<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]
April 12, 2000
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 Thursday, May 11, 2000 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 and vote on a stockholder proposal.
We will also review SunSource's 1999 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 if you so desire.
Sincerely yours,
/s/ Maurice P. Andrien, Jr.
-------------------------------------
MAURICE P. ANDRIEN, JR.
President and Chief Executive Officer
<PAGE>
[GRAPHIC OMITTED]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, MAY 11, 2000
The Annual Meeting of Stockholders of SunSource Inc. will be held at 10:00
a.m. on Thursday, May 11, 2000 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 three members to the Company's Board of Directors;
2. To vote upon a stockholder proposal to declassify the Company's Board
of Directors; and
3. 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 and a vote "AGAINST" the
stockholder proposal.
For information on the proposals, you are urged to read the Proxy
Statement that follows.
Stockholders of record at the close of business on April 3, 2000 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 12, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROXY STATEMENT .............................................................. 1
VOTING PROCEDURES ............................................................ 1
Revoking Your Proxy ....................................................... 1
Vote Required and Method of Counting Votes ................................ 1
Other Business ............................................................ 2
BOARD OF DIRECTORS ........................................................... 3
Election of Directors ..................................................... 3
Board Meetings; Committees of the Board; Nominations to Board ............. 4
Compensation of Directors ................................................. 4
OWNERSHIP OF COMMON SHARES ................................................... 5
REPORT OF COMPENSATION COMMITTEE ............................................. 6
Base Salary ............................................................... 6
Annual Bonus .............................................................. 6
Long-Term Incentive ....................................................... 6
Compensation of the Chairman of the Board ................................. 7
Compensation of the Chief Executive Officer ............................... 7
Deductibility of Compensation ............................................. 8
STOCK PERFORMANCE CHART ...................................................... 9
EXECUTIVE COMPENSATION .......................................................10
Summary Compensation Table ................................................10
Stock Option Grants in 1999 ...............................................11
Aggregated Option Exercises in 1999 and Fiscal Year-End Option Values .....12
Deferred Compensation Plans ...............................................12
Change in Control Arrangements ............................................12
STOCKHOLDER PROPOSAL .........................................................13
OTHER INFORMATION ............................................................14
Certain Related Transactions ..............................................14
Independent Accountants ...................................................14
Section 16(a) Beneficial Ownership Reporting Compliance....................14
Stockholder Proposals .....................................................14
Expenses of Solicitation ..................................................14
</TABLE>
<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 Thursday, May 11, 2000, at the law offices of Morgan, Lewis &
Bockius L.L.P., 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 April 12, 2000. The stockholders of
record at the close of business on April 3, 2000 (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 and "AGAINST" the stockholder proposal.
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
Number of Shares Outstanding and Quorum. At the close of business on the
Record Date, there were 6,854,634 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.
Vote Required. The following is an explanation of the vote required for
each of the two 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 -- Stockholder Proposal.
Stockholders may vote in favor of the proposal, or against the proposal,
or abstain from voting. The affirmative vote of the majority of shares
entitled to vote and present in person or by proxy at the annual meeting is
required for approval. A stockholder who signs and submits a ballot or
proxy is "present," so an abstention will have the same effect as a vote
against the proposals. The adoption of the shareholder proposal requesting
annual election of all directors would not by itself eliminate board
classification. Eliminating board classification requires an amendment to
the Company's Restated Certificate of Incorporation. This requires action
by the Board of Directors and the affirmative vote of at least 75 percent
of the outstanding shares of the Company.
Brokers who hold shares for the accounts of their clients may vote such
shares either as directed by their clients or in their own discretion if
permitted by the stock exchange or other organization of which they are
members. Members of the New York Stock Exchange ("NYSE") are permitted to
vote their clients' proxies in their own discretion as to the election of
directors if the clients have not furnished voting
<PAGE>
instructions within ten days of the meeting. Certain proposals other than
the election of directors are "non-discretionary" and brokers who have
received no instructions from their clients do not have discretion to vote
on those items. When a broker votes a client's shares on some but not all
of the proposals at a meeting, the missing votes are referred to as "broker
non-votes." Those shares will be included in determining the presence of a
quorum at the meeting, but are not considered "present" for purposes of
voting on non-discretionary proposals. They have no impact on the outcome
of the proposal included within this Proxy Statement.
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.
2
<PAGE>
BOARD OF DIRECTORS
Election of Directors
The SunSource Board is classifiied into three classes (Class I, Class II,
and Class III). The members of the Board serve for three years. The terms of
office of the members of one class of directors expire each year in rotation so
that the members of one class are elected at each annual meeting for full
three-year terms. The terms of office of three of the present directors will
expire at this annual meeting. Messrs. Brewer and Hoffman are standing for
re-election. Donald A. Scott's current term will expire at this annual meeting
upon his retirement from the Board. Mr. Bliss is being nominated to the
SunSource Board for the first time. If any of the nominees become unavailable
for election prior to this annual meeting, the number of directors to be
elected at the meeting will be reduced.
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. The table below sets forth information with respect to each
nominee:
Class I Directors - Nominees to serve until the 2003 Annual Meeting and until
such time as their respective successors are duly elected and qualified.
<TABLE>
<CAPTION>
Principal Occupation; Five Year
Name, Age and Year Employment History; Other
First Became Director Directorships
- --------------------- -------------------------------
<S> <C> <C>
O. Gordon Brewer, Jr., 63 Consultant and former Vice President-Finance of Ikon Office Solutions
1987 (2)(3) (successor company to Alco Standard Corporation) for more than the
past five years.
Stewart A. Bliss 66 Consultant and former Interim Chairman and CEO of KN Energy during
a portion of 1999; Senior Business Advisor from 1994 to 1999 for
Parcel, Mauro, Hultin and Spaanstra, P.C.
Arnold S. Hoffman, 64 Senior Managing Director in Corporate Finance of Legg Mason Wood
1987 (1) Walker, Incorporated since April 1995, and Managing Director prior
thereto.
</TABLE>
Your Board of Directors recommends a vote "FOR" the election of the above
nominees.
Continuing Directors
Class II Directors (Terms expire at the 2001 Annual Meeting)
<TABLE>
<CAPTION>
<S> <C> <C>
Robert E. Keith, Jr., 58 Managing Director and Chief Executive Officer of TL Ventures (a venture
1997 (1)(3) capital firm) for more than the past five years; President and Chief
Executive Officer of Technology Leaders Management, Inc. from February
1996 to the present, and President and Chief Operating Officer prior
thereto; Vice Chairman of Safeguard Scientifics, Inc.; Director
of Cambridge Technology Partners; Chairman of the Board of Internet Capital
Group, Inc.; Director of American Education Centers, Inc.; Director of Masterpack
International, Inc.; and Director of Whisper Communications, Inc.
Geoffrey C. Shepard, 55 President of Corporate Division of Karr Barth Associates, Inc. for more
1998 (2)(3) than the past five years.
Francis G. Ziegler, 59 President and Chief Executive Officer of Claneil Enterprises, Inc. for
1998 (1) more than the past five years; Chairman of the Board of Scott Chemical
Co., Inc.; Director of Wawa, Inc.; Director of S&H Green-
Points.com, Inc.; and Director of America'sDoctor.com.
Class III Directors (Terms expire at the 2002 Annual Meeting)
Maurice P. Andrien, Jr., 58 President and Chief Executive Officer of the Company since April
1999 1999; President and Chief Executive Officer of Unican Security Systems,
Ltd. from June 1998 to April 1999; Chief Executive Officer of Curtis
Industries, Inc. prior thereto.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation; Five Year
Name, Age and Year Employment History; Other
First Became Director Directorships
- --------------------- -------------------------------
<S> <C> <C>
Norman V. Edmonson, 59 Vice President, SunSource Corporate Group, Inc. since December
1987 1999; Executive Vice President of the Company from December 1994
to May 1998; Group Vice President prior thereto.
Donald T. Marshall, 66 Chairman of the Company since April 1999; Chairman and Chief
1987 Executive Officer of the Company prior thereto.
John P. McDonnell, 65 Consultant since December 1999; Chief Executive Officer, SunSource
1995 Industrial Services Company, Inc., from December 1996 to December
1999; President and Chief Operating Officer of the Company from
December 1994 to April 1999; Group Vice President from December
1987 to December 1994.
</TABLE>
- ------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of the Nominating Committee
Board Meetings; Committees of the Board; Nominations to Board
The Board of Directors met eight times in 1999. Four of these meetings
were telephonic.
The Board has three standing committees: the Audit Committee, whose
members are Messrs. Brewer and Shepard; the Compensation Committee, whose
members are Messrs. Hoffman, Keith and Ziegler and the Nominating Committee,
whose members are Messrs. Brewer, Keith, and Shepard. The Audit Committee met
three times in 1999; the Compensation Committee met twice.
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 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 adopted a Nominating Committee in January 2000. The Nominating
Committee will consider recommendations for nominees for director from
stockholders, who must submit such recommendations in writing to the Chairman
of the Nominating Committee. 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 1999 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 were entitled
to elect to take up to 100% of the retainer in the form of Common Shares.
Messrs. Brewer and Edmonson 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 for serving as Chairman of this committee.
4
<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 April 3, 2000.
Name of Beneficial Owner Common Shares Percent
- ------------------------ ------------- -------
Directors and Executive Officers
Maurice P. Andrien, Jr. ................. 100,000 1.5%
O. Gordon Brewer, Jr. ................... 3,537 *
Harold J. Cornelius (1) ................. 27,770 *
Joseph M. Corvino (1) ................... 38,626 *
Norman V. Edmonson (1) .................. 423,506 6.2%
Max W. Hillman, Jr. (1) ................. 30,220 *
Arnold S. Hoffman ....................... 12,415(2) *
Robert E. Keith, Jr. .................... 10,331 *
Donald T. Marshall (1) .................. 703,988 10.3%
John P. McDonnell (1) ................... 203,208 3.0%
Donald A. Scott ......................... 5,581 *
Geoffrey C. Shepard ..................... 3,521 *
Francis. G. Ziegler ..................... 4,119 *
All directors and executive officers
as a group (13 persons) ................ 1,566,822 22.9%
The firms identified in the table below have reported that they beneficially
owned at December 31, 1999 more than 5% of the outstanding shares of the Common
Stock as follows:
Other 5% Owners (3)
- -------------------
T. Rowe Prices Associates, Inc. ......... 633,400 9.2%
100 East Pratt Street
Baltimore, MD 21202
SAFECO Corporation ...................... 409,200 6.0%
SAFECO Plaza
Seattle, WA 98185
Cramer, Rosenthal, McGlynn, LLC ......... 377,200 5.5%
707 Westchester Avenue
White Plains, NY 10604
Benson Associates, LLC .................. 358,800 5.2%
11 SW Fifth Avenue, Suite 2130
Portland, OR 97204
- ------------
* 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.
(3) As reported to the Company in filings on Form 13-G, with the Securities and
Exchange Commission, of as of December 31, 1999.
5
<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 the "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. Generally, the goals incorporate the achievement of
business plan income targets, and Return on Assets ("ROA") or 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 utilized a Deferred Compensation Plan for
Division Presidents (the "Presidents' Plan") and a Long-Term Performance Share
Plan (the "Share Plan") for its officers. The Presidents' Plan was canceled
effective December 31, 1997 and no further awards may be made under this plan.
The Share Plan was also canceled effective December 31, 1997. Awards resulting
from 1997 performance were deferred under the Share Plan and either paid or
further deferred under a deferred compensation plan for key employees adopted
in 1999.
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 deferred compensation plans an election to continue to defer their
balances. Executive deferrals can grow at mutual fund investment rates.
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 Compensation Plan (the
"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.
6
<PAGE>
The Equity Plan is designed to drive performance and reward top officers
and key employees when there is an increase in stock price, income growth, or
earnings per share (for corporate employees) or an increase in income growth
(for the business unit employees), excluding extraordinary events (the
"Performance Targets"). 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 awards grants 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.
Targeted long-term dollar award values were established in 1998 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 in 1999 was determined on a discretionary basis by the
Company's CEO for corporate staff positions 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 1999 results. If Performance Targets are not
met, the options will not become vested until 9 years from the grant date. The
vesting period is determined as of the grant date based on 1999 performance
results.
Compensation of the Chairman of the Board
Mr. Marshall retired as Chief Executive Officer (CEO) on April 27, 1999,
and has remained as Chairman of the Company. Mr. Marshall, entered into an
employment agreement with the Company on April 28, 1999. This employment
agreement is for a term of three years and provides for an annual base salary
of $525,000 in the first year, $425,000 in the second year, and $325,000 in the
third year. The employment agreement provides that, in the event of a
termination of employment by the Company, except for cause, Mr. Marshall will
be entitled to receive his then current salary for a period no longer than
three years after April 28, 1999. Additionally, this agreement provides 150,000
stock options at the fair market value on April 28, 1999 of $15.00 per share
for his management of the CEO transition progress and his commitment to serve
the Company during the term of the agreement. These options will vest in equal
installments over the three year term of the agreement, provided Mr. Marshall
retains a Company relationship. This agreement also contains a covenant not to
compete with the Company for a period of one year immediately following the
termination of employment for any reason.
Compensation of the Chief Executive Officer
Mr. Andrien became CEO on April 27, 1999. Mr. Andrien entered into a three
year employment agreement with the Company on April 27, 1999, which term will
renew on a year-to-year basis after the initial term, unless this agreement is
terminated early or not renewed. This agreement provides for an annual base
salary of $450,000, a 1999 bonus of $180,000, and subsequent annual bonuses
equal to a target of 40% of the salary in effect for the bonus year, to be
determined annually in accordance with the incentive bonus plan as administered
by the Compensation Committee of the Board. Annually, beginning in the year
2000, the Company will grant to Mr. Andrien an option to purchase 70,000 shares
of SunSource common stock at fair market value, subject to the terms and
conditions of the 1998 Equity Compensation Plan. Mr. Andrien's employment
agreement contains a covenant not to compete with SunSource for one year
immediately following termination of employment with SunSource, with certain
exceptions. If Mr. Andrien is terminated without cause in the absence of a
change in control involving SunSource, then the agreement requires SunSource to
pay Mr. Andrien for a period of one year following the termination date. If
SunSource should undergo a change in control within the terms of the agreement,
Mr. Andrien may elect to terminate his employment and receive $1,000,000,
although Mr. Andrien would be subject to the one-year non-compete covenant
described above.
7
<PAGE>
In addition to the employment agreement above, a grant of 150,000
non-qualified stock options, at fair market value (the "New CEO Grant"), was
made to Mr. Andrien on April 27, 1999. The options were fully exercisable at
the date of grant. Subsequent to the employment of Mr. Andrien, external
industry conditions and certain internal events that were in progress at the
time of Mr. Andrien's hire resulted in a significant reduction of the intended
value of the New CEO Grant. On January 26, 2000 the Compensation Committee of
the Board of Directors amended the New CEO Grant by reducing the number of
stock options from 150,000 to 50,000 and issued a grant of 100,000 shares of
restricted stock. One-third of the restricted shares will vest six months from
the date of grant. Vesting of the remaining two-thirds of the restricted shares
will be based on achievement of certain performance goals. In the event that
some or all of the performance goals are not achieved within a three year
period from the date of grant, then the remaining shares will vest on the third
anniversary from their date of grant.
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
8
<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, 1999, with the cumulative total return on the
Russell 2000 Index and an industry peer group index. The 1999 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, 1994, and the
reinvestment of all dividends, except Class B tax distributions of the
Partnership. The returns of each company in the 1999 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 only 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 this 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 1999 Peer Group
1994 100 100 100
1995 115 128 122
1996 122 150 134
1997 156 183 162
1998 127 178 151
1999 29 216 137
9
<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, 1999, 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, 1999.
<TABLE>
<CAPTION>
Long-Term Securities
Annual Compensation Share Underlying
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 1999 $563,755 $ -- $ -- 185,000 $ 16,446(5)
Chairman of the Board 1998 577,677 115,409 602,137(3) 35,000 15,928(5)
1997 521,031 51,087 1,126,486(4) -- 13,649(5)
Maurice P. Andrien, Jr. 1999 319,944 180,000 -- 150,000 25,360(6)
President and Chief Executive
Officer
John P. McDonnell (8) 1999 426,491 12,000 -- 40,000 4,408(5)
Group Chief Executive Officer 1998 439,429 30,000 237,205(3) 20,000 3,895(5)
1997 426,302 43,354 354,036(4) -- 3,383(5)
Harold J. Cornelius 1999 333,375 20,000 -- 25,000 --
Group Chief Executive Officer 1998 320,438 73,991 -- 12,500 59,164(6)
1997 318,608 10,000 354,036(4) -- --
Max W. Hillman, Jr. 1999 317,528 55,847 -- 25,000 --
Group Chief Executive Officer 1998 299,588 107,165 -- 12,500 --
1997 284,991 66,816 354,036(4) -- 296,975(7)
Joseph M. Corvino 1999 247,747 76,000 -- 20,000 1,772(5)
Vice President - Finance 1998 211,939 50,000 91,233(3) 10,000 372(5)
1997 185,123 46,856 128,743(4) -- 372(5)
</TABLE>
- ------------
(1) Represents base salary plus other types of miscellaneous compensation.
(2) Represents earned bonus for services rendered in each year.
(3) 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.
(4) 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.
(5) Represents primarily term life insurance premiums paid by the Company for
the benefit of the named executive officer.
(6) Represents relocation expenses paid by the Company for the benefit of the
named executive officer.
(7) 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) Retired as Group CEO on December 31, 1999.
10
<PAGE>
OPTIONS GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------------
Potential Realizable Value at
Percent of Total Assumed Annual Rates of
Securities Options Stock Price Appreciation
Underlying Granted to for Option Term (4)
Options Employees in Exercise Expiration -----------------------------
Name Granted(#) Fiscal Year Price ($/Sh) Date 5% ($) 10% ($)
- ---- ---------- ------------ ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Donald T. Marshall .......... 35,000(1) 6.2% $18.38 03/05/2009 $ 404,458 $1,024,976
150,000(2) 26.7% $15.00 04/28/2009 1,415,013 3,585,921
Maurice P. Andrien, Jr. ..... 150,000(3) 26.7% $15.63 04/27/2009 1,473,972 3,735,334
John P. McDonnell ........... 20,000(1) 3.6% $18.38 03/05/2009 231,119 585,700
20,000(1) 3.6% $12.75(5) 04/28/2009 160,368 406,404
Harold J. Cornelius ......... 12,500(1) 2.2% $18.38 03/05/2009 144,449 366,063
12,500(1) 2.2% $12.75(5) 04/28/2009 100,230 254,003
Max W. Hillman, Jr. ......... 12,500(1) 2.2% $18.38 03/05/2009 144,449 366,063
12,500(1) 2.2% $12.75(5) 04/28/2009 100,230 254,003
Joseph M. Corvino ........... 10,000(1) 1.8% $18.38 03/05/2009 115,559 292,850
10,000(1) 1.8% $12.75(5) 04/28/2009 80,184 203,202
</TABLE>
- ------------
(1) Each option granted has a ten-year term and is vested based on financial
performance. If financial performance targets are met, vesting occurs
annually over three to five years from the date of grant. If performance
targets are not met, the options will not vest until nine years from the
date of grant.
(2) Options have a ten year term and vest over the first three years in equal
installments provided Mr. Marshall maintains a Company relationship.
(3) Options have a ten year term and were fully exercisable at the date of
grant. On January 26, 2000 the Compensation Committee of the Board of
Directors amended the New CEO Grant by reducing the number of stock
options from 150,000 to 50,000 and issued a grant of 100,000 shares of
restricted stock. One-third of the restricted shares will vest six months
from the date of grant. Vesting of the remaining two-thirds of the
restricted shares will be based on achievement of certain performance
goals. In the event that all or some of the performance goals are not
achieved within a three year period from the date of grant, the then
remaining shares will vest on the third anniversary from their date of
grant.
(4) The amounts shown under these columns are calculated at the 5% and 10%
annual rates of stock price appreciation set by the Securities and
Exchange Commission and are not intended to forecast future appreciation
of the Company's stock price.
(5) Options granted at 85% of the fair market value.
11
<PAGE>
AGGREGATED OPTION EXCERCISES IN 1999
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information for each executive officer with
regard to stock option exercises during 1999 and the aggregate stock options
held at December 31, 1999.
<TABLE>
<CAPTION>
Number of
Unexercised Value of Unexercised
Options In-The-Money Options
Shares at FY-End (#) At FY-End ($)
Acquired by Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable (1) Unexercisable (2)
- ---- ----------- -------- ----------------- --------------------
<S> <C> <C> <C> <C>
Donald T. Marshall .............. -- -- 14,000/206,000 --
Maurice P. Andrien, Jr.(3)....... -- -- 150,000/ 0 --
John P. McDonnell ............... -- -- 0/ 60,000 --
Harold J. Cornelius ............. -- -- 8,333/ 29,167 --
Max W. Hillman, Jr. ............. -- -- 8,333/ 29,167 --
Joseph M. Corvino ............... -- -- 4,000/ 26,000 --
</TABLE>
- ------------
(1) Represents the number of shares subject to outstanding options.
(2) Based on a price of $4.25 per share, the closing price of the Company's
Common Stock on December 31, 1999, minus the associated exercise prices.
(3) Options have a ten year term and were fully exercisable at the date of
grant. On January 26, 2000 the Compensation Committee of the Board of
Directors amended the New CEO Grant by reducing the number of stock
options from 150,000 to 50,000 and issued a grant of 100,000 shares of
restricted stock. One-third of the restricted shares will vest six months
from the date of grant. Vesting of the remaining two-thirds of the
restricted shares will be based on achievement of certain performance
goals. In the event that all or some of the performance goals are not
achieved within a three year period from the date of grant, the then
remaining shares will vest on the third anniversary from their date of
grant.
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
Except for Mr. Andrien, 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.
Upon a change in control of the Key Employees Plan, the plan provides for
payments of all amounts, including accrued investment earnings. Also, see
Report of Compensation Committee -- Compensation of the Chief Executive Officer
upon a change in control of the Company.
12
<PAGE>
STOCKHOLDER PROPOSAL
The proponent of a stockholder proposal has stated that the proponent
intends to present a proposal at the Annual Meeting. The name, address and
number of shares held by the proponent will be furnished by the Company upon
request to the Corporate Secretary. The proposal and supporting statement, for
which the Board of Directors accepts no responsibility, is set forth below.
The Board of Directors opposes the proposal for the reasons stated after
this proposal.
STOCKHOLDER PROPOSAL
BE IT RESOLVED, that the stockholders of SunSource Inc. request that the
Board of Directors take the necessary steps to declassify the Board of
Directors and establish annual elections of directors, whereby directors would
be elected annually and not by classes. This policy would take effect
immediately, and be applicable to the re-election of any incumbent director
whose term, under the current classified system, subsequently expires.
SUPPORTING STATEMENT
We believe that the ability to elect directors is the most single
important use of the shareholder franchise. Accordingly, directors should be
accountable to shareholders on an annual basis. The election of directors by
classes, for three-year terms, in our opinion, minimizes accountability and
precludes the full exercise of the rights of shareholders to approve or
disapprove annually the performance of a director or directors.
In addition, since only one-third of the Board of Directors is elected
annually, we believe that classified boards could frustrate, to the detriment
of long-term shareholder interest, the efforts of a bidder to acquire control
or a challenger to engage successfully in a proxy contest.
We urge your support for the proposal which requests the Board of
Directors to take the necessary steps to repeal the classified board and
establish that all directors be elected annually.
The Board of Directors recommends a vote AGAINST this proposal for the
following reasons:
A classified Board of Directors provides director continuity and
stability, since generally two-thirds of the directors at all times will have
had prior experience and familiarity with business and affairs of the Company.
Also, a staggered board enhances the Board's ability to focus on long-term
strategy and long-term performance. For example, if the Company were confronted
with an unsolicited takeover offer, the fact that the entire Board could not be
removed in a single proxy fight would allow directors to weigh remaining
independent against accepting the offer, or a competing offer, from a position
of strength.
A staggered board system provides the Company with the time and the
leverage to negotiate at arms-length with parties seeking control of the Board,
allowing the Board to negotiate terms or consider alternatives that are best
for the Company and that maximize stockholder value. Declassification of the
Board could eliminate these benefits and make the Company a target for
unsolicited hostile overtures from parties seeking to benefit themselves at the
expense of the Company and its stockholders. In short, a classified board is
beneficial to shareholders.
Approval of this proposal would require the approval of holders of a
majority of the votes cast at the Annual Meeting. However, because the proposal
is only a recommendation, its approval would not effectuate the changes
contemplated by the proposal. Elimination of the classified board would require
amendment of the Company's Certificate of Incorporation and By-Laws, which
requires approval by the Board and holders of at least 75% of the outstanding
voting stock of the Company.
The Board believes that a classified Board is a better governance vehicle than
annual election of Directors. The Board of Directors recommends a vote AGAINST
this proposal.
13
<PAGE>
OTHER INFORMATION
Certain Related Transactions
None noted in 1999.
Independent Accountants
PricewaterhouseCoopers LLP audited the financial statements of the Company
for 1999. 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 Company believes all beneficial
ownership reports were filed timely in 1999.
Stockholder Proposals
An eligible stockholder who wants to have a qualified proposal considered
for inclusion in the proxy statement for the 2001 annual meeting must notify
the Secretary of the Company. The proposal must be received at the Company's
offices no later than December 1, 2000. 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.
14
<PAGE>
REVOCABLE PROXY
SunSource Inc.
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
Annual Meeting of Stockholders
to be Held May 11, 2000
This Proxy is solicited on behalf of the Board of Directors of SunSource
Inc. The undersigned hereby appoints Joseph M. Corvino, the attorney, agent and
proxy of the undersigned, with full power of substitution (the "Proxy"), to
attend and act as proxy of the undersigned at the Annual Meeting of Stockholders
(the "Annual Meeting") of SunSource Inc. to be held at the law offices of
Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, Pennsylvania on
May 11, 2000 at 10:00 a.m., local time, or any adjournment thereof, and to vote
as specified herein the number of shares which the undersigned, if personally
present, would be entitled to vote.
1. DIRECTORS.
A vote for election of the following With- For All
Class I nominees (except as For hold Except
marked to the contrary below): [ ] [ ] [ ]
O. Gordon Brewer, Jr., Stewart A. Bliss,
Arnold S. Hoffman
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"For All Except" and write that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
2. PROPOSAL. To request that the
Board of Directors declassify itself
and establish annual elections of For Against Abstain
Directors. [ ] [ ] [ ]
3. OTHER BUSINESS. In their discretion, the Proxies are authorized to vote
upon such other business as may properly be presented at the Annual Meeting
or any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE DIRECTORS AND "AGAINST"
PROPOSAL NO. 2.
-----------------------------
Please be sure to sign and date | Date
this Proxy in the box below. |
__________________________________________________|____________________________
| |
| |
|_______Stockholder sign above ________Co-holder (if any) sign above__________|
+ +
* Detach above card, sign, date and mail in postage paid envelope provided. *
SunSource Inc.
- -------------------------------------------------------------------------------
This Proxy when properly executed will be voted as specified. If no
instruction is specified with respect to the matter to be acted upon, the shares
represented by the Proxy will be voted "FOR" the nominees listed in Proposal 1,
and "AGAINST" the proposal to Declassify the Board of Directors. If any other
business is properly presented at the Annual Meeting, this Proxy confers
authority to and shall be voted in accordance with the best judgment of the
Proxies. This Proxy is solicited by the Board of Directors of the Corporation,
and may be revoked prior to its exercise by filing with the Secretary of the
Corporation a duly executed proxy bearing a later date or an instrument revoking
this Pproxy, or by attending the meeting and electing to vote in person.
Please sign exactly as your name or names appear on this Proxy. If Common
Shares are held jointly, each holder should sign. If signing as attorney,
trustee, executor, administrator, custodian or corporate officer, please give
your full title.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- -------------------------------------------------------------------------------
