SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
the Commission Only (as
permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
The Source Company
(Name of Registrant as Specified in Its Charter)
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or Item 22(a)(2) of Schedule 14A.
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14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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computed pursuant to Exchange Act Rule 0-11 (Set forth the
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was determined):
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[ ] Check box if any part of the fee is offset as provided by Exchange
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THE SOURCE COMPANY
11644 Lilburn Park Road
St. Louis, Missouri 63146
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of September 16, 1996
The Source Company: St. Louis, Missouri
The Annual Meeting of the Shareholders of The Source Company will be held on
September 26, 1996, at 10:00 a.m. Central Time in the offices of the Company
at 11644 Lilburn Park Road, St. Louis, Missouri 63146, for the following
purposes:
1. To elect two class I directors to each serve a three-year term and
until each director's successor has been elected and qualified;
2. To consider and vote upon a proposal to approve the Company's 1995
Incentive Stock Option Plan;
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on July 22, 1996, will
be entitled to vote at the meeting. A list of all shareholders entitled to
vote at the annual meeting, arranged in alphabetical order and showing
the address of and number of shares held by each shareholder, will be open
at the principal office of The Source Company, 11644 Lilburn Park Road, St.
Louis, Missouri 63146, during usual business hours, to the examination of
any shareholder for any purpose germane to the annual meeting for 10 days
prior to the date thereof. The list of shareholders will also be available
at the meeting for examination at any time during the meeting.
A copy of the Company's Annual Report to Shareholders for fiscal year 1996
accompanies this notice.
By Order of the Board of Directors
/s/ Lance C. McCord
Lance C. McCord
Secretary and
Chief Financial Officer
Whether or not you intend to be present at the meeting, please mark, sign,
date, and return the accompanying proxy promptly. A return addressed
envelope is enclosed for your convenience.
The Source Company
11644 Lilburn Park Road
St. Louis, Missouri 63146
(314) 995-9040
PROXY STATEMENT
SOLICITATION OF PROXIES
The enclosed proxy is solicited by the Board of Directors of The Source
Company, a Missouri corporation (the "Company"), for use at the Annual
Meeting of Shareholders to be held on September 26, 1996, in the offices of
the Company at 11644 Lilburn Park Road, St. Louis, Missouri 63146, at 10:00
a.m. Central Time and at any adjournments thereof. Whether or not you
expect to attend the meeting in person, please return your executed proxy in
the enclosed envelope and the shares represented thereby will be voted in
accordance with your wishes. This proxy statement and the accompanying
proxy card will be first mailed to shareholders on or about September 16,
1996. All costs of solicitation of proxies will be borne by the Company.
In addition to solicitations by mail, the Company's directors, officers and
regular employees, without additional remuneration, may solicit proxies by
telephone, telegraph, telecopy and personal interviews. Brokers, custodians
and fiduciaries will be requested to forward proxy soliciting material to
the owners of stock held in their names and the Company will reimburse them
for their out-of-pocket expenses incurred in connection with the
distribution of proxy materials.
REVOCABILITY OF PROXY
If, after sending in your proxy, you decide to vote in person or desire to
revoke your proxy for any other reason, you may do so by notifying the
Secretary of the Company, or the presiding officer at the meeting, in
writing of such revocation at any time prior to the voting of the proxy, by
attending the meeting and voting in person, or by submitting a new proxy
bearing a later date.
RECORD DATE
Only shareholders of record at the close of business on July 22, 1996, will
be entitled to vote at the meeting.
ACTION TO BE TAKEN UNDER PROXY
All properly executed proxies received by the Board of Directors pursuant to
this solicitation will be voted by S. Leslie Flegel and William H. Lee, or
the one of them who acts, in accordance with the directions specified in the
proxy. If no such directions have been specified by marking the appropriate
squares in the accompanying proxy card, the shares will be voted as follows:
(1) FOR the election of Aron Katzman and Randall Minix named herein
as nominees for directors of the Company to hold office for a term of three
years expiring in 1999 and until each director's successor has been duly
elected and qualified;
(2) FOR approval of the Company's 1995 Incentive Stock Option Plan;
(3) According to their judgment, on the transaction of such other
business as may properly come before the meeting or any adjournments
thereof.
Should the nominee named herein for election as a director become
unavailable for any reason, it is intended that the persons named in the
proxy will vote for the election of such other person in his stead as may be
designated by the Board of Directors. The Board of Directors is not aware of
any reason that might cause the nominee to be unavailable.
VOTING SECURITIES, PRINCIPAL HOLDERS THEREOF
AND CUMULATIVE VOTING RIGHTS
On July 22, 1996, there were 6,623,103 shares of Common Stock, par value
$.01 per share ("Common Stock"), outstanding, which constitute all of the
outstanding voting capital stock of the Company. Each shareholder is
entitled to cast one vote for each share of record on all matters to be
voted on by the shareholders, including the election of directors.
A majority of the outstanding shares present or represented by proxy will
constitute a quorum at the meeting. Votes that are withheld in the election
of directors, abstentions on all other matters properly brought before the
meeting and the proxies relating to "street name" shares which are not voted
by brokers on one or more, but less than all, matters (so-called "broker
non-votes") will be considered as shares present for purposes of determining
a quorum. Under applicable state law and the Company's Articles of
Incorporation, an affirmative vote of a majority of the shares present in
person or represented by proxy at the meeting is required for the election
of directors and for approval of all other matters that may be submitted to
a vote of the shareholders at the 1996 Annual Meeting. With regard to the
election of directors, votes that are withheld will be excluded entirely
from the vote and will have no effect. With regard to other matters,
abstentions (including proxies which deny discretionary authority on any
other matters properly brought before the meeting) will be counted as
shares present and entitled to vote and will have the same effect as a vote
against any such matters. Broker non-votes will not be treated as shares
represented at the meeting as to such matter(s) not voted on and therefore
will have no effect.
The following table sets forth as of July 22, 1996 the beneficial ownership
of each current director (including the nominees for election as directors),
each of the executive officers named in the Summary Compensation Table set
forth herein, the executive officers and directors as a group, and each
other shareholder known to the Company to own beneficially more than 5% of
the outstanding Common Stock. Unless otherwise indicated, the Company
believes that the beneficial owners set forth in the table have sole voting
and investment power.
Beneficial Ownership
Name and Address
of Beneficial Owner Number of Shares Percent
S. Leslie Flegel 1,771,600 26.8
11644 Lilburn Park Road
St. Louis, Missouri 63146
William H. Lee 1,350,695 20.4
711 Gallimore Dairy Road
High Point, North Carolina 27265
Timothy A. Braswell 567,728(a) 8.5
711 Gallimore Dairy Road
High Point, North Carolina 27265
Robert B. Dixon 300,000(b) 4.5
907 Park Drive
Flossmoor, Illinois 60422
Dwight L. DeGolia 180,000 2.7
11644 Lilburn Park Road
St. Louis, Missouri 63146
John P. Watkins 100,000(d) 1.5
711 Gallimore Dairy Road
High Point, North Carolina 27265
Aron Katzman 81,475(c) 1.2
10 Layton Terrace
St. Louis, Missouri 63124
Lance McCord 76,000(e) 1.1
14866 Greenleaf Valley Drive
Chesterfield, Missouri 63017
Robert G. Shupe 43,327 *
4109 Pheasant Run
Greensboro, North Carolina 27408
Harry L. Franc, III 31,361(f) *
19 Briarcliff
St. Louis, Missouri 63124
Randall S. Minix 7,000 *
5502 White Blossom Drive
Greensboro, North Carolina 27410
All directors and executive 4,509,186 65.0
officers as a group (11 persons)
________________________
*Less than 1%
(a) Includes 61,475 shares of Common Stock which are issuable to Mr.
Braswell upon conversion of 2,250 shares of Preferred Stock calculated based
on the Market Value (as defined) of the Common Stock as of July 22, 1996.
(b) Includes 291,000 and 9,000 shares of Common Stock held of record by
Dixon Enterprises, Inc. and RBD, Inc., respectively, each of which is a
corporation of which Mr. Dixon is the chief executive officer and majority
shareholder.
(c) Includes 61,475 shares of Common Stock which are issuable to Mr.
Katzman upon conversion of 2,250 shares of Preferred Stock calculated based
on the Market Value (as defined) of the Common Stock as of July 22, 1996.
(d) Includes 100,000 shares which are issuable to Mr. Watkins upon exercise
of options granted to him under the 1995 Incentive Stock Option Plan.
(e) Includes 75,000 shares which are issuable to Mr. McCord upon exercise
of options granted to him under the 1995 Incentive Stock Option Plan.
(f) Includes 13,661 shares of Common Stock which are issuable to Mr. Franc
upon conversion of 500 shares of Preferred Stock calculated based on the
Market Value (as defined) of the Common Stock as of July 22, 1996.
PROPOSAL 1 - ELECTION OF TWO CLASS I DIRECTORS
INFORMATION ABOUT THE NOMINEES AND DIRECTORS CONTINUING IN OFFICE
The Company's Articles of Incorporation and Bylaws currently provide for
three classes of directors, each class serving for a three-year term
expiring one year after the term of the preceding class, so that the term of
one class will expire each year. The terms of the current Class II and
Class III directors expire in 1997 and 1998, respectively. The Board of
Directors has nominated Aron Katzman and Randall Minix, who are currently
Class I directors, for re-election to each serve a three-year term expiring
at the annual meeting of shareholders in 1999. The following table sets
forth certain information concerning Mr. Katzman and Mr. Minix and those
directors who are continuing in office.
NOMINEES FOR DIRECTOR - CLASS I
(to be elected to serve a three-year term)
Director
Name Age Position Since
Aron Katzman 58 President, New Legends, Inc. 1995
Randall Minix 46 Managing Partner, Minix,
Morgan & Company, L.L.P. 1995
Aron Katzman has served as a director of the Company since it commenced
operations in May 1995. Mr. Katzman is the President of New Legends, Inc.,
one of St. Louis' leading country club/residential communities. For more
than five years prior to April 1994, when it was sold, Mr. Katzman served as
the chairman and chief executive officer of Roman Company, a manufacturer
and distributor of fashion custom jewelry. Mr. Katzman currently serves as
a member of the Board of Directors of Phonetel, Inc.
Randall S. Minix has served as a director of the Company since it commenced
operations in May 1995. For more than five years, Mr. Minix has been the
managing partner of Minix, Morgan & Company, L.L.P., an independent
accounting firm headquartered in Greensboro, North Carolina, and its
predecessors.
DIRECTORS CONTINUING IN OFFICE - CLASS II
(terms expiring in 1997)
Director
Name Age Position Since
Timothy A. Braswell 67 Consultant to Wholesale
Magazine Industry 1995
Harry L. "Terry"
Franc, III 60 Senior Executive Officer of 1995
Bridge Information Systems,
Inc. and Vice-President of
Bridge Trading Company
Timothy A. Braswell has been a director of the Company since it commenced
operations in May 1995. He established Braswell Investment Company, a
consultant and broker of wholesale magazine businesses in 1994 and is its
owner. For more than five years prior thereto, Mr. Braswell was the
principal owner and chief executive officer of City News Co. and Dixie News
Co., each of which is a wholesale periodical company.
Harry L. "Terry" Franc, III, has been a director of the Company since it
commenced operations in May 1995. For more than 20 years, Mr. Franc has
served as a director and senior executive officer of Bridge Information
Systems, Inc., a St. Louis, Missouri, based provider of information services
to the securities industry. In addition, Mr. Franc has served as executive
vice president of Bridge Trading Company, a registered broker-dealer and
member of the New York Stock Exchange. Bridge Trading Company is a
subsidiary of Bridge Information Systems, Inc.
DIRECTORS CONTINUING IN OFFICE - CLASS III
(terms expiring in 1998)
Director
Name Age Position Since
S. Leslie Flegel 58 Chairman and Chief Executive
Officer of the Company 1995
William H. Lee 45 President and Chief Operating
Officer of the Company 1995
S. Leslie Flegel has been a director, Chairman and Chief Executive Officer
of the Company since its inception in April 1995. For more than 14 years
prior thereto, Mr. Flegel was the principal owner and chief executive
officer of Display Information Systems Company ("DISC"), a predecessor of
the Company. From January 1992 to June 1993, Mr. Flegel also served as the
chief executive officer of NationsMart Corporation, an operator and
franchisor of dry cleaning, laundry, shoe repair and formal wear service
centers, prior to its December 1993 initial public offering of securities.
William H. Lee has been a director, President and Chief Operating Officer of
the Company since its inception in April 1995. For approximately 14 years
prior thereto, Mr. Lee was the principal owner and chief executive officer
of Periodical Marketing and Management, Inc. ("PMM"), a predecessor of the
Company.
The Board of Directors of the Company consists of six members, each of whom
serve in such capacity for a three-year term or until a successor has been
elected and qualified, subject to earlier resignation, removal or death.
The number of directors comprising the Board of Directors may be increased
or decreased by resolution adopted by the affirmative vote of a majority of
the Board of Directors. The Company's Articles of Incorporation and Bylaws
provide for three classes of directorships serving staggered three year
terms such that one-third of the directors are elected at each annual
meeting of shareholders. The terms of Messrs. Braswell and Franc will
continue until the 1997 annual meeting of shareholders and the terms of
Messrs. Flegel and Lee will continue until the 1998 annual meeting of
shareholders.
The Board of Directors of the Company has established an Audit Committee, a
Compensation Committee, a Finance Committee and an Acquisition Committee.
The Audit Committee is comprised of two non-employee directors, presently
Messrs. Minix and Katzman, and has the responsibility of recommending the
firm that will serve as the Company's independent auditors, reviewing the
scope and results of the audit and services provided by the Company's
independent accountants, and meeting with the financial staff of the Company
to review accounting procedures and policies. The Compensation Committee is
comprised of three non-employee directors, presently Messrs. Katzman,
Braswell and Franc, and has been given the responsibility of reviewing the
financial records of the Company to determine overall compensation and
benefits for executive officers of the Company and to establish and
administer the policies which govern employee salaries and benefit plans.
The Finance Committee is to be comprised of two directors. Presently, Mr.
Franc serves as one member and the other position is vacant. The Finance
Committee has been given the responsibility of monitoring the Company's
capital structure, reviewing available alternatives to satisfy the Company's
liquidity and capital requirements and recommending the firm or firms which
will provide investment banking and financial advisory services to the
Company. The Company's Acquisition Committee is comprised of three
directors, presently Messrs. Franc, Braswell and Katzman, and has been given
the responsibility of monitoring the Company's search for attractive
acquisition opportunities, consulting with members of management to review
plans and strategies for the achievement of the Company's external growth
objectives and recommending the firm or firms that will serve as advisors to
the Company in connection with the evaluation of potential business
combinations.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished
to the Company during its most recent fiscal year and Forms 5 and amendments
thereto, or written representations that no Form 5 is required, furnished to
the Company, eleven persons (Messrs. Braswell, DeGolia, Dixon, Flegel,
Franc, Katzman, Lee, McCord, Minix and Shupe), each failed to timely file a
Form 3, Initial Statement of Beneficial Ownership of Securities.
Director Compensation
Director Randall S. Minix was paid $3,000 for attending the Company's Board
Meetings in fiscal 1996, in addition to being reimbursed for his expenses.
No other director received any compensation in fiscal 1996 for service as a
director. Company policy permits all directors to be reimbursed for
expenses incurred by them in attending meetings of the Board of Directors
and its committees.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the executive
officers of the Company who are not also directors of the Company:
Name Age Position
John P. Watkins 40 Chief Administration Officer and
President - Retail Services
Dwight L. DeGolia 51 Executive Vice President
Robert B. Dixon 45 Senior Vice President and
President-Periodical Rebate Group
Lance C. McCord 40 Secretary and Chief Financial
Officer
Robert G. Shupe 49 Senior Vice President and President
- Display Group
John P. Watkins has served as President - Retail Service Group and Chief
Administration Officer since February 1, 1996. For more than 16 year prior
thereto, Mr. Watkins served in several senior management positions with Food
Lion, Inc., a seven billion dollar retail grocery chain. From September,
1992 to July 1995, Mr. Watkins served as Senior Vice President and Chief
Operating Officer and a member of the Board of Directors of Food Lion, Inc.
Dwight L. DeGolia has served as Executive Vice President of the Company
since its commencement of operations in May 1995. For more than 10 years
prior thereto, Mr. DeGolia served as executive vice president of sales and
marketing for DISC. From 1986 to 1993, Mr. DeGolia also served as a
director of Advanced Marketing Services, a leading supplier of books to
wholesale clubs.
Robert B. Dixon became Senior Vice President and President - Periodical
Rebate Group in June 1995. For more than 13 years prior thereto, Mr. Dixon
served as President and was the principal shareholder of Dixon's Modern
Marketing Concepts, Inc. and related entities.
Lance C. McCord has served as Secretary of the Company since April 1995 and
as Chief Financial Officer since the Company commenced operations in May
1995. From May 1994 to January 1995, Mr. McCord was Director of Financial
Advisory Services for Coopers & Lybrand, an independent accounting firm.
From August 1993 to May 1994, Mr. McCord served as Director of Financial
Analysis for St. Johns Mercy Medical Center in St. Louis, Missouri, in which
capacity he directed cost accounting and budgeting functions. For more than
three years prior thereto, Mr. McCord served as Vice President-Finance and
Chief Financial Officer of a $600 million operating division of Wetterau,
Inc., with facilities in Andover, Massachusetts, and Providence, Rhode
Island.
Robert G. Shupe has served as Senior Vice President since February 1996 and
as President-Display Group of the Company since commencement of its
operations in May 1995. From February 1985 to January 1995, Mr. Shupe held
the position of Executive Vice President-Sales for PMM. Prior to joining
PMM, Mr. Shupe was employed in the marketing division of McCall's Magazine.
Certain Relationships and Related Transactions
From time to time, the Company has engaged in various transactions with its
directors, executive officers and other affiliated parties. The following
paragraphs summarize certain information concerning such transactions and
relationships which have occurred during the past two fiscal years or which
are presently proposed.
S. Leslie Flegel, Chairman and Chief Executive Officer of the Company and
Dwight L. DeGolia, Executive Vice President of the Company, have from time
to time received cash advances from the Company. The largest aggregate
amount of such indebtedness outstanding at any time since February 1, 1995
was $270,675 and $14,618, respectively. All such advances are evidenced by
promissory notes in favor of the Company. Such notes bear interest at the
rate of 7.34% per annum, and are payable in five equal annual installments.
The Company incurred a debt to Timothy A. Braswell on March 1, 1991 in the
amount of $300,000, which accrued interest at the rate of 10.00% per annum.
The indebtedness matured on January 1, 1996 and was paid in full on the
maturity date.
During fiscal 1995, DISC II Corporation ("DISC II"), a Delaware corporation
in which S. Leslie Flegel and Dwight L. DeGolia are substantial
shareholders, engaged the Company to perform certain services to Kmart
Corporation. As compensation for such services, DISC II paid the Company an
aggregate of $4.4 million.
711 Gallimore Partnership, a North Carolina general partnership in which
William H. Lee and Robert G. Shupe are partners, provides the Company with
certain office space in Greensboro, North Carolina under the terms of a
written lease dated June 28, 1991. The lease, as amended in January 1996,
provides for annual rent of $150,300 and expires in 2012. In fiscal 1995
and 1996, the Company paid the 711 Gallimore Partnership $147,000 and
$147,275, respectively, in rent.
2532 Investments, Inc., a North Carolina corporation in which William H. Lee
and Robert G. Shupe are shareholders, occasionally provides the Company with
the use of an airplane. In fiscal 1995 and 1996, the Company paid 2532
Investments $85,950 and $57,926, respectively, in consideration for the use
of the airplane.
Data-Pros, Inc. ("Data-Pros"), a corporation in which William H. Lee and
Robert G. Shupe are shareholders, provides the Company with data processing
services. In fiscal 1995 and 1996, the Company paid Data-Pros $201,389 and
$306,751, respectively, for such services.
On June 15, 1995, the Company acquired all of the business and assets of
Dixon's Modern Marketing Concepts, Inc. and Tri-State Stores, Inc. in
exchange for the issuance of an aggregate of 300,000 shares of Common Stock.
Robert B. Dixon is the President and principal shareholder of each of these
corporations.
Robert B. Dixon, Executive Vice President and President-Periodical Rebate
Group, provides the Company with office space in Chicago Heights, Illinois
under the terms of a written lease dated January 1, 1993. The lease
provides for annual rent of $36,000 and expires on December 31, 1996. In
fiscal 1995 and 1996, the Company paid Mr. Dixon $36,000 and $36,000,
respectively, in rent.
From time to time, the Company has been engaged by Specialty Marketing Co.,
Inc., a corporation in which Robert B. Dixon is the principal shareholder,
to provide consulting services. In fiscal 1995 and 1996, Specialty
Marketing Co., Inc. paid the Company $107,359 and $85,611, respectively, in
consideration for the Company's services.
FMG, Inc., a North Carolina corporation in which William H. Lee and Robert
G. Shupe are shareholders, has from time to time received cash advances from
the Company. The balance of such advances as of January 31, 1996 is $53,171
and is accounted for by the Company as an account receivable. Such advances
bear interest at an annual rate equal to the Prime Rate plus one percent
(9.25% at April 30, 1996). In addition to periodic principal payments, FMG
makes quarterly interest payments on the outstanding balance of such
advances.
On March 11, 1996, the Company sold an aggregate of 5,000 shares of its
Preferred Stock in transactions exempt from the registration requirements of
the Securities Act of 1933, as amended, to Messrs. Braswell, Franc and
Katzman. Messrs. Braswell, Franc and Katzman purchased 2,250, 500 and 2,250
shares, respectively. The Company received payment for the shares from each
of the purchasers in the amount of $100 per share.
Executive Compensation
The following table summarizes information concerning cash and non-cash
compensation paid to or accrued for the benefit of the named executive
officers for all services rendered in all capacities to the Company and its
predecessors in fiscal years 1995 and 1996.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation
-------------------------------------------------
Name and Principal Other Annual
Position Year Salary Bonus Compensation(a)
<S> <C> <C> <C> <C>
S. Leslie Flegel 1996 $200,000 $26,543 $30,995
Chairman and Chief Executive 1995 171,875 --- 22,425
Officer
William H. Lee 1996 $192,646 --- $19,006
President and Chief Operating 1995 145,000 $60,000 25,937
Officer
Dwight L. DeGolia 1996 $134,884 --- $16,739
Executive Vice President 1995 97,358 --- 9,790
Robert B. Dixon(b) 1996 $114,000 $ 50,000 $ 5,458
Senior Vice President and 1995 36,000 128,500 26,982
President-Periodical Rebate
Group
Robert G. Shupe 1996 $ 97,373 --- $10,915
Senior Vice President and 1995 $ 88,301 --- ---
President-Display Group
________________________
<FN>
(a) Reflects personal benefits derived by Messrs. Flegel, Lee, DeGolia, Dixon and Shupe primarily in
connection with personal use of Company automobiles, country club membership dues and split-dollar
life insurance premiums. In fiscal 1996, the estimated incremental cost to the Company of the use
by Messrs. Flegel, Lee, DeGolia, Dixon and Shupe of Company automobiles was $11,444, $6,234,
$6,360, $3,158 and $6,098, respectively. In fiscal 1995, such cost was $10,417, $8,753, $5,728,
$0.00 and $6,098, respectively. In fiscal 1996, the estimated incremental cost to the Company of
the membership dues paid on behalf of Messrs. Flegel, Lee, DeGolia and Dixon was $11,503, $4,738,
$4,751, $2,300 and $0.00, respectively. In fiscal 1995, the estimate incremental cost to the
Company of the membership dues paid on behalf of Messrs. Flegel, Lee, DeGolia, Dixon and Shupe
was $8,212, $4,356, $4,751 and $2,300, respectively. In fiscal 1996, the estimated incremental
cost to the Company of the split-dollar life insurance premiums paid on behalf of Messrs. Flegel, Lee,
DeGolia and Shupe was $8,048, $8,033, $5,628 and $4,817, respectively.
(b) Until consummation of the MMC/TSS Acquisition on June 15,1995, Mr. Dixon served as the chief
executive officer of Dixon's Modern Marketing Concepts, Inc. and Tri-State Stores, Inc. Accordingly,
the information presented in the foregoing table is not reflected in the historical financial
statements of the Company included elsewhere herein.
</TABLE>
PROPOSAL 2 - APPROVAL OF THE SOURCE COMPANY
1995 INCENTIVE STOCK OPTION PLAN
On August 24, 1995, the Board of Directors adopted The Source Company 1995
Incentive Stock Option Plan (the "1995 Plan") and directed that the 1995
Plan be submitted to the shareholders of the Company for their approval.
The 1995 Plan will become effective only if the holders of at least a
majority of the issued and outstanding shares of Common Stock present at the
annual meeting in person or by proxy vote for the approval of the 1995 Plan.
The 1995 Plan is designed to provide additional incentives for officers and
other key employees of the Company to promote the success of the business
and to enhance the Company's ability to attract and retain the services of
qualified persons. The maximum number of shares available for issuance
under the 1995 Plan is 630,000 shares of Common Stock. The 1995 Plan is
administered by the Compensation Committee of the Board of Directors of the
Company. The 1995 Plan authorizes the Compensation Committee to grant
incentive stock options to key employees, including officers, as selected by
such Committee. The 1995 Plan will expire on, and no awards may be granted
thereunder after, the tenth anniversary of the 1995 Plan , subject to the
right of the Board of Directors to terminate such 1995 Plan at any time
prior thereto. The Board of Directors may amend the 1995 Plan at any time,
except no such amendment may impair the rights of recipients of previous
grants without such grantee's consent.
An option enables the optionee to purchase shares of Common Stock at the
option exercise price. The per share exercise price of any options granted
under the plan may not be less than the fair market value of the Common
Stock at the time the option is granted, provided that, with respect to an
option granted to an optionee who is or would be the beneficial owner of
more than 10% of the combined voting power of all classes of the Company's
stock, the exercise price may not be less than 110% of the fair market value
of the Common Stock on the date of grant. In order to obtain the shares, a
participant must pay the full exercise price to the Company at the time of
exercise of the option. The exercise price may be paid in cash or, with the
consent of the Compensation Committee, stock of the Company. Stock options
are intended to qualify under Section 422 of the Internal Revenue Code of
1986, as amended.
Stock options may be granted with terms of no more than ten years from the
date of grant, provided that in the event the grant of an option to an
optionee who is or would be the beneficial owner of more than 10% of the
total combined voting power of all classes of the Company's stock, the term
of such option may not exceed five years. Options will survive for a
limited period of time after the optionee's death, disability or normal
retirement from the Company. Any shares as to which an option expires,
lapses unexercised or is terminated or canceled may be subject to a new
option.
NEW PLAN BENEFITS
1995 Incentive Stock
Option Plan
Name and Principal Position Dollar Value (a) Number of Units (b)
Executive Group $ 0 175,000
Non-Executive Director Group --- ---
Non-Executive Officer Employee
Group --- ---
(a) Dollar Value is calculated by determining the difference between fair
market value of the common stock as of the end of fiscal 1996 and the option
exercise price.
(b) Number of units outstanding as of August 5, 1996.
OTHER BUSINESS
Management does not know of any other matters which may come before the
Meeting. However, if any other matters are properly presented to the
Meeting, it is the intention of the persons named in the accompanying proxy
to vote, or otherwise act, in accordance with their judgment on such
matters.
PROPOSALS FOR THE 1997 ANNUAL MEETING
Proposals of the shareholders intended to be presented at the 1997 Annual
Meeting of Shareholders must be received by the Company at its principal
office in St. Louis, Missouri not later than May 29, 1997 for inclusion
in the proxy statement for that meeting.
RELATIONSHIP WITH THE INDEPENDENT ACCOUNTANTS
BDO Seidman, LLP ("BDO Seidman") served as the independent public accountant
for the Company in 1995. The Company's independent public accountant for
1996 will be selected by the Board at a regular Board meeting to be held in
1996. Representatives of BDO Seidman will be present at the annual meeting
with the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
By Order of the Board of Directors
/s/ Lance. C. McCord
Lance C. McCord
Secretary and
Chief Financial Officer
THE BOARD OF DIRECTORS HOPES THAT YOU WILL ATTEND THE MEETING. WHETHER OR
NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY IN THE ACCOMPANYING ENVELOPE PROMPTLY. IF YOU ATTEND THE MEETING, YOU
MAY VOTE YOUR STOCK PERSONALLY BY DELIVERING A WRITTEN REVOCATION OF YOUR
PROXY TO THE SECRETARY OF THE COMPANY.
THE SOURCE COMPANY
11644 Lilburn Park Road
St. Louis, Missouri 63146
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of September 16, 1996
The Source Company: St. Louis, Missouri
The Annual Meeting of the Shareholders of The Source Company will be held on
September 26, 1996, at 10:00 a.m. Central Time in the offices of the Company
at 11644 Lilburn Park Road, St. Louis, Missouri 63146, for the following
purposes:
1. To elect two class I directors to each serve a three-year term and
until each director's successor has been elected and qualified;
2. To consider and vote upon a proposal to approve the Company's 1995
Incentive Stock Option Plan;
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on July 22, 1996, will
be entitled to vote at the meeting. A list of all shareholders entitled to
vote at the annual meeting, arranged in alphabetical order and showing the
address of and number of shares held by each shareholder, will be open at
the principal office of The Source Company, 11644 Lilburn Park Road, St.
Louis, Missouri 63146, during usual business hours, to the examination of
any shareholder for any purpose germane to the annual meeting for 10 days
prior to the date thereof. The list of shareholders will also be available
at the meeting for examination at any time during the meeting.
A copy of the Company's Annual Report to Shareholders for fiscal year 1996
accompanies this notice.
By Order of the Board of Directors
/s/ Lance C. McCord
Lance C. McCord
Secretary and
Chief Financial Officer
Whether or not you intend to be present at the meeting, please mark, sign,
date, and return the accompanying proxy promptly. A return addressed
envelope is enclosed for your convenience.
The Source Company
11644 Lilburn Park Road
St. Louis, Missouri 63146
(314) 995-9040
PROXY STATEMENT
SOLICITATION OF PROXIES
The enclosed proxy is solicited by the Board of Directors of The Source
Company, a Missouri corporation (the "Company"), for use at the Annual
Meeting of Shareholders to be held on September 26, 1996, in the offices of
the Company at 11644 Lilburn Park Road, St. Louis, Missouri 63146, at 10:00
a.m. Central Time and at any adjournments thereof. Whether or not you
expect to attend the meeting in person, please return your executed proxy in
the enclosed envelope and the shares represented thereby will be voted in
accordance with your wishes. This proxy statement and the accompanying
proxy card will be first mailed to shareholders on or about September 16,
1996. All costs of solicitation of proxies will be borne by the Company.
In addition to solicitations by mail, the Company's directors, officers and
regular employees, without additional remuneration, may solicit proxies by
telephone, telegraph, telecopy and personal interviews. Brokers, custodians
and fiduciaries will be requested to forward proxy soliciting material to
the owners of stock held in their names and the Company will reimburse them
for their out-of-pocket expenses incurred in connection with the
distribution of proxy materials.
REVOCABILITY OF PROXY
If, after sending in your proxy, you decide to vote in person or desire to
revoke your proxy for any other reason, you may do so by notifying the
Secretary of the Company, or the presiding officer at the meeting, in
writing of such revocation at any time prior to the voting of the proxy, by
attending the meeting and voting in person, or by submitting a new proxy
bearing a later date.
RECORD DATE
Only shareholders of record at the close of business on July 22, 1996, will
be entitled to vote at the meeting.
ACTION TO BE TAKEN UNDER PROXY
All properly executed proxies received by the Board of Directors pursuant to
this solicitation will be voted by S. Leslie Flegel and William H. Lee, or
the one of them who acts, in accordance with the directions specified in the
proxy. If no such directions have been specified by marking the appropriate
squares in the accompanying proxy card, the shares will be voted as follows:
(1) FOR the election of Aron Katzman and Randall Minix named herein
as nominees for directors of the Company to hold office for a term of three
years expiring in 1999 and until each director's successor has been duly
elected and qualified;
(2) FOR approval of the Company's 1995 Incentive Stock Option Plan;
(3) According to their judgment, on the transaction of such other
business as may properly come before the meeting or any adjournments
thereof.
Should the nominee named herein for election as a director become
unavailable for any reason, it is intended that the persons named in the
proxy will vote for the election of such other person in his stead as may be
designated by the Board of Directors. The Board of Directors is not aware of
any reason that might cause the nominee to be unavailable.
VOTING SECURITIES, PRINCIPAL HOLDERS THEREOF
AND CUMULATIVE VOTING RIGHTS
On July 22, 1996, there were 6,623,103 shares of Common Stock, par value
$.01 per share ("Common Stock"), outstanding, which constitute all of the
outstanding voting capital stock of the Company. Each shareholder is
entitled to cast one vote for each share of record on all matters to be
voted on by the shareholders, including the election of directors.
A majority of the outstanding shares present or represented by proxy will
constitute a quorum at the meeting. Votes that are withheld in the election
of directors, abstentions on all other matters properly brought before the
meeting and the proxies relating to "street name" shares which are not voted
by brokers on one or more, but less than all, matters (so-called "broker
non-votes") will be considered as shares present for purposes of determining
a quorum. Under applicable state law and the Company's Articles of
Incorporation, an affirmative vote of a majority of the shares present in
person or represented by proxy at the meeting is required for the election
of directors and for approval of all other matters that may be submitted to
a vote of the shareholders at the 1996 Annual Meeting. With regard to the
election of directors, votes that are withheld will be excluded entirely
from the vote and will have no effect. With regard to other matters,
abstentions (including proxies which deny discretionary authority on any
other matters properly brought before the meeting) will be counted as
shares present and entitled to vote and will have the same effect as a vote
against any such matters. Broker non-votes will not be treated as shares
represented at the meeting as to such matter(s) not voted on and therefore
will have no effect.
The following table sets forth as of July 22, 1996 the beneficial ownership
of each current director (including the nominees for election as directors),
each of the executive officers named in the Summary Compensation Table set
forth herein, the executive officers and directors as a group, and each
other shareholder known to the Company to own beneficially more than 5% of
the outstanding Common Stock. Unless otherwise indicated, the Company
believes that the beneficial owners set forth in the table have sole voting
and investment power.
Beneficial Ownership
Name and Address
of Beneficial Owner Number of Shares Percent
S. Leslie Flegel 1,771,600 26.8
11644 Lilburn Park Road
St. Louis, Missouri 63146
William H. Lee 1,350,695 20.4
711 Gallimore Dairy Road
High Point, North Carolina 27265
Timothy A. Braswell 567,728(a) 8.5
711 Gallimore Dairy Road
High Point, North Carolina 27265
Robert B. Dixon 300,000(b) 4.5
907 Park Drive
Flossmoor, Illinois 60422
Dwight L. DeGolia 180,000 2.7
11644 Lilburn Park Road
St. Louis, Missouri 63146
John P. Watkins 100,000(d) 1.5
711 Gallimore Dairy Road
High Point, North Carolina 27265
Aron Katzman 81,475(c) 1.2
10 Layton Terrace
St. Louis, Missouri 63124
Lance McCord 76,000(e) 1.1
14866 Greenleaf Valley Drive
Chesterfield, Missouri 63017
Robert G. Shupe 43,327 *
4109 Pheasant Run
Greensboro, North Carolina 27408
Harry L. Franc, III 31,361(f) *
19 Briarcliff
St. Louis, Missouri 63124
Randall S. Minix 7,000 *
5502 White Blossom Drive
Greensboro, North Carolina 27410
All directors and executive 4,509,186 65.0
Officers as a group (11 persons)
________________________
*Less than 1%
(a) Includes 61,475 shares of Common Stock which are issuable to Mr.
Braswell upon conversion of 2,250 shares of Preferred Stock calculated based
on the Market Value (as defined) of the Common Stock as of July 22, 1996.
(b) Includes 291,000 and 9,000 shares of Common Stock held of record by
Dixon Enterprises, Inc. and RBD, Inc., respectively, each of which is a
corporation of which Mr. Dixon is the chief executive officer and
majority shareholder.
(c) Includes 61,475 shares of Common Stock which are issuable to Mr.
Katzman upon conversion of 2,250 shares of Preferred Stock calculated based
on the Market Value (as defined) of the Common Stock as of July 22, 1996. \
(d) Includes 100,000 shares which are issuable to Mr. Watkins upon exercise
of options granted to him under the 1995 Incentive Stock Option Plan.
(e) Includes 75,000 shares which are issuable to Mr. McCord upon exercise
of options granted to him under the 1995 Incentive Stock Option Plan.
(f) Includes 13,661 shares of Common Stock which are issuable to Mr. Franc
upon conversion of 500 shares of Preferred Stock calculated based on the
Market Value (as defined) of the Common Stock as of July 22, 1996.
PROPOSAL 1 - ELECTION OF TWO CLASS I DIRECTORS INFORMATION
ABOUT THE NOMINEES AND DIRECTORS CONTINUING IN OFFICE
The Company's Articles of Incorporation and Bylaws currently provide for
three classes of directors, each class serving for a three-year term
expiring one year after the term of the preceding class, so that the term of
one class will expire each year. The terms of the current Class II and
Class III directors expire in 1997 and 1998, respectively. The Board of
Directors has nominated Aron Katzman and Randall Minix, who are currently
Class I directors, for re-election to each serve a three-year term expiring
at the annual meeting of shareholders in 1999. The following table sets
forth certain information concerning Mr. Katzman and Mr. Minix and those
directors who are continuing in office.
NOMINEES FOR DIRECTOR - CLASS I
(to be elected to serve a three-year term)
Director
Name Age Position Since
Aron Katzman 58 President, New Legends, Inc. 1995
Randall Minix 46 Managing Partner, Minix, 1995
Morgan & Company, L.L.P.
Aron Katzman has served as a director of the Company since it commenced
operations in May 1995. Mr. Katzman is the President of New Legends, Inc.,
one of St. Louis' leading country club/residential communities. For more
than five years prior to April 1994, when it was sold, Mr. Katzman served as
the chairman and chief executive officer of Roman Company, a manufacturer
and distributor of fashion custom jewelry. Mr. Katzman currently serves as
a member of the Board of Directors of Phonetel, Inc.
Randall S. Minix has served as a director of the Company since it commenced
operations in May 1995. For more than five years, Mr. Minix has been the
managing partner of Minix, Morgan & Company, L.L.P., an independent
accounting firm headquartered in Greensboro, North Carolina, and its
predecessors.
DIRECTORS CONTINUING IN OFFICE - CLASS II
(terms expiring in 1997)
Director
Name Age Position Since
Timothy A. Braswell 67 Consultant to Wholesale
Magazine Industry 1995
Harry L. "Terry"
Franc, III 60 Senior Executive Officer of 1995
Bridge Information Systems,
Inc. and Vice-President of
Bridge Trading Company
Timothy A. Braswell has been a director of the Company since it commenced
operations in May 1995. He established Braswell Investment Company, a
consultant and broker of wholesale magazine businesses in 1994 and is its
owner. For more than five years prior thereto, Mr. Braswell was the
principal owner and chief executive officer of City News Co. and Dixie News
Co., each of which is a wholesale periodical company.
Harry L. "Terry" Franc, III, has been a director of the Company since it
commenced operations in May 1995. For more than 20 years, Mr. Franc has
served as a director and senior executive officer of Bridge Information
Systems, Inc., a St. Louis, Missouri, based provider of information services
to the securities industry. In addition, Mr. Franc has served as executive
vice president of Bridge Trading Company, a registered broker-dealer and
member of the New York Stock Exchange. Bridge Trading Company is a
subsidiary of Bridge Information Systems, Inc.
DIRECTORS CONTINUING IN OFFICE - CLASS III
(terms expiring in 1998)
Director
Name Age Position Since
S. Leslie Flegel 58 Chairman and Chief Executive 1995
Officer of the Company
William H. Lee 45 President and Chief Operating 1995
Officer of the Company
S. Leslie Flegel has been a director, Chairman and Chief Executive Officer
of the Company since its inception in April 1995. For more than 14 years
prior thereto, Mr. Flegel was the principal owner and chief executive
officer of Display Information Systems Company ("DISC"), a predecessor of
the Company. From January 1992 to June 1993, Mr. Flegel also served as the
chief executive officer of NationsMart Corporation, an operator and
franchisor of dry cleaning, laundry, shoe repair and formal wear service
centers, prior to its December 1993 initial public offering of securities.
William H. Lee has been a director, President and Chief Operating Officer of
the Company since its inception in April 1995. For approximately 14 years
prior thereto, Mr. Lee was the principal owner and chief executive officer
of Periodical Marketing and Management, Inc. ("PMM"), a predecessor of the
Company.
The Board of Directors of the Company consists of six members, each of whom
serve in such capacity for a three-year term or until a successor has been
elected and qualified, subject to earlier resignation, removal or death.
The number of directors comprising the Board of Directors may be increased
or decreased by resolution adopted by the affirmative vote of a majority of
the Board of Directors. The Company's Articles of Incorporation and Bylaws
provide for three classes of directorships serving staggered three year
terms such that one-third of the directors are elected at each annual
meeting of shareholders. The terms of Messrs. Braswell and Franc will
continue until the 1997 annual meeting of shareholders and the terms of
Messrs. Flegel and Lee will continue until the 1998 annual meeting of
shareholders.
The Board of Directors of the Company has established an Audit Committee, a
Compensation Committee, a Finance Committee and an Acquisition Committee.
The Audit Committee is comprised of two non-employee directors, presently
Messrs. Minix and Katzman, and has the responsibility of recommending the
firm that will serve as the Company's independent auditors, reviewing the
scope and results of the audit and services provided by the Company's
independent accountants, and meeting with the financial staff of the Company
to review accounting procedures and policies. The Compensation Committee is
comprised of three non-employee directors, presently Messrs. Katzman,
Braswell and Franc, and has been given the responsibility of reviewing the
financial records of the Company to determine overall compensation and
benefits for executive officers of the Company and to establish and
administer the policies which govern employee salaries and benefit plans.
The Finance Committee is to be comprised of two directors. Presently, Mr.
Franc serves as one member and the other position is vacant. The Finance
Committee has been given the responsibility of monitoring the Company's
capital structure, reviewing available alternatives to satisfy the Company's
liquidity and capital requirements and recommending the firm or firms which
will provide investment banking and financial advisory services to the
Company. The Company's Acquisition Committee is comprised of three
directors, presently Messrs. Franc, Braswell and Katzman, and has been given
the responsibility of monitoring the Company's search for attractive
acquisition opportunities, consulting with members of management to review
plans and strategies for the achievement of the Company's external growth
objectives and recommending the firm or firms that will serve as advisors to
the Company in connection with the evaluation of potential business
combinations.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished
to the Company during its most recent fiscal year and Forms 5 and amendments
thereto, or written representations that no Form 5 is required, furnished to
the Company, eleven persons (Messrs. Braswell, DeGolia, Dixon, Flegel,
Franc, Katzman, Lee, McCord, Minix and Shupe), each failed to timely file a
Form 3, Initial Statement of Beneficial Ownership of Securities.
Director Compensation
Director Randall S. Minix was paid $3,000 for attending the Company's Board
Meetings in fiscal 1996, in addition to being reimbursed for his expenses.
No other director received any compensation in fiscal 1996 for service as a
director. Company policy permits all directors to be reimbursed for
expenses incurred by them in attending meetings of the Board of Directors
and its committees.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the executive
officers of the Company who are not also directors of the Company:
Name Age Position
John P. Watkins 40 Chief Administration Officer and President
- Retail Services
Dwight L. DeGolia 51 Executive Vice President
Robert B. Dixon 45 Senior Vice President and President-
Periodical Rebate Group
Lance C. McCord 40 Secretary and Chief Financial Officer
Robert G. Shupe 49 Senior Vice President and President -
Display Group
John P. Watkins has served as President - Retail Service Group and Chief
Administration Officer since February 1, 1996. For more than 16 year prior
thereto, Mr. Watkins served in several senior management positions with Food
Lion, Inc., a seven billion dollar retail grocery chain. From September,
1992 to July 1995, Mr. Watkins served as Senior Vice President and Chief
Operating Officer and a member of the Board of Directors of Food Lion, Inc.
Dwight L. DeGolia has served as Executive Vice President of the Company
since its commencement of operations in May 1995. For more than 10 years
prior thereto, Mr. DeGolia served as executive vice president of sales and
marketing for DISC. From 1986 to 1993, Mr. DeGolia also served as a
director of Advanced Marketing Services, a leading supplier of books to
wholesale clubs.
Robert B. Dixon became Senior Vice President and President - Periodical
Rebate Group in June 1995. For more than 13 years prior thereto, Mr. Dixon
served as President and was the principal shareholder of Dixon's Modern
Marketing Concepts, Inc. and related entities.
Lance C. McCord has served as Secretary of the Company since April 1995 and
as Chief Financial Officer since the Company commenced operations in May
1995. From May 1994 to January 1995, Mr. McCord was Director of Financial
Advisory Services for Coopers & Lybrand, an independent accounting firm.
From August 1993 to May 1994, Mr. McCord served as Director of Financial
Analysis for St. Johns Mercy Medical Center in St. Louis, Missouri, in which
capacity he directed cost accounting and budgeting functions. For more than
three years prior thereto, Mr. McCord served as Vice President-Finance and
Chief Financial Officer of a $600 million operating division of Wetterau,
Inc., with facilities in Andover, Massachusetts, and Providence, Rhode
Island.
Robert G. Shupe has served as Senior Vice President since February 1996 and
as President-Display Group of the Company since commencement of its
operations in May 1995. From February 1985 to January 1995, Mr. Shupe held
the position of Executive Vice President-Sales for PMM. Prior to joining
PMM, Mr. Shupe was employed in the marketing division of McCall's Magazine.
Certain Relationships and Related Transactions
From time to time, the Company has engaged in various transactions with its
directors, executive officers and other affiliated parties. The following
paragraphs summarize certain information concerning such transactions and
relationships which have occurred during the past two fiscal years or which
are presently proposed.
S. Leslie Flegel, Chairman and Chief Executive Officer of the Company and
Dwight L. DeGolia, Executive Vice President of the Company, have from time
to time received cash advances from the Company. The largest aggregate
amount of such indebtedness outstanding at any time since February 1, 1995
was $270,675 and $14,618, respectively. All such advances are evidenced by
promissory notes in favor of the Company. Such notes bear interest at the
rate of 7.34% per annum, and are payable in five equal annual installments.
The Company incurred a debt to Timothy A. Braswell on March 1, 1991 in the
amount of $300,000, which accrued interest at the rate of 10.00% per annum.
The indebtedness matured on January 1, 1996 and was paid in full on the
maturity date.
During fiscal 1995, DISC II Corporation ("DISC II"), a Delaware corporation
in which S. Leslie Flegel and Dwight L. DeGolia are substantial
shareholders, engaged the Company to perform certain services to Kmart
Corporation. As compensation for such services, DISC II paid the Company an
aggregate of $4.4 million.
711 Gallimore Partnership, a North Carolina general partnership in which
William H. Lee and Robert G. Shupe are partners, provides the Company with
certain office space in Greensboro, North Carolina under the terms of a
written lease dated June 28, 1991. The lease, as amended in January 1996,
provides for annual rent of $150,300 and expires in 2012. In fiscal 1995
and 1996, the Company paid the 711 Gallimore Partnership $147,000 and
$147,275, respectively, in rent.
2532 Investments, Inc., a North Carolina corporation in which William H. Lee
and Robert G. Shupe are shareholders, occasionally provides the Company with
the use of an airplane. In fiscal 1995 and 1996, the Company paid 2532
Investments $85,950 and $57,926, respectively, in consideration for the use
of the airplane.
Data-Pros, Inc. ("Data-Pros"), a corporation in which William H. Lee and
Robert G. Shupe are shareholders, provides the Company with data processing
services. In fiscal 1995 and 1996, the Company paid Data-Pros $201,389 and
$306,751, respectively, for such services.
On June 15, 1995, the Company acquired all of the business and assets of
Dixon's Modern Marketing Concepts, Inc. and Tri-State Stores, Inc. in
exchange for the issuance of an aggregate of 300,000 shares of Common Stock.
Robert B. Dixon is the President and principal shareholder of each of these
corporations.
Robert B. Dixon, Executive Vice President and President-Periodical Rebate
Group, provides the Company with office space in Chicago Heights, Illinois
under the terms of a written lease dated January 1, 1993. The lease
provides for annual rent of $36,000 and expires on December 31, 1996. In
fiscal 1995 and 1996, the Company paid Mr. Dixon $36,000 and $36,000,
respectively, in rent.
From time to time, the Company has been engaged by Specialty Marketing Co.,
Inc., a corporation in which Robert B. Dixon is the principal shareholder,
to provide consulting services. In fiscal 1995 and 1996, Specialty
Marketing Co., Inc. paid the Company $107,359 and $85,611, respectively, in
consideration for the Company's services.
FMG, Inc., a North Carolina corporation in which William H. Lee and Robert
G. Shupe are shareholders, has from time to time received cash advances from
the Company. The balance of such advances as of January 31, 1996 is $53,171
and is accounted for by the Company as an account receivable. Such advances
bear interest at an annual rate equal to the Prime Rate plus one percent
(9.25% at April 30, 1996). In addition to periodic principal payments, FMG
makes quarterly interest payments on the outstanding balance of such
advances.
On March 11, 1996, the Company sold an aggregate of 5,000 shares of its
Preferred Stock in transactions exempt from the registration requirements of
the Securities Act of 1933, as amended, to Messrs. Braswell, Franc and
Katzman. Messrs. Braswell, Franc and Katzman purchased 2,250, 500 and 2,250
shares, respectively. The Company received payment for the shares from each
of the purchasers in the amount of $100 per share.
Executive Compensation
The following table summarizes information concerning cash and non-cash
compensation paid to or accrued for the benefit of the named executive
officers for all services rendered in all capacities to the Company and its
predecessors in fiscal years 1995 and 1996.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal Other Annual
Position Year Salary Bonus Compensation(a)
S. Leslie Flegel 1996 $200,000 $26,543 $30,995
Chairman and Chief Executive 1995 171,875 --- 22,425
Officer
William H. Lee 1996 $192,646 --- $19,006
President and Chief Operating 1995 145,000 $60,000 25,937
Officer
Dwight L. DeGolia 1996 $134,884 --- $16,739
Executive Vice President 1995 97,358 --- 9,790
Robert B. Dixon(b) 1996 $114,000 $ 50,000 $ 5,458
Senior Vice President and 1995 36,000 128,500 26,982
President-Periodical Rebate
Group
Robert G. Shupe 1996 $ 97,373 --- $10,915
Senior Vice President and 1995 $ 88,301 --- ---
President-Display Group
________________________
(a) Reflects personal benefits derived by Messrs. Flegel, Lee, DeGolia,
Dixon and Shupe primarily in connection with personal use of Company
automobiles, country club membership dues and split-dollar life insurance
premiums. In fiscal 1996, the estimated incremental cost to the Company of
the use by Messrs. Flegel, Lee, DeGolia, Dixon and Shupe of Company
automobiles was $11,444, $6,234, $6,360, $3,158 and $6,098, respectively.
In fiscal 1995, such cost was $10,417, $8,753, $5,728, $0.00 and $6,098,
respectively. In fiscal 1996, the estimated incremental cost to the Company
of the membership dues paid on behalf of Messrs. Flegel, Lee, DeGolia and
Dixon was $11,503, $4,738, $4,751, $2,300 and $0.00, respectively. In
fiscal 1995, the estimate incremental cost to the Company of the membership
dues paid on behalf of Messrs. Flegel, Lee, DeGolia, Dixon and Shupe
was $8,212, $4,356, $4,751 and $2,300, respectively. In fiscal 1996, the
estimated incremental cost to the Company of the split-dollar life insurance
premiums paid on behalf of Messrs. Flegel, Lee, DeGolia and Shupe was
$8,048, $8,033, $5,628 and $4,817, respectively.
(b) Until consummation of the MMC/TSS Acquisition on June 15,1995, Mr.
Dixon served as the chief executive officer of Dixon's Modern Marketing
Concepts, Inc. and Tri-State Stores, Inc. Accordingly, the information
presented in the foregoing table is not reflected in the historical
financial statements of the Company included elsewhere herein.
PROPOSAL 2 - APPROVAL OF THE SOURCE COMPANY
1995 INCENTIVE STOCK OPTION PLAN
On August 24, 1995, the Board of Directors adopted The Source Company 1995
Incentive Stock Option Plan (the "1995 Plan") and directed that the 1995
Plan be submitted to the shareholders of the Company for their approval. The
1995 Plan will become effective only if the holders of at least a majority
of the issued and outstanding shares of Common Stock present at the annual
meeting in person or by proxy vote for the approval of the 1995 Plan.
The 1995 Plan is designed to provide additional incentives for officers and
other key employees of the Company to promote the success of the business
and to enhance the Company's ability to attract and retain the services of
qualified persons. The maximum number of shares available for issuance
under the 1995 Plan is 630,000 shares of Common Stock. The 1995 Plan is
administered by the Compensation Committee of the Board of Directors of the
Company. The 1995 Plan authorizes the Compensation Committee to grant
incentive stock options to key employees, including officers, as selected by
such Committee. The 1995 Plan will expire on, and no awards may be granted
thereunder after, the tenth anniversary of the 1995 Plan , subject to the
right of the Board of Directors to terminate such 1995 Plan at any time
prior thereto. The Board of Directors may amend the 1995 Plan at any time,
except no such amendment may impair the rights of recipients of previous
grants without such grantee's consent.
An option enables the optionee to purchase shares of Common Stock at the
option exercise price. The per share exercise price of any options granted
under the plan may not be less than the fair market value of the Common
Stock at the time the option is granted, provided that, with respect to an
option granted to an optionee who is or would be the beneficial owner of
more than 10% of the combined voting power of all classes of the Company's
stock, the exercise price may not be less than 110% of the fair market value
of the Common Stock on the date of grant. In order to obtain the shares, a
participant must pay the full exercise price to the Company at the time of
exercise of the option. The exercise price may be paid in cash or, with the
consent of the Compensation Committee, stock of the Company. Stock options
are intended to qualify under Section 422 of the Internal Revenue Code of
1986, as amended.
Stock options may be granted with terms of no more than ten years from the
date of grant, provided that in the event the grant of an option to an
optionee who is or would be the beneficial owner of more than 10% of the
total combined voting power of all classes of the Company's stock, the term
of such option may not exceed five years. Options will survive for a
limited period of time after the optionee's death, disability or normal
retirement from the Company. Any shares as to which an option expires,
lapses unexercised or is terminated or canceled may be subject to a new
option.
NEW PLAN BENEFITS
1995 Incentive Stock
Option Plan
Name and Principal Position Dollar Value (a) Number of Units (b)
Executive Group $ 0 175,000
Non-Executive Director Group --- ---
Non-Executive Officer Employee
Group --- ---
(a) Dollar Value is calculated by determining the difference between fair
market value of the common stock as of the end of fiscal 1996 and the option
exercise price.
(b) Number of units outstanding as of August 5, 1996.
OTHER BUSINESS
Management does not know of any other matters which may come before the
Meeting. However, if any other matters are properly presented to the
Meeting, it is the intention of the persons named in the accompanying proxy
to vote, or otherwise act, in accordance with their judgment on such
matters.
PROPOSALS FOR THE 1997 ANNUAL MEETING
Proposals of the shareholders intended to be presented at the 1997 Annual
Meeting of Shareholders must be received by the Company at its principal
office in St. Louis, Missouri not later than May 29, 1997 for inclusion in
the proxy statement for that meeting.
RELATIONSHIP WITH THE INDEPENDENT ACCOUNTANTS
BDO Seidman, LLP ("BDO Seidman") served as the independent public accountant
for the Company in 1995. The Company's independent public accountant for
1996 will be selected by the Board at a regular Board meeting to be held in
1996. Representatives of BDO Seidman will be present at the annual meeting
with the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
By Order of the Board of Directors
/s/ Lance. C. McCord
Lance C. McCord
Secretary and
Chief Financial Officer
THE BOARD OF DIRECTORS HOPES THAT YOU WILL ATTEND THE MEETING. WHETHER OR
NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY IN THE ACCOMPANYING ENVELOPE PROMPTLY. IF YOU ATTEND THE MEETING, YOU
MAY VOTE YOUR STOCK PERSONALLY BY DELIVERING A WRITTEN REVOCATION OF YOUR
PROXY TO THE SECRETARY OF THE COMPANY.
