-----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, KQq/MhfJqIdwVbnoHGcL5v8Y4F07a5QkBvyq/OM0maSphjOXsFnoHp2Z17M931c/ PoD9YzMGhxMMkXYB4X742A== 0000891020-00-000689.txt : 20000403 0000891020-00-000689.hdr.sgml : 20000403 ACCESSION NUMBER: 0000891020-00-000689 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000509 FILED AS OF DATE: 20000331 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: 590806 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 STATEMENT 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 sixth annual meeting of shareholders of PrimeSource Corporation will be held at the Pennsauken Country Club, 3800 Haddonfield Road, Pennsauken, New Jersey on Tuesday, May 9, 2000 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 LLP as independent auditors for the fiscal year ending December 31, 2000. 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 17, 2000 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 10, 2000 IMPORTANT Each shareholder is urged to sign and return promptly the accompanying proxy card in the enclosed postage-paid envelope. 3 [PRIMESOURCE 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 9, 2000 --------------------- This proxy statement, which was first mailed to shareholders on April 10, 2000, 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 9, 2000 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 17, 2000 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 17, 2000, there were 6,536,212 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, 2000, 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 - ------------------- -------- -------- --------- ------- T. Rowe Price Associates, Inc. 85,200 302,800 388,000 5.7 100 E. Pratt Street Baltimore, MD 21202
Acquirable Name of Director Within or Executive Officer 60 Days - -------------------- ---------- Fred C. Aldridge, Jr 21,866 -- 30,591 * 8,725 Philip J. Baur, Jr 18,419 74,677(3) 96,971 1.4 3,875 William A. DeMarco (4) 2,492 30 18,147 * 15,625 Richard E. Engebrecht 48,493 -- 91,449 1.3 42,956 John H. Goddard, Jr 11,405 1,291 48,932 * 36,236 Gary MacLeod 8,113 6,896(5) 18,884 * 3,875 James F. Mullan (4) 15,844 1,373 98,467 1.5 81,250 Klaus D. Oebel -- -- 1,625 * 1,625 Edward W. Padley -- 17 10,312 * 10,295 Edward N. Patrone -- 1,000(6) 4,875 * 3,875 John M. Pettine 18,350 31 22,256 * 3,875 D. James Purcell 1,261 241 13,877 * 12,375 All directors and executive officers as a group (13 persons) 146,243 104,056 461,376 6.8 229,577
- ---------- * 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) 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; c) 7,191 shares owned by Mr. Baur's spouse; d) 41,537 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 Mr. Baur's sister'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 160,287 shares in a trust for which Mr. Baur is the sole income beneficiary but has no voting or investment power. Mr. Baur's sister shares voting and investment power as to these shares. (4) Does not include 78,567 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. 2 5 (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) 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, 1999, all parties subject to Section 16(a) timely complied with the filing requirements. 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. Aldridge, Goddard, and Pettine, all of whom are current directors, have been nominated to be reelected this year for a term which expires in 2003. 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 2003 Fred C. Aldridge, Jr., age 66, 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, Vice President, Special Counsel of the Delaware Investments Family of Funds, and a director of Tasty Baking Company. John H. Goddard, Jr., age 53, 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 was merged into PrimeSource Corporation. John M. Pettine, age 57, 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 66, is Chairman and Treasurer of MagnaDrive Corporation, a new company marketing patented torque management devices. Mr. MacLeod was Chairman and/or Chief Executive Officer of Laird Norton Trust Company, a private trust and investment management company, from 1975 to 1993 and from 1995 to 1999, when he became Chairman Emeritus. 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 was merged into PrimeSource Corporation. James F. Mullan, age 60, 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 58, President, Oebel Associates, Inc., was previously President of the Communications Systems Group of Aydin Corporation, systems integrator and manufacturer of electronic data 3 6 transfer products, from 1996 to November 1997. For the previous 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 1984-96 time period. CONTINUING DIRECTORS - TERM EXPIRES IN 2002 Philip J. Baur, Jr., age 69, retired, has served as a director of the Corporation since 1965 and has been Vice Chairman of the Board since 1994. Mr. Baur held senior 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. Edward N. Patrone, age 65, 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 and Global Imaging Corp. Richard E. Engebrecht, age 73, retired, became a director and Chairman of PrimeSource Corporation in 1994 when Momentum Corporation was merged into PrimeSource Corporation. From 1989 to 1992 Mr. Engebrecht was Chairman and Chief Executive Officer of Momentum Corporation. The normal date for retirement from the Board of Directors is the date of the annual meeting of shareholders which follows the director's 72nd birthday. The Board has extended this retirement date for Mr. Engebrecht through December 31, 2000. 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 December 3, 1998, the Board of Directors of the Corporation granted 10-year stock options to purchase 2,500 shares at $6.81 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 became exercisable at the rate of 25% per year, beginning on December 3, 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 Three meetings were held during 1999. 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. 4 7 NOMINATING COMMITTEE Mr. Philip J. Baur, Chairman Mr. Richard E. Engebrecht Mr. John H. Goddard Mr. James F. Mullan One meeting was held during 1999. 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 1999. The members of the Committee are independent, as that term is defined by NASD listing standards. 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 1999. 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 directors' fees and retainers. The entire Board of Directors of the Corporation met four times during 1999. Attendance at the Board of Directors and Board Committee meetings was 100% for all incumbent directors as a group during 1999. Each incumbent director attended all 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)
Annual Compensation Long-Term Compensation ---------------------------------- ---------------------- Awards Other ---------------------- Name and Principal Annual Restricted All Other Positions at Compen- Stock Stock Compen- December 31, 1999 Year Salary Bonus sation Awards Options sation(2) - ------------------ ---- -------- -------- -------- ---------- -------- --------- ($) ($) ($) ($) (#) ($) James F. Mullan 1999 275,000 190,000 -- -- 15,000 450 President & CEO 1998 275,000 170,000 -- -- 15,000 450 1997 250,000 200,000 -- -- 10,000 450 John H. Goddard, Jr 1999 210,000 90,000 -- -- 7,000 450 Exec. Vice President & 1998 210,000 75,000 -- -- 7,500 450 GM, Western Region 1997 200,000 90,000 -- -- 7,500 450 Edward W. Padley 1999 135,00 75,000 -- -- 5,000 450 Vice President & GM, 1998 135,000 70,000 -- -- 7,500 450 Central Region 1997 125,000 75,000 42,886(3) -- 5,000 60,699 William A. DeMarco 1999 135,000 70,000 -- -- 5,000 450 Vice President & CFO 1998 135,000 65,000 -- -- 7,500 450 1997 120,000 72,000 -- -- 5,000 450 D. James Purcell, 1999 135,000 45,000 -- -- 5,000 450 Vice President & GM, 1998 135,000 60,000 -- -- 7,500 450 Eastern Region 1997 115,000 65,000 -- -- 5,000 450
- ---------- (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 (3), for perquisites which are not reportable since they did not exceed 10% of salary and bonus for any named executive officer. (2) Consists of matching contributions by the Corporation under its 401(k) retirement plan, 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. (3) This represents reimbursement for Mr. Padley's income taxes on relocation payments identified in footnote (2) 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 February 29, 2000. 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. 7 10 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. 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 the Committee's opinion, the performance by management in 1999 was strong, given the competitive circumstances, and particularly noteworthy was the successful integration of the Graphics Imaging Group of Bell Industries which had 13 branch locations. Bonuses for 1999 represented approximately 25% to 41% of the total annual compensation for the Chief Executive Officer and the four senior executives who report to him. 1999 bonuses for the four senior executives and the Chief Executive Officer were determined, in part, by formulas established at the beginning of 1999, and 2000 target bonuses have also been based on formulas established at the beginning of 2000. 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 1999, the Committee reviewed the outstanding stock options held by certain senior executives of the Corporation and, as a result, on December 3, 1999, pursuant to the Committee's recommendation, the Board awarded options to purchase 37,000 shares at fair market value to the top five executive officers of the Corporation, and options to purchase 38,000 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 507,000 shares, equal to 7.8% of the total outstanding shares. In general, the Corporation's stock option awards are not directly tied to performance factors. 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 1999. Compensation of the Chief Executive Officer. Mr. Mullan joined PrimeSource in 1970, became President in 1982 and Chief Executive Officer in 1991. For 1999, Mr. Mullan received a base salary of $275,000. This base salary was increased to $290,000 for 2000. In addition, pursuant to the bonus program applicable to him, he was awarded a bonus of $190,000 for 1999, an increase from his 1998 bonus of $170,000. Mr. Mullan's 1999 bonus represents approximately 2.2% of PrimeSource's 1999 consolidated pre-tax income. The Committee also recommended that Mr. Mullan be given the opportunity to earn a target bonus for 2000 equal to 80% of his base salary if the Corporation achieves a targeted earnings per share set by the Board of Directors. The Committee noted that the Corporation has continued to perform well in a dynamic environment. 8 11 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 1999, 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 115,000 stock options. The Committee plans to evaluate the desirability of additional option grants to executive officers at future meetings. February 29, 2000 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, 2000, 11,600 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 1999
Potential Realizable Value at Assumed % of Total Annual Rates of Stock Number of Options Price Appreciation Shares Granted Option for 10-Year Option Term Underlying to Employees Exercise Expiration -------------------------------------- Name Options Granted in 1999 Price ($/share) Date 0%($) 5%($) 10%($) - ---- --------------- ------------- --------------- ---------- -------- -------- -------- James F. Mullan 15,000 20.0% 5.75 12/2/09 0 54,242 137,460 John H. Goddard, Jr 7,000 9.3% 5.75 12/2/09 0 25,313 64,148 Edward M. Padley 5,000 6.7% 5.75 12/2/09 0 18,080 45,820 William A. DeMarco 5,000 6.7% 5.75 12/2/09 0 18,080 45,820 D. James Purcell 5,000 6.7% 5.75 12/2/09 0 18,080 45,820
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 $23,635,596. At the 10% appreciation rate, the increase in value for the shareholders would be $59,897,847. 9 12 STOCK OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
Number of securities Value of unexercised underlying unexercised in-the-money Shares acquired options at 12/31/99 options at 12/31/99 Name on exercise Exercisable Unexercisable Exercisable Unexercisable - ------------------- --------------- ----------- ------------- ----------- ------------- James F. Mullan 0 81,250 33,750 $ 0 $ 0 John H. Goddard, Jr 0 36,236 21,625 0 0 Edward W. Padley 0 10,295 14,125 0 0 William A. DeMarco 0 15,625 14,375 0 0 D. James Purcell 0 12,375 14,125 0 0
RETIREMENT PLANS The Corporation has an IRS 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 the named executives listed in the Summary Compensation Table. Compensation of all non-executive officer employees covered by the Pension Plan includes salaries, commissions and bonuses. 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 $135,000 per year. The Internal Revenue Code also limits the level of compensation which may be used to determine benefits under these qualified plans to $170,000 per year. Messrs. Mullan, Goddard, Padley, DeMarco and Purcell have 30, 12, 7, 19 and 5 years, respectively, of credited service under this Pension Plan. Additional benefits may be payable to these five officers under the Supplemental Executive Retirement Plan ("SERP") described below for these five executive officers. The following table, applicable only to executive officers Mullan, Goddard, Padley, DeMarco and Purcell, shows the approximate annual retirement benefits which will be payable in total under the Pension Plan, Social Security, and the SERP at the normal retirement age of 65 (assuming continuation of the plans) for 25 years of service and varying levels of average remuneration. The SERP was previously adopted by the Board in 1989, and was amended as of March 1, 2000 to add a 25 year formula for full benefits. Messrs. Goddard, Padley and Purcell were not participants in the SERP prior to March 1, 2000. Mr. Goddard was, however, a participant in a similar Momentum Supplemental Benefits Plan that became a PrimeSource plan with the 1994 merger with Momentum Corporation. That plan was terminated concurrent with the adoption of the amended SERP on March 1 and the designation of Mr. Goddard as a participant in the SERP.
Final Average 25 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 designated key executives to continue in the service of the Corporation by providing them upon their retirement with a supplemental retirement benefit equal to the 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 and payments which the executive would be eligible to receive from the Pension Plan on a single life annuity basis, and this difference is then multiplied by a fraction, the numerator of which is the number of years of credited service under the SERP and the denominator is 25. Mr. Goddard has 12 years of credited service under this SERP, and Messrs. Padley and Purcell each have 6 years. Upon completion of 5 years of credited service, the participant is vested in a benefit based on the formula above, but does not receive the full benefit under the formula until he has 25 years of credited service. Only Messrs. Mullan and DeMarco are currently entitled to receive the full benefit under the 10 13 SERP. A surviving spouse is also entitled to certain benefits under the SERP. Messrs. Mullan, Goddard, Padley, DeMarco and Purcell are the only current employees who have been designated to participate in the SERP. The Corporation has entered into a Trust Agreement with a major bank 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. 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 Momentum Supplemental Benefits Plan, a Supplemental Benefits Plan for certain designated Momentum executive officers to whom the Internal Revenue Code Sections 415 and 401 limits may apply, and the Corporation as successor to Momentum 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 Momentum Supplemental Benefits Plan ($8,489 per month). 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, $290,000; Goddard, $221,500; Padley, $142,500; DeMarco, $142,500; and Purcell, $142,500. 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. 11 14 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 December 31, 1994 through December 31, 1999. The graph assumes $100 invested on December 31, 1994 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.
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 -------- -------- -------- -------- -------- -------- PrimeSource $ 100.00 $ 65.89 $ 91.22 $ 115.29 $ 83.47 $ 65.62 NASDAQ Composite $ 100.00 $ 141.31 $ 173.94 $ 213.56 $ 299.69 $ 544.77 NASDAQ Non-Financial $ 100.00 $ 137.50 $ 169.98 $ 199.53 $ 292.38 $ 566.39
12 15 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 LLP, 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 2001 annual meeting of the shareholders, said proposals must be received by the Corporate Secretary of the Corporation not later than December 9, 2000. 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, 1999 has been mailed to the shareholders. BY ORDER OF THE BOARD OF DIRECTORS Barry C. Maulding April 10, 2000 Corporate Secretary -----END PRIVACY-ENHANCED MESSAGE-----