According to the Company’s Form 10-K for the fiscal year ended September 30, 2001, the Company agreed to settle the class action complaints and a companion derivative lawsuit for $111,000,000. The Company recorded a charge of $101,106,000 in fiscal 1999 for the shareholder litigation settlement, which consisted of a $111,000,000 settlement plus $10,106,000 of legal fees offset by $20,000,000 of insurance proceeds. In fiscal 2000, the Company received an additional $17,000,000 of insurance proceeds.
On November 29, 1999, IKON Office Solutions agreed in the U.S. District Court for the E.D. of Pennsylvania to pay $111 million to settle shareholder class action and derivative lawsuits that accuse the company of inflating its stock price for several years by making false financial statements. Significantly, IKON also pledged to cooperate with the plaintiffs' lawyers in their continuing litigation against the company's auditors, Ernst & Young, according to plaintiffs' co-lead counsel Daniel Berger of Berger & Montague. U.S. District Senior Judge Marvin Katz has already signed an order granting preliminary approval of the proposed settlement so that lawyers can begin sending notices to shareholders.
In the Form 10-K405/A dated January 22, 1999, the Consolidated Complaint (the "Complaint") was filed on December 18, 1998 and alleges that the defendants publicly disseminated a series of false and misleading statements, including filings with the Securities and Exchange Commission, concerning the Company's revenue, profitability and financial condition, in violation of the federal securities laws. The plaintiffs seek to represent a class of persons who purchased or acquired the Company's common stock between January 24, 1996 and August 14, 1998. The Complaint seeks unspecified compensatory and punitive damages, prejudgment interest, attorneys' fees and costs.
The original Complaint names IKON and certain of the Company's officers and directors as defendants, alleging that these parties violated Sections 10(b) and 20(a) of the Exchange Act, as well as SEC Rule 10b-5 promulgated thereunder, by originating a series of materially misleading statements and omissions concerning the Company's acquisitions and operations during the Class Period. Specifically, Plaintiff alleges, among other things, that the defendants misrepresented that the Company was successfully integrating the operations of various acquired companies, when, in fact, IKON was experiencing severe difficulties assimilating those acquisitions. In addition, Plaintiff alleges that IKON touted the Company's acquisition-based growth strategy knowing that IKON lacked both the management structure and internal financial controls to accurately report lease defaults and accounts receivable reserves. These misrepresentations and omissions had the aggregate effect of artificially inflating the share prices of IKON's stock, until the truth was revealed at the end of the Class Period. IKON's stock fell from a Class Period high of $36.25 per share to close at $9 15/16 on August 14, 1998.