<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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 ss.240.14a-11(c) or ss.240.14a-12
PROSOURCE, INC.
(Name of Registrant as Specified In Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
|X| No Filing 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):
Transaction Valuation $__________
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[PROSOURCE LETTERHEAD]
March 31, 1997
Dear Stockholder:
On behalf of the Board of Directors, it is my pleasure to invite you to
attend the 1997 Annual Meeting of Stockholders of ProSource, Inc. (the
"Company").
As shown in the formal notice enclosed, the meeting will be held on
Tuesday, April 29, 1997, at 8:30 a.m. at the Biltmore Hotel, located at 1200
Anastasia Avenue, Coral Gables, Florida. The purpose of the meeting is to elect
nine Directors, to consider and act on proposals to adopt the Company's 1997
Directors Stock Option Plan and the Company's 1997 Employee Stock Purchase Plan,
to ratify the appointment of KPMG Peat Marwick LLP as independent auditors for
the Company for the fiscal year ending December 27, 1997, and to transact such
other business as may properly come before the meeting.
Whether or not you plan to attend the meeting, it is important that you be
represented and that your shares be voted. Accordingly, after reviewing the
Proxy Statement, we ask you to complete, sign and date the proxy card and return
it as soon as possible in the postage-paid envelope provided.
I look forward to seeing you on Tuesday, April 29, 1997.
Sincerely,
/s/David R. Parker /s/Thomas C. Highland
David R. Parker Thomas C. Highland
Chairman of the Board President and Chief Executive Officer
<PAGE> 3
PROSOURCE, INC.
1500 SAN REMO AVENUE
CORAL GABLES, FLORIDA 33146
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Annual Meeting of Stockholders (the
"Annual Meeting") of ProSource, Inc. (the "Company") will be held at 8:30 a.m.
on Tuesday, April 29, 1997, at the Biltmore Hotel, located at 1200 Anastasia
Avenue, Coral Gables, Florida, for the following purposes:
1. To elect nine directors to hold office for a term of one year and
until their successors are elected and qualified;
2. To consider and act upon a proposal to adopt the Company's 1997
Directors Stock Option Plan;
3. To consider and act upon a proposal to adopt the Company's 1997
Employee Stock Purchase Plan;
4. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Company for the fiscal year ending December 27, 1997; and
5. To transact such other business as may properly come before the
Annual Meeting.
The Board of Directors has fixed the close of business on March 14, 1997
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting.
Your attention is directed to the Proxy Statement accompanying this notice
for a more complete statement regarding matters to be acted upon at the Annual
Meeting.
By the Order of the Board of Directors
/s/ Paul A. Garcia de Quevedo
Paul A. Garcia de Quevedo
Secretary
Coral Gables, Florida
March 31, 1997
YOUR REPRESENTATION AT THE ANNUAL MEETING IS IMPORTANT. TO ENSURE YOUR
REPRESENTATION, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY. SHOULD YOU DESIRE TO REVOKE
YOUR PROXY, YOU MAY DO SO AS PROVIDED IN THE ACCOMPANYING PROXY STATEMENT AT ANY
TIME BEFORE IT IS VOTED.
<PAGE> 4
PROSOURCE, INC.
1500 SAN REMO AVENUE
CORAL GABLES, FLORIDA 33146
----------
PROXY STATEMENT
----------
The accompanying proxy is solicited by the Board of Directors of
ProSource, Inc. (the "Company") for use at the Annual Meeting of Stockholders of
the Company (the "Annual Meeting") to be held on April 29, 1997, and any
adjournments thereof, notice of which is attached hereto.
The purposes of the Annual Meeting are to elect nine directors; to
consider and act upon a proposal to adopt the Company's 1997 Directors Stock
Option Plan; to consider and act upon a proposal to adopt the Company's 1997
Employee Stock Purchase Plan; to ratify the appointment of KPMG Peat Marwick LLP
as independent auditors for the Company for the fiscal year ending December 27,
1997; and to transact such other business as may properly be brought before the
Annual Meeting or any adjournment thereof.
A stockholder who signs and returns a proxy may revoke the same at any
time before the authority granted thereby is exercised by attending the Annual
Meeting and electing to vote in person, by filing with the Secretary of the
Company a written revocation or by duly executing a proxy bearing a later date.
Unless so revoked, the shares represented by the proxy will be voted at the
Annual Meeting. Where a choice is specified on the proxy, the shares represented
thereby will be voted in accordance with such specifications. If no
specification is made, such shares will be voted FOR the election of the nine
director nominees; FOR the adoption of the Company's 1997 Directors Stock Option
Plan; FOR the adoption of the Company's 1997 Employee Stock Purchase Plan and
FOR the ratification of KPMG Peat Marwick LLP as independent auditors for the
Company for the fiscal year ending December 27, 1997.
The Board of Directors of the Company (the "Board of Directors") knows of
no other matters which are to be brought to a vote at the Annual Meeting. If any
other matter does come before the Annual Meeting, however, the persons appointed
in the proxy or their substitutes will vote in accordance with their best
judgment on such matters.
The Board of Directors has fixed the close of business on March 14, 1997
as the record date for the Annual Meeting. Only record holders of the Company's
Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), and
Class B Common Stock, par value $.01 per share (the "Class B Common Stock" and,
together with the Class A Common Stock, the "Common Stock"), at the close of
business on that date will be entitled to vote at the Annual Meeting. On the
record date, the Company had outstanding 9,330,856 shares of Common Stock
(3,400,000 shares of Class A Common Stock and 5,930,856 shares of Class B Common
Stock). Holders of the Class A Common Stock will be entitled to one vote for
each share of Class A Common Stock so held and holders of the Class B Common
Stock will be entitled to ten votes for each share of Class B Common Stock so
held. See "Security Ownership."
The representation in person or by proxy of at least at majority of the
outstanding shares entitled to vote is necessary to provide a quorum at the
meeting. Abstentions and "non-votes" are counted as present in determining
whether the quorum requirement is satisfied. A "non-vote" occurs when a nominee
holding shares for a beneficial owner votes on one proposal, but does not vote
on another proposal because the nominee does not have discretionary voting power
and has not received instructions from the beneficial owner. The directors shall
be elected by the affirmative vote of a plurality of the votes cast in the
election by the holders of the Common Stock represented and entitled to vote at
the Annual Meeting. Any other matters as may properly come before the meeting or
any adjournment thereof shall be approved by the affirmative vote of a majority
of the votes cast by the holders of Common Stock represented and entitled to
vote at the Annual Meeting. Abstentions and "non-votes" will not be counted in
tabulating votes.
1
<PAGE> 5
PROPOSAL 1: ELECTION OF DIRECTORS
Unless contrary instructions are set forth in the proxy card, it is
intended that the persons named in the proxy will vote all shares of Common
Stock represented by the proxy for the election of the persons listed below as
directors, all of whom are presently members of the Board of Directors of the
Company. The nine directors elected at the meeting will each serve for a term
expiring on the date of the Annual Meeting in 1998. Directors of the Company are
elected annually and hold office until their successors have been elected and
qualified or their earlier resignation or removal. Should any nominee become
unavailable for election, the Board of Directors of the Company may designate
another nominee, in which case the persons acting under the duly executed
proxies will vote for the election of the replacement nominee. Management of the
Company is currently unaware of any circumstances likely to render any nominee
unavailable for election. A stockholder may, in the manner set forth in the
enclosed proxy card, instruct the proxy holder not to vote that stockholder's
shares for one or more of the named nominees.
The number of directors is fixed by the Board of Directors. Ten persons
currently serve on the Board of Directors and are expected to continue to serve
until the Annual Meeting. Nine of the current members of the Board of Directors
have been nominated for reelection. Dr. Michael E. Treacy, at his request, has
not been nominated for an additional term due to other business commitments. The
proxies solicited hereby cannot be voted for a number of persons greater than
the number of nominees named below. The Certificate of Incorporation of the
Company, as amended to date (the "Certificate of Incorporation"), does not
permit cumulative voting. The directors shall be elected by the affirmative vote
of a plurality of the votes cast in the election by the holders of the Common
Stock present or represented, and entitled to vote, at the Annual Meeting.
The Board of Directors believes that the election of the persons listed
below as directors of the Company is in the best interest of the Company and its
stockholders. THE BOARD OF DIRECTORS THEREFORE RECOMMENDS A VOTE FOR THE
NOMINEES AND IT IS INTENDED THAT THE PROXIES NOT MARKED TO THE CONTRARY WILL BE
SO VOTED.
The following sets forth information concerning each of the nominees for
election to the Board of Directors, including the name, age, current position
with the Company, principal occupation or employment during at least the past
five years and the period during which such person has served as a director of
the Company.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS FOR A ONE YEAR
TERM EXPIRING AT THE ANNUAL MEETING IN 1998
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David R. Parker 53 Chairman of the Board of Directors
Thomas C. Highland 55 President, Chief Executive Officer and Director
Daniel J. Adzia 54 Vice-Chairman, Chief Marketing Officer and Director
Gerald W. Schwartz 54 Director
Anthony R. Melman 49 Director
Michael Carpenter 49 Director
Anthony Munk 36 Director
C. Lee Johnson 64 Director
R. Geoffrey P. Styles 66 Director
</TABLE>
David R. Parker Mr. Parker has served as Chairman of the Board of
Directors since the formation of the Company in 1992. From July 1, 1991 to July
1, 1992, Mr. Parker was an independent investor, working primarily on the
formation of the Company and the acquisition of Burger King Distribution
Services ("BKDS") from Burger King Corporation. Prior to such time, he was
Senior Executive Vice President of Ryder System, Inc. and President of the
Vehicle Leasing and Services Division. Previously, he was Chief Operating
Officer of Ryder's Business Services Group which included the company's
worldwide aviation support businesses and its insurance management services
businesses.
2
<PAGE> 6
Before joining Ryder System in 1984, Mr. Parker was Executive Vice President and
Sector Executive of American Can Company (Primerica). Mr. Parker serves on the
Boards of Directors of Premark International, Inc., SunTrust Bank, Miami, N.A.
and Tupperware Corporation.
Thomas C. Highland Mr. Highland has served as President, Chief Executive
Officer and a Director of the Company since its formation in 1992. Before
serving in this capacity, Mr. Highland was President of BKDS from 1988 to 1992.
Prior thereto, he held various executive positions at Warner Lambert Company,
including Vice President, U.S. Distribution, Director, Distribution Operations,
Pharmaceutical Group and Director, Distribution Center Operations from 1963 to
1988.
Daniel J. Adzia Mr. Adzia has served as Vice-Chairman, Chief Marketing
Officer of the Company since the acquisition of the National Accounts Division
("NAD") of The Martin-Brower Company ("Martin-Brower") in March 1995 and a
Director of the Company since April 1995. From 1975 to 1995, Mr. Adzia served in
various executive capacities at Martin-Brower including President of NAD. Prior
to joining Martin-Brower, Mr. Adzia held various sales and sales management
positions with Oscar Mayer & Co.
Gerald W. Schwartz Mr. Schwartz has served as a Director of the Company
since its formation in 1992. Mr. Schwartz is Chairman of the Board, President
and Chief Executive Officer of Onex Corporation (together with its affiliates,
"Onex") and has served in such capacity since its formation in 1983. Mr.
Schwartz serves on the Board of Directors of Alliance Communications
Corporation.
Anthony R. Melman Mr. Melman has served as a Director of the Company since
its formation in 1992. Mr. Melman has been Vice President of Onex Corporation
since 1984. Prior to joining Onex, Mr. Melman held various executive positions
at Canadian Imperial Bank of Commerce and Union Acceptances Limited, a South
African merchant banking organization. Mr. Melman serves on the Board of
Directors of Purolator Courier Ltd.
Michael Carpenter Mr. Carpenter has served as a Director of the Company
since October 1992. Since January 1995, he has been Chairman and Chief Executive
Officer of Travelers Life and Annuity Company. He also serves as Executive Vice
President of Travelers Group, Inc., responsible for business development and
planning. Mr. Carpenter was Chairman of the Board, President and Chief Executive
Officer of Kidder, Peabody Group Inc., a wholly owned subsidiary of General
Electric Company from January 1989 to June 1994. Mr. Carpenter serves on the
Board of Directors of General Signal, Inc., a diversified manufacturing company.
Anthony Munk Mr. Munk has served as a Director of the Company since
January 1995. He joined Onex Corporation in April 1988, and is currently a Vice
President. During the period January 1995 to September 1995, Mr. Munk served as
Senior Vice President and is currently a Director of The Horsham Corporation, a
Canadian based company which has interests in gold, real estate and refining
ventures, and Barrick Gold Corporation.
C. Lee Johnson Mr. Johnson has served as a Director of the Company since
October 1992. Since July 1986, he has been President of Limited Distribution
Services (a subsidiary of The Limited, Inc.). From 1984 to 1986, he was Senior
Vice President, Beatrice U.S. Food Corporation and President, Beatrice
Distribution, Inc. Mr. Johnson serves on the Board of Directors of Columbus Port
Authority and the Executive Committee and Board of Directors of Columbus Chamber
of Commerce.
R. Geoffrey P. Styles Mr. Styles has served as a Director of the Company
since October 1992 and is a director of Onex Corporation. From 1990-1996, he
served as Chairman of the Board of Directors of Drivers Jonas (Canada) Ltd. He
serves as Chairman and Director of Grosvenor International Holdings Limited and
is on the Boards of Directors of Royal Trust Company, The Geon Company, Echo Bay
Mines Ltd., Fairwater Capital Corporation, Working Ventures Canadian Fund Inc.
and Scott's Restaurants Inc.
TERMS OF OFFICE AND COMMITTEES
All directors of the Company are elected annually and hold office until
their successors have been elected and qualified. Messrs. Parker and Highland
were elected to the Board of Directors pursuant to a management shareholders
3
<PAGE> 7
agreement under which the management shareholders had the right to have two
designees nominated to the Board of Directors by Onex. These provisions of the
management shareholders agreement terminated upon completion of the Company's
initial public offering in November 1996. See "Certain Transactions --
Shareholders Agreements -- Management Shareholders Agreement." There are no
family relationships among any of the directors or executive officers of the
Company.
The Board of Directors has established an Audit Committee comprising
Messrs. Carpenter, Styles and Treacy. Dr. Treacy will cease to be a member of
the Audit Committee effective concurrently with termination of his term as a
director. The Audit Committee is responsible for recommending to the Board of
Directors the engagement of independent auditors of the Company and reviewing
with the independent auditors the scope and results of the audits, the internal
accounting controls of the Company, audit practices and the professional
services furnished by the independent auditors.
The Board of Directors has also established a Compensation and Nominating
Committee comprising Messrs. Johnson, Melman and Parker and an Equity
Compensation Committee comprising Messrs. Carpenter, Johnson and Styles. The
Compensation and Nominating Committee is responsible for reviewing and approving
all non-equity based compensation arrangements for officers of the Company. In
addition, the Compensation and Nominating Committee advises and makes
recommendations to the Board of Directors on the selection of candidates as
nominees for election as directors. The Compensation and Nominating Committee
will consider nominees recommended by stockholders received by the Company in
accordance with the procedures set forth in "Proposals of Stockholders." The
Equity Compensation Committee is responsible for reviewing and approving all
equity based compensation arrangements for officers of the Company and for
administering the Company's option plans.
DIRECTOR COMPENSATION
Directors who are not officers or employees of the Company or Onex
currently receive an annual fee of $20,000. All directors are reimbursed for
out-of-pocket expenses. Dr. Treacy received a Company-guaranteed loan of $0.2
million from a third party lender to finance, in part, the purchase of 30,000
shares of Common Stock in 1993. Effective as of March 21, 1997, the lender
released the Company from its guaranty and took a pledge of such shares as
security for the loan. See "Certain Transactions -- Certain Equity Offerings to
Management."
The Board of Directors has approved a compensation plan for directors who
are not officers or employees of the Company or Onex, effective January 1, 1997,
under which such directors will be entitled to receive an annual fee of $14,000,
plus $1,500 for each Board of Directors meeting attended, $1,000 for each
committee meeting attended and a $2,500 annual fee for serving as chairman of a
committee. If the proposed 1997 Directors Stock Option Plan is approved by
stockholders, such directors will be entitled to elect to receive options to
purchase Class A Common Stock in lieu of all or any portion of the annual
retainer fee. See "Proposal 2: 1997 Directors Stock Option Plan."
MEETINGS OF BOARD OF DIRECTORS
During the fiscal year ended December 28, 1996, the Board of Directors
held four meetings, the Audit Committee held two meetings, the Compensation and
Nominating Committee held one meeting and the Equity Compensation Committee held
one meeting. All directors, other than Dr. Treacy, attended at least 75% of the
meetings held during fiscal 1996 of the Board of Directors and each committee of
the Board of Directors on which such directors served.
4
<PAGE> 8
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned during the fiscal years ended December 28, 1996 and December 30, 1995 by
the Company's chief executive officer and each of the four other most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL OTHER COMPENSATION
COMPENSATION ANNUAL AWARDS
--------------- COMP- SECURITIES ALL OTHER
FISCAL SALARY BONUS ENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) OPTIONS(#)(2) ($)(3)
- --------------------------- ---- --- --- ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
David R. Parker 1996 324,038 - 35,148 25,000 158,000
Chairman of the Board of Directors...... 1995 300,000 150,000 (4) 5,000 207,120
Thomas C. Highland 1996 324,038 - 33,104 25,000 158,000
President, Chief Executive Officer...... 1995 300,000 150,000 (4) 3,750 157,120
Daniel J. Adzia 1996 310,000 - 61,448 15,000 65,000
Vice Chairman, Chief Marketing Officer.. 1995(5) 225,385 112,500 (4) 22,500 58,410
William F. Evans
Executive Vice President, Chief Financial 1996 287,500 - 44,548 15,000 43,000
Officer................................. 1995(6) 116,346 82,282 (4) 22,500 -
John E. Foley 1996 182,500 - 42,038 10,000 3,000
Senior Vice President, Operations 1995 170,000 70,000 (4) 15,000 3,400
Development.............................
</TABLE>
- ----------------
(1) The amounts shown for 1996 in the "Other Annual Compensation" column
consist of the following (i) Mr. Parker: $14,000 car allowance, $13,000
perquisite allowance and $8,148 of interest paid by the Company in respect
of an outstanding loan, (ii) Mr. Highland: $14,000 car allowance, $13,000
perquisite allowance and $6,104 of interest paid by the Company in respect
of an outstanding loan, (iii) Mr. Adzia: $4,528 car allowance, $16,283
perquisite allowance and $40,637 of interest paid by the Company in
respect of an outstanding loan, (iv) Mr. Evans: $11,100 car allowance,
$5,000 perquisite allowance and $28,448 of interest paid by the Company in
respect of an outstanding loan, and (v) Mr. Foley: $10,900 car allowance,
$6,500 perquisite allowance and $24,638 of interest payments paid by the
Company in respect of an outstanding loan. The loans referred to in the
previous sentence were provided by a third party lender to finance, in
part, certain purchases of Common Stock by employees, including the Named
Executive Officers, and were guaranteed by the Company. Effective as of
March 21, 1997, the lender released the Company from its guaranty (other
than with respect to the loans to Messrs. Adzia, Evans and Andruskiewicz)
and took a pledge of such shares as security for the loans. See "Certain
Transactions -- Certain Equity Offerings to Management."
(2) Options to acquire shares of Class B Common Stock.
(3) The amounts shown in the "All Other Compensation" column consist of the
following: (i) Mr. Parker: $87,500 and $150,000 in consulting fees paid by
Onex for services rendered in 1996 and 1995 (including amounts actually
paid in 1996), respectively; $3,000 and $3,120 in Company matching
contributions to the Company's Associates' Savings Plan, a defined
contribution plan (the "401-K Plan") made in 1996 and 1995, respectively;
and $67,500 and $54,000 in Company accruals pursuant to the Company's
Supplemental Executive
5
<PAGE> 9
Retirement Plan (the "SERP") in 1996 and 1995, respectively, (ii) Mr.
Highland: $87,500 and $100,000 in consulting fees paid by Onex for
services rendered in 1996 and 1995, respectively; $3,000 and $3,120 in
Company matching contributions to the 401-K Plan made in 1996 and 1995,
respectively; and $67,500 and $54,000 in Company accruals pursuant to the
SERP in 1996 and 1995, respectively, (iii) Mr. Adzia: $15,000 and $21,410
in Company contributions to the Company's Money Purchase Plan for Former
NAD Salaried Employees, a defined contribution plan in 1996 and 1995,
respectively; and $50,000 and $37,000 in Company accruals pursuant to the
SERP in 1996 and 1995, respectively, (iv) Mr. Evans: $3,000 in Company
matching contributions to the 401-K Plan made in 1996; and $40,000 in
Company accruals pursuant to the SERP in 1996 and (v) Mr. Foley: $3,000
and $3,400 in Company matching contributions to the 401-K Plan made in
1996 and 1995, respectively. See "Defined Contribution Plans."
(4) Excludes perquisites and other personal benefits because such compensation
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus for the Named Executive Officer.
(5) Represents amounts paid from April 1, 1995 through the end of 1995. Prior
to such time Mr. Adzia was employed by NAD.
(6) Represents amounts paid from July 28, 1995 through the end of 1995. Prior
to such time Mr. Evans was not employed by the Company.
The following table provides information regarding stock options granted
to the Named Executive Officers during fiscal year 1996. No stock appreciation
rights were granted.
OPTION GRANTS DURING FISCAL YEAR 1996
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
----------------- AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE -----------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) EXPIRATION DATE 5%($) 10%($)
---- ------------- ----------- --------- --------------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
David R. Parker................. 25,000 7.0% $14.00 November 7, 2006 220,113 557,810
Thomas C. Highland.............. 25,000 7.0 14.00 November 7, 2006 220,113 557,810
Daniel J. Adzia................. 15,000 4.2 14.00 November 7, 2006 132,068 334,686
William F. Evans................ 15,000 4.2 14.00 November 7, 2006 132,068 334,686
John E. Foley................... 10,000 2.8 14.00 November 7, 2006 88,045 223,124
</TABLE>
- ------------------
(1) The options become exercisable ratably on each of the first four
anniversaries of the date of grant. However, notwithstanding such
vesting, no option will become exercisable until the earlier of (i) the
date on which the Market Value of the Class B Common Stock is at least
25% greater than the exercise price of such option and (ii) the eighth
anniversary of the date of grant. "Market Value" of the Class B Common
Stock is determined by taking the average closing price of the Class A
Common Stock on the Nasdaq National Market or the principal securities
exchange on which the Common Stock is listed for the five consecutive
trading days immediately preceding the applicable date.
The following table sets forth certain information regarding the number
and year-end value of unexercised options held by the Named Executive Officers
at December 28, 1996. No stock options were exercised by the Named Executive
Officers during fiscal year 1996.
6
<PAGE> 10
AGGREGATE OPTION EXERCISES IN 1996 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES "IN-THE-MONEY"
UNDERLYING UNEXERCISED OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END($)
YEAR-END(#) EXERCISABLE/
NAME EXERCISABLE/UNEXERCISABLE UNEXERCISABLE(2)
---- ------------------------- ----------------
<S> <C> <C>
David R. Parker.................................................... 17,663/78,987 39,742/177,721
Thomas C. Highland................................................. 9,188/53,312 20,673/119,952
Daniel J. Adzia.................................................... 4,500/33,000 10,125/74,250
William F. Evans................................................... 4,500/33,000 10,125/74,250
John E. Foley...................................................... 3,000/22,000 6,750/49,500
</TABLE>
- ----------------
(1) No options were exercised in 1996.
(2) Options are "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set
forth represent the difference between the closing price of the Company's
Class A Common Stock on the Nasdaq National Market at December 28, 1996 of
$12 1/4 per share and the exercise price of the option multiplied by the
applicable number of options.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (each an "Employment
Agreement") with each of Messrs. David R. Parker, Thomas C. Highland, Daniel J.
Adzia, Paul A. Garcia de Quevedo, Dennis T. Andruskiewicz and John E. Foley
(each an "Employee"). Each Employment Agreement provides that the Employee will
receive an annual salary (subject to increase at the discretion of the Board of
Directors), a cash bonus calculated in accordance with the Company's management
bonus or incentive compensation plan in effect from time to time and certain
benefits. The term of each Employment Agreement is three years (one year in the
case of Mr. Andruskiewicz), with automatic one year extensions unless terminated
earlier by the Company or the Employee upon prior written notice. In the event
that the Company terminates the Employee's employment for disability or without
cause, the Employee is entitled to receive his salary, a pro rata portion of the
actual incentive payment that he would have received under the management
incentive plan for the year in which termination occurs and all other benefits
in effect for senior management employees at the time of termination
("Termination Benefits") for a period of one year from the date of termination,
except in the cases of Messrs. Highland and Adzia. In the event that the Company
terminates Mr. Highland's employment for disability or without cause, he is
entitled to receive payment in an amount equal to 150% of the sum of the
Termination Benefits for a period of eighteen months from the date of
termination. In the event that the Company terminates Mr. Adzia's employment for
disability or without cause, he is entitled to receive 100% of the Termination
Benefits for a period ending on the later of April 1, 1998 and eighteen months
from the date of termination. If the Company terminates the Employee's
employment, including Messrs. Highland or Adzia, for any other reason, the
Employee is entitled to receive the Termination Benefits through the date of
termination. Each Employee is also subject to a one-year covenant not to compete
effective upon termination of employment for any reason, except in the cases of
Messrs. Highland (eighteen months) and Adzia (terminating on the later of April
1, 1998 and eighteen months from the date of termination).
The initial terms of the Employment Agreements with Messrs. Parker and
Highland commenced on July 1, 1992. Such agreements currently expire on July 1,
1998, subject to automatic one-year renewals unless either the Company or the
Employee gives notice of termination by January 1 prior to the date of
expiration. Pursuant to their Employment Agreements, Messrs. Parker and Highland
are each to receive base salary at the rate of $450,000 for 1997, with increases
in subsequent years at the discretion of the Board of Directors. In addition,
each is entitled to receive an annual cash bonus calculated in accordance with
the Company's management bonus or incentive compensation plan in effect from
time to time and certain benefits, including an automobile allowance of $1,500
per month. Pursuant to agreements with Onex, Messrs. Parker and Highland
received consulting fees from Onex in the following amounts:
7
<PAGE> 11
(i) $87,500 in 1996, $150,000 in 1995 (including amounts actually paid in 1996)
and $100,000 in each of 1994 and 1993 in the case of Mr. Parker, and (ii)
$87,500 in 1996 and $100,000 in each of 1995 and 1994 in the case of Mr.
Highland. Such consulting arrangements were terminated upon completion of the
Company's initial public offering in November 1996, and, in consideration
therefor, the base salary payable to Messrs. Parker and Highland was increased
to the rates specified above. See "Summary Compensation Table."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Nominating Committee, which currently consists of
Messrs. Johnson, Melman and Parker, was formed in July 1996. The Equity
Compensation Committee, which currently consists of Messrs. Carpenter, Johnson
and Styles, was formed in September 1996. Prior to the formation of the
Compensation and Nominating Committee, compensation decisions were made and
approved by the Company's Board of Directors.
In January 1996, the Company completed the sale of 61,500 shares of Common
Stock in the aggregate to certain officers and management employees of the
Company at a purchase price of $10.00 per share. In May 1995, the Company
completed the sale of 208,500 shares of Common Stock in the aggregate to certain
directors, officers and management employees of the Company at a purchase price
of $10.00 per share. During 1994, the Company sold 6,900 shares of Common Stock
in the aggregate to certain officers and directors of the Company at a purchase
price of $11.00 per share. During 1993, the Company sold 125,600 shares of
Common Stock in the aggregate to certain directors, officers and employees of
the Company at a purchase price of $11.00 per share. Of these shares, the number
of such shares purchased by each director of the Company who currently is a
member of either the Compensation and Nominating Committee or the Equity
Compensation Committee and who purchased shares during such periods, and the
aggregate amount of the purchase price financed through Company-guaranteed
loans, is set forth below:
<TABLE>
<CAPTION>
DIRECTOR NUMBER OF SHARES AMOUNT FINANCED
<S> <C> <C>
David R. Parker.......................... 143,300 $400,000
Michael Carpenter........................ 18,200 --
C. Lee Johnson........................... 4,500 --
R. Geoffrey P. Styles.................... 4,500 --
</TABLE>
The aggregate amount of such loans guaranteed by the Company as of
December 28, 1996 was $3.3 million. The shares of Common Stock purchased were
pledged to the Company as collateral for the Company's guaranty. Effective as of
March 21, 1997, the lender released the Company from its guaranty (other than
with respect to the loans to Messrs. Adzia, Evans and Andruskiewicz) and took a
pledge of such shares as security for the loans. After giving effect to such
release, the Company remains liable under its guaranty for an aggregate of $1.1
million. All of such shares are subject to the Shareholders Agreements (as
defined herein). Pursuant to the Shareholders Agreements, if a shareholder
defaults on such indebtedness, the Company has the option to purchase shares
pledged to the Company at a purchase price equal to 85% of fair market value at
the time of purchase, reduced by the amount of the outstanding indebtedness
secured by the shares. See "Certain Transactions."
OPTION PLANS
Amended Management Option Plan (1995). The Amended Management Option Plan
(1995) (the "1995 Option Plan") provides for the grant of "non-qualified stock
options" ("NQSO's") to management employees of the Company ("1995 Employee
Participants") at the time that such employees purchase Common Stock of the
Company. Options granted under the 1995 Option Plan have an exercise price equal
to the price at which the 1995 Employee Participant purchased such stock.
Options are exercisable for shares of Class B Common Stock. The 1995 Option Plan
provides for it to be administered by the Board of Directors of the Company or a
committee thereof, and currently is administered by the Equity Compensation
Committee (the "Committee"). Options granted under the 1995 Option Plan are not
transferrable or assignable.
8
<PAGE> 12
Options vest according to the following schedule: ten percent at the end
of years 1995 through 1999, with the remaining 50% vesting at the end of such
five-year period. Options granted under the 1995 Option Plan remain exercisable
until December 31, 2000. In the event the Company sells substantially all of its
assets or all of the Company's or any of its principal subsidiaries' shares of
Common Stock in a transaction in which the consideration is principally other
than common stock and results in Onex earning certain specified rates of return
on its initial purchase of Common Stock, then all unexercised options under the
1995 Option Plan with respect to periods not yet ended are deemed earned and
exercised immediately prior to the date the triggering transaction closes.
The 1995 Option Plan terminates on the earlier of (i) December 31, 2000
and (ii) the sale of all of the Common Stock owned by Onex, the sale of all of
the issued and outstanding stock of the Company or the sale of all or
substantially all of the assets of a subsidiary of the Company.
At December 28, 1996, options to purchase 348,450 shares of Class B Common
Stock were outstanding. No additional options will be granted under the 1995
Option Plan.
1996 Stock Option Plan. Prior to completion of the Company's initial
public offering in November 1996, the Board of Directors and stockholders of the
Company approved the 1996 Stock Option Plan (the "1996 Option Plan"). The
Company has reserved 550,000 shares of Class B Common Stock for issuance upon
exercise of options granted under the 1996 Option Plan. At December 28, 1996,
options to purchase 358,000 shares of Class B Common Stock were outstanding, all
of which were granted immediately prior to completion of the Company's initial
public offering at an exercise price equal to the initial public offering price
of $14 per share.
Pursuant to the 1996 Option Plan, executive officers and key employees of
the Company are eligible to receive awards of stock options. The 1996 Option
Plan provides for the award of NQSO's only. The 1996 Option Plan is administered
by the Committee. Subject to the provisions of the 1996 Option Plan, the
Committee determines when and to whom awards are granted, and the number of
shares covered by each award. The Committee may interpret the 1996 Option Plan
and may at any time adopt such rules and regulations for the 1996 Option Plan as
it deems advisable. In addition, the Committee may cancel or suspend awards.
Options granted under the 1996 Option Plan are not transferable or assignable,
other than upon death.
The exercise price for options granted under the 1996 Option Plan is at
least 100% of the fair market value of a share of Class B Common Stock on the
date of grant. Options vest ratably on each of the first four anniversaries of
the date of grant. However, notwithstanding such vesting, no option becomes
exercisable until the earlier of (i) the date on which the Market Value of the
Class B Common Stock is at least 25% greater than the exercise price of such
option and (ii) the eighth anniversary of the date of grant. "Market Value" of
the Class B Common Stock is determined by taking the average closing price of
the Class A Common Stock on the Nasdaq National Market or the principal
securities exchange on which the Common Stock is listed for the five consecutive
trading days immediately preceding the applicable date. Subject to the
foregoing, vested options may be exercised for a period of up to 10 years from
the date of grant.
The Committee may provide for the payment of the option price in cash, by
delivery of other Common Stock having a fair market value equal to the exercise
price, by a combination thereof or by such other manner as the Committee shall
determine, including a cashless exercise procedure.
The Board of Directors may at any time and from time to time suspend,
amend, modify or terminate the 1996 Option Plan; provided, however, that, to the
extent required by Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act") or any other law, regulation or stock
exchange rule, no such change shall be effective without the requisite approval
of the Company's stockholders. In addition, no such change may adversely affect
any award previously granted, except with the written consent of the grantee.
No options may be granted under the 1996 Option Plan after the tenth
anniversary of the approval of the 1996 Option Plan.
9
<PAGE> 13
DEFINED CONTRIBUTION PLANS
401(k) Plan. The Company maintains the Retirement Advantage Plan (formerly
known as the Associates' Saving Plan) (the "401(k) Plan"), a defined
contribution retirement plan with a cash or deferral arrangement as described in
Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code").
The 401(k) Plan is intended to be qualified under Section 401(a) of the Code.
All regular employees who are at least 21 years old, work at least 1,000 hours a
year and are not excluded by a bargaining agreement are eligible to participate
in the 401(k) Plan. The 401(k) Plan provides that each participant may make
pre-tax elective contributions from 1% to 15% of his or her compensation,
subject to statutory limits. The Company contributes to the 401(k) Plan (i) 2%
of an eligible employee's compensation, and (ii) fifty cents for every dollar
contributed by the employee up to the first 6% of an eligible employee's
compensation. All contributions made by participants are fully vested and are
not subject to forfeiture. A participant vests in any contributions made by the
Company at a rate of 25% for each year of service. Each participant's entire
401(k) account is distributed to the participant or his or her beneficiary,
without regard to vesting, upon retirement, death, disability, or termination of
employment with the Company after the completion of four years of service. The
trustee under the 401(k) Plan, at the direction of each participant, invests the
assets of the 401(k) Plan in a number of investment options.
Supplemental Executive Retirement Plan. The Code imposes certain
limitations on the amount of contributions that an employee can make in any year
to the 401(k) Plan, and the amount of Company contributions that can be made for
an employee. In addition, the Code limits the amount of an employee's annual
compensation that can be taken into account in computing benefits ($150,000 for
1996 and $160,000 for 1997). The Company intends to adopt a nonqualified
supplemental executive retirement plan (the "SERP") pursuant to which it will
pay each of the four highest-paid officers (and such other participating
employees as may be designated) an amount out of its general assets intended to
be substantially equal to the difference between the amount that, in the absence
of the Code limitations, would have been allocated to such employee's 401(k)
Plan account and the amount actually allocated. In general, a participating
employee will be entitled to a distribution from the SERP at the same time that
such employee receives a distribution from the 401(k) Plan. The 401(k) Plan
utilizes a calendar year, and the Company intends to make the SERP effective for
allocations on or after July 1, 1992.
Money Purchase Plan. Prior to December 31, 1996, the Company maintained
the Money Purchase Plan for Former NAD Salaried Employees (the "Money Purchase
Plan"), a defined contribution retirement plan with a cash or deferral
arrangement, as described in Section 401(a) of the Code. All salaried employees
of the Company who were former salaried employees of Martin-Brower immediately
preceding the acquisition of NAD by the Company and either participated in a
defined contribution plan or completed two years of service with the Company
were eligible to participate in the Money Purchase Plan. As of December 28,
1996, 302 employees participated in the Money Purchase Plan. All contributions
were made by the Company. The Company contributed an amount equal to 10% of each
eligible employee's compensation, subject to statutory limits. All contributions
made by the Company were fully vested with the participant and not subject to
forfeiture. The Money Purchase Plan was terminated effective December 31, 1996.
The Company intends to distribute all Money Purchase Plan assets to
participants, subject to the prior approval of the Internal Revenue Service.
PENSION PLANS
ProSource Distribution Services Salaried Defined Benefit Plan (the
"Salaried Pension Plan"), ProSource Distribution Services Hourly Defined Benefit
Plan (the "Hourly Pension Plan") and ProSource Distribution Services Pension
Plan for Former NAD Hourly Employees (the "NAD Pension Plan"; and together with
the Salaried Pension Plan and Hourly Pension Plan, each a "Pension Plan") are
tax-qualified defined benefit pension plans. The Salaried Pension Plan and
Hourly Pension Plan cover all of the Company's salaried and hourly employees,
respectively, who have been employed with the Company for at least one year,
subject to certain exceptions. The NAD Pension Plan covers (i) former NAD
employees who participated in the Martin-Brower pension plan and were employed
by the Company by September 30, 1995 and (ii) every other former NAD employee
who completes one year of service for the Company and is compensated on an
hourly or mileage basis. Each Pension Plan is funded through a tax-exempt trust
into which contributions are made as necessary based on actuarial funding
analysis. The Company's funding policy is to contribute
10
<PAGE> 14
an amount not less than the minimum funding requirements under the Code, nor
more than the maximum deductible amount for income tax purposes.
Each Pension Plan provides for the payment of benefits upon retirement,
early retirement, death, disability and termination of employment. All benefits
become fully vested after five years of service. Benefits under the Salaried
Pension Plan and NAD Pension Plan are determined under a formula based on a
participant's compensation and credited service. Benefits under the Hourly
Pension Plan are determined under a formula based solely on a participant's
credited service. Participants may elect from several optional forms of benefit
distribution.
SALARIED PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
FINAL AVERAGE -------------------------
COMPENSATION (5 YEARS) 15 20 25 30 35
---------------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000 $29,471 $39,295 $49,199 $58,943 $58,943
150,000 35,721 47,628 59,536 71,443 71,443
175,000 35,721 47,628 59,536 71,443 71,443
200,000 35,721 47,628 59,536 71,443 71,443
225,000 35,721 47,628 59,536 71,443 71,443
250,000 35,721 47,628 59,536 71,443 71,443
300,000 35,721 47,628 59,536 71,443 71,443
400,000 35,721 47,628 59,536 71,443 71,443
450,000 35,721 47,628 59,536 71,443 71,443
500,000 35,721 47,628 59,536 71,443 71,443
550,000 35,721 47,628 59,536 71,443 71,443
</TABLE>
The Named Executive Officers have been credited with the following years
of service under the Salaried Pension Plan: David R. Parker -- 4.5; Thomas C.
Highland -- 8.6; William F. Evans-- 1.4 and John E. Foley -- 2.7. Daniel J.
Adzia does not participate in the Salaried Pension Plan. The Salaried Pension
Plan defines "compensation" as cash remuneration to an employee for services
rendered, constituting an employee's salary, bonus, commissions and
contributions to any Company cafeteria plan or cash or deferred arrangement made
by the employee through pre-tax deductions, and credits compensation only up to
the limit of covered compensation under Section 401(a)(17) of the Code. The
covered compensation, as determined under the Salaried Pension Plan, is, in the
aggregate, not substantially different than the amount reflected in the Annual
Compensation column of the Summary Compensation Table set forth above. The
estimates of annual retirement benefits reflected in the above table are based
on payment in the form of a straight-life annuity and are not subject to any
deduction for Social Security or other offset amounts.
Monthly normal retirement benefits under the Hourly Pension Plan are
determined by taking the product of the participant's years of credited service
(up to a maximum of 30 years) and $20. Monthly normal retirement benefits under
the NAD Pension Plan are equal to 1 3/4% of the participant's covered
compensation for each one-year period of credited service divided by 12.
The Pension Plans were terminated effective February 15, 1997 and all
benefit accruals were frozen as of December 31, 1996.
11
<PAGE> 15
COMPENSATION COMMITTEES REPORT
As a publicly-held company, ProSource is strongly committed to maximizing
stockholder value through growth of its business and superior financial
performance. Thus, the compensation objective of the Company is to ensure that
the executive compensation program is adequate both to attract, retain and
motivate experienced and qualified individuals and to provide significant
incentives that are directly linked to the Company's financial performance and
increases in stockholder value, as measured by the Company's stock price.
The Board of Directors has established a Compensation and Nominating
Committee and an Equity Compensation Committee (collectively, the "Compensation
Committees"). The Compensation and Nominating Committee is responsible for
reviewing and approving all non-equity based compensation arrangements for
officers of the Company. The Equity Compensation Committee is responsible for
reviewing and approving all equity based compensation arrangements for officers
of the Company and for administering the Company's option plans. The
Compensation Committees approve the compensation of the Chief Executive Officer,
the Chairman of the Board and other executive officers, including the other
Named Executive Officers, after consideration of compensation policies and
practices of other companies and consultations with outside compensation
consultants.
There are three primary components to the executive compensation program:
(1) base salary, (2) incentive compensation, and (3) equity based compensation.
Base Salary
In setting base salaries, consideration is given to competitive market pay
practices for base salaries paid to senior executives with comparable
qualifications, experience and responsibilities. The objective is to establish a
basic level of compensation that is adequate to attract and retain experienced
and qualified individuals, and to recognize their contributions and increased
responsibilities through time. The individual salaries of executive officers are
reviewed annually by the Compensation and Nominating Committee.
Incentive Compensation
Incentive compensation is designed to specifically relate executive pay to
individual and Company performance. Bonuses under the Company's incentive
compensation plans provide financial rewards for achievement of specified
business results and the attainment of objectively measured personal performance
goals. The Chief Executive Officer makes recommendations regarding the incentive
compensation of the Company's other executive officers, including the other
Named Executive Officers, and the Compensation and Nominating Committee reviews
and approves the final compensation for these executives, and for the Chief
Executive Officer and the Chairman of the Board. Bonuses are paid after the end
of the fiscal year if the individual remains in the employ of the Company. In
the case of executive officers, no incentive bonuses are paid unless an annual
Company profitability target is achieved. In 1996, such target was not achieved
and, accordingly, no such bonuses were paid.
Equity Based Compensation
Long-term incentive compensation is tied to gains realized from the
ownership of the Company's Common Stock. The Compensation Committees believe
that stock ownership and options provide incentives to executives by giving them
a strong economic interest in maximizing stock price appreciation, thereby
aligning their interests with those of the Company's stockholders. All executive
officers are stockholders of the Company. Pursuant to the 1995 Option Plan,
acquisition of Class B Common Stock by executive officers was accompanied by a
grant of non-qualified stock options for an additional one-half the number of
shares purchased at an exercise price equal to the purchase price of such
shares. Such options become exercisable through 1999 and expire in the year
2000. See "Option Plans -- Amended Management Option Plan (1995)." Pursuant to
the 1996 Option Plan, the Company granted an award of non-qualified stock
options to officers and other key personnel in November 1996 concurrent with the
Company's initial public offering. See "Option Plans -- 1996 Stock Option Plan."
The aggregate number of shares reserved for the stock option program and the
individual stock option awards were determined after consultation with the
Company's compensation and financial consultants. Individual awards are based
primarily on the employee's level of responsibility
12
<PAGE> 16
in the Company. The Equity Compensation Committee has no plans to grant
restricted shares, stock appreciation rights or options that have an exercise
price less than the fair market value of the stock on the date of grant. It is
anticipated that additional grants of stock options will be made in the future.
Compensation of the Chief Executive Officer and Chairman of the Board
The base salary, incentive compensation and the equity based compensation
for Mr. Highland, Chief Executive Officer, and Mr. Parker, Chairman of the
Board, are determined by the Compensation Committees substantially in conformity
with the policies previously described above for all other executives of the
Company.
The Company entered into employment agreements with Messrs. Highland and
Parker upon the formation of the Company on July 1, 1992. These agreements,
which are renewable annually, provide for certain benefits in the event of
termination. The employment agreements for Messrs. Highland and Parker were
amended in 1996 to increase each of their base salaries to $425,000 and $450,000
for 1996 and 1997, respectively. Previously, Messrs. Highland and Parker were
each paid a base salary of $300,000 and were entitled to receive consulting fees
from Onex, which arrangement was terminated effective with the Company's initial
public offering. See "Employment Agreements".
Messrs. Highland and Parker are eligible to receive incentive compensation
bonuses subject to Board discretion upon the achievement of both personal and
Company profitability objectives. In 1996, the Company paid bonuses of $150,000
to Mr. Highland and $150,000 to Mr. Parker in consideration for substantially
achieving the 1995 performance targets. No incentive bonuses have been or will
be paid for 1996 performance because actual profitability did not exceed the
targeted levels. Messrs. Highland and Parker were each granted stock options to
purchase 25,000 shares of Class B Common Stock at $14.00 per share concurrent
with the Company's initial public offering.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Code generally disallows a deduction to publicly
traded companies to the extent of compensation in excess of $1 million paid to a
chief executive officer or to any of the four other most highly compensated
executive officers. The Company has not yet adopted a policy under Section
162(m) as compensation paid to any executive has not exceeded the $1 million
threshold and it does not expect such compensation to exceed such threshold in
1997.
Employee Stock Ownership
The Compensation Committees endorse the concept that directors and
executive officers, individually, and as a group, should have a significant
ownership stake in the Company. Moreover, the Compensation Committees support
reasonable policies that encourage ownership of Company stock at all levels of
employment. Consequently, this Proxy Statement includes proposals to adopt a new
directors stock option plan and an employee stock purchase plan.
BY THE
COMPENSATION AND
NOMINATING COMMITTEE: EQUITY COMPENSATION COMMITTEE:
C. Lee Johnson Michael Carpenter
Anthony R. Melman C. Lee Johnson
David R. Parker R. Geoffrey P. Styles
13
<PAGE> 17
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return (assuming
reinvestment of dividends) on the Company's Common Stock to the Standard & Poors
500 and the Standard & Poors Distributors (Food and Health) indices from
November 12, 1996, the date on which the Company's Class A Common Stock was
first traded on the Nasdaq National Market, through December 28, 1996, the last
day of the Company's fiscal year. The graph assumes that the value of the
investment in the Company's Common Stock and in each index was $100 on November
12, 1996. The Company has not paid any cash dividends on its Common Stock since
its inception, and the Company does not anticipate declaring or paying cash
dividends on the Common Stock in the foreseeable future. The stockholder return
performance graph below is not necessarily indicative of future performance.
[THE FOLLOWING TABLE WAS PRESENTED IN BOTH CHART AND TABLULAR FORM IN THE
PRINTED MATERIAL]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
11/12/1996* 12/28/96
- -------------------------------------------------------------------------------
<S> <C> <C>
ProSource, Inc.................................. $ 100 $ 88
- -------------------------------------------------------------------------------
Standard & Poors 500............................ $ 100 $ 102
- -------------------------------------------------------------------------------
Standard & Poors Distributors (Food & Health)... $ 100 $ 96
- -------------------------------------------------------------------------------
* Date trading of ProSource, Inc. Class A Common Stock commenced following
initial public offering.
- -------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 18
PROPOSAL 2:
PROSOURCE, INC.
1997 DIRECTORS STOCK OPTION PLAN
The stockholders are being asked to approve the 1997 Directors Stock
Option Plan (the "Directors Plan"). Unless contrary instructions are set forth
in the proxy card, it is intended that the persons named in the proxy will vote
all shares of Common Stock represented by the proxy for the adoption of the
Directors Plan.
The Directors Plan was adopted by the Board of Directors on March 24,
1997, subject to stockholder approval. The purposes of the Directors Plan are to
promote a greater identity of interests between the Company's outside directors
and its stockholders, and to attract and retain outside directors by affording
them an opportunity to share in the future successes of the Company. Only
outside directors (i.e., directors who are not officers or employees of the
Company or Onex) of the Company are eligible to participate. Currently, three
members of the Board of Directors (Messrs. Carpenter, Johnson and Styles) would
be eligible to participate in the Directors Plan.
The duration of the Directors Plan is ten years. The number of shares of
Class A Common Stock available for use in the Directors Plan is 100,000, subject
to appropriate adjustments by the Committee in the event of certain changes in
the outstanding shares of Class A Common Stock by reason of a stock dividend or
split, combination, recapitalization or reclassification of Class A Common
Stock. As of February 28, 1997, the closing price for the Company's Class A
Common Stock on the Nasdaq National Market was $12.75 per share.
Each outside director who, in any plan year, files with the Company an
irrevocable election concerning such director's annual retainer fee (currently
$14,000) to be earned in the next year, may receive in lieu of all or any
portion of such fee (but only in increments of 25% or a multiple thereof) as so
designated by the outside director, a stock option exercisable for a number of
shares of Class A Common Stock equal to the amount of such fee divided by $4.00
(or, if so designated by the director, such lesser number of shares equal to
such amount multiplied by the percentage of fees elected to be exchanged). The
exercise price for such stock option will be equal to $4.00 per share below the
Fair Market Value of a share of Class A Common Stock on the date of grant;
provided, however, that in no event shall the exercise price of such Stock
Option be less than 50% of the Fair Market Value of a share of Class A Common
Stock on the date of the grant. With respect to fees payable in the first year
following effectiveness of the Plan, the election to receive a stock option in
lieu of fees may be made at any time prior to such effectiveness. "Fair Market
Value" is defined as the average closing price of a share of Class A Common
Stock on the Nasdaq National Market (or such other exchange on which shares of
Class A Common Stock are listed) for the five trading days immediately preceding
the applicable date.
The date of grant of a stock option shall be the date of the annual
meeting of stockholders of the Company. A stock option shall vest and be
exercisable on the day prior to the date of the next annual meeting of
stockholders after the date of grant. In the event that a stock option grantee
is not a member of the Board on the vesting date, any stock option which has not
become vested and exercisable as of such time shall expire without vesting.
Vested stock options may be exercised for 10 years from the date of grant.
No amounts have been paid or granted pursuant to the Directors Plan,
although outside directors have made irrevocable elections with respect to the
fee payable in 1997, subject to stockholder approval of the Directors Plan. Of
the three outside directors, Messrs. Carpenter, Johnson and Styles have elected
to receive 0%, 100% and 100%, respectively, of their annual retainer fee for
1997 in stock options.
In connection with an outside director's termination of membership on the
Board of Directors, any stock options held by such director pursuant to the
Directors Plan shall terminate (i) 12 months after termination due to death or
disability, (ii) immediately upon termination in the event of termination for
cause and (iii) three months after termination for any other reason.
The Directors Plan may be administered by the Board of Directors or any
committee designated by the Board of Directors, except that no changes may be
made with respect to the eligibility of participants, or the timing, pricing or
amount of any grants or awards. The Directors Plan will be administered by the
Committee.
Directors making an irrevocable election to receive stock options in lieu
of cash fees will be taxed at the time of exercise on the difference between the
exercise price and the value of the stock. The tax basis of stock received in an
option exercise will be the market value at the time of exercise. The Company
may deduct as compensation the same amount the director must recognize as
income. Stock held for at least one year will be treated as a capital gain or
loss upon sale.
The Directors Plan offers only the ability for certain directors to
receive their fees in the form of options instead of cash. Therefore, the
benefits to be realized upon exercise of the stock options are not presently
determinable.
The Plan may be amended by the Board of Directors; provided, however, that
approval of the stockholders is required to (i) materially increase the benefits
accruing to participants under the Directors Plan, (ii) materially increase the
number of securities which may be issued under the Directors Plan or (iii)
materially modify the requirements as
15
<PAGE> 19
to eligibility for participation in the Directors Plan. The Directors Plan may
be terminated at any time by the Board of Directors or by the approval of the
stockholders.
The Plan contains provisions designed to preserve for directors the
benefits of grants in the event of a Change of Control (as defined in the Plan).
Upon a Change of Control any unvested option shall vest. A director may
surrender any option and receive cash equal to the excess of the Change of
Control Price (as defined in the Plan) over the exercise price.
A copy of the Directors Plan, as proposed for approval, is attached to
this Proxy Statement as Annex A and should be read in its entirety by
stockholders.
Approval of the Directors Plan requires the affirmative vote of a majority
of the votes cast by the holders of the Common Stock present or represented, and
entitled to vote, at the Annual Meeting.
The Board of Directors believes that the adoption of the Directors Plan is
in the best interest of the Company and its stockholders. THE BOARD OF DIRECTORS
THEREFORE RECOMMENDS A VOTE FOR THE ADOPTION OF THE DIRECTORS PLAN AND IT IS
INTENDED THAT THE PROXIES NOT MARKED TO THE CONTRARY WILL BE SO VOTED.
16
<PAGE> 20
PROPOSAL 3:
PROSOURCE, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
The stockholders are being asked to approve the ProSource, Inc. 1997
Employee Stock Purchase Plan (the "Employee Plan"). Unless contrary instructions
are set forth in the proxy card, it is intended that the persons named in the
proxy will vote all shares of Common Stock represented by the proxy for the
adoption of the Employee Plan.
The Employee Plan was adopted by the Board of Directors on March 24, 1997,
subject to stockholder approval. The purpose of the Employee Plan is to permit
eligible employees to purchase Class A Common Stock, through payroll deductions,
at a specified percentage of the fair market value of the Class A Common Stock.
It is intended that the Employee Plan qualify as an employee stock purchase plan
under Section 423 of the Code. The Board of Directors believes that the adoption
of the Employee Plan will provide an important incentive to employees of the
Company by allowing them to purchase Class A Common Stock at a discount from
fair market value and will result in an increase in employee ownership of the
Company's Class A Common Stock, giving such employees a greater interest in the
continued growth of the Company.
The Employee Plan will be administered by the Committee. Subject to the
express provisions of the Employee Plan, the Committee, by majority action
thereof, is authorized to interpret and prescribe, amend and rescind rules
relating to the Employee Plan and to make all other determinations necessary or
advisable for the administration of the Employee Plan.
Up to 300,000 shares of Class A Common Stock are available to be purchased
under the Employee Plan, subject to appropriate adjustments by the Committee in
the event of certain changes in the outstanding shares of Class A Common Stock
by reason of a stock dividend or split, combination, recapitalization or
reclassification of Class A Common Stock. The shares sold under the Employee
Plan may consist of authorized but unissued Class A Common Stock or treasury
stock not reserved for any other purpose.
The Employee Plan generally operates on the basis of a 12-month period
beginning July 1 of each year (each a "Plan Year"), with the first Plan Year
commencing July 1, 1997. With respect to any Plan Year, all employees of the
Company and its participating subsidiaries (including officers and directors who
are also employees) who have been employed continuously for at least three
months prior to July 1 of such Plan Year, other than those employees whose
customary employment is 20 hours or less per week or not more than five months
during any calendar year (approximately 3,850 employees as of the date of this
Proxy Statement), are eligible to participate in the Employee Plan. For the
first Plan Year, any otherwise eligible employee, who is an employee on June 1,
1997 is eligible to participate in the Employee Plan and may elect to become a
participant effective as of July 1, 1997. Thereafter, any employee eligible to
participate on any June 1 of any subsequent year during effectiveness of the
Employee Plan may elect to participate as of July 1 of such year. No eligible
employee may be granted the right to purchase Class A Common Stock under, or
otherwise participate in, the Employee Plan if after the purchase such employee
would own (or have the right to purchase) stock of the Company possessing 5% or
more of the total combined voting power or value of all classes of capital stock
of the Company.
An eligible employee electing to participate in the Employee Plan may
contribute funds for the purchase of Class A Common Stock under the Employee
Plan by directing his or her employer to withhold (in increments of 1%) not less
than 1% and not more than 15% of his or her Base Earnings (as defined in the
Employee Plan). A participant may elect to reduce (but not increase) the amount
of rate of withholding for any Plan Year as set forth in greater detail in the
Employee Plan. Amounts withheld will be held by the participant's employer until
the end of the Plan Year, and automatically applied to purchase Class A Common
Stock unless refunded to the participant by written election or direction of
such participant pursuant to the Employee Plan. Any such refund will include
interest, if any, payable to the participant.
Amounts withheld from (and not refunded to) a participant in the Employee
Plan will be used to purchase Class A Common Stock as of the last business day
of the Plan Year at a price equal to 85% of the Fair Market Value (as defined in
the Employee Plan) of a share of Class A Common Stock on the first business day
of such Plan Year. As soon as practicable after the close of the Plan Year, the
Company shall issue and deliver to participants certificates representing the
respective shares of Class A Common Stock purchased under the Employee Plan, at
which time participants will have stockholder privileges with respect to such
shares.
No participant in the Employee Plan may purchase Class A Common Stock
under the Employee Plan and all other employee stock purchase plans of the
Company and any of its subsidiaries at a rate in excess of $25,000 in Fair
Market Value of such stock (determined as of the first business day of the Plan
Year with respect to which stock is granted) for each calendar year in which any
such right to purchase stock granted to such participant is outstanding at any
time. If a participant is not entitled to purchase Class A Common Stock under
any such other plan during a Plan Year, the total number of shares purchased
under the Employee Plan for the participant with respect to that Plan Year may
not exceed (1) $25,000 divided by (ii) the Fair Market Value of a share of Class
A Common Stock on the first day of such Plan Year.
17
<PAGE> 21
No shares of Class A Common Stock may be purchased by a participant with
respect to a Plan Year if the participant's employment terminates prior to the
end of such Plan Year. Any amount withheld from such participant's Base Earnings
during such Plan Year will be repaid to the participant in cash, with interest,
if any. If a participant dies at any time during a Plan Year, any amount
withheld from such participant's Base Earnings will be repaid to the
participant's personal representative in cash, with interest, if any. No right
or interest of any participant in the Employee Plan is assignable, transferable
or may be subject to any lien.
The Board of Directors may at any time terminate, amend or modify the
Employee Plan, provided that approval of stockholders is required to (i)
increase the total amount of Class A Common Stock which may be offered under the
Employee Plan (except for adjustments in the outstanding shares of Class A
Common Stock by reason of a stock dividend or split, combination,
recapitalization, or reclassification), (ii) withdraw the administration of the
Employee Plan from the Committee or (iii) permit any member of the Committee to
be eligible to participate in the Employee Plan.
The Employee Plan will remain in effect until the earliest of (i) the date
upon which the Board of Directors terminates the Employee Plan, (ii) the date
upon which all Class A Common Stock subject to the Employee Plan has been
purchased in accordance with the Employee Plan and (iii) June 30, 2002.
FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Employee Plan qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code. The following is a
summary description of the current federal income tax consequences of
participation in the Employee Plan. The Company assumes no responsibility in
connection with the income tax liability of any participant (or his or her
beneficiary). No attempt has been made to deal with any of the special
provisions that could be applicable to a particular situation. In addition,
income taxation under state and local tax law may differ.
A participant will not recognize any taxation due to his or her purchase
of shares of Class A Common Stock under the Employee Plan until the disposal of
those shares or his or her death, if earlier.
A participant who does not dispose of shares of Class A Common Stock
purchased under the Employee Plan before the later of two years from the date of
grant of the right to purchase the shares or one year after the shares are
purchased (the "Holding Period"), or who dies at any time while holding the
shares, will recognize ordinary income in the year of disposition (or death)
equal to the lesser of (a) the excess of the fair market value of the shares on
the date of disposition (or death) over the purchase price actually paid by the
participant, or (b) the excess of the fair market value of the shares on the
first day of the Plan Year in which they were purchased by the participant over
the purchase price (determined as if the shares were purchased on such first
day). If the fair market value of the shares on the date of disposition or death
does not exceed the purchase price, the participant will not recognize any
ordinary income. If the Holding Period has been satisfied when the participant
disposes of the shares, or the participant dies while holding the shares, the
Company will not be entitled to any deduction in connection with the shares.
A participant who disposes of shares of Class A Common Stock purchased
under the Employee Plan before satisfying the Holding Period (a "Disqualifying
Disposition") will recognize ordinary income in the year of disposition in an
amount equal to the excess of the fair market value of such shares on the date
they were purchased over the price paid by the participant. If a Disqualifying
Disposition occurs, the Company generally will be entitled to a deduction at the
same time and in the same amount as the participant who makes such a disposition
is deemed to have recognized ordinary income.
In all cases, a participant will have a tax basis in the shares of Class A
Common Stock purchased under the Employee Plan equal to the purchase price of
such shares, plus any amount that he or she must recognize as ordinary income at
the time of the disposition of the shares, as described above. Therefore, if the
amount realized by a participant on a disposition of the shares exceeds such
basis, the excess will be capital gain, short or long term depending on how long
the participant owned the shares. If the amount realized on a Disqualifying
Disposition is less than the basis of the shares, the participant will have a
capital loss, short or long term depending on how long the participant owned the
shares.
The Employee Plan has not yet been implemented and no shares of Class A
Common Stock have been purchased thereunder.
ADDITIONAL INFORMATION
A copy of the Employee Plan, as proposed for approval, is attached to this
Proxy Statement as Annex B and should be read in its entirety by stockholders.
Approval of the Employee Plan requires the affirmative vote of a majority
of the votes cast by the holders of the Common Stock present or represented, and
entitled to vote, at the Annual Meeting.
18
<PAGE> 22
The Board of Directors believes that the adoption of the Employee Plan is
in the best interest of the Company and its stockholders. THE BOARD OF DIRECTORS
THEREFORE RECOMMENDS A VOTE FOR THE ADOPTION OF THE EMPLOYEE PLAN AND IT IS
INTENDED THAT THE PROXIES NOT MARKED TO THE CONTRARY WILL BE SO VOTED.
19
<PAGE> 23
PROPOSAL 4:
RATIFICATION OF THE APPOINTMENT OF KPMG
PEAT MARWICK LLP AS INDEPENDENT AUDITORS
The stockholders are being asked to ratify the appointment of KPMG Peat
Marwick LLP ("KPMG") as independent auditors for the Company for the fiscal year
ending December 27, 1997. Unless contrary instructions are set forth in the
proxy card, it is intended that the persons named in the proxy will vote all
shares of Common Stock represented by the proxy for ratification of KPMG.
On January 29, 1997, the Board of Directors of the Company appointed KPMG
to serve as independent auditors for the fiscal year ending December 27, 1997,
subject to stockholder approval. Such firm has served as the Company's
independent auditors since June 30, 1992. Representatives of KPMG are expected
to be present at the Annual Meeting and will be given the opportunity to make a
statement if they so desire and to respond to appropriate questions.
Ratification of KPMG as independent auditors requires the affirmative vote
of a majority of the votes cast by the holders of the Common Stock present or
represented, and entitled to vote, at the Annual Meeting.
The Board of Directors believes that the ratification of KPMG as
independent auditors for the fiscal year ending December 27, 1997 is in the best
interest of the Company and its stockholders. THE BOARD OF DIRECTORS THEREFORE
RECOMMENDS A VOTE FOR THE RATIFICATION OF KPMG AS INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING DECEMBER 27, 1997 AND IT IS INTENDED THAT THE PROXIES NOT
MARKED TO THE CONTRARY WILL BE SO VOTED.
20
<PAGE> 24
SECURITY OWNERSHIP
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock at February 28, 1997 by (i)
each person known to the Company to own beneficially more than 5% of any class
of the Company's outstanding Common Stock, (ii) each director of the Company,
(iii) each Named Executive Officer of the Company, and (iv) all executive
officers and directors of the Company, as a group. On that date 3,400,000 shares
of Class A Common Stock and 5,930,856 shares of Class B Common Stock were
outstanding. All information with respect to beneficial ownership has been
furnished to the Company by the respective stockholders of the Company. Except
as otherwise indicated in the footnotes, each beneficial owner has the sole
power to vote and to dispose of all shares held by such holder.
<TABLE>
<CAPTION>
SHARES OF CLASS A SHARES OF CLASS B CLASS A AND B
COMMON STOCK COMMON STOCK COMBINED VOTING
BENEFICIALLY OWNED (1) BENEFICIALLY OWNED (1) POWER (2)
---------------------- --------------------- ----------
NAME NUMBER PERCENTAGE NUMBER PERCENTAGE PERCENTAGE
---- ------ ---------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Onex DHC LLC(3)
421 Leader Street
Marion, Ohio 43302.......... 500,000 14.7% 4,951,242 83.5% 79.8%
Onex Corporation(4)
161 Bay Street
Toronto, Ontario
Canada...................... 500,000 14.7 5,236,956 88.3 84.3
Onex OMI LLC.................. - - 285,714 4.8 4.6
Onex Ohio LLC................. - - 379,242 6.4 6.0
The Kaufman Fund, Inc.
140 E. 45th Street, 43rd Floor
New York, NY 10017.......... 915,000 26.9 - - 1.5
Janus Capital Corporation
100 Fillmore St., Suite 300
Denver, CO 80206 350,000 10.3 - - *
David R. Parker(5)............ 100 * 160,963 2.7 2.3
Thomas C. Highland(5)......... - - 84,188 1.4 1.2
Daniel J. Adzia(5)............ - - 49,500 * *
William F. Evans(5)........... - - 49,500 * *
John E. Foley(5).............. - - 33,000 * *
Gerald W. Schwartz(4)......... 500,000 14.7 5,236,956 88.3 84.3
Anthony R. Melman(6).......... - - - - -
Michael E. Treacy(5).......... - - 33,000 * *
Michael Carpenter............. - - 18,200 * *
Anthony Munk(6)............... - - - - -
C. Lee Johnson................ - - 4,500 * *
R. Geoffrey P. Styles......... 1,000 * 7,300 * *
All directors and executive
officers of the Company as a
group (18 persons).......... 503,500 14.8 5,756,035 96.2 91.8
</TABLE>
- ----------------
* Less than 1%.
(1) Each share of Class B Common Stock is presently convertible at the option
of the holder thereof into one share of Class A Common Stock. Any shares
of Class B Common Stock transferred to a person other than an existing
holder of Class B Common Stock or any affiliate thereof shall
automatically convert into shares of Class A Common Stock upon such
disposition. In addition, in the event that any employee of the Company
holding Class B Common Stock ceases to be an employee for any reason, the
shares of Class B Common Stock held by such employee shall automatically
convert into shares of Class A Common Stock, unless transferred to Onex or
another employee stockholder. All information in the table assumes that no
shares of Class B Common Stock are converted into shares of Class A Common
Stock.
(2) The column entitled "Class A and Class B Combined Voting Power Percentage"
in the table shows the combined voting power of the votes attributable to
Class A Common Stock (each share of which is entitled to one vote) and
Class B Common Stock (each share of which is entitled to ten votes) of the
holders thereof.
(3) Onex DHC LLC's beneficial ownership of the Company's Common Stock includes
(i) 500,000 shares of Class A Common Stock and 4,572,000 shares of Class B
Common Stock beneficially owned directly by Onex
21
<PAGE> 25
DHC LLC and (ii) 379,242 shares of Class B Common Stock beneficially owned
directly by Onex Ohio LLC, which Onex DHC LLC may be deemed to own
beneficially as a result of its direct beneficial ownership of 74.9% of
the equity of Onex Ohio LLC (clauses (i) and (ii) together referred to as
the "DHC Shares").
(4) As the direct and indirect beneficial owner of approximately 99% of the
equity of Onex DHC LLC, and the direct beneficial owner of 25.1% of the
equity of Onex Ohio LLC, Onex Corporation may be deemed to own
beneficially the DHC Shares. In addition, as the indirect beneficial owner
of 100% of the equity of Onex OMI LLC, Onex Corporation may be deemed to
own beneficially 285,714 shares of Class B Common Stock beneficially owned
directly by Onex OMI LLC. Gerald W. Schwartz is the Chairman of the Board,
President and Chief Executive Officer of Onex Corporation and the indirect
holder of all the issued and outstanding shares of Multiple Voting Shares
(defined below) of Onex Corporation, and therefore may also be deemed to
own beneficially such shares of Common Stock.
(5) Includes shares of Class B Common Stock which the directors and executive
officers have the right to acquire through the exercise of options within
60 days as follows: David R. Parker -- 17,663; Thomas C. Highland --
9,188; Daniel J. Adzia -- 4,500; William F. Evans -- 4,500; John E. Foley
-- 3,000; and Michael E. Treacy -- 3,000.
(6) Excludes shares in which Messrs. Melman and Munk have an indirect
interest, with respect to which Mr. Schwartz, Onex Corporation and Onex
DHC LLC share beneficial ownership.
In addition, as of December 28, 1996, Messrs. Schwartz, Melman and Styles
beneficially owned 14,639,639, 62,000 and 14,000 subordinate voting shares of
Onex Corporation ("Subordinate Voting Shares"), respectively, representing 36.3%
of the outstanding Subordinate Voting Shares in the case of Mr. Schwartz, and
less than 1% of the outstanding Subordinate Voting Shares in the case of Messrs.
Melman and Styles. All directors and executive officers of the Company as a
group owned 14,715,639 Subordinate Voting Shares, representing 36.5% of the
outstanding Subordinate Voting Shares. Subordinate Voting Shares beneficially
owned includes shares which Messrs. Schwartz (400,000), Melman (62,000) and
Styles (6,000) may have the right to acquire through the exercise of options
within 60 days (the options become exercisable in the event that the average
market price of the Subordinate Voting Shares exceeds the exercise price of the
options (Cdn. $13.25) by at least 25%). Mr. Schwartz also beneficially owns
100,000 multiple voting shares of Onex Corporation ("Multiple Voting Shares"),
representing all of the outstanding Multiple Voting Shares. All information with
respect to beneficial ownership of Onex Corporation capital stock has been
furnished by the respective stockholders of Onex Corporation. Subordinate Voting
Shares carry one vote per share and as a class are entitled to 40% of the
aggregate votes attached to all voting shares of Onex Corporation, to elect 40%
of Onex Corporation's board of directors and to appoint the auditors. Multiple
Voting Shares are entitled to elect 60% of Onex Corporation's board of directors
and carry such number of votes in the aggregate as represents 60% of the
aggregate votes attached to all voting shares of Onex Corporation.
CERTAIN TRANSACTIONS
SHAREHOLDERS AGREEMENTS
Management Shareholders Agreement. The following is a summary of certain
provisions of the Amended and Restated Management Shareholders Agreement, dated
as of May 31, 1995, among the Company, Onex and certain officers and employees
("Management Shareholders") of the Company (the "Management Shareholders
Agreement"). The following executive officers of the Company are party to the
Management Shareholders Agreement: David R. Parker, Thomas C. Highland, Daniel
J. Adzia, William F. Evans, Paul A. Garcia de Quevedo, Maurice L. Ambler, Dennis
T. Andruskiewicz, Robert S. Donaldson, John E. Foley and John P. Gainor.
The Management Shareholders Agreement governs, among other things, the
manner and means by which Common Stock, or securities convertible into shares of
Common Stock, held by the Management Shareholders may be transferred. Pursuant
to such agreement, the transfer of shares of the Company's Common Stock,
including shares received upon the conversion of options, by Management
Shareholders is prohibited except (i) to immediate family members (or to trusts
for the exclusive benefit of the transferor or his immediate family members),
(ii) to other Management Shareholders or management employees of the Company in
cases of hardship or other unusual circumstances (with the approval of the
Company's Board of Directors), subject to a right of first refusal in favor of
the Company, or (iii) through the public markets, provided that such sales do
not occur within 180 days of any public offering of Common Stock, that such
sales during any 90-day period do not exceed the greater of (a) 500 shares of
Common Stock and (b) 5% of the sum of the Management Shareholder's shares then
held by him and the Management Shareholder's shares previously sold by him and
that such sales do not exceed 50% of his shares in the aggregate, including
shares previously sold, without the prior approval of the Board of Directors,
subject to a right of first refusal in favor of the Company. If the Management
Shareholder's employment terminates for any reason, pursuant to the Certificate
of Incorporation, shares of Class B Common Stock held by such Management
Shareholder shall automatically convert into Class A Common Stock, unless
transferred to Onex or another Management Shareholder.
22
<PAGE> 26
The Management Shareholders Agreement provides the Management Shareholders
with the option to participate on a pro rata basis with Onex in sales of Common
Stock, and Onex with the right to compel participation of the Management
Shareholders in sales of Common Stock by Onex, subject, in each case, to certain
exceptions. In addition to the above-described provisions, the Management
Shareholders Agreement contains provisions granting the Management Stockholders
certain registration rights.
The Management Shareholders Agreement terminates if Onex ceases to hold in
the aggregate 20% of the outstanding voting capital stock of the Company or if
another person or group holds in the aggregate a greater percentage of the
outstanding voting capital stock of the Company than Onex.
Director Shareholders Agreement. The following is a summary of certain
provisions of the Director Shareholders Agreement, dated as of May 31, 1995,
among the Company, Onex and certain directors ("Director Holders") of the
Company (the "Director Shareholders Agreement" and, together with the Management
Shareholders Agreement, the "Shareholders Agreements"). The following directors
of the Company are party to the Director Shareholders Agreement: Michael E.
Treacy, Michael Carpenter, C. Lee Johnson and R. Geoffrey P. Styles.
The Director Shareholders Agreement governs, among other things, the
manner and means by which Common Stock, or securities convertible into shares of
Common Stock, held by the Director Holders at any time may be transferred.
Pursuant to such Agreement, the transfer of shares of the Common Stock,
including shares received upon the conversion of options, by Director Holders is
prohibited except (i) to immediate family members (or to trusts for the
exclusive benefit of the transferor or his immediate family members), or (ii)
through the facilities of any securities exchange, provided that such sales do
not occur within 180 days of any public offering of Common Stock.
The Director Shareholders Agreement provides the Director Holders with the
option to participate on a pro rata basis with Onex in sales of Common Stock,
and Onex with the right to compel participation of the Director Holders in sales
of the Common Stock by Onex, subject, in each case, to certain exceptions. In
addition to the above-described provisions, the Director Shareholders Agreement
contains provisions granting the Director Holders certain registration rights.
The Director Shareholders Agreement terminates if Onex ceases to hold in
the aggregate 20% of the outstanding voting capital stock of the Company or if
another person or group holds in the aggregate a greater percentage of the
outstanding voting capital stock of the Company than Onex.
ONEX MANAGEMENT FEES
The Company paid Onex fees of $0.8 million, $0.8 million and $0.7 million
for management services rendered in 1994, 1995 and 1996, respectively. In
connection with the Company's initial public offering, Onex relinquished its
right to receive such fee, in consideration for which Onex received $4.0 million
payable in Class B Common Stock valued at $14 per share, the initial public
offering price.
CERTAIN EQUITY OFFERINGS TO MANAGEMENT
In January 1996, the Company completed the sale of 61,500 shares of Common
Stock in the aggregate to certain officers and management employees of the
Company at a purchase price of $10.00 per share. In May 1995, the Company
completed the sale of 208,500 shares of Common Stock in the aggregate to certain
directors, officers and management employees of the Company at a purchase price
of $10.00 per share. During 1994, the Company sold 6,900 shares of Common Stock
in the aggregate to certain officers and directors of the Company at a purchase
price of $11.00 per share. During 1993, the Company sold 125,600 shares of
Common Stock in the aggregate to certain directors, officers and employees of
the Company at a purchase price of $11.00 per share. Of these shares, the number
of such shares purchased by each executive officer and director of the Company
who purchased shares during such periods, and the aggregate amount of the
purchase price financed through Company-guaranteed loans, is set forth below:
23
<PAGE> 27
<TABLE>
<CAPTION>
EXECUTIVE OFFICER OR DIRECTOR NUMBER OF SHARES AMOUNT FINANCED
- ----------------------------- ---------------- ---------------
<S> <C> <C>
David R. Parker........................... 143,300 $400,000
Thomas C. Highland........................ 75,000 500,000
Daniel J. Adzia........................... 45,000 300,000
William F. Evans.......................... 45,000 300,000
Paul A. Garcia de Quevedo................. 15,000 100,000
Maurice L. Ambler......................... 7,500 50,000
Dennis T. Andruskiewicz................... 13,000 75,000
Robert S. Donaldson....................... 20,400 150,000
John E. Foley............................. 30,000 --
John P. Gainor............................ 15,000 100,000
Michael E. Treacy......................... 30,000 220,000
Michael Carpenter......................... 18,200 --
C. Lee Johnson............................ 4,500 --
R. Geoffrey P. Styles..................... 4,500 --
</TABLE>
The aggregate amount of such loans guaranteed by the Company as of
December 28, 1996 was $3.3 million. The shares of Common Stock purchased were
pledged to the Company as collateral for the Company's guaranty. Effective as of
March 21, 1997, the lender released the Company from its guaranty (other than
with respect to the loans to Messrs. Adzia, Evans and Andruskiewicz) and took a
pledge of such shares as security for the loans. After giving effect to such
release, the Company remains liable under its guaranty for an aggregate of $1.1
million. All of the pledged shares are subject to the Shareholders Agreements.
Pursuant to the Shareholders Agreements, if a shareholder defaults on such
indebtedness, the Company has the option to purchase shares pledged to the
Company at a purchase price equal to 85% of fair market value at the time of
purchase, reduced by the amount of the outstanding indebtedness secured by the
shares. See "Compensation Committee Interlocks and Insider Participation."
ONEX SUBORDINATED NOTES
In connection with the financing of the acquisition of BKDS, the Company
issued to Onex, a 10% convertible subordinated note due 2002, in the principal
amount of $2.5 million (the "Onex Convertible Note"). In connection with the
acquisition of NAD, the Company issued to Onex a 12% subordinated note due 2005
in the principal amount of $15 million (the "12% Subordinated Note") and a
convertible subordinated note due 2005 in the principal amount of $3.5 million
(the "Onex NAD Note"). Onex converted approximately $3.8 million in outstanding
indebtedness under the Onex Convertible Note into 379,242 shares of Class B
Common Stock immediately prior to completion of the Company's initial public
offering in November 1996 based on the stated conversion price of $10.00 per
share. The outstanding principal balance of $15 million and accrued interest of
$1.1 million under the 12% Subordinated Note was prepaid using the proceeds of
the offering. On February 1, 1996, Onex converted $0.8 million principal amount
of the Onex NAD Note into 80,000 shares of the Common Stock and the remaining
balance on such note of approximately $0.6 million plus accrued interest of $0.1
million was paid to Onex.
PURCHASE OF CLASS A COMMON STOCK BY ONEX
Onex purchased for investment 500,000 shares of Class A Common Stock on
November 15, 1996 in the Company's initial public offering at a price of $14 per
share, the initial public offering price, and on the same terms and conditions
as all other purchasers.
PROPOSALS OF STOCKHOLDERS
Stockholders intending to submit proposals for presentation at the next
annual meeting of the stockholders of the Company and inclusion in the Proxy
Statement and form of proxy for such meeting should forward such proposals to
Paul A. Garcia de Quevedo, Secretary, ProSource, Inc., 1500 San Remo Avenue,
Coral Gables, Florida 33146. Proposals must be in writing and must be received
by the Company prior to December 1, 1997. Proposals should be sent to the
Company by certified mail, return receipt requested.
24
<PAGE> 28
OTHER MATTERS
DISCRETIONARY AUTHORITY
At the time of mailing of this Proxy Statement, the Board of Directors was
not aware of any other matters which might be presented at the meeting. If any
matter not described in this Proxy Statement should properly be presented, the
persons named in the accompanying proxy form will vote such proxy in accordance
with their judgment.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who beneficially own more than ten percent of the
Company's Common Stock, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission ("SEC"). Officers, directors and
greater than ten percent stockholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Form 5s were
required for those persons, the Company believes that all filing requirements
applicable to its officers, directors and greater than ten percent stockholders
were complied with during the year ended December 28, 1996.
EXPENSES AND METHODS OF SOLICITATION
The cost of solicitation, which will be undertaken by mail, telephone,
personal contact or other means of communication, will be borne by the Company.
Arrangements will also be made with brokerage firms and other custodians,
nominees and fiduciaries for the forwarding of proxy solicitation material to
certain beneficial owners of the Company's Common Stock, and the Company will
reimburse such forwarding parties for reasonable expenses incurred by them.
The Company's regularly retained investor relations consultant, Corporate
Communications, Inc., will assist in the solicitation of proxies from
stockholders, and further solicitation may be undertaken by directors, officers
and employees of the Company. Such persons will not be compensated for such
services and will be reimbursed for out of pocket expenses.
A COPY OF THE COMPANY'S MOST RECENT ANNUAL REPORT ON FORM 10-K WILL BE
MADE AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: PAUL A. GARCIA DE
QUEVEDO, SECRETARY, PROSOURCE, INC., 1500 SAN REMO AVENUE, CORAL GABLES, FLORIDA
33146.
By the Order of the Board of Directors,
/s/ Paul A. Garcia de Quevedo
Paul A. Garcia de Quevedo
Secretary
March 31, 1997
25
<PAGE> 29
ANNEX A
PROSOURCE, INC.
1997 DIRECTORS STOCK OPTION PLAN
SECTION 1. PURPOSE
The purposes of the Plan are to assist the Company in (i) promoting a
greater identity of interests between the Company's stockholders and its
directors who are not employees of the Company or Onex, and (ii) attracting and
retaining directors by affording them an opportunity to share in the future
success of the Company.
SECTION 2. DEFINITIONS
"Act" shall mean the Securities Exchange Act of 1934, as amended.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean the occurrence of any of the following
events:
(i) An acquisition, after the effective date of the Plan, by any
individual, entity or group (within the meaning of Section 13(d) (3) or
14(d)(2) of the Act) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Act) of 20% or more of the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the
following: (1) any acquisition directly from the Company, other than an
acquisition pursuant to the conversion, exchange or exercise, as the case
may be, of options, warrants or other securities convertible into or
exchangeable or exercisable for Common Stock or voting securities of the
Company, unless the security being so converted, exchanged or exercised
was itself acquired from the Company, (2) any acquisition by the Company,
(3) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by
the Company or (4) any acquisition by any Person pursuant to a transaction
which complies with clauses (1), (2) and (3) of subsection (iii) of this
definition; or
(ii) A change in the composition of the Board such that the
individuals who, as of the effective date of the Plan, constitute the
Board (such Board shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board; provided, however, for purposes of this definition, that any
individual who becomes a member of the Board subsequent to such effective
date, whose election or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of those
individuals who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this proviso) shall be
considered as though such individual were a member of the Incumbent Board;
but, provided further, that any such individual whose initial assumption
of office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board shall
not be so considered as a member of the Incumbent Board; or
(iii) The approval by the stockholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of
all or substantially all of the assets of the Company (a "Corporate
Transaction"); excluding, however, any Corporate Transaction pursuant to
which (1) all or substantially all of the individuals and entities who are
the beneficial owners, respectively, of the then outstanding shares of
Company Common Stock (the "Outstanding Company Common Stock") and
Outstanding Company Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 60%
of, respectively, the outstanding shares of common stock, and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the company
resulting from such Corporate Transaction (including, without limitation,
a corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Corporate Transaction, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (2) no Person (other than the Company, any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or such corporation
resulting from such Corporate Transaction) will beneficially own, directly
or indirectly, 20% or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate Transaction
or the combined voting power of the outstanding voting securities of such
corporation entitled to vote generally in the election of directors except
to the extent that such ownership existed with respect to the Company
prior to the Corporate Transaction and (3) individuals who were members of
the Incumbent Board will constitute at least a majority of the board of
directors of the corporation resulting from such Corporate Transaction; or
A-1
<PAGE> 30
(iv) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company;
Notwithstanding the foregoing, so long as Onex Corporation and its affiliates
beneficially own more than 50% of the combined voting power of the Outstanding
Company Voting Securities, no Change of Control shall be deemed to have
occurred.
"Change of Control Price" shall mean the highest cash purchase price per
share of Class A Common Stock paid in a Corporate Transaction.
"Class A Common Stock" shall mean the Class A Common Stock, par value
$0.01 per share, of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations thereunder.
"Common Stock" shall mean, collectively, the Company's shares of Class B
Common Stock, par value $.01 per share, and Class A Common Stock.
"Company" shall mean ProSource, Inc., a Delaware corporation.
"Disability" shall mean any illness or other physical or mental condition
of a Participant that renders the Participant incapable of performing his
customary and usual duties as a director of the Company, or any medically
determinable illness or other physical or mental condition resulting from a
bodily injury, disease or mental disorder which is expected to be permanent and
continuous in nature.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations thereunder.
"Fair Market Value" of a share of Class A Common Stock shall mean the
average closing price of shares of the Class A Common Stock for the five trading
days immediately preceding the applicable date on (i) the Nasdaq National
Market, if the Class A Common Stock is then listed on such exchange, (ii) if the
Class A Common Stock is not listed on the Nasdaq National Market, on the
principal national stock exchange on which the Class A Common Stock is then
listed or (iii) if not listed on any national exchange, as reported by NASDAQ.
If the Class A Common Stock is not then listed on any national stock exchange or
reported by NASDAQ, then the Fair Market Value shall be determined in any
reasonable manner approved by the Committee.
"Fees" shall mean the annual retainer fee payable to a Participant in
connection with his or her service on the Board for any Plan Fiscal Year of the
Company.
"Onex" shall mean, collectively, Onex Corporation and its affiliates.
"Participant" shall mean any person who has been granted a Stock Option
under the Plan.
"Plan" shall mean the ProSource, Inc. 1997 Directors Stock Option Plan.
"Plan Fiscal Year" shall mean (i) the period beginning upon effectiveness
of the Plan and ending on the December 31 immediately following and (ii)
thereafter, each calendar year during which the Plan is effective.
"Stock Option" shall mean a non-qualified stock option, which is further
defined as any right to acquire Class A Common Stock which does not qualify as
an "incentive stock option" as defined under the Code.
SECTION 3. ELIGIBILITY
Each member of the Board who is not an employee of the Company, any
subsidiary of the Company or Onex.
SECTION 4. SHARES SUBJECT TO THE PLAN
The number of shares of Class A Common Stock which shall be available for
use under the Plan shall be 100,000, subject to adjustment pursuant to Section
12 hereunder. The shares issued under the Plan may be authorized and unissued
shares or issued shares heretofore or hereafter acquired and held as treasury
shares.
SECTION 5. DURATION OF PLAN
Unless earlier terminated pursuant to Section 10 hereof, this Plan shall
automatically terminate on, and no grants or elections may be made after
December 31, 2007.
SECTION 6. ADMINISTRATION
A-2
<PAGE> 31
The Plan shall be administered under the direction of the Board or any
committee thereof so designated by the Board; provided, however, that the Board
or any such committee shall have no authority to administer the Plan with
respect to selection of Participants under the Plan or the timing, pricing or
amounts of any grants.
SECTION 7. STOCK OPTIONS IN LIEU OF FEES
(a) Each Participant who, prior to the first day of any Plan Fiscal Year,
files with the Company an irrevocable election (an "Election") concerning the
Fees to be earned in such Plan Fiscal Year, may receive in lieu of all or any
portion of such Fees (but, with respect to any such portion, only in increments
of 25% or a multiple thereof (the "Election Percentage")), as so designated by
the Participant, a Stock Option exercisable for a number of shares of Class A
Common Stock equal to the Fees payable in such Plan Fiscal Year divided by $4.00
(or, if so designated by the Participant, such lesser number of shares equal to
such amount multiplied by the Election Percentage). With respect to Fees payable
in the Plan Fiscal Year in which the Plan becomes effective, the election to
receive a Stock Option in lieu of Fees may be made at any time prior to such
effectiveness. In the case of any Participant elected to the Board during a Plan
Fiscal Year, such Participant's Election shall be filed with the Company prior
to such Participant's election as a director.
(b) The exercise price for such Stock Option shall be equal to $4.00 per
share below the Fair Market Value of a share of Class A Common Stock on the date
of grant; provided, however, that in no event shall the exercise price of such
Stock Option be less than 50% of the Fair Market Value of a share of Class A
Common Stock on the date of the grant.
(c) The date of grant of a Stock Option pursuant to this Section 7 shall
be the date of the annual meeting of stockholders of the Corporation.
(d) A Stock Option granted pursuant to this Section 7 shall vest and be
exercisable on the day prior to the date of the next annual meeting of
stockholders after the date of grant (the "Vesting Date"). In the event that a
Participant is not a member of the Board on the Vesting Date, any Stock Option
held by the Participant which has not become vested and exercisable as of such
time shall expire without vesting.
(e) The term of exercisability for a Stock Option granted under this
Section 7 shall be ten (10) years, subject to Section 12.
(f) The remaining terms and conditions of each such Stock Option shall be
as set forth in this Plan and in the form of Stock Option Agreement used in
connection with this Plan.
SECTION 8. TRANSFERABILITY
Stock Options may not be assigned, transferred, pledged or hypothecated,
and shall not be subject to execution, attachment or similar process, other than
by will or by operation of applicable laws of descent and distribution or
pursuant to a domestic relations order or qualified domestic relations order as
such terms are defined by the Code or ERISA.
SECTION 9. AMENDMENT
The Plan may be amended by the Board; provided, however, that (a) no
amendment shall be made that would impair prior rights of a Participant without
his or her consent; (b) no such amendment shall be effective without the
approval of a majority of the votes cast by holders of shares of Common Stock
present or represented, and entitled to vote, at a meeting held for such
purpose, if such amendment would (i) materially increase the benefits accruing
to Participants under the Plan, (ii) materially increase the number of
securities which may be issued under the Plan, or (iii) materially modify the
requirements as to eligibility for participation in the Plan; and (c) no
amendment shall be made which would prevent a Participant's participation in the
Plan from being entitled to an exemption from Section 16(b) of the Act.
SECTION 10. TERMINATION
The Plan may be terminated at any time by the Board or by the approval by
a majority of the votes cast by holders of shares of Common Stick present or
represented, and entitled to vote, at a meeting held for such purpose.
SECTION 11. WITHHOLDING TAXES
No later than the date as of which an amount first becomes includible in
the gross income of the Participant for Federal income tax purposes with respect
to exercise of any Stock Option granted under the Plan, the Participant shall
pay to the Company, or make arrangements satisfactory to the Company regarding
the payment of, any Federal, state, local or foreign taxes of any kind required
by law to be withheld. Such withholding obligations may be settled with Class A
Common Stock, including Class A Common Stock that is received upon the exercise
of the Stock
A-3
<PAGE> 32
Option that gives rise to the withholding requirement. The obligations of the
Company under the Plan shall be conditional upon such payment or arrangements,
and the Company shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment otherwise due to the Participant. The Company
may establish such procedures as it deems appropriate, including the making of
irrevocable elections or the timing of the use of Class A Common Stock, for the
settlement of its withholding obligations.
SECTION 12. TERMINATION OF STOCK OPTION
In connection with a Participant's termination of membership on the Board,
a Stock Option shall terminate at the earliest of the following circumstances:
(a) The date that is three (3) months after the Participant's
termination, for any reason other than as provided in paragraph (ii),
(iii) or (iv) or below;
(b) The date that is twelve (12) months after termination due to
death or Disability, but in no event later than the date the Stock Option
would have expired under Section 7(e); and
(c) The date the Participant is terminated for Cause.
SECTION 13.EFFECT OF CHANGE OF CONTROL
Notwithstanding any other provision of the Plan to the contrary, in the
event if a Change of Control, any Stock Options outstanding and not then
exercisable and vested as of the date such Change of Control is determined to
have occurred, shall become fully exercisable and vested to the full extent of
the original grant. During the 60-day period from and after a Change of Control
(the "Exercise Period"), a Participant who holds a Stock Option shall have the
right, in lieu of the payment of the exercise price for the shares of Class A
Common Stock being purchased under the Stock Option and by giving notice to the
Company, to elect (within the Exercise Period) to surrender all or part of a
Stock Option to the Company and to receive cash, within 30 days of such notice,
in an amount equal to the amount by which the Change of Control Price per share
of Common Stock on the date of such election exceeds the exercise price per
share of Class A Common Stock under the Stock Option multiplied by the number of
shares of Class A Common Stock granted under the Stock Option as to which the
right granted under this Section shall have been exercised.
SECTION 14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, extraordinary distribution with
respect to Class A Common Stock or other change in corporate structure affecting
the Class A Common Stock, the Board may make such substitution or adjustments in
the aggregate number and kind of shares reserved for issuance under the Plan, in
the number, kind and exercise price of shares subject to outstanding Stock
Options to be granted under the Plan and/or such other substitution or
adjustments in the consideration receivable upon exercise as it may determine to
be appropriate in its sole discretion; provided, however, that the number of
shares subject to any Stock Option shall always be a whole number.
SECTION 15. REGULATORY MATTERS
The Plan is intended to be construed so that participation in the Plan
will be exempt from Section 16(b) of the Act, pursuant to Rule 16b-3 promulgated
thereunder, as may be further amended or interpreted by the Securities and
Exchange Commission. In the event that any provision of the Plan shall be deemed
not to be in compliance with the Rules in order to enjoy the exemption from the
Act, such provision shall be deemed of no force or effect and the remaining
provisions of the Plan shall remain in effect.
SECTION 16. EFFECTIVENESS OF PLAN
The Plan shall become effective as of the date its adoption by the Board
is approved by a majority of the votes cast by holders of shares of Common Stock
present or represented, and entitled to vote, at a meeting held for such
purpose.
A-4
<PAGE> 33
ANNEX B
PROSOURCE, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
Section 1. Establishment and Purpose
1.1 Establishment. ProSource, Inc., a Delaware corporation (hereinafter
called "ProSource" or the "Company"), hereby establishes a stock purchase plan
for employees as described herein, which shall be known as the PROSOURCE, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN (the "Plan").
1.2 Purpose. The purpose of the Plan is to provide eligible employees the
opportunity to purchase the Company's common stock at a favorable price by means
of payroll deductions. It is intended that the Plan qualify as an employee stock
purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code") and all provisions hereof shall be construed in a manner to so
comply.
Section 2. Definitions
2.1 Definitions. Whenever used hereinafter, the following terms shall have
the meanings set forth below:
(a)"Affiliate" means any corporation, a majority of the voting stock
of which is directly or indirectly owned by ProSource, and which has been
authorized by the Board to participate in the Plan.
(b)"Base Earnings" means a Participant's regular rate of pay and
does not include overtime pay, bonuses, or amounts payable under employee
benefit plans.
(c)"Board" means the Board of Directors of ProSource.
(d)"Committee" means the Equity Compensation Committee of the Board.
(e)"Eligible Employee", with respect to any Plan Year, means an
employee (including officers and directors who are also employees) of
ProSource or any Affiliate who have been employed by the Company or an
Affiliate continuously for at least three months prior to July 1 of such
Plan Year, other than those employees whose customary employment is 20
hours or less per week or not more than five months during any calendar
year.
(f)"Fair Market Value" of a share of Stock means the average closing
price of shares of the Stock for the five trading days immediately
preceding the applicable date on (i) the New York Stock Exchange, if the
Stock is then listed on such exchange, (ii) if the Stock is not listed on
the New York Stock Exchange, on the principal national stock exchange on
which the Stock is then listed or (iii) if not listed on any national
exchange, as reported by NASDAQ. If the Stock is not then listed on any
national stock exchange or reported by NASDAQ, then the Fair Market Value
shall be determined in any reasonable manner approved by the Committee.
(g)"Participant" means an Eligible Employee who has elected to
participate in the Plan pursuant to Section 4.1.
(h)"Plan Year" means the twelve-month period beginning each July 1.
(i)"Stock" means the Class A Common Stock of ProSource, par value
$.01 per share.
Section 3. Stock Subject to the Plan
3.1 Number. The total number of shares of Stock to be offered for sale
under this Plan shall not exceed 300,000 shares in the aggregate. These shares
may consist, in whole or in part, of authorized but unissued Stock or treasury
Stock not reserved for any other purpose.
3.2 Adjustment in Capitalization. In the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, stock split,
extraordinary distribution with respect to Stock or other change in corporate
structure affecting the Stock, the Committee may make such substitution or
adjustments in the aggregate number and kind of shares reserved for issuance
under the Plan and the price payable therefor and/or such other substitution or
adjustments in the shares reserved for issuance under the Plan as it may
determine to be appropriate in its sole discretion; provided, however that the
number of shares of Stock issuable under the Plan shall always be a whole
number.
B-1
<PAGE> 34
Section 4. Participation
4.1 Participation. Any employee who is an Eligible Employee on June 1,
1997 may elect to become a Participant as of July 1, 1997. Any employee who is
an Eligible Employee on June 1 of any subsequent year, may elect to become a
Participant as of the first day of the next Plan Year. Any election to
participate shall be made in the form and at the time provided in rules adopted
by the Committee from time to time. Notwithstanding anything herein to the
contrary, in no event shall an Eligible Employee be granted the right to
purchase Stock under the Plan if after the purchase such Eligible Employee would
own capital stock of ProSource possessing 5% or more of the total combined
voting power or value of all classes of capital stock of ProSource. Also, an
Eligible Employee may not become or remain a Participant at any time when such
Eligible Employee owns capital stock possessing 5% or more of the total combined
voting power or value of all classes of capital stock of ProSource. For purposes
of this subsection, the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an individual, and capital stock which an
employee may purchase under outstanding options shall be treated as capital
stock owned by the employee.
Section 5. Purchase of Stock
5.1 Contributions for Purchase of Stock. At the time an Eligible Employee
elects to become a Participant in the Plan, such Eligible Employee shall elect
to contribute to the Plan by authorizing payroll deductions in an amount (in
increments of 1%) not less than 1%, and not more than 15%, of Base Earnings.
Unless otherwise elected by the Participant, the rate of withholding such
Participant has elected will remain in effect for subsequent Plan Years. A
Participant at any time may reduce the rate of withholding or discontinue
withholding entirely. A Participant may not increase the rate of withholding
except in connection with an election with respect to a subsequent Plan Year. If
a Participant elects to discontinue withholding, he or she may resume
withholding only as of the first day of any subsequent Plan Year. Any election
or direction under this section shall be made in writing in the form and
pursuant to rules adopted by the Committee from time to time, and shall become
effective at a time specified by the Committee.
5.2 Disposition of Contributions. Amounts withheld pursuant to Section 5.1
shall be held by a Participant's employer until the end of the Plan Year in
which withheld, except that:
(a)A Participant who elects to discontinue withholding may elect at
any time to withdraw all or any part of the amounts previously withheld.
Any such withdrawal shall be paid to the Participant by his or her
employer in cash, with interest, if any, on such amounts.
(b)Any portion of the amounts withheld which is not paid to the
Participant in cash pursuant to this Section shall be automatically
applied to purchase Stock under Section 5.3.
(c)Any withdrawal election under this Section shall be made in
writing in the form and pursuant to rules adopted by the Committee from
time to time.
5.3 Purchases of Stock. Amounts withheld from a Participant's pay during
the Plan Year (except any amounts refunded to such Participant in cash under
Section 5.2) shall be used as of the last business day of such Plan Year to
purchase Stock from ProSource for a price equal to 85% of the Fair Market Value
of a share of Stock on the first business day of such Plan Year. Only whole
shares shall be purchased, and any amount remaining that is not sufficient to
purchase a whole share shall be carried over to the next Plan Year for the
account of the Participant.
5.4 Issuance of Stock Certificates. As soon as practicable after the close
of the Plan Year, ProSource shall, without Stock issue or transfer taxes to the
Participant, deliver to the Participant a certificate or certificates for the
requisite number of shares of Stock purchased under the Plan registered in the
name of the Participant or such other name or names as the Participant may
direct.
5.5 Privileges of a Stockholder. A Participant shall not have stockholder
privileges with respect to any Stock until the date of issuance of a certificate
to such Participant for such Stock.
5.6 Limitation on Stock Purchases. As required by Section 423 of the Code,
no Participant may purchase Stock under the Plan and all other employee stock
purchase plans of ProSource (including any parent or subsidiary corporation, to
the extent provided in Section 423) at a rate in excess of $25,000 in Fair
Market Value of such Stock (determined as of the first Business Day of the Plan
Year with respect to which Stock is granted) for each calendar year in which any
such right to purchase Stock granted to such Participant is outstanding at any
time. If a Participant is not entitled to purchase Stock under any other such
plan during a Plan Year, the total number of shares purchased under this Plan
for the Participant with respect to that Plan Year may not exceed $25,000
divided by the Fair Market Value of a share of Stock on the first day of such
Plan Year.
B-2
<PAGE> 35
Section 6. Termination of Employment
6.1 Termination of Employment. No shares of Stock may be purchased by a
Participant pursuant to this Plan with respect to a Plan Year if his or her
employment terminates for any reason prior to the end of such Plan Year. Any
amount withheld from the pay of a Participant during the Plan Year in which his
or her employment terminates shall be paid to such Participant in cash, with
interest, if any, on such amount promptly after such Participant's termination
of employment. If a Participant's death occurs at any time during a Plan Year,
any amount withheld from the pay of such Participant shall be paid to the
Participant's personal representative in cash, with interest, if any, on such
amount and no portion thereof shall be applied to purchase Stock under the Plan.
Section 7. Rights of Employees; Participants
7.1 Employment. Nothing in this Plan shall interfere with or limit in any
way the right of ProSource or any Affiliate to terminate any employee's,
Eligible Employee's, or Participant's employment at any time, nor confer upon
any such person any right to continue in the employ of ProSource or any of its
Affiliates.
7.2 Nontransferability. No right or interest of any Participant in the
Plan shall be assignable or transferable, or subject to any lien, directly or
indirectly, by operation of law, or otherwise, including execution, levy,
garnishment, attachment, pledge, or bankruptcy. Any attempted assignment,
transfer, pledge or other disposition of any rights under the Plan shall be null
and void, and shall automatically terminate all rights of a participant under
the Plan.
Section 8. Administration
8.1 The Committee. (a) The Plan shall be administered by the Committee.
(b)The Committee is vested with full authority to make, administer, and
interpret such equitable rules and regulations regarding the Plan as it may deem
advisable. The Committee's determination as to the interpretation and operation
of the Plan, or any right granted under it, shall be final and conclusive,
unless otherwise determined by the Board. No member of the Board or the
Committee shall be liable for any action or determination made in good faith by
such member with respect to the Plan or any option granted under it.
(c)Prior to the commencement of any Plan Year, the Committee may prescribe
rules to apply to such Plan Year including, but not limited to, setting forth a
limit on the aggregate number of shares of Stock which may be purchased under
the Plan during the Plan Year, and the method for reducing Participants'
elections if such limit would otherwise be exceeded.
(d)The Committee may act by a majority vote at a meeting of the Committee
or by a document signed by all of the members of the Committee.
Section 9. Amendment, Modification and
Termination of Plan
9.1 Amendment, Modification, and Termination of the Plan. The Board or the
Committee, at any time may terminate, and at any time and from time to time and
in any respect, may amend or modify the Plan, provided, however, that no such
action of the Board, or the Committee, without approval of the stockholders of
ProSource, may: (a) Increase the total amount of Stock which may be offered
under the Plan, except as provided in Section 3.2 of the Plan; (b) withdraw the
administration of the Plan from the Committee; or (c) permit any person, while a
member of the Committee, to be eligible to participate in the Plan.
Section 10. Requirements of Law
10.1 Requirements of Law. The issuance of Stock and the payroll deductions
pursuant to this Plan shall be subject to all applicable laws, rules, and
regulations, and shares of Stock shall not be issued nor cash payments made
except upon approval of proper government agencies of stock exchanges as may be
required.
10.2 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware,
without regard to the conflicts of law provisions thereof.
Section 11. Effective Date of the Plan
11.1 Effective Date. Subject to approval by the stockholders of ProSource,
the Plan shall be effective as of July 1, 1997.
11.2 Duration of the Plan. Unless the Board terminates the Plan earlier,
the Plan shall remain in effect until the earlier of the date upon which all
Stock subject to it shall be distributed pursuant to the Plan and June 30, 2002.
B-3
`
<PAGE> 36
PROSOURCE, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
for the Annual Meeting of Stockholders
The undersigned hereby appoints David R. Parker, Thomas C. Highland,
Paul A. Garcia de Quevedo or any of them, with full power of substitution,
proxies to vote, unless such authority is withheld, all shares of common stock
of ProSource, Inc. (the "Company") registered in the name of the undersigned
that the undersigned would be entitled to vote at the Annual Meeting of
Stockholders of the Company to be held at the Biltmore Hotel, located at 1200
Anastasia Avenue, Coral Gables, Florida, at 8:30 a.m. Eastern time on Tuesday,
April 29, 1997, and any adjournments thereof (the "Annual Meeting"), with all
powers the undersigned would posses if personally present, for the election of
directors and all other matters described on the reverse hereof and, in their
discretion, on such other matters as may properly come before the Annual
Meeting.
This Proxy when properly executed will be voted in the manner directed
herein. If no instruction to the contrary is indicated, this Proxy will be
voted FOR the election of the Directors named in Proposal 1 and FOR Proposals
2, 3 and 4.
1. ELECTION OF DIRECTORS: David R. Parker, Thomas C. Highland, Daniel J.
Adzia, Gerald W. Schwartz, Anthony R. Melman, Michael Carpenter, Anthony
Munk, C. Lee Johnson and R. Geoffrey P. Styles.
/ / FOR all nominees listed above (except as marked to the contrary hereon).
/ / WITHHOLD AUTHORITY to vote for all nominees listed hereon.
/ / EXCEPTIONS.
Instructions: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominees's name in the space provided below.
_______________________________________________________________________________
2. To adopt the Company's proposed 1997 Directors Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. To adopt the Company's proposed 1997 Employee Stock Purchase Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. To ratify the appointment of KPMG Peat Marwick LLP as Independent
Auditors for the Company for the fiscal year ending December 27, 1997.
/ / FOR / / AGAINST / / ABSTAIN
CHANGE OF ADDRESS MARK HERE ______
(Continued and to be signed and dated on the reverse side.)
<PAGE> 37
NOTE: Your signature should conform with
your name as it appears hereon. If signing as
attorney, executor, administrator, trustee or
guardian, please give your fill title as
such. If stock is owned by a partnership or
corporation, please indicate your capacity in
signing the Proxy. If stock is held in joint
ownership, all co-owners must sign.
__________________________________
Signature
__________________________________
Signature if held jointly
Dated: _____________________, 1997
SIGN, DATE AND RETURN THE INSTRUCTION CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
2
