<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:
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(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
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE> 2
[PRIMESOURCE CORPORATION LOGO]
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
---------------------
TO THE SHAREHOLDERS:
The sixth annual meeting of shareholders of PrimeSource Corporation will
be held at the Pennsauken Country Club, 3800 Haddonfield Road, Pennsauken, New
Jersey on Tuesday, May 9, 2000 at 9:30 a.m. for the following purposes:
1. To elect three directors to serve three-year terms.
2. To ratify the selection of PricewaterhouseCoopers LLP as
independent auditors for the fiscal year ending December 31,
2000.
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only shareholders of record at the close of business on March 17, 2000
are entitled to notice of, and to vote at, this meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ BARRY C. MAULDING
Barry C. Maulding
Corporate Secretary
Pennsauken, New Jersey
April 10, 2000
IMPORTANT
Each shareholder is urged to sign and return promptly the accompanying proxy
card in the enclosed postage-paid envelope.
<PAGE> 3
[PRIMESOURCE CORPORATION LOGO]
FAIRWAY CORPORATE CENTER
4350 HADDONFIELD ROAD
SUITE 222
PENNSAUKEN, NEW JERSEY 08109
---------------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 2000
---------------------
This proxy statement, which was first mailed to shareholders on April
10, 2000, is furnished in connection with the solicitation of proxies on behalf
of the Board of Directors of PrimeSource Corporation (the "Corporation") to be
voted at the annual meeting of the shareholders of the Corporation to be held at
9:30 a.m. on May 9, 2000 at the Pennsauken Country Club, 3800 Haddonfield Road,
Pennsauken, New Jersey for the purposes set forth in the accompanying Notice of
Annual Meeting of Shareholders.
VOTING
Shareholders who execute proxies retain the right to revoke them at any
time before they are voted. A proxy may be revoked by written notice to the
Corporate Secretary of the Corporation at Fairway Corporate Center, 4350
Haddonfield Road, Suite 222, Pennsauken, New Jersey 08109; by submission of a
proxy with a later date; or by a request in person to return the executed proxy.
The cost of solicitation of proxies will be borne by the Corporation.
Under the Pennsylvania Business Corporation Law, the election of the
Corporation's directors requires the vote of a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote thereon. Accordingly, the indication of an abstention on a proxy or the
failure to vote either by proxy or in person will be treated as neither a vote
"for" nor "against" the election of any director. On all other matters, the
affirmative vote of a majority of the shares present in person or represented by
proxy at the meeting shall be required.
Shares represented by proxies containing an abstention as to any matter
will be treated as shares that are present and entitled to vote for purposes of
determining a quorum. The presence in person or by proxy of a majority of the
outstanding shares shall be necessary to constitute a quorum to take action at
the meeting.
Similarly, the Corporation will treat shares held by brokers or nominees
for the accounts of others as to which voting instructions have not been given
as shares that are present and entitled to vote for purposes of determining a
quorum. Moreover, for purposes of determining the election of the Corporation's
directors, brokers and nominees may vote shares for which no instructions have
been given in their discretion under applicable securities laws.
Shareholders of record at the close of business on March 17, 2000 are
entitled to vote at the meeting on the basis of one vote for each share of
common stock held, except that cumulative voting rights may be exercised with
respect to the election of directors as described in the following paragraph. On
March 17, 2000, there were 6,536,212 shares of common stock outstanding.
A shareholder wishing to exercise cumulative voting rights in the
election of directors may multiply the number of shares which he or she is
entitled to vote by the total number of directors to be elected (three) and may
distribute the total number of such votes among one or more nominees in such
proportion as he or she desires. The proxies shall have the discretionary
authority to vote cumulatively and to distribute such votes among the nominees
so as to assure the election of the nominees of the Board of Directors, except
such nominees as to whom a shareholder withholds authority to vote and except
where a shareholder has directed that votes be cast cumulatively by specific
instructions to the proxies.
Proxies in the form enclosed, if duly signed, marked and received in
time for voting, will be voted in accordance with the directions of the
shareholders.
<PAGE> 4
SECURITY OWNERSHIP
The following table sets forth, as of February 1, 2000, all shareholders
of the Corporation who were known by the Corporation to own beneficially more
than 5% of the outstanding shares, each director of the Corporation, each named
executive officer, and all directors and executive officers as a group. As
required by SEC regulations, also shown are shares over which the named person
could acquire such powers within 60 days by exercising stock options under the
Corporation's stock option plans.
<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>
T. Rowe Price Associates, Inc. 85,200 302,800 388,000 5.7
100 E. Pratt Street
Baltimore, MD 21202
</TABLE>
<TABLE>
<CAPTION>
Acquirable
Name of Director Within
or Executive Officer 60 Days
- -------------------- ----------
<S> <C> <C> <C> <C> <C>
Fred C. Aldridge, Jr 21,866 -- 30,591 * 8,725
Philip J. Baur, Jr 18,419 74,677(3) 96,971 1.4 3,875
William A. DeMarco (4) 2,492 30 18,147 * 15,625
Richard E. Engebrecht 48,493 -- 91,449 1.3 42,956
John H. Goddard, Jr 11,405 1,291 48,932 * 36,236
Gary MacLeod 8,113 6,896(5) 18,884 * 3,875
James F. Mullan (4) 15,844 1,373 98,467 1.5 81,250
Klaus D. Oebel -- -- 1,625 * 1,625
Edward W. Padley -- 17 10,312 * 10,295
Edward N. Patrone -- 1,000(6) 4,875 * 3,875
John M. Pettine 18,350 31 22,256 * 3,875
D. James Purcell 1,261 241 13,877 * 12,375
All directors and executive
officers as a group (13 persons) 146,243 104,056 461,376 6.8 229,577
</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) 8,144 shares in a trust of which Mr. Baur has sole voting and
investment power;
b) 7,196 shares owned by the Philippian Foundation, a charitable
foundation of which Mr. Baur is trustee and has sole voting and
investment power;
c) 7,191 shares owned by Mr. Baur's spouse;
d) 41,537 shares held in a trust (for the benefit of Mr. Baur's
children) for which Mr. Baur shares voting and investment power;
e) 5,226 shares held in a trust (for the benefit of Mr. Baur's
sister's children) for which Mr. Baur shares voting and investment
power; and
f) 5,383 shares in an IRA at a stock brokerage firm.
This indirect total for Mr. Baur does not include 160,287 shares in a
trust for which Mr. Baur is the sole income beneficiary but has no
voting or investment power. Mr. Baur's sister shares voting and
investment power as to these shares.
(4) Does not include 78,567 shares owned by the Corporation's 401(k)
Savings Plan and held in a trust for the benefit of employees
participating in the Plan. Messrs. Mullan and DeMarco are two of the
three plan trustees. The employees have the sole power to direct the
voting of these shares, therefore the trustees disclaim beneficial
ownership of these shares.
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<PAGE> 5
(5) Mr. MacLeod shares voting and investment power as co-trustee of a
trust that holds these shares. Mr. MacLeod has no beneficial interest
in these shares.
(6) Mr. Patrone disclaims beneficial ownership of these 1,000 shares owned
by his spouse. These shares have been listed under indirect ownership
as required by SEC rules.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and executive officers, and holders of more than ten
percent of the Corporation's Common Stock to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock of the Corporation. SEC regulations require the filing
parties to furnish the Corporation with copies of all Section 16(a) forms they
file. To the Corporation's knowledge, during the fiscal year ended December 31,
1999, all parties subject to Section 16(a) timely complied with the filing
requirements.
ELECTION OF DIRECTORS
Your Corporation has a classified board of nine directors. Three
directors are scheduled to be elected each year for a term of three years.
Messrs. Aldridge, Goddard, and Pettine, all of whom are current directors, have
been nominated to be reelected this year for a term which expires in 2003. The
Board of Directors recommends a vote FOR their reelections, and unless you
indicate otherwise, your signed proxy will be voted for the election of these
nominees.
The Board of Directors expects that all of the nominees will be
available for election, but if any of them is not a candidate at the time the
election occurs, it is intended that such proxy will be voted for the election
of another nominee to be designated to fill any such vacancy by the Nominating
Committee of the Board of Directors of the Corporation.
NOMINEES FOR REELECTION - TERM TO EXPIRE IN 2003
Fred C. Aldridge, Jr., age 66, has served as a director of the
Corporation since 1993. He is a practicing attorney in Philadelphia,
Pennsylvania. Mr. Aldridge is also President and a director of a private
charitable foundation, Vice President, Special Counsel of the Delaware
Investments Family of Funds, and a director of Tasty Baking Company.
John H. Goddard, Jr., age 53, is Executive Vice President of the
Corporation. He was President, Chief Executive Officer and a director of
Momentum Corporation from 1992 to 1994. He became a director of PrimeSource
Corporation in 1994 when Momentum Corporation was merged into PrimeSource
Corporation.
John M. Pettine, age 57, has served as a director of the Corporation
since 1981. Mr. Pettine is Executive Vice President and Chief Financial Officer
of Tasty Baking Company and has been its Chief Financial Officer or Vice
President of Finance since 1983. He is also a director of Tasty Baking Company.
CONTINUING DIRECTORS - TERM EXPIRES IN 2001
Gary MacLeod, age 66, is Chairman and Treasurer of MagnaDrive
Corporation, a new company marketing patented torque management devices. Mr.
MacLeod was Chairman and/or Chief Executive Officer of Laird Norton Trust
Company, a private trust and investment management company, from 1975 to 1993
and from 1995 to 1999, when he became Chairman Emeritus. Mr. MacLeod was a
director of Momentum Corporation since its formation in 1989 and became a
director of PrimeSource Corporation in 1994 when Momentum Corporation was merged
into PrimeSource Corporation.
James F. Mullan, age 60, has been President of the Corporation and has
served as a member of its Board of Directors since 1982. Mr. Mullan was also
elected Chief Executive Officer of the Corporation in 1991.
Klaus D. Oebel, age 58, President, Oebel Associates, Inc., was
previously President of the Communications Systems Group of Aydin Corporation,
systems integrator and manufacturer of electronic data
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<PAGE> 6
transfer products, from 1996 to November 1997. For the previous 18 years, he was
an international management consultant specializing in developing and
implementing organizational strategies. Mr. Oebel served as a consultant to the
Corporation in the 1984-96 time period.
CONTINUING DIRECTORS - TERM EXPIRES IN 2002
Philip J. Baur, Jr., age 69, retired, has served as a director of the
Corporation since 1965 and has been Vice Chairman of the Board since 1994. Mr.
Baur held senior executive positions with Tasty Baking Company and has also
served as a director of Tasty Baking Company since 1954 and as its Chairman of
the Board from 1981 to 1998.
Edward N. Patrone, age 65, retired, was a senior consultant to Alco
Standard Corporation, a national distributor of paper and office products, from
1991 to 1997. From 1988 through 1991, he was President and Chief Executive
Officer of Paper Corporation of America. He is also a director of Compucom
Corporation and Global Imaging Corp.
Richard E. Engebrecht, age 73, retired, became a director and Chairman
of PrimeSource Corporation in 1994 when Momentum Corporation was merged into
PrimeSource Corporation. From 1989 to 1992 Mr. Engebrecht was Chairman and Chief
Executive Officer of Momentum Corporation.
The normal date for retirement from the Board of Directors is the date
of the annual meeting of shareholders which follows the director's 72nd
birthday. The Board has extended this retirement date for Mr. Engebrecht through
December 31, 2000.
DIRECTORS' COMPENSATION
Each director receives for services an annual retainer of $10,000. In
addition, the directors receive fees of $800 for attending Board of Directors'
meetings ($1,600 per meeting if an additional day of travel is required), fees
of $500 for attending Board Committee meetings, and, when applicable,
reimbursement of travel expenses in connection with meetings. The Chairman of
the Executive Committee receives an annual retainer of $2,000 and the Chairman
of each standing Committee of the Board receives an annual retainer of $1,000.
Director's Goddard and Mullan receive no annual Board or Committee retainers and
also receive no meeting fees.
The Board of Directors, following the recommendation of its Compensation
Committee, established a $22,000 annual retainer for Mr. Engebrecht effective
January 1, 1998 for his services to the Corporation as Chairman of the Board.
This retainer is in lieu of the normal director's $10,000 annual retainer and in
addition to normal meeting fees and Board Committee retainers that a
non-employee director would normally receive.
On December 3, 1998, the Board of Directors of the Corporation granted
10-year stock options to purchase 2,500 shares at $6.81 per share to each of the
seven non-employee directors of the Corporation. The option exercise price was
the fair market value of the Corporation's stock at the time of grant, and the
options became exercisable at the rate of 25% per year, beginning on December 3,
1999.
COMMITTEES OF THE BOARD OF DIRECTORS
The Corporation's Board of Directors has standing Executive, Nominating,
Audit/Pension, and Compensation Committees. The members of each committee and
the functions performed thereby are outlined below:
EXECUTIVE COMMITTEE
Mr. Richard E. Engebrecht, Chairman
Mr. Fred C. Aldridge
Mr. John H. Goddard
Mr. James F. Mullan
Three meetings were held during 1999.
Functions: Authority to exercise all the powers of the Board of Directors
between meetings of the Board, except to the extent limited by law
and certain other exceptions specified in the enabling resolution.
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<PAGE> 7
NOMINATING COMMITTEE
Mr. Philip J. Baur, Chairman
Mr. Richard E. Engebrecht
Mr. John H. Goddard
Mr. James F. Mullan
One meeting was held during 1999.
Functions:
1. Make recommendations to the Board as to selection of the Chairman
and Vice Chairman of the Board, the Chief Executive Officer and the
President.
2. Receive, review, and maintain files of individuals qualified to be
recommended as nominees for election as directors and present
recommendations to the Board of Directors as replacement directors
are required.
3. Review, at least annually, the capability of each incumbent director
as to health, availability to serve, conflicts of interest, and
other factors relevant to qualifications.
4. Present annually to the Board of Directors, a list of those
individuals recommended for nomination for election to the Board of
Directors.
5. Present recommendations to the Board of Directors as new committees
may be created or as replacement committee members may be required.
AUDIT / PENSION COMMITTEE
Mr. Gary MacLeod, Chairman
Mr. Fred C. Aldridge
Mr. Klaus D. Oebel
Two meetings were held during 1999. The members of the Committee are
independent, as that term is defined by NASD listing standards.
Functions:
1. Make recommendations to the Board on the selection and termination
of independent auditors.
2. Meet with the independent auditors and financial management of the
Corporation to review the scope of the proposed audit for the
current year and the audit procedures to be utilized.
3. Review with the independent auditors and internal personnel the
adequacy of the Corporation's internal auditing, accounting, and
financial controls.
4. Review the financial statements to be contained in the Annual Report
to Shareholders with the independent auditors to determine that the
independent auditors are satisfied with the disclosure and content
of the financial statements to be presented to the Shareholders. Any
significant changes in accounting principles should be reviewed by
the Committee.
5. Periodically review with the independent auditors and the
Corporation's financial personnel any significant litigation and the
performance of the risk management function of the Corporation.
6. Review and make recommendations to the Board of Directors with
respect to the performance of third parties responsible for the
administration and investment of retirement plan funds. The
Committee is responsible for approving the hiring and termination of
investment advisors and portfolio managers.
7. Review proposed amendments to the retirement plans.
8. Review annually the expense reports of the Chief Executive Officer
and the Executive Vice President of the Corporation.
5
<PAGE> 8
COMPENSATION COMMITTEE
Mr. Edward N. Patrone, Chairman
Mr. Philip J. Baur
Mr. John M. Pettine
Two meetings were held during 1999.
Functions:
1. Formulate and adopt the Corporation's policy on executive
compensation including the operation and administration of all
compensation practices affecting senior management.
2. Recommend compensation for executive officers of the Corporation.
3. Review or make proposals concerning stock purchase, savings plans
and similar employee benefits. Review all other employee benefits as
they affect senior management and make recommendations to the Board
of Directors.
4. Review management's recommendations with respect to the
participants, targets and potential bonus payouts specified in any
management bonus plans applicable to senior management. Review and
recommend Board approval of any bonus plans or bonus targets for
elected officers of the Corporation.
5. Make grants or awards under all stock-based incentive plans of the
Corporation and otherwise exercise all discretionary action with
respect to those plans.
6. Recommend benefit levels in the Corporation's retirement program.
7. The Chairman of the Committee is authorized to recommend, for
adoption and execution by the President, any amendment to any
retirement plan or employee welfare benefit plan which is necessary
to maintain the qualification and tax exempt status of such plan
under the Internal Revenue Code and does not materially affect
benefit levels.
8. Recommend directors' fees and retainers.
The entire Board of Directors of the Corporation met four times during
1999. Attendance at the Board of Directors and Board Committee meetings was 100%
for all incumbent directors as a group during 1999. Each incumbent director
attended all of the aggregate number of Board meetings and meetings of the
committees on which he served.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth the compensation paid by the Corporation
to its Chief Executive Officer and the four other highest paid executive
officers of the Corporation for services rendered during the last three calendar
years.
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<PAGE> 9
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------------- ----------------------
Awards
Other ----------------------
Name and Principal Annual Restricted All Other
Positions at Compen- Stock Stock Compen-
December 31, 1999 Year Salary Bonus sation Awards Options sation(2)
- ------------------ ---- -------- -------- -------- ---------- -------- ---------
($) ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
James F. Mullan 1999 275,000 190,000 -- -- 15,000 450
President & CEO 1998 275,000 170,000 -- -- 15,000 450
1997 250,000 200,000 -- -- 10,000 450
John H. Goddard, Jr 1999 210,000 90,000 -- -- 7,000 450
Exec. Vice President & 1998 210,000 75,000 -- -- 7,500 450
GM, Western Region 1997 200,000 90,000 -- -- 7,500 450
Edward W. Padley 1999 135,00 75,000 -- -- 5,000 450
Vice President & GM, 1998 135,000 70,000 -- -- 7,500 450
Central Region 1997 125,000 75,000 42,886(3) -- 5,000 60,699
William A. DeMarco 1999 135,000 70,000 -- -- 5,000 450
Vice President & CFO 1998 135,000 65,000 -- -- 7,500 450
1997 120,000 72,000 -- -- 5,000 450
D. James Purcell, 1999 135,000 45,000 -- -- 5,000 450
Vice President & GM, 1998 135,000 60,000 -- -- 7,500 450
Eastern Region 1997 115,000 65,000 -- -- 5,000 450
</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 (3), for perquisites which are not reportable since
they did not exceed 10% of salary and bonus for any named executive
officer.
(2) Consists of matching contributions by the Corporation under its 401(k)
retirement plan, with the exception of the $60,699 for Mr. Padley
which consists of $450 for the 401(k) plan and $60,249 for payments
and reimbursements in connection with Mr. Padley's relocation to
Minnesota.
(3) This represents reimbursement for Mr. Padley's income taxes on
relocation payments identified in footnote (2) above.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Corporation's compensation programs for executive officers are
administered by the Compensation Committee of the Board. The Committee is
composed of three directors, none of whom is an executive officer of the
Corporation. All issues pertaining to compensation of executive officers of the
Corporation are submitted to the full Board of Directors for final approval,
although the Committee has authority to grant stock options and award restricted
stock under the Corporation's stock plans.
The Compensation Committee of the Board of Directors of the Corporation
adopted the following policy on executive compensation on February 29, 2000.
Executive Compensation Policy
Compensation Policies Applicable to Executive Officers. The purpose of
PrimeSource's executive compensation program is to attract, retain and motivate
qualified executives to manage the business of PrimeSource to maximize profits
and shareholder value. Executive compensation in the aggregate is made up
principally of the executive's annual base salary, a bonus and awards of
restricted stock or stock options under PrimeSource's 1993 Long Term Incentive
Plan. PrimeSource's Compensation Committee (the "Committee") annually considers
and makes recommendations to the full Board of Directors as to executive
compensation including changes in base salary and bonuses.
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<PAGE> 10
Consistent with the above-noted purposes of the executive compensation
program, it is the policy of the Committee, in recommending the aggregate annual
compensation of executive officers of PrimeSource, to consider the overall
performance of PrimeSource, the performance of the operating unit or area for
which the executive has responsibility, and the individual contribution and
performance of the executive. The performance of PrimeSource and the operating
unit or area for which the executive has responsibility are significant factors
in determining aggregate compensation. PrimeSource's compensation program
focuses on PrimeSource's strategic direction, corporate performance measures,
and specific corporate goals. The corporate performance measures which the
Committee considers include sales, gross profits, earnings, and comparisons of
sales, gross profits and earnings with prior years and with budgets.
A substantial portion of the annual compensation of the executives is
directly related to corporate performance. Bonuses are calculated and awarded
based upon both objective formulas and subjective business judgment. Different
formulas are applied to the executives depending on their areas of
responsibility. In the Committee's opinion, the performance by management in
1999 was strong, given the competitive circumstances, and particularly
noteworthy was the successful integration of the Graphics Imaging Group of Bell
Industries which had 13 branch locations. Bonuses for 1999 represented
approximately 25% to 41% of the total annual compensation for the Chief
Executive Officer and the four senior executives who report to him. 1999 bonuses
for the four senior executives and the Chief Executive Officer were determined,
in part, by formulas established at the beginning of 1999, and 2000 target
bonuses have also been based on formulas established at the beginning of 2000.
In determining an executive's annual salary, the Committee considers
both corporate and personal performance criteria, competitive compensation
levels, the economic environment and changes in the cost of living, and (with
respect to officers other than the Chief Executive Officer) relies heavily upon
the recommendation of the Chief Executive Officer. The Committee then exercises
business judgment based on all these criteria and the purposes of the executive
compensation program. The Committee retains the power to waive performance
criteria under any compensation program.
It is the Committee's belief that the Corporation's long-term incentive
programs should strongly align executive incentives with the interests of
shareholders. The Committee and Board believe the executives of the Corporation
have done an exceptional job of responding to the challenges presented by a
dynamic industry environment and in making strategic acquisitions. In December
1999, the Committee reviewed the outstanding stock options held by certain
senior executives of the Corporation and, as a result, on December 3, 1999,
pursuant to the Committee's recommendation, the Board awarded options to
purchase 37,000 shares at fair market value to the top five executive officers
of the Corporation, and options to purchase 38,000 shares to other executive and
key employees of the Corporation. In granting these new options the Committee
considered the fact that there were outstanding options to purchase
approximately 507,000 shares, equal to 7.8% of the total outstanding shares. In
general, the Corporation's stock option awards are not directly tied to
performance factors.
The Committee has reviewed the employment agreements with the senior
executives and has determined that they have not had an effect on their
compensation levels. The employment agreements do not call for any minimum
bonus, only minimum salaries, some of which are below the current salary level
of the executive. No new employment agreements or changes to employment
agreements for executive officers were made in 1999.
Compensation of the Chief Executive Officer. Mr. Mullan joined
PrimeSource in 1970, became President in 1982 and Chief Executive Officer in
1991. For 1999, Mr. Mullan received a base salary of $275,000. This base salary
was increased to $290,000 for 2000. In addition, pursuant to the bonus program
applicable to him, he was awarded a bonus of $190,000 for 1999, an increase from
his 1998 bonus of $170,000. Mr. Mullan's 1999 bonus represents approximately
2.2% of PrimeSource's 1999 consolidated pre-tax income. The Committee also
recommended that Mr. Mullan be given the opportunity to earn a target bonus for
2000 equal to 80% of his base salary if the Corporation achieves a targeted
earnings per share set by the Board of Directors. The Committee noted that the
Corporation has continued to perform well in a dynamic environment.
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<PAGE> 11
Consistent with its belief that through the use of significant stock
options, the Chief Executive Officer's and other executives' interests are
directly tied to enhancing shareholder value, in December 1999, pursuant to the
recommendation of the Committee, the Board granted Mr. Mullan stock options to
purchase a total of 15,000 shares of common stock, bringing his total to 115,000
stock options. The Committee plans to evaluate the desirability of additional
option grants to executive officers at future meetings.
February 29, 2000
The Compensation Committee
Edward N. Patrone, Chairman
Philip J. Baur
John M. Pettine
EXECUTIVE BONUS PLANS
Executive bonus plans are administered by the Compensation Committee of
the Board. As noted above in the Compensation Committee Report, these plans are
specifically tailored for each senior executive and may or may not involve a
pre-set formula and may or may not have a maximum amount for the bonus the
executive can be awarded. The Committee may authorize annual cash or deferred
awards to any full-time salaried management employee of the Corporation but
typically permits the President of the Corporation the discretion to make
awards, if any, to key managers.
STOCK OPTION PLANS
The Corporation has a 1993 Long Term Incentive Plan under which stock
options are granted from time to time to key employees and officers. As of March
1, 2000, 11,600 shares were available for future grants to officers and key
employees under this 1993 Plan. The Corporation has never granted stock
appreciation rights of any kind.
STOCK OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
% of Total Annual Rates of Stock
Number of Options Price Appreciation
Shares Granted Option for 10-Year Option Term
Underlying to Employees Exercise Expiration --------------------------------------
Name Options Granted in 1999 Price ($/share) Date 0%($) 5%($) 10%($)
- ---- --------------- ------------- --------------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
James F. Mullan 15,000 20.0% 5.75 12/2/09 0 54,242 137,460
John H. Goddard, Jr 7,000 9.3% 5.75 12/2/09 0 25,313 64,148
Edward M. Padley 5,000 6.7% 5.75 12/2/09 0 18,080 45,820
William A. DeMarco 5,000 6.7% 5.75 12/2/09 0 18,080 45,820
D. James Purcell 5,000 6.7% 5.75 12/2/09 0 18,080 45,820
</TABLE>
Twenty-five percent of the incentive stock options granted to the
officers listed above become exercisable on each anniversary of the grant until
fully exercisable after four years. All stock options have a 10-year term and
were granted at fair market value.
If the market price for PrimeSource stock appreciates at 5% per year for
the same 10-year period, the shares held by all shareholders of the Corporation
as a group would have increased in value by $23,635,596. At the 10% appreciation
rate, the increase in value for the shareholders would be $59,897,847.
9
<PAGE> 12
STOCK OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of securities Value of unexercised
underlying unexercised in-the-money
Shares acquired options at 12/31/99 options at 12/31/99
Name on exercise Exercisable Unexercisable Exercisable Unexercisable
- ------------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
James F. Mullan 0 81,250 33,750 $ 0 $ 0
John H. Goddard, Jr 0 36,236 21,625 0 0
Edward W. Padley 0 10,295 14,125 0 0
William A. DeMarco 0 15,625 14,375 0 0
D. James Purcell 0 12,375 14,125 0 0
</TABLE>
RETIREMENT PLANS
The Corporation has an IRS qualified defined benefit retirement plan
("Pension Plan") which nearly all employees of the Corporation are eligible to
participate in. Amounts expensed for the Pension Plan or contributed to the
Pension Plan are computed on an aggregate actuarial basis and cannot be
individually allocated. The remuneration covered by the Pension Plan includes
salaries and bonuses paid to the named executives listed in the Summary
Compensation Table. Compensation of all non-executive officer employees covered
by the Pension Plan includes salaries, commissions and bonuses. Benefits under
the plan are computed by multiplying a percentage (based on number of years of
service) times the highest average remuneration paid over a consecutive 60-month
period within the last 120 months of employment with the Corporation. Benefits
under the Pension Plan are subject to reduction for Social Security and are
presently restricted under the Internal Revenue Code to a maximum of $135,000
per year. The Internal Revenue Code also limits the level of compensation which
may be used to determine benefits under these qualified plans to $170,000 per
year. Messrs. Mullan, Goddard, Padley, DeMarco and Purcell have 30, 12, 7, 19
and 5 years, respectively, of credited service under this Pension Plan.
Additional benefits may be payable to these five officers under the Supplemental
Executive Retirement Plan ("SERP") described below for these five executive
officers.
The following table, applicable only to executive officers Mullan,
Goddard, Padley, DeMarco and Purcell, shows the approximate annual retirement
benefits which will be payable in total under the Pension Plan, Social Security,
and the SERP at the normal retirement age of 65 (assuming continuation of the
plans) for 25 years of service and varying levels of average remuneration. The
SERP was previously adopted by the Board in 1989, and was amended as of March 1,
2000 to add a 25 year formula for full benefits. Messrs. Goddard, Padley and
Purcell were not participants in the SERP prior to March 1, 2000. Mr. Goddard
was, however, a participant in a similar Momentum Supplemental Benefits Plan
that became a PrimeSource plan with the 1994 merger with Momentum Corporation.
That plan was terminated concurrent with the adoption of the amended SERP on
March 1 and the designation of Mr. Goddard as a participant in the SERP.
<TABLE>
<CAPTION>
Final Average 25 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 designated key executives
to continue in the service of the Corporation by providing them upon their
retirement with a supplemental retirement benefit equal to the difference
between (i) 45% of the average of the 60 highest consecutive calendar months
compensation paid by the Corporation during the 120 calendar months immediately
preceding the executive's separation from service, and (ii) the sum of the
executive's primary Social Security benefits and payments which the executive
would be eligible to receive from the Pension Plan on a single life annuity
basis, and this difference is then multiplied by a fraction, the numerator of
which is the number of years of credited service under the SERP and the
denominator is 25. Mr. Goddard has 12 years of credited service under this SERP,
and Messrs. Padley and Purcell each have 6 years. Upon completion of 5 years of
credited service, the participant is vested in a benefit based on the formula
above, but does not receive the full benefit under the formula until he has 25
years of credited service. Only Messrs. Mullan and DeMarco are currently
entitled to receive the full benefit under the
10
<PAGE> 13
SERP. A surviving spouse is also entitled to certain benefits under the SERP.
Messrs. Mullan, Goddard, Padley, DeMarco and Purcell are the only current
employees who have been designated to participate in the SERP.
The Corporation has entered into a Trust Agreement with a major bank for
the benefit of the participants in the SERP. Under this Trust Agreement, the
Corporation is obligated to deposit sufficient funds with the trustee to enable
it to purchase annuity contracts to fund the SERP in the event of a change or
potential change in control of the Corporation. To date no funding has occurred
or is required.
The Corporation has a 401(k) Savings Plan which covers all of its
employees. Under this plan the Corporation matches employee contributions up to
$450 per year.
Under the terms of a 1990 agreement with VWR Scientific Products Corp.,
VWR has agreed to pay two-thirds of all amounts payable to PrimeSource Chairman
Richard Engebrecht under the Momentum Supplemental Benefits Plan, a Supplemental
Benefits Plan for certain designated Momentum executive officers to whom the
Internal Revenue Code Sections 415 and 401 limits may apply, and the Corporation
as successor to Momentum Corporation will pay the remaining one-third. The
Corporation has guaranteed payment of the two-thirds payable by VWR and,
likewise, VWR has guaranteed payment of the one-third payable by the
Corporation. In 1993 Mr. Engebrecht ceased being a regular employee of Momentum
Corporation and began drawing retirement pay under both the Pension Plan ($9,044
per month) and the Momentum Supplemental Benefits Plan ($8,489 per month).
AGREEMENTS WITH CERTAIN OFFICERS
Each of the five named executives has an employment agreement with the
Corporation. Messrs. Mullan, Goddard and DeMarco entered into their present
agreements in December, 1996 and Messrs. Padley and Purcell entered into theirs
in December, 1997. Under these agreements each officer would continue to receive
an amount equal to his annual salary and average prior bonuses for one year (two
years for Mr. Mullan) after termination of his employment under the following
circumstances: (a) termination by the Corporation except for cause or upon
death, retirement, or disability, (b) termination by the executive because his
authority or duties are changed so as to be inconsistent with his training and
experience, or (c) termination by the executive because of a breach of his
employment agreement by the Corporation. These agreements provide one additional
year of salary continuation if the executive's employment is ended in a setting
involving a "change of control" of the Corporation. The current salaries are as
follows: Mullan, $290,000; Goddard, $221,500; Padley, $142,500; DeMarco,
$142,500; and Purcell, $142,500. This payment would be in addition to any other
damages which the executive may suffer as a result of such termination.
Each of the ongoing employment agreements described above has no fixed
term and can be terminated by the Board of Directors upon giving a specified
advance notice. Each of the agreements also contain non-competition and
confidentiality provisions spanning any period of continuing compensation.
11
<PAGE> 14
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
PrimeSource stock with the NASDAQ Composite Index and the NASDAQ Non-Financial
Index for the period from December 31, 1994 through December 31, 1999. The graph
assumes $100 invested on December 31, 1994 in PrimeSource stock, the NASDAQ
Composite Index and the NASDAQ Non-Financial Stocks Index. Total shareholder
return assumes reinvestment of dividends. The stock price performance is not
necessarily indicative of future price performance.
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PrimeSource $ 100.00 $ 65.89 $ 91.22 $ 115.29 $ 83.47 $ 65.62
NASDAQ Composite $ 100.00 $ 141.31 $ 173.94 $ 213.56 $ 299.69 $ 544.77
NASDAQ Non-Financial $ 100.00 $ 137.50 $ 169.98 $ 199.53 $ 292.38 $ 566.39
</TABLE>
12
<PAGE> 15
APPROVAL OF INDEPENDENT AUDITORS
The Audit/Pension Committee of the Board of Directors request that the
shareholders ratify its selection of PricewaterhouseCoopers LLP, Certified
Public Accountants, as independent public auditors for the Corporation for the
current fiscal year. If the shareholders do not ratify the selection of
PricewaterhouseCoopers LLP, another firm of certified public accountants will be
selected as independent public auditors by the Board of Directors.
Representatives of PricewaterhouseCoopers will be present at the
shareholders' meeting with the opportunity to make a statement if they desire
and will be available to respond to appropriate questions.
The Board of Directors recommends a vote FOR this selection.
SHAREHOLDER PROPOSALS
In order for proposals of shareholders to be considered for inclusion in
the Proxy Statement and proxy for the 2001 annual meeting of the shareholders,
said proposals must be received by the Corporate Secretary of the Corporation
not later than December 9, 2000.
OTHER BUSINESS
The Board of Directors has no knowledge of any other business to be
acted upon at this meeting. However, if any other business is presented to the
meeting, proxies will be voted in accordance with the judgment of the person or
persons voting such proxies unless the proxies are so marked to preclude such
discretionary authority.
The Corporation's Annual Report for the fiscal year ended December 31,
1999 has been mailed to the shareholders.
BY ORDER OF THE BOARD OF DIRECTORS
Barry C. Maulding
April 10, 2000 Corporate Secretary
