-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qRKjE6YAiWLtEyvvjgumEzKIEc5NC6yJa+fdZmRosQCSIEBMmFXZfdDXL+XPPFza tv6rNVV+sY2P72HboUM29Q== 0000950109-94-002159.txt : 19941122 0000950109-94-002159.hdr.sgml : 19941122 ACCESSION NUMBER: 0000950109-94-002159 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950126 FILED AS OF DATE: 19941118 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCO STANDARD CORP CENTRAL INDEX KEY: 0000003370 STANDARD INDUSTRIAL CLASSIFICATION: 5110 IRS NUMBER: 230334400 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-05964 FILM NUMBER: 94561172 BUSINESS ADDRESS: STREET 1: P O BOX 834 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 2152968000 MAIL ADDRESS: STREET 1: BOX 834 CITY: VALLEY FORGE STATE: PA ZIP: 19482 FORMER COMPANY: FORMER CONFORMED NAME: ALCO CHEMICAL CORP DATE OF NAME CHANGE: 19680218 PRE 14A 1 PRELIMINARY NOTICE AND PROXY 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: [X] Preliminary Proxy Statement [_] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12 Alco Standard Corporation ------------------------------------------------ (Name of Registrant as Specified In Its Charter) Karin M. Kinney, Esq. ------------------------------------------------ (Name of Person(s) Filing Proxy Statement) Payment of Filing Fee (check the appropriate box): [X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2). [_] $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:* (4) Proposed maximum aggregate value of transaction: - -------- * Set forth the amount on which the filing fee is calculated and state how it was determined. [_] 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: ALCO STANDARD CORPORATION ---------------- NOTICE OF ANNUAL MEETING OF SHAREHOLDERS JANUARY 26, 1995 ---------------- To the Shareholders of Alco Standard Corporation ("Alco"): You are invited to be present either in person or by proxy at the annual meeting of shareholders of Alco to be held at the Peoples Light and Theatre Company, 39 Conestoga Road, Malvern, PA 19355 on Thursday, January 26, 1995 at 9:30 a.m. to consider and act upon the following proposals: 1. To elect 12 directors to serve during the year and until their successors are elected; 2. To approve an amendment to the Amended Articles of Incorporation of Alco to increase the number of shares of common stock that Alco shall have authority to issue from 75,000,000 to 150,000,000 shares; 3. To approve the Alco Standard Corporation 1995 Stock Option Plan authorizing grants of options to purchase an aggregate of 2,500,000 shares of Alco common stock; 4. To approve the Alco Standard Corporation Annual Bonus Plan authorizing the award of annual cash bonuses; 5. To approve the Alco Standard Corporation Long Term Incentive Compensation Plan authorizing awards of an aggregate of 2,500,000 shares of Alco common stock; and 6. To transact such other business as may properly come before the meeting. Shareholders of Alco of record at the close of business on November 28, 1994 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. [Signature of John E. Stuart] President and Chief Executive Officer Valley Forge, Pennsylvania 19482-0834 November 30, 1994 ALCO STANDARD CORPORATION 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 Alco Standard Corporation ("Alco") of proxies to be voted at its annual meeting of shareholders on January 26, 1995 and all adjournments thereof. The proxy statement and proxy card will be first mailed to shareholders on or about December 5, 1994. Only holders of record of common stock and serial preferred stock at the close of business on November 28, 1994 will be entitled to vote. On that date, there were shares of common stock and 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 12 directors is proposed to be elected for the ensuing year and until their successors are elected. 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 12 nominees who receive the most votes at the meeting will be elected as directors. All of the nominees are now directors of Alco, holding office until election of their successors. Information regarding the nominees is set forth below.
YEAR PRINCIPAL OCCUPATION OR EMPLOYMENT FOR PAST FIVE YEARS BECAME NAME (WITH ALCO UNLESS OTHERWISE INDICATED) DIRECTOR AGE ---- ------------------------------------------------------ -------- --- J. Mahlon Buck, Jr. .... Chairman and President, TDH Capital Corporation (1977- 1984 69 Present) (also a trustee of The Vanguard Real Estate Funds Nos. I and II, Main Line Health, Inc. and The Bryn Mawr Hospital) Paul J. Darling, II..... Chairman, President and Chief Executive Officer, Corey 1994 56 Steel Company (1984-Present) (also a director of Liberty Mutual Insurance Company, Liberty Life Assurance Company of Boston, Liberty Mutual Fire Insurance Company and Liberty Financial Companies, Inc.) William F. Drake, Jr. .. Attorney and Partner, Montgomery, McCracken, Walker & 1969 62 Rhoads (1984-Present); Vice Chairman (1984-Present) (also a director of Nocopi Technologies, Inc.) James J. Forese......... General Manager, IBM Customer Financing, and Chairman, 1994 59 IBM Credit Corporation (1993-Present); IBM Vice Presi- dent, Finance (1990-1993); IBM Vice President and Group Executive (1988-1990) (also a director of Lexmark Inter- national, Inc., IBM Latin America, American Management Systems, Inc. and NUI Corporation) Frederick S. Hammer..... A director of United Student Aid Group, Inc., Tri-Arc Fi- 1986 58 nancial Services and National Media Corporation; Chair- man, Chief Executive Officer and a director, Mutual of America Capital Management Corporation (1993-1994); President, SEI Asset Management Services Group (1989- 1993); Mazur Fellow, The Wharton School, University of Pennsylvania (1989-1990) Barbara Barnes Hauptfuhrer............ A director of The Vanguard Group of Investment Companies 1988 66 and of each of the mutual funds in the Group, The Great Atlantic and Pacific Tea Co., Inc., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co. and Raytheon Company
1
YEAR PRINCIPAL OCCUPATION OR EMPLOYMENT FOR PAST FIVE YEARS BECAME NAME (WITH ALCO UNLESS OTHERWISE INDICATED) DIRECTOR AGE ---- ------------------------------------------------------ -------- --- Dana G. Mead............ Chairman (1994-Present), Chief Executive Officer (1992- 1994 58 Present) and a director (1992-Present), Tenneco, Inc.; Chairman and Chief Executive Officer, J I Case (a Tenneco division) (1992-Present); Vice Chairman and a director, National Association of Manufacturers (1994- Present); Executive Vice President (1989-1992), Senior Vice President (1986-1989), International Paper Company (also a director of National Westminster Bancorp, Cummins Engine Company, Inc. and Baker Hughes Incorporated) Ray B. Mundt............ Chairman (1986-Present), Chief Executive Officer (1980- 1971 66 1993), President (1974-1988) (also a director of Liberty Mutual Insurance Company, Liberty Life Assurance Company of Boston, Liberty Mutual Fire Insurance Company, Lib- erty Financial Companies, Inc., Nocopi Technologies, Inc., CoreStates Bank, N.A., and Clark Equipment Compa- ny) Paul C. O'Neill......... Private investor; Chairman, Ovington Securities Ltd. 1978 68 (1989-1991) Rogelio G. Sada......... Private investor; Mayor, San Pedro, N.L., Mexico (1992- 1980 59 1994); Director, International Advisory Board of Secu- rity Pacific National Bank (1980-1991); Director Gener- al, VITRO, a glass and glass-related products manufac- turer in Mexico (1972-1985) John E. Stuart.......... President and Chief Executive Officer (1993-Present); 1993 50 Vice President (1989-1993); Group President, Alco Office Products (1985-1993) James W. Stratton....... President, Stratton Management Company (1972-Present); 1988 58 Chairman (1993-Present) and a director, Stratton Small- Cap Yield Fund; Chairman (1981-Present) and a director, Stratton Monthly Dividend Shares; Chairman (1972-Pres- ent) and a director, Stratton Growth Fund (also a direc- tor of UGI Corporation, Gilbert Associates and Teleflex)
SECURITY OWNERSHIP As of November 30, 1994, shares of common stock of Alco 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, by each of the individuals named in the Summary Compensation Table (on page 7) and by all current directors and executive officers of Alco as a group, as follows:
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP ----------------------------------------------- SOLE VOTING SHARED VOTING ACQUIRABLE AND AND/OR WITHIN INVESTMENT POWER INVESTMENT POWER(1) 60 DAYS(2) ---------------- ------------------- ---------- J. Mahlon Buck, Jr........... 15,991 Paul J. Darling, II.......... 400 William F. Drake, Jr......... 8,545 Kurt E. Dinkelacker.......... 23,559 James J. Forese.............. 400 Frederick S. Hammer.......... 8,090 Barbara Barnes Hauptfuhrer... 11,140 James E. Head................ 22,645 Dana G. Mead................. 400 Hugh G. Moulton.............. 32,223 Ray B. Mundt................. 19,501 Paul C. O'Neill.............. 825 Rogelio G. Sada.............. 13,623 James W. Stratton............ 2,356 John E. Stuart............... 119,273 All current directors and ex- ecutive officers as a group. 334,144
-------- (1) Includes all shares held under Alco's Stock Participation Plan (and, for Mr. Head, under Alco's Defined Contribution Plan), and, where applicable, shares owned by spouses or minor children. (2) Represents shares which may be acquired within 60 days of November 30, 1994 through the exercise of stock options or vesting under Alco's Partners' Stock Purchase Plan. 2 As of November 30, 1994, for each of the individuals named above, the percentage of common stock beneficially owned was less than 1%. The percentage of common stock owned by all current directors and executive officers as a group was %. As of November 30, 1994, no person beneficially owned more than 5% of the outstanding shares of common stock of Alco, nor did any director, nominee or executive officer of Alco own any shares of preferred stock of Alco. As of November 30, 1994, Alco employees, through Alco's Stock Participation Plan, owned approximately 8.7% of the outstanding shares of common stock of Alco. For the fiscal year ended September 30, 1994, all reports required to be filed by Section 16(a) of the Securities Exchange Act of 1934 to reflect changes in beneficial ownership of Alco's securities were timely filed on behalf of Alco's directors and officers. Amended Form 3 and Form 4 reports, however, were filed on behalf of Mr. Head to reflect his ownership of 1,345 shares of Alco common stock (and reinvestment of dividends thereon) through an employee benefit plan. The original Form 3 and 4 reports filed on behalf of Mr. Head did not include these shares because of an administrative error. COMMITTEES OF THE BOARD OF DIRECTORS; MEETINGS There are four standing committees of the Board of Directors, including the Audit Committee and the Human Resources Committee. Between meetings of the Board of Directors, its powers may be exercised by the Executive Committee, Human Resources Committee and Investment Committee, and they, as well as the Board of Directors, sometimes act by unanimous written consent. The Audit Committee (Messrs. Buck, Darling, Sada, and Stratton) met four times during the fiscal year ended September 30, 1994. Its functions are to review the report of Alco's independent auditors relating to their audit of the financial statements of Alco, 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. Buck, Hammer, Mead and Sada) met six 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 Alco. (See "Human Resources Committee Report on Executive Compensation," page 4). The Committee also has all of the powers and exercises all of the duties of the Board of Directors as described in Alco's stock option, stock purchase, deferred compensation and other similar plans. During the fiscal year, the Board of Directors met five 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 EXECUTIVE COMPENSATION HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION Alco'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 Alco. The Human Resources Committee (the "Committee") is comprised of the five directors listed at the end of this report, none of whom is an employee of Alco and each of whom qualifies as a disinterested person for the purpose 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 Alco'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 below 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 Alco stock ownership; and --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. In addition, the Committee recommends that the shareholders approve executive compensation plans, so that payments under such plans will be excluded from compensation subject to the annual $1,000,000 deduction limit of Section 162(m) of the Code. The primary components of Alco's executive compensation program are (a) base salaries; (b) annual cash bonus opportunities; and (c) long term incentive opportunities. BASE SALARIES Base salaries for executive officers are reviewed annually and 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 below the 50th percentile of predicted executive salaries paid by comparable companies based upon survey data compiled by Alco's compensation consultant. The Committee does not consider the market for determining the compensation of Alco's executives to be limited to the companies included in the industry performance graph on page 12. The companies considered to be comparable to Alco for compensation purposes include a broad cross-section of companies which are representative of industry generally. In setting the $700,000 base salary of Mr. Stuart as Chief Executive Officer, the Committee evaluated the factors described above which are used for setting compensation generally, as well as Mr. Stuart's strong record and leadership abilities as Group President of Alco Office Products ("AOP") from 1985 until August 1993, including growth in AOP's revenues of 26% and growth in AOP's operating income of 32% in fiscal 1993 compared with fiscal 1992. 4 ANNUAL BONUS Annual bonus payments to executive officers are awarded pursuant to the Alco Standard Corporation Annual Bonus Plan (further described on page 16 hereof), and are based on corporate or business unit performance compared to the annual business plans 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, the 1994 annual bonus plan was based upon fiscal 1994 earnings per share (excluding special charges and credits) as compared to the earnings per share goals contained in Alco's business plan. For 1994, the earnings per share threshold, target and maximums were $2.67, $2.72 and $2.82, respectively. Alco achieved earnings per share of $2.87 for fiscal 1994 (excluding special charges and credits). Because of this performance, Messrs. Mundt, Stuart, Dinkelacker and Moulton received bonuses at the maximum level. The Alco Office Products 1994 annual bonus plan was based on operating income and operating cash flow, weighted 60% for operating income and 40% for operating cash flow. The operating income threshold, target and maximums were $157.6 million, $165.9 million and $170.9 million, respectively. The operating cash flow threshold, target and maximums were $133 million, $140 million and $170 million, respectively, excluding the captive leasing company. Alco Office Products achieved operating income of $199.4 million and operating cash flow of $198.8 million for fiscal 1994. Because of this performance, Mr. Head received a bonus at the maximum level. In November 1994 the Committee fixed the targets for the annual bonus plan for fiscal 1995, subject to shareholder approval of the plan. For corporate officers, these targets are based upon growth in "economic value per share," a concept which measures growth in economic value under a financial model which Alco utilizes. 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 Alco's stock. As a result, changes in "economic value" may not be accompanied by corresponding increases or decreases in stock prices over the measurement period. For fiscal 1995 the annual bonus plan for corporate officers will be based on increases in economic value per share over this value at the end of fiscal 1994. The threshold, target and maximum increases have been fixed at 15%, 18% and 20%, respectively. For group officers, annual bonus targets for fiscal 1995 are based on increases in operating income and operating cash flow. Awards under the 1995 annual bonus plan will be contingent upon the Committee receiving confirmation from Alco's independent auditors that the requisite performance levels have been achieved. LONG TERM INCENTIVE COMPENSATION LTIP Awards In November 1992, the Board of Directors approved the Alco Standard Corporation Long Term Incentive Compensation Plan ("LTIP") to more directly align the long-term interests of Alco's executives with those of Alco's shareholders. The LTIP motivates and rewards growth in shareholder value by granting to eligible executives stock awards which vest only if certain performance criteria are met. For corporate officers, the LTIP is based on total shareholder return (stock price appreciation and dividends) over a three-year plan period compared with the total shareholder return of the Standard & Poor's 500 Stock Index (the "S&P 500") over the same period. Awards are made at the fair market value on the last trading day immediately preceding the first day of the plan period. For the individuals named in the Summary Compensation Table, the number of awards granted during fiscal 1994 (for the 1994-1996 plan period) was determined by dividing an amount equal to 100% of the participant's base salary for the first year of the plan period by the share price. Total shareholder return is measured over successive three-year periods (with a new three-year period beginning every fiscal year) and shares of common stock, if earned pursuant to the terms of the award, will be issued at the end of each such three-year period. The number of shares issued is dependent upon 5 achievement of performance targets and range from 0 (in the case of performance at or below threshold) to the number of shares determined by dividing a maximum of 100% of the participant's base salary at the beginning of the plan period by the share price on that date (for maximum performance). For performance between threshold and maximum, the number of shares issued pursuant to the award will be prorated on a straight-line basis. The value of the participant's award will depend on both Alco's total shareholder return relative to the S&P 500 and changes in the share price during the plan period. In November 1993, the Committee fixed targets for corporate officers for the 1994-1996 plan period. For this plan period, the value on September 30, 1996 of a $100 investment made in Alco common stock on September 30, 1993 will be compared to the value on September 30, 1996 of a $100 investment made on September 30, 1993 in the S&P 500 (with dividends reinvested). The targets as established by the Committee for the 1994-1996 plan period are as follows:
ALCO INVESTMENT VALUE AS A PERCENT OF S&P 500 ------------------------ Threshold...................................... 100% Target......................................... 105% Maximum........................................ 110%
In November 1994, the Committee fixed targets for corporate officers for the 1995-1997 plan period. Performance for this plan period will be calculated in the same manner as performance for the 1994-1996 plan period. The targets as established by the Committee for the 1995-1997 plan period are as follows:
ALCO INVESTMENT VALUE AS A PERCENT OF S&P 500 ------------------------ Threshold...................................... 100% Target......................................... 107.5% Maximum........................................ 110%
This means that there will be no awards earned under the LTIP for corporate officers unless growth in Alco's shareholder value exceeds the S&P 500 total shareholder return over the plan period. LTIP targets were set for Messrs. Stuart, Dinkelacker and Moulton based upon the Alco v. S&P 500 targets described above. If an executive officer is an officer of one of Alco's two business units (Alco Office Products or Unisource), performance targets under the LTIP for the 1994-1996 and 1995-1997 plan periods are based 50% on the same targets as corporate officers and 50% on the growth in value and cash flows of the relevant business unit. LTIP targets were set for Mr. Head on the foregoing basis. Regular Stock Options Stock options are granted under the corporation's regular stock option plans (including, if approved, the 1995 Stock Option Plan) 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 a five-year employment period. The exercise price of these stock options is the fair market value of Alco stock on the date of grant. In fiscal 1994, Mr. Stuart's receipt of an option to purchase 250,000 shares reflected his promotion to the position of Chief Executive Officer and President, Mr. Dinkelacker's receipt of an option to purchase 50,000 shares reflected his promotion to the position of Chief Financial Officer, and Mr. Head's receipt of an option to purchase 50,000 shares reflected his promotion to the position of Group President of Alco Office Products. All of these option grants reflect promotions which occurred in August 1993. The option grants took into consideration outstanding awards and were at the fair market value on the dates of the grants. THE HUMAN RESOURCES COMMITTEE OF THE BOARD OF DIRECTORS Barbara Barnes Hauptfuhrer (Chair) J. Mahlon Buck, Jr. Frederick S. Hammer Dana G. Mead Rogelio G. Sada 6 SUMMARY OF EXECUTIVE COMPENSATION The following table provides a summary of all compensation for the five most highly compensated officers of Alco during the fiscal years ended September 30, 1994, 1993 and 1992: SUMMARY COMPENSATION TABLE - ---------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION(5) -------------------------- --------------------------- AWARDS ------------- OTHER NAME ANNUAL ALL OTHER AND COMPEN- SECURITIES COMPEN- PRINCIPAL FISCAL SATION UNDERLYING SATION POSITION(1) YEAR SALARY($) BONUS($) ($)(2) OPTIONS(3) ($)(4) ----------- ------ --------- -------- ------- ------------- ------------ John E. Stuart 1994 700,000 700,000 250,000 177,642 President and 1993 393,750 350,000 500 100,533 Chief Executive Officer 1992 315,000 315,000 15,500 87,886 Ray B. Mundt 1994 820,000 820,000 2,850 1,146 44,842 Chairman 1993 820,000 0 2,850 1,605 31,821 1992 820,000 498,970 2,850 1,689 43,244 Kurt E. Dinkelacker 1994 300,000 300,000 50,000 74,806 Executive Vice President 1993 168,750 150,000 0 42,066 and Chief Financial Officer 1992 130,400 130,400 5,000 32,345 Hugh G. Moulton 1994 300,000 300,000 0 78,136 Executive Vice President 1993 300,000 0 20,000 34,097 1992 284,000 120,970 10,000 49,429 James E. Head 1994 300,000 300,000 50,000 80,954 Vice President and 1993 167,083 177,535 0 46,098 Alco Office Products 1992 135,000 160,000 5,000 39,589 Group President
- -------- (1) During fiscal 1992 and ten months of fiscal 1993, Mr. Mundt was Chief Executive Officer of the corporation, Mr. Stuart was Group President of Alco Office Products, Mr. Dinkelacker was Executive Vice President of Alco Office Products, and Mr. Head was President of Copyrite, an Alco Office Products operating company. In August 1993, Mr. Stuart became President and Chief Executive Officer of the corporation, Mr. Dinkelacker became Executive Vice President and Chief Financial Officer of the corporation, and Mr. Head became Group President of Alco Office Products. In November 1993, Mr. Head was appointed a Vice President and executive officer of Alco. (2) Represents directors' fees. (3) All stock options except those granted to Mr. Mundt were granted pursuant to 1986 Stock Option Plan at an exercise price equal to fair market value of Alco common stock on date of grant. For Mr. Mundt, all options were granted in lieu of directors' fees pursuant to the 1989 Directors' Stock Option Plan, which is described under Directors' Compensation on page 10. Does not include LTIP awards granted during fiscal 1993 and fiscal 1994 pursuant to the Long Term Incentive Compensation Plan, which will only be earned if certain performance criteria are met. LTIP awards made during fiscal 1994 are included in the LTIP Awards Table on page 9. (4) Includes the value of shares of Alco common stock purchased with matching company contributions under Alco's stock purchase plans, calculated as of the date of purchase, as follows: John E. Stuart--$176,356 (1994); $99,703 (1993), and $87,572 (1992); Ray B. Mundt--$44,842 (1994), $31,821 (1993), and $43,244 (1992); Kurt E. Dinkelacker--$74,528 (1994) $41,884 (1993), and $32,276 (1992); Hugh G. Moulton--$69,374 (1994), $27,367 (1993), and $46,976 (1992); James E. Head--$80,954 (1994), $46,098 (1993) and $39,589 (1992). The remaining amounts represent above-market interest earned on deferred compensation. (5) There were no LTIP payouts in fiscal 1994, 1993 or 1992 to the named individuals. 7 OPTION GRANTS The following table shows option grants to the five individuals named in the Summary Compensation Table during the fiscal year ended September 30, 1994: OPTION GRANTS IN LAST FISCAL YEAR - --------------------------------------------------------------------------------
% OF TOTAL NUMBER OPTIONS OF SECURITIES GRANTED TO EXERCISE GRANT UNDERLYING EMPLOYEES OR BASE DATE OPTIONS IN FISCAL PRICE EXPIRATION PRESENT NAME GRANTED (#) YEAR (%) ($/SH) DATE VALUE ($)(2) ---- ------------- ---------- -------- ---------- ------------ John E. Stuart 250,000 52.11 49.00 11/11/03 2,695,000 Ray B. Mundt 1,146(1) .23 42.28 2/17/14 31,962 Kurt E. Dinkelacker 50,000 10.42 49.00 11/11/03 539,000 Hugh G. Moulton -- -- -- -- -- James E. Head 50,000 10.42 49.00 11/11/03 539,000
(1) Represents directors' fees of $16,150 which Mr. Mundt elected to receive in the form of stock options pursuant to the 1989 Directors' Stock Option Plan (described on page 10) at an exercise price equal to 75% of the fair market value of Alco stock on the date of grant. (2) The present value of option grants to Messrs. Stuart, Dinkelacker and Head were calculated using Black-Scholes option valuation methodology, based on the following assumptions: (a) ten-year option term; (b) becomes exercisable 20% per year from date of grant; (c) 4.71% expected risk-free rate of return; (d) 21.87% expected volatility; and (e) 1.96% expected dividend yield. The present value of the option grant to Mr. Mundt was calculated using Black-Scholes option valuation methodology, based on the following assumptions: (a) twenty-year option term; (b) fully exercisable after one year from date of grant; (c) 5.97% expected risk-free rate of return; (d) 21.00% expected volatility and (e) 1.77% expected dividend yield. OPTION EXERCISES The following table shows option exercises for each of the five individuals named in the Summary Compensation Table for the fiscal year ended September 30, 1994: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES - --------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT FY-END (#) FY-END ($) SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE)(1) UNEXERCISABLE(2) ---- --------------- ------------------ ----------------- ------------------- John E. Stuart.......... -- -- 61,200/269,200 2,117,990/3,865,748 Ray B. Mundt............ 26,000 834,000 11,078/8,346 345,140/238,676 Kurt E. Dinkelacker..... -- -- 11,350/57,000 308,621/926,460 Hugh G. Moulton......... 10,000 268,125 23,200/28,200 520,177/985,185 James E. Head........... -- -- 10,550/55,700 293,318/885,587
(1) Does not include options granted pursuant to the Long Term Incentive Compensation Plan, which, for fiscal 1994 grants, are included in the LTIP Awards table on page 9, and which will be replaced by an equivalent number of stock awards (entitling the holder to shares of Alco common stock, if earned) upon approval of the amended and restated LTIP by the shareholders. (2) Value of unexercised options equals fair market value of Alco common stock as of September 30, 1994, less exercise price, times the number of shares underlying the stock options. 8 LONG TERM INCENTIVE COMPENSATION PLAN The following table shows the number of stock awards granted to each of the named individuals under the Long Term Incentive Compensation Plan during the fiscal year ended September 30, 1994 and the number of shares of Alco common stock which will become issuable upon attainment of threshold, target and maximum performance levels: - -------------------------------------------------------------------------------- LONG TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR - --------------------------------------------------------------------------------
PERFORMANCE ESTIMATED FUTURE NUMBER OF OR OTHER PAYOUTS (SHARES OF SHARES, UNITS PERIOD UNTIL COMMON STOCK) (#)(2) OR OTHER MATURATION OR -------------------- NAME RIGHTS (#)(1) PAYOUT THRESHOLD TARGET MAXIMUM ---- ------------- --------------- --------- ------ ------- John E. Stuart........ 15,909 10/1/93-9/30/96 0 7,954 15,909 Ray B. Mundt.......... -- -- -- -- -- Kurt E. Dinkelacker... 6,818 10/1/93-9/30/96 0 3,409 6,818 Hugh G. Moulton....... 6,818 10/1/93-9/30/96 0 3,409 6,818 James E. Head......... 6,818 10/1/93-9/30/96 0 3,409 6,818
- -------------------------------------------------------------------------------- (1) Represents both the number of LTIP options granted pursuant to the Long Term Incentive Compensation Plan ("LTIP") at an exercise price equal to the fair market value of Alco stock on September 30, 1993 (the last day of Alco's previous fiscal year) and the number of option credits to which the participant is entitled upon attainment of performance goals, to be used in full payment of the exercise price. 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 4 and "Approval of Long Term Incentive Compensation Plan" on page 17. Upon approval of the amended and restated LTIP by the shareholders, all options granted pursuant to the previous LTIP will be cancelled and replaced with an equivalent number of stock awards under the amended and restated LTIP, which awards will entitle the participant to receive shares of common stock upon attainment of performance goals. (2) Represents the number of shares of common stock which will be received upon attainment of threshold, target and maximum performance. For performance between threshold and maximum, the number of shares which will be received will be prorated on a straight-line basis. PENSION PLAN AND SUPPLEMENTAL RETIREMENT PLANS Certain executive officers of Alco (including Messrs. Stuart, Mundt, Dinkelacker, Moulton and Head) 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 Alco and the pension plan and benefits are funded on an actuarial basis. The years of credited service as of September 30, 1994 for the individuals named in the Summary Compensation Table were: John E. Stuart--8.9 years; Ray B. Mundt-- 24.3 years; Kurt E. Dinkelacker--9.3 years; Hugh G. Moulton--23.9 years; and James E. Head-- 4.0 years. Alco also has a Supplemental Executive Retirement Plan ("SERP"). Coverage under the SERP is limited to participants in the Alco 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 Alco 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 Alco 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 9 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 Alco 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 Alco'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.
ESTIMATED ANNUAL RETIREMENT BENEFITS ----------------------------------------------------------------------------- YEARS OF CREDITED SERVICE FINAL AVERAGE ----------------------------------- COMPENSATION 10 20 30 35 ------------- -------- -------- -------- -------- $200,000................................. $ 20,000 $ 40,000 $ 60,000 $ 70,000 250,000................................. 25,000 50,000 75,000 87,500 300,000................................. 30,000 60,000 90,000 105,000 400,000................................. 40,000 80,000 120,000 140,000 500,000 or above........................ 50,000 100,000 150,000 175,000
Covered compensation under the pension plan and SERP of Alco's five most highly compensated executive officers includes salary and bonus set forth in the Summary Compensation Table on page 7. Mr. Mundt will receive an additional supplement to the pension plan and SERP so that he shall receive a total annual pension benefit (including amounts paid pursuant to the pension plan and SERP) of $500,000, payable for life in the form of a joint and fifty percent survivor annuity (which will provide for an annual lifetime benefit to Mrs. Mundt of $250,000 upon Mr. Mundt's death). FISCAL 1995 COMPENSATION PURSUANT TO CERTAIN PLANS The following table shows estimated benefits to be received by the named individuals and groups for fiscal 1995 pursuant to the 1995 Stock Option Plan, Annual Bonus Plan, and amended and restated Long Term Incentive Compensation Plan, which are being submitted to the shareholders for approval pursuant to this proxy statement.
ESTIMATED NEW PLAN BENEFITS--FISCAL 1995 1995 STOCK OPTION PLAN LTIP(3) -------------------------- ------------------------ SECURITIES UNDERLYING ANNUAL OPTIONS BONUS NAME OR GROUP TO BE GRANTED PLAN($)(2) THRESHOLD TARGET MAXIMUM - -------------------------------------------------------------------------------------- John E. Stuart.......... -- 850,000 0 6,841 13,682 Ray B. Mundt............ -- -- -- -- -- Kurt E. Dinkelacker..... -- 350,000 0 2,817 5,634 Hugh G. Moulton......... -- 312,000 0 2,511 5,022 James E. Head........... -- 325,000 0 2,615 5,230 Executive Officer Group. -- 3,570,300 0 27,427 54,857 Non-Executive Director Group.................. -- -- -- -- -- Non-Executive Officer Employee Group......... 350,000 -- -- -- --
(1) The table shows the number of securities underlying options to be granted for fiscal 1995 pursuant to the 1995 Stock Option Plan, subject to shareholder approval. (2) Shows the maximum amount of annual bonus to be paid to the named individuals and groups for fiscal 1995, assuming maximum performance goals are met, subject to shareholder approval. (3) Shows the number of shares of common stock to be issued pursuant to the LTIP for the plan period from October 1, 1994 through September 30, 1997 for attainment of threshold, target and maximum performance goals, subject to shareholder approval. For performance between threshold and maximum, the number of shares to be issued will be prorated on a straight-line basis. 10 DIRECTORS' COMPENSATION All directors are entitled to receive the following fees for service on the Board of Directors and committees thereof: fees of $22,000 per year for directors who are not employees of Alco or its subsidiaries ("independent directors"), $12,000 per year for other directors, and attendance fees of $1,000 for independent directors for each board and committee meeting attended. Committee members also receive $3,000 per committee per year and committee chairmen receive $1,000 per chairmanship per year. In addition, independent directors who serve as trustees for Alco's employee benefit plans receive $3,000 per year for services rendered to the plans, $1,000 per year for trustee chairmanship, and attendance fees of $1,000 for each trustees' meeting attended. Certain directors have elected to receive a portion of the foregoing fees (excluding attendance fees) in the form of options to purchase Alco common stock, pursuant to the terms of Alco's 1989 Directors' Stock Option Plan, which enables directors of Alco to receive all or a portion of their directors' fees in the form of options to purchase Alco common stock at exercise prices equal to 75% of the fair market value on the date such options are granted. The Directors' Plan provides for an automatic annual grant of stock options to each director who has filed with Alco 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 amounts, each independent director receives an annual grant of options to purchase 400 shares of Alco common stock pursuant to the 1993 Stock Option Plan for Non-Employee Directors. Options are granted at an exercise price equal to the fair market value of Alco 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. Independent directors who complete at least five full years of service as a director are entitled to receive a monthly retirement benefit after retiring from Alco's Board of Directors. Payment of such benefit begins 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 is 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. Payment of the monthly retirement benefit ceases upon the director's death. CERTAIN TRANSACTIONS In August 1980, a subsidiary of Alco adopted a loan program which encourages persons designated as "partners" to purchase and retain Alco stock. It offers to make loans to partners in amounts limited to 50% of total annual compensation (including cash bonuses) with the requirement that the loan be secured by the borrower's pledge of Alco 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 30, 1994, loans were outstanding to 29 partners in an aggregate amount of $1,311,500. From October 1, 1993 to November 30, 1994, the indebtedness of the following individuals and groups under the loan program was as follows:
LARGEST AMOUNT OUTSTANDING AMOUNT OUTSTANDING AT NAME OR GROUP DURING PERIOD($) NOVEMBER 30, 1994($) - ------------------------------------------------------------------------------- John E. Stuart.............. -- -- Ray B. Mundt................ -- -- Kurt E. Dinkelacker......... 43,000 43,000 Hugh G. Moulton............. 247,000 0 James E. Head............... -- -- All current directors and executive officers as a group................. 678,000 428,000
Mr. Drake, who serves as Vice Chairman and a director of Alco, is a partner in the Philadelphia law firm of Montgomery, McCracken, Walker & Rhoads, which rendered legal services to Alco and its subsidiaries during the 1994 fiscal year, and is expected to continue performing legal services during fiscal 1995. Ray B. Mundt will resign his position as an executive officer of Alco effective December 1, 1994, but will continue to perform consulting services for Alco for a period of two years following his resignation. Mr. Mundt will receive $250,000 annually for these consulting services (and for his covenant to not to compete). At Alco's option, Mr. Mundt's consulting contract may be renewed for an additional two-year period after its expiration in December 1996. 11 PERFORMANCE OF ALCO COMMON STOCK The following graph compares the cumulative total shareholder return on Alco's common stock with the cumulative total return of: (i) the Standard & Poor's 500 Stock Index, and (ii) an industry peer group based on a combination of the S&P 500 Paper and Forest Products Sub-Index and the S&P 500 Office Equipment and Supplies Sub-Index (the "Composite Index"): [TO BE REVISED] (GRAPH TO COME) - -------- (1) Cumulative total shareholder return is measured by assuming an investment of $100 made on September 30, 1989 (with dividends reinvested). (2) The components of the Composite Index have been weighted on the basis of the respective operating income contribution from each of Alco's two business segments (Unisource and Alco Office Products), as follows:
1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ Paper/Forest Products..................... 44.87% 49.67% 53.39% 59.24% 69.00% Office Equipment/Supplies................. 55.13% 50.33% 46.61% 40.76% 31.00%
12 II. AMENDMENT TO ARTICLES OF INCORPORATION TO INCREASE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK The Board of Directors recommends that the shareholders approve the proposal to amend the Amended Articles of Incorporation of Alco to increase the number of authorized shares of common stock from 75,000,000 to 150,000,000. At November 30, 1994, there were outstanding shares of common stock. Thus, there were shares of common stock available for issuance (or delivery from the treasury of Alco), and if the current proposal is adopted, this amount will be increased to shares. If the proposed amendment is adopted, the first paragraph of Article FOURTH of Alco's Amended Articles of Incorporation will be amended to read as follows: FOURTH: The number of shares which the Corporation is authorized to have outstanding is 152,135,988, consisting of 2,135,988 shares of Serial Preferred Stock of no par value (hereinafter called "Serial Preferred Stock"), and 150,000,000 shares of Common Stock of no par value (hereinafter called "Common Stock"). The increase in authorized shares of common stock would permit Alco to (i) make acquisitions which may involve issuance of a significant number of shares, (ii) sell shares for cash, (iii) continue the issuance of shares in connection with Alco's stock purchase and option plans, (iv) authorize stock dividends and stock splits and (v) use the common stock for other purposes, without the delay and expense of calling a special meeting of shareholders for such purpose. Except for the issuance of shares for use in connection with Alco's stock purchase and option plans or upon the conversion of Alco's outstanding convertible securities, there is no present intention to issue the additional shares of stock and Alco does not have any commitments, arrangements, understandings or agreements which would require the issuance of the additional shares. If the proposed increase in the amount of authorized shares of common stock is approved, however, the shares could be issued by action of the board of directors, at any time and for any purpose, without further approval or action by the shareholders, subject to the provisions of the Amended Articles of Incorporation and other applicable legal requirements. The New York Stock Exchange, on which Alco's common stock is listed, currently specifies shareholder approval as a prerequisite for listing shares in several instances, including acquisition transactions where the present or potential issuance of shares could result in an increase in the number of shares outstanding by 20% or more. The issuance of additional shares of common stock in certain transactions and under certain circumstances could have the effect of discouraging or impeding an unfriendly attempt to acquire control of Alco. Shares could be issued to persons, firms or entities known to be more favorable to management, thus creating possible voting impediments and assisting management to retain their positions. The board of directors is unaware of any pending or proposed effort to take control of Alco or to change management and there have been no contacts or negotiations with the board of directors in this connection. Shareholders have no preemptive rights to purchase any additional shares of common stock which may be issued. Accordingly, the issuance of additional shares would likely reduce the percentage interest of current shareholders in the total outstanding shares. The terms of the additional shares of common stock will be identical to those of the currently outstanding common stock. The Board recommends that the shareholders approve this proposed amendment to the Amended Articles of Incorporation. The favorable vote of a majority of the votes entitled to be cast at the meeting is required for approval. 13 III. APPROVAL OF 1995 STOCK OPTION PLAN The Board of Directors recommends that the shareholders approve a new stock option plan (the "1995 Stock Option Plan"). The 1995 Stock Option Plan would authorize grants of options to purchase an aggregate of 2,500,000 shares of Alco common stock. On November 30, 1994, the closing price of Alco common stock on the NYSE composite tape was . BACKGROUND The current Alco Standard Corporation 1986 Stock Option Plan ("1986 Plan") was approved by shareholders in 1986 and terminates November 14, 1995. The Board adopted the 1995 Stock Option Plan on November 11, 1994, subject to shareholder approval, to replace the 1986 Plan. KEY FEATURES OF THE PLAN The purpose of the 1995 Stock Option Plan is to secure for Alco and its shareholders the benefits of the incentive inherent in the ownership of common stock of Alco by those employees and other persons who will be responsible for Alco's future growth and continued success. The 1995 Stock Option Plan authorizes grants of options for an aggregate of 2,500,000 shares of common stock of Alco (subject to adjustment for subsequent stock splits, stock dividends and in certain other circumstances). Options may be granted to key persons who are employees of Alco, including employee directors and officers of Alco, or subsidiaries (including companies in which Alco has at least a 10% voting interest) or who provide services as independent contractors to Alco or its subsidiaries. Like the current 1986 Plan, the 1995 Stock Option Plan will authorize grants at option prices equal to or less than 100% of the fair market value of the shares on the date of grant and grants exercisable for up to ten years. No one person may receive more than 1,000,000 options pursuant to the 1995 Stock Option Plan in any fiscal year. Alco estimates that there may be approximately 3,000 persons (including employee directors and officers) in the category of key employees to whom options may be granted under the 1995 Stock Option Plan. ADMINISTRATION AND DETERMINATION OF OPTION GRANTS The Human Resources Committee will determine the persons to whom options will be granted, the dates of grant, the number of shares to be subject to each option, the option prices, the duration, and the other terms and conditions of the options, including any restrictions to be placed on transferability of shares upon exercise of options. Options will be granted for various terms of up to ten years, but unless the particular option award provides otherwise, they will generally terminate within three months following termination of employment or services, or, in the case of death, within one year thereafter. Options will not be transferable except by will or the laws of descent and distribution. The Human Resources Committee will determine whether to grant options qualifying as "incentive stock options" under Section 422 of the Code (hereinafter referred to as "ISOs"), or options which do not so qualify (hereinafter referred to as "non-ISOs"), or a combination of both. Only employees of Alco or its majority owned subsidiaries are eligible to receive ISOs. The Human Resources Committee may establish conditions precedent to the vesting of the right to exercise options, including continued employment with Alco. The obligation of Alco to sell, issue and deliver shares under options granted under the 1995 Stock Option Plan will be subject to all applicable laws, rules and regulations, and to such approvals as may be required by any governmental agencies. Shares subject to an option which expired or was terminated, including options originally granted pursuant to the 1986 Plan, will again be available for option grant under the 1995 Stock Option Plan. 14 TAX CONSEQUENCES The federal income tax consequences of grants and exercises of options under the 1995 Stock Option Plan will depend upon the terms and conditions of particular options as determined by the Human Resources Committee in granting the options, and upon the provisions of law as then in effect. The Human Resources Committee may consider the expected tax consequences in determining from time to time the particular terms and conditions of various options. Among the factors that may cause varying tax consequences would be the option price and duration, and any restrictions which the Human Resources Committee may place upon exercisability and upon the transferability of shares acquired upon exercise of the option. Under the Code as currently in effect, an optionee will not recognize taxable income from the grant or exercise of an ISO, except that the excess of the fair market value of the shares at the time of exercise over the option price would be a tax preference item. As an item of tax preference, such excess would be included in the alternative minimum tax calculation for the year in which the ISO is exercised. If the optionee holds the shares (or transfer them only to joint tenants including the optionee) for at least two years after the date of grant and one year from the day after the date the shares are transferred to the optionee, any difference between the option price and amount received upon sale is treated as capital gain or loss. If instead the optionee were not to comply with such periods, ordinary income is recognized in the year of disposition of the shares in an amount equal to the sale price (or, for other transfers, the fair market value on the date of transfer) or the fair market value on the date of exercise (whichever is less) less the option price. In such event, any item of tax preference otherwise generated upon the exercise of the option is disregarded. Alco will not be allowed a deduction for federal income tax purposes in connection with the grant or exercise of any ISO. If the shares acquired were disposed of during the one-year or two-year periods as described above, Alco will be entitled to deduct an amount equal to the ordinary income recognized by the optionee. As to non-ISOs, the optionee will recognize ordinary income upon the exercise of the option to the extent that the fair market value of the shares at the time of exercise exceeded the option price. Alco is entitled to a deduction for federal income tax purposes to the extent of the ordinary income which results to the optionee subject to any deduction limitation imposed by Section 162(m) of the Code. For the purpose of subsequent disposition of the stock (which would be treated as any other sale of stock), the optionee's cost basis is equal to the option price plus any amount recognized as ordinary income, and the holding period for the stock commences with the exercise of the option. TERMINATION AND AMENDMENT The Board may amend or terminate the 1995 Stock Option Plan in any manner and at any time, except that no such amendment or termination may adversely affect the rights of the holders of then outstanding options, without such holders' consent. BOARD RECOMMENDATION The Board recommends that the shareholders approve the 1995 Stock Option Plan. The favorable vote of a majority of the votes cast at the meeting is required for approval. 15 IV. APPROVAL OF ANNUAL BONUS PLAN The Board of Directors recommends that the Shareholders approve the Annual Bonus Plan (the "Bonus Plan"). The Bonus Plan authorizes the award of cash bonuses to eligible individuals. BACKGROUND The Bonus Plan was adopted by the Board of Directors on November 11, 1994 as the continuation of a program initiated in the 1960's intended to attract and retain key employees, to encourage key employees to devote their best efforts to Alco and to recognize key employees for their contributions to the overall success of Alco. It provides for the payment of annual cash bonuses following the close of each fiscal year, based upon the achievement of objective performance goals. The "performance-based compensation" exception to the annual $1,000,000 deduction limit of Section 162(m) of the Code is available with respect to compensation which is conditioned upon and paid only if (i) certain performance business goals are attained and (ii) such goals and the maximum amount of compensation to be paid upon meeting such goals are disclosed to and approved by shareholders. The Bonus Plan satisfies both criteria, and is being submitted to the shareholders in order to exclude amounts paid under the Bonus Plan to the individuals named in the Summary Compensation Table ("Covered Executives"), from compensation which is subject to the $1,000,000 deduction limit. ADMINISTRATION AND DETERMINATION OF BONUS The Bonus Plan will be administered by the Human Resources Committee. All decisions made by the Human Resources Committee in designating employees eligible to receive bonuses, determining performance objectives, determining types of bonuses to be paid, determining bonus amounts, determining how and when bonuses will be paid and construing the provisions of the Bonus Plan shall be final. Participation is generally limited to management employees. Bonuses paid to individuals, other than Covered Executives, will be paid at the discretion of the Human Resources Committee. KEY FEATURES OF PLAN For each Covered Executive, the Human Resources Committee establishes objective performance goals under which a bonus can be paid to the Covered Executive. The Human Resources Committee establishes, in writing, for each fiscal year, the bonus opportunity for each Covered Executive, the performance goals, the specific performance criteria and the appropriate weight of each performance criteria and the performance target or range of targets to measure satisfaction, in whole or in part, of the performance goals. At the end of the performance period, the Human Resources Committee will evaluate Alco's performance based upon the achievement of the pre-established performance goals and certify, in writing, the extent to which the specific performance criteria were attained. Individual awards will be determined based on performance against the pre-established goals. TERMINATION AND AMENDMENT The Board may amend or terminate the Bonus Plan in any manner and at any time. Neither the Bonus Plan nor any provision thereof precludes Alco from adopting or continuing other compensation arrangements, which arrangements may be either generally applicable or applicable only in specific cases. BOARD RECOMMENDATION The Board recommends that the shareholders approve the Annual Bonus Plan. The favorable vote of a majority of the votes cast at the meeting is required for approval. 16 V. APPROVAL OF LONG TERM INCENTIVE COMPENSATION PLAN The Board of Directors recommends that the shareholders approve the amended and restated Long Term Incentive Compensation Plan (the "LTIP"). The LTIP is intended to motivate, recognize and reward full-time employees of Alco and its subsidiaries for long-term performance at the corporate, group and company levels. BACKGROUND The LTIP originally became effective as of October 1, 1992. As originally adopted, the LTIP permitted participants to earn option credits if specified performance targets were met. Participants could use these option credits to pay the exercise price for stock options granted in conjunction with the LTIP award, thereby enabling participants to acquire shares of common stock without payment of the exercise price. The amended and restated LTIP was approved by the Board on November 11, 1994, subject to shareholder approval. The amended and restated LTIP achieves the same purpose as the original LTIP, and has been designed to comply with the performance-based compensation exception to section 162(m) of the Code. Following shareholder approval of the amended and restated LTIP, new LTIP stock awards will be granted to replace all LTIP stock options outstanding. As with the Bonus Plan, the LTIP satisfies the "performance-based" compensation exception to Section 162(m), and is being submitted to shareholders in order to exclude amounts paid under the LTIP to Covered Executives from compensation subject to the annual $1,000,000 deduction limit. ADMINISTRATION AND DETERMINATION OF LTIP AWARDS The LTIP is administered by the Human Resources Committee, which has the authority to select the employees to whom awards will be made. The Committee also determines the number of shares of Alco common stock subject to each award and sets the objective performance goals that must be met within a specified time period in order for the employee to receive the shares. All management personnel, including Covered Executives, are eligible for selection to participate in the LTIP. KEY FEATURES OF THE PLAN The performance goals specified by the Committee generally relate to the performance of the employee's business unit or the performance of Alco as a whole. Measurements of performance may include stock price, sales, earnings per share, return on equity, return on assets, growth in assets, total shareholder return or such other objective performance goals as may be established by the Committee. If the applicable performance goals are met within the specified time period and the Committee so certifies, Alco will cause a stock certificate representing the number of shares to which the employee is entitled to be issued to the employee. The employee may elect to have up to one-third of the value of the award withheld by Alco to satisfy tax obligations. If the Committee does not certify that the applicable performance goals have been met within the specified time period, the award will be forfeited. A maximum of 2,500,000 shares may be issued under the LTIP (subject to adjustment in certain cases). Shares subject to awards which are forfeited under the LTIP will be available to be awarded again under the LTIP. TERMINATION AND AMENDMENT The Board may amend or terminate the LTIP in any manner and at any time. Neither the LTIP nor any provision thereof precludes Alco from adopting or continuing other compensation arrangements, which arrangements may be either generally applicable or applicable only in specific cases. BOARD RECOMMENDATION The Board recommends that the shareholders approve the amended and restated Long Term Incentive Compensation Plan. The favorable vote of a majority of the votes cast at the meeting is required for approval. 17 VI. 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 Alco, Ernst & Young audited the financial statements of Alco for the fiscal year ended September 30, 1994 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 as the auditors for Alco for the 1995 fiscal year. Representatives of Ernst & Young 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 Alco. Employees of Alco 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 $ . Votes are tabulated by National City Bank, Alco'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 against a proposal. Broker non-votes are counted in determining the number of shares present at a meeting for purposes of the proposal to elect directors, but not for purposes of any other proposal. Broker non-votes have the effect of a vote against the proposal to elect directors, a vote against the proposal to amend the Amended Articles of Incorporation, but are not counted as either a vote for or against the other proposals described in this proxy statement. You are urged to sign and return your proxy promptly to make certain your shares will be voted at the meeting. You may revoke the proxy at any time before it is voted by giving notice to the Secretary of the corporation, 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. 1996 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 1996, or to recommend nominees for election to Alco's Board of Directors, the Secretary of Alco must receive any such proposal or recommendation no later than August 2, 1995 at its principal office in Valley Forge, Pennsylvania. J. Kenneth Croney Secretary November 30, 1994 18 ALCO STANDARD CORPORATION THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS PROXY The undersigned holder of Alco Standard Corporation Common Stock and/or Serial Preferred Stock hereby appoints Hugh G. Moulton, O. Gordon Brewer, Jr., and J. Kenneth Croney, and each of them, the Proxies of the undersigned, with full power of substitution, to vote the shares of the undersigned at the Annual Meeting of Shareholders to be held on January 26, 1995, and at any adjournment thereof, for the transaction of such business as may come before the meeting. The undersigned hereby instructs said Proxies to vote said shares upon the proposals set forth in the proxy statement furnished by the Board of Directors, as follows: Election of Directors [_] FOR all nominees listed below [_] WITHHOLD AUTHORITY (except as marked to the to vote for all nominees contrary below) listed below J.M. Buck, P.J. Darling, W.F. Drake, J.J. Forese, F.S. Hammer, B.B. Hauptfubrer, D.G. Mead, R. B. Mundt, P.C. O'Neill, R.G. Sada, J.W. Stratton, J.E. Stuart (To withhold authority to vote for a nominee, write such person's name below) - -------------------------------------------------------------------------------- Proposal to Amend Articles of Incorporation to Increase Amount of Authorized Common Stock [_] FOR [_] AGAINST [_]ABSTAIN Proposal to Approve 1995 Stock Option Plan [_] FOR [_] AGAINST [_]ABSTAIN Proposal to Approve Annual Bonus Plan [_] FOR [_] AGAINST [_]ABSTAIN Proposal to Approve Long Term Incentive Compensation Plan [_] FOR [_] AGAINST [_]ABSTAIN (Please sign on other side) - -------------------------------------------------------------------------------- (Continued from reverse side) THIS PROXY WILL BE VOTED AS DIRECTED ON THE OTHER SIDE, OR, IF NO DIRECTION IS INDICATED, WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES AS DIRECTORS, FOR --- --- THE PROPOSAL TO APPROVE THE 1995 STOCK OPTION PLAN, FOR THE PROPOSAL TO APPROVE --- THE ANNUAL BONUS PLAN, AND FOR THE PROPOSAL TO APPROVE THE LONG TERM INCENTIVE --- COMPENSATION PLAN. Dated _________________, 199_ _____________________________ Signature P1913.A(PE) ALCO STANDARD CORPORATION 1995 STOCK OPTION PLAN ARTICLE I Purpose The purpose of this 1995 Stock Option Plan (the "Plan") is to enable Alco Standard Corporation (the "Company") to offer employees and consultants of the Company and its subsidiaries equity interests in the Company, thereby attracting, retaining and rewarding such persons, and strengthening the mutuality of interests between such persons and the Company's shareholders. ARTICLE II Definitions For purposes of this Plan, the following terms shall have the following meanings: 2.1 "Board" shall mean the Board of Directors of the Company. 2.2 "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.3 "Committee" shall mean a committee appointed by the Board to administer the Plan, consisting of two or more Directors, each of whom is a "disinterested person" as defined in Rule 16b-3(c) under the Securities Exchange Act of 1934 and an "outside director" as defined in regulations under Section 162(m) of the Code. 2.4 "Common Stock" shall mean the Common Stock, no par value, of the Company. 2.5 "Company" shall mean Alco Standard Corporation. 2.6 "Fair Market Value" as of any date shall mean, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, the closing sales price of a share of Common Stock for the preceding trading day as reported on the New York Stock Exchange Composite Tape. 2.7 "Incentive Stock Option" shall mean any Stock Option awarded under this Plan intended to be and designated as an "Incentive Stock Option" within the meaning of Section 422 of the Code or any successor section. 2.8 "Non-Qualified Stock Option" shall mean any Stock Option awarded under this Plan that is not an Incentive Stock Option. 2.9 "Participant" shall mean a person to whom an Option has been granted under this Plan. 2.10 "Stock Option" or "Option" shall mean any option to purchase shares of Common Stock granted pursuant to Article VI. ARTICLE III Administration 3.1 The Committee. The Plan shall be administered and interpreted by the Committee. 3.2 Awards. The Committee shall have full authority to grant Stock Options to persons eligible under Article V, including the authority: (a) to select the persons to whom Stock Options may from time to time be granted; (b) to determine whether and to what extent Incentive Stock Options or Non-Qualified Stock Options, or any combination thereof, are to be granted to one or more persons eligible to receive Options under Article V; (c) to determine the number of shares of Common Stock to be covered by each Option granted; and (d) to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Option granted (including, but not limited to, the exercise price of the Option, the term of the Option, any restriction or limitation affecting the exercisability of the Option and any conditions under which the exercisability of the Option will be accelerated). 3.3 Guidelines. Subject to Article VII hereof, the Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing this Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of this Plan and any Option granted under this Plan (and any agreements relating thereto); 2 and to otherwise supervise the administration of this Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in this Plan or in any Option in the manner and to the extent it shall deem necessary to carry this Plan into effect. Notwithstanding the foregoing, no action of the Committee under this Section 3.3 shall impair the rights of any Participant without the Participant's consent. 3.4 Decisions Final. Any decision, interpretation or other action made or taken in good faith by the Committee arising out of or in connection with the Plan shall be final, binding and conclusive on the Company, all employees and Participants and their respective heirs, executors, administrators, successors and assigns. ARTICLE IV Share Limitations 4.1 Shares. The maximum aggregate number of shares of Common Stock that may be issued under this Plan shall be 2,500,000 (subject to any increase or decrease pursuant to Section 4.3 and subject to any increase due to expiration, termination or cancellation of options granted under the Company's previous stock option plans), which may be either authorized and unissued Common Stock or issued Common Stock reacquired by the Company. If any Option granted under this Plan or the Company's previous stock option plans expires, terminates or is cancelled for any reason without having been exercised in full, the number of unpurchased shares shall again be available for the purposes of the Plan. 4.2 Individual Limit. The maximum aggregate number of shares with respect to which Options may be granted to any individual during any fiscal year shall be 1,000,000 (subject to increase or decrease pursuant to Section 4.3). 4.3 Adjustments. If the outstanding shares of Common Stock are increased, decreased or exchanged for a different number or kind of shares or other securities, or if additional shares or other property (other than ordinary cash dividends) are distributed with respect to such shares of Common Stock or other securities, through merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, dividend, stock split, reverse stock split, spin off, split off, or other distribution with respect to such shares of Common Stock, or other securities, an appropriate and proportionate adjustment may be made in (i) the maximum number and kind of shares that may be issued under the Plan, (ii) the maximum number and kind of shares with respect to which Options may be granted to any individual during any fiscal year, (iii) the number and kind of shares or other securities subject to then outstanding Options, and (iv) the price for each share subject to any then outstanding Options. No 3 fractional shares will be issued under the Plan on account of any such adjustments. ARTICLE V Eligibility 5.1 Employees. Officers and other employees of the Company (including Directors of the Company who are also employees of the Company) and employees of any subsidiary of the Company are eligible to be granted Options under this Plan. 5.2 Consultants. Persons who directly or through a corporation in which they own a majority of the outstanding shares of voting stock provide services to the Company or any of its subsidiaries as independent contractors are eligible to be granted Non-Qualified Stock Options under this Plan. ARTICLE VI Stock Options 6.1 Options. Each Stock Option granted under this Plan shall be either an Incentive Stock Option or a Non-Qualified Stock Option. 6.2 Grants. The Committee shall have the authority to grant to any person eligible under Article V one or more Incentive Stock Options, Non- Qualified Stock Options, or both types of Stock Options. To the extent that any Stock Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or otherwise), such Stock Option or the portion thereof which does not qualify as an Incentive Stock Option shall constitute a separate Non-Qualified Stock Option. 6.3 Incentive Stock Options. Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of the Participant affected, to disqualify any Incentive Stock Option under such Section 422. 6.4 Terms of Options. Options granted under this Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem desirable: 4 (a) Stock Option Contract. Each Stock Option shall be evidenced by, and subject to the terms of, a Stock Option Contract executed by the Company. The Stock Option Contract shall specify whether the Option is an Incentive Stock Option or a Non-Qualified Stock Option, the number of shares of Common Stock subject to the Stock Option, the option price, the option term, and the other terms and conditions applicable to the Stock Option. (b) Option Price. The option price per share of Common Stock purchasable upon exercise of a Stock Option shall be determined by the Committee at the time of grant but shall be not less than 100% of the Fair Market Value of the Common Stock on the date of grant if the Stock Option is intended to be an Incentive Stock Option. (c) Option Term. The term of each Stock Option shall be fixed by the Committee at the time of grant but shall not be exercisable more than ten years after the date of grant if the Stock Option is intended to be an Incentive Stock Option. (d) Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at the time of grant; provided, however, that the Committee may waive any installment exercise or waiting period provisions, in whole or in part, at any time after the date of grant, based on such factors as the Committee shall, in its sole discretion, deem appropriate. (e) Method of Exercise. Subject to such installment exercise and waiting period provisions as may be imposed by the Committee, Stock Options may be exercised in whole or in part at any time during the option term, by giving written notice of exercise to the Company specifying the number of shares of Common Stock to be purchased and the option price for such shares. Payment of the option price may be made, in whole or in part, in cash, in shares of Common Stock duly owned by the Participant (and for which the Participant has good title free and clear of any liens and encumbrances) or by reduction in the number of shares issuable upon such exercise, based on the Fair Market Value of the Common Stock on the date of exercise. Upon payment in full of the option price, a stock certificate or stock certificates representing the number of shares of Common Stock to which the Participant is entitled shall be issued and delivered to the Participant. A Participant shall not be deemed to be the holder of Common Stock, or to have the rights of a holder of Common Stock, with respect to shares subject to the Option, unless and until a stock certificate representing such shares of Common Stock is issued to the Participant. (f) Termination of Employment. Unless otherwise determined by the Committee at the time of grant, Stock Options held by a Participant who ceases to be an employee or consultant 5 of the Company and its subsidiaries shall be exercisable as follows: (i) In the case of a Participant who dies, all Options that were exercisable on the date of the Participant's death may be exercised by the legal representative of the Participant's estate for a period of one year after the date of death or until the expiration of the stated term of the Option, whichever period is shorter. (ii) In the case of a Participant who becomes disabled, all Options that were exercisable on the date of termination of the Participant's employment or consulting relationship may be exercised by the Participant for a period of one year after such date or until the expiration of the stated term of the Option, whichever period is shorter. (iii) In the case of a Participant who ceases to be an employee or consultant of the Company and its subsidiaries for any reason other than death or disability, all Options that were exercisable on the date of termination of the Participant's employment or consulting relationship may be exercised by the Participant for a period of three months after such date or until the expiration of the stated term of the Option, whichever period is shorter. (iv) Any Option that was not exercisable on the date on which the Participant ceased to be an employee or consultant of the Company shall terminate on such date. (v) Any Option not exercised during the periods specified in Subsections (i), (ii) or (iii) shall terminate at the end of such period; provided, however, that the Committee may extend such period, based on such factors as the Committee shall, in its sole discretion, deem appropriate. If an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, such Option will thereafter be treated as a Non-Qualified Stock Option. (g) Incentive Stock Option Limitations. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year under the Plan and/or any other stock option plan of the Company or any subsidiary or parent corporation (within the meaning of Section 424 of the Code) exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options. Should the foregoing provisions not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or should any additional provisions be required, the 6 Board may amend this Plan accordingly, without the necessity of obtaining the approval of the shareholders of the Company. ARTICLE VII Termination or Amendment 7.1 Termination or Amendment of the Plan. The Board may at any time terminate this Plan or amend all or any part of this Plan; provided, however, that, unless otherwise required by law, the rights of a Participant with respect to Options granted prior to such termination or amendment may not be impaired without the consent of such Participant. The Board may, if it deems appropriate, submit an amendment to the shareholders for their approval in order to satisfy any statutory or regulatory provision, including Sections 162(m) and 422 of the Code and Rule 16b-3 under the Securities Exchange Act of 1934. 7.2 Amendment of Options. The Committee may amend the terms of any outstanding Option, prospectively or retroactively, but, subject to Article IV, no such amendment or other action by the Committee shall impair the rights of any holder without the holder's consent. ARTICLE VIII General Provisions 8.1 Nonassignment. Except as otherwise provided in this Plan, Options granted hereunder and the rights and privileges conferred thereby shall not be sold, transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. 8.2 Legend. All certificates representing shares of Common Stock delivered under this Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is listed or traded, any applicable Federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on stock certificates to make appropriate reference to such restrictions. 8.3 Other Plans. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if 7 such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. 8.4 No Right to Employment. Neither this Plan nor the grant of any Option shall give any Participant or other employee or consultant any right with respect to continuance of employment or consulting relationship with the Company or any subsidiary of the Company, nor shall there be a limitation in any way on the right of the Company or a subsidiary, as the case may be, to terminate such Participant's employment or consulting arrangement at any time. 8.5 Withholding of Taxes. Participants shall have the right to elect, prior to the Company's delivery of a stock certificate representing the shares of Common Stock otherwise deliverable, to satisfy applicable Federal, state and local withholding tax requirements by (i) remitting to the Company an amount sufficient to satisfy all Federal, state and local tax withholding requirements, (ii) having the Company reduce the number of shares of Common Stock otherwise deliverable to the Participant by an amount that would have a Fair Market Value on the date of exercise equal to the amount of all Federal, state and local taxes required to be withheld, or (iii) having the Company deduct the amount of such taxes from cash payments otherwise to be made to the Participant. [Participants who are subject to Section 16 of the Securities Exchange Act of 1934 should consider the Section 16 implications of their election.] If the Participant does not make an election on a timely basis, the Company shall reduce the number of shares of Common Stock otherwise deliverable to the Participant. In connection with such withholding, the Committee may make such arrangements as are consistent with this Plan as it may deem appropriate. 8.6 Listing and Other Conditions. (a) The issuance of any shares of Common Stock upon exercise of an Option shall be conditioned upon such shares being listed on the New York Stock Exchange. The Company shall have no obligation to issue any shares of Common Stock unless and until the shares are so listed, and the right to exercise any Option shall be suspended until such listing has been effected. (b) If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock upon exercise of an Option is or may in the circumstances be unlawful or result in the imposition of excise taxes under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act of 1933 or otherwise with respect to shares of Common Stock or Options, and the right to exercise any Option shall be suspended until, in the opinion of such counsel, such sale or delivery 8 shall be lawful or shall not result in the imposition of excise taxes. (c) Upon termination of any period of suspension under this Section 8.6, any Option affected by such suspension which shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares which would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Option. 8.7 Governing Law. This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania. 8.8 Construction. Wherever any words are used in this Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. 8.9 Liability of Committee Members. No member or former member of the Committee shall be liable, in the absence of bad faith or willful misconduct, for any act or omission with respect to service on the Committee. Service on the Committee shall constitute service as a director of the Company so that members of the Committee shall be entitled to indemnification and reimbursement as directors of the Company pursuant to its Code of Regulations. 8.10 Other Benefits. The grant of an Option shall not be deemed compensation for purposes of computing benefits under any retirement plan nor affect any benefits under any other benefit plan now or hereafter in effect under which the availability or amount of benefits is related to the level of compensation. 8.11 Costs. The Company shall bear all expenses incurred in administering this Plan, including expenses of issuing Common Stock upon the exercise of Options. 8.12 Severability. If any part of this Plan shall be determined to be invalid or void in any respect, such determination shall not affect, impair, invalidate or nullify the remaining provisions of this Plan which shall continue in full force and effect. 8.13 Successors. This Plan shall be binding upon and inure to the benefit of any successor or successors of the Company. 9 8.14 Headings. Article and section headings contained in this Plan are included for convenience only and are not to be used in construing or interpreting this Plan. ARTICLE IX Effective Date of Plan 9.1 Effective Date. This Plan shall be effective as of November 10, 1994, subject to approval by the Company's shareholders. ARTICLE X Term of Plan 10.1 Term. No Stock Option shall be granted pursuant to this Plan on or after November 10, 2004, but Options granted prior to such date may extend beyond that date. 10 ALCO STANDARD CORPORATION ANNUAL BONUS PLAN Effective October 1, 1994 1. Purpose of the Plan. The Alco Standard Corporation Annual Bonus Plan ------------------- (the "Plan") is intended to provide a method for attracting and retaining employees of Alco Standard Corporation ("Alco") and participating subsidiaries (collectively, the "Company"), to encourage these individuals to remain with the Company and to devote their best efforts to its affairs and to recognize employees for their contributions to the overall success of the Company. 2. Administration of the Plan. The Plan shall be administered by a -------------------------- committee (the "Committee") appointed by the Board of Directors of Alco, consisting of two or more "outside directors" (as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, and regulations thereunder (the "Code")). The Committee is authorized to interpret the Plan and from time to time may adopt such rules, regulations and guidelines consistent with the provisions of the Plan as it may deem advisable to carry out the Plan. The Committee's interpretations of the Plan, and all actions taken and determinations made by the Committee pursuant to the powers vested in it hereunder, shall be conclusive and binding on all parties concerned, including the Company, its shareholders and any person receiving an award under the Plan. 3. Eligibility. Key employees of the Company are eligible to be granted ----------- awards under the Plan. 4. Determinations of Bonuses. The Committee shall have full power and ------------------------- authority to (i) designate those key employees who may be eligible for bonuses under the Plan for a fiscal year; (ii) determine performance objectives which must be satisfied as a condition to earning a bonus under the Plan for a fiscal year (which objectives may differ as among employees or classes of employees); (iii) determine the types of bonuses to be paid under the Plan for a fiscal year; (iv) determine the extent to which performance objectives applicable to a given bonus have been achieved; (v) determine the amounts of bonuses (which may differ among employees or classes of employees) and (vi) determine the form and time of payment of bonuses. 5. Section 162(m) Conditions. ------------------------- (a) Performance Goals. In the case of any employee whose compensation ----------------- is or, in the opinion of the Committee, is potentially subject to the compensation deduction limits of section 162(m) of the Code ("section 162(m)") for a fiscal year, the Committee shall establish, in writing, with respect to each fiscal year beginning with the 1995 fiscal year (i) objective performance goals and the appropriate weighting of such goals based upon the Company's net income, cash flow and/or total shareholder return, (ii) performance targets or range of targets to measure satisfaction in whole or in part of such performance goals or combination of goals and (iii) a bonus opportunity target percentage of such employee's annual base compensation which will be used to establish the amount of bonus to be paid to such employee depending upon the degree of satisfaction of the performance goals. (b) Payment of Awards. A cash bonus shall be paid under the Plan for a ----------------- fiscal year to an employee whose compensation is or, in the opinion of the Committee, is potentially subject to section 162(m) if and only if the performance goal or combination of performance goals established by the Committee with respect to such employee have been attained (based upon the degree of satisfaction of the performance target or range of targets). Bonuses paid pursuant to this section shall not exceed 100% of such employee's annual base compensation for such fiscal year. (c) Certification. No payment shall be made to an employee until the ------------- Committee shall certify, in writing, that the applicable performance goals have been attained. 6. Payments in Event of Termination. In the event an employee terminates -------------------------------- employment with the Company for any reason, including death, disability and retirement, prior to the date of payment of a bonus award, the Committee may, in its sole discretion, pay to such employee or such employee's beneficiary, as the case may be, a bonus award. The amount of the bonus award, if any, will be at the sole discretion of the Committee. 7. Prohibition Against Assignment or Encumbrance. The Plan, and the --------------------------------------------- rights, interests and benefits hereunder, shall not be assigned, transferred, pledged, sold, conveyed, or encumbered in any way by an employee, and shall not be subject to execution, attachment or similar process. 8. Nature of the Plan. The Plan shall constitute an unfunded, unsecured ------------------ obligation of the Company to make bonus payments in accordance with the provisions of the Plan. The establishment of the Plan shall not be deemed to create a trust and the Company shall not be required to establish any special or separate fund or to segregate any assets to assure the payment of any award under the Plan. The rights of a participant to receive benefits under the Plan shall be only those of a general unsecured creditor. 2 9. Employment Relationship. No employee or other person shall have any ----------------------- claim or right to be granted an award under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of the Company or affect in any way the right of the Company to terminate an employee's employment at any time. 10. Withholding. The Company shall have the right to deduct from all ----------- awards paid hereunder an amount equal to all federal, state and local taxes required by law to be withheld with respect to such award. 11. Expenses. The costs and expenses of administering the Plan shall be -------- borne by the Company. 12. Termination and Amendment of Plan. The Committee shall have the --------------------------------- right, without the necessity of shareholder or employee approval, to alter, amend or terminate the Plan at any time; provided, however, that no such action shall adversely affect any rights or obligations under awards previously made under the Plan. 13. Adjustments to Performance Factors. If any performance goal, ---------------------------------- criterion or target for any year shall have been affected by special factors (including material changes in accounting policies or practices, material acquisitions or dispositions of property, or other unusual items) which in the Committee's judgment should or should not be taken into account, in whole or in part, in the equitable administration of the Plan, the Committee may, for any purpose of the Plan, adjust such goal, criterion or target, as the case may be, for such year (and subsequent years as appropriate), or any combination of them, and make credits, payments and reductions accordingly under the Plan; provided, however, that the Committee shall not have the authority to make any such adjustments with respect to awards paid to any participant who is at such time an employee whose compensation is or, in the opinion of the Committee, is potentially subject to the compensation deduction limits of section 162(m). 14. Rights of Company. Nothing contained in the Plan shall prevent the ----------------- Company or any subsidiary from adopting or continuing in effect other compensation arrangements, which arrangements may be either generally applicable or applicable only in specific cases. 15. Applicable Law. The Plan and all rights hereunder shall be governed -------------- by and construed in accordance with the laws of the Commonwealth of Pennsylvania. 16. Effective Date. The Plan shall be effective as of October 1, 1994, -------------- subject to approval by the shareholders of Alco. 3 ALCO STANDARD CORPORATION AMENDED AND RESTATED LONG TERM INCENTIVE COMPENSATION PLAN (Effective as of October 1, 1992) 1. Purpose. The Alco Standard Corporation Long-Term Incentive Compensation Plan was adopted effective October 1, 1992 for the purpose of motivating, recognizing and rewarding performance at the corporate, group and company levels which enhances long term shareholder value. The Plan has been designed and is intended to operate in a manner consistent with Alco Standard Corporation's decentralized operating philosophy and multitiered organizational structure. 2. Eligibility. Participation in the Plan shall be limited to full-time key employees of Alco Standard Corporation ("Alco") and its subsidiaries (collectively, the "Company"). 3. Shares. No more than 2,500,000 shares of common stock, no par value, of Alco ("Shares") may be issued under the Plan. Shares subject to awards which have been forfeited pursuant to the terms of this Plan may again be awarded pursuant to the Plan. 4. Adjustments. If the outstanding Shares are increased, decreased or exchanged for a different number or kind of shares or other securities, or if additional Shares or other property (other than ordinary cash dividends) are distributed with respect to such Shares or other securities, through merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, dividend, stock split, reverse stock split, spin off, split off, or other distribution with respect to such Shares or other securities, an appropriate and proportionate adjustment may be made in (i) the maximum number and kind of shares that may be issued under the Plan and (ii) the number and kind of shares or other securities subject to then outstanding awards. No fractional shares will be issued under the Plan on account of any such adjustments. 5. Administration and Interpretation. The Plan shall be administered by a committee of the Board of Directors of Alco (the "Committee"), which shall consist of two or more directors, each of whom is a "disinterested person" within the meaning of Rule 16b-3(c) under the Securities Exchange Act of 1934 and an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code and applicable regulations thereunder. The Committee may make such rules and establish such procedures as it deems appropriate for the administration of the Plan. In the event of any disagreement as to the interpretation of the Plan or any rule or procedure thereunder, the decision of the Committee shall be final and binding upon all persons in interest. 6. Awards. The Committee shall have the authority to make awards ("Awards") under the Plan to any person who meets the eligibility requirements set forth in Section 2. At the time an Award is made, the Committee shall specify (i) the number of Shares subject to the Award, (ii) the objective performance goals that must be met in order for the recipient of the Award to receive the Shares and (iii) the time period within which the performance goals must be met ("restriction period"). The performance goals specified by the Committee may relate to an individual employee's performance, the performance of an employee's business unit or the performance of the Company as a whole or to any combination of the foregoing. Measurements of performance may include stock price, sales, earnings per share, return on equity, return on assets, growth in assets, total shareholder return or such other objective performance goal as may be established by the Committee. The number of Awards, if any, made each year, the persons to whom and the time or times at which Awards are made, the number of Shares included in any Award, the performance goals applicable to each Award and the other terms and provisions of such Award shall be wholly within the discretion of the Committee, subject to the overall limit prescribed in Section 3. 7. Certification; Forfeiture. If the Committee shall certify, after the end of the restriction period, that the applicable performance goals have been met, Alco shall cause a stock certificate representing the number of Shares subject to the Award to be issued in the name of, and delivered to, the employee, subject to reduction in the number of shares in the event the employee so elects pursuant to Section 11. If the Committee does not so certify, the Award shall be forfeited. Unless otherwise determined by the Committee, an Award will be forfeited if the grantee is not an employee of the Company on the last day of the restriction period. 8. Certificate. Each Award shall be evidenced by a Restricted Stock Award Certificate, which shall specify the number of Shares subject to the Award, the restriction period, and the applicable performance goals. In addition, the Committee may specify additional terms, not inconsistent with this Plan, by rules of general application or by specific direction in connection with a particular Award or group of Awards. 9. Common Stock Subject to Award. Shares issued pursuant to Awards may be unissued shares or treasury shares, including shares bought on the open market. 10. Rights of Participant in Shares. A person shall not be deemed to be the holder of, or to have the rights of a holder with respect to, any Shares subject to an Award unless and until a stock certificate representing such Shares is issued to such person. 11. Tax Withholding. At the election of the employee, the Company shall reduce and withhold the number of Shares which become issuable pursuant to the Award by up to one-third of the total number of Shares and shall apply an amount equal to the 100% of the fair market value of the Shares so withheld to applicable federal, state, city and other taxes required to be withheld by the Company pursuant to any statutes or other governmental regulation or ruling. 12. Nonassignment. Any Award and the rights and privileges conferred hereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. 13. Plan and Award Not to Affect Employment. Neither this Plan nor any Award shall confer upon any eligible employee any right to continue in the employ of the Company. 14. Amendment of Plan. The Board of Directors of Alco may terminate this Plan or make such amendments to this Plan as it deems necessary or advisable, provided, however, that unless otherwise required by law, no such amendment may impair the rights of any participant under any Award previously granted without such participant's consent. The Board of Directors may, if it deems appropriate, submit an amendment to the shareholders for their approval in order to satisfy any statutory or regulatory provision, including Section 162(m) of the Internal Revenue Code and Rule 16b-3 under the Securities Exchange Act of 1934. 15. Successors. The Plan shall be binding upon and inure to the benefit of any successor, successors or assigns of Alco. 16. Severability. If any part of the Plan shall be determined to be invalid or void in any respect, such determination shall not affect, impair, invalidate or nullify the remaining provisions of the Plan which shall continue in full force and effect. 17. Governing Law. The Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania. 18. Construction. Wherever any words are used in this Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. 19. Liability of Committee Members. No member or former member of the Committee shall be liable, in the absence of bad faith or willful misconduct, for any act or omission with respect to service on the Committee. Service on the Committee shall constitute service as a director of the Company so that members of the Committee shall be entitled to indemnification and reimbursement as directors of the Company pursuant to its Code of Regulations. 20. Other Benefits. Neither the receipt of an Award nor the issuance of Shares pursuant to an Award shall be deemed compensation for purposes of computing benefits under any retirement plan nor affect any benefits under any other benefit plan now or hereafter in effect under which the availability or amount of benefits is related to the level of compensation. 21. Costs. The Company shall bear all expenses incurred in administering the Plan, including expenses of issuing Shares pursuant to an Award. 22. Effective Date. This Amended and Restated Plan shall be effective October 1, 1992, subject to approval by the Shareholders of Alco. 23. Termination of the Plan. No Award shall be made after September 30, 2004. However, Awards made prior to such date shall continue to be governed in accordance with the terms of this Plan and employees shall be entitled to receive payment for such Awards under the terms of this Plan. -----END PRIVACY-ENHANCED MESSAGE-----