SOURCE CAPITAL CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 14, 1998
at 7:00 p.m., P.D.T.
Spokane, Washington
The undersigned hereby appoints ALVIN J. WOLFF, JR. and
D. MICHAEL JONES, and each of them, proxies of the undersigned, with
full power of substitution, to represent and vote as directed herein
all shares of Common Stock which the undersigned is entitled to vote
at the Annual Meeting of Shareholders of Source Capital Corporation to
be held May 14, 1998, and at all adjournments or postponements
thereof, with all powers the undersigned would have if personally
present.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED ON THE
REVERSE SIDE WITH RESPECT TO MATTERS OF BUSINESS PROPERLY BEFORE THE
MEETING. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE
ELECTION OF ALL NOMINEES FOR DIRECTORS SET FORTH IN PROPOSAL NO. 1 AND
"FOR" PROPOSAL NO. 2 AND IN THE DISCRETION OF THE PROXIES WITH RESPECT
TO SUCH OTHER MATTERS AS MAY PROPERLY BE BROUGHT BEFORE THE ANNUAL
MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
1. ELECTION OF CLASS I DIRECTORS for a three year term ending with
the annual meeting of shareholders in 2001
[ ] FOR all nominees listed below, (except as marked to the
contrary)
John A. Frucci Daniel R. Nelson
To withhold authority for any individual nominee, write that
nominee's name on the space provided below:
__________________________________________________________________
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above
2. RATIFICATION OF THE APPOINTMENT OF COOPERS & LYBRAND AS
INDEPENDENT AUDITORS FOR 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, the proxies are authorized to vote upon such
other business as properly may come before the meeting.
<PAGE>
Please date and sign exactly as your name appears hereon. When
signing in a representative or fiduciary capacity, please indicate
title. If shares are held jointly, each holder should sign. For a
corporation, the full corporation name should be signed by a duly
authorized officer who should state his title. For a partnership, an
authorized person should sign in the partnership name and state his
title.
Date _______________, 1998.
_________________________________ _________________________________
Signature of Shareholder Signature of Shareholder
_________________________________ _________________________________
Please print name Please print name
The Board of Directors recommends a Vote "For" all
nominees named in proposal No. 1 and For proposal No. 2
IF YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE CHECK HERE [ ]
<PAGE>
SOURCE CAPITAL CORPORATION
1825 N. Hutchinson Road
Spokane, Washington
----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 14, 1998
----------
Spokane, Washington
April 9, 1998
To the Shareholders:
NOTICE is hereby given that the Annual Meeting of the Shareholders of
SOURCE CAPITAL CORPORATION will be held at the Double Tree Hotel
Spokane City Center, 322 North Spokane Falls Ct., Spokane, Washington
on the 14th day of May 1998, at 7 o'clock p.m. P.D.T. for the
following purposes as further described in the attached Proxy
Statement:
1. To elect two Class I Directors, for a three year term ending at
the annual meeting of the shareholders in 2001.
2. To ratify the appointment of Coopers & Lybrand as independent
auditors.
3. To transact such business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on March 27,
1998 for the determination of shareholders entitled to notice of and
to vote at such meeting and any adjournment thereof.
Please mark the box "Plan to attend" on the Proxy card if you plan to
attend the meeting in person.
By Order of the Board of Directors
Alvin J. Wolff, Jr., Chairman
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, YOU ARE URGED TO DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY. AN ADDRESSED ENVELOPE
FOR WHICH NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. THIS
WILL ASSURE YOUR REPRESENTATION IN THE QUORUM FOR THE TRANSACTION OF
BUSINESS AT THE ANNUAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER
IN WRITING OR BY VOTING IN PERSON AT THE ANNUAL MEETING, AT ANY TIME
PRIOR TO ITS EXERCISE.
IF THE REQUIRED NUMBER OF VOTES TO DECIDE THE ISSUES AT THE ANNUAL
MEETING ARE NOT PRESENT IN PERSON OR BY PROXY, THE MEETING MAY BE
ADJOURNED OR POSTPONED AND RESCHEDULED FOR A LATER DATE THUS REQUIRING
THE COMPANY TO INCUR ADDITIONAL EXPENSE. THEREFORE, PLEASE RETURN
YOUR PROXY PROMPTLY.
<PAGE>
SOURCE CAPITAL CORPORATION
1825 N. Hutchinson Road
Spokane, Washington 99212
----------
PROXY STATEMENT
Annual Meeting of Shareholders
to be held on
May 14, 1998
----------
PERSONS MAKING THE SOLICITATION
The accompanying proxy is solicited by the Board of Directors of
Source Capital Corporation, a Washington Corporation (the "Company"),
in connection with the Annual Meeting of the Shareholders to be held
on May 14, 1998 (the "Annual meeting"), or any adjournment or
postponement thereof. The Form 10-KSB Annual Report of the Company
for the year ended December 31, 1997, has been mailed to shareholders
prior to or together with the mailing of this Proxy Statement. The
cost of preparing, assembling and mailing this Proxy Statement and
each accompanying proxy is to be borne by the Company. The Company
may, upon request, reimburse the transfer agent, brokerage houses and
other persons representing beneficial owners of shares for their
expenses in forwarding proxy material to such beneficial owners. If
it becomes necessary to make a second distribution of proxy cards and
reminder notices to brokers and nominees of shareholders and/or to
shareholders, there will be additional charges which will be paid by
the Company. Directors, officers and regular employees of the Company
(for no additional compensation) may solicit proxies personally or by
telephone, telecopy or telegram from some shareholders. The
approximate date on which this Proxy Statement and accompanying form
of proxy are first being sent to shareholders is April 9, 1998.
VOTING SECURITIES; QUORUM; ABSTENTIONS; BROKER NON-VOTES
The Board of Directors has fixed the close of business on March 27,
1998, as the record date for determination of the shareholders
entitled to notice of, and to vote at the Annual Meeting (the "Record
Date"). The holders of a majority of the issued and outstanding
Common Stock of the Company and entitled to vote in person or by
proxy, will constitute a quorum.
The Company has one Class of capital stock outstanding which consists
of Common Stock, no par value ("Common Stock"). As of March 27, 1998,
1,355,818 shares of Common Stock were issued and outstanding. Each
share of Common Stock is entitled to one vote. There are no cumulative
voting rights for the election of directors. The nominees for election
as Directors who receive the highest number of votes will be elected
Directors. The ratification of the Board of Director's appointment of
auditors will require the affirmative vote of the majority of the
votes cast on the proposal.
<PAGE>
The indication of an abstention on a proxy or the failure to vote
either by proxy or in person will be treated as neither a vote "for"
nor "against" the election of any director. Shares held by brokers or
nominees for the accounts of others, as to which voting instructions
have not been given, will be treated as shares that are present for
determining a quorum, but will not be counted for purposes of
determining the number of votes cast with respect to a proposal.
Brokers and nominees, under applicable law, may vote, in their
discretion, shares for which no instructions have been given.
REVOCABILITY OF PROXY
The giving of a proxy does not preclude the right to vote in person,
should the person giving the proxy so desire. Shareholders may revoke
a proxy by written notice to the Secretary of the Company or by giving
notice of revocation at the annual meeting of shareholders or at any
time prior thereto. A proxy is not revoked by the death or
incompetency of the maker unless, before the authority granted
thereunder is exercised, written notice of such death or incompetency
is received by the Company from the executor or administrator of the
estate or from a fiduciary having control of the shares represented by
such proxy. Shares represented by a properly executed proxy in the
accompanying form will be voted at the meeting and, where instructions
have been given by the shareholder, will be voted in accordance with
such instructions. The proxy may be revoked at any time before its
exercise by sending written notice of revocation to the Secretary of
the Company at or prior to the Annual Meeting, or by signing and
delivering another proxy dated as of a later date.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of March 27, 1998, information
relating to the beneficial ownership of the Company's Common Stock by
each person known to the Company to be the beneficial owner of more
than five percent (5%) of any class of voting securities of the
Company, by each director, by those executive officers listed in the
Summary Compensation Table and by all directors and executive officers
as a group. Unless otherwise indicated, all persons named as
beneficial owners of the Common Stock have sole voting power and sole
investment power with respect to the shares indicated as beneficially
owned. The address for each of the persons listed below, unless
otherwise noted, is 1825 N. Hutchinson Road, Spokane, Washington,
99212.
<TABLE>
<CAPTION>
Common Stock
------------
Name Number of Percent of
of Beneficial Owner Title Class Shares Outstanding Shares
------------------- ------------ ------------ -------------------
<S> <C> <C> <C>
Alvin J. Wolff, Jr. Common stock 183,510 [1] 12.23%
Clarence H. Barnes Common stock 16,330 [4] 1.15*
John Frucci Common stock 13,972 [5] *
Charles Stocker Common stock 11,485 [4] *
William Roberts Common stock 14,868 [4] 1.0%*
Daniel Nelson Common stock 4,000 [2] *
Robert E. Lee Common stock 10,000 [3] *
D. Michael Jones Common stock 62,500 [7] 4.16%
James L. Kirschbaum Common stock 24,700 [6] 1.65%
Lester L. Clark Common stock 23,311 [8] 1.55%
All directors and
officers as a group
(10 persons) Common stock 364,676 24.30%
______________
* Less than 1%
</TABLE>
[1] Includes options to purchase 16,000 shares of Common Stock and
1,260 shares of Common Stock owned by Mr. Wolff's wife. Excludes
49,990 shares of Common Stock held by Mr. Wolff's father and
6,503 shares of Common Stock held by Mr. Wolff's adult children
as to which Alvin J. Wolff Jr. disclaims beneficial ownership.
[2] Includes options to purchase 3,000 shares of Common Stock.
<PAGE>
[3] Includes options to purchase 9,000 shares of Common Stock.
[4] Includes options to purchase 10,000 shares of Common Stock.
[5] Includes options to purchase 13,000 shares of Common Stock.
[6] Includes options to purchase 19,500 shares of Common stock.
[7] Includes options to purchase 57,500 shares of Common stock.
[8] Includes options to purchase 17,000 shares of Common Stock.
Excludes 5,717 shares of Common Stock held by Mr. Clark's parents
and 400 shares of Common Stock held by Mr. Clark's adult children
as to which Lester L. Clark disclaims beneficial ownership.
Proposal No. 1: ELECTION OF DIRECTORS
Nominees
The Board of Directors currently consists of eight Directors who are
divided into three classes. The members of each class serve three-
year terms, with one class elected annually. The Board of Directors
has nominated the two individuals listed below for election as Class I
Directors to serve terms of three years ending at the Annual Meeting
of Shareholders in 2001 or until their respective successors have been
duly elected and qualified. William H. Roberts who is currently a
Class I director has declined to stand for reelection as he is
retiring from the board of directors. The nominees are:
John A. Frucci
Daniel R. Nelson
The Company has no reason to believe that any of the nominees will be
unable to serve. Should any nominee become unwilling or unable to
serve as a Director for any reason, the Board of Directors shall
designate a substitute nominee. Unless instructions to the contrary
are specified in the Proxy, it is intended that the Proxies will be
voted in favor of the two persons who have been nominated by the Board
of Directors.
The Board of Directors recommends a vote FOR the election of the
Nominees named above.
<PAGE>
BOARD OF DIRECTORS OF SOURCE CAPITAL CORPORATION
The following tables set forth information concerning the Company's
Board of Directors:
Class I directors whose present term of office expires at the 1998
Annual Meeting of shareholders and (with the exception of Mr.
Roberts) if elected, whose term will expire in 2001 at the 2001
annual meeting of shareholders are as follows:
<TABLE>
<CAPTION>
Company
Director
Name Age Since Principal Occupation
------------------ ---- --------- --------------------------------------------
CLASS I DIRECTORS
<S> <C> <C> <C>
John A Frucci 63 1991 Retired from Central Valley School District,
Mr. Frucci currently manages his personal
investments which include apartment
complexes, condominiums and duplexes.
Additionally Mr. Frucci serves as Lt.
Governor of Kiwanis International Pacific
Northwest District, Div. 46.
Daniel R. Nelson 59 1998 Mr. Nelson was Chairman and Chief Executive
Officer of West One Bancorp from 1986 until
December 1995 and President and Chief
Operating Officer of U.S. Bancorp from
December 1995 until December 1996. Mr.
Nelson is currently a private investor.
William H. Roberts 74 1992 Engaged in commercial Real Estate since 1982
including Feldman-Pearson, Inc., Caldwell-
Banker, Tomlinson Commercial and Campbell
Co. Mr. Roberts has declined to stand for
reelection due to retirement.
</TABLE>
<PAGE>
Class II directors whose present term of office will continue after
the Annual Meeting of shareholders and will expire at the 1999 annual
meeting of shareholders are as follows:
<TABLE>
<CAPTION>
Company
Director
Name Age Since Principal Occupation
------------------ ---- --------- --------------------------------------------
II DIRECTORS
<S> <C> <C> <C>
Alvin J. Wolff, Jr. 49 1991 President of the Company from May 1989 to
January 1996 when he was elected Chairman of
the Board. Mr. Wolff was a director of the
Bank of Spokane from 1981 to 1986 and
Chairman of the Board from 1986 to 1989.
Mr. Wolff has been the Chairman of Alvin J.
Wolff, Inc., a real estate firm, since 1976.
He also serves as a Director of Northwest
Ventures Associates, Inc., the manager of
venture capital investment funds.
Charles G. Stocker 60 1991 Superintendent of East Valley School
District. Mr. Stocker also serves as Vice
President of Valley Hospital and Medical
Center Advisory Board; Vice President of the
Board of Directors Empire Health Services;
and Member of the Board of Directors of the
Washington Association of School
Administrators.
</TABLE>
Class III directors whose present term of office will continue after
the Annual Meeting of shareholders and will expire at the annual
meeting of shareholders in 2000 are as follows:
<TABLE>
<CAPTION>
Company
Director
Name Age Since Principal Occupation
------------------ ---- --------- --------------------------------------------
CLASS III DIRECTORS
<S> <C> <C> <C>
Clarence H. Barnes 56 1991 Dean of the School of Business
Administration and Professor of Economics at
Gonzaga University; Director of Brooks
Manufacturing Cincinnati, Ohio and Thomas
Hammer Coffee Company Inc., Spokane,
Washington.
Robert E. Lee 62 1996 Executive Director Emeritus of the Denver
Foundation. Chairman of the Board and Chief
Executive Officer of First Interstate Bank
of Denver from 1980 to 1989. Mr. Lee is a
director of ING North American Insurance
Inc, Storage Technology Corporation and
Meredith Corporation.
D. Michael Jones 55 1996 President and Chief Executive Officer of the
Company, since January 1996. President of
West One Bancorp headquartered in Boise,
Idaho from 1987 through 1995.
</TABLE>
<PAGE>
There are no family relationships between the directors and executive
officers. Mr. Lee is a director of ING North American Insurance Inc,
Storage Technology Corporation and Meredith Corporation. Each of
these companies has a class of securities registered under Section 12
of the Securities Exchange Act of 1934.
EXECUTIVE OFFICERS
In addition to Mr. Wolff and Mr. Jones, each described above, the
executive officers of the Company are James L. Kirschbaum and Lester
L. Clark. Mr. Kirschbaum has held his office for 4 years and Mr. Clark
has held his position for the past 11 years.
JAMES L. KIRSCHBAUM
Mr. Kirschbaum, 57, has served as Executive Vice-President, of Source
Capital since June of 1994. During 1993 and 1994, he was Managing
Director, Corporate Operations, of Insignia Financial Group Inc. of
Greenville, South Carolina. From 1991 to 1993 Mr. Kirschbaum was
President and Chief Executive Officer with Security Properties
Investments Inc., Seattle, Washington. From 1990 to 1991 he was
Chairman and Chief Executive Officer of Professional Resources Group,
Seattle, Washington., a temporary employment provider to the Mortgage
Banking industry. Prior to 1990 Mr. Kirschbaum had over 25 years
experience in the Banking industry including, Executive Vice President
and Manager, Commercial Real Estate Group of Seafirst Bank, Seattle,
Washington.
LESTER L. CLARK
Mr. Clark, 55, a certified public accountant, has served as Chief
Financial Officer of Source Capital for the past eleven years. Prior
to 1987, Mr. Clark served as Chief Financial Officer for various
financial services organizations. In 1991 Mr. Clark was elected Vice
President and Treasurer; and in 1994 was appointed Secretary of the
Corporation.
Proposal No. 2: RATIFICATION OF APPOINTMENT OF COOPERS & LYBRAND AS
INDEPENDENT AUDITORS
Subject to shareholder ratification, the Board of Directors, has
reappointed the firm of Coopers & Lybrand L.L.P., Certified Public
Accountants, as independent auditors to make an examination of the
accounts of the Company for the year 1998. Coopers & Lybrand has
served continuously as independent auditors for the Company since
1986.
One or more representatives of Coopers & Lybrand are expected to be
present at the Annual Meeting, and will have an opportunity to make a
statement if they desire to do so and will be available to respond to
questions.
The Board of Directors recommends a vote FOR Proposal No. 2.
<PAGE>
Proposal No. 3: TO TRANSACT SUCH BUSINESS AS MAY PROPERLY COME
BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT THEREOF
At the date of this proxy statement, the Board of Directors knows of
no other matters which will be presented for consideration at the
Annual Meeting. However, if any such other matters are properly
presented for action at the Annual Meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the shares
represented by the proxy in accordance with their judgment on such
matters, and discretionary authority to do so is granted in the form
of proxy.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
----------------------------------------------------------------
BOARD OF DIRECTORS MEETINGS
The Board of Directors held five meetings during the fiscal year ended
December 31, 1997. During 1997 no director attended fewer than 75% of
the aggregate of (1) the total number of meetings of the Board of
Directors held during the period for which he was a director and (2)
the total number of meetings held by all Committees of the Board on
which he served. The numbers of meetings of each Committee of the
Board are described below.
COMMITTEES
The Company has a Compensation Committee, Executive Committee, Loan
Committee, Audit Committee and a Facilities Committee, all of which
are comprised of members of the Board of Directors.
COMPENSATION COMMITTEE
The Compensation Committee held no meetings in 1997 as the meeting
which formerly would have been held in December was held in January
1998. The Committee reviews and makes recommendations to the Board of
Directors concerning the employment contract of the Company's chief
executive officer, reviews compensation of the other executive
officers and reviews benefit plans related to all officers and
employees. The Committee administers stock option plans of the
Company. The Compensation Committee consists of two non-employee
directors and one employee director, who are Dr. Barnes, Mr. Wolff and
Mr. Stocker.
EXECUTIVE COMMITTEE
The Executive Committee, which held two meeting in 1997, attends to
matters which require input from the directors but which do not
require board approval. The Executive Committee consists of four
directors, who are Dr. Barnes, Mr. Stocker, Mr. Jones and Mr. Wolff.
<PAGE>
LOAN COMMITTEE
The Loan Committee, which held one meeting in 1997, consists of four
directors, who are Mr. Wolff, Mr. Frucci, Mr. Roberts and Mr. Jones.
The purpose of the Loan Committee is to review and approve or decline
any loan exceeding $2,500,000 which has been approved by the Officers'
loan committee. Three directors are required for a quorum at any loan
committee meeting.
AUDIT COMMITTEE
The Audit Committee, which held three meetings in 1997, consists of
four directors, who are Mr. Lee, Mr. Frucci, Mr. Roberts and Mr.
Nelson. The purpose of the committee is to meet with the Company's
auditors to plan the current years audit, review past and proposed
audit fees, review the completed financial statements and meet with
the Company's auditors to review any areas of operations which the
auditors feel require the attention of management.
FACILITIES COMMITTEE
The facilities committee held no meetings in 1997. It consists of
three directors, who are Mr. Frucci, Mr. Roberts and Mr. Stocker. The
purpose of the committee is to review the Company's current
facilities, plan for the Company's future needs, review the current
market for lease rates and locations and make recommendations to the
board regarding said facilities.
COMPENSATION OF MANAGEMENT
--------------------------
DIRECTOR COMPENSATION
During 1997, each director, other than Mr. Wolff and Mr. Jones,
received a fee of $500 for each board and committee meeting attended.
<PAGE>
EXECUTIVE OFFICER COMPENSATION
The following Summary Compensation Table sets forth compensation paid
by the Company for services rendered for the years ended December 31,
1997, 1996, and 1995, with respect to the Chief Executive Officer and
each of the highest paid executive officers of the Company whose
aggregate cash compensation in fiscal 1997 exceeded $100,000:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------- ----------------------
Name and Securities
Principal Position Year Salary ($) Bonus ($) Underlying Options
------------------------ ---- ------------ ------------ ----------------------
<S> <C> <C> <C> <C>
Alvin J. Wolff, Jr. 1997 109,542 [1]
Chairman of the Board 1996 103,000 [1]
1995 86,769 [1] 108,575 [1] 3,000
D. Michael Jones 1997 143,266 [2] 163,814 [2]
President and 1996 134,043 [2] 47,057 [2] 40,000
Chief Executive Officer
James L. Kirschbaum 1997 147,243 [3]
Executive Vice President 1996 138,400 [3] 15,000 [3] 7,500
1995 133,082 [3] 11,025 [3] 6,000
</TABLE>
[1] For each year represented, Mr. Wolff has elected to defer his
salary and bonus into a trust fund. Compensation listed excludes
amounts paid to Mr. Wolff under a lease for the Company's offices
through June 1995. During 1995 and 1997 Mr. Wolff took unpaid
leaves of absence which reduced his salary below the contracted
amount.
[2] Mr. Jones' salary includes the Company's matching amounts under
the Company's 401(K) plan.
[3] Mr. Kirschbaum's salary includes the Company's matching amounts
under the Company's 401(k) plan.
No stock options were granted to or exercised by any officers of the
Company during the year ended December 31, 1997.
AGGREGATED YEAR END STOCK OPTION VALUES
Value of unexercised in-the-money stock options
Name Exerciseable Unexerciseable
-------------------- ------------ --------------
Alvin J. Wolff, Jr. $ 6,600
D. Michael Jones 23,500
James L. Kirschbaum 13,200
Stock Options
<PAGE>
STOCK OPTIONS
The Company has in effect three stock option plans for non-employee
directors, key employees and employees. The three plans provide for
the granting of options to purchase up to 264,000 shares of common
stock having terms of up to ten years. Under the Directors Stock
Option Plan (the "Directors Plan"), non-employee directors receive an
annual grant of an option to purchase 1,000 shares of the Company's
Common Stock at fair market value not to exceed $10.00 per share.
Under the Directors Plan, directors are also entitled to receive a
grant of an option to purchase an additional 1,000 shares if the
Company's pre-tax income for the fiscal year exceeds 110 percent of
the pre-tax income for the prior fiscal year immediately preceding,
and an option to purchase an additional 1,000 shares if the pre-tax
income for the fiscal year exceeds 115 percent of the pre-tax income
for the fiscal year immediately preceding. The exercise price for the
additional incentive stock options is 85 percent of the fair market
value of the common stock as defined under the Directors Plan. The
maximum annual grant to an eligible participant in any one fiscal year
of the Company under the Directors Plan shall not exceed 3,000 shares.
The plan for key employees (the "Key Employee Plan") is administered
by the Compensation Committee of the Board of Directors which has
discretionary authority to grant options to eligible participants.
The plan for non-director non-officer employees (the "Employee Plan")
is administered by the Compensation Committee of the Board of
Directors of the Company which has discretionary authority to grant
options to eligible participants.
The Key Employee Plan authorizes the granting of incentive stock
options, nonqualified stock options, and stock appreciation rights.
The total number of shares which may be granted under the Key Employee
Plan will be subject to adjustment for stock splits and similar
events. Options that are forfeited or terminated will again be
available for grant. Shares may be authorized but unissued, currently
held or reacquired shares.
The Key Employee Plan provides that the option price per share for
incentive stock options will not be less than 100% of the fair market
value per share on the date the option is granted and that the option
price per share for nonqualified stock options will be determined at
the time of grant by the Committee. The grant of options vest 40%
after one year, an additional 30% after two years, and a final 30%
after three years. If an eligible officer or employee is terminated
because of fraud, dishonesty, embezzlement or breach of fiduciary
acts, all unexercised options are canceled and declared null and void.
<PAGE>
EMPLOYMENT CONTRACTS
Effective January 1, 1995, the Company entered into a 5 year
employment contract with Mr. Wolff providing for a base salary of
$100,000 with annual cost of living adjustments, an automobile
allowance, a cash bonus equal to 10% of the net income of the Company
(as defined in the employment contract) and a combination of incentive
stock options and/or stock appreciation rights if the performance
level of the Company exceeds a 13% return on shareholders equity, on
an annual basis for the years beginning in 1995 and extending
through 1999. Effective January 29, 1996 Mr. Wolff's employment
contract was amended to delete the provisions regarding his bonus of
10% of the net income. All other terms of the contract remain the
same.
Effective January 20, 1996 the Company entered into a five-year
employment agreement with D. Michael Jones. Under the contract Mr.
Jones is to serve as President and Chief Executive Officer of the
Company. Mr. Jones' salary under the contract is $140,000 per year
adjusted annually for cost of living increases. Mr. Jones is entitled
to receive a bonus each year equal to 10% of the net income of the
Company (as defined in the employment agreement). Mr. Jones received
stock options to purchase 30,000 share of common stock. In addition
to the foregoing Mr. Jones receives an auto allowance and such other
employee benefits as are provided by the Company.
REPORT OF THE COMPENSATION COMMITTEE
The compensation committee of the Board of Directors (the "Committee")
administers compensation programs, makes awards of stock options and
makes recommendations to the Board of Directors with respect to the
salary of the Company's chief executive officer and directors.
Compensation consists of a combination of base salary, cash bonus
awards and option grants under the Company's 1994 Stock Option Plans.
The Committee is comprised of two non-employee directors, and one
employee director.
COMPENSATION POLICY
In determining the compensation for the chief executive officer, the
Committee endeavors to structure compensation so as to:
* Attract and retain a highly qualified officer by maintaining
competitive compensation packages;
* Motivating the officer to achieve and maintain superior performance
levels;
* Making a significant portion of the officer's total compensation
package at risk in performance driven incentive plans and creation
of shareholder value.
<PAGE>
The Committee believes that the total compensation for the chief
executive officer should be competitive with compensation paid by
businesses of similar size and market position to the Company so that
the Company can attract and retain qualified officers.
The Committee sets compensation for the chief executive officer by
contract. The chief executive officer sets base salary levels for the
other officers and employees based primarily on the performance of
each officer for the previous year. The evaluations consist of
quantitative assessments of attainment of previously established
financial and business goals and key performance indicators, including
return on equity and operating efficiency. Evaluations also review
the experience and contribution of the officer and employee, based on
an assessment of each officer and employee's skills, judgment and
corporate priorities.
Each year, bonuses for executive officers are based on the Company's
achievement of established business goals and each individual
officer's contribution to those goals.
STOCK OPTIONS. Awards of stock options and stock appreciation rights
("SARs") under the Company's stock options plans are designed to
provide long-term incentives for senior management and to more closely
tie the long-term interests of the Company's executive officers and
its shareholders. The Committee selects the officers, if any, to
receive stock options and/or SARs and determines the number of shares
subject to each option. The size of individual option grants is
generally intended to reflect an officer's position within the Company
and the officers performance and contributions to the Company.
CEO COMPENSATION. During 1997, the Company's most highly compensated
officer was D. Michael Jones, President and CEO. A substantial
portion Mr. Jones annual compensation is based on the achievement of
financial goals. In addition to leading the Company through another
financially successful year, the committee believes Mr. Jones has
strengthened the Company's competitive position.
CERTAIN TRANSACTIONS BY AND WITH MANAGEMENT
-------------------------------------------
In March 1996 the Company entered into a five-year lease for its
headquarters in a new Class A building owned by a partnership
comprised of the adult children of Alvin J. Wolff, Jr. The lease
payments are scheduled at $16.00 per foot per year and are subject to
annual cost of living adjustments beginning March 1, 1998. Based on
the number of square feet occupied by it, the Company paid $84,983 in
the year ended December 31, 1997. Because the Company has expanded
the amount of space occupied, it is anticipated that the Company will
pay $98,556 as rental during 1998 under the existing lease agreement.
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COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
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Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers, and persons owning more than
ten percent of a registered class of the Company's securities to file
with the United States Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of equity
securities of the Company. Officers, directors, and greater- than-ten-
percent shareholders are required by Securities and Exchange
Commission's regulations to furnish the Company with copies of all
Section 16(a) forms filed by them.
To the Company's knowledge, based solely on its review of copies of
reports furnished to the company and written representations that no
other reports were required, the Company believes that during fiscal
year ended December 31, 1997, all filing requirements under Section
16(a) of the Securities Exchange Act of 1934 were satisfied with the
exception that John Frucci, William Roberts, Robert E. Lee, Charles
Stocker and Clarence Barnes were late filing Form 4 reports for stock
options granted.
1998 ANNUAL MEETING SHAREHOLDER PROPOSALS
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It is presently anticipated that the next annual meeting of
shareholders will be held on May 6, 1999. In order for any
shareholder proposal to be considered for inclusion in the proxy
materials of the Company for that meeting, proposals of shareholders
must otherwise be in compliance with applicable Securities and
Exchange Commission Regulations and be received by the Company on or
before December 15, 1998.
ADDITIONAL INFORMATION
----------------------
Copies of the Company's annual report on Form 10-KSB, filed with the
Securities and Exchange Commission, including financial statements and
financial statement schedules, have been mailed to shareholders of the
Company herewith. Additional copies are available without charge upon
request. Requests should be addressed to the Secretary, Source
Capital Corporation, 1825 N. Hutchinson Road, P.O. Box 141146,
Spokane, Washington 99214-1142.
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