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