<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
CSS INDUSTRIES, INC.
- -----------------------------------------------------------------------------
(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:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / 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>
CSS INDUSTRIES, INC.
1845 Walnut Street
Philadelphia, Pennsylvania 19103
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
Dear Stockholder:
The 1999 Annual Meeting of Stockholders of CSS Industries, Inc. will be
held at the Sheraton Rittenhouse Square Hotel, 227 S. 18th Street,
Philadelphia, PA 19103 on Tuesday, May 4, 1999, at 10:00 a.m. local time.
At our Annual Meeting, we will ask you to:
1. Elect a board of eight directors; and
2. Transact any other business that may properly be presented at the
Annual Meeting.
If you were a stockholder of record at the close of business on March 8,
1999, you may vote at the Annual Meeting. A list of CSS stockholders entitled to
vote at the Annual Meeting will be available at our offices during normal
business hours for review by any stockholder for the ten days before the Annual
Meeting.
By order of the board of directors,
STEPHEN V. DUBIN
Secretary
Philadelphia, Pennsylvania
March 26, 1999
We hope that you will attend the Annual Meeting. Whether or not you plan to
attend the meeting, we invite and encourage you to complete, sign and return
the enclosed proxy in the envelope provided.
<PAGE>
CSS INDUSTRIES, INC.
1845 Walnut Street
Philadelphia, Pennsylvania 19103
----------------
PROXY STATEMENT
1999 Annual Meeting of Stockholders
----------------
WHY YOU RECEIVED THIS PROXY STATEMENT
You received this proxy statement because the board of directors of CSS
Industries, Inc. is soliciting your proxy to vote at the 1999 Annual Meeting of
Stockholders to be held at the Sheraton Rittenhouse Square Hotel, 227 S. 18th
Street, Philadelphia, Pennsylvania 19103 on Tuesday, May 4, 1999 at 10:00 a.m.
local time. This proxy statement provides information that should assist you in
voting on matters presented to the Annual Meeting. You may vote in one of two
ways: in person, by attending the Annual Meeting and casting your vote, or by
proxy, by completing, signing and returning the enclosed proxy card. We are
sending this proxy statement and the accompanying form of proxy to stockholders
beginning on March 26, 1999.
WHO CAN VOTE
Stockholders of record at the close of business on March 8, 1999 may vote
at the Annual Meeting. On this record date, 10,202,010 shares of CSS common
stock, par value $.10 per share, were outstanding. Each share of common stock is
entitled to one vote on any matter which is properly presented to the Annual
Meeting.
WHO WILL PAY THE COSTS OF THIS PROXY SOLICITATION
We are paying for this solicitation of proxies. In addition to this
mailing, proxies may be solicited by telephone by officers, directors or
employees of CSS and its affiliated companies, who will not receive payment
specifically for these services. We may also work with banks, brokerage houses
and other custodians, nominees and fiduciaries to assist in forwarding
solicitation material to the beneficial owners of such shares, and we will
reimburse these persons for their reasonable out-of-pocket expenses.
HOW TO BE PART OF AN EFFECTIVE VOTE
In order to have an effective vote on any matter at the Annual Meeting,
there must be a quorum. A quorum exists when the holders of a majority of the
shares entitled to vote are present in person or represented by proxy. Directors
will be elected by a plurality of the votes cast at the Annual Meeting. This
means that the eight nominees receiving the most votes will be elected as
directors. Any other matter voted upon at the Annual Meeting shall be decided by
the affirmative vote of the holders of a majority of the shares, present in
person or represented by proxy, entitled to vote at the Annual Meeting. You may
vote at the Annual Meeting only if you are present in person or by proxy. You
may authorize the voting of your shares at the Annual Meeting by completing the
enclosed proxy. The shares represented by each properly completed proxy card
will be voted at the Annual Meeting in accordance with each stockholder's
choices. For the election of directors, votes may be cast in favor or withheld.
Votes that are withheld will not be counted in the vote and will have no effect,
other than to determine the presence of a quorum. Abstentions may not be
specified for the election of directors. Abstentions will be considered present
at the Annual Meeting, but will not be counted as votes cast in the affirmative.
Brokers that are member firms of the New York Stock Exchange and who hold shares
in street name for customers, but have not received instructions from a
beneficial owner, have the right under the New York Stock Exchange rules to vote
those shares with respect to the election of directors. If you do not mark a
box, or otherwise withhold your vote, the shares will be voted as recommended by
the board of directors. If any additional matters are properly presented to the
Annual Meeting, the proxy holders will vote the proxies (which give the proxy
holders the right to vote on such additional matters) in accordance with their
best judgment.
<PAGE>
HOW YOU MAY REVOKE YOUR PROXY
You may revoke your proxy at any time before the vote is taken at the
Annual Meeting by filing with the Secretary of CSS a written revocation or
another form of proxy bearing a date later than the date of the proxy that you
submitted previously. You may also revoke your proxy by attending the Annual
Meeting and voting in person. Your attendance at the Annual Meeting will not in
and of itself constitute revocation of a proxy if you do not file a written
revocation, submit a later-dated proxy or vote in person.
OUR INDEPENDENT ACCOUNTANTS AND THEIR ATTENDANCE AT THE ANNUAL MEETING
Arthur Andersen LLP served as our independent public accountants for 1998
and has been selected to serve as our independent public accountants in 1999. We
have invited a representative of Arthur Andersen LLP to attend the Annual
Meeting, and this representative will have an opportunity to make a statement,
if he or she desires, and will be available to respond to your questions.
Your proxy vote is important. We therefore invite and encourage you to
complete, sign and return the accompanying proxy whether or not you plan to
attend the Annual Meeting.
CSS SECURITY OWNERSHIP
The following table shows all persons we know to beneficially own at least
5% of our common stock as of March 8, 1999, unless otherwise noted. The table
also shows as of that date all beneficial ownership of our common stock by our
current directors, our chief executive officer and four other most highly
compensated officers for services rendered to CSS or its subsidiaries for the
fiscal year ended December 31, 1998, separately and as a group.(1)
<TABLE>
<CAPTION>
Number
of Shares Percent
Beneficially of
Beneficial Owner Owned(1) Class(2)
---------------- -------- --------
<S> <C> <C>
Fenimore Asset Management, Inc. and Thomas O. Putnam ............. 612,395(3) 6.0%
T. Rowe Price Associates, Inc. ................................... 971,400(4) 9.5%
Willard M. Bright ................................................ 20,400(5) *
James H. Bromley ................................................. 376,559 3.7%
John R. Bunting, Jr. ............................................. 21,000(6) *
Stephen V. Dubin ................................................. 342,210(7) 3.4%
Jack Farber ...................................................... 3,168,571(8) 31.0%
Richard G. Gilmore ............................................... 18,000(5) *
Leonard E. Grossman .............................................. 235,782(9) 2.3%
James E. Ksansnak ................................................ 20,374(5) *
Michael L. Sanyour ............................................... 17,099(5) *
William C. Warren ................................................ 56,030(5) *
John A. Pinti .................................................... 64,226(10) *
Marc A. English .................................................. 24,000(11) *
James G. Baxter .................................................. 175,889(12) 1.7%
All current directors and executive officers of CSS as a group (14
persons, including the individuals named above) ................. 4,605,882(8)(13) 45.1%
</TABLE>
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(1) "Beneficial ownership" is a technical term defined by Securities and
Exchange Commission regulations. Accordingly, the table lists all shares as
to which such persons have or share the power to vote or to direct
disposition and all shares issuable upon the exercise of outstanding stock
options held by each individual or group to the extent exercisable at March
8, 1999 or within 60 days thereafter. Unless otherwise indicated, each
person has the sole power to vote and to direct disposition of the shares
listed as beneficially owned by such person.
(2) This percentage is calculated based upon a total of 10,202,010 shares of
common stock outstanding at March 8, 1999. An asterisk indicates that
ownership is less than 1% of the class.
2
<PAGE>
(3) This information is as of December 31, 1998 and is based upon Amendment 3
to Schedule 13G, dated February 5, 1999 jointly filed with the Securities
and Exchange Commission by Fenimore Asset Management, Inc. and Thomas O.
Putnam, located at 118 N. Grand Street, Box 310, Cobleskill, NY 12043.
(4) This information is as of December 31, 1998 and is based upon Amendment 6
to Schedule 13G, dated February 12, 1999 filed with the Securities and
Exchange Commission by T. Rowe Price Associates, Inc. ("Price Associates")
which is located at 100 E. Pratt Street, Baltimore, MD 21202. These
securities are owned by various individual and institutional investors
which Price Associates serves as investment adviser with power to direct
investments and/or sole power to vote the securities. The T. Rowe Small Cap
Value Fund owns 725,000 (7.1% of class) of these securities. For purposes
of the reporting requirements of the securities laws, Price Associates is
deemed to be a beneficial owner of such securities; however, Price
Associates expressly disclaims that it is, in fact, the beneficial owner of
such securities.
(5) The shares shown in the table include options to purchase 7,000 shares of
common stock granted under the CSS 1991 Stock Option Plan for Non-Employee
Directors (the "1991 Plan") and options to purchase 3,000 shares of common
stock granted under the CSS 1995 Stock Option Plan for Non-Employee
Directors (the "1995 Plan").
(6) The shares shown in the table include options to purchase 7,000 shares of
common stock granted under the 1991 Plan and options to purchase 3,000
shares of common stock granted under the 1995 Plan. Mr. Bunting shares the
power to vote and to direct disposition of 400 shares included in this
table.
(7) The shares shown in the table include options to purchase 59,375 shares of
common stock granted under the CSS 1994 Equity Compensation Plan, as
amended (the "1994 Plan").
(8) Mr. Farber owns 644,290 shares directly. In addition, he owns 615,000
shares beneficially through a grantor retained annuity trust and he owns
1,515,151 shares beneficially through his ownership of general and limited
partnership interests in Delv, L.P. Mr. Farber is the sole stockholder of
the general partner of Delv and his daughter is the sole director and is
President, Secretary and Treasurer of the general partner of Delv. Included
among the shares beneficially owned by Mr. Farber are 74,028 shares held
directly by Mr. Farber's wife. Also included among the shares beneficially
owned by Mr. Farber are 265,702 shares of common stock owned by a trust for
the benefit of David M. Farber, Mr. Farber's son, in which Mr. Farber
serves as co-trustee with David Farber and 54,400 shares owned by trusts
for the benefit of two of Mr. Farber's grandchildren in which Mr. Farber's
wife serves as co-trustee with his daughter. Mr. Farber disclaims
beneficial ownership of all shares owned directly or beneficially by his
wife and by trusts for the benefit of his family members. Not included in
the number of shares beneficially owned by Mr. Farber are shares held by
the Farber Foundation or the Farber Family Foundation, as to which Mr.
Farber and the directors and officers of CSS who are members, directors or
officers of the foundations disclaim beneficial ownership. The Farber
Foundation, Inc., a charitable foundation in which Mr. Farber and certain
officers of CSS are officers and directors, owns 92,784 shares, and the
Farber Family Foundation, Inc., a charitable foundation in which Mr. Farber
is an officer and director, owns 284,000 shares.
(9) The table includes 6,000 shares of common stock held by Mr. Grossman's
wife, as to which Mr. Grossman disclaims beneficial ownership. The shares
shown in the table include options to purchase 7,000 shares of common stock
granted under the 1991 Plan and 3,000 shares of common stock granted under
the 1995 Plan.
(10) The shares shown in the table include options to purchase 35,000 shares of
common stock granted under the 1994 Plan.
(11) The shares shown in the table include options to purchase 24,000 shares of
common stock granted under the 1994 Plan.
(12) Mr. Baxter resigned as a director and executive officer in January 1999. In
accordance with the 1994 Plan, no stock options are exercisable following
the date of termination of employment.
3
<PAGE>
(13) The table shows beneficial ownership of a total of 231,125 shares of common
stock pursuant to stock options granted under the 1985 Plan, the 1991 Plan,
the 1994 Plan and the 1995 Plan.
ELECTION OF DIRECTORS
Our board of directors currently has ten members. James G. Baxter, who was
a director and Executive Vice President and Chief Financial Officer of CSS,
resigned to pursue other business interests on January 24, 1999. The board of
directors did not fill this vacancy and instead reduced the number of directors
from eleven to ten. Two current directors, Willard M. Bright and William C.
Warren, are ineligible for re-election because of age limitation provisions in
our by-laws and are retiring from membership on the board of directors. By
resolution adopted by the board of directors on March 6, 1999, the honorary
title of Director Emeritus was conferred on each of them effective May 4, 1999.
You are asked to vote for the election of eight directors. Directors who are
elected will hold office for a term of one year and until the election and
qualification of their respective successors. The board of directors has
nominated for election as directors the persons whose names are listed below,
all of whom are presently directors of CSS with terms expiring in 1999. All of
these persons have agreed to be considered as nominees and to serve if elected.
The board of directors believes all of these persons will be able to serve as
directors. However, if this should not be the case, the proxies may be voted for
one or more substitute nominees to be designated by the board of directors or
the board of directors may decide to reduce the number of directors.
The board of directors recommends a vote FOR the election of all the
nominees listed below.
Please review the following information about the nominees for election to
our board of directors.
<TABLE>
<CAPTION>
<S> <C>
James H. Bromley ............. Mr. Bromley has been an independent consultant since September, 1996.
From September 1996 to December 1997 he served as Chairman of our then
Direct Mail Business Products Group and Vice Chairman of Rapidforms,
Inc., formerly a subsidiary of CSS. From May 1996 to September 1996, he
served as President of our then Direct Mail Business Products Group. He
served as President of Rapidforms from 1979 to September 1996, and as its
Chief Executive Officer from 1987 to September 1996. He has served as one
of our directors since 1989. Age: 60.
John R. Bunting, Jr. ......... Mr. Bunting has been Chairman of Bunting-Rubinsohn Associates, Inc./John
R. Bunting, Inc., financial management consultants, since 1980. He has also
been Chairman of B.R. Parking Corp. since 1982. He has served as one of
our directors since 1966. Age: 73.
Stephen V. Dubin ............. Mr. Dubin has been our Senior Vice President -- Law and Human Resources
since May 1996 and our Secretary and General Counsel since 1978. From
1978 to May 1996, he also served as a Vice President of CSS. He has served
as one of our directors since November 1995. Age: 60.
Jack Farber .................. Mr. Farber has been our Chairman, President and Chief Executive Officer
since 1979. Mr. Farber has served as one of our directors since 1978. Age:
65.
Richard G. Gilmore ........... Mr. Gilmore has been an independent consultant since 1991. He is also a
director of nineteen mutual funds sponsored by Legg Mason Wood Walker,
Inc. and subsidiaries. Mr. Gilmore has served as one of our directors since
1984. Age: 71.
Leonard E. Grossman .......... Mr. Grossman has been a private investor since 1989. Mr. Grossman has
served as one of our directors since 1982. Age: 64.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
James E. Ksansnak .......... Mr. Ksansnak has been Vice Chairman and a Director of ARAMARK Cor-
poration, a service management company, since May 1997. He served as an
Executive Vice President of ARAMARK Corporation from 1991 to 1997,
and as Chief Financial Officer from 1987 to 1997. He is also a director of
Advanta Corp. Mr. Ksansnak has served as one of our directors since 1988.
Age: 59.
Michael L. Sanyour ......... Mr. Sanyour has been a Principal of CMS Companies, a financial services
and insurance concern, since 1987. He has served as one of our directors
since 1980. Age: 68.
</TABLE>
GENERAL INFORMATION ABOUT OUR BOARD OF DIRECTORS AND ITS COMMITTEES
Our board of directors held six meetings in 1998. The by-laws allow the
board of directors, by resolution adopted by a majority of the entire board, to
designate an Executive Committee and other committees, each consisting of three
or more directors. Accordingly, the board of directors annually selects members
of the Executive, Audit, and Human Resources Committees. Another committee, the
stock option committee under the 1991 Plan and the 1995 Plan, consists of those
members of the board of directors who are also CSS employees. We have no
nominating committee. Each director attended at least 75% of the total number of
meetings of the board of directors and committees of the board of directors on
which he served in 1998.
EXECUTIVE COMMITTEE
The Executive Committee of the board of directors is composed of Messrs.
Farber, Bunting and Sanyour. The Executive Committee may exercise all of the
authority of the board of directors in the business and affairs of CSS with
certain exceptions. The role of the Executive Committee is to serve in the event
that action must be taken by the board of directors at a time when holding a
meeting of the entire board is not feasible. The Executive Committee held one
meeting and acted four times by unanimous consent in 1998.
AUDIT COMMITTEE
The Audit Committee of the board of directors consists of Messrs. Bunting,
Gilmore, Grossman and Ksansnak. It meets with our independent accountants to
review the scope of audit procedures, CSS's accounting procedures and controls,
and any non-audit projects. The Audit Committee held two meetings during 1998.
HUMAN RESOURCES COMMITTEE
The Human Resources Committee of the board of directors consists of Messrs.
Bright, Ksansnak and Warren. It performs functions that include those normally
performed by a compensation committee. No member of the Human Resources
Committee is a former or current officer or employee of CSS or any of its
subsidiaries. The Human Resources Committee is responsible for developing and
administering the CSS's executive compensation policies, plans and programs. In
addition, the Human Resources Committee (1) determines on an annual basis the
compensation to be paid to our Chairman, President and Chief Executive Officer,
(2) determines the appropriate level of compensation for our executive officers
and certain other members of our senior management personnel following receipt
of the recommendations of our Chairman, President and Chief Executive Officer,
(3) reviews the compensation level of each employee of CSS and its subsidiaries
with an annual base salary exceeding $150,000, and (4) makes grants and has
general administrative authority under the 1994 Plan. The Human Resources
Committee held one meeting and acted three times by unanimous consent in 1998.
COMPENSATION OF DIRECTORS
Each of our directors who is not a full time employee of CSS or its
subsidiaries receives a fee of $14,000 per annum, plus $750 for attendance at
each meeting of the board or its committees or for each consultation with
management, and is entitled to participate in the 1995 Plan. The 1995 Plan
succeeded the 1991 Plan and provides for the automatic annual grant of
nonqualified stock options to purchase 4,000 shares
5
<PAGE>
of our common stock to each of our non-employee directors as of the last
business day of November in each year, from 1996 through 2000. In accordance
with the terms of the 1995 Plan, each of our non-employee directors received an
automatic grant of additional options to purchase 4,000 shares of our common
stock on November 30, 1998 at an exercise price of $29.5625 per share.
OUR EXECUTIVE OFFICERS
Please review the following information about each of our current executive
officers. See "ELECTION OF DIRECTORS" for further information about Messrs.
Farber and Dubin. Our executive officers are elected annually by the board of
directors to serve until their successors are elected and qualified or until
their earlier resignation or removal.
<TABLE>
<CAPTION>
<S> <C>
Jack Farber ..................... Mr. Farber has been our Chairman, President and Chief Executive Officer
since 1979. Age: 65.
John A. Pinti ................... Mr. Pinti has been Executive Vice President of CSS and President and Chief
Executive Officer of The Paper Magic Group, Inc., a subsidiary of CSS, since
January 1998. He has also been President and Chief Executive Officer of
Berwick Industries, Inc., a subsidiary of CSS, since 1992. Age: 55.
Stephen V. Dubin ................ Mr. Dubin has been our Senior Vice President-Law and Human Resources
since May 1996 and our Secretary and General Counsel since 1978. From
1978 to May 1996, he was a Vice President of CSS. Age: 60.
Clifford E. Pietrafitta ......... Mr. Pietrafitta has been our Vice President -- Finance since November 1995
and has been our Chief Financial Officer since January 1999. From 1991 to
January 1999, he was our Treasurer. In addition, he has been an Assistant
Secretary of CSS since 1991. Age: 37.
Marc A. English ................. Mr. English has been President and Chief Executive Officer of Cleo Inc, a
subsidiary of CSS, since we acquired Cleo in November 1995. From June
1994 to November 1995 he was Senior Vice President of Marketing for Cleo.
From 1990 to June 1994 he was Senior Vice President of Marketing and
Sales of CPS Corp., a manufacturer and distributor of seasonal gift wrap.
Age: 46.
Paul L. Delaney ................. Mr. Delaney has been our Treasurer and an Assistant Secretary since January
1999. From September 1993 to January 1999 he served in various capacities
in our Corporate Finance Department. His last position prior to being elected
as Treasurer and Assistant Secretary was as our Manager of Corporate
Accounting and Internal Audit. Age: 29.
</TABLE>
James G. Baxter served as an Executive Vice President and Chief Financial
Officer of CSS during 1998. Mr. Baxter resigned as a director and officer of
CSS in January 1999.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table shows the total compensation of our chief executive
officer and the four other most highly compensated executive officers for
services performed for CSS or its subsidiaries for the fiscal year ended
December 31, 1998, as well as the total compensation earned by each such
individual for our last two fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------------ -------------
Securities
Underlying All Other
Name and Options Compensation(1)
Principal Position Year Salary($) Bonus($) (#) ($)
- --------------------------- ------ ----------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Jack Farber 1998 405,000 212,166 0 38,178(2)
Chairman, President 1997 390,000 505,600 0 59,556(2)
and Chief Executive 1996 375,000 695,800 0 80,865(2)
Officer of CSS.
John A. Pinti 1998 329,077 237,825 35,000 44,136
Executive Vice President 1997 300,000 229,929 20,000 26,472
of the Company and 1996 300,000 140,495 15,000 24,706
President and Chief
Executive Officer of
Berwick and Paper Magic
James G. Baxter 1998 275,000 0 0 33,632
Former Executive Vice 1997 275,000 177,000 30,000 47,055
President and Chief 1996 250,000 469,500 50,000 21,144
Financial Officer of CSS
Stephen V. Dubin 1998 239,200 100,247 12,500 56,217
Senior Vice President- 1997 230,000 237,000 25,000 63,215
Law and Human 1996 220,000 316,700 25,000 21,144
Resources, Secretary
and General Counsel
of CSS
Marc A. English 1998 223,715 0 8,000 18,878
President and 1997 218,878 0 16,000 11,100
Chief Executive 1996 206,500 125,000 16,000 3,600
Officer of Cleo
</TABLE>
- ------------
(1) Berwick, Cleo and Paper Magic each have qualified profit sharing plans
allowing for discretionary contributions by these companies related to their
financial performance. Our officers, except for Mr. Pinti, participate in
the Cleo profit sharing plan. Mr. Pinti participates in the Berwick profit
sharing plan. In general, contributions to the profit sharing plans are
based upon a percentage, determined by the board of directors of the
applicable company, of the participant's compensation, not exceeding the
applicable Internal Revenue Code maximum contribution base. Contributions
vest under specified schedules requiring from six to seven years of service,
and are paid to participants, along with earnings thereon, upon retirement
or other separation from service or, in the case of one such plan, certain
other events. In addition, the Cleo and Berwick profit sharing plans and,
effective as of January 1, 1999, the Paper Magic profit sharing plan each
include a cash or deferred arrangement under section 401(k) of the Internal
Revenue Code which permits employees to make salary deferral contributions.
These employee contributions are subject to discretionary matching
contributions by the applicable company participating in the plans. CSS,
Berwick, Cleo and Paper Magic also each maintain an unfunded non-qualified
7
<PAGE>
Supplemental Executive Retirement Plan (the "SERP") to provide all eligible
employees benefits in excess of the maximum contribution base under the
qualified profit sharing plans. Due to the deferred compensation agreement
described below, Mr. Farber did not participate in our SERP until February,
1999. We also have a supplemental retirement agreement with Mr. Dubin and
had one with Mr. Baxter prior to his resignation to provide them with
certain deferred benefits upon death or retirement in addition to certain
benefits in the SERP. See "Supplemental Executive Retirement Benefits"
below. The amounts shown in this column represent, for all of the years
indicated, the contributions by the applicable company to a profit sharing
plan and the SERP in respect of the named person and, in the case of Mr.
Farber, to a profit sharing plan plus the deferred compensation arrangement
described below.
(2) Prior to our merger with Philadelphia Industries, Inc. on January 21, 1993,
Mr. Farber was ineligible to participate in the Philadelphia Industries
profit sharing plan. Thus, Mr. Farber entered into a deferred compensation
agreement with Philadelphia Industries. We assumed this agreement upon the
merger. It provided for benefits upon retirement or separation of service
equal to what Mr. Farber would have received had he been eligible for
participation in the profit sharing plan and SERP. In 1993, Mr. Farber
became eligible to participate in the profit sharing plan in which CSS was
participating and continues as a participant in such plan presently. In
February 1999, our deferred compensation agreement with Mr. Farber was
terminated. The amounts shown in this column represent, for all years
indicated, the amount charged to CSS in respect of any profit sharing plan
and the former deferred compensation agreement.
No individual named above received perquisites or non-cash compensation
during the years indicated exceeding the lesser of $50,000 or an amount equal to
10% of such person's salary and bonus.
The following table shows information about options granted by CSS or its
subsidiaries to the chief executive officer and four other most highly
compensated executive officers during the fiscal year ended December 31, 1998.
Option Grant Table
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------
Number Percent of
of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of Stock
Underlying Granted Exercise Price Appreciation for
Options to Employees or Base Option Term(2)
Granted(1) in Fiscal Price Expiration -----------------------
Name (#) Year ($/Sh) Date 5%($) 10%($)
---- --- ---- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Jack Farber ................ 0 -- -- -- -- --
John A. Pinti .............. 35,000 18.7% 27.75 1/26/03 268,338 592,958
James G. Baxter(3) ......... 0 -- -- -- -- --
Stephen V. Dubin ........... 12,500 6.7% 27.75 1/26/03 95,835 211,771
Marc A. English ............ 8,000 4.3% 27.85 1/26/03 61,335 135,533
</TABLE>
- ------------
(1) These options were granted under the 1994 Plan. Twenty-five percent of the
options granted vest on the first anniversary of the grant. An additional
twenty-five percent vests on each succeeding anniversary for the next three
years. On the fifth anniversary, the grant expires.
(2) The dollar amounts under these columns are the result of the 5% and 10%
rates set by the rules promulgated by the Securities and Exchange Commission
and are not intended to forecast possible future appreciation, if any, of
our stock price. We did not use an alternative formula for a grant date
valuation, as we are not aware of any formula which will determine with
reasonable accuracy a present value based on future unknown or volatile
factors. The dollar amounts reflected in these columns may not be achieved.
Actual gains, if any, on stock option exercises depend on the future
performance of our common stock and overall market conditions, as well as
the executive officer's continued employment through the vesting period.
(3) Mr. Baxter resigned as a director and officer of CSS in January 1999. No
options were granted to him for the fiscal year ended December 31, 1998.
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<PAGE>
The table below shows information regarding options exercised during the
fiscal year ended December 31, 1998 and the value of unexercised options at
December 31, 1998 held by our five most highly compensated executive officers.
Option Exercise Table
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Acquired Options at December 31, 1998(#)(2) December 31, 1998 ($)
on Value --------------------------------- -----------------------------
Name Exercise (#)(1) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- ----------------- -------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jack Farber ................ 0 -- -- -- -- --
James G. Baxter(3) ......... 23,676 267,835 68,750 56,250 754,297 467,266
John A. Pinti .............. 10,000 166,250 35,000 57,500 346,875 228,906
Stephen V. Dubin ........... 10,000 106,250 37,500 50,000 417,188 325,781
Marc A. English ............ 0 -- 13,000 31,000 99,688 164,563
</TABLE>
- ------------
(1) Options exercised relate to options to acquire our common stock granted
under the CSS 1985 Incentive Stock Plan, as amended (the "1985 Plan"), as
adjusted to reflect the effect of the stock split which occurred in August
1993, and under the 1994 Plan.
(2) Includes exercisable and unexercisable options to acquire common stock
granted under the 1985 Plan, as adjusted to reflect the effect of the stock
split which occurred in August 1993, and under the 1994 Plan.
(3) Mr. Baxter resigned as a director and officer of CSS in January 1999 and his
then remaining unexercisable options were forfeited. In January 1999 Mr.
Baxter exercised options to acquire 97,500 shares of our common stock (of
which options to acquire 28,750 shares became exercisable in January 1999),
at a value realized of $904,603.
Supplemental Executive Retirement Benefits and Other Deferred Compensation
Arrangements
Under applicable provisions of the Internal Revenue Code, we are required
to disregard an employee's annual compensation in excess of a specified dollar
amount (subject to cost of living adjustments) in determining the profit-sharing
plan contribution that is made on behalf of such employee. The Omnibus Budget
Reconciliation Act of 1993 ("OBRA '93") reduced this compensation limit from
$235,840 in 1993 to $150,000 in 1994, 1995 and 1996. Such limit increased to
$160,000 in 1997 and remained at that level in 1998. CSS, Berwick, Cleo and
Paper Magic each established a SERP to provide additional retirement benefits to
eligible employees, with regard to compensation in excess of this dollar limit.
Due to the deferred compensation agreement described above, Mr. Farber was not
eligible to participate in our SERP until February 1999.
Under the CSS, Paper Magic, Berwick and Cleo SERPs, all eligible employees
in the United States are entitled to have an amount credited for their benefit
on our books equal to product of (x) the percentage then used in deriving the
dollar amount approved by the participating company's board of directors as the
company's profit sharing plan contribution for such calendar year and (y) the
difference between the employee's total cash compensation for such calendar year
and the dollar amount of the compensation limitation ($160,000 for 1998). Prior
to February 1999, Mr. Farber did not participate in our SERP due to the deferred
compensation agreement described above. Through September 30, 1998, these
amounts were adjusted to reflect earnings and losses based on the investment
performance of the applicable profit sharing plan as if such amounts had been
contributed to such profit sharing plan at the time they were credited and were
invested in the same manner as the employee's profit sharing plan account. Since
that time, participant balances were adjusted by the investment performance of
various benchmarks as selected by the participant. All amounts payable to any
officer for whose benefit amounts have been credited represent an unsecured debt
of CSS.
Under agreements dated March 3, 1993, Messrs. Baxter and Dubin became
eligible for certain unfunded non-qualified annual retirement benefits and death
benefits. Although we had no obligation to fund the benefits provided by those
agreements, we purchased life insurance policies to provide funding for such
benefits.
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<PAGE>
These additional retirement benefits were intended to compensate Messrs. Baxter
and Dubin for the loss of benefits under the Cleo profit sharing plans by reason
of the pre-OBRA '93 limitations on the amount of compensation that may be
considered in calculating contributions under the profit sharing plan. Benefits
are payable upon termination of active employment and are reduced if such
termination occurs prior to age 65. A pre-retirement death benefit is also
available under these agreements. The annual retirement benefit is a fixed
annual payment for fifteen years. Assuming that Mr. Dubin continues his
employment with CSS until age 65, his annual benefits will be $58,123. Since Mr.
Baxter has terminated his employment with CSS in January 1999, his annual
retirement benefit has been fixed at $32,746.75 per annum commencing at age 65.
Prior to our merger with Philadelphia Industries on January 21, 1993, Mr.
Farber was ineligible to participate in the Philadelphia Industries profit
sharing plan. Thus, Mr. Farber entered into a deferred compensation agreement
with Philadelphia Industries. We assumed this agreement upon the merger. It
provided for benefits upon retirement or separation of service equal to what Mr.
Farber would have received had he been eligible for participation in the profit
sharing plan and SERP. In 1993, Mr. Farber became eligible to participate in the
profit sharing plan in which CSS was participating and continues as a
participant in such plan presently. In February 1999, our deferred compensation
agreement with Mr. Farber was terminated, and at such time Mr. Farber became
eligible to participate in our SERP.
In February 1999, we entered into an agreement with Mr. Farber under which
we agreed to assist in funding a split dollar life insurance policy on Mr.
Farber's life by paying up to five annual premium payments. The present value of
the aggregate anticipated premium payments are approximated to equal the
obligation we would have owed to Mr. Farber had the deferred compensation
agreement not been terminated.
HUMAN RESOURCES COMMITTEE REPORT
The Human Resources Committee is comprised of three outside directors, none
of whom has been an employee of CSS or any subsidiary. The Human Resources
Committee oversees the development and implementation of compensation policies,
plans and programs which aim to enhance our profitability, and consequently
stockholder value. These goals are sought by relating compensation of our senior
management to our financial performance. Consequently, a substantial portion of
compensation granted to senior management is "at-risk" incentive compensation.
This incentive compensation is tied to the magnitude of each individual's
contribution to the value of stockholders' shares. The Human Resources Committee
also is responsible for the administration of grants that have been made under
the 1985 Plan and administers and makes grants under the 1994 Plan. Overall, the
structure of annual and longer term incentive compensation is designed to
attract, retain, and reward senior management of outstanding abilities and to
motivate them to perform to the full extent of their abilities.
Our compensation program for senior management consists of base salary,
annual performance bonuses, longer term incentive compensation in the form of
stock options, restricted stock grants and stock appreciation rights, benefits
available generally to our employees (including retirement benefits under profit
sharing plans), and supplemental retirement plans or deferred compensation
agreements to provide benefits in excess of those permitted to be paid under the
profit sharing plans because of OBRA '93 limitations (described above, under
"Supplemental Executive Retirement Benefits and Other Deferred Compensation
Arrangements"). The "at-risk" portion of the compensation program is significant
relative to overall compensation.
Base salary levels for our executive officers are reviewed on an annual
basis by the Human Resources Committee and are set generally to be competitive
with other companies of comparable size and geographic location, taking into
consideration the position's complexity, responsibility and need for special
expertise. Individual salaries also take into account individual experience and
performance. The Human Resources Committee establishes salary levels for
corporate level officers and other executive officers of CSS. The salary of each
employee of CSS and its subsidiaries with an annual base salary exceeding
$150,000 is subject to periodic review by the Human Resources Committee.
Annual incentive compensation is based upon the achievement of certain
threshold and target levels of earnings by the operating subsidiaries, the
achievement of a target level of diluted earnings per common share by CSS for
corporate level management, and the attainment of specifically defined
individual goals and
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<PAGE>
objectives. At the beginning of each year, performance goals are established for
CSS and each of its subsidiaries by the Human Resources Committee to be used in
determining annual performance bonuses. The formulae permit discretion in
determining the size of the bonus pool, subject to certain parameters based upon
the achievement of the performance goals, and to a limited extent in allocating
the bonus pool among participants.
The Human Resources Committee annually considers the desirability of
granting to officers and other employees of CSS and CSS's principal operating
subsidiaries stock options, restricted stock grants and stock appreciation
rights under the 1994 Plan. The objective of the 1994 Plan is to align senior
management and stockholder long-term interests by creating a strong and direct
link between the executive's accumulation of wealth and stockholder return and
to enable executives to develop and maintain a significant, long-term stock
ownership position in our common stock. The Human Resources Committee adopted a
methodology for use beginning with 1998 stock option grants which relates the
number of stock options granted to each optionee to the individual's position
and salary level. The Human Resources Committee believes that its past grants of
stock options have successfully focused our executive officers and other members
of senior management on building profitability and shareholder value.
Payments during 1998 to our senior management under the various programs
discussed above were made following consideration of Section 162(m) of the
Internal Revenue Code which became effective on January 1, 1994. Section 162(m)
of the Internal Revenue Code limits the deduction that may be claimed by a
"public company" for total compensation in excess of $1 million paid to the
chief executive officer or to any of the other four most highly compensated
officers except to the extent that any compensation in excess of $1 million
qualifies as "performance-based compensation." Grants of stock options and stock
appreciation rights made under the 1994 Plan qualify as "performance-based
compensation."
In determining the compensation of Mr. Farber, the Human Resources
Committee has taken into consideration pay levels of chief executive officers of
other companies of comparable size, his contributions to the profitable growth
and increased return on our equity over the past several years and Mr. Farber's
overall management strengths and business acumen. The diluted earnings per share
of common stock from continuing operations increased at a compound annual rate
of 32% over the last year, 30% over the last two years and 24% over the last
five years. The return to stockholders as measured by the December 31 closing
price of the common stock decreased 5% in 1998, increased at an 8% compound
annual rate for the two years ended December 31, 1998 and increased at an 8%
compound annual rate for the five years ended December 31, 1998. Mr. Farber's
total annual compensation decreased 31% over the last year, decreased at a
compound annual rate of 22% for the two years ended December 31, 1998 and
increased at a compound annual rate of 1% for the five years ended December 31,
1998.
HUMAN RESOURCES COMMITTEE
James E. Ksansnak, Chairman
Willard M. Bright
William C. Warren
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<PAGE>
Performance Graph
The graph below compares the cumulative total stockholders' return on our
common stock for the period from January 1, 1994 through December 31, 1998, with
(i) the cumulative total return on the Standard and Poors 500 ("S&P 500") Index
and (ii) the Russell 2000 Index (assuming the investment of $100 in common
stock, S&P 500 Index and the Russell 2000 Index on January 1, 1994 and
reinvestment of all dividends).
Because we do not believe we can reasonably identify a peer group or
applicable published industry or line-of-business index, we have selected the
Russell 2000 Index as an index of issuers with similar market capitalizations.
5 YEAR CUMULATIVE TOTAL RETURN SUMMARY
300--------------------------------------------------------------------------
250--------------------------------------------------------------------------
200--------------------------------------------------------------------------
D
O $ $
L + +
L @
A 150--------------------------------------------------------------------------
R $ @
S $ +
+
@ @
100-@$+----------------------------------------------------------------------
$+
@
50--------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
@ = CSS INDS INC $ = RUSSELL 2000 INDEX + = PEER GROUP
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<PAGE>
CERTAIN TRANSACTIONS
In November 1996, CSS loaned James E. Ksansnak, a director of CSS, $27,750
at an interest rate of 7% per annum payable on demand and secured by a pledge of
4,000 shares of common stock of CSS owned by Mr. Ksansnak. The proceeds of the
loan were used to exercise stock options granted to Mr. Ksansnak under the 1991
Plan which were expiring in November 1996. In November 1997, CSS loaned Mr.
Ksansnak $28,500 at an interest rate of 7% per annum payable on demand and
secured by a pledge of 4,000 shares of common stock of CSS owned by Mr.
Ksansnak. The proceeds of the loan were utilized to exercise stock options
granted to Mr. Ksansnak under the 1991 Plan and which were expiring in November
1997. Mr. Ksansnak repaid these loans in full in 1998.
In January 1999, CSS loaned Clifford E. Pietrafitta, Vice President --
Finance and Chief Financial Officer of CSS, $65,000 at an interest rate of 5.5%
per annum payable on demand and secured by a pledge of 2,097 shares of CSS
common stock. The proceeds of the loan were used primarily to pay Mr.
Pietrafitta's alternative minimum tax liability under the Internal Revenue Code.
PROPOSALS FOR 2000 ANNUAL MEETING
Consideration of certain matters is required at the annual meeting of
stockholders, such as the election of directors. In addition, pursuant to
applicable regulations of the Securities and Exchange Commission, stockholders
may present resolutions that are proper subjects for inclusion in the proxy
statement and for consideration at the annual meeting by submitting their
proposals to us on a timely basis. In order to be included for the 2000 annual
meeting, resolutions must be received by November 26, 1999 and addressed to our
Secretary at the address set forth on the cover page of this proxy statement.
CSS INDUSTRIES, INC.
By: Stephen V. Dubin,
Secretary
Philadelphia, Pennsylvania
March 26, 1999
13
