-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HZAOIQOt8BMDFW3dlIWl/xVPrYxqqUZcjlGz8Us93Y2bAK0Rype/draJmT5gO2PA yODZGxidiTKFlK+acx7Z4A== 0000929859-97-000026.txt : 19970327 0000929859-97-000026.hdr.sgml : 19970327 ACCESSION NUMBER: 0000929859-97-000026 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOURCE CAPITAL CORP CENTRAL INDEX KEY: 0000746776 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 910853890 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-12199 FILM NUMBER: 97563029 BUSINESS ADDRESS: STREET 1: 1825 NORTH HUTCHINSON ROAD CITY: SPOKANE STATE: WA ZIP: 99212 BUSINESS PHONE: 5099280908 FORMER COMPANY: FORMER CONFORMED NAME: SELECTORS INC DATE OF NAME CHANGE: 19911121 DEF 14A 1 SOURCE CAPITAL CORPORATION THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 30, 1997 at 10:00 a.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 vote all shares of Common Stock which the undersigned is entitled to vote on all matters which may properly come before the Annual Meeting of Shareholders of Source Capital Corporation to be held April 30, 1997, and at any 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. TO ELECT DIRECTORS: CLASS III DIRECTORS for a three year term ending with the annual meeting of shareholders in 2000 [ ] FOR all nominees listed below, (except as marked to the contrary) Clarence H. Barnes Robert E. Lee D. Michael Jones 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. TO RATIFY THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT AUDITORS FOR 1997. 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, 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. Date , 1997. ---------------- ------------------------------------ -------------------------------- Signature of Shareholder Signature of Shareholder ------------------------------------ -------------------------------- Please print name Please print name IF YOU PLAN TO ATTEND THE MEETING IN PERSON PLEASE CHECK HERE [ ] SOURCE CAPITAL CORPORATION 1825 N. Hutchinson Road Spokane, Washington ---------- NOTICE OF ANNUAL MEETING OF SHAREHOLDERS April 30, 1997 ---------- Spokane, Washington March 17, 1997 To the Shareholders: NOTICE is hereby given that the Annual Meeting of the Shareholders of SOURCE CAPITAL CORPORATION will be held at the Red Lion Hotel Spokane City Center, 322 North Spokane Falls Ct., Spokane, Washington on the 30th day of April 1997, at 10 o'clock a.m. P.D.T. for the following purposes as described in the attached Proxy Statement: 1. To elect three Directors. 2. To ratify the appointment of Coopers & Lybrand L.L.P. as independent auditors. 3. To transact such business as may properly come before the meeting or any adjournment thereof. THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE PROPOSALS. The Board of Directors has fixed the close of business on March 7, 1997 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 ENCLOSED POSTAGE-PAID ENVELOPE, WHICH REQUIRES NO POSTAGE 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. SOURCE CAPITAL CORPORATION -------------------------- PROXY STATEMENT Annual Meeting of Shareholders to be held on April 30, 1997 -------------------------- PERSONS MAKING THE SOLICITATION Each accompanying proxy is solicited by the Board of Directors of Source Capital Corporation, a Washington Corporation (the "Company"), with its principal executive offices at 1825 N. Hutchinson Road., Spokane, Washington 99212, in connection with the Annual Meeting of the Shareholders to be held on April 30, 1997, or any adjournment or postponement thereof. The Form 10-KSB Annual Report of the Company for the year ended December 31, 1996, 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 if proxies are not received promptly. The approximate date on which this Proxy Statement and accompanying proxies are first being sent to shareholders is March 17, 1997. VOTING SECURITIES; QUORUM; ABSTENTIONS; BROKER NON-VOTES The Board of Directors has fixed the close of business on March 7, 1997, 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 Common Stock issued and outstanding and entitled to vote in person or by proxy, will constitute a quorum. The Company has one Class of capital stock outstanding which consists of Common Stock, no par value ("Common Stock"). As of March 7, 1997, 1,379,220 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, or by signing and delivering a proxy which is dated later, or, if the shareholder attends the meeting in person, by giving notice of revocation to the meeting judge prior to the commencement of the meeting. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth as of March 7, 1997, information relating to the beneficial ownership of the Company's Common Stock by each person known to the Company to be the beneficial owner of more than five percent (5%) of any class of voting securities of the Company, by each director, by those executive officers listed in the Summary Compensation Table and by all directors and executive officers as a group. Unless otherwise indicated, all persons named as beneficial owners of the Common Stock have sole voting power and sole investment power with respect to the shares indicated as beneficially owned. The address for each of the persons listed below, unless otherwise noted, is 1825 N. Hutchinson Road., Spokane, Washington, 99212. COMMON STOCK ------------
Name of Number Percent of Beneficial Owner Title Class of Shares Outstanding Shares -------------------------------------------------------------------------------- Alvin J. Wolff, Jr. Common stock 176,010 [1] 11.85% Clarence H. Barnes Common stock 8,830 [3] * John Frucci Common stock 7,972 [4] * Charles Stocker Common stock 5,485 [3] * William Roberts Common stock 8,868 [3] * Maynard Cary Common stock 7,150 [3] * Robert E. Lee Common stock 4,000 [2] * D. Michael Jones Common stock 40,000 [6] 2.69% James L. Kirschbaum Common stock 18,700 [5] 1.26% Lester L. Clark Common stock 19,311 [7] 1.30% All directors and officers as a group (10 persons) Common stock 296,326 19.96% ------- * Less than 1%
[1] Includes options to purchase 13,000 shares of Common Stock. It also includes 1,260 shares of Common Stock owned by Mr. Wolff's wife in her own name. Excludes 47,049 shares of Common Stock held by Mr. Wolff's father and 5,403 shares of Common Stock held by Mr. Wolff's adult children as to which Alvin J. Wolff Jr. disclaims beneficial ownership. [2] Includes options to purchase 3,000 shares of Common Stock. [3] Includes options to purchase 4,000 shares of Common Stock. [4] Includes options to purchase 7,000 shares of Common Stock. [5] Includes options to purchase 13,500 shares of Common stock. [6] Includes options to purchase 40,000 shares of Common stock. [7] Includes options to purchase 13,000 shares of Common Stock. Excludes 4,967 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 three individuals listed below for election as Class III Directors to serve terms of three years ending at the Annual Meeting of Shareholders in 2000 or until their respective successors have been duly elected and qualified. The nominees are: Clarence H. Barnes Robert E. Lee D. Michael Jones The Company has no reason to believe that any of the nominees will be unable to serve; however, should any nominee become 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 three persons who have been nominated by the Board of Directors. The Board 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 will expire in 1998 are as follows: Company Director Name Age Since Principal Occupation --------------------------------------------------------------------- CLASS I DIRECTORS John Frucci 62 1991 Retired from Central Valley School District. He was an Adjunct Professor at Eastern Washington University, teaching graduate level courses in education until 1996. William H. Roberts 73 1992 Engaged in commercial Real Estate since 1982 including Feldman-Pearson, Inc., Caldwell-Banker, Tomlinson Commercial and Campbell Co. Class II directors whose present term of office will continue after the annual meeting of shareholders and will expire in 1999 are as follows: Company Director Name Age Since Principal Occupation --------------------------------------------------------------------- CLASS II DIRECTORS Alvin J. Wolff, Jr. 48 1991 President of the Company from May 1989 to January 1996 when he was elected Chairman of the Board. He 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 Spokane Capital Management, the manager of a venture capital investment fund. Charles G. Stocker 59 1991 Superintendent of East Valley School District. Mr. Stocker also serves as President of Valley Hospital and Medical Center Advisory Board; Vice President of the Board of Directors Empire Health Services; and Member of the Board of Directors of the Washington Association of School Administrators. Class III directors whose present term of office expires at the Annual Meeting of Shareholders April 30, 1997 and (with the exception of Mr. Cary) if elected whose term will expire in 2000 are as follows: Company Director Name Age Since Principal Occupation ----------------------------------------------------------------------- CLASS III DIRECTORS Clarence H. Barnes 55 1991 Dean of the School of Business Administration, Professor of Economics at Gonzaga University and a Director of Wismer-Martin, Inc. Robert E. Lee 61 1996 Executive director of the Denver Foundation since 1989. Chairman of the Board and Chief Executive Officer of First Interstate Bank of Denver from 1980 to 1989. Mr. Lee is a director of The Equitable of Iowa Companies, Storage Technology Corporation and Meredith Corporation. Mr. Lee was designated by the Board of Directors to fill an available seat on the board in October 1996. D. Michael Jones 54 1996 President and Chief Executive Officer of Source Capital, since January 1996. President of West One Bancorp head- quartered in Boise, Idaho from 1987 through 1995. Maynard Cary 84 1991 Retired, Mr. Cary has had an extensive career since 1949 in the financial and investment industries with emphasis on starting and building businesses. He is also a Director of the Spokane Rehabili- tation Center. Mr. Cary has declined to stand for reelection as he is retiring at the end of his current term. There are no family relationships between the directors and executive officers. Mr. Lee is a director of The Equitable of Iowa Companies, Storage Technology Corporation and Meredith Corporation and Dr. Barnes is a director of Wismer-Martin, Inc. 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 Source Capital Corporation are James L. Kirschbaum and Lester L. Clark. Mr. Kirschbaum has held his office for 3 years and Mr. Clark has held his position for the past 10 years. JAMES L. KIRSCHBAUM Mr. Kirschbaum, 56, has served as Executive Vice-President, of Source Capital since June of 1994. During 1993 and 1994, he was Managing Director, Corporate Operations, of Insignia Financial Group Inc. of Greenville, South Carolina. From 1991 to 1993 Mr. Kirschbaum was President and Chief Executive Officer with Security Properties Investments Inc., Seattle, Washington. From 1990 to 1991 he was Chairman and Chief Executive Officer of Professional Resources Group, Seattle, Washington., a temporary employment provider to the Mortgage Banking industry. Prior to 1990 Mr. Kirschbaum had over 25 years experience in the Banking industry including, Executive Vice President and Manager, Commercial Real Estate Group of Seafirst Bank, Seattle, Washington. LESTER L. CLARK Mr. Clark, 54, a certified public accountant, has served as Chief Financial Officer of Source Capital for the past ten years. Prior to 1987, Mr. Clark served as Chief Financial Officer for various financial services organizations. In 1991 Mr. Clark was elected Vice President and Treasurer; and in 1994 was appointed Secretary of the Corporation. Proposal No.2: RATIFICATION OF APPOINTMENT OF COOPERS & LYBRAND L.L.P AS INDEPENDENT AUDITORS Subject to shareholder ratification, the Board of Directors, has reappointed the firm of Coopers & Lybrand L.L.P., Certified Public Accountants, as independent auditors to make an examination of the accounts of the Company for the year 1997. Coopers & Lybrand L.L.P. have served continuously as independent auditors for the Company since 1986. One or more representatives of Coopers & Lybrand L.L.P. 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 unanimously 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 ten meetings during fiscal year ended December 31, 1996. During 1996 no director attended fewer than 75% of the aggregate of (1) the total number of meetings of the Board of Directors held during the period for which he was a director and (2) the total number of meetings held by all Committees of the Board on which he served. The numbers of meetings of each Committee of the Board are described below. Committees ---------- The Company has a Compensation Committee, Executive Committee, Loan Committee, Audit Committee and a Facilities Committee, all of which are comprised of members of the Board of Directors. Compensation Committee ---------------------- The Compensation Committee held two meetings in 1996. The Committee reviews and makes recommendations to the Board of Directors concerning the employment contract of Company's chief executive officer, reviews compensation of the other executive officers and reviews benefit plans related to all officers and employees. The Committee administers stock option plans of the Company. The Compensation Committee consists of two non-employee directors and one employee director, who are Dr. Barnes, Mr. Wolff and Mr. Stocker. Executive Committee ------------------- The Executive Committee, which held one meeting in 1996, attends to matters which require input from the directors but which do not require board approval. The Executive Committee consists of four directors, who are Dr. Barnes, Mr. Stocker, Mr. Jones and Mr. Wolff. Loan Committee -------------- The Loan Committee, which held five meetings in 1996, consists of five directors, who are Mr. Wolff, Mr. Cary, Mr. Frucci, Mr. Roberts and Mr. Jones. The purpose of the Loan Committee is to review and approve or decline any loan exceeding $2,500,000 which has been approved by the Officers' loan committee. Three directors are required for a quorum at any loan committee meeting. Audit Committee --------------- The Audit Committee, which held one meeting in 1996, consists of four directors, who are Mr. Lee, Mr. Frucci, Mr. Cary and Mr. Roberts. The purpose of the committee is to meet with the Company's auditors to plan the current years audit, review past and proposed audit fees, review the completed financial statements and meet with the Company's auditors to review any areas of operations which the auditors feel require the attention of management. Facilities Committee -------------------- The facilities committee held two meetings in 1996. It consists of three directors, who are Mr. Frucci, Mr. Roberts and Mr. Stocker. The purpose of the committee is to review the Company's current facilities, plan for the Company's future needs, review the current market for lease rates and locations and make recommendations to the board regarding said facilities. COMPENSATION OF MANAGEMENT Director Compensation --------------------- During 1996, each director, other than Mr. Wolff and Mr. Jones, 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, 1996, 1995, and 1994, with respect to the Chief Executive Officer and each of the highest paid executive officers of the Company whose aggregate cash compensation in fiscal 1996 exceeded $100,000:
Annual Long-term Compensation Compensation --------------- ------------ Securities Name and Underlying Principal Position Year Salary ($) Bonus ($) Options ------------------------ ---- ---------- --------- ----------- Alvin J. Wolff, Jr. 1996 103,000 [1] Chairman of the Board 1995 86,769 [1] 108,575 3,000 1994 89,081 [1] 166,400 10,000 D. Michael Jones 1996 134,043 [2] 47,057 [2] 40,000 President and Chief Executive Officer James L. Kirschbaum 1996 138,400 15,000 7,500 Executive Vice President 1995 133,082 11,025 6,000 1994 [3] [3] [3]
[1] For each year represented, Mr. Wolff has elected to defer his salary and bonus into a trust fund. Compensation listed excludes amounts paid to Mr. Wolff under a lease for the Company's offices through June 1995. During 1995, Mr. Wolff took an unpaid leave of absence which reduced his salary below the contracted amount. [2] Mr. Jones salary includes the Company's matching amounts under the Company's 401(K) plan. [3] Mr. Kirschbaum's employment with the Company began in June, 1994. No amounts are shown for the year in which the total of annual salary plus bonus is less than $100,000. Mr. Kirschbaum's salary includes the Company's matching amounts under the Company's 401(k) plan. Option Grants in Last Fiscal Year Individual Grants -----------------
Number of % of Total Securities Options Underlying Granted to Market Price Options Employees in Exercise or Base on Date of Expiration Name Granted (#) Fiscal Year Price ($/Sh) Grant ($/sh) Date -------------------- ----------- ------------- ------------ ------------ ---------- D. Michael Jones 10,000 71% $5.00 $5.00 01/29/01 10,000 6.65 5.00 01/29/01 10,000 8.35 5.00 01/29/01 10,000 7.25 7.25 12/17/06 James L. Kirschbaum 7,500 13% 7.25 7.25 12/17/06
Stock Options ------------- The Company has in effect two stock option plans for non-employee directors and key employees. The two plans provide for the granting of options to purchase up to 150,000 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 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. Additionally, 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. Employment Contracts -------------------- Effective January 1, 1995, the Company entered into a 5 year employment contract with Mr. Wolff providing for a base salary of $100,000 with annual cost of living adjustments, an automobile allowance, a cash bonus equal to 10% of the net income of the Company (as defined in the employment contract) and a combination of incentive stock options and/or stock appreciation rights if the performance level of the Company exceeds a 13% return on shareholders equity, on an annual basis for the years beginning in 1995 and extending through 1999. Effective January 29, 1996 Mr. Wolff's employment contract was amended to delete the provisions regarding his bonus of 10% of the net income. All other terms of the contract remain the same. Effective January 20, 1996 the Company entered into a five year employment agreement with D. Michael Jones. Under the contract Mr. Jones is to serve as President and Chief Executive Officer of the Company. Mr. Jones' salary under the contract is$140,000 per year adjusted annually for cost of living increases. Mr. Jones is entitled to receive a bonus each year equal to 10% of the net income of the Company (as defined in the employment agreement). Mr. Jones has received stock options to purchase 30,000 share of common stock at exercise prices reflected in the preceding tables. 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 an individual'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 1996, 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 composed of the adult children of Alvin J. Wolff, Jr. The lease payments are scheduled at $16.00 per foot per year and are subject to annual cost of living adjustments beginning March 1, 1998. Based on the present number of square feet occupied by it, the Company paid $65,000 in the year ended December 31, 1996 and anticipates it will pay $76,375 as rental during 1997 under the existing lease agreement. Prior to June 1995, the Company leased space in a building owned by Mr. Wolff. Total lease payments to Mr. Wolff for the year ended December 31, 1995 were $35,500. 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, 1996, all filing requirements under Section 16(a) of the Securities Exchange Act of 1934 were satisfied with the exception that Robert E. Lee filed his initial Form 3 report of stock ownership late. 1998 ANNUAL MEETING SHAREHOLDER PROPOSALS It is presently anticipated that the next annual meeting of shareholders will be held on April 30, 1998. 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, 1997. 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, Spokane, Washington 99212. -----END PRIVACY-ENHANCED MESSAGE-----