SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. 1) Filed by the Registrant 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 ss. 240.14a-11(C) or ss. 240.14a-12 SOURCE CAPITAL CORPORATION -------------------------- (Name of Registrant as Specified in Its Character) SOURCE CAPITAL CORPORATION -------------------------- (Name of Person(s) Filing Proxy Statement) Payment of Filing Fee (Check the appropriate box): [X] No Fee Reqired. [ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and O-11. 1) Title of each of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule O-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: [ ] Fee paid previously with preliminary materials. Check box if any part of the fee is offset as provided by Exchange Act Rule O-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid:_______________________________________________ 2) Form Schedule or Registration Statement No.:__________________________ 3) Filing Party:_________________________________________________________ 4) Date Filed:___________________________________________________________ SOURCE CAPITAL CORPORATION 1825 N. Hutchinson Road Spokane, Washington 99212 ---------- NOTICE OF ANNUAL MEETING OF SHAREHOLDERS May 25, 2000 ---------- Spokane, Washington April 17, 2000 To the Shareholders: NOTICE is hereby given that the Annual Meeting of the Shareholders of SOURCE CAPITAL CORPORATION will be held at the Double Tree Hotel Spokane City Center, 322 North Spokane Falls Ct., Spokane, Washington on the 25th day of May 2000, at 6 o'clock p.m. P.D.T. for the following purposes as further described in the attached Proxy Statement: 1. To elect three Class III Directors, for a three-year term ending at the annual meeting of the shareholders in 2003. 2. To consider and act upon a proposal to ratify the appointment of BDO SEIDMAN, LLP as independent auditors. 3. To transact such business as may properly come before the meeting or any adjournment thereof. Nominees for Class III Directors to be elected at the Annual Meeting are set forth in the enclosed Proxy Statement. The Board of Directors has fixed the close of business on April 7, 2000 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 D. Michael Jones, President and Chief Executive Officer ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, YOU ARE URGED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ADDRESSED ENVELOPE FOR WHICH NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. THIS WILL ASSURE YOUR REPRESENTATION IN THE QUORUM FOR THE TRANSACTION OF BUSINESS AT THE ANNUAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER IN WRITING OR BY VOTING IN PERSON AT THE ANNUAL MEETING, AT ANY TIME PRIOR TO ITS EXERCISE. IF THE REQUIRED NUMBER OF VOTES TO DECIDE THE ISSUES AT THE ANNUAL MEETING ARE NOT PRESENT IN PERSON OR BY PROXY, THE MEETING MAY BE ADJOURNED OR POSTPONED AND RESCHEDULED FOR A LATER DATE THUS REQUIRING THE COMPANY TO INCUR ADDITIONAL EXPENSE. THEREFORE, PLEASE RETURN YOUR PROXY PROMPTLY. SOURCE CAPITAL CORPORATION 1825 N. Hutchinson Road Spokane, Washington 99212 ---------- PROXY STATEMENT Annual Meeting of Shareholders to be held on May 25, 2000 ---------- Persons Making the Solicitation The accompanying proxy is solicited by the Board of Directors of Source Capital Corporation, a Washington Corporation (the "Company"), in connection with the Annual Meeting of the Shareholders to be held on May 25, 2000 (the "Annual meeting"), or any adjournment or postponement thereof. The Form 10-KSB Annual Report of the Company for the year ended December 31, 1999, has been mailed to shareholders prior to or together with the mailing of this Proxy Statement. The cost of preparing, assembling and mailing this Proxy Statement and each accompanying proxy is to be borne by the Company. The Company may, upon request, reimburse the transfer agent, brokerage houses and other persons representing beneficial owners of shares for their expenses in forwarding proxy material to such beneficial owners. If it becomes necessary to make a second distribution of proxy cards and reminder notices to brokers and nominees of shareholders and/or to shareholders, there will be additional charges which will be paid by the Company. Directors, officers and regular employees of the Company (for no additional compensation) may solicit proxies personally or by telephone, telecopy or telegram from some shareholders. The approximate date on which this Proxy Statement and accompanying form of proxy are first being sent to shareholders is April 17, 2000. Voting Securities; Quorum; Abstentions; Broker Non-Votes The Board of Directors has fixed the close of business on April 7, 2000, as the record date for determination of the shareholders entitled to notice of, and to vote at the Annual Meeting (the "Record Date"). The holders of a majority of the issued and outstanding Common Stock of the Company and entitled to vote in person or by proxy, will constitute a quorum. The Company has one Class of capital stock outstanding which consists of Common Stock, no par value ("Common Stock"). As of April 7, 2000, 1,358,715 shares of Common Stock were issued and outstanding. Each share of Common Stock is entitled to one vote. There are no cumulative voting rights for the election of directors. The nominees for election as Directors who receive the highest number of votes will be elected Directors. The ratification of the Board of Director's appointment of auditors will require the affirmative vote of the majority of the votes cast on the proposal. The indication of an abstention on a proxy or the failure to vote either by proxy or in person will be treated as neither a vote "for" nor "against" the election of any director. Shares held by brokers or nominees for the accounts of others, as to which voting instructions have not been given, will be treated as shares that are present for determining a quorum, but will not be counted for purposes of determining the number of votes cast with respect to a proposal. Brokers and nominees, under applicable law, may vote, in their discretion, shares for which no instructions have been given. Revocability of Proxy The giving of a proxy does not preclude the right to vote in person, should the person giving the proxy so desire. Shareholders may revoke a proxy by written notice to the Secretary of the Company or by giving notice of revocation at the annual meeting of shareholders or at any time prior thereto. A proxy is not revoked by the death or incompetency of the maker unless, before the authority granted thereunder is exercised, written notice of such death or incompetency is received by the Company from the executor or administrator of the estate or from a fiduciary having control of the shares represented by such proxy. Shares represented by a properly executed proxy in the accompanying form will be voted at the meeting and, where instructions have been given by the shareholder, will be voted in accordance with such instructions. The proxy may be revoked at any time before its exercise by sending written notice of revocation to the Secretary of the Company at or prior to the Annual Meeting, or by signing and delivering another proxy dated as of a later date. Security Ownership of Certain Beneficial Owners. The following table sets forth as of April 7, 2000, 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. 1 Common Stock ------------ Name Title Number of Percent of of Beneficial Owner Class Shares Outstanding Shares ------------------- ----- ------ ------------------- Alvin J. Wolff, Jr. Common stock 187,710 [1] 13.64% 1825 N. Hutchinson Rd. Spokane, WA 99212 Danny R. Schnitzer Common stock 72,000 5.30% 11221 Pacific Highway, S.W. Tacoma, WA 98499 Miller & Jacobs Capital, L.L.C. 1 Aldwin Center Suite 101 Villanova, PA 19085 Common stock 147,843 [2] 9.96% Franklyn Mutual Advisers 51 John F. Kennedy Pkwy Short Hills, NJ 07078 Common stock 174,781 [3] 11.40% Heartland Value Plus Fund 790 N. Milwaukee Street Milwaukee, WI 53202 Common stock 174,781 [4] 11.40% [1] Includes outstanding options to purchase 17,200 shares of Common Stock which were exercisable as of April 7, 2000 or within 60 days from such date and 1,260 shares of Common Stock owned by Mr. Wolff's wife. Excludes 56,990 shares of Common Stock held by Mr. Wolff's father and 2,323 shares of Common Stock held by Mr. Wolff's adult children as to which Alvin J. Wolff Jr. disclaims beneficial ownership. [2] Includes 124,843 shares of Common Stock which may be acquired upon conversion of $1,000,000 of the Company's Convertible Subordinated Debentures beneficially owned by Miller & Jacobs Capital, LLC. [3] Includes 174,781 shares of Common Stock which may be acquired upon conversion of $1,400,000 of the Company's Convertible Subordinated Debentures. [4] Includes 174,781 shares of Common Stock which may be acquired upon conversion of $1,400,000 of the Company's Convertible Subordinated Debentures. Security Ownership of Directors and Executive Officers. The following table sets forth as of April 7, 2000 information relating to the beneficial ownership of the Company's Common Stock, by each director, by those executive officers listed in the Summary Compensation Table and by all directors and executive officers as a group. Unless otherwise indicated, all persons named as beneficial owners of the Common Stock have sole voting power and sole investment power with respect to the shares indicated as beneficially owned. The address for each of the persons listed below, unless otherwise noted, is 1825 N. Hutchinson Road, Spokane, Washington, 99212. 2 Common Stock ------------ Name Title Number of Percent of of Beneficial Owner Class Shares Outstanding Shares ------------------- ----- ------ ------------------- Alvin J. Wolff, Jr. Common stock 187,710 [1] 13.64% Clarence H. Barnes Common stock 17,130 [5] 1.25% John Frucci Common stock 14,272 [6] 1.04% Charles Stocker Common stock 11,785 [5] * Daniel Nelson Common stock 5,200 [3] * Robert E. Lee Common stock 10,300 [4] * Paul A. Redmond Common stock 4,000 [2] * D. Michael Jones Common stock 46,819 [8] 3.38% James L. Kirschbaum Common stock 29,700 [7] 2.15% Lester L. Clark Common stock 29,311 [9] 2.12% All directors and officers as a group (10 persons) Common stock 356,227 23.72% -------------- * Less than 1% [1] Includes outstanding options to purchase 17,200 shares of Common Stock which were exercisable as of April 7, 2000 or within 60 days from such date and 1,260 shares of Common Stock owned by Mr. Wolff's wife. Excludes 56,990 shares of Common Stock held by Mr. Wolff's father and 2,323 shares of Common Stock held by Mr. Wolff's adult children as to which Alvin J. Wolff Jr. disclaims beneficial ownership. [2] Includes outstanding options to purchase 3,000 shares of Common Stock which were exercisable as of April 7, 2000 or within 60 days from such date. [3] Includes outstanding options to purchase 4,200 shares of Common Stock which were exercisable as of April 7, 2000 or within 60 days from such date. [4] Includes outstanding options to purchase 9,300 shares of Common Stock which were exercisable as of April 7, 2000 or within 60 days from such date. [5] Includes outstanding options to purchase 10,300 shares of Common Stock which were exercisable as of April 7, 2000 or within 60 days from such date. [6] Includes options to purchase 13,300 shares of Common Stock which were exercisable as of April 7, 2000 or within 60 days from such date. [7] Includes outstanding options to purchase 24,500 shares of Common stock which were exercisable as of April 7, 2000 or within 60 days from such date. [8] Includes outstanding options to purchase 27,500 shares of Common stock which were exercisable as of April 7, 2000 or within 60 days from such date. [9] Includes outstanding options to purchase 23,000 shares of Common Stock which were exercisable as of April 7, 2000 or within 60 days from such date. Excludes 5,717 shares of Common Stock held by Mr. Clark's parents and 400 shares of Common 3 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 2003 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. Should any nominee become unwilling or unable to serve as a Director for any reason, the Board of Directors shall designate a substitute nominee. Unless instructions to the contrary are specified in the Proxy, it is intended that the Proxies will be voted in favor of the three persons who have been nominated by the Board of Directors. The Board of Directors recommends a vote FOR the election of the Nominees named above. Board of Directors of Source Capital Corporation The following tables set forth information concerning the Company's Board of Directors: Class I directors whose present term of office will continue after the Annual Meeting of shareholders and whose term of office will expire at the 2001 annual meeting of shareholders are as follows: Company Director Name Age Since Principal Occupation __________________________________________________________________________________CLASS I DIRECTORS John A Frucci 65 1991 Retired from Central Valley School District, Mr. Frucci currently manages his personal investments which include apartment complexes, condominiums and duplexes. Director of Pacific Northwest District Kiwanis Foundation. Daniel R. Nelson 61 1998 Mr. Nelson was Chairman and Chief Executive Officer of West One Bancorp from 1986 until December 1995 and President and Chief Operating Officer of U.S. Bancorp from December 1995 until December 1996. Mr. Nelson is currently a private investor. Class II directors whose present term of office will continue after the Annual Meeting of shareholders and whose term will expire at the 2002 annual meeting of shareholders are as follows: Company Director Name Age Since Principal occupation __________________________________________________________________________________CLASS II DIRECTORS Alvin J. Wolff, Jr. 51 1991 President of the Company from May 1989 to January 1996 when he was elected Chairman of the Board. Mr. Wolff was a director of the Bank of Spokane from 1981 to 1986 and Chairman of the Board from 1986 to 1989. Mr. Wolff has been the Chairman of Alvin J. Wolff, Inc., a real estate firm, since 1976. He also serves as a Director of Northwest Ventures Associates, Inc., the manager of venture capital investment funds. 4 Charles G. Stocker 62 1991 Retired as Superintendent of East Valley School District. Mr. Stocker is currently employed part time in community relations with Inland Power and Light, serves as Vice President of the Board of Directors Empire Health Services and President of the West Plains Business Association. Paul A. Redmond 65 1999 Retired as Chairman and Chief Executive Officer of Avista Corp., formerly known as The Washington Water Power Company, Spokane, Washington, an electric and gas utility. Prior to his retirement in 1998, Mr. Redmond had been associated with Avista since 1965 and served in various capacities, including Senior Vice President for Operations, Executive Vice President and President. He was elected Chairman and Chief Executive Officer in 1985. Mr. Redmond is a director of ITRON Inc., U.S. Bancorp and Hecla Mining Company. Class III directors whose present term of office expires at the 2000 Annual Meeting of shareholders and if elected, whose term will expire in 2003 at the 2003 annual meeting of shareholders are as follows: Company Director Name Age Since Principal occupation __________________________________________________________________________________CLASS III DIRECTORS Clarence H. Barnes 58 1991 Dean of the School of Business Administration and Professor of Economics at Gonzaga University; Director of Brooks Manufacturing Cincinnati, Ohio and Thomas Hammer Coffee Company Inc., Spokane, Washington. Robert E. Lee 64 1996 Executive Director Emeritus of the Denver Foundation. Chairman of the Board and Chief Executive Officer of First Interstate Bank of Denver from 1980 to 1989. Mr. Lee is a director of ING North American Insurance Inc, Storage Technology Corporation, Meredith Corporation and a trustee of Financial Investors Trust mutual fund. D. Michael Jones 57 1996 President and Chief Executive Officer of the Company, since January 1996. President of West One Bancorp headquartered in Boise, Idaho from 1987 through 1995. There are no family relationships between the directors and executive officers. Mr. Lee is a director of ING North American Insurance Inc, Storage Technology Corporation, Meredith Corporation and a trustee of Financial Investors Trust mutual fund. Mr. Redmond is a director of ITRON Inc., U. S. Bancorp. and Hecla Mining Company. Each of these companies has a class of securities registered under Section 12 of the Securities Exchange Act of 1934. Executive Officers In addition to Mr. Wolff and Mr. Jones, each described above, the executive officers of the Company are James L. Kirschbaum and Lester L. Clark. Mr. Kirschbaum has held his office for 6 years and Mr. Clark has held his position for the past 13 years. JAMES L. KIRSCHBAUM Mr. Kirschbaum, 59, has served as Executive Vice-President, of Source Capital since June of 1994. During 1993 and 1994, he was Managing Director, Corporate Operations, of Insignia Financial Group Inc. of Greenville, South Carolina. From 1991 to 1993 Mr. Kirschbaum was President and Chief Executive Officer with Security Properties Investments Inc., Seattle, Washington. Mr. Kirschbaum has over 25 years experience in the Banking industry including, Executive Vice President and Manager, Commercial Real Estate Group of Seafirst Bank, Seattle, Washington. LESTER L. CLARK Mr. Clark, 57, a certified public accountant, has served as Chief Financial Officer of Source Capital for the past thirteen 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. 5 Proposal No. 2: RATIFICATION OF APPOINTMENT OF BDO SEIDMAN, LLP AS INDEPENDENT AUDITORS Subject to shareholder ratification, the Board of Directors, has reappointed the firm of BDO Seidman, LLP, as independent auditors to make an examination of the accounts of the Company for the year 2000. BDO Seidman, LLP has served as independent auditors for the Company since 1998. One or more representatives of BDO Seidman, LLP are expected to be present at the Annual Meeting, and will have an opportunity to make a statement if they desire to do so and will be available to respond to questions. The affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy and entitled to vote at the meeting is necessary to ratify the appointment of independent auditors. The Board of Directors recommends a vote FOR Proposal No. 2. Proposal No. 3: TO TRANSACT SUCH BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT THEREOF At the date of this proxy statement, the Board of Directors knows of no other matters which will be presented for consideration at the Annual Meeting. However, if any such other matters are properly presented for action at the Annual Meeting, it is the intention of the persons named in the accompanying form of proxy to vote the shares represented by the proxy in accordance with their judgment on such matters, and discretionary authority to do so is granted in the form of proxy. INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES Board of Directors Meetings The Board of Directors held five meetings during the fiscal year ended December 31, 1999. During 1999 no director attended fewer than 75% of the aggregate of (1) the total number of meetings of the Board of Directors held during the period for which he was a director and (2) the total number of meetings held by all Committees of the Board on which he served. The numbers of meetings of each Committee of the Board are described below. Committees The Company has a Compensation Committee, Executive Committee, Loan Committee, and an Audit Committee, all of which are comprised of members of the Board of Directors. Compensation Committee The Compensation Committee, which held one meeting in 1999, reviews and makes recommendations to the Board of Directors concerning the employment contract of the Company's chief executive officer, reviews compensation of the other executive officers as proposed by the chief executive officer and reviews salaries and benefit plans related to all employees. The Committee administers stock option plans of the Company. The Compensation Committee consists of three non-employee directors and one employee director, who are Dr. Barnes, Mr. Lee, Mr. Stocker and Mr. Wolff Executive Committee The Executive Committee, which held no meetings in 1999, attends to matters which require input from the directors but which do not require board approval. The Executive Committee consists of five directors, who are Dr. Barnes, Mr. Jones, Mr. Nelson, Mr. Stocker, and Mr. Wolff. Loan Committee The Loan Committee, which held one meeting in 1999, consists of four directors, who are Mr. Frucci, Mr. Redmond, Mr. Nelson and Mr. Wolff. The purpose of the Loan Committee is to review and approve or decline any loan exceeding $3,000,000 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 1999, consists of three directors, who are Mr. Frucci, Mr. Lee and Mr. Redmond. The purpose of the committee is to meet with the Company's auditors to plan the current year's audit, review past and proposed audit fees, review the completed financial statements and meet with the Company's auditors to review areas of operations which the auditors believe require the attention of management. 6 COMPENSATION OF MANAGEMENT Director Compensation During 1999, each director, other than Mr. Wolff and Mr. Jones, received an annual retainer in the amount of $2,500 and received a fee of $500 for each board and committee meeting attended. Executive Officer Compensation The following Summary Compensation Table sets forth compensation paid by the Company for services rendered for the years ended December 31, 1999, 1998, and 1997, with respect to the Chief Executive Officer and each of the highest paid executive officers of the Company whose aggregate cash compensation in fiscal 1999 exceeded $100,000: Annual Compensation Long-Term Compensation ------------------- ---------------------- Name and Securities Principal Position Year Salary ($) Bonus ($) Underlying Options ------------------ ---- ---------- --------- ------------------ Alvin J. Wolff, Jr. 1999 112,602 [1] Chairman of the Board 1998 113,052 [1] 3,000 1997 109,542 [1] D. Michael Jones 1999 159,688 [2] 93,362 [2] President and 1998 152,724 [2] 70,814 [2] 17,500 Chief Executive Officer 1997 143,266 [2] 163,814 [2] James L. Kirschbaum 1999 155,760.[3] 5,000 Executive Vice President 1998 154,317 [3] 14,000 [3] 6,000 1997 147,243 [3] [1] Mr. Wolff elected to defer his salary and bonus into a trust fund in 1997. [2] Mr. Jones elected to forego his bonus which would have been accrued and partially paid in 1998. The bonus reflected in Mr. Jones 1998 compensation was accrued in 1997 and paid in 1998. Mr. Jones' salary includes the Company's matching amounts under the Company's 401(K) plan. [3] Mr. Kirschbaum's salary includes the Company's matching amounts under the Company's 401(k) plan. Option Grants in Last Fiscal Year Individual Grants Number of % of Total Securities Options Underlying Granted to Market Price Options Employees in Exercise or Base on Date of Expiration Name Granted (#) Fiscal Year Price ($/Sh) Grant ($/sh) Date - ---- ----------- ----------- ------------ ------------ ----------- James L. Kirschbaum 5,000 15% 5.13 5.13 01/20/09 7 Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at FY-End (#) FY-End ($) Shares Acquired Exercisable/ Exercisable/ Name on Exercise Value realized($) Unexercisable Unexercisable Alvin J. Wolff, Jr. - - 3,000/3,000 $2,850/$1,860 D. Michael Jones 10,000 $2,500 - / - $ - / - James L. Kirschbaum - - 11,000/ - $8,800/ - Stock Options The Company has in effect three stock option plans for non-employee directors, key employees and employees. The three plans provide for the granting of options to purchase up to 264,000 shares of common stock having terms of up to ten years. Under the Directors Stock Option Plan (the "Directors Plan"), non-employee directors receive an annual grant of an option to purchase 1,000 shares of the Company's Common Stock at fair market value not to exceed $10.00 per share. Under the Directors Plan, directors are also entitled to receive a grant of an option to purchase an additional 1,000 shares if the Company's pre-tax income for the fiscal year exceeds 110 percent of the pre-tax income for the prior fiscal year immediately preceding, and an option to purchase an additional 1,000 shares if the pre-tax income for the fiscal year exceeds 115 percent of the pre-tax income for the fiscal year immediately preceding. The exercise price for the additional incentive stock options is 85 percent of the fair market value of the common stock as defined under the Directors Plan. The maximum annual grant to an eligible participant in any one fiscal year of the Company under the Directors Plan shall not exceed 3,000 shares. The plan for key employees (the "Key Employee Plan") is administered by the Compensation Committee of the Board of Directors which has discretionary authority to grant options to eligible participants. The plan for non-director non-officer employees (the "Employee Plan") is administered by the Compensation Committee of the Board of Directors of the Company which has discretionary authority to grant options to eligible participants. The Key Employee Plan authorizes the granting of incentive stock options, nonqualified stock options, and stock appreciation rights. The total number of shares which may be granted under the Key Employee Plan will be subject to adjustment for stock splits and similar events. Options that are forfeited or terminated will again be available for grant. Shares may be authorized but unissued, currently held or reacquired shares. The Key Employee Plan provides that the option price per share for incentive stock options will not be less than 100% of the fair market value per share on the date the option is granted and that the option price per share for nonqualified stock options will be determined at the time of grant by the Committee. The grant of options vest 40% after one year, an additional 30% after two years, and a final 30% after three years. If an eligible officer or employee is terminated because of fraud, dishonesty, embezzlement or breach of fiduciary acts, all unexercised options are canceled and declared null and void. Employment Contracts Effective January 1, 1995, the Company entered into a five-year year employment contract with Mr. Wolff, which was amended on January 29, 1996. The contract as amended, provides for a base salary of $100,000 with annual cost of living adjustments, and an automobile allowance. Effective January 20, 1996 the Company entered into a five-year employment agreement with D. Michael Jones. Under the contract Mr. Jones is to serve as President and Chief Executive Officer of the Company. Mr. Jones' salary under the contract is $140,000 per year adjusted annually for cost of living increases. Mr. Jones is entitled to receive a bonus each year equal to 10% of the net income of the Company (as defined in the employment agreement). Mr. Jones received stock options to purchase 30,000 shares of common stock. In addition to the foregoing Mr. Jones receives an auto allowance and such other employee benefits as are provided by the Company. 8 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 three non-employee directors, and one employee director. Compensation Policy In determining the compensation for the chief executive officer, the Committee endeavors to structure compensation so as to: * Attract and retain a highly qualified officer by maintaining competitive compensation packages; * Motivating the officer to achieve and maintain superior performance levels; * Making a significant portion of the officer's total compensation package at risk in performance driven incentive plans and creation of shareholder value. The Committee believes that the total compensation for the chief executive officer should be competitive with compensation paid by businesses of similar size and market position to the Company so that the Company can attract and retain qualified officers. The Committee sets compensation for the chief executive officer by contract. The chief executive officer sets base salary levels for the other officers and employees based primarily on the performance of each officer for the previous year. The evaluations consist of quantitative assessments of attainment of previously established financial and business goals and key performance indicators, including return on equity and operating efficiency. Evaluations also review the experience and contribution of the officer and employee, based on an assessment of each officer and employee's skills, judgment and corporate priorities. Each year, bonuses for executive officers are based on the Company's achievement of established business goals and each individual officer's contribution to those goals. Stock Options. Awards of stock options and stock appreciation rights ("SARs") under the Company's stock options plans are designed to provide long-term incentives for senior management and to more closely tie the long-term interests of the Company's executive officers and its shareholders. The Committee selects the officers, if any, to receive stock options and/or SARs and determines the number of shares subject to each option. The size of individual option grants is generally intended to reflect an officer's position within the Company and the officers performance and contributions to the Company. CEO Compensation. During 1999, 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. 9 CERTAIN TRANSACTIONS BY AND WITH MANAGEMENT In March 1996 the Company entered into a five-year lease for its headquarters in a new Class A building owned by a partnership comprised of the adult children of Alvin J. Wolff, Jr. The lease payments are scheduled at $16.00 per foot per year and are subject to annual cost of living adjustments plus a proportionate share of common area maintenance. Based on the number of square feet occupied by it, the Company paid $102,970 in the year ended December 31, 1999. 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, 1999, all filing requirements under Section 16(a) of the Securities Exchange Act of 1934 were satisfied. 2001 ANNUAL MEETING SHAREHOLDER PROPOSALS It is presently anticipated that the next annual meeting of shareholders will be held on May 23, 2001. 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, 2000. ADDITIONAL INFORMATION Copies of the Company's annual report on Form 10-KSB, filed with the Securities and Exchange Commission, including financial statements and financial statement schedules, have been mailed to shareholders of the Company herewith. Additional copies are available without charge upon request. Requests should be addressed to the Secretary, Source Capital Corporation, 1825 N. Hutchinson Road, P.O. Box 141146, Spokane, Washington 99214-1142. 10 SOURCE CAPITAL CORPORATION THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 25, 2000 at 6:00 p.m., P.D.T. Spokane, Washington The undersigned hereby appoints ALVIN J. WOLFF, JR. and D. MICHAEL JONES, and each of them, proxies of the undersigned, with full power of substitution, to represent and vote as directed herein all shares of Common Stock which the undersigned is entitled to vote at the Annual Meeting of Shareholders of Source Capital Corporation to be held May 25, 2000, and at all adjournments or postponements thereof, with all powers the undersigned would have if personally present. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED ON THE REVERSE SIDE WITH RESPECT TO MATTERS OF BUSINESS PROPERLY BEFORE THE MEETING. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF ALL NOMINEES FOR DIRECTORS SET FORTH IN PROPOSAL NO. 1 AND "FOR" PROPOSAL NO. 2 AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. 1. ELECTION OF CLASS III DIRECTORS for a three year term ending with the annual meeting of shareholders in 2003 [ ] 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. PROPOSAL TO RATIFY THE APPOINTMENT OF BDO SEIDMAN, LLP AS INDEPENDENT AUDITORS FOR 2000. FOR [ ] AGAINST [ ] ABSTAIN [ ] 3. In their discretion, the proxies are authorized to vote upon such other business as properly may come before the meeting. Please date and sign exactly as your name appears hereon. When signing in a representative or fiduciary capacity, please indicate title. If shares are held jointly, each holder should sign. For a corporation, the full corporation name should be signed by a duly authorized officer who should state his title. For a partnership, an authorized person should sign in the partnership name and state his title. Date , 2000. --------------------------------- - ------------------------------ ------------------------------ Signature of Shareholder Signature of Shareholder - ------------------------------ ------------------------------ Please print name Please print name The Board of Directors recommends a Vote "For" all nominees named in Proposal No. 1 and For Proposal No. 2 IF YOU PLAN TO ATTEND THE MEETING IN PERSON PLEASE CHECK HERE [ ]