<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or ss.240.14a-12
SUNSOURCE
---------------
(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)(1) 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
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
_____________________________________________________________
2) Form, Schedule or Registration Statement no.:
_____________________________________________________________
3) Filing Party:
_____________________________________________________________
4) Date Filed:
_____________________________________________________________
<PAGE>
[GRAPHIC OMITTED]
SUNSOURCE
April 5, 1999
To our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders.
The meeting will be held at 10:00 a.m. on Tuesday, April 27, 1999 at the law
offices of Morgan, Lewis & Bockius LLP, 1701 Market St., Room 18 A&B (18th
Floor), Philadelphia, PA.
At the meeting we will elect directors, vote on a proposal to amend the
Bylaws of the Company in order to classify the Board into three classes with
staggered terms, and vote on a proposal to amend the 1998 Equity Compensation
Plan to increase the number shares that may be issued by the Company in
connection with its search for a new Chief Executive Officer by 150,000 shares.
We will also review SunSource's 1998 performance and answer your questions.
Your vote is important. Whether you plan to attend the meeting or not, we
urge you to complete, sign and return your proxy card as soon as possible in
the envelope provided. This will ensure representation of your shares in the
event you are not able to attend the meeting. You may revoke your proxy and
vote in person at the meeting is you so desire.
Sincerely yours,
/s/ DONALD T. MARSHALL
-----------------------------
DONALD T. MARSHALL
Chairman
<PAGE>
[GRAPHIC OMITTED]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, APRIL 27, 1999
The Annual Meeting of Stockholders of SunSource Inc. will be held at 10:00
a.m. on Tuesday, April 27, 1999 at the law offices of Morgan, Lewis & Bockius
LLP, 1701 Market St., Room 18 A&B (18th Floor), Philadelphia, PA to consider
and take action on the following:
1. To elect nine members to the Company's Board of Directors;
2. To vote upon a proposal to amend the Company's Bylaws to provide for the
classification of the Board of Directors into three classes of directors
with staggered terms of office;
3. To vote upon a proposal to amend the 1998 Equity Compensation Plan to
increase the number of shares that may be issued by the Company under the
plan in connection with its search for a new Chief Executive Officer by
150,000 shares; and
4. To transact such other business as may properly be presented at the
Annual Meeting or any adjournments thereof.
Your Board of Directors recommends a vote "FOR" the election of the
directors nominated by the Board of Directors, "FOR" the proposal to amend the
Bylaws and "FOR" the proposal to amend the 1998 Equity Compensation Plan.
For information on the proposals, you are urged to read the Proxy
Statement that follows.
Stockholders of record at the close of business on March 25, 1999 will be
entitled to vote at the Annual Meeting or any adjournments of the meeting. A
list of such stockholders will be available for examination at the offices of
the Company, 3000 One Logan Square, Philadelphia, PA for ten days prior to the
date of the meeting.
By Order of the Board of Directors
/s/ Joseph M. Corvino
------------------------------
Joseph M. Corvino
Secretary
April 5, 1999
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT .................................................... 1
VOTING PROCEDURES .................................................. 1
Revoking Your Proxy ............................................. 1
Vote Required and Method of Counting Votes ...................... 1
Other Business .................................................. 1
BOARD OF DIRECTORS ................................................. 2
Election of Directors ........................................... 2
Board Meetings; Committees of the Board ......................... 3
Compensation of Directors ....................................... 3
OWNERSHIP OF COMMON SHARES ......................................... 4
REPORT OF COMPENSATION COMMITTEE ................................... 5
Base Salary ..................................................... 5
Annual Bonus .................................................... 5
Long-Term Incentive ............................................. 5
Compensation of the Chief Executive Officer ..................... 6
Deductibility of Compensation ................................... 6
STOCK PERFORMANCE CHART ............................................ 7
EXECUTIVE COMPENSATION ............................................. 8
Summary Compensation Table ...................................... 8
Deferred Compensation Plans ..................................... 10
Change in Control Arrangements .................................. 10
PROPOSAL TO AMEND BYLAWS ........................................... 11
Consideration in Support of Proposed Amendment .................. 11
Consideration Against Adoption of Proposed Amendment ............ 12
Form of Amendment ............................................... 12
PROPOSAL TO AMEND 1998 EQUITY PLAN ................................. 13
Form of Amendment to 1998 Equity Plan ........................... 13
Reasons for Proposed Amendment to 1998 Equity Plan .............. 13
Description of the 1998 Equity Plan ............................. 13
OTHER INFORMATION .................................................. 19
Certain Related Transactions .................................... 19
Independent Accountants ......................................... 19
Section 16(a) Beneficial Ownership Reporting Compliance ......... 19
Stockholder Proposals ........................................... 19
Expenses of Solicitation ........................................ 19
<PAGE>
SUNSOURCE INC.
3000 One Logan Square
Philadelphia, PA 19103
PROXY STATEMENT
The Board of Directors of SunSource Inc. (the "Company" or "SunSource") is
soliciting your proxy for use at the Annual Meeting of Stockholders to be held
at 10:00 a.m. on Tuesday, April 27, 1999, at the law offices of Morgan, Lewis &
Bockius LLP, 1701 Market Street, Philadelphia, PA, and at any adjournment or
postponement of the Annual Meeting.
This Proxy Statement, the foregoing notice and the enclosed proxy are
being sent to stockholders on or about March 31, 1999. The stockholders of
record at the close of business on March 25, 1999 (the "Record Date") will be
entitled to be notified of, and to vote at, the Annual Meeting.
VOTING PROCEDURES
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend our Annual
Meeting of Stockholders, please take the time to vote by completing and mailing
the enclosed proxy card. We have included a postage-prepaid envelope for your
convenience.
If you sign, date and mail your proxy card without indicating how you want
to vote, your proxy will be voted "FOR" the election of the nominees to the
Board of Directors, "FOR" the amendment to the Bylaws and "FOR" the amendment
to the 1998 Equity Compensation Plan (the "1998 Equity Plan").
Revoking Your Proxy
If you later wish to revoke your proxy, you may do so by: (1) sending a
written statement to that effect to the Secretary of the Company; (2)
submitting a properly signed proxy with a later date; or (3) voting in person
at the annual meeting.
Vote Required and Method of Counting Votes
o Number of Shares Outstanding and Quorum. At the close of business on the
Record Date, there were 6,740,208 Common Shares outstanding and entitled
to vote at the annual meeting. A majority of the outstanding Common Shares
present in person or by proxy is required for a quorum to transact
business at the meeting.
o Vote Required. The following is an explanation of the vote required for
each of the three items to be voted on at the annual meeting:
Item 1 -- Election of Directors.
The nominees receiving the highest number of votes will be elected. If
you do not wish your shares to be voted for a particular nominee, you may
so indicate in the space provided on the proxy card.
Item 2 -- Approval of Amendment No. 2 to the Bylaws of SunSource Inc.; and
Item 3 -- Approval of Amendment 1999 to the SunSource Inc. 1998 Equity
Plan.
The affirmative vote of a majority of the Common Shares present in
person or by proxy is required for approval of Items 2 and 3. Shares
represented by proxy which are marked "abstain" will have the effect of a
vote against Items 2 and 3. A "broker non-vote" (when a broker does not
have authority to vote on a particular issue) will have no effect on the
vote.
Other Business
We know of no other matters to be presented for stockholder action at the
meeting. If other matters are properly brought before the meeting, the persons
named in the proxy card intend to vote your shares in accordance with their
best judgment.
<PAGE>
BOARD OF DIRECTORS
Election of Directors
At the Annual Meeting, nine directors, constituting the entire Board of
Directors of the Company, are to be elected. If the proposal to amend the
Bylaws is adopted, the directors will be elected for the terms indicated below
and until their respective successors are duly elected and qualified. If the
proposal is not adopted, the directors will be elected to hold office until the
Annual Meeting of Stockholders in 2000 and until their respective successors
are duly elected and qualified. Unless instructions to the contrary are given,
the shares represented by a properly executed proxy will be voted "FOR" the
election of the nominees set forth below. All of the nominees are currently
members of the Board of Directors of the Company. If any of the nominees are
unavailable for election, the number of directors to be elected at the meeting
will be reduced.
The following sets forth information with respect to each nominee:
<TABLE>
<CAPTION>
Principal Occupation; Five Year
Name, Age and Year Employment History; Other
First Became Director Directorships
- --------------------------- ---------------------------------------------------------------------
<S> <C>
Class I Directors-Nominees to Serve Until 2000 Annual Meeting
O. Gordon Brewer, Jr., 62 Consultant and former Vice President-Finance of Ikon Office Solu-
1987 (2) tions (successor company to Alco Standard Corporation) for more
than the past five years; Director, Corporate Insurance Reinsurance
Limited
Arnold S. Hoffman, 63 Senior Managing Director in Corporate Finance of Legg Mason
1987 (1) Wood Walker, Incorporated since April 1995; Managing Director
prior thereto;
Donald A. Scott, 69 Counsel of Morgan, Lewis & Bockius LLP since September 1998;
Partner of Morgan, Lewis & Bockius LLP prior thereto; Director,
Provident Mutual Life Insurance Company
Class II Directors-Nominees to Serve Until 2001 Annual Meeting
Robert E. Keith, Jr., 57 President and Chief Executive Officer of TL Ventures (a venture
1997 (1) capital firm) for more than the past five years; President and Chief
Executive Officer of Technology Leaders Management, Inc. from
February 1996; President and Chief Operating Officer prior thereto;
Vice Chairman of Safeguard Scientifics, Inc.; and Director, Cam-
bridge Technology Partners
Geoffrey C. Shepard, 54 President of Corporate Division of Karr Barth Associates, Inc. since
1998 (2) 1994; Senior Vice President and General Counsel, Reliance Insur-
ance Company prior thereto
Francis G. Ziegler, 58 President and Chief Executive Officer of Claneil Enterprises, Inc.
1998 (1) for more than the past five years; Chairman of the Board of Scan-
dipharm, Inc., the Lander Company and Ranir/DCP; Director of
Wawa, Inc.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation; Five Year
Name, Age and Year Employment History; Other
First Became Director Directorships
- ------------------------ -------------------------------------------------------------------
<S> <C>
Class III Directors-Nominees to Serve Until the 2002 Annual Meeting.
Norman V. Edmonson, 58 Retired in May 1998; Executive Vice President and Group Vice
1987 (2) President prior thereto
Donald T. Marshall, 65 Chairman and Chief Executive Officer of the Company for more
1987 than the past five years
John P. McDonnell, 64 President and Chief Operating Officer of the Company since
1995 December 1994; Chief Executive Officer, SunSource Industrial Ser-
vices Company, Inc., a division or subsidiary of the Company since
1996; Group Vice President prior thereto
</TABLE>
- ------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Your Board of Directors recommends a vote "FOR" the election of these
nominees.
Board Meetings; Committees of the Board; Nominations to Board
The Board of Directors met four times in 1998.
The Board has two standing committees: the Audit Committee whose members
are Mr. Brewer, Mr. Edmonson and Mr. Shepard; and the Compensation Committee
whose members are Mr. Hoffman, Mr. Keith and Mr. Ziegler. The Audit Committee
met four times in 1998; the Compensation Committee met four times.
The Audit Committee reviews the performance and independence of the
Company's independent accountants, makes an annual recommendation to the Board
with respect to the appointment of independent accountants, approves the
general nature of the services to be performed and solicits and reviews the
accountants' recommendations. The Audit Committee also consults with the
Company's financial officers and internal auditors.
The Compensation Committee reviews the Company's compensation policies and
executive compensation changes and makes recommendations on compensation plans.
The Board does not have a Nominating Committee. The Board will consider
recommendations for nominees for director from stockholders, who must submit
such recommendations in writing to the Secretary of the Company. Pursuant to
the Company's Bylaws, a nomination by a stockholder of a person for election as
a director must be made not later than 60 days nor earlier than 90 days prior
to the anniversary of the preceding year's annual meeting in writing with the
information specified in the Bylaws.
Compensation of Directors
Employee directors receive no additional compensation for serving as
directors.
During 1998 non-employee directors received an annual retainer of $20,000
plus $1,000 for each Board or committee meeting attended. As a result of
stockholder approval of the Stock Compensation Plan for Non-Employee Directors
in 1998, one half of the retainer was paid in Common Shares and the remainder
was paid in cash. Beginning in 1999, the non-employee directors will be
entitled to elect to take up to 100% of the retainer in the form of Common
Shares.
Messrs. Brewer, Edmonson and McDonnell also served on a Special Search
Committee of the Board to select candidates for the position of Chief Executive
Officer of the Company. As compensation for serving on the Special Search
Committee, they were each paid $1,000 for each Committee meeting attended. In
addition, Mr. Brewer was paid $20,000 in Common Shares for serving as Chairman
of this committee.
3
<PAGE>
OWNERSHIP OF COMMON SHARES
The following table shows for (i) each director, (ii) each executive
officer named in the summary compensation table, (iii) certain persons known to
the Company to own beneficially more than 5% of the outstanding Common Shares,
and (iv) all officers and directors as a group, the beneficial ownership of
Common Shares as of March 25, 1999.
Common
Name of Beneficial Owner Shares Percent
- ---------------------------------------- --------------- --------
Directors and Executive Officers
O. Gordon Brewer, Jr. .................. 1,855 *
Harold J. Cornelius (1) ................ 27,770 *
Joseph M. Corvino (1) .................. 38,626 *
Norman V. Edmonson (1) ................. 422,091 6.3%
Max W. Hillman, Jr. (1) ................ 30,220 *
Arnold S. Hoffman ...................... 11,000(2) *
Robert E. Keith, Jr. ................... 7,498 *
Donald T. Marshall (1) ................. 703,988 10.4%
John P. McDonnell (1) .................. 203,208 3.0%
Donald A. Scott ........................ 2,748 *
Geoffrey C. Shepard .................... 1,486 *
Francis. G. Ziegler .................... 1,286 *
All directors and executive officers
as a group (13 persons) ............... 1,453,401 21.6%
Other 5% Owner
T. Rowe Price Associates, Inc. ......... 600,500 8.9%
100 East Pratt Street
Baltimore, MD 21202
Skyline Asset Management, L.P. ......... 360,800 5.4%
311 South Wacker Drive, Suite 4500
Chicago, IL 60606
- ------------
* Less than 1%
(1) Pursuant to a Stockholders Agreement dated as of July 31, 1997, Messrs.
Cornelius, Corvino, Edmonson, Hillman, Marshall and McDonnell have agreed
to vote, in the same proportion as the unaffiliated Common Shares that are
voted on any matter, that percentage of Excess Voting Shares held by them
that equals the percentage of unaffiliated Common Shares that are voted on
such matter. "Excess Voting Shares" means the Common Shares beneficially
owned by such individuals that represent voting power in excess of the
respective voting powers they would have had immediately prior to the
conversion of SunSource L.P., the predecessor to the Company (the
"Partnership") into corporate form (the "Conversion") in a vote of the
holders of Class A Interests and Class B Interests voting together as a
single class.
(2) Includes 2,000 Common Shares owned by Hoffman Investment Co., of which Mr.
Hoffman is Managing Partner. In addition, Mr. Hoffman's children own 1,000
Common Shares with respect to which he disclaims beneficial ownership.
4
<PAGE>
REPORT OF COMPENSATION COMMITTEE
The Company's compensation program for executive officers is designed to
attract, retain, and motivate superior executive talent and to align a
significant portion of each officer's total compensation with the performance
of the applicable business unit, the Company and the interests of the Company's
stockholders.
The Company maintains a highly leveraged pay for performance compensation
program recognizing and supporting its high risk / high reward business
strategy and culture. When performance is exceptional, rewards can be
substantial and well above average / median labor market values. When
performance falls short of expectations, there may be no incentive award
payouts.
The Company has implemented a competitive total compensation program for
executive officers composed of the following elements discussed below: base
salary, annual bonus, and long-term incentive compensation.
Base Salary
Executive base salaries reflect the Company's operating philosophy,
culture and business direction with each salary determined subjectively by the
skills, experience and performance level of the individual executive, and the
needs and resources of the Company. Base salaries are targeted to median market
levels based on reviews of published salary surveys and peer company
compensation conducted by an independent compensation consulting firm. The
Committee believes that the Company's most direct competitors for executive
talent encompass a broader group of companies engaged in the recruitment and
retention of executive talent in competition with the Company. Thus, the
compensation peer group is not the same as, and is broader than, the companies
comprising the peer group index as it appears in the graph in "Stock
Performance Chart."
Annual Bonus
Annual bonuses may be earned by executive officers and key employees under
the Company's annual bonus plans. Payments under these plans are based on the
performance of the overall Company or the business unit over which the
individual has a direct influence. Annual bonus targets and goals are
recommended by the CEO. The goals incorporate the achievement of business plan
income targets, Return on Assets ("ROA") and Return on Average Net Tangible
Assets ("ROANTA") as well as the achievement of non-financial management
business objectives. The mix and weighting of the goals vary by business unit
and are subjectively determined. The level of achievement of the goals
determines the level of bonus. The maximum payout is two times the annual bonus
target.
Long-Term Incentive
Through 1997, the Company has utilized a Deferred Compensation Plan for
Division Presidents (the "Presidents' Plan") and a Long-Term Performance Share
Plan (the "Share Plan") for its officers.
SunSource also maintains a deferred compensation plan for key employees
(the "Key Employees Plan") which allows for deferral of cash compensation from
salary and annual bonuses. The Key Employees Plan also allows participants
eligible for accelerated payments under the change in control provisions of the
other defined compensation plans an election to continue to defer their
balances. Executive deferrals can grow at mutual fund investment rates.
Under the Presidents' Plan, presidents of business units earned deferred
compensation based on annual performance results using the goals described in
the annual bonus section above. Presidents' Plan awards unconditionally vested
at the rate of 20% per year over the five-year period from the date earned. The
Presidents' Plan was canceled effective December 31, 1997 and no further awards
may be made under this plan.
The Share Plan was based on annual and cumulative net income performance
for five-year terms. The Share Plan continued from January 1, 1997 to December
31, 1997 and was canceled effective December 31, 1997. Awards resulting from
1997 performance were deferred under the Share Plan and became payable after
December 31, 1998.
5
<PAGE>
As the result of the Conversion, awards earned through December 31, 1996
became 100% vested in accordance with the change of control provisions of the
plans. However, certain employees elected to continue to defer their awards
under the Key Employees Plan.
In 1998, stockholders approved the 1998 Equity Plan. The plan is designed
to instill the economic incentives of ownership, create management incentives
to improve stockholder value and, through the use of vesting periods, encourage
executives to remain with the Company and focus on long-term results.
The plan is designed to drive performance and reward top officers and key
employees when there is an increase in stock price or earnings per share or an
increase in income growth, excluding extraordinary events. The maximum payout
will be 100% of the targeted long-term incentive as defined by the CEO with the
approval of the Compensation Committee.
The Committee awarded the initial grants in 1998 to qualifying
participants with the number of shares awarded varying according to position
responsibility, salary and performance results.
The number of shares awarded and the vesting period of the award are
determined by first setting a maximum number of shares and then measuring
performance of the Company and business units to compute actual stock option
grants up to the maximum and to determine the number of years over which the
stock options vest.
For 1998 awards, targeted long-term dollar award values were established
by using competitive survey data. Guidelines for the maximum number of shares
were determined by dividing target long-term incentive dollar values by the
estimated value of a stock option. Accepted stock option pricing models were
used to calculate the estimated option value. The number of shares that were
actually awarded was determined on a discretionary basis by the Company's CEO
for corporate staff and business unit Chief Executive Officers for their
participating employees using these guidelines.
If the Company or the business unit, as applicable, meets certain
Performance Targets, stock options will become vested gradually over a three to
five-year period, depending on 1998 results. If Performance Targets are not
met, the options will not become vested until 9 years from the grant date.
Compensation of the Chief Executive Officer
During 1998, Mr. Marshall's base salary was increased to $544,030 to
recognize his leadership in the growth of the Company and the value he has
created for the Company. Mr. Marshall's 1998 annual bonus was $115,409,
reflecting the Company's achievement of its 1998 performance goals.
Additionally, his 1998 Equity Plan award grant was 35,000 stock options which
will be vested over a five-year period as the result of the Company's 1998
performance.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code subjects public companies to
limits on the deductibility of certain executive compensation for taxable years
beginning on or after January 1, 1994. It limits deductible compensation for
the executive officers named in the Summary Compensation Table to $1 million
per year. Certain forms of compensation are exempt from this deductibility
limit, primarily performance-based compensation under plans approved by
stockholders.
The 1998 Equity Plan qualifies those awards that would be considered
performance-based for exemption under Section 162(m). The Committee will
continue to examine the impact of the deductibility limit on the Company and
the executive group to determine when and if other aspects of the executive
compensation program are affected by the limit and the appropriate actions
necessary for the best interests of the stockholders.
THE COMPENSATION COMMITTEE
Arnold S. Hoffman
Robert E. Keith, Jr.
Francis G. Ziegler
6
<PAGE>
STOCK PERFORMANCE CHART
The following graph compares the cumulative total stockholder return on
the Company's Common Shares (and Class B Interests of the Partnership) for the
five years ended December 31, 1998, with the cumulative total return on the
Russell 2000 Index and an industry peer group index. The 1998 Peer Group is
comprised of Applied Industrial Technologies, Inc.; Barnes Group, Inc.; Genuine
Parts Company; W.W. Grainger, Inc.; Hughes Supply, Inc.; Lawson Products, Inc.;
and NCH Corporation. These companies were selected based on their similarities
in the aggregate to the Company.
The cumulative total shareholder return computations set forth in the
performance graph assume the investment of $100 on December 31, 1993, and the
reinvestment of all dividends, except Class B tax distributions of the
Partnership. The returns of each company in the 1998 Peer Group have been
weighted according to the respective company's stock market capitalization.
For periods prior to September 30, 1997, the Company's predecessor was
traded as a master limited partnership. For those periods, the index includes
returns on Class B interests only due to the fact that those interests were
converted into Common Shares upon conversion to corporate form on September 30,
1997 (one post-split share of the Company's Common Shares for four Class B
Interests). Also, for such periods, amounts distributed to partners
representing tax distributions were excluded from the calculation based on the
assumption that that type of distribution would not be reinvested. The Class B
tax distributions were intended to cover the partners' tax liability on taxable
income allocated from the Company's predecessor.
SunSource Inc. Russell 2000 1998 Peer Group
1993 100 100 100
1994 109 98 101
1995 133 126 117
1996 133 147 136
1997 169 180 164
1998 137 175 153
7
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all cash compensation paid and accrued for
services rendered during the three years ended December 31, 1998, by each of
the Chief Executive Officer, the four other most highly compensated executive
officers of the Company whose remuneration exceeded $100,000 and an additional
individual who served as an executive officer during the last completed fiscal
year but was not serving as such as of December 31, 1998.
<TABLE>
<CAPTION>
Securities
Long-Term Under-
Annual Compensation Share lying
Name and -------------------------- Performance Options All Other
Principal Position Year Salary (1) Bonus (2) Plan # Compensation
- ------------------------------- ------ ------------ ----------- ------------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Donald T. Marshall 1998 $ 577,677 $115,409 $ 602,137(4) 35,000 $ 15,928(6)
Chairman and Chief 1997 521,031 51,087 1,126,486(5) -- 13,649(6)
Executive Officer 1996 452,509 45,230 -- -- 11,749(6)
John P. McDonnell 1998 439,429 30,000 237,205(4) 20,000 3,895(6)
President and Chief 1997 426,302 43,354 354,036(5) -- 3,383(6)
Operating Officer 1996 358,105 22,692 -- -- 3,273(6)
Norman V. Edmonson (3) 1998 151,622 -- 401,425(4) -- --
Executive Vice President 1997 353,622 53,862 740,261(5) -- 2,198(6)
1996 308,125 105,600 -- -- 1,923(6)
Harold J. Cornelius 1998 320,438 73,991 -- 12,500 59,164(7)
Group Chief Executive Officer 1997 318,608 10,000 354,036(5) -- --
1996 280,107 7,101 -- -- 19,000(8)
Max W. Hillman, Jr. 1998 299,588 107,165 -- 12,500 --
Group Chief Executive Officer 1997 284,991 66,816 354,036(5) -- 296,975(8)
1996 269,816 -- -- -- 29,000(8)
Joseph M. Corvino 1998 211,939 50,000 91,233(4) 10,000 372(6)
Vice President - Finance 1997 185,123 46,856 128,743(5) -- 372(6)
1996 175,118 27,419 -- -- 372(6)
</TABLE>
- ------------
(1) Represents base salary plus other types of miscellaneous compensation.
(2) Represents earned bonus for services rendered in each year.
(3) Retired as Executive Vice President of the Company in May 1998.
(4) Represents deferred compensation awarded under the Share Plan for the year
ended December 31, 1997. These awards became eligible for distribution in
early 1999. The Share Plan terminated upon approval of the 1998 Equity
Plan.
(5) Represents deferred compensation awarded under the Share Plan for the three
years ended December 31, 1996 which was accelerated as a result of the
Conversion.
(6) Represents primarily term life insurance premiums paid by the Company for
the benefit of the named executive officer.
(7) Represents relocation expenses paid in 1998.
(8) Represents deferred compensation earned and awarded under the Presidents'
Plan for services rendered in the year which unconditionally vests at the
rate of 20% per year over the five-year period from the date earned. The
Presidents' Plan was terminated upon stockholder approval of the 1998
Equity Plan.
8
<PAGE>
OPTIONS GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------------
Potential Realizable Value at
Percent of Assumed Annual Rates of
Total Stock Price Appreciation
Securities Options for Option Term (2)
Underlying Granted to Exercise ---------------------------
Options Employees in Price Expiration
Name Granted (#)(1) Fiscal Year ($/SH) Date 5% ($) 10% ($)
- ----------------------------- ---------------- -------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Donald T. Marshall .......... 35,000 16.5% $ 15.99 07/30/2008 $ 351,961 $ 891,938
John P. McDonnell ........... 20,000 9.5% $ 15.99 07/30/2008 $ 201,121 $ 509,679
Harold J. Cornelius ......... 12,500 5.9% $ 15.99 07/30/2008 $ 125,700 $ 318,549
Max W. Hillman, Jr. ......... 12,500 5.9% $ 15.99 07/30/2008 $ 125,700 $ 318,549
Joseph M. Corvino ........... 10,000 4.7% $ 15.99 07/30/2008 $ 100,560 $ 254,839
</TABLE>
- ------------
(1) Each option granted has a ten-year term and is vested based on financial
performance. If financial performance targets are met, vesting occurs
annually over three to five years from the date of grant. If performance
targets are not met, the options will not vest until nine years from the
date of grant. Each option was granted at 85% of the fair market value.
(2) The amounts shown under these columns are calculated at the 5% and 10%
annual rates set by the Securities and Exchange Commission and are not
intended to forecast future appreciation of the Company's stock price.
AGGREGATED OPTION EXERCISES IN 1998
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information for each executive officer with
regard to stock option exercises during 1998 and the aggregate stock options
held at December 31, 1998.
<TABLE>
<CAPTION>
Number of
Unexercised Value of Unexercised
Options In-The-Money Options
Shares at FY-END (#) at FY-END ($)
Acquired by Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable (1) Unexercisable (2)
- ----------------------------- ------------- ---------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Donald T. Marshall .......... -- $ -- -- /35,000 $ -- /$98,700
John P. McDonnell ........... -- $ -- -- /20,000 $ -- /$56,400
Harold J. Cornelius ......... -- $ -- -- /12,500 $ -- /$35,250
Max W. Hillman, Jr. ......... -- $ -- -- /12,500 $ -- /$35,250
Joseph M. Corvino ........... -- $ -- -- /10,000 $ -- /$28,200
</TABLE>
- ------------
(1) Represents the number of shares subject to outstanding options.
(2) Based on a price of $18.81 per share, the closing price of the Company's
Common Stock on December 31, 1998, minus the exercise price of $15.99.
9
<PAGE>
Deferred Compensation Plans
The Company's deferred compensation plans are described in this proxy
statement in "Report of Compensation Committee -- Long-Term Incentive."
Change in Control Arrangements
The executive officers named above were participants in the Presidents'
Plan and the Share Plans in certain years. Upon a change in control, the plans
provided for payment of all vested and non-vested amounts including accrued
interest. The Company also adopted the Key Employees Plan on January 1, 1996,
to allow participants eligible for accelerated payments under the change in
control provisions of the other deferred compensation plans an election to
continue to defer their balances. A change of control occurred on September 30,
1997, as a result of the Conversion whereby all awards earned through December
31, 1996, became fully vested and eligible for distribution. However, certain
employees elected to continue to defer their awards under the Key Employees
Plan. Upon approval of the 1998 Equity Plan by stockholders of the Company on
April 28, 1998, awards under the Presidents' Plan and the Share Plan ceased as
of December 31, 1997.
10
<PAGE>
PROPOSAL TO AMEND BYLAWS
The Board of Directors has proposed, for approval by the stockholders, an
amendment to the Bylaws of the Company. The amendment would classify the Board
of Directors into three classes, each of which, after a transitional period,
would consist of directors having three year terms, with one class being
elected each year.
The Bylaws currently provide that each director shall hold office until
the expiration of the term for which he or she was selected and until a
successor shall have been elected and qualified or until his or her death,
resignation or removal. The proposed amendment to Article IV Section 4.02 of
the Bylaws would add a provision that divides the Board of Directors into three
Classes: Class I, Class II and Class III, with the directors in each class to
hold office for staggered terms of three years each. If the amendment is
adopted, all directors will be elected to their classified terms as described
in this Proxy Statement. Initially, the term of the Class I directors would
expire at the next annual meeting in 2000, and the terms of Class II and Class
III directors would expire, respectively, at the 2001 and 2002 annual meetings.
Successors to the directors in each class would then be elected for three year
terms. The amendment would thus have the effect of causing only one class of
directors per year to be elected, with the directors in the other two classes
remaining in office until the elections held in later years. Vacancies on the
Board in a particular class would be filled for the remainder of the term of
such class.
Considerations in Support of Proposed Amendment
In recent years, accumulations by third parties of substantial stock
positions in public companies frequently have been preludes to hostile attempts
to takeover or restructure such corporations or to sell all or part of such
corporations' assets or to take other similar extraordinary action. Such
actions are often undertaken by the third party without advance notice to, or
consultation with, management. In many cases, such third parties position
themselves through stock ownership to seek representation on a board of
directors in order to increase the likelihood that they will be able to
implement proposed transactions opposed by the corporation's management. If the
corporation resists the efforts of the third party to obtain representation on
the board, the third party may commence a proxy contest to have its nominees
elected in place of some or all of the existing directors. In some cases, a
third party may not truly be interested in taking over the corporation, but may
seek to use the threat of a proxy fight or a bid to take over the corporation,
or both, as a means of obtaining for itself a special benefit which might not
be available to all of the corporation's stockholders.
The Board of Directors believes that an imminent threat of removal in such
situations would severely curtail its ability to negotiate effectively. Under
such pressure, management could be deprived of the time and information
necessary to evaluate the takeover proposal, to seek and study alternative
proposals that may better serve the interests of the Company's stockholders,
and in an appropriate case, to help achieve a better price in any transaction
which may ultimately occur. If adopted, the classified board amendment would
help assure that the Board, if confronted by a proposal from a third party
which has acquired a significant block of the Company's Common Stock, will have
sufficient time to review the proposal and take appropriate actions.
Takeovers or changes in management of the Company which are proposed and
effected without prior negotiation with the Company's management are not
necessarily detrimental to the Company and its stockholders. However, the Board
believes that the benefits of seeking to protect its ability to negotiate with
the proponent of an unfriendly or unsolicited proposal to takeover or
restructure the Company outweigh the disadvantages of discouraging such
proposals. The proposed amendment is not being submitted as the result of, and
the Board is unaware of, any specific effort by any persons to obtain control
of the Company or to accumulate large amounts of its stock.
The proposed amendment is designed, in part, to encourage a third party
seeking to acquire control of the Company to first consult with the Company's
management regarding any proposed business combination or other transactions
involving the Company, so that it may be studied by the Board and so that the
Company's stockholders can have the benefit of the Board's recommendations in
cases where stockholder approval is required. Although a takeover bid may be
made at prices representing premiums over the then current market
11
<PAGE>
price for the securities being sought, the Board believes that, in a situation
where a third party seeks management's cooperation, a corporation's board of
directors will be in a better position to promote consideration of a broader
range of relevant factors, such as the structuring of the proposed transaction
and its tax consequences and the underlying value and prospects of that
corporation. These issues may not otherwise adequately be addressed by such
third party.
Considerations Against Adoption of Proposed Amendment
Because the proposed amendment would make more difficult or deter a proxy
contest or the assumption of control of the Board by a holder of a substantial
block of the Company's Common Shares, it could increase the likelihood that
incumbent members of management will retain their positions. The classified
board amendment would apply to every election of directors whether or not a
change in the composition of the Board would be beneficial and whether or not
the holders of a majority of the Company's Common Shares believe that such a
change would be desirable. After adoption of the proposed amendment,
stockholders who do not favor the policies of the Board would require at least
two annual meetings of stockholders to replace a majority of the Board.
In addition, the proposed amendment could have the effect of deterring a
third party from making a tender offer for or otherwise acquiring significant
blocks of the Company's shares, even though such an action might increase, at
least temporarily, market prices for the Company's shares, and even though a
number of stockholders of the Company might be willing to sell their shares at
the price offered. Because deterrence of such acquisitions could tend to reduce
such temporary fluctuations in the market price of the Company's shares,
stockholders could be denied certain opportunities to sell their shares at
temporarily higher market prices.
Form of Amendment
If the proposed amendment is approved, the text of the Company's Bylaws
would be amended as follows:
Section 4.02 of the bylaws would be amended and restated to read as
follows:
SECTION 4.02. Number, Classified Board and Term of Office-The board of
directors shall consist of such number of directors as may be determined
from time to time by resolution of the board of directors. The directors
shall be divided into three classes, Class I, Class II and Class III, with
respect to their terms of office. All classes shall be as nearly equal in
number as reasonably possible. Subject to such limitations, when the number
of directors is changed, any newly-created directorship or any decrease in
directorships shall be apportioned among the classes by action of the board
of directors. The terms of office shall be as follows:
(1) Class I shall expire at the annual meeting of stockholders to be held
in 2000;
(2) Class II shall expire at the annual meeting of stockholders to be held
in 2001;
(3) Class III shall expire at the annual meeting of stockholders to be
held in 2002;
At each annual meeting of stockholders, commencing with the annual
meeting to be held in 2000, the successors of the class of directors
whose term expires at such meeting shall be elected to hold office for a
term expiring at the annual meeting of stockholders held in the third
year of their elections.
The Board of Directors recommends that the stockholders vote "FOR"
approval of the amendment to the Bylaws.
12
<PAGE>
PROPOSAL TO AMEND 1998 EQUITY PLAN
The Board of Directors has adopted a resolution recommending that
stockholders approve an amendment to the 1998 Equity Plan to increase the
number of authorized shares by 150,000 in connection with the hiring of a new
chief executive officer. If the proposal is approved by the stockholders, the
amendment will not change any other of the provisions of the present 1998
Equity Plan.
Form of Amendment to 1998 Equity Plan
If approved, the first sentence of Section 3(a) of the 1998 Equity Plan
would be amended to read as follows:
The aggregate number of shares of Company Stock ("Common Shares") that may
be issued or transferred under the Plan is 2,150,000 shares; but no more
than the Applicable Percentage of the number of Common Shares issued and
outstanding on the effective date of the Plan and at any time thereafter
may be issued or transferred under the Plan; provided however, that up to
150,000 shares may be issued under the Plan without reference to the
Applicable Percentage in connection with the hiring of a new chief
executive officer of the Company.
Reasons for Proposed Amendment to 1998 Equity Plan
The 1998 Equity Plan is designed to drive performance and reward top
officers and key employees when there is an increase in stock price or earnings
per share or an increase in income growth, excluding extraordinary events. The
maximum payout will be 100% of the targeted long-term incentive as defined by
the Chief Executive Officer ("CEO") with the approval of the Compensation
Committee. Target long-term incentive opportunities are based on competitive
award opportunities available at similar companies with respect to size and
industry.
The 1998 Equity Plan provides employees and non-employee members of the
Board with the opportunity to receive grants of incentive stock options,
nonqualified stock options, stock appreciation rights, stock awards and
performance units. The amount of options available for the 1998 Equity Plan is
calculated annually and cumulatively at the rate of 5% of shares outstanding
per year. The maximum number of shares available under the 1998 Equity Plan is
25% of the Total Outstanding Shares or 2,000,000 shares.
The Company has begun the process of transition to a new CEO with the
intention that the current Chairman and CEO will relinquish the title and role
of CEO and retain the title and role of Chairman.
Due to limitations on shares authorized under the 1998 Equity Plan, as of
April 28, 1999 only 674,000 shares are anticipated to be available for award.
Based on projections of regular awards and other grants, including the proposed
grant to the current Chairman and CEO for his management of the CEO transition
process and his commitment to serve the Company over the next three years, less
than 30,000 shares are expected to remain available in 1999. SunSource would
like to have 150,000 stock options available to offer the new CEO chosen for
the position. Without additional shares to the 1998 Equity Plan, SunSource will
not have sufficient shares available to recruit a new CEO effectively.
Therefore, SunSource requests stockholder approval for a one-time 150,000
addition to the existing shares authorized under the Plan.
Descriptions of the 1998 Equity Plan
The key provisions of the 1998 Equity Plan are described below:
Purposes
The 1998 Equity Plan provides employees and non-employee members of the
Board with the opportunity to receive grants of incentive stock options,
nonqualified stock options, stock appreciation rights, stock awards and
performance units (hereinafter collectively referred to as "Grants" or
"Awards"). The Company believes that the 1998 Equity Plan will encourage
participants to contribute materially to the growth of the Company, thereby
benefitting the Company's stockholders, and will align the economic interests
of the participants with those of the stockholders.
13
<PAGE>
Administration
The 1998 Equity Plan is administered and interpreted by the Compensation
Committee of the Board or a subcommittee thereof (the "Committee"). The
Committee shall consist of two or more persons appointed by the Board, all of
whom shall be "outside directors" as defined under section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code") and related Treasury
regulations and non-employee directors as defined under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Notwithstanding the foregoing, the Board may ratify or approve (and, in the
case of Grants to the members of the Committee, shall approve) Grants, in which
case references to the Committee shall be deemed to include the Board. The
Committee shall have the sole authority to (i) determine the individuals to
whom Grants shall be made under the 1998 Equity Plan, (ii) determine the type,
size and terms of the Grants to be made to each such individual, (iii)
determine the time when the Grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for
exercisability and the acceleration of exercisability, and (iv) deal with any
other matters arising under the 1998 Equity Plan. Grants shall be made in
accordance with a compensation policy established by the Committee which may
require that Grants are made upon accomplishment of certain goals that relate
to the financial performance of the Company or its operating units, the
performance of Common Shares, individual performance, or such other criteria as
the Committee deems appropriate.
Participation
Grants may be made to any employees (including officers and Directors) and
non-employee directors. Grants were made to 37 employees and one director under
the 1998 Equity Plan in 1998. Awards under the 1998 Equity Plan may consist of
grants of stock options ("Options"), stock awards ("Stock Awards"), stock
appreciation rights ("SARs"), and performance units ("Performance Units"). All
Grants shall be subject to the terms and conditions set forth in the 1998
Equity Plan and to such other terms and conditions consistent with the 1998
Equity Plan as the Committee deems appropriate. Grants under the 1998 Equity
Plan need not be uniform as among the grantees.
Authorized Shares
The Board reserved 2,000,000 Common Shares for issuance over the ten year
term of the 1998 Equity Plan, subject to adjustment as described in "Adjustment
Provisions" below. However, no more than the Applicable Percentage of the
number of Common Shares issued and outstanding on the effective date of the
1998 Equity Plan and at any time thereafter may be issued or transferred under
the 1998 Equity Plan. The Applicable Percentage was five percent (5%) as of
April 28, 1998 (the effective date of the 1998 Equity Plan), and shall increase
by five percent (5%) on each anniversary of the effective date; provided that
the Applicable Percentage shall not exceed twenty-five percent (25%). In no
event, however, shall the aggregate number of Common Shares that may be issued
or transferred under the 1998 Equity Plan be less than the number of Common
Shares previously issued or transferred under the 1998 Equity Plan or subject
to then outstanding Grants. The maximum aggregate number of Common Shares that
may be subject to Grants made under the 1998 Equity Plan to any one individual
during any calendar year shall be 200,000 shares. The shares may be authorized
but unissued Common Shares or reacquired Common Shares, including shares
purchased by the Company on the open market for purposes of the 1998 Equity
Plan. If and to the extent options granted under the 1998 Equity Plan
terminate, expire, or are canceled, forfeited, exchanged or surrendered without
having been exercised or if any stock awards are forfeited, the shares subject
to such Grants shall again be available for purposes of the 1998 Equity Plan.
The closing price of the Common Shares reported on the New York Stock
Exchange on March 25, 1999, was $14.250 per share.
Options
The Committee may grant Options that are intended to qualify as "incentive
stock options" within the meaning of section 422 of the Code ("Incentive Stock
Options") or Options which are not intended to so qualify ("Nonqualified Stock
Options") or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth in the 1998
Equity Plan. The exercise price to purchase
14
<PAGE>
Common Shares subject to an Option under the 1998 Equity Plan will be
determined by the Committee and may be equal to or greater than the fair market
value of a Common Share on the date the Option is granted. An Incentive Stock
Option may not be granted to an employee who, at the time of grant, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or any "parent corporation" or "subsidiary
corporation" of the Company (within the meaning of sections 424(e) and 424(f)
of the Code, respectively), unless the exercise price per share is not less
than 110% of the fair market value of a Common Share on the date of grant.
Notwithstanding the foregoing, the exercise price per share of Grants of
Nonqualified Stock Options may be at less than the fair market value of a
Common Share, but not less than (85%) of the fair market value of a Common
Share, on the date the Option is granted; provided that the Grant is subject to
the satisfaction of performance goals established by the Committee. The
Committee shall determine the term of each Option which shall not exceed ten
years from the date of grant. However, an Incentive Stock Option that is
granted to an employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company, or any parent or subsidiary of the Company, may not have a term
that exceeds five years from the date of grant.
A participant may pay the exercise price (i) in cash, (ii) with the
approval of the Committee, by delivering Common Shares owned by the participant
having a fair market value on the date of exercise equal to the exercise price
or (iii) by any other method approved by the Committee. The Committee may
permit a participant to instruct the Company to deliver the Common Shares due
upon the exercise to a designated broker instead of to the participant.
Stock Awards
The Committee may issue or transfer Common Shares to any employee or
non-employee Director under a Stock Award, upon such terms as the Committee
deems appropriate. The Committee may grant Stock Awards with restrictions that
shall lapse over a period of time or restrictions that otherwise limit the
transferability of the Common Shares ("Restricted Stock"). The Committee may
also grant Stock Awards not subject to any such restrictions ("Unrestricted
Stock"); provided that Grants of Unrestricted Stock may only be made if the
Grant is subject to the satisfaction of performance goals established by the
Committee. Common Shares issued or transferred pursuant to Restricted Stock
Grants or Unrestricted Stock Grants may be issued or transferred for cash
consideration or for no cash consideration, at the sole discretion of the
Committee. The Committee may establish conditions under which restrictions on
shares of Restricted Stock shall lapse over a period of time or according to
such other criteria as the Committee deems appropriate. The maximum number of
Common Shares that may be issued or transferred as Stock Awards at any time
shall not exceed twenty-five percent (25%) of the aggregate number of Common
Shares that may then be issued or transferred under the 1998 Equity Plan,
excluding the proposed amended increase of 150,000 shares.
Stock Appreciation Rights
The Committee may grant stock appreciation rights ("SARs") to an employee
or non-employee Director separately or in tandem with any Option (for all or a
portion of the applicable Option). Tandem SARs may be granted either at the
time the Option is granted or at any time thereafter while the Option remains
outstanding; provided, however, that, in the case of an Incentive Stock Option,
SARs may be granted only at the time of the Grant of the Incentive Stock
Option. The Committee shall establish the base amount of the SAR at the time
the SAR is granted. Unless the Committee determines otherwise, the base amount
of each SAR shall be equal to the per share exercise price of the related
Option or, if there is no related Option, the fair market value of a Common
Share as of the date of Grant of the SAR.
Performance Units
The Committee may grant performance units ("Performance Units") to an
employee. Each Performance Unit represents the right of the Grantee to receive
an amount based on the value of the Performance Unit, if performance goals
established by the Committee are met. A Performance Unit may be based on the
fair market value of a Common Share or on such other measurement base as the
Committee deems appropriate. The Committee may grant Performance Units that
represent the right to receive a specified number of Common Shares,
15
<PAGE>
Options or SARs. The Committee shall determine the number of Performance Units
to be granted and the requirements applicable to such Units. When Performance
Units are granted, the Committee shall establish the performance period during
which performance shall be measured, performance goals applicable to the
Performance Units and such other conditions of the Grant as the Committee deems
appropriate. Performance goals may relate to the financial performance of the
Company or its operating units, the performance of Common Shares, individual
performance, or such other criteria as the Committee deems appropriate.
Section 162(m)
Under section 162(m) of the Code, the Company may be precluded from
claiming a federal income tax deduction for total remuneration in excess of
$1,000,000 paid to the chief executive officer or to any of the other four most
highly compensated officers in any one year. Total remuneration includes
amounts received upon the exercise of Stock Options and the value of shares
received when the shares of Restricted Stock became transferable (or such other
time when income is recognized). An exception exists, however, for "qualified
performance-based compensation." The 1998 Equity Plan is intended to allow
Awards and Grants to meet the requirements of "qualified performance-based
compensation."
Stock options and SARs should generally meet the requirements of
"qualified performance-based compensation," if the exercise price is at least
equal to the fair market value of the Common Shares on the date of grant. The
Committee may grant Performance Units and Stock Awards that are intended to be
"qualified performance-based compensation" under section 162(m) of the Code. In
that event, the Committee will establish in writing the objective performance
goals that must be met and other conditions of the award before the beginning
of the annual incentive period (or within 90 days after its commencement) or
during such other period permitted by section 162(m) of the Code. The
performance goals may relate to the employee's business unit or the performance
of the Company and its subsidiaries as a whole, or any combination of the
foregoing. The Committee shall use objectively determinable performance goals
based on one or more of the following criteria: stock price, earnings per
share, net earnings, operating earnings, return on assets, stockholder return,
return on equity, growth in assets, unit volume, sales, market share, or
strategic business criteria consisting of one or more objectives based on
meeting specified revenue goals, market penetration goals, geographic business
expansion goals, cost targets or goals relating to acquisitions or
divestitures. The Committee will not have discretion to increase the amount of
compensation that is payable upon achievement of performance goals. At the end
of each performance period, the Committee will certify the results of the
performance goals and the extent to which the performance goals have been met.
Transferability
Grants are generally not transferable by the participant, except in the
event of death. However, the Committee may permit participants to transfer
Nonqualified Stock Options to certain family members on such terms as the
Committee deems appropriate.
Amendment and Termination
The Board may amend or terminate the 1998 Equity Plan at any time;
provided, however, that the Board shall not amend the 1998 Equity Plan without
stockholder approval if such approval is required by section 422 of the Code or
section 162(m) of the Code. The 1998 Equity Plan will terminate on the date
immediately preceding the tenth anniversary of its effective date, unless
terminated earlier by the Board or extended by the Board with approval of the
stockholders.
Adjustment Provisions
In the event of stock splits, stock dividends, recapitalization, or other
similar changes in the outstanding Common Shares, the Committee shall
appropriately adjust: (i) the maximum number of Common Shares available for
Grants and the individual share limits, (ii) the number of shares covered by
outstanding Grants, (iii) the kind of shares issued under the 1998 Equity Plan
and (iv) the price per share or market value of Grants, and such adjustments
will be effective and binding for all purposes of the 1998 Equity Plan.
16
<PAGE>
Change of Control of the Company
In the event of a change of control, unless the Committee determines
otherwise, all outstanding Options and SARs shall automatically accelerate and
become fully exercisable, the restrictions and conditions on all outstanding
Restricted Stock shall immediately lapse, and Grantees holding Performance
Units shall receive a payment in settlement of such Performance Units, in an
amount determined by the Committee, based on the Grantee's target payment for
the performance period and the portion of the performance period that precedes
the change of control.
A "change of control" will be deemed to have occurred if (i) any person
(other than management) commences a tender offer for, or becomes a beneficial
owner of, 20% or more of the voting power of the outstanding securities of the
Company; (ii) the Company ceases to own, directly or indirectly, all of the
capital stock of SunSub A Inc.; (iii) a transaction is approved in which the
stockholders of the Company will not own 75% or more of the voting power of the
surviving entity or members of the Board of Directors of the Company prior to
the transaction will not constitute a majority of the Board of Directors of the
surviving entity; (iv) all or substantially all of the assets of the Company
and its subsidiaries are sold; (v) the Company and its subsidiaries liquidates
or dissolves; or (vi) a majority of the Board of Directors of the Company shall
cease to consist of current directors or directors whose election has been
approved by a majority of the Board of Directors. A transaction involving a
reorganization of the Company and its subsidiaries shall not be deemed to be a
change in control so long as substantially all of the assets owned by SunSub A
Inc. immediately prior to the transaction continue to be owned directly or
indirectly by the Company.
Federal Income Tax Treatment
The following generally describes the current federal income tax treatment
of Grants under the 1998 Equity Plan. Local and state tax authorities may also
tax incentive compensation awarded under the 1998 Equity Plan, and tax laws are
subject to change.
There are no federal income tax consequences to a participant or to the
Company upon the grant of a Nonqualified Stock Option under the 1998 Equity
Plan. Upon the exercise of a Nonqualified Stock Option, a participant will
recognize ordinary compensation income in an amount equal to the excess of the
fair market value of the shares at the time of exercise over the exercise price
of the Nonqualified Stock Option, and the Company generally will be entitled to
a corresponding federal income tax deduction. Upon the sale of shares acquired
by the exercise of a Nonqualified Stock Option, a participant will have a
capital gain or loss in an amount equal to the difference between the amount
realized upon the sale and the participant's adjusted tax basis in the shares
(the exercise price plus the amount of ordinary income recognized by the
participant at the time of exercise of the Nonqualified Stock Option).
A participant who is granted an Incentive Stock Option will not recognize
taxable income for purposes of the regular income tax, upon either the grant or
exercise of the Incentive Stock Option. However, for purposes of the
alternative minimum tax imposed under the Code, in the year in which an
Incentive Stock Option is exercised, the amount by which the fair market value
of the shares acquired upon exercise exceeds the exercise price will be treated
as an item of adjustment and included in the computation of the recipient's
alternative minimum taxable income in the year of exercise. A participant who
disposes of the shares acquired upon exercise of an Incentive Stock Option
after two years from the date the Incentive Stock Option was granted and after
one year from the date such shares were transferred to him or her upon exercise
of the Incentive Stock Option will recognize capital gain or loss in the amount
of the difference between the amount realized on the sale and the exercise
price (or the participant's other tax basis in the shares), and the Company
will not be entitled to any tax deduction by reason of the grant or exercise of
the Incentive Stock Option. Generally, if a participant disposes of the shares
acquired upon exercise of an Incentive Stock Option before satisfying both
holding period requirements (a "disqualifying disposition"), his or her gain
recognized on such a disposition will be taxed as ordinary income to the extent
of the difference between the fair market value of such shares on the date of
exercise and the exercise price, and the Company will be entitled to a
deduction in that amount. However, the amount of ordinary income cannot be more
than the total amount of gain realized on the sale (amount received on the
disqualifying disposition less the exercise price). A participant will have a
capital gain or loss in an amount equal to the difference between the amount
realized upon the sale and the participant's adjusted tax basis in the shares
(the exercise price plus the amount of ordinary income recognized by the
participant).
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<PAGE>
A participant normally will not recognize taxable income upon receiving
Restricted Stock, and the Company will not be entitled to a deduction, until
such stock is transferable by the participant or no longer subject to a
substantial risk of forfeiture for federal tax purposes, whichever occurs
earlier. When the stock is either transferable or no longer subject to a
substantial risk of forfeiture, the participant will recognize ordinary
compensation income in an amount equal to the fair market value of the shares
(less any amounts paid for such shares) at that time, and the Company will be
entitled to a deduction in the same amount. A participant may, however, elect
to recognize ordinary compensation income in the year the Restricted Stock is
awarded in an amount equal to the fair market value of the shares subject to
the Restricted Stock Grant (less any amounts paid for such shares) at that
time, determined without regard to the restrictions. In such event, the Company
generally will be entitled to a corresponding deduction in the same year. A
participant will have a capital gain or loss upon subsequent disposition of the
shares in an amount equal to the difference between the amount realized upon
the sale and the participant's adjusted tax basis in the shares (the amount
paid for the restricted stock, if any, plus the amount of ordinary income
recognized by the participant).
There are no federal income tax consequences to a participant or to the
Company upon the grant of an SAR under the 1998 Equity Plan. Upon the exercise
of an SAR, if the participant receives the appreciation inherent in the SAR in
cash, the participant will recognize ordinary compensation income in an amount
equal to the cash received. If the participant receives the appreciation in
Common Shares, the participant will recognize ordinary compensation income in
an amount equal to the fair market value of the Common Shares received. The
Company generally will be entitled to a corresponding federal income tax
deduction at the time of the exercise of the SAR. Upon the sale of any shares
acquired by the exercise of an SAR, a participant will have a capital gain or
loss in an amount equal to the difference between the amount realized upon the
sale and the participant's adjusted tax basis in the Common Shares (the amount
of ordinary income recognized by the participant at the time of exercise of the
SAR).
There are no federal income tax consequences to a participant or to the
Company upon the grant of Performance Units under the 1998 Equity Plan. If the
participant receives payment of the Performance Units in cash, the participant
will recognize ordinary compensation income in an amount equal to the cash
received. If the participant receives payment of the Performance Units in
Common Shares, the participant will recognize ordinary compensation income in
an amount equal to the fair market value of the Common Shares received. The
Company generally will be entitled to a corresponding federal income tax
deduction at the time of the payment of the Performance Units. Upon the sale of
any shares acquired upon payment of the Performance Units, a participant will
have a capital gain or loss in an amount equal to the difference between the
amount realized upon the sale and the participant's adjusted tax basis in the
Common Shares (the amount of ordinary income recognized by the participant at
the time of the payment of the Performance Units).
The rate at which a participant's capital gain will be taxed generally
depends on how long the stock is held by the participant.
The Company's income tax deduction in any of the foregoing cases may be
limited by the $1,000,000 limit of section 162(m) of the Code if the Grant does
not qualify as "qualified performance-based compensation" under section 162(m)
of the Code. See "Section 162(m)" above.
Tax Withholding
The Company has the right to deduct from all Grants paid in cash or from
other wages paid to an employee of the Company, any federal, state or local
taxes required by law to be withheld with respect thereto, and the participant
or other person receiving Common Shares under the 1998 Equity Plan will be
required to pay to the Company the amount of any such taxes that the Company is
required to withhold with respect to such shares. With the approval of the
Committee, a participant may elect to satisfy the Company's income tax
withholding obligation by withholding shares received.
Action by Stockholders
Approval of this proposal requires the affirmative vote of the holders of
a majority of the Common Shares present, either in person or by proxy, at the
annual meeting and entitled to vote. Since the aggregate number of shares for
which a vote "For", "Against", or "Abstain" is made will be counted in
determining the minimum number of affirmative votes required for approval of
the proposal, an abstention will have the same legal effect as a vote "Against"
the proposal.
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The Board of Directors recommends that stockholders vote "FOR" approval of
the amendment to the 1998 Equity Plan.
OTHER INFORMATION
Certain Related Transactions
Mr. Hoffman is an officer of Legg Mason Wood Walker, Incorporated which
performed investment banking services for the Company in 1998.
Mr. Scott retired in September 1998 as a partner in Morgan, Lewis &
Bockius LLP, a law firm which performed services for the Company in 1998. The
Company proposes to have this firm perform similar services as needed during
the current fiscal year.
Lehman Brothers, an affiliate of which owned beneficially more than 5% of
the Company's Common Shares until March 1998, performed investment banking
services for the Company in 1998.
Independent Accountants
PricewaterhouseCoopers LLP audited the financial statements of the Company
for 1998. Representatives of that firm are expected to be present at the
meeting, will have an opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors and beneficial owners of more than 10% of the
Company's Common Shares to file reports of ownership of company securities and
changes in ownership with the SEC. The following filings of the Company's
officers and directors and beneficial owners of 10% of the company's common
Shares were not made on a timely basis: SEC Form 5 for Messrs. Brewer,
Edmonson, Hoffman, Keith and Scott; and SEC Form 3 and Form 5 for Messrs.
Shepard and Ziegler.
Stockholder Proposals
An eligible stockholder who wants to have a qualified proposal considered
for inclusion in the proxy statement for the 2000 annual meeting must notify
the Secretary of the Company. The proposal must be received at the Company's
offices no later than December 1, 1999. A stockholder must have been a record
or beneficial owner of at least one percent of the outstanding Common Shares or
Common Shares with a market value of $1,000 for at least one year prior to
submitting the proposal and must continue to own such shares through the date
on which the meeting is held.
Expenses of Solicitation
The Company pays the cost of preparing, assembling and mailing this
proxy-soliciting material. In addition to the use of the mail, proxies may be
solicited personally, by telephone or telegraph, or by Company officers without
additional compensation. The Company pays all costs of solicitation, including
certain expenses of brokers and nominees who will mail proxy material to their
customers or principals. In addition, D.F. King & Co., Inc. has been retained
to assist in the solicitation of proxies for a fee of $7,500 plus associated
costs and expenses.
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