date of grant.
Long Term Incentive Compensation Plan
The following table shows the Long Term Incentive Plan Awards to the
individual named in the Summary Compensation Table during the fiscal year
ended September 30, 1998.
Long Term Incentive Plans--Awards in Last Fiscal Year
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Performance
or Other
Cash Period Until Estimated Future Payouts (Cash)(2)
Award Maturation or ------------------------------------
Name ($)(1) Payment Threshold ($) Target ($) Maximum ($)
---- --------- --------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
James J.
Forese...... 404,157 10/1/97-9/30/00 0 202,079 404,157
Kurt E.
Dinkelacker. 467,025 10/1/97-9/30/00 0 233,513 467,025
Peter W.
Shoemaker... 0 10/1/97-9/30/00 0 0 0
Lynn B. Gra-
ham......... 209,563 10/1/97-9/30/00 0 104,781 209,563
David M.
Gadra....... 272,432 10/1/97-9/30/00 0 136,216 272,432
John E. Stu-
art......... 1,197,500(3) 10/1/97-9/30/00 0 0 0
</TABLE>
(1) Represents the LTIP cash award granted, which, if vested, will entitle the
participants (except Mr. Stuart, who has terminated employment) 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. Payout of any LTIP amount is contingent
on IKON common stock performance at least equal to 100% of the S&P 500
over the three-year plan period. For fiscal 1998, IKON common stock
performance was 28% of the S&P 500.
(2) Represents the cash payout which would be received upon attainment of
threshold, target and maximum performance. For performance between
threshold and maximum, the cash award to be received would be prorated on
a straight-line basis.
(3) Mr. Stuart will not be entitled to an LTIP payout of this award because he
will not be an active employee of the Company on September 30, 2000, the
last day of the plan period.
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, 1998. 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, 1998:
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>
James J. Forese......... 148,104 259,169 0 0
Kurt E. Dinkelacker..... 159,471 271,392 0 0
Peter W. Shoemaker...... 96,757 33,760 0 0
Lynn B. Graham.......... 1,926 13,893 0 0
David M. Gadra.......... 4,740 20,335 0 0
John E. Stuart.......... 753,137(3) 0(4) 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, 1998 less exercise price, multiplied by the number of
shares underlying the stock options.
(3) Includes Mr. Stuart's vested options and 100,000 options which became
fully vested pursuant to Mr. Stuart's employment contract on July 8, 1998,
the date of Mr. Stuart's employment termination. Except for the 100,000
options which became vested on July 8, 1998 (which Mr. Stuart has the
right to exercise until July 8, 1999), Mr. Stuart's right to exercise the
remaining vested options described above has expired.
(4) Mr. Stuart forfeited all unvested options, except the 100,000 options
referenced in (3), above, upon his employment termination on July 8, 1998.
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, 1998 for
the individuals named in the Summary Compensation Table were: James J.
Forese--2.8 years; Kurt E. Dinkelacker--13.3 years; Peter W. Shoemaker--15.1
years; Lynn B. Graham--4 years; David M. Gadra--2.2 years; John E. Stuart--12
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
11
<PAGE>
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.
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
During fiscal 1998, IKON had a loan program in place which offered to make
loans to eligible executives 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 bear interest at an
annual rate of 6%. Effective November 30, 1998, the loan program was
terminated, and all loans must be paid in full by no later than December 31,
2000. As of September 30, 1998, loans were outstanding to 19 executives in an
aggregate amount of approximately $2.63 million. From October 1, 1997 to
January 26, 1999, the indebtedness of the following individuals and groups
under the loan program was as follows:
<TABLE>
<CAPTION>
LARGEST AMOUNT OUTSTANDING AMOUNT OUTSTANDING AT
NAME OR GROUP DURING PERIOD($) JANUARY 26, 1999($)
- -------------------------------------------------------------------------------
<S> <C> <C>
James J. Forese............. 0 0
Kurt E. Dinkelacker......... 695,000 684,263
Peter W. Shoemaker.......... 500,000 0
Lynn B. Graham.............. 0 0
David M. Gadra.............. 0 0
John E. Stuart.............. 713,000 713,000(1)
All current executive offi-
cers as a group............ 2,403,000 1,772,263
</TABLE>
(1) Mr. Stuart is required to repay this loan balance no later than May 31,
1999.
Mr. Drake served as General Counsel and a director of IKON during fiscal
1998 and has now resigned all positions with IKON. He was Of Counsel to
Montgomery, McCracken, Walker & Rhoads during fiscal 1997 and 1998 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 1998 fiscal year.
Mr. Shoemaker has a 20% partnership interest in real estate located in
Glastonbury, Connecticut leased to IKON at fair market value. The lease has a
ten-year term which expires on April 30, 2001, with annual rental payments of
$267,750. The lease also has provisions for renewal for an additional five-
year term.
12
<PAGE>
CHANGE-IN-CONTROL ARRANGEMENTS AND EXECUTIVE EMPLOYMENT CONTRACTS
Change-in-Control Arrangements--Employee Benefit Plans and Executive
Arrangements
IKON's stock option plans, deferred compensation plans and supplemental
executive retirement plan provide for accelerated vesting (and, for certain
plans, accelerated payout of benefits) for all participants upon a change-in-
control, and also provide for accelerated vesting and payout of accrued LTIP
benefits upon a change-in-control. In addition, accelerated vesting is
provided to 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 has authorized change-in-control agreements with corporate
officers and other key executives. For Messrs. Shoemaker, Graham and Gadra,
the agreements 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 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, 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 change-in-control agreements
further 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 by the executive for
good reason) within two years following the change-in-control, any noncompete
restrictions otherwise applicable to the executive shall be void.
The employment contracts for Messrs. Forese 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, upon involuntary employment termination within two years
following a change-in-control, Mr. Forese will receive a severance benefit
equal to three times salary and three times maximum bonus, and Mr. Dinkelacker
will receive a serverance benefit equal to three times salary and three times
target bonus. Messrs. Forese and Dinkelacker will also receive continued group
hospitalization, health, dental care, life insurance and disability insurance
for three years, and will receive an amount equal to three years of company
contributions or credited service under the Company's Retirement Savings Plan
and pension plans. Mr. Forese will also be entitled to the continued right to
exercise each outstanding stock option (except the Special Stock Option
described below) for the lesser of two years or the remainder of its stated
term, and he will be entitled to exercise the Special Stock Option for the
lesser of five years or the remainder of its stated term. Both Mr. Forese and
Mr. Dinkelacker are subject to nonsolicitation and noncompetition restrictions
upon voluntary employment termination or termination for cause following a
change-in-control.
Executive Employment Contracts
The following sets forth a description of the executive employment contracts
which are in place for the individuals named in the Summary Compensation
Table.
James J. Forese
Mr. Forese's employment contract was effective on October 1, 1998 and
provides that Mr. Forese will remain in the employ of IKON for three years. On
each of the two successive anniversary dates of the contract (October 1, 2001
and October 1, 2002), the contract term shall be automatically renewed for a
one-year period, unless either Mr. Forese or the Company provides appropriate
notice of an intention not to renew. The contract
13
<PAGE>
sets Mr. Forese's annual salary at $750,000, subject to annual increase in the
discretion of the Human Resources Committee, and provides that Mr. Forese
shall be eligible to receive an annual bonus opportunity of no less than 150%
of annual salary. Mr. Forese's employment contract further provides that he
shall be entitled to participate in all employee benefit plans or programs for
which the most senior executives of the Company are eligible.
As consideration for Mr. Forese's agreement to enter into the employment
agreement, Mr. Forese is entitled to participate in the Company's Long-Term
Incentive Compensation Plan. At the beginning of each successive three-year
plan period (a new plan period begins each fiscal year) during the term of his
employment contract, Mr. Forese will be given the opportunity to earn a cash
award ranging from 90% to 180% of his base salary and a corresponding option
grant. For the plan period from October 1, 1998 through September 30, 2001
(1999-2001 LTIP), Mr. Forese is eligible to receive a maximum cash award of
$1,012,500 (135% of base salary).
In connection with the 1999-2001 LTIP, Mr. Forese received a grant of
options to purchase 135,000 shares of IKON stock at a price equal to the fair
market value of IKON common stock on October 1, 1998 (the date of grant). The
options have a ten-year term and vest 33 1/3% per year beginning on October 1,
2001, with accelerated vesting on or around September 30, 2001, if LTIP goals
are met for the 1999-2001 LTIP.
As further consideration of Mr. Forese's agreement to enter into the
employment contract, on October 1, 1998, Mr. Forese received a grant of
options to purchase 500,000 shares of IKON common stock (the "Special Stock
Option"). These options have a ten-year term. Of the foregoing options, 1)
250,000 options have an exercise price of $7.50 and will vest 100% three years
from the date of grant; 2) 150,000 options have an exercise price of $15.00
and will vest 100% four years from the date of grant; and 3) 100,000 options
have an exercise price of $22.00 per share and will vest 100% five years from
the date of grant.
Mr. Forese's contract further provides that, if Mr. Forese voluntarily
terminates employment during the term of the contract, or is terminated for
cause, no severance benefit is provided and Mr. Forese shall forfeit all stock
options not exercisable on the termination date. In the event that Mr.
Forese's employment terminates due to disability or death, Mr. Forese (or his
estate) will receive: 1) accrued base salary; 2) a prorated bonus and
accelerated LTIP payouts for all outstanding plan periods, 3) each outstanding
stock option except the Special Stock Option shall become immediately
exercisable and remain exercisable for the lesser of one year or the remainder
of its stated term and 4) the Special Stock Option shall become immediately
exercisable and remain exercisable for the lesser of five years or the
remainder of its stated term. In addition, upon termination due to disability,
Mr. Forese will receive, through age 65, disability payments equal to 60% of
his base salary in effect as of his termination date, and shall be entitled to
continue participation through age 65 in all medical, dental, vision,
hospitalization, disability and life insurance coverage.
Mr. Forese's employment contract further provides that if Mr. Forese's
employment is terminated without cause (or due to constructive discharge), Mr.
Forese will receive 1) base salary continuation through the later of September
30, 2001 or the second anniversary of his termination date, 2) a pro rata
bonus for the year of termination, 3) bonus payments for a two-year period
after termination, 4) the right to exercise any outstanding stock option,
other than the Special Stock Option, for a three-month period following
employment termination or the option's stated term, 5) the right to exercise
the Special Stock Option for the lesser of five years or the remainder of its
stated term, 6) an accelerated LTIP payout for all outstanding plan periods,
and 7) continued participation in all medical, dental, vision,
hospitalization, disability and life insurance coverage through the later of
September 30, 2001 or the second anniversary of his termination date. Mr.
Forese's contract also provides that Mr. Forese is subject to noncompetition
and nonsolicitation restrictions upon any employment termination.
Finally, Mr. Forese's employment contract contains 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 13.
14
<PAGE>
Kurt E. Dinkelacker
Mr. Dinkelacker's employment contract was effective on May 1, 1997, and
provides that Mr. 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 Mr. Dinkelacker provides appropriate notice of an
intention not to renew. The contract sets Mr. Dinkelacker's annual salary at
an amount at least equal to $350,000. Mr. Dinkelacker's employment contract
further provides that he shall be entitled to participate in all employee
benefit plans or programs for which the most senior executives of the Company
are eligible. If 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,
Mr. Dinkelacker (or his estate) will receive his annual bonus, prorated to the
date of termination. If Mr. Dinkelacker 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 Human Resources Committee, will forfeit any unvested options
granted in connection with the employment contract.
Mr. Dinkelacker's employment contract further provides that if Mr.
Dinkelacker's employment is terminated without cause (or due to constructive
discharge or the Company's failure to renew), he 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. Mr. Dinkelacker 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 will forfeit all remaining severance
payments.
As consideration for Mr. Dinkelacker's agreement to enter into the
employment contracts, 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. 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. Dinkelacker's employment contract contains 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 13.
Peter W. Shoemaker
Mr. Shoemaker executed a three-year employment contract with the Company
effective October 1, 1995. On February 1, 1998, the term of the contract was
extended until January 31, 2000 and certain amendments to the contract were
made. The employment contract, as amended, provides for a guaranteed minimum
annual base salary of $325,000. In addition, the contract provides that Mr.
Shoemaker shall be eligible for annual bonus opportunity during the term of
the contract. Mr. Shoemaker's contract also provides for a lump sum relocation
payment of $50,000.
Mr. Shoemaker's contract further provides that, upon expiration of the term
of the contract (or any extended term), Mr. Shoemaker shall be retained by the
Company for a two-year period as an employee/consultant to perform special
projects at an annual salary of $325,000, with continued vesting and
participation in all benefit plans. During the employee/consulting period, Mr.
Shoemaker shall not be entitled to participate in any new bonus, stock option
or LTIP opportunities.
If Mr. Shoemaker'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),
15
<PAGE>
accrued bonus for the fiscal year in which his employment terminates,
continued vesting under the Company's employee benefit plans, and continued
participation in the Company's group hospitalization, health, dental care,
life insurance and disability coverage until the end of the term. If Mr.
Shoemaker 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 Human Resources Committee, all unvested
options will be forfeited upon any termination of employment (other than due
to a change-in-control). Upon any termination of employment (other than a
termination following a change-in-control), Mr. Shoemaker may not compete with
IKON for a period of two years following the date of termination.
Mr. Shoemaker's employment contract contains 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 13.
Lynn B. Graham
Mr. Graham executed a three-year employment contract with the Company
effective April 1, 1997. The contract provides for a guaranteed minimum annual
base salary of $235,000, and a grant of 3,500 options to purchase IKON common
stock. In addition, the contract provides that Mr. Graham shall be eligible
for annual bonus opportunity during the term of the contract. If Mr. Graham'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 employment benefit plans 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. Graham 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.
Mr. Graham's contract further provides that management will recommend to the
Human Resources Committee that all unvested options will be vested upon an
involuntary termination of employment without cause. The Human Resources
Committee is not obligated to follow such recommendation. Finally, the
employment contract states that if Mr. Graham's employment with the Company is
terminated for any reason (other than due to a change-in-control), he will not
compete with the Company for a period of three years following the date of
termination.
Mr. Graham's employment contract contains 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 13.
David M. Gadra
Mr. Gadra executed a three-year employment contract effective 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. 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
employee benefit plans 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
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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 Human Resources Committee, all
unvested options will be forfeited upon any termination of employment (other
than due to a change-in-control). Upon any termination of employment (other
than due to a change-in-control), Mr. Gadra may not compete with the Company
for a two-year period.
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 13.
EXECUTIVE SEVERANCE MATTERS
On July 8, 1998, Mr. Stuart resigned all positions with the Company. In
accordance with Mr. Stuart's employment contract, Mr. Stuart will receive his
annual base salary of $900,000 for a three-year severance period beginning on
July 8, 1998 (the date of his employment termination), subject to offset in
the event that Mr. Stuart obtains other employment. The contract also provides
that Mr. Stuart will not compete with the Company for a one-year period, and
that, in the event he competes with the Company at any time during the three-
year severance period, he will forfeit all remaining severance payments.
Mr. Stuart's employment contract further provides that 100,000 options to
purchase IKON stock which were granted to Mr. Stuart on May 1, 1997 at a price
of $26.75 became fully vested on the date of Mr. Stuart's employment
termination and will remain exercisable until July 8, 1999. Finally, Mr.
Stuart's contract entitles him to outplacement assistance and continued group
hospitalization, health, dental care, life insurance and disability insurance
(at a cost to Mr. Stuart comparable to his cost while actively employed) until
July 8, 2001.
Except as required by his employment contract, the Company does not intend
to provide any additional severance benefits to Mr. Stuart, except that 1) the
Company will refund to Mr. Stuart the amounts he deferred from compensation
under the Company's deferred compensation programs, together with the
investment returns credited to those deferrals in accordance with Mr. Stuart's
investment elections; and 2) Mr. Stuart's entitlement under the terms of any
employee benefit plan will be governed by the terms of such plan. The Company
has determined that it will not provide to Mr. Stuart accelerated vesting or
any other discretionary benefits under any retirement, stock option, stock
purchase or LTIP program sponsored by the Company.
DIRECTORS' COMPENSATION
In fiscal 1998, all independent directors received directors' fees of
$30,000 per year for service on the Board of Directors, and committee chairmen
received $3,000 per chairmanship per year. No attendance fees were paid for
attendance at regular quarterly Board and committee meetings, but a fee of
$1,000 per meeting was paid for attendance at special meetings. In addition,
Mrs. Hauptfuhrer received $5,000 during fiscal 1998 for her services as
Chairman of the Independent Directors.
All of IKON's directors have elected to receive 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 22, 1998, each independent
director received an automatic annual grant of options to purchase 2,000
shares of IKON common stock pursuant to the Directors' Plan. Options
17
<PAGE>
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.
Restricted Stock Awards
On January 22, 1998, each non-employee director received an annual award of
400 shares of restricted common stock (which will vest over a five-year
period).
New Director Options
Each new non-employee director of IKON also receives a one-time grant of
25,000 options to purchase IKON common stock. Accordingly, as new directors,
Messrs. Cushing and Gerrity and Ms. Bell each received an option during fiscal
1998 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.
Additional Director Compensation
In light of the substantial and unexpected time commitment that certain
independent directors made during fiscal 1998 (including five special Board
meetings, four Executive Committee meetings and six special meetings of the
Independent Directors), which commitment is expected to continue in fiscal
1999, on November 3, 1998, the Board of Directors determined that it would be
appropriate to increase directors' fees for certain individuals (retroactively
to July 1998). Accordingly, in addition to current directors' fees, the Board
of Directors approved an annual fee of $15,000 to be paid to each of Mrs.
Hauptfuhrer and Mr. Gerrity for service on the Executive Committee. The Board
also approved an annual fee of $60,000 to be paid to Mr. Jalkut for his
service as Non-Executive Chairman and Co-Chairman of the Executive Committee,
and an annual fee of $35,000 to be paid to Mr. Birle for his service as
Chairman of the Audit Committee and Co-Chairman of the Executive Committee.
These additional annual fees will be prorated for the time period from July
1998--February 1999 and paid in full for the directors' plan year beginning on
February 1, 1999. All of the directors entitled to receive additional fees
have elected to receive such fees in the form of discounted stock options to
purchase IKON common stock.
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, 1998 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 1999 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 Corporate Investor
Communications, Inc. to solicit proxies, at an expected cost of $7,000 (plus
out-of-pocket expenses).
18
<PAGE>
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.
2000 ANNUAL MEETING
Shareholders may submit proposals on matters appropriate for shareholder
action at the Company's annual meetings consistent with regulations adopted by
the SEC. For shareholder proposals to be considered by the Board for inclusion
in the Proxy Statement and form of proxy relating to the 2000 annual meeting
of shareholders, they must be received by the Company not later than September
27, 1999. If any shareholder wishes to present a proposal to the 2000 annual
meeting of shareholders that is not included in the Company's Proxy Statement
relating to such meeting and fails to submit such proposal to the Secretary of
the Company on or before December 14, 1999, then the Board will be allowed to
use its discretionary voting authority when the proposal is raised at the
annual meeting. All proposals should be addressed to the Company at P.O. Box
834, Valley Forge, PA 19482-0834, Attention: Secretary. Nothing in this
paragraph shall be deemed to require the Company to include in its proxy
materials relating to such annual meeting of shareholders any shareholder
proposal which does not meet all of the requirements for inclusion established
by the SEC and the Company's Code of Regulations at that time in effect.
ANNUAL REPORT ON FORM 10-K
Upon the written request of any shareholder entitled to vote at the upcoming
Annual Meeting, the Company will furnish to such shareholder, without charge,
a copy of the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998. Such requests should be directed to Susan Gaffney,
Director, Investor Relations, IKON Office Solutions, Inc., P.O. Box 834,
Valley Forge, PA 19482-0834.
Karin M. Kinney
Secretary
January 28, 1999
19
<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.
This proxy is solicited on behalf of the Board of
Directors of IKON Office Solutions, Inc. The
undersigned hereby appoints Michael J. Dillon 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 of
IKON Office Solutions, Inc. which the undersigned
is entitled to vote at the Annual Meeting of
Shareholders to be held on March 23, 1999, 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 March
18, 1999. 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 [_] Vote WITHHELD from all nominees
below and recommended by the
Board of Directors
(except as directed to the
contrary below)
Judith M. Bell, James R. Birle, Philip E. Cushing,
Kurt E. Dinkelacker, James J. Forese, Thomas P.
Gerrity, Barbara Barnes Hauptfuhrer, Richard A. Jalkut
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.
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.
