-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NNw9LR1pTztH9xDWdG1PsHfc2z1Sipw24p2beSdLjOmadNLWXNIVQesn7vdJVMFJ BiLQ2XMQ+44ZLIdRajWFCA== 0000891020-99-000626.txt : 19990405 0000891020-99-000626.hdr.sgml : 19990405 ACCESSION NUMBER: 0000891020-99-000626 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990511 FILED AS OF DATE: 19990402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIMESOURCE CORP CENTRAL INDEX KEY: 0000904816 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PROFESSIONAL & COMMERCIAL EQUIPMENT & SUPPLIES [5040] IRS NUMBER: 231430030 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-21750 FILM NUMBER: 99586468 BUSINESS ADDRESS: STREET 1: 4350 HADDONFIELD RD STREET 2: SUITE 222 CITY: PENNSAUKEN STATE: NJ ZIP: 08109 BUSINESS PHONE: 6094884888 MAIL ADDRESS: STREET 1: FAIRWAY CORPORATE CENTER SUITE 222 STREET 2: 4350 HADDONFIELD ROAD CITY: PENNSAUKEN STATE: NJ ZIP: 08109 FORMER COMPANY: FORMER CONFORMED NAME: PHILLIPS & JACOBS INC DATE OF NAME CHANGE: 19930514 DEF 14A 1 DEFINITIVE PROXY MATERIALS 1 SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12 PRIMESOURCE CORPORATION - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: --------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: --------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): --------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: --------------------------------------------------------------------- (5) Total fee paid: --------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was 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: --------------------------------------------------------------------- 2 [PRIMESOURCE CORPORATION LOGO] ------------ NOTICE OF ANNUAL MEETING OF SHAREHOLDERS ------------ TO THE SHAREHOLDERS: The fifth annual meeting of shareholders of PrimeSource Corporation will be held at the Pennsauken Country Club, 3800 Haddonfield Road, Pennsauken, New Jersey on Tuesday, May 11, 1999 at 9:30 a.m. for the following purposes: 1. To elect three directors to serve three year terms. 2. To ratify the selection of PricewaterhouseCoopers as independent auditors for the fiscal year ended December 31, 1999. 3. To transact such other business as may properly come before the meeting or any adjournments thereof. Only shareholders of record at the close of business on March 19, 1999 are entitled to notice of, and to vote at, this meeting. BY ORDER OF THE BOARD OF DIRECTORS /s/ BARRY C. MAULDING ---------------------------------- Barry C. Maulding Corporate Secretary Pennsauken, New Jersey April 9, 1999 IMPORTANT Each shareholder is urged to sign and return promptly the accompanying proxy card in the enclosed postage-paid envelope. 3 [PRIME SOURCE CORPORATION LOGO] FAIRWAY CORPORATE CENTER 4350 HADDONFIELD ROAD SUITE 222 PENNSAUKEN, NEW JERSEY 08109 --------------------- PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 11, 1999 --------------------- This proxy statement, which was first mailed to shareholders on April 9, 1999, is furnished in connection with the solicitation of proxies on behalf of the Board of Directors of PrimeSource Corporation (the "Corporation") to be voted at the annual meeting of the shareholders of the Corporation to be held at 9:30 a.m. on May 11, 1999 at the Pennsauken Country Club, 3800 Haddonfield Road, Pennsauken, New Jersey for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. VOTING Shareholders who execute proxies retain the right to revoke them at any time before they are voted. A proxy may be revoked by written notice to the Corporate Secretary of the Corporation at Fairway Corporate Center, 4350 Haddonfield Road, Suite 222, Pennsauken, New Jersey 08109; by submission of a proxy with a later date; or by a request in person to return the executed proxy. The cost of solicitation of proxies will be borne by the Corporation. Under the Pennsylvania Business Corporation Law, the election of the Corporation's Directors requires the vote of a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote thereon. Accordingly, the indication of an abstention on a proxy or the failure to vote either by proxy or in person will be treated as neither a vote "for" nor "against" the election of any Director. On all other matters, the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting shall be required. Shares represented by proxies containing an abstention as to any matter will be treated as shares that are present and entitled to vote for purposes of determining a quorum. The presence in person or by proxy of a majority of the outstanding shares shall be necessary to constitute a quorum to take action at the meeting. Similarly, the Corporation will treat shares held by brokers or nominees for the accounts of others as to which voting instructions have not been given as shares that are present and entitled to vote for purposes of determining a quorum. Moreover, for purposes of determining the election of the Corporation's Directors, brokers and nominees may vote shares for which no instructions have been given in their discretion under applicable securities laws. Shareholders of record at the close of business on March 19, 1999 are entitled to vote at the meeting on the basis of one vote for each share of common stock held, except that cumulative voting rights may be exercised with respect to the election of Directors as described in the following paragraph. On March 19, 1999, there were 6,536,014 shares of common stock outstanding. A shareholder wishing to exercise cumulative voting rights in the election of Directors may multiply the number of shares which he or she is entitled to vote by the total number of Directors to be elected (three) and may distribute the total number of such votes among one or more nominees in such proportion as he or she desires. The proxies shall have the discretionary authority to vote cumulatively and to distribute such votes among the nominees so as to assure the election of the nominees of the Board of Directors, except such nominees as to whom a shareholder withholds authority to vote and except where a shareholder has directed that votes be cast cumulatively by specific instructions to the proxies. Proxies in the form enclosed, if duly signed, marked and received in time for voting, will be voted in accordance with the directions of the shareholders. 4 SECURITY OWNERSHIP The following table sets forth, as of February 1, 1999, all shareholders of the Corporation who were known by the Corporation to own beneficially more than 5% of the outstanding shares, each director of the Corporation, each named executive officer, and all directors and executive officers as a group. As required by SEC regulations, also shown are shares over which the named person could acquire such powers within 60 days by exercising stock options under the Corporation's stock option plans.
Amount and Nature of Beneficial Ownership(1) Name and Address -------------------------------------------- of Beneficial Owner Direct Indirect Total (2) Percent - ------------------- ------ -------- --------- ------- Fidelity Low-Priced Stock Fund 390,600 --- 390,600 5.8 82 Devonshire Street Boston, MA 02109 The TCW Group, Inc. 371,346 --- 371,346 5.6 865 S. Figueroa Street Los Angeles, CA 90017 Marie Baur Dillin 0 352,262(3) 352,262 5.3 1408 S. Highland Park Dr. Lake Wales, FL 33853
Acquirable Name of Director Within or Executive Officer 60 Days - -------------------- ------- Fred C. Aldridge, Jr. 16,866 --- 24,841 * 7,975 Philip J. Baur, Jr. 24,454 93,177(4) 119,631 1.8 2,000 William A. DeMarco (6) 2,492 30 11,897 * 9,375 Richard E. Engebrecht 48,493 --- 89,574 1.3 41,081 John H. Goddard, Jr. 10,905 1,264 36,688 * 24,519 Gary MacLeod 8,113 6,896(5) 17,009 * 2,000 James F. Mullan (6) 15,844 1,279 69,372 * 52,249 Klaus D. Oebel --- --- 500 * 500 Edward W. Padley --- 16 6,706 * 6,690 Edward N. Patrone --- 1,000(7) 3,000 * 2,000 John M. Pettine 18,350 31 20,381 * 2,000 D. James Purcell 1,261 241 9,752 * 8,250 All directors and executive officers as a group (13 persons) 146,778 103,934 412,843 6.2 162,131
- ------------------------- * Represents less than 1% of the outstanding shares. (1) Except as otherwise indicated, beneficial ownership represents sole voting and sole investment power with respect to $.01 par value common stock, the Corporation's only outstanding class of stock. (2) Represents the total shares over which the named person has any voting or investment power and includes the shares in the "Acquirable Within 60 Days" column. (3) This amount represents: a) 74,000 shares held in a trust for which Ms. Dillin is co-trustee and shares voting and investment power with Northern Trust Bank; b) 213,999 shares held in three trusts for which Ms. Dillin is co-trustee and shares voting and investment power with First Union Bank; and c) 64,263 shares held in two trusts for which Ms. Dillin is co-trustee and shares voting and investment power with her brother Philip J. Baur, Jr. and First Union (formerly Core States). (4) This amount represents: a) 8,144 shares in a trust of which Mr. Baur has sole voting and investment power; b) 7,196 shares owned by the Philippian Foundation, a charitable foundation of which Mr. Baur is trustee and has sole voting and investment power; 2 5 c) 7,191 shares owned by Mr. Baur's spouse; d) 60,037 shares held in a trust (for the benefit of Mr. Baur's children) for which Mr. Baur shares voting and investment power; e) 5,226 shares held in a trust (for the benefit of Marie Dillin's children) for which Mr. Baur shares voting and investment power; and f) 5,383 shares in an IRA at a stock brokerage firm. This indirect total for Mr. Baur does not include 199,387 shares in a trust for which Mr. Baur is the sole income beneficiary but has no voting or investment power. Mr. Baur's sister, Marie Dillin, shares voting and investment power as to these shares--see footnote 3(b) above. (5) Mr. MacLeod shares voting and investment power as co-trustee of a trust that holds these shares. Mr. MacLeod has no beneficial interest in these shares. (6) Does not include 93,330 shares owned by the Corporation's 401(k) Savings Plan and held in a trust for the benefit of employees participating in the Plan. Messrs. Mullan and DeMarco are two of the three plan trustees. The employees have the sole power to direct the voting of these shares; therefore, the trustees disclaim beneficial ownership of these shares. (7) Mr. Patrone disclaims beneficial ownership of these 1,000 shares owned by his spouse. These shares have been listed under indirect ownership as required by SEC rules. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's directors and executive officers, and holders of more than ten percent of the Corporation's Common Stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock of the Corporation. SEC regulations require the filing parties to furnish the Corporation with copies of all Section 16(a) forms they file. To the Corporation's knowledge, during the fiscal year ended December 31, 1998, all parties subject to Section 16(a) timely complied with the filing requirements except Philip J. Baur, Jr. who filed a Form 4 report in February 1998 that was due in January 1998, and Barry C. Maulding who was 10 days late in filing a Form 4 report in March 1998. ELECTION OF DIRECTORS Your Corporation has a classified board of nine directors. Three directors are scheduled to be elected each year for a term of three years. Messrs. Baur, Engebrecht and Patrone, all of whom are current directors, have been nominated to be reelected this year for a term which expires in 2002. The Board of Directors recommends a vote FOR their reelections, and unless you indicate otherwise, your signed proxy will be voted for the election of these nominees. The Board of Directors expects that all of the nominees will be available for election, but if any of them is not a candidate at the time the election occurs, it is intended that such proxy will be voted for the election of another nominee to be designated to fill any such vacancy by the Nominating Committee of the Board of Directors of the Corporation. NOMINEES FOR REELECTION - TERM TO EXPIRE IN 2002 Philip J. Baur, Jr., age 68, retired, has served as a director of the Corporation since 1965 and has been Vice Chairman of the Board since 1994. Mr. Baur held executive positions with Tasty Baking Company and has also served as a director of Tasty Baking Company since 1954 and as its Chairman of the Board from 1981 to 1998. Richard E. Engebrecht, age 72, retired, became a director and Chairman of PrimeSource Corporation in 1994 when Momentum Corporation merged into PrimeSource Corporation. From 1989 to 1992 Mr. Engebrecht was Chairman and Chief Executive Officer of Momentum Corporation. Mr. Engebrecht is also a director of VWR Scientific Products Corporation. Edward N. Patrone, age 64, retired, was a senior consultant to Alco Standard Corporation, a national distributor of paper and office products, from 1991 to 1997. From 1988 through 1991, he was President and Chief Executive Officer of Paper Corporation of America. He is also a director of Compucom Corporation, Bitwise Designs, Inc., and Global Imaging Corp. 3 6 CONTINUING DIRECTORS - TERM EXPIRES IN 2000 Fred C. Aldridge, Jr., age 65, has served as a director of the Corporation since 1993. He is a practicing attorney in Philadelphia, Pennsylvania. Mr. Aldridge is also President and a director of a private charitable foundation, President and a director of a Pennsylvania public utility company, and a director of Tasty Baking Company. John H. Goddard, Jr., age 52, is Executive Vice President of the Corporation. He was President, Chief Executive Officer and a director of Momentum Corporation from 1992 to 1994. He became a director of PrimeSource Corporation in 1994 when Momentum Corporation merged into PrimeSource Corporation. John M. Pettine, age 56, has served as a director of the Corporation since 1981. Mr. Pettine is Executive Vice President and Chief Financial Officer of Tasty Baking Company and has been its Chief Financial Officer or Vice President of Finance since 1983. He is also a director of Tasty Baking Company. CONTINUING DIRECTORS - TERM EXPIRES IN 2001 Gary MacLeod, age 65, is Chairman, Laird Norton Trust Company, a private trust and investment management company. Mr. MacLeod was also Chairman and/or Chief Executive Officer of Laird Norton Trust Company from 1975 to 1993 when he retired. Mr. MacLeod was re-elected Chairman in 1995. Mr. MacLeod was a director of Momentum Corporation since its formation in 1989 and became a director of PrimeSource Corporation in 1994 when Momentum Corporation merged into PrimeSource Corporation. James F. Mullan, age 59, has been President of the Corporation and has served as a member of its Board of Directors since 1982. Mr. Mullan was also elected Chief Executive Officer of the Corporation in 1991. Klaus D. Oebel, age 57, President, Oebel Associates, Inc., was previously President of the Communications Systems Group of Aydin Corporation, systems integrator and manufacturer of electronic data transfer products, from 1996 to November 1997. For the prior 18 years he was an international management consultant specializing in developing and implementing organizational strategies. Mr. Oebel served as a consultant to the Corporation in the 1994-96 time period. DIRECTORS' COMPENSATION Each director receives for services an annual retainer of $10,000. In addition, the directors receive fees of $800 for attending Board of Directors meetings ($1,600 per meeting if an additional day of travel is required), fees of $500 for attending Board Committee meetings, and, when applicable, reimbursement of travel expenses in connection with meetings. The Chairman of the Executive Committee receives an annual retainer of $2,000 and the Chairman of each standing Committee of the Board receives an annual retainer of $1,000. Director's Goddard and Mullan receive no annual Board or Committee retainers and also receive no meeting fees. The Board of Directors, following the recommendation of its Compensation Committee, established a $22,000 annual retainer for Mr. Engebrecht effective January 1, 1998 for his services to the Corporation as Chairman of the Board. This retainer is in lieu of the normal director's $10,000 annual retainer and in addition to normal meeting fees and Board Committee retainers that a non-employee director would normally receive. On January 12, 1998 the Board of Directors of the Corporation granted 10-year stock options to purchase 2,000 shares at $11.18 per share to each of the seven non-employee directors of the Corporation. The option exercise price was the fair market value of the Corporation's stock at the time of grant, and the options become exercisable at the rate of 25% per year beginning on January 12, 1999. COMMITTEES OF THE BOARD OF DIRECTORS The Corporation's Board of Directors has standing Executive, Nominating, Audit/Pension, and Compensation Committees. The members of each committee and the functions performed thereby are outlined below: EXECUTIVE COMMITTEE Mr. Richard E. Engebrecht, Chairman Mr. Fred C. Aldridge Mr. John H. Goddard Mr. James F. Mullan Four meetings were held during 1998. 4 7 Functions: Authority to exercise all the powers of the Board of Directors between meetings of the Board except to the extent limited by law and certain other exceptions specified in the enabling resolution. NOMINATING COMMITTEE Mr. Philip J. Baur, Chairman Mr. Richard E. Engebrecht Mr. John H. Goddard Mr. James F. Mullan One meeting was held during 1998. Functions: 1. Make recommendations to the Board as to selection of the Chairman and Vice Chairman of the Board, the Chief Executive Officer and the President. 2. Receive, review, and maintain files of individuals qualified to be recommended as nominees for election as directors and present recommendations to the Board of Directors as replacement directors are required. 3. Review, at least annually, the capability of each incumbent director as to health, availability to serve, conflicts of interest, and other factors relevant to qualifications. 4. Present annually to the Board of Directors, a list of those individuals recommended for nomination for election to the Board of Directors. 5. Present recommendations to the Board of Directors as new committees may be created or as replacement committee members may be required. AUDIT/PENSION COMMITTEE Mr. Gary MacLeod, Chairman Mr. Fred C. Aldridge Mr. Klaus D. Oebel Two meetings were held during 1998. Functions: 1. Make recommendations to the Board on the selection and termination of independent auditors. 2. Meet with the independent auditors and financial management of the Corporation to review the scope of the proposed audit for the current year and the audit procedures to be utilized. 3. Review with the independent auditors and internal personnel the adequacy of the Corporation's internal auditing, accounting, and financial controls. 4. Review the financial statements to be contained in the Annual Report to Shareholders with the independent auditors to determine that the independent auditors are satisfied with the disclosure and content of the financial statements to be presented to the Shareholders. Any significant changes in accounting principles should be reviewed by the Committee. 5. Periodically review with the independent auditors and the Corporation's financial personnel any significant litigation and the performance of the risk management function of the Corporation. 6. Review and make recommendations to the Board of Directors with respect to the performance of third parties responsible for the administration and investment of retirement plan funds. The Committee is responsible for approving the hiring and termination of investment advisors and portfolio managers. 7. Review proposed amendments to the retirement plans. 8. Review annually the expense reports of the Chief Executive Officer and the Executive Vice President of the Corporation. 5 8 COMPENSATION COMMITTEE Mr. Edward N. Patrone, Chairman Mr. Philip J. Baur Mr. John M. Pettine Two meetings were held during 1998. Functions: 1. Formulate and adopt the Corporation's policy on executive compensation including the operation and administration of all compensation practices affecting senior management. 2. Recommend compensation for executive officers of the Corporation. 3. Review or make proposals concerning stock purchase, savings plans and similar employee benefits. Review all other employee benefits as they affect senior management and make recommendations to the Board of Directors. 4. Review management's recommendations with respect to the participants, targets and potential bonus payouts specified in any management bonus plans applicable to senior management. Review and recommend Board approval of any bonus plans or bonus targets for elected officers of the Corporation. 5. Make grants or awards under all stock based incentive plans of the Corporation and otherwise exercise all discretionary action with respect to those plans. 6. Recommend benefit levels in the Corporation's retirement program. 7. The Chairman of the Committee is authorized to recommend, for adoption and execution by the President, any amendment to any retirement plan or employee welfare benefit plan which is necessary to maintain the qualification and tax exempt status of such plan under the Internal Revenue Code and does not materially affect benefit levels. 8. Recommend director's fees and retainers. The entire Board of Directors of the Corporation met five times during 1998. Attendance at the Board of Directors and Board Committee meetings averaged more than 95% for all incumbent directors as a group during 1998. Each incumbent director attended 75% or more of the aggregate number of Board meetings and meetings of the committees on which he served. EXECUTIVE OFFICER COMPENSATION The following table sets forth the compensation paid by the Corporation to its Chief Executive Officer and the four other highest paid executive officers of the Corporation for services rendered during the last three calendar years. 6 9 SUMMARY COMPENSATION TABLE(1)
Long-Term Compensation Annual Compensation ---------------------- ------------------- Awards Other ----------------------- Name and Principal Annual Restricted All Other Positions at Compen- Stock Stock Compen- December 31, 1998 Year Salary Bonus sation Awards Options(2) sation(3) - ----------------- ---- ------- ------- --------- -------- -------- --------- ($) ($) ($) ($) (#) ($) James F. Mullan 1998 275,000 170,000 --- --- 15,000 450 President & CEO 1997 250,000 200,000 --- --- 10,000 450 1996 250,000 175,000 --- --- 28,150 450 John H. Goddard, Jr. 1998 210,000 75,000 --- --- 7,500 450 Exec. Vice President 1997 200,000 90,000 --- --- 7,500 450 & GM, Western Region 1996 200,000 75,000 --- --- 31,861 1,091 Edward W. Padley 1998 135,000 70,000 --- 7,500 450 Vice President & GM, 1997 125,000 75,000 42,886(4) --- 5,000 60,699 Central Region 1996 125,000 54,000 --- --- 4,000 719 William A. DeMarco 1998 135,000 65,000 --- --- 7,500 450 Vice President & CFO 1997 120,000 72,000 --- --- 5,000 450 1996 115,000 69,000 --- --- 12,500 450 D. James Purcell, 1998 135,000 60,000 --- --- 7,500 450 Vice President & GM, 1997 115,000 65,000 --- --- 5,000 450 Eastern Region 1996 115,000 67,000 --- --- 9,000 450 ---- ------- ------- --------- -------- ------ ------
- ---------------------------------------- (1) This table does not include a column for Long-Term Incentive Plan Payouts. There is no amount to report in the column for Long-Term Incentive Plan Payouts, and the amount of Other Annual Compensation paid to the named executive officers was in each case, except as noted below in footnote (4), for perquisites which are not reportable since they did not exceed 10% of salary and bonus for any named executive officer. (2) 1996 includes new options granted in November 1996 and new options issued in exchange for cancellation of old underwater options early in 1996. (3) Consists of matching contributions by the Corporation under its 401(k) retirement plans, with the exception of the $60,699 for Mr. Padley which consists of $450 for the 401(k) plan and $60,249 for payments and reimbursements in connection with Mr. Padley's relocation to Minnesota. (4) This represents reimbursement for Mr. Padley's income taxes on relocation payments identified in footnote (3) above. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Corporation's compensation programs for executive officers are administered by the Compensation Committee of the Board. The Committee is composed of three directors, none of whom is an executive officer of the Corporation. All issues pertaining to compensation of executive officers of the Corporation are submitted to the full Board of Directors for final approval, although the Committee has authority to grant stock options and award restricted stock under the Corporation's stock plans. The Compensation Committee of the Board of Directors of the Corporation adopted the following policy on executive compensation on March 2, 1999. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Corporation's compensation programs for executive officers are administered by the Compensation Committee of the Board. The Committee is composed of three directors, none of whom is an executive officer of the Corporation. All issues pertaining to compensation of executive officers of the 7 10 Corporation are submitted to the full Board of Directors as recommendations and the full Board makes the final decision. The Compensation Committee of the Board of Directors of the Corporation adopted the following policy on executive compensation on March 2, 1999. Executive Compensation Policy Compensation Policies Applicable to Executive Officers. The purpose of PrimeSource's executive compensation program is to attract, retain and motivate qualified executives to manage the business of PrimeSource to maximize profits and shareholder value. Executive compensation in the aggregate is made up principally of the executive's annual base salary, a bonus and awards of restricted stock or stock options under PrimeSource's 1993 Long Term Incentive Plan. PrimeSource's Compensation Committee (the "Committee") annually considers and makes recommendations to the full Board of Directors as to executive compensation including changes in base salary and bonuses. Consistent with the above-noted purposes of the executive compensation program, it is the policy of the Committee, in recommending the aggregate annual compensation of executive officers of PrimeSource, to consider the overall performance of PrimeSource, the performance of the operating unit or area for which the executive has responsibility, and the individual contribution and performance of the executive. The performance of PrimeSource and the operating unit or area for which the executive has responsibility are significant factors in determining aggregate compensation. PrimeSource's compensation program focuses on PrimeSource's strategic direction, corporate performance measures, and specific corporate goals which should directly or indirectly lead to an increasing stock price over time. The corporate performance measures which the Committee considers include sales, gross profits, earnings, and comparisons of sales, gross profits and earnings with prior years and with budgets. A substantial portion of the annual compensation of the executives is directly related to corporate performance. Bonuses are calculated and awarded based upon both objective formulas and subjective business judgment. Different formulas are applied to the executives depending on their areas of responsibility. In 1998 the Corporation did not achieve its Board-approved budget for consolidated pre-tax income. In the Committee's opinion, the performance by management was strong, given the competitive circumstances and the major acquisition of the Graphics Imaging Group of Bell Industries with its 13 branch locations and $135 million of annual sales. Bonuses for 1998 represented approximately 26% to 38% of the total annual compensation for the Chief Executive Officer and the four senior executives who report to him. 1998 bonuses for the four senior executives and the Chief Executive Officer were determined in part by formulas established at the beginning of 1998, and 1999 target bonuses have also been based on formulas established at the beginning of 1999. In determining an executive's annual salary, the Committee considers both corporate and personal performance criteria, competitive compensation levels, the economic environment and changes in the cost of living, and (with respect to officers other than the Chief Executive Officer) relies heavily upon the recommendation of the Chief Executive Officer. The Committee then exercises business judgment based on all these criteria and the purposes of the executive compensation program. The Committee retains the power to waive performance criteria under any compensation program. It is the Committee's belief that the Corporation's long-term incentive programs should strongly align executive incentives with the interests of shareholders. The Committee and Board believe the executives of the Corporation have done an exceptional job of responding to the challenges presented by a dynamic industry environment and in making strategic acquisitions. In December 1998 the Committee reviewed the outstanding stock options held by certain senior executives of the Corporation and, as a result, on December 3, 1998, pursuant to the Committee's recommendation, the Board awarded options to purchase 45,000 shares at fair market value to the top five executive officers of the Corporation, and options to purchase 25,000 shares to other executive and key employees of the Corporation. In granting these new options the Committee considered the fact that there were outstanding options to purchase approximately 476,000 shares, equal to 7.3% of the total outstanding shares. In general, the Corporation's stock option awards are not directly tied to performance factors. 8 11 The Committee has reviewed the employment agreements with the senior executives and has determined that they have not had an effect on their compensation levels. The employment agreements do not call for any minimum bonus, only minimum salaries, some of which are below the current salary level of the executive. No new employment agreements or changes to employment agreements for executive officers were made in 1998. Compensation of the Chief Executive Officer. Mr. Mullan joined PrimeSource in 1970, became President in 1982 and Chief Executive Officer in 1991. For 1998, Mr. Mullan received a base salary of $275,000. This base salary was not changed for 1999. In addition, pursuant to the bonus program applicable to him, he was awarded a bonus of $170,000 for 1998, a decrease from his 1997 bonus of $200,000. Mr. Mullan's 1998 bonus represents approximately 2.1% of PrimeSource's 1998 consolidated pre-tax income, excluding one-time items. The Committee also recommended that Mr. Mullan be given the opportunity to earn a target bonus for 1999 equal to 80% of his base salary if the Corporation achieves the earnings per share in the Corporation's 1999 budget adopted by the Board of Directors. The Committee noted that the Corporation has continued to perform well in a dynamic environment. Consistent with its belief that through the use of significant stock options, the Chief Executive Officer's and other executives' interests are directly tied to enhancing shareholder value, in December 1998, pursuant to the recommendation of the Committee, the Board granted Mr. Mullan stock options to purchase a total of 15,000 shares of common stock, bringing his total to 100,000 stock options. The Committee plans to evaluate the desirability of additional option grants to executive officers at future meetings March 2, 1999 The Compensation Committee Edward N. Patrone, Chairman Philip J. Baur John M. Pettine EXECUTIVE BONUS PLANS Executive bonus plans are administered by the Compensation Committee of the Board. As noted above in the Compensation Committee Report, these plans are specifically tailored for each senior executive and may or may not involve a pre-set formula and may or may not have a maximum amount for the bonus the executive can be awarded. The Committee may authorize annual cash or deferred awards to any full-time salaried management employee of the Corporation but typically permits the President of the Corporation the discretion to make awards, if any, to key managers. STOCK OPTION PLANS The Corporation has a 1993 Long Term Incentive Plan under which stock options are granted from time to time to key employees and officers. As of March 1, 1999, 33,940 shares were available for future grants to officers and key employees under this 1993 Plan. The Corporation has never granted stock appreciation rights of any kind. STOCK OPTION GRANTS IN 1998
Potential Realizable Value at Assumed % of Total Annual Rates of Stock Number of Shares Options Granted Option Price Appreciation Underlying to Employees Exercise Expiration for 10-Year Option Term Name Options Granted in 1998 Price ($/share) Date 0%($) 5%($) 10%($) - ---- --------------- ------- --------------- --------- ----- ------ --------- James F. Mullan 15,000 21.4% 6.81 12/2/08 0 64,500 162,900 John H. Goddard, Jr. 7,500 10.7% 6.81 12/2/08 0 32,250 81,450 Edward M. Padley 7,500 10.7% 6.81 12/2/08 0 32,250 81,450 William A. DeMarco 7,500 10.7% 6.81 12/2/08 0 32,250 81,450 D. James Purcell 7,500 10.7% 6.81 12/2/08 0 32,250 81,450
9 12 Twenty-five percent of the incentive stock options granted to the officers listed above become exercisable on each anniversary of the grant until fully exercisable after four years. All stock options have a 10-year term and were granted at fair market value. If the market price for PrimeSource stock appreciates at 5% per year for the same 10-year period, the shares held by all shareholders of the Corporation as a group would have increased in value by $28,104,877. At the 10% appreciation rate, the increase in value for the shareholders would be $70,981,155. STOCK OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
Number of securities Value of unexercised underlying unexercised in-the-money Shares acquired options at 12/31/98 options at 12/31/98 Name on exercise Exercisable Unexercisable Exercisable Unexercisable - ------------------ --------------- ----------- ------------- ----------- ------------- James F. Mullan 0 52,249 47,751 $23,046 $10,429 John H. Goddard, Jr. 0 23,898 22,963 10,374 3,459 Edward W. Padley 0 6,690 12,730 1,127 376 William A. DeMarco 0 9,375 15,625 2,897 966 D. James Purcell 0 8,250 13,250 1,931 644
RETIREMENT PLANS The Corporation has a qualified defined benefit retirement plan ("Pension Plan") which nearly all employees of the Corporation are eligible to participate in. Amounts expensed for the Pension Plan or contributed to the Pension Plan are computed on an aggregate actuarial basis and cannot be individually allocated. The remuneration covered by the Pension Plan includes salaries and bonuses paid to named executives as set out in the Summary Compensation Table. Benefits under the plan are computed by multiplying a percentage (based on number of years of service) times the highest average remuneration paid over a consecutive 60 month period within the last 120 months of employment with the Corporation. Benefits under the Pension Plan are subject to reduction for Social Security and are presently restricted under the Internal Revenue Code to a maximum of $130,000 per year. The Internal Revenue Code also limits the level of compensation which may be used to determine benefits under these qualified plans to $160,000 per year. Messrs. Mullan, Goddard, Padley, DeMarco and Purcell have 29, 11, 6, 18 and 4 years, respectively, of credited service under this Pension Plan. Additional benefits may be payable under the SERP described below for Messrs. Mullan and DeMarco and under the Supplemental Benefits Plan for Mr. Goddard. Compensation of executive officers covered by the Pension Plan includes salaries and bonuses. Compensation of all non-executive officer employees covered by the Pension Plan includes salaries, commissions and bonuses. The following table, applicable only to Messrs. Mullan and DeMarco, shows the approximate annual retirement benefits which will be payable in total under the Pension Plan, Social Security, and the Supplemental Executive Retirement Plan ("SERP") at the normal retirement age of 65 (assuming continuation of the plans) for specified years of service and levels of average remuneration.
Final Average 15 or More Remuneration Years of Service ------------- ---------------- $150,000 $67,500 200,000 90,000 250,000 112,500 300,000 135,000 350,000 157,500 400,000 180,000 450,000 202,500 500,000 225,000
The SERP is designed and intended to encourage key executives to continue in the service of the Corporation by providing them upon their retirement with a supplemental retirement benefit equal to the 10 13 difference between (i) 45% of the average of the 60 highest consecutive calendar months compensation paid by the Corporation during the 120 calendar months immediately preceding the executive's separation from service, and (ii) the sum of the executive's primary Social Security benefits, payments which the executive would be eligible to receive from the Pension Plan on a single life annuity basis, and any other retirement benefits for which the executive is eligible. A surviving spouse is also entitled to certain benefits under the SERP. Messrs. Mullan, DeMarco and one other executive are the only current employees who have been designated to participate in the SERP. The Corporation has entered into a Trust Agreement with Meridian Trust Company for the benefit of the participants in the SERP. Under this Trust Agreement, the Corporation is obligated to deposit sufficient funds with the trustee to enable it to purchase annuity contracts to fund the SERP in the event of a change or potential change in control of the Corporation. To date no funding has occurred or is required. The Corporation has a 401(k) Savings Plan which covers all of its employees. Under this plan the Corporation matches employee contributions up to $450 per year. Employees who were part of the Corporation's former Dixie Type subsidiary had a separate 401(k) plan which is being merged into the Corporation's 401(k) Savings Plan and, as of October 1, 1998, these employees ceased participation in the Dixie plan and were eligible to participate in the Corporation's 401(k) Savings Plan. The table below shows the estimated annual benefits payable under the Pension Plan and Supplemental Benefits Plan (described below) to Mr. Goddard in specified remuneration and years-of-service classifications. The retirement benefits shown are based upon retirement at age 65 and the payments of a single-life annuity. These benefits are not subject to any deduction for Social Security or other offset amounts.
Highest average annual earnings during Years of Service any five consecutive ----------------------------------------------------- years of employment 10 15 20 25 35 ---------------------- -------- -------- -------- -------- --------- $150,000 $23,720 $31,416 $39,112 $46,809 $62,202 200,000 $30,507 $41,204 $51,900 $62,597 $83,989 250,000 $38,551 $52,248 $65,944 $79,640 $107,033 300,000 $46,595 $63,291 $79,988 $96,684 $130,077 350,000 $54,638 $74,335 $94,031 $113,728 $153,121
As noted above, Section 415 of the Internal Revenue Code currently limits pensions which may be paid under plans qualified under the Internal Revenue Code to an annual benefit of $130,000. In addition, Section 401 of the Internal Revenue Code limits compensation which may be used to determine benefits under qualified plans to $160,000 per year. Momentum Corporation established a Supplemental Benefits Plan in 1991 for certain designated Momentum executive officers to whom the Section 415 and 401 limits apply, or may apply in the future, so that these individuals would obtain retirement benefits comparable to other retirement plan participants not impacted by the Section 415 and 401 limits. Accordingly, the benefits in the table above have not been limited by Sections 415 and 401, but at the present time Mr. Goddard is the only employee designated to participate in this Supplemental Benefits Plan. Under the terms of a 1990 agreement with VWR Scientific Products Corp., VWR has agreed to pay two-thirds of all amounts payable to PrimeSource Chairman Richard Engebrecht under the Supplemental Benefits Plan described above, and the Corporation will pay the remaining one-third. The Corporation has guaranteed payment of the two-thirds payable by VWR and, likewise, VWR has guaranteed payment of the one-third payable by the Corporation. In 1993 Mr. Engebrecht ceased being a regular employee of Momentum Corporation and began drawing retirement pay under both the Pension Plan ($9,044 per month) and the Supplemental Benefits Plan ($8,489 per month). The following table shows the estimated annual benefits payable under the Pension Plan to Messrs. Padley and Purcell in specified remuneration and years-of-service classifications. 11 14
Highest average annual earnings during Years of Service any five consecutive ----------------------------------------------------------------- years of employment 5 10 15 20 25 30 ------------------- ------ ------- ------- ------- ------- ------- $120,000 $5,937 $11,874 $17,811 $23,748 $29,685 $35,622 160,000 $8,337 $16,674 $25,011 $33,348 $41,685 $50,022 200,000 $8,337(a) $16,674(a) $25,011(a) $33,348(a) $41,685(a) $50,022(a)
(a) Maximum amounts because covered compensation limited to $160,000 by Internal Revenue Code. AGREEMENTS WITH CERTAIN OFFICERS Each of the five named executives has an employment agreement with the Corporation. Messrs. Mullan, Goddard and DeMarco entered into their present agreements in December, 1996 and Messrs. Padley and Purcell entered into theirs in December, 1997. Under these agreements each officer would continue to receive an amount equal to his annual salary and average prior bonuses for one year (two years for Mr. Mullan) after termination of his employment under the following circumstances: (a) termination by the Corporation except for cause or upon death, retirement, or disability, (b) termination by the executive because his authority or duties are changed so as to be inconsistent with his training and experience, or (c) termination by the executive because of a breach of his employment agreement by the Corporation. These agreements provide one additional year of salary continuation if the executive's employment is ended in a setting involving a "change of control" of the Corporation. The current salaries are as follows: Mullan, $275,000; Goddard, $210,000; Padley, $135,000; DeMarco, $135,000; and Purcell, $135,000. This payment would be in addition to any other damages which the executive may suffer as a result of such termination. Each of the ongoing employment agreements described above has no fixed term and can be terminated by the Board of Directors upon giving a specified advance notice. Each of the agreements also contain non-competition and confidentiality provisions spanning any period of continuing compensation. PERFORMANCE GRAPH The following graph compares the cumulative total shareholder return on PrimeSource stock with the NASDAQ Composite Index and the NASDAQ Non-Financial Index for the period from July 21, 1993 through December 31, 1998. July 21, 1993 is the date on which trading of PrimeSource stock commenced. The graph assumes $100 invested on July 21, 1993 in PrimeSource stock, the NASDAQ Composite Index and the NASDAQ Non-Financial Stocks Index. Total shareholder return assumes reinvestment of dividends. The stock price performance is not necessarily indicative of future price performance. 12 15 [PERFORMANCE GRAPH]
7/21/93 12/31/93 12/31/94 12/ 31/95 12/31/96 12/31/97 12/31/98 ------- -------- -------- --------- -------- -------- --------- PrimeSource $100.00 $ 93.39 $ 82.92 $ 54.64 $ 75.64 $ 95.60 $ 69.21 NASDAQ Composite $100.00 $110.43 $107.94 $152.53 $187.75 $230.52 $323.48 NASDAQ Non-Financial $100.00 $112.05 $107.38 $147.65 $182.53 $214.26 $313.70
APPROVAL OF INDEPENDENT AUDITORS The Audit/Pension Committee of the Board of Directors request that the shareholders ratify its selection of PricewaterhouseCoopers LLP, Certified Public Accountants, as independent public auditors for the Corporation for the current fiscal year. If the shareholders do not ratify the selection of PricewaterhouseCoopers, another firm of certified public accountants will be selected as independent public auditors by the Board of Directors. Representatives of PricewaterhouseCoopers will be present at the shareholders' meeting with the opportunity to make a statement if they desire and will be available to respond to appropriate questions. The Board of Directors recommends a vote FOR this selection. SHAREHOLDER PROPOSALS In order for proposals of shareholders to be considered for inclusion in the Proxy Statement and proxy for the 2000 annual meeting of the shareholders, said proposals must be received by the Corporate Secretary of the Corporation not later than December 11, 1999. OTHER BUSINESS The Board of Directors has no knowledge of any other business to be acted upon at this meeting. However, if any other business is presented to the meeting, proxies will be voted in accordance with the judgment of the person or persons voting such proxies unless the proxies are so marked to preclude such discretionary authority. The Corporation's Annual Report for the fiscal year ended December 31, 1998 has been mailed to the shareholders. 13 16 BY ORDER OF THE BOARD OF DIRECTORS Barry C. Maulding April 9, 1999 Corporate Secretary 14 17 PROXY PRIMESOURCE CORPORATION PROXY This Proxy is solicited on behalf of the board of directors for the 1999 Annual meeting The undersigned hereby appoints Richard E. Engebrecht and James F. Mullan, and each of them, with full power of substitution, as proxies to vote the shares which the undersigned is entitled to vote at the 1999 Annual Meeting of Shareholders of the Corporation to be held at the Pennsauken country Club, 3800 Haddonfield Road, Pennsauken, New Jersey on May 11, 1999 at 9:30 a.m. and any adjournments thereof. (CONTINUED ON OTHER SIDE) 18 PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE! ANNUAL MEETING OF SHAREHOLDERS PRIMESOURCE CORPORATION MAY 11, 1999 Please Detach and Mail in the Envelope Provided. A [X] Please mark your votes as in this example Your Board of directors recommends you vote FOR the election of directors and FOR the proposal to ratify the appointment of PricewaterhouseCoopers L.L.P. FOR all nominees listed WITHHOLD AUTHORITY NOMINEES: at right except as marked to vote for all nominees Philip J. Baur, Jr. to the contrary below) listed at right Richard E. Engebrecht Edward N. Patrone [ ] [ ] 1. ELECTION OF DIRECTORS *INSTRUCTIONS: To withhold authority to vote for any individual nominee, write that nominee's name on the line below. - ----------------------------------------------------- FOR AGAINST ABSTAIN 2. PROPOSAL TO RATIFY THE APPOINTMENT [ ] [ ] [ ] PRICEWATERHOUSECOOPERS L.L.P. as independent public auditors for the year ending December 31, 1999. 3. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDERS. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2. IMPORTANT, PLEASE SIGN AND RETURN PROMPTLY. __________________ DATE _________,1999 __________________ DATE _________,1999 (Signature) (Signature jointly) NOTE: When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give your full title as such. If a corporation, please sign in full corporate name by President or the authorized officer. If a partnership, please sign in partnership name by authorized person. -----END PRIVACY-ENHANCED MESSAGE-----