SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
|_| Definitive Proxy Statement
|X| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SOURCE CAPITAL CORPORATION
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|_| $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
|_| $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
|_| No fee required.
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:*
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
|_| 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 No. ______________________________________
3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
___________
*Set forth the amount on which the filing fee is calculated and state how it was
determined.
(032796DTI)
<PAGE>
SOURCE CAPITAL CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE
HELD ON MAY 26, 1999 at 3:00
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 26, 1999, 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 II DIRECTORS for a three year term ending with the
annual meeting of shareholders in 2002
[ ] FOR all nominees listed below, (except as marked to the contrary)
Alvin J. Wolff, Jr. Charles G. Stocker
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 BDO SEIDMAN, LLP AS INDEPENDENT AUDITORS
FOR 1999.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, the proxies are authorized to vote upon such other
business as properly may come before the meeting.
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_____________________ , 1999.
________________________________ ___________________________________
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 26, 1999
----------
Spokane, Washington
April 14, 1999
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 26th day of May 1999, at
3 o'clock p.m. P.D.T. for the following purposes as further described in the
attached Proxy Statement:
1. To elect two Class II Directors, for a three-year term ending at the annual
meeting of the shareholders in 2002.
2. To ratify the appointment of BDO SEIDMAN, LLP 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 April 13, 1999 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 IN THE 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 26, 1999
----------
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 26, 1999 (the "Annual
meeting"), or any adjournment or postponement thereof. The Form 10-KSB Annual
Report of the Company for the year ended December 31, 1998, 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 19, 1999.
Voting Securities; Quorum; Abstentions; Broker Non-Votes
The Board of Directors has fixed the close of business on April 13, 1999, 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 April 13, 1999, 1,360,279 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.
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.
1
<PAGE>
Security Ownership of Certain Beneficial Owners.
The following table sets forth as of April 13, 1999, 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.
<TABLE>
<CAPTION>
Common Stock
------------
Name Title Number of Percent of
of Beneficial Owner Class Shares Outstanding Shares
------------------- ----- ------ ----------- ------
<S> <C> <C> <C>
Alvin J. Wolff, Jr. Common stock 186,510 [1] 13.55%
1825 N. Hutchinson Rd.
Spokane, WA 99212
Miller & Jacobs Capital, L.L.C.
1 Aldwin Center
Suite 101
Villanova, PA 19085 Common stock 147,843 [2] 9.95%
Franklyn Mutual Advisers
51 John F. Kennedy Pkwy
Short Hills, NJ 07078 Common stock 174,781 [3] 11.39%
Heartland Value Plus Fund
790 N. Milwaukee Street
Milwaukee, WI 53202 Common stock 174,781 [4] 11.39%
</TABLE>
[1] Includes outstanding options to purchase 16,000 shares of Common Stock
which were exercisable as of April 13, 1999 or within 60 days from such
date and 1,260 shares of Common Stock owned by Mr. Wolff's wife.
Excludes 56,990 shares of Common Stock held by Mr. Wolff's father and
4,623 shares of Common Stock held by Mr. Wolff's adult children as to
which Alvin J. Wolff Jr. disclaims beneficial ownership.
[2] Includes 124,843 shares of Common Stock which may be acquired upon
conversion of $1,000,000 of the Company's Convertible Subordinated
Debentures beneficially owned by Miller & Jacobs Capital, LLC.
[3] Includes 174,781 shares of Common Stock which may be acquired upon
conversion of $1,400,000 of the Company's Convertible Subordinated
Debentures.
[4] Includes 174,781 shares of Common Stock which may be acquired upon
conversion of $1,400,000 of the Company's Convertible Subordinated
Debentures.
Security Ownership of Directors and Executive Officers.
The following table sets forth as of April 13, 1999 information relating to the
beneficial ownership of the Company's Common Stock, 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 Title Number of Percent of
of Beneficial Owner Class Shares Outstanding Shares
------------------- ----- ------ ----------- ------
<S> <C> <C> <C>
Alvin J. Wolff, Jr. Common stock 186,510 [1] 13.55%
Clarence H. Barnes Common stock 14,130 [4] 1.03%
2
<PAGE>
John Frucci Common stock 11,272 [5] *
Charles Stocker Common stock 8,785 [4] *
Daniel Nelson Common stock 4,000 [2] *
Robert E. Lee Common stock 7,300 [3] *
D. Michael Jones Common stock 52,500 [7] 3.76%
James L. Kirschbaum Common stock 29,700 [6] 2.14%
Lester L. Clark Common stock 26,311 [8] 1.91%
All directors and
officers as a group
(10 persons) Common stock 340,508 22.93%
--------------
* Less than 1%
</TABLE>
[1] Includes outstanding options to purchase 16,000 shares of Common Stock
which were exercisable as of April 13, 1999 or within 60 days from such
date and 1,260 shares of Common Stock owned by Mr. Wolff's wife.
Excludes 56,990 shares of Common Stock held by Mr. Wolff's father and
4,623 shares of Common Stock held by Mr. Wolff's adult children as to
which Alvin J. Wolff Jr. disclaims beneficial ownership.
[2] Includes outstanding options to purchase 3,000 shares of Common Stock
which were exercisable as of April 13, 1999 or within 60 days from such
date.
[3] Includes outstanding options to purchase 6,300 shares of Common Stock
which were exercisable as of April 13, 1999 or within 60 days from such
date.
[4] Includes outstanding options to purchase 7,300 shares of Common Stock
which were exercisable as of April 13, 1999 or within 60 days from such
date.
[5] Includes options to purchase 10,300 shares of Common Stock which were
exercisable as of April 13, 1999 or within 60 days from such date.
[6] Includes outstanding options to purchase 24,500 shares of Common stock
which were exercisable as of April 13, 1999 or within 60 days from such
date.
[7] Includes outstanding options to purchase 37,500 shares of Common stock
which were exercisable as of April 13, 1999 or within 60 days from such
date.
[8] Includes outstanding options to purchase 20,000 shares of Common Stock
which were exercisable as of April 13, 1999 or within 60 days from such
date. 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 II Directors to serve terms of three years
ending at the Annual Meeting of Shareholders in 2002 or until their respective
successors have been duly elected and qualified. The nominees are:
Alvin J. Wolff, Jr.
Charles G. Stocker
3
<PAGE>
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.
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 will continue after the
Annual Meeting of shareholders and whose term of office will expire 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 64 1991 Retired from Central Valley School District, Mr. Frucci
currently manages his personal investments which include
apartment complexes, condominiums and duplexes.
Daniel R. Nelson 60 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.
Class II directors whose present term of office expires at the 1999
Annual Meeting of shareholders and if elected, whose term will expire
in 2002 at the 2002 annual meeting of shareholders are as follows:
Company
Director
Name Age Since Principal occupation
___________________________________________________________________________________________CLASS II DIRECTORS
Alvin J. Wolff, Jr. 50 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 61 1991 Retired as Superintendent of East Valley School District.
Mr. Stocker is currently employed part time in community
relations with Inland Power and Light, serves as Vice
President of Valley Hospital and Medical Center Advisory
Board and Vice President of the Board of Directors Empire
Health Services.
4
<PAGE>
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:
Company
Director
Name Age Since Principal occupation
___________________________________________________________________________________________CLASS III DIRECTORS
Clarence H. Barnes 57 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 63 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, Meredith Corporation and a trustee
of Financial Investors Trust mutual fund.
D. Michael Jones 56 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>
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, Meredith Corporation and a trustee of Financial Investors Trust
mutual fund. 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 5 years and Mr. Clark has held his position
for the past 12 years.
JAMES L. KIRSCHBAUM Mr. Kirschbaum, 58, 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. Mr. Kirschbaum has 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, 56, a certified public accountant, has served as
Chief Financial Officer of Source Capital for the past twelve 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.
RONALD E. SCHUTZ Although not an executive officer of Source Capital Corporation
Mr. Schutz, 49, has served as President of the Company's wholly owned subsidiary
(Source Capital Leasing Co.) since October 1997. Prior to joining the Company in
March, 1997, Mr. Schutz served as President & Chief Executive Officer of USB
Leasing, Inc. a subsidiary of United Security Bancorporation. Mr. Schutz has a
total of 25 years experience in equipment leasing, commercial banking and small
business capital formation. Mr. Schutz's career includes a total of 15 years of
commercial banking experience with Rainier National Bank and First Interstate
Bank where he served as Vice President of both First Interstate Bank of
Washington, N.A. and First Interstate Leasing, Inc.
Proposal No. 2: RATIFICATION OF APPOINTMENT OF BDO SEIDMAN, LLP AS INDEPENDENT
AUDITORS
Subject to shareholder ratification, the Board of Directors, has reappointed the
firm of BDO Seidman, LLP, as independent auditors to make an examination of the
accounts of the Company for the year 1999. BDO Seidman, LLP has served as
independent auditors for the Company since 1998.
5
<PAGE>
On June 30, 1998, PricewaterhouseCoopers, LLP resigned as the auditors of Source
Capital Corporation citing lack of independence. The resignation was approved by
the audit committee of the Board of Directors of the Company.
During the two fiscal years ended December 31, 1997 and 1996 and all subsequent
interim periods preceding the independent accountant's resignation, (i) there
were no disagreements with PricewaterhouseCoopers on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements, if not resolved to its satisfaction would have
caused it to make reference in connection with its report to the subject matter
of the disagreement, and (ii) PricewaterhouseCoopers has not advised the Company
of any reportable events as defined in paragraph (A) through (D) of regulation
S-K item 304(a) (1) (v). The accountant's report of PricewaterhouseCoopers on
the consolidated financial statements for the years ended December 31, 1997 and
1996 did not contain any adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
The accountant's report on the consolidated financial statements of the Company
for the year ended December 31, 1997 has been withdrawn due to lack of
independence.
On February 2, 1998, Mr. Bruce Bowdish left his position as
PricewaterhouseCoopers senior auditor to become the controller of the Company.
At the time, Mr. Bowdish had a personal relationship with the
PricewaterhouseCoopers audit manager assigned to the audit of the Company. The
audit manager and Mr. Bowdish were ultimately married on June 24, 1998. While he
was employed by PricewaterhouseCoopers, Mr. Bowdish was not involved in the
Company's audit. Based on these facts PricewaterhouseCoopers determined that it
was not independent and should resign and withdraw its report on the
consolidated financial statements of the Company for the year ended December 31,
1997.
On July 27, 1998 Source Capital Corporation engaged the services of BDO Seidman,
LLP as the Company's auditors of record. Subsequent to the engagement, BDO
Seidman, LLP re-audited the financial statements of the Company for the year
ended December 31, 1997. There were no changes to the 1997 results previously
reported.
One or more representatives of BDO Seidman, LLP 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.
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 seven meetings during the fiscal year ended December
31, 1998. During 1998 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,
and an Audit Committee, all of which are comprised of members of the Board of
Directors.
Compensation Committee
The Compensation Committee, which held one meeting in 1998, 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 as proposed by the chief executive officer and reviews
salaries and benefit plans related to all employees. The Committee administers
6
<PAGE>
stock option plans of the Company. The Compensation Committee consists of two
non-employee directors and one employee director, who are Dr. Barnes, Mr.
Stocker and Mr. Wolff
Executive Committee
The Executive Committee, which held no meetings in 1998, 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.
Jones, Mr. Stocker, and Mr. Wolff.
Loan Committee
The Loan Committee, which held no meetings in 1998, consists of four directors,
who are Mr. Frucci, Mr. Lee, Mr. Nelson and Mr. Wolff. 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 two meetings in 1998, consists of three
directors, who are Mr. Frucci, Mr. Lee and Mr. Nelson. The purpose of the
committee is to meet with the Company's auditors to plan the current year's
audit, review past and proposed audit fees, review the completed financial
statements and meet with the Company's auditors to review areas of operations
which the auditors believe require the attention of management.
COMPENSATION OF MANAGEMENT
Director Compensation
During 1998, each director, other than Mr. Wolff and Mr. Jones, received an
annual retainer in the amount of $2,500 and received a fee of $500 for each
board and committee meeting attended.
Executive Officer Compensation
The following Summary Compensation Table sets forth compensation paid by the
Company for services rendered for the years ended December 31, 1998, 1997, and
1996, with respect to the Chief Executive Officer and each of the highest paid
executive officers of the Company whose aggregate cash compensation in fiscal
1998 exceeded $100,000:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Securities
Principal Position Year Salary ($) Bonus ($) Underlying Options
------------------ ---- ---------- --------- ------------------
<S> <C> <C> <C> <C>
Alvin J. Wolff, Jr. 1998 113,052 [1] 3,000
Chairman of the Board 1997 109,542 [1]
1996 103,000 [1]
D. Michael Jones 1998 152,724 [2] 70,844 [2] 17,500
President and 1997 143,266 [2] 163,814 [2]
Chief Executive Officer 1996 134,043 [2] 47,057 [2] 40,000
James L. Kirschbaum 1998 154,317.[3] 14,000 [3] 6,000
Executive Vice President 1997 147,243 [3]
1996 133,082 [3] 15,000 [3] 7,500
</TABLE>
[1] For 1996 and 1997, Mr. Wolff elected to defer his salary and bonus into
a trust fund. During 1997 Mr. Wolff took unpaid leaves of absence which
reduced his salary below the contracted amount.
[2] Mr. Jones elected to forego his bonus which would have been accrued and
partially paid in 1998. The bonus reflected in Mr. Jones 1998
compensation was accrued in 1997 and paid in 1998. Mr. Jones' salary
includes the Company's matching amounts under the Company's 401(K)
plan.
7
<PAGE>
[3] Mr. Kirschbaum's salary includes the Company's matching amounts under
the Company's 401(k) plan.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants
-----------------
Number of % of Total
Securities Options
Underlying Granted to Market Price
Options Employees in Exercise or Base on Date of Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Grant ($/sh) Date
- ---- ----------- ----------- ------------ ------------ ----
<S> <C> <C> <C> <C>
D. Michael Jones 17,500 24% $6.54 $6.54 01/20/08
James L. Kirschbaum 6,000 8% 6.54 6.54 01/20/08
</TABLE>
AGGREGATED YEAR END STOCK OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying unexercised options Value of unexercised in-the-money stock options
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Alvin J. Wolff, Jr. 3,000 - $ 789 -
D. Michael Jones 10,000 - 630 -
James L. Kirschbaum 6,000 - 1,578 -
</TABLE>
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.
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Employment Contracts
Effective January 1, 1995, the Company entered into a five-year year employment
contract with Mr. Wolff, which was amended on January 29, 1996. The contract as
amended, provides for a base salary of $100,000 with annual cost of living
adjustments, and an automobile allowance.
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.
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 1998, 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. Based on the number of
square feet occupied by it, the Company paid $98,056 in the year ended December
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31, 1998. The Company anticipates expanding the amount of space it occupies
during 1999. As a consequence, the Company expects to pay in excess of $100,000
as rental during 1999 under the existing lease agreement and the new lease
agreement for additional space if any.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
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, 1998,
all filing requirements under Section 16(a) of the Securities Exchange Act of
1934 were satisfied.
1999 ANNUAL MEETING SHAREHOLDER PROPOSALS
It is presently anticipated that the next annual meeting of shareholders will be
held on May 24, 2000. 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, 1999.
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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