<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 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
/X/ Definitive Proxy Statement Commission Only
/ / Definitive Additional Materials (as permitted by Rule
/ / Soliciting Material Pursuant to 14a-6(e)(2))
Rule 14a-11(c) or Rule 14a-12
1ST SOURCE CORPORATION
- ------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
- ------------------------------------------------------------------------------
(2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTIONS APPLIES:
- ------------------------------------------------------------------------------
(3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED
PURSUANT TO EXCHANGE ACT RULE 0-11 (SET FORTH THE AMOUNT ON WHICH THE FILING
FEE IS CALCULATED AND STATE HOW IT WAS DETERMINED):
- ------------------------------------------------------------------------------
(4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
- ------------------------------------------------------------------------------
(5) TOTAL FEE PAID:
- ------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- ------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- ------------------------------------------------------------------------------
(3) Filing Party:
- ------------------------------------------------------------------------------
(4) Date Filed:
- ------------------------------------------------------------------------------
<PAGE> 2
[LOGO]
Post Office Box 1602
100 North Michigan Street
South Bend, Indiana 46634
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT
TO THE SHAREHOLDERS OF 1ST SOURCE CORPORATION
The Annual Meeting of the Shareholders of 1st Source Corporation will be
held at the 1st Source Bank Building, 4th Floor Boardroom, 100 North Michigan
Street, South Bend, Indiana, on April 16, 1998, at 10:00 a.m. local time, for
the purpose of considering and voting upon the following matters:
1. ELECTION OF DIRECTORS. Election of one Director and reelection of three
Directors for terms expiring in 2001.
2. APPROVAL OF 1998 PERFORMANCE COMPENSATION PLAN. Adoption of a
performance compensation plan for executive officers and other key
employees of 1st Source and its subsidiaries under which the Executive
Compensation Committee could make cash awards each year.
3. OTHER BUSINESS. Such other matters as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on February 17, 1998, are
entitled to vote at the meeting.
By Order of the Board of Directors
Vincent A. Tamburo
Secretary
South Bend, Indiana
March 6, 1998
- -------------------------------------------------------------------------------
PLEASE DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU MAY, NEVERTHELESS, VOTE
IN PERSON.
- -------------------------------------------------------------------------------
<PAGE> 2
[LOGO]
Post Office Box 1602
100 North Michigan Street
South Bend, Indiana 46634
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of proxies to be voted at the Annual Meeting of
Shareholders of 1st Source Corporation ("1st Source"), to be held on April
16, 1998, at 10:00 a.m. local time, at the 1st Source Bank Building, 4th
Floor Boardroom, 100 North Michigan Street, South Bend, Indiana. Only
Shareholders of record at the close of business on February 17, 1998, will be
eligible to vote at the Annual Meeting. The voting securities of 1st Source
consist only of Common Stock, of which 17,450,797 shares were outstanding on
the record date. Each Shareholder of record on the record date will be
entitled to one vote for each share. Cumulative voting is not authorized. The
approximate date for making available this Proxy Statement and the form of
proxy to Shareholders is March 6, 1998. With respect to each matter to be
acted upon at the meeting, abstentions on properly executed proxy cards will
be counted for determining a quorum at the meeting; however, such abstentions
and shares not voted by brokers and other entities holding shares on behalf
of beneficial owners will not be counted in calculating voting results on
those matters for which the shareholder has abstained or the broker has not
voted.
The cost of solicitation of proxies will be borne by 1st Source. In addition
to the use of mails, proxies may be solicited through personal interview,
telephone, and telegraph by directors, officers and regular employees of 1st
Source without additional remuneration therefor.
REVOCABILITY
Shareholders may revoke their proxies at any time prior to the meeting by
giving written notice to Vincent A. Tamburo, Secretary, 1st Source
Corporation, Post Office Box 1602, South Bend, Indiana 46634, or by voting in
person at the meeting.
PERSONS MAKING THE SOLICITATION
This solicitation is being made by the Board of Directors of 1st Source.
1
<PAGE> 3
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Ownership of beneficial owners of more than 5% of the Common Stock
outstanding at February 17, 1998:
<TABLE>
<CAPTION>
NAME AND ADDRESS TYPE OF OWNERSHIP AMOUNT % OF CLASS
- ---------------- ----------------- ------ ----------
<S> <C> <C> <C>
Ernestine M. Raclin Direct 173,341 .99%
100 North Michigan Street
South Bend, IN 46601 Indirect<F1> 5,398,304 30.94
--------- -----
Total 5,571,645 31.93%
========= =====
Christopher J. Murphy III Direct 527,576 3.02%
100 North Michigan Street
South Bend, IN 46601 Indirect<F2> 1,160,763 6.65
--------- -----
Total 1,688,339 9.67%
========= =====
1st Source Bank as Trustee Direct
for the 1st Source 1,111,282 6.37%
Corporation Employees' ========= =====
Profit Sharing Plan and Trust
<FN>
<F1> Owned indirectly by Mrs. Raclin who disclaims beneficial ownership
thereof. Most of these securities are held in trust. While Mrs. Raclin
is an income beneficiary of many of these trusts, the ultimate benefit and
ownership will reside in her children and grandchildren.
<F2> Owned indirectly by Mr. Murphy who disclaims beneficial ownership
thereof. The securities are held by Mr. Murphy's wife and children, or in
trust for the benefit of his wife and children. Mr. Murphy is not a current
income beneficiary of most of the trusts.
</TABLE>
INTEREST OF CERTAIN PERSONS IN MATTERS
TO BE ACTED UPON
The Board of Directors knows of no matters to come before the Annual Meeting
other than the matters referred to in this Proxy Statement. However, if any
other matters should properly come before the meeting, the persons named in
the enclosed proxy intend to vote in accordance with their best judgment. No
director, nominee for election as director, nor officer of 1st Source has any
special interest in any matter to be voted upon other than (i) election to
the Board of Directors and (ii) officers may have an interest in Proposal
Number 2, relating to the 1998 Performance Compensation Plan, as described
more fully herein. Directors, officers, and voting trustees have indicated
that they intend to vote for all directors as listed in Proposal Number 1 and
for Proposal Number 2.
PROPOSAL NUMBER 1: ELECTION OF DIRECTORS
DIRECTORS AND EXECUTIVE OFFICERS
The last Shareholders' meeting at which directors were elected was held on
April 17, 1997. At that meeting, 90.3% of the shares outstanding were
represented in person or by proxy. Directors were voted upon separately. All
directors received a majority of the votes cast.
The Board of Directors is divided into three (3) groups of directors whose
terms expire at different times. At this meeting, one (1) director is to be
elected and three (3) directors are to be reelected to hold office until
April, 2001, or until the qualification and election of a successor.
Directors will be elected by a plurality of the votes cast. The following
information is submitted for each nominee as well as each director and each
non-director executive officer continuing in office.
2
<PAGE> 4
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF EQUITY SECURITIES<F1>
------------------------
YEAR
IN WHICH
DIRECTORSHIP COMMON % OF
NAME AGE PRINCIPAL OCCUPATION<F3> ASSUMED STOCK<F2> CLASS
- ---- --- ------------------------ ------------ --------- -----
NOMINEE FOR ELECTION TO THE BOARD OF DIRECTORS
Term Expiring in April, 2001
<S> <C> <C> <C> <C> <C>
Wellington D. Jones III 53 Executive Vice President, 166,366 <F*>
1st Source Corporation and
1st Source Bank
<CAPTION>
NOMINEES FOR REELECTION TO THE BOARD OF DIRECTORS
Terms Expiring in April, 2001
<S> <C> <C> <C> <C> <C>
Philip J. Faccenda 68 General Counsel Emeritus, 1983 772,204 4.43%
University of Notre Dame;
Director, Hilb, Rogal &
Hamilton
Daniel B. Fitzpatrick 40 Chairman, President, 1995 17,859 <F*>
Chief Executive Officer
and Director, Quality
Dining, Inc. (quick
service and casual dining
restaurant operator)
Dane A. Miller, Ph.D. 52 President, Chief Executive 1987 15,506 <F*>
Officer and Director,
Biomet, Inc. (medical
products and technology)
<CAPTION>
DIRECTORS CONTINUING IN OFFICE
Terms Expiring in April, 1999
<S> <C> <C> <C> <C> <C>
Lawrence E. Hiler 52 President, 1992 1,787 <F*>
Hiler Industries, Inc.
(metal castings)
Rex Martin 46 Chairman, President and 1996 1,375 <F*>
Chief Executive Officer,
NIBCO, Inc. (copper
and plastic plumbing parts
manufacturer)
3
<PAGE> 5
<CAPTION>
BENEFICIAL OWNERSHIP
OF EQUITY SECURITIES<F1>
------------------------
YEAR
IN WHICH
DIRECTORSHIP COMMON % OF
NAME AGE PRINCIPAL OCCUPATION<F3> ASSUMED STOCK<F2> CLASS
- ---- --- ------------------------ ------------ --------- -----
<S> <C> <C> <C> <C> <C>
Christopher J. Murphy III 51 President and Chief 1972 1,688,339 9.67%
<F4> Executive Officer,
1st Source Corporation
and 1st Source Bank;
Director, Comair, Inc.
and Quality Dining, Inc.
Ernestine M. Raclin 70 Chairman of the Board, 1976 5,571,645 31.93%
<F4><F5> 1st Source Corporation
and 1st Source Bank;
Director, NIPSCO
<CAPTION>
Terms Expiring in April, 2000
<S> <C> <C> <C> <C> <C>
Rev. E. William Beauchamp, 55 Executive Vice President, 1989 507 <F*>
C.S.C University of Notre Dame
Paul R. Bowles 60 Former Vice President, 1988 9,000 <F*>
Clark Equipment Company
(off-highway components
and construction machinery
manufacturing)
William P. Johnson 55 Chairman and Chief 1996 800 <F*>
Executive Officer,
Goshen Rubber Co., Inc.
(rubber and plastic parts
manufacturer); Director,
Coachman Industries, Inc.
Richard J. Pfeil 65 Chairman and President, 1971 27,148 <F*>
Koontz-Wagner Electric
Company, Inc. (electrical
equipment installer and
supplier)
<CAPTION>
NON-DIRECTOR EXECUTIVE OFFICERS
<S> <C> <C> <C> <C> <C>
Richard Q. Stifel 56 Executive Vice President, 78,236 <F*>
1st Source Bank
4
<PAGE> 6
<CAPTION>
BENEFICIAL OWNERSHIP
OF EQUITY SECURITIES<F1>
------------------------
YEAR
IN WHICH
DIRECTORSHIP COMMON % OF
NAME AGE PRINCIPAL OCCUPATION<F3> ASSUMED STOCK<F2> CLASS
- ---- --- ------------------------ ------------ --------- -----
<S> <C> <C> <C> <C> <C>
Allen R. Qualey 45 Executive Vice President, 41,106 <F*>
1st Source Bank
Prior thereto, Senior
Vice President
Vincent A. Tamburo 63 Senior Vice President, 47,602 <F*>
General Counsel and Secre-
tary, 1st Source Corporation
and 1st Source Bank
Larry E. Lentych 51 Senior Vice President, 43,407 <F*>
Treasurer and Chief Financial
Officer, 1st Source Corpo-
ration and 1st Source Bank
All Directors and
Executive Officers
as a Group (16 persons) 7,679,243 44.01%
<FN>
<F*> Represents holdings of less than 1%.
<F1> Based on information furnished by the directors and executive officers
as of February 17, 1998.
<F2> The amounts shown include shares of Common Stock held directly or
indirectly in the following amounts by spouses and other family members
of the immediate households of the following directors, who disclaim
beneficial ownership of such securities: Christopher J. Murphy III,
1,160,763 shares; Ernestine M. Raclin, 5,398,304 shares. Voting
authority for 813,648 shares owned beneficially by Mr. Murphy and
3,799,096 shares owned beneficially by Mrs. Raclin is vested in 1st
Source Bank as Trustee for various family trusts. Investment authority
for those shares is held by 1st Source Bank as Trustee of the underlying
trusts. Mr. Faccenda holds 745,875 shares in fiduciary capacity as
Trustee of two (2) trusts for the benefit of Mrs. Raclin.
<F3> The principal occupation represents the employment for the last five
years for each of the named directors and executive officers.
Directorships presently held in other registered corporations are also
disclosed.
<F4> Mr. Murphy is the son-in-law of Mrs. Raclin.
<F5> Consistent with the by-laws of 1st Source and past practice, Mrs.
Raclin, having attained the age of 70, will be retiring from 1st Source's
Board of Directors coincident with the 1998 Annual Meeting.
</TABLE>
Directors and officers of 1st Source and their associates were customers
of and had transactions with 1st Source and its subsidiaries in the
ordinary course of business during 1997; additional transactions are
expected to take place in the ordinary course of business in the future.
All outstanding loans and commitments were made on substantially the same
terms, including
5
<PAGE> 7
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than the normal risk
of collectibility, or present other unfavorable features. Credit underwriting
procedures followed were no less stringent than those for comparable
transactions with other borrowers.
In 1987, 1st Source invested in a venture capital limited partnership after a
presentation made by it to 1st Source and a group of 1st Source customers,
directors and officers. As a result, 1st Source subscribed to a $500,000
limited partnership interest in the venture capital limited partnership for
its own account. As an accommodation to Director Raclin and former directors
Van E. Gates and Merlin J. Hanson, 1st Source subscribed to an additional
$250,000 limited partnership interest for their account. 1st Source
continues to own two-thirds (2/3) of this investment for its own account, and
one-third (1/3) for these persons. As of December 31, 1993, the total
$750,000 subscription has been paid, $250,000 of which has been paid by the
above-named persons.
During 1992, 1st Source subscribed to a $600,000 limited partnership interest
in a venture capital limited partnership for its own account. As an
accommodation to Director Raclin and former Director Gates, 1st Source
subscribed to an additional $150,000 limited partnership interest for their
account. 1st Source continues to own 80% of this investment for its own
account, and 20% for these persons. As of December 31, 1996, the total
$750,000 subscription has been paid, $150,000 of which has been paid by the
above-named persons. Each of these persons has paid to 1st Source, when due,
all amounts required to be paid by 1st Source, under the subscription
agreements for these persons' interest. 1st Source may engage in similar
transactions with its customers, directors and officers in the future.
BOARD COMMITTEES
1st Source and its major subsidiary, 1st Source Bank, share the following
permanent committees made up of board members of both organizations.
Executive, Audit, Human Resources and Executive Compensation Committee
members are appointed annually after the Annual Meeting of Shareholders.
EXECUTIVE COMMITTEE -- Members of the Executive Committee are Ernestine M.
Raclin, Chairman; Paul R. Bowles, Philip J. Faccenda, Daniel B. Fitzpatrick,
Rex Martin, Christopher J. Murphy III, and Richard J. Pfeil. The committee
met one (1) time in 1997. The committee has the power to act for the Board
of Directors between Board meetings subject to certain statutory limitations.
The committee also carries out the functions of the Nominating Committee and
will consider nominees for election to the Board of Directors recommended by
Shareholders, if submitted in writing at least 120 days prior to the next
Annual Meeting to be held on or about April 22, 1999. Nominations should be
addressed to the attention of the Chairman, Executive Committee, c/o 1st
Source Corporation.
AUDIT COMMITTEE -- Members of the Audit Committee are Anne M. Hillman, 1st
Source Bank Director, Chairman; Rev. E. William Beauchamp, Philip J.
Faccenda, William P. Johnson, Rex Martin and Leo J. McKernan, 1st Source
Directors; H. Thomas Jackson, David L. Lerman, John T. Phair and Elmer H.
Tepe, 1st Source Bank Directors. The committee held four (4) meetings in
1997. The function of the Audit Committee is to review the scope and results
of the
6
<PAGE> 8
audits by the internal audit staff and the independent accountants. The
committee also reviews the adequacy of the accounting and financial controls
and presents the results to the Board of Directors with respect to accounting
practices and internal procedures. It also makes recommendations for
improvements in such procedures.
HUMAN RESOURCES COMMITTEE -- Members of the Human Resources Committee are
Dane A. Miller, Chairman; Paul R. Bowles, Daniel B. Fitzpatrick, Lawrence E.
Hiler and Richard J. Pfeil, 1st Source Directors; Terry L. Gerber, Hollis E.
Hughes, Jr., Craig A. Kapson and Mark D. Schwabero, 1st Source Bank Directors.
The committee held four (4) meetings in 1997. The purpose of the committee is
to establish wage and benefit policies for 1st Source and its subsidiaries and
to approve individual salary and benefit plans for the senior officers of 1st
Source Bank.
EXECUTIVE COMPENSATION COMMITTEE -- Members of the Executive Compensation
Committee are Philip J. Faccenda, Chairman; Paul R. Bowles, Rex Martin and
Richard J. Pfeil. The committee held three (3) meetings in 1997. The
Executive Compensation Committee determines compensation for senior
management personnel, reviews the Chief Executive Officer and manages the
company's stock plans.
MEETINGS OF THE BOARD OF DIRECTORS AND DIRECTORS' COMPENSATION -- The Board
of Directors held five (5) meetings in 1997. Incumbent directors who
attended fewer than 75% of the aggregate total meetings of the Board of
Directors and all committees of the board of 1st Source on which they served
were Leo J. McKernan and Richard J. Pfeil. Directors receive fees in the
amount of $6,000 per year, and $350 per board meeting and committee meeting
attended. Committee chairpersons receive $400 per meeting. Total fees paid
in 1997 were $170,000.
REMUNERATION OF EXECUTIVE OFFICERS
The following tables set forth all aggregate remuneration accrued by 1st
Source and its subsidiaries for 1997 for 1st Source's chief executive officer
and each of 1st Source's other four most highly compensated executive
officers.
7
<PAGE> 9
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
----------------------------------------- -------------------------
(A) (B) (C) (D) (E) (F) (G) (H)
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS<F3> COMPENSATION OPTIONS (#Sh) PAYOUTS<F3> COMPENSATION<F4>
- --------------------------- ---- ------ --------- ------------ ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ernestine M. Raclin 1997 $260,000 - $ 9,000 - - $13,989
Chairman of the Board 1996 258,462 - 7,500 - - 13,080
1st Source and 1st Source Bank 1995 250,000 - 7,000 - - 13,594
Christopher J. Murphy III<F1> 1997 414,515 $633,405 25,190 - $217,463 13,989
President & CEO 1996 389,077 105,300 24,114 48,675 169,936 13,080
1st Source and 1st Source Bank 1995 368,082 156,684 19,550 - 153,915 13,594
Wellington D. Jones III 1997 202,145 656,613 6,190 - 70,826 13,989
Executive Vice President 1996 188,500 33,750 6,633 18,838 55,805 13,080
1st Source and 1st Source Bank 1995 176,770 50,985 5,152 - 51,831 13,594
Richard Q. Stifel 1997 152,461 207,505 4,133 - 43,771 13,989
Executive Vice President 1996 144,154 12,000 4,869 13,475 36,185 13,080
1st Source Bank 1995 136,820 32,399 3,742 - 32,475 13,527
Allen R. Qualey<F2> 1997 145,385 34,050 2,536 11,000 36,278 13,989
Executive Vice President,
1st Source Bank
8
<PAGE> 10
<FN>
<F1> Mr. Murphy's Employment Agreement (the "Agreement") provides for a
$300,000 base salary, with annual increases of not less than 5% and cash
bonus payments based on a formula which is computed in a manner similar
to the awards to executives under the Executive Incentive Plan and Long-
Term Executive Award Program. The Agreement was amended in February 1997
to permit gross-up payments necessary to cover possible excise tax
payments by Mr. Murphy and to reimburse Mr. Murphy for legal fees that
might be expended in enforcing Agreement provisions or contesting tax
issues relating to the Agreement's parachute provisions. The Agreement is
a five-year contract which is extended from year to year unless either
party gives notice not to extend. In the event of his disability, the
Agreement terminates and Mr. Murphy will receive his base salary for up
to one year, in addition to other disability programs in effect for all
officers of 1st Source. In the event of his death, 1st Source shall pay
to the estate or other designated beneficiary a death benefit equal to
three times his base salary and bonus paid in the preceding year, in
addition to life insurance benefits. If Mr. Murphy terminates his
employment because of any adverse change in his status as President or
Director, resulting in a diminution of his duties, he shall continue to
receive his base salary for a period of twelve months after such
termination. If Mr. Murphy's employment terminates within one year of a
change in control (which term includes any third party which becomes
beneficial owner of 20% or more of the outstanding stock of 1st Source or
any approval of any transaction which results in a disposition of
substantially all of the assets of 1st Source), he shall receive
severance pay in cash equal to 2.99 times his "Annualized Includable
Compensation" (as defined under the Internal Revenue Code). The
Agreement also contains restrictive covenants which provide, among other
things, that Mr. Murphy not compete with 1st Source in bank or bank-
related services for a twelve-month period, within certain designated
counties of Indiana, after his termination of employment.
<F2> Mr. Qualey became an executive officer in 1997.
<F3> 1st Source has an Executive Incentive Plan (the "Plan") which is
administered by the Executive Compensation Committee (the "Committee") of
the Board. Awards under the Plan consist of cash and "Book Value" shares
of Common Stock. "Book Value" shares are awarded annually on a
discretionary basis and are subject to forfeiture over a period of five
(5) years. The Plan shares may only be sold to 1st Source, and such sale
is mandatory in the event of death, retirement, disability or termination
of employment. 1st Source may terminate or extend the Plan at any time.
During February 1996 and March 1991, 1st Source granted special long-
term incentive awards (the "Awards") to participants in the Executive
Incentive Plan administered by the Committee. The 1996 Award was granted
for the attainment of the company's long-term goals for 1995 which were
set in 1990. The 1991 Award was granted for the attainment of the
company's long-term return on assets goal for 1990, set in 1986. Both
Awards were split between cash and 1st Source Common Stock valued at the
market price at the time of the award. Such shares are subject to
forfeiture over a period of ten (10) years. The first 10% of these
shares was vested at the grant of the Award. Subsequent vesting requires
(i) the participant to remain an employee of 1st Source and (ii) that 1st
Source be profitable on an annual basis based on the determination of the
Committee.
1st Source also has a Restricted Stock Award Plan (the "Restricted Plan")
for key employees. Awards under the Restricted Plan are made to employees
recommended by the Chief Executive Officer and approved by the Committee.
Shares awarded under the Restricted Plan are subject to forfeiture over a
ten (10) year period. Vesting is based upon meeting certain criteria,
including continued employment by 1st Source.
9
<PAGE> 11
The bonus amounts represent the annual cash awards under the Plan. Vested
stock under the Plan, the Awards and the Restricted Plan is included in
the LTIP column. The value placed on "Book Value" shares is the book
value per share as of December 31 of each year. The value placed on
market value shares is market value as of December 31 of each year.
Mr. Murphy receives this vested amount in cash.
Unvested stock holdings under the Plan, the Awards and the Restricted
Plan as of December 31, 1997, are as follows:
<CAPTION>
BOOK VALUE MARKET VALUE CALCULATED
NAME SHARES SHARES VALUE
---- ---------- ------------ ----------
<S> <C> <C> <C>
Christopher J. Murphy III 33,289 10,949 $688,445
Wellington D. Jones III 10,405 3,362 213,437
Richard Q. Stifel 5,879 2,116 126,867
Allen R. Qualey 8,626 1,312 134,198
<F4> All amounts reported in the "All Other Compensation" column represent
1st Source contributions to defined contribution retirement plans.
</TABLE>
<TABLE>
EXECUTIVE INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<CAPTION>
NUMBER OF PERFORMANCE
BOOK VALUE PERIOD UNTIL
NAME SHARES<F1> PAYOUT<F2>
- ---- ---------- ------------
<S> <C> <C>
Christopher J. Murphy III 10,619 5 years
Wellington D. Jones III 3,295 5 years
Richard Q. Stifel 1,964 5 years
Allen R. Qualey 3,054 5 years
<FN>
<F1> Mr. Murphy will receive his vested awards in cash.
<F2> Vesting of awards is tied to 1st Source achieving a 8% annual
increase in net income over the next five years. Twenty percent (20%)
of the award vests each year based on attaining the performance.
</TABLE>
PENSION PLAN BENEFITS
Annual pension benefits payable to executive officers under annuity contracts
received from the terminated Pension Plan are as follows:
<TABLE>
<CAPTION>
ANNUAL PENSION
NAME BENEFITS
---- --------------
<S> <C>
Ernestine M. Raclin $11,226
Christopher J. Murphy III 17,078
Wellington D. Jones III 6,694
Richard Q. Stifel 3,879
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During 1997, Mr. Murphy served as a member of the compensation committee of
Quality Dining, Inc. Director Fitzpatrick is an executive officer of Quality
Dining, Inc.
10
<PAGE> 12
EXECUTIVE COMPENSATION COMMITTEE REPORT
1st Source officers are reviewed once a year by their immediate supervisor.
The review covers a variety of management and professional characteristics
and performance relative to individual, group, and company goals.
The performance review is an integral part of 1st Source's Salary
Administration Program. All positions are rated and placed in a salary
range. Annually, with our approval, management establishes a salary
performance grid that sets the range of merit increases that may be given to
officers depending on their review and their respective position (lower,
middle or upper third) in their respective salary range.
The categories of performance under the Company's review program are:
* Substantially and consistently exceeds job requirements;
* Often exceeds job requirements;
* Meets and sometimes exceeds job requirements;
* Meets some job requirements, improvement is required; and
* Does not meet minimal job requirements.
Management awards salary increases as determined under the guidelines of the
Salary Administration Program in conformance with the salary performance grid
and the annual budget.
All of the officers reported herein, including Mr. Murphy, are under the 1st
Source Salary Administration Program. In his case, he is evaluated by us
against a series of objectives set in the Company's annual budget plan and in
its long-term strategic plan as annually approved by our full Board. We
reviewed Mr. Murphy's salary in September 1997. We reviewed his performance
relative to achieving 1996's goals and his progress toward 1997's. The
Company had exceeded its quantitative objectives in 1996 and met most of its
qualitative objectives as well. We determined that Mr. Murphy's performance
"substantially and consistently exceeds job requirements" and he was
therefore eligible to receive a 6% to 8% base salary increase.
In addition to using the company's Salary Administration Program, we compared
Mr. Murphy's compensation, both base salary and bonus, with compensation
levels for CEO's of bank holding companies of comparable size and performance
in the Midwest and nationally. We reviewed compensation comparisons and bank
performance data prepared by Ben S. Cole Financial Corporation, the Bank
Administration Institute, Sheshunoff and Company, Wyatt Company, and the
Indiana Bankers Association. Based on these factors, we increased Mr.
Murphy's base salary 6.2% in September 1997.
Bonuses under 1st Source's Executive Incentive Plan are determined annually
following the close of the year. The bonus is calculated based on the
officer's "partnership level" adjusted for the Company's performance relative
to plan and for the individual's performance relative to weighted objectives
set at the beginning of the year. In Mr. Murphy's case, the base bonus
calculation is 20% of his salary. For each 1% that the company varies from
its profit plan for the year, the base bonus is adjusted up or down by 2.5%.
Once the base bonus is calculated, an officer can receive 100% to 300% of the
amount depending on their individual performance. As with all Executive
Incentive Plan participants, the reviewer assesses performance relative to an
agreed upon set of objectives. In Mr. Murphy's case, these are the annual
business objectives and the Company's long-term goals as approved by the
Board. In 1997, the Company expanded its branch network, generally exceeded
its annual financial and credit quality goals and generally met its
qualitative goals. Accordingly, Mr. Murphy was awarded a bonus of $236,810
for 1997's performance.
11
<PAGE> 13
Under the Company's Executive Incentive Plan, 50% of this bonus will be paid
in cash in March 1998 to Mr. Murphy. The other 50% is subject to forfeiture
over the next five (5) years. The forfeiture lapses ratably for each year
Mr. Murphy remains with the Company and for each year or period of years the
Company grows its net income by a minimum of 8% per year. During this
period, the "at risk" portion of the bonus is delineated in book value stock
but is paid in cash to Mr. Murphy as the forfeiture lapses. The Company's
Executive Incentive Program limits bonuses, at time of award, to 75% of
salary.
In addition, the Executive Compensation Committee awarded Mr. Murphy, Mr.
Jones and Mr. Stifel special cash bonuses in December 1997 and January 1998
in recognition of the growth in shareholder value by over 60% in 1997 and the
consistent performance that 1st Source has achieved over the past five (5)
years. Those efforts have resulted in the significant expansion of the
Company's retail branch network and other business enterprises without
adversely affecting credit quality. This has been reflected in the Company's
stock and financial performance in comparison to its peer bank holding
companies. Mr. Murphy, Mr. Jones and Mr. Stifel were awarded bonuses of
$515,000, $619,875, and $185,603, respectively.
Mr. Qualey was granted stock options in conjunction with his election to
Executive Vice President.
EXECUTIVE COMPENSATION COMMITTEE
Philip J. Faccenda, Chairman
Paul R. Bowles
Rex Martin
Richard J. Pfeil
12
<PAGE> 14
<TABLE>
OPTIONS GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
(A) (B) (C) (D) (E) (F)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT
OPTIONS EMPLOYEES PRICE EXPIRATION DATE
NAME GRANTED<F1> IN FISCAL YEAR ($/SHARE) DATE VALUE<F2>
- ---- ----------- -------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allen R. Qualey 11,000 100% $19.77 4/17/2007 $82,271
<FN>
<F1> The options will vest evenly at 2,200 shares per year over the next 5
years, beginning April 17, 1998. Options are subject to a three-year
holding period after exercise.
<F2> Grant date values have been determined using the Black-Scholes option
pricing model. The assumptions used in calculating the Black-Scholes
present value for these grants were as follows: dividend yield of 1.36%;
expected volatility of 24.73%; risk-free interest rate of 6.83%; and
expected life of 7.36 years.
</TABLE>
13
<PAGE> 15
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1997 OPTION VALUES
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Christopher J. Murphy III 103,417 $2,711,985 300,088 38,940 $6,370,993 $540,767
Wellington D. Jones III 86,729 2,019,492 1,238 17,600 17,185 244,414
Richard Q. Stifel 30,008 640,425 16,862 10,780 295,845 149,704
Allen R. Qualey - - 27,309 22,000 495,994 254,009
</TABLE>
14
<PAGE> 16
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN<F*>
AMONG 1ST SOURCE, NASDAQ MARKET INDEX
AND PEER GROUP INDEX<F**>
[GRAPH]
<TABLE>
<CAPTION>
31-DEC-92 31-DEC-93 31-DEC-94 31-DEC-95 31-DEC-96 31-DEC-97
<S> <C> <C> <C> <C> <C> <C>
1st Source 100 102 121 171 190 313
NASDAQ Index 100 120 126 163 203 248
Peer Group 100 104 97 142 188 297
<FN>
<F*> Assumes $100 invested on December 31, 1992, in 1st Source Corporation
common stock, NASDAQ market index, and peer group index
<F**> The peer group is a market-capitalization-weighted stock index of
banking companies in Indiana, Illinois, Michigan, Ohio, and Wisconsin
NOTE: Total return assumes reinvestment of dividends
</TABLE>
15
<PAGE> 17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities Exchange Act of 1934 requires executive officers and directors
to file reports of ownership and changes in ownership of 1st Source
Corporation stock with the Securities and Exchange Commission and to furnish
1st Source with copies of all reports filed. Based solely on a review of the
copies of such reports furnished to 1st Source and written representations
from the executive officers and directors that no other reports were
required, 1st Source believes that all filing requirements were complied with
during the last fiscal year, except that an initial report of ownership was
filed late by Mr. Qualey.
PROPOSAL NUMBER 2
APPROVAL OF 1998 PERFORMANCE COMPENSATION PLAN
On February 19, 1998, the Executive Committee, acting on behalf of 1st
Source's Board of Directors, adopted, subject to shareholder approval, the
1998 Performance Compensation Plan (the "Plan"). The Plan, upon approval,
will be effective as of February 19, 1998.
The purpose of the Plan is to promote the interests of 1st Source and its
shareholders through the attraction and retention of executive officers and
other key employees (the "Employees"), to motivate the Employees using
performance-related incentives linked to performance goals, and to enable the
Employees to share in the growth and success of 1st Source.
Within the parameters of the Plan the Committee administering the Plan may in
its sole and complete discretion grant awards to Employees each year.
The Plan will be administered by the Executive Compensation Committee (the
"Committee") of 1st Source's Board of Directors, which will consist of two or
more members. The Committee will have the sole, final and conclusive
authority to administer, construe and interpret the Plan. All members of the
committee must be non-employee, outside directors as defined in applicable
IRS regulations.
Participants will include full-time employees of 1st Source or its
subsidiaries, who, in the opinion of the Committee, can contribute
significantly to the growth and profitability of, or perform services of
major importance to, 1st Source and its subsidiaries. The maximum annual
award under this Plan to any single Employee will not exceed $5 million in
any year.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
permits the deduction of "performance-based compensation." Performance-based
compensation is compensation that is paid solely on account of the attainment
of one or more preestablished, objective performance goals. It is 1st
Source's intention with respect to awards made to named executive officers
under the Plan that such awards will be deemed to be performance-based
compensation and therefore deductible by 1st Source. Payment of awards will
not be contingent upon 1st Source's ability to deduct the award. The
Committee may elect to make nondeductible awards if, in its judgment, such
awards benefit the interests of 1st Source and its shareholders.
Any awards made to Employees under the Plan will be performance-based
compensation subject to the attainment of one or more preestablished
objective performance goals including one or more of the following criteria:
(i) net income, (ii) pre-tax income, (iii) earnings per share, (iv) return on
equity, (v) return on assets, (vi) Economic Value Added and/or increase in
Economic Value Added, (vii) increase in the market price of 1st Source's
common stock, (viii) total shareholder return (stock price appreciation
16
<PAGE> 18
plus dividends), and (ix) the performance of 1st Source in any of the items
mentioned in clauses (i) through (viii) in comparison to the average
performance of companies combined into a 1st Source-constructed peer group.
All performance measures, formulas and determination of eligibility for a
performance period will be established by the Committee in writing no later
than ninety (90) days after the beginning of the performance period or by
such other date as may be permitted under the Code. Performance measures may
be based on one or more of the business criteria listed above. No
performance measures will allow for any discretion by the Committee to
increase any award, but discretion to lower awards is permissible. The
payment of any award under the Plan to an Employee will be contingent upon
written certification by the Committee prior to any such payment that the
applicable performance measure(s) relating to the award have been satisfied.
The Plan will have no termination date, unless otherwise required by law or
otherwise terminated by the Committee. The Board of Directors may amend,
suspend or terminate the Plan or any portion thereof at any time, but it may
not adversely affect the rights of any Employee under an award. Any material
amendment will require shareholder approval. A copy of the Plan is attached
hereto as Exhibit A.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF APPROVAL
OF THE 1998 PERFORMANCE COMPENSATION PLAN.
17
<PAGE> 19
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements of 1st Source are audited annually by independent
accountants. For the year ended December 31, 1997, and the eight (8)
preceding years, the audit was performed by Coopers & Lybrand, L.L.P., South
Bend, Indiana. Representatives of the firm of Coopers & Lybrand, L.L.P.,
will be available to respond to questions during the Annual Meeting. These
representatives have indicated that they do not presently intend to make a
statement at the Annual Meeting. 1st Source plans to select its independent
accountants for the year ending December 31, 1998 in July 1998.
PROPOSALS OF SECURITY HOLDERS
Proposals submitted by security holders for presentation at the next Annual
Meeting must be submitted in writing to the Secretary, 1st Source
Corporation, on or before November 5, 1998.
ADDITIONAL INFORMATION
As to the proposals presented for approval, a plurality of the shares voted
is required for approval.
COPIES OF 1ST SOURCE'S MOST RECENT FORM 10-K WILL BE PROVIDED, WITHOUT
CHARGE, ON WRITTEN REQUEST TO: TREASURER, 1ST SOURCE CORPORATION, POST
OFFICE BOX 1602, SOUTH BEND, INDIANA 46634.
A copy of 1st Source's Annual Report is furnished herewith to Shareholders
for the calendar year ended December 31, 1997, containing financial
statements for such year. The financial statements and the Report of
Independent Accountants are incorporated by reference in this Proxy
Statement.
By order of the Board of Directors,
Vincent A. Tamburo
Secretary
Dated March 6, 1998
18
<PAGE> 20
EXHIBIT A
1ST SOURCE CORPORATION
1998 PERFORMANCE COMPENSATION PLAN
SECTION 1
PURPOSE
-------
The purpose of the 1st Source Corporation ("Company") 1998 Performance
Compensation Plan ("Plan") is to promote the interests of the Company and its
shareholders through the (i) attraction and retention of executive officers
and other key employees ("Employees") essential to the success of the Company
and its subsidiaries; (ii) motivation of Employees using performance-related
incentives linked to longer range performance goals and the interests of
Company shareholders; and (iii) enabling of the Employees to share in the
long term growth and success of the Company.
SECTION 2
ADMINISTRATION
--------------
The Plan will be administered by the Executive Compensation Committee
("Committee") of the Board of Directors of the Company, which will consist of
two or more members.
The Committee will have the sole, final and conclusive authority to
administer, construe and interpret the Plan. All members of the Committee
must be non-employee, outside directors as defined in applicable IRS
Regulations.
SECTION 3
ELIGIBILITY
-----------
The Committee in its sole and complete discretion will select full-time
Employees of the Company and its subsidiaries, who in its opinion, can
contribute significantly to the growth and profitability of, or perform
services of major importance to, the Company and its subsidiaries. No
non-employee director of the Company will be eligible to participate under
the Plan. No member of the Committee will be eligible to participate under
the Plan.
SECTION 4
GRANTS AND AWARDS
-----------------
Any awards made to Employees under the Plan will be performance-based
compensation ("Awards") subject to the attainment of pre-established
objective performance goals, including one or more of the following criteria:
(i) net income; (ii) pre-tax income; (iii) earnings per share; (iv) return on
equity; (v) return on assets; (vi) Economic Value Added and/or increase in
Economic Value Added; (vii) increase in the market price of the Company's
common stock; (viii) total shareholder return (stock price appreciation plus
dividends); and (ix) the performance of the Company in any of the items
mentioned in clauses (i) through (viii) in comparison to the average
performance of companies combined into a Company-constructed peer group.
All performance measures, formulas and determination of eligibility for a
performance period will be established by the Committee in writing no later
than ninety (90) days after the beginning of the performance period or by
such other date as may be permitted under Section 162(m) of the Internal
Revenue Code of 1986 and the regulations. Performance measures may be based
on one or more of the business criteria listed herein. No Award to any
single Employee will exceed $5 million in one calendar
19
<PAGE> 21
year. No performance measures will allow for any discretion by the Committee
to increase any Award, but discretion to lower Awards is permissible. The
payment of any Award under the Plan to an Employee with respect to a relevant
performance period will be contingent upon certification by the Committee prior
to any such payment that the applicable performance measure(s) relating to the
Award have been satisfied. Payment of the award will not be conditioned upon
it being deductible by the Company. Notwithstanding any other provision of the
Plan, the Committee may impose such conditions on any Award, and the Board
may amend the plan in any such respects, as may be required to satisfy the
requirements of Section 162(m) of the Internal Revenue Code (or any successor
or similar rule relating thereto).
If an Employee's employment with the Company is terminated by reason of death
or total and permanent disability that occurs before the end of a Performance
Period, the Employee will be entitled to a pro rata award based upon the
number of days elapsed at the time of termination. The amount of any Award
due a deceased Employee will be paid to the beneficiary designated by the
Employee in writing to the Company, or if none, the Employee's Estate.
SECTION 5
NO EMPLOYMENT CONTRACT
----------------------
The Plan is not and is not intended to be an employment contract with respect
to any of the Employees, and the Company's rights to continue or to terminate
the employment relationship of any Employee will not be affected by the Plan.
SECTION 6
AMENDMENT AND TERMINATION
-------------------------
The Board of Directors of the Company may amend, suspend or terminate the
Plan or any portion thereof at any time, but it may not adversely affect the
rights of any Employee under an award. Any material amendment will require
shareholder approval.
SECTION 7
INDEMNITY
---------
Each person who is or will have been a member of the Board of Directors or
the Committee will be indemnified and held harmless by the Company against
and from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred in connection with or resulting from any claim, action,
suit, or proceeding to which such person may be a party or in which they may
be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by such persons in settlement
thereof with the Company's approval, or paid in satisfaction of a judgment
in any such action, suit or proceeding against them, provided they will give
the Company an opportunity, at its own expense, to handle and defend the same
before they undertake to handle and defend it on their behalf. The foregoing
right of indemnification will not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company
Articles of Incorporation or Code of By-Laws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
20
<PAGE> 22
SECTION 8
EXPENSES OF PLAN
----------------
The expenses of administering the Plan will be borne by the Company.
SECTION 9
SUCCESSORS
----------
The Plan will be binding upon the successors and assigns of the Company.
SECTION 10
TAX WITHHOLDING
---------------
The Company will have the right to withhold from the payment of any Award the
amount of any federal, state or local taxes which the Company is required to
withhold.
SECTION 11
GOVERNING LAW AND NOTICE
------------------------
The Plan, and its rules, rights, agreements and regulations, will be
governed, construed, interpreted and administered solely in accordance with
the laws of the State of Indiana. In the event any provision of the Plan
will be held invalid, illegal or unenforceable, in whole or in part, for any
reason, such determination will not affect the validity, legality or
enforceability of any remaining provision, portion of provision or Plan
overall, which will remain in full force and effect as if the Plan has been
absent the invalid, illegal or unenforceable provision or portion thereof.
Unless otherwise specifically provided herein, any notice to be given to the
Committee under the Plan will be given in writing and will be deemed
delivered for all purposes of the Plan if personally delivered to a member of
the Committee or mailed to such Committee addressed to the Company by
postpaid, certified United States mail.
SECTION 12
EFFECTIVE DATE AND DURATION OF PLAN
-----------------------------------
The Plan was adopted on February 19, 1998, by the Executive Committee of the
Board of Directors of the Company and will be effective as of that date,
subject to shareholder approval at the annual shareholders meeting of the
Company to be held in South Bend, Indiana, on April 16, 1998. The Plan will
have no termination date, unless otherwise required by law or otherwise
terminated by the Committee.
21
<PAGE> 23
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Ernestine M. Raclin, Christopher J. Murphy III,
and Vincent A. Tamburo and each of them Proxies; to represent the undersigned,
with full power of substitution, at the Annual Meeting of Shareholders of 1st
Source Corporation to be held on April 16, 1998 and at any and all adjournments
thereof.
1. ELECTION OF DIRECTORS.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY to vote
(except as marked to the contrary) for all nominees listed below.
INSTRUCTION: to withhold authority to vote for any individual nominee, strike a
line through or otherwise strike the nominee's name in the list below.
TERMS EXPIRE APRIL, 2001: Philip J. Faccenda Daniel B. Fitzpatrick
Wellington D. Jones III Dane A. Miller, Ph.D.
2. APPROVAL OF 1998 PERFORMANCE COMPENSATION PLAN.
/ / FOR / / AGAINST / / ABSTAIN
3. SUCH OTHER BUSINESS AS MAY PROPERLY BE BROUGHT BEFORE THE MEETING.
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
[LOGO]
Post Office Box 1602
South Bend, Indiana 46634
1
<PAGE> 24
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2.
Please sign exactly as shares are registered. When shares are held by joint
tenants, both should sign. When signing as attorney, administrator, trustee
or guardian, please give full title as such. If a corporation, please sign
in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
------------------------------------------------
-----------------------------------------------------------------
SIGNATURE
-----------------------------------------------------------------
SIGNATURE IF HELD JOINTLY
DATED: ----------------------------------------------------, 1998
2
<PAGE> 25
APPENDIX
Page 15 of the printed proxy contains a stock price performance graph. The
information contained in the graph has been presented in a format that may be
processed by the EDGAR System.
