UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-10198
The San Francisco Company
(Exact name of Registrant as specified in its charter)
Delaware 94-3071255
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
of incorporation or organization)
550 Montgomery Street, San Francisco, California 94111
(Address of principal executive office) (Zip Code)
(415) 781-7810
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
The Registrant had 31,723,782 shares of Class A Common Stock
outstanding on October 31, 1997.May 1, 1998.
page
The San Francisco Company and Subsidiaries
Quarterly Report on Form 10-Q
Table of Contents
Page
Part I - Financial Information
Item 1. Consolidated Statements of Financial Condition
At September 30, 1997March 31, 1998 and December 31, 19961997 . . . . . . 1
Consolidated Statements of Operations
For the Three and
Nine Months Ended September 30, 1997March 31, 1998 and 19961997. 2
Consolidated Statements of Changes in Shareholders'
Equity
For the NineThree Months Ended September 30, 1997March 31, 1998 and 1996 31997. 4
Consolidated Statements of Cash Flows
For the Three and
Nine Months Ended September 30, 1997March 31, 1998 and 1996 41997. 5
Notes to Consolidated Financial Statements 5. . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations 6. . . . . . . . . . . . . 7
Part II - Other Information
Item 1. Legal Proceedings 14Proceedings. . . . . . . . . . . . . . . . . .13
Item 2. Changes in Securities 14Securities. . . . . . . . . . . . . . . .13
Item 3. Defaults Upon Senior Securities 14Securities. . . . . . . . . . .13
Item 4. Submission of Matters to a Vote of Security Holders 14Holders.13
Item 5. Other Information 14Information. . . . . . . . . . . . . . . . . .13
Item 6. Exhibits and Reports on Form 8-K 14. . . . . . . . . .13
Signatures 15. . . . . . . . . . . . . . . . . . . . . . . . . .14
page
Item. 1 - Consolidated Financial Statements
The San Francisco Company and Subsidiaries
Consolidated Statements of Financial Condition
September 30, 1997March 31, 1998 and December 31, 19961997
(Unaudited)
September 30,March 31, December 31,
(Dollars in Thousands Except Per Share Data) 1998 1997 1996
Assets:
Cash and due from banks $ 3,2002,699 $ 3,7012,837
Federal funds sold 25,785 11,92520,305 14,150
Cash and cash equivalents 28,985 15,62623,004 16,987
Investment securities held-to-maturity
at cost
(Market value:(Market: 1998 $5,414; 1997 - $6,178; 1996 - $6,848) 6,225 6,943$6,567) 5,458 5,864
Investment securities available-for-sale at fair value 34,295 28,34829,920 32,669
Federal Home Loan Bank stock, at par 701 6701,521 1,499
Loans 37,308 43,76251,702 51,924
Deferred loan fees (143) (190)(24) (61)
Allowance for loan losses (5,991) (5,663)(3,116) (3,200)
Loans, net 31,174 37,90948,562 48,663
Other real estate owned net 1,661 5,133362 410
Premises and equipment, net 7,792 8,0597,791
Interest receivable 625 758534 720
Other assets 410 5551,941 2,014
Total Assets $111,868 $104,001$119,094 $116,617
Liabilities and Shareholders' Equity:
Non-interest bearing deposits $ 21,76019,714 $ 16,50519,691
Interest bearing deposits 74,957 74,66169,327 66,828
Total deposits 96,717 91,16689,041 86,519
Other borrowings 10,000 10,000
Other liabilities and interest payable 2,259 1,7712,189 2,528
Total Liabilities 98,976 92,937liabilities 101,230 99,047
Shareholders' Equity:
Preferred Stockstock (par value $0.01 per share)
Series B - Authorized - 437,500 shares;shares
Issued and outstanding - 15,8691998 and 1997-15,869 111 111
Common stock (par value $0.01 per share)
Class A - Authorized - 100,000,000 shares;shares
Issued and outstanding - 1997 - 31,717,171outstanding-1998 and 1996 - 28,775,9951997-31,723,782 317 288317
Additional paid-in capital 78,812 77,84178,814 78,814
Retained deficit (66,372) (67,099)
Unrealized gain/(loss) on securities
available-for-sale 24 (77)(61,354) (61,656)
Accumulated other comprehensive loss (24) (16)
Total shareholders' equity 12,892 11,06417,864 17,570
Total Liabilities and Shareholders' Equity $111,868 $104,001$119,094 $116,617
See accompanying notes to unaudited consolidated financial statements.
page 1
The San Francisco Company and Subsidiaries
Consolidated Statements of Operations
Three and Nine Months Ended September 30,March 31, 1998 and 1997
and 1996
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,March 31,
(Dollars in Thousands Except Per Share Data) 1998 1997 1996 1997 1996
Interest income:
Loans $ 1,234 $ 1,005 $ 3,473 $ 3,2221,211 $1,123
Investments 953 743 2,512 2,182826 746
Dividends 10 11 31 2823 12
Total interest income 2,197 1,759 6,016 5,4322,060 1,881
Interest expense:
Deposits 755 747 2,113 2,393653 697
Other borrowingsborrowing s 150 -- 1 -- 2
Total interest expense 755 748 2,113 2,395803 697
Net interest income before
provision1,257 1,184
Provision (adjustment) for loan losses 1,442 1,011 3,903 3,037
Provision for loan losses -- -- --(94) --
Net interest income after provision for loan losses 1,442 1,011 3,903 3,0371,351 1,184
Non-interest income:
Stock optionbrokerage commissions and fees 440 196 1,069 866257 354
Real estate rental income 179 272 658 756257 244
Service charges and fees 198 113 437 337
Other income 39 2 94 3146 99
Gain on sale of other assets net 32 204 260 659-- 22
Other income 37 22
Total non-interest income 888 787 2,518 2,621697 741
Non-interest expense:
CompensationSalaries and related benefits 1,134 762 2,968 2,480973 908
Occupancy expense 288 263 903 872292 304
Professional fees 146 156 361 450126 100
Data processing 111 115
Corporate insurance premiums 56 53 165 24461
Equipment expense 39 61
Property taxes -- 40
FDIC insurance premiums 10 91 89 215
Property taxes 22 26 87 81
Data processing 98 80 324 21339
Other operating expenses 221 336 793 758139 154
Total non-interest expense 1,975 1,767 5,690 5,3131,746 1,782
Income before income taxes 355 31 731 345302 143
Provision for income taxes (3) (272) 4 (262)-- 5
Net Income $358 $303 $ 727302 $ 607138
Income per common share:
Primary:Basic: Net income $ 0.01 $ 0.05 $0.02 $ 0.100.01
Weighted average shares outstanding 31,717,171 5,765,995 29,950,311 5,765,990
Fully
diluted:31,723,782 28,775,995
Diluted: Net income $ 0.01 $0.01
$0.02 $0.03
Weighted average shares outstanding 31,717,171 26,168,780 29,950,311 22,242,08633,089,892 28,776,788
See accompanying notes to unaudited consolidated financial statements.
page 2
The San Francisco Company and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
NineComprehensive Income
Three Months Ended September 30,March 31, 1998 and 1997
and 1996
(Unaudited)
Unrealized
Gain/
(Loss) on Total
Additional Retained Securities Share-
Preferred Common Paid-in Earnings Available- holders'March 31,
(Dollars in Thousands) Stock Stock Capital (Deficit) for-Sale Equity
Balances
at January 1, 1996Thousands Except Per Share Data) 1998 1997
Net Income $ 4,414302 $ 58 $70,168 $(67,801)138
Other comprehensive income (loss), net of tax:
Unrealized holding losses arising during period, net (8) (227)
Other comprehensive income (loss) (8) (227)
Comprehensive income (loss) $ 41 $6,880
Proceeds on
sale of stock 3,500 -- -- -- -- 3,500
Depreciation in
market value of
securities
available-for-sale -- -- -- -- (156) (156)
Conversion of Series
B Preferred stock
into Class A
Common Stock (3) -- 3 -- -- --
Other 100 100
Net income (nine months) -- -- -- 607 -- 607
Balances at
September 30, 1996 7,911 58 70,271 (67,194) (115) 10,931
Conversion of
preferred stock to
Class A Common Stock (7,800) 230 7,570 -- -- --
Appreciation in
market value
of securities
available-for-sale -- -- -- -- 38 38
Net income (three months) -- -- -- 95 -- 95
Balances at
December 31, 1996 111 288 77,841 (67,099) (77) 11,064
Proceeds from
sale of common stock -- 29 971 -- -- 1,000
Appreciation in
market value
of securities
available-for-sale -- -- -- -- 101 101
Net income (nine months) -- -- -- 727 -- 727
Balances at
September 30, 1997294 $ 111 $ 317 $78,812 $(66,372) $24 $12,892(89)
See accompanying notes to unaudited consolidated financial statements.
page 3
The San Francisco Company and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
Three Months Ended March 31, 1998 and 1997
(Unaudited)
Accu-
(Dollars in Thousands) mulated
Other Total
Additional Compre- Retained Compre- Share-
Preferred Common Paid-in hensive Earnings hensive holders'
Stock Stock Capital Income (Deficit) Income Equity
Balances at
January 1, 1997 $111 $288 $77,841 $(67,099) $(77) $11,064
Other comprehensive
income (loss),
net of tax
Unrealized losses
on securities, net -- -- (227) -- (227) (227)
Other comprehensive
income -- -- -- (227) -- -- --
Net income
(three months) -- -- -- 138 138 -- 138
Comprehensive loss (89)
Balances at
March 31, 1997 111 288 77,841 (66,961) (304) 10,975
Net proceeds
from sale of stock -- 29 971 -- -- 1,000
Net proceeds
from the exercise
of stock options -- -- 2 -- -- 2
Other comprehensive
income, net of tax
Unrealized gain
on securities, net -- -- -- 288 -- 288 288
Other comprehensive
income 288
Net income
(nine months) -- -- -- 5,305 5,305 -- 5,305
Comprehensive income 5,593
Balances at
December 31,1997 111 317 78,814 (61,656) (16) 17,570
Other comprehensive
income, net of tax
Unrealized loss
on securities, net -- -- -- (8) -- (8) (8)
Other comprehensive
income (8)
Net income
(three months) -- -- -- 302 302 -- 302
Comprehensive income 294
Balances at
March 31, 1998 $111 $317 $77,814 $(61,354) $(24) $17,864
See accompanying notes to unaudited consolidated financial statements.
page 4
The San Francisco Company and Subsidiaries
Consolidated Statements of Cash Flows
Three and Nine Months Ended September 30,March 31, 1998 and 1997
and 1996
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in Thousands) 1998 1997 1996 1997 1996
Cash Flows from Operating Activities:
Net income $ 358 $ 303 $ 727 $ 607302 $138
Adjustments to reconcile net income to net cash
provided by (used in)
operating activities:
ProvisionAdjustment for loan losses -- -- --(94) --
Depreciation and amortization expense 135 145 412 530
Net loss on sale of investment
securities available for sale -- -- 6 --124 138
Net gain on sale of other real estate owned and
real estate investment (37) (206) (271) (661)
Provision of possible
loss on other real estate owned -- -- 182 --(22)
Decrease in interest receivable and other assets 131 344 278 361
Increase (decrease)259 364
(Decrease) increase in interest payable and
other liabilities 388 73 487 (784)
(Increase) decrease(339) 116
(Decrease) increase in deferred loan fees (114) (17) (47) 29(37) 68
Net cash flows provided by operating activities 861 642 1,774 82215 802
Cash Flows from Investing Activities:
Proceeds from maturities of investment
securities held-to-maturity 270 295 688 645406 221
Proceeds from maturities of investment
securities available-for-sale 2,791 169 3,517 4,232
Proceeds from the sale
of investment securities
available-for-sale -- -- 6,200 --
Purchase of investment
securities held-to-maturity -- -- -- (7,815)8,024 1,604
Purchase of investment securities available-for-sale (5,595) (4,996) (15,569) (27,256)(5,305) --
Net decrease in loans 3,376 4,357 6,453 12,625222 2,363
Recoveries of loans previously charged off net 48 135 329 279
(Purchases) sales10 261
Purchases of premises and equipment (49) 6 (145) (44)
Sale(125) (76)
Proceeds form the sale of other real estate owned 93 572 3,533 3,708
Acquisition and capitalized
cost of other real estate owned -- 150 28 23648 1,385
Net cash provided by (used in) investing activities 934 688 5,034 (13,390)3,280 5,758
Cash Flows from Financing Activities:
Net increase (decrease)
in deposits 6,033 (4,485) 5,551 (18,032)
Net increase in other borrowings -- -- -- 2,000
Net proceeds from
sale of common stock -- -- 1,000 --
Net proceeds from
sale of preferred stock -- 1,000 -- 3,5002,522 1,171
Net cash provided by (used in) financing activities 6,033 (3,485) 6,551 (12,532)2,522 1,171
Increase (decrease) in cash and cash equivalents 7,828 (2,155) 13,359 (25,840)6,017 7,731
Cash and cash equivalents at beginning of period 21,157 19,12916,987 15,626 42,814
Cash and cash equivalents at end of period $ 28,985 $16,97423,004 $ 28,985 $16,97423,357
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 736538 $ 756 $ 2,125 $ 2,448
Payment of income724
Income taxes -- -- 212 3
Supplemental Schedule of Noncash
Investing and Financing Activities:
Net transfer of loans to other real estate owned -- --
-- 1,378
See accompanying notes to unaudited consolidated financial statements.
page 45
The San Francisco Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Organization
The San Francisco Company (the "Company") is a Delaware corporation and
a bank holding company registered under the Bank Holding Company Act of 1956.
Bank of San Francisco (the "Bank"), a state chartered bank, was organized as
a California banking corporation in 1978 and became a wholly owned subsidiary
of the Company through a reorganization in 1982.
Note 2 - Principles of Consolidation and Presentation
The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance with the instructions pursuant to
Form 10-Q Quarterly Report and Articles 9 and 10 of Regulation S-X, and
therefore, do not include all the information and footnotes necessary to
present the consolidated financial condition, results of operations and cash
flows of the Company in conformity with generally accepted accounting
principles.
The data as of September 30, 1997,March 31, 1998, and for the three and nine months ended September 30,March 31,
1998 and 1997 and 1996 are unaudited, but in the opinion of management, reflect all
accruals and adjustments of a normally recurring nature necessary for fair
presentation of the Company's financial condition and results of operations.
Certain amounts in the 1997 consolidated financial statements have been
reclassified for comparative purposes. The results of operations for the
three and nine
months ending September 30, 1997ended March 31, 1998 are not necessarily indicative of the
results to be expected for the entire year of 1997.1998. This report should be
read in conjunction with the Company's 19961997 Annual Report on Form 10-K.
The accompanying financial statements include the accounts of the
Company, the Bank, and the Bank's wholly owned subsidiary, Bank of San Francisco
Realty Investors (the "BSFRI"). All material intercompany transactions have
been eliminated in consolidation.
Certain amounts in the 1996 consolidated financial
statements have been reclassified for comparative purposes.
Note 3 - IncomeEarnings Per Common Share Primary(the "EPS")
The Company adopted Statement of Financial Accounting Standards (the
"SFAS") no. 128, Earnings Per Share." SFAS No. 128, dual presentation of
basic EPS and diluted EPS on the face of the income per common sharestatement, and requires
disclosure of the calculation of basic EPS compared to diluted EPS in the
footnotes to the financial statements.
Basic EPS is calculated usingby dividing net income by the weighted average
number of Class A Common Shares par
value of $0.01 per share (the "Common Stock"), outstanding
divided into net income. Fully diluted income per share. The dilutive EPS is
calculated usinggiving effect to all potentially dilutive Common Shares, such as
certain
page 6
stock options, that were outstanding during the weighted average number of shares
outstanding assuming the conversionperiod. The
following tables present a reconciliation of the amounts used in calculating
basic and diluted EPS for each of the periods shown.
(dollars in thousands except per-share amounts)
Per-share
1998 Income Shares amount
Basic EPS $ 302 31,723,782 $0.01
Effect of dilutive securities:
Series DB Preferred Stock into Common2 793
Stock divided into net income. On December 31,
1996, all 390,000 outstanding sharesOptions -- 1,365,317
Diluted EPS $ 304 33,089,892 $0.01
Per-share
1997 Income Shares amount
Basic EPS $ 138 28,775,995 $0.01
Effect of dilutive securities:
Series DB Preferred Stock were converted into 23,010,000 shares of Common Stock.2 793
Stock Options -- --
Diluted EPS $ 140 28,776,788 $0.01
Note 4 - Dividend Restrictions
The Company is subject to dividend restrictions under the Delaware
General Corporation Law and regulations and policies of, and a Written
Agreement dated December 14, 1994 (the "Agreement") with, the Federal Reserve
Bank of San Francisco (the "FRB"). ). The Company's Series B Preferred Shares
participate equally, share for share, in cash dividends paid on the Class A
Common
Shares in addition to receiving the cash dividends to which they are
entitled. The Company has not paid anySubject to regulatory approval, it is the present intention of the
Board of Directors to pay dividends in arrears on the Series B Preferred
Stock totaling $60,000 later this year, and thereafter to pay ongoing
dividends on the Series B Preferred stock since the second quarter of 1991.
The Board of Directors does not intendStock pursuant to declare dividends on
any class of the Company's stock.their terms.
Note 5 - Recent Accounting Pronouncements
In FebruaryJune 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting StandardsStandard (the "SFAS") No. 128 "Earnings per Share" (the "SFAS No. 128").
Generally, SFAS No.
page 5
128 establishes standards for computing and presenting
earnings per share (the "EPS") for publicly held companies,
replaces Primary EPS with Basic EPS, and specifies additional
disclosure requirements regarding EPS. SFAS No. 128 is effective
for financial statements issued for periods ending after December
15, 1997. Earlier application is not permitted. The adoption of
SFAS No. 128 is not expected to have a material impact on the
Company's present computation of primary and fully diluted EPS.
In February 1997, the FASB also issued SFAS No. 129
"Disclosure of Information about Capital Structure" (the "SFAS
No. 129"). Generally, SFAS No. 129 is effective for financial
statements issued for periods ending after December 15, 1997.
The adoption of SFAS No. 129 is not expected to have any impact
on the Company's present disclosure of its capital structure.
In June 1997, the FASB issued SFAS No.Number 130,
"Reporting Comprehensive Income". This statement establishes which provides standards for reporting and
displaying comprehensive income and its components in the financial
statements. It requires that a company classify
items of other comprehensive income, as defined by accounting
standards, by their nature (e.g., unrealized gains or losses on
securities) in a financial statement, but does not require a
specific format for that statement. The Company is in the
process of determining its preferred format. This statement is effective with the year-end 1998 financial
statements; however, a
total comprehensive income is required in thestatements including interim financial statements of the 1998 interim periods.statements. Reclassification of
financial statements for earlier periods is required. The Company has
included comprehensive income in its financial statements as required by SFAS
No. 130.
In June 1997, the FASB issued SFAS No. 131, "Disclosures"Disclosure about Segments
of an Enterprise and Related Information". This
statement, which requires that a public
business enterprisecompany report financial and descriptive information about its reportable
operating segments on the basis that is used internally for evaluating
segment performance and deciding how to allocate resources to segments. This
statement is effective with thefor year-end 1998 financial statements. The Securities and Exchange Commission (the "SEC") has
approved rule amendments to clarify and expand existing
disclosure requirements for derivative financial instruments.
The amendments require enhanced disclosure of accounting policies
for derivative financial instrumentsCompany
is in the footnotes to the
financial statements. In addition, the amendments expand
existing disclosure requirements to include disclosureprocess of quantitative and qualitative information about market risk
inherent in market risk sensitive instruments outside of the
financial statements and related notes thereto. The enhanced
accounting policy disclosure requirements are effectivedetermining its format for the
quarterly period ended September 30, 1997. The rule amendments
that require expanded disclosure of quantitative and qualitative
information about market risk are effective with the 1997 Form
10-K. At September 30, 1997and 1996, the Company had no
derivative financial instruments outstanding.reporting segment
information.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
This document contains forward-looking statements that are subject to
risks and uncertainties, including, but not limited to, the Company's and
page 7
Bank's ability to implement their respective long-term business plan, the
economy in general and the condition of stock markets upon which the
Company's stock brokerage business and fee income is dependent, the continued
services of the Company's and Bank's key executives and managers, the real
estate market in California and other factors beyond the Company's and the Bank's
control. Such risks, uncertainties and factors, including those discussed
herein, could cause actual results to differ materially from those indicated.
Readers should not place undue reliance on forward-looking statements, which
reflect management's views only as of the date hereof. The Company and the
Bank undertake no obligation to publicly revise these forward-looking statements to
reflect subsequent events or circumstances. Readers are also encouraged to
review the Company's publicly available filingfilings with the SEC.
page 6
Overview
The Company is a one-bank holding company registered in Delaware under
the Bank Holding Company Act of 1956. The principal activity of the Company
is to serve as the holding company for the Bank of San Francisco, a California
chartered bank organized in 1978, with deposits insured by the Federal
Deposit Insurance Corporation's (the "FDIC") Bank Insurance Fund. The information set
forth in this report, including unaudited interim financial statements and
related data, relates primarily to the Bank.
The Company's Common Stock is not listed on any exchange. Van Kasper &
Company of San Francisco California is the sole market maker in the Company's
Common Stock. On May 1, 1998 Van Kasper & Company quoted a bid price of
$0.60.
The Company recorded net income of $358,000 and $727,000$302,000 for the three and nine months ended
September 30, 1997,March 31, 1998, compared to a net income of $303,000 and $607,000$138,000 for the same periodsperiod in
1996.1997. The increase in the Company's net income for the nine months
ended September 30, 1997 of $120,000 compared to income for the
same period in 1996$164,000 was primarily
from an increase in net interest income and brokerage feesreductions in non-interest
expenses partially offset by an
increaselower brokerage fees in operating costs in 1997 and lower gains on sale of
other real estate owned in 1997 asfirst quarter 1998
compared to 1996.the same period in 1997.
At September 30, 1997,March 31, 1998, total assets were $111.9$119.1 million, an increase of $7.9$2.5
million, or 2.1% from $104.0$116.6 million at December 31, 1996. Total1997. As of March 31,
1998, total loans were $37.3$51.7 million a decrease of
$6.5 million, or 15% from $43.8compared to $51.9 million at December
31, 1996.1997. Total deposits were $96.7$89.0 million at September 30, 1997,March 31, 1998, an increase
of $5.5$2.5 million, or 2.9%, compared to $91.2$86.5 million at December 31, 1996.1997.
Regulatory Directives
Federal Reserve Board Written Agreement
The Agreement prohibits the Company, without prior approval of the FRB,
from: (a) paying any cash dividends to its shareholders; (b) directly or
indirectly, acquiring or selling any interest in any entity, line of
business, problem or other assets; (c) executing any new employment, service,
or severance contracts, or renewing or modifying any existing contracts with
any executive officer; (d) engaging in any transactions with the Bank that
exceedsexceed an aggregate of $20,000 per month; (e) engaging in any cash
expenditures with any individual or entity that exceedsexceed $25,000 per month; (f)
increasing fees paid to any directors for attendance at board or committee
meetings, or paying any bonuses to any executive officers; (g) incurring any
new debt or increasing existing debt; and (h) repurchasing any outstanding
stock of the Company. The Company is required to submit a progress report to
the FRB on a quarterly basis.
The Company was also required to submit to the FRB an acceptable written
plan to improve and maintain an adequate capital position, a comprehensive
business plan concerning current and proposed business activities, and a
comprehensive operating budget for the Bank and the consolidated Company. In
addition, the Company's Board of Directors was required to submit an acceptable written
plan designed to enhance their supervision of the operations and management
of the consolidated organization.
The Company has filed all of the required submissions withManagement was notified by the FRB at its 1997 examination that the
Company was in accordancefull compliance with the Agreement, and management believes
the Company continues to be in full compliance with the
Agreement.compliance.
page 8
Memorandum of Understanding
On May 27, 1997, the FDICFederal Deposit Insurance Corporation (the "FDIC")
and the California Department of Financial Institutions (formerly the State Banking Department) (the "DFI") terminated the
Bank's Cease and Desist Orders and in lieu thereof entered into a Memorandum
of Understanding (the "MOU") with the Bank (the "MOU").Bank. The MOU directs,provides, among other
things,that the Bank: (a) have and retain management acceptable to the
Regional Director of the FDIC (the "Regional Director") and the Commissioner
of the DFI (the "Commissioner"); (b) increase its capital by not less than
$1.0 million;million by June 30, 1997, (c) maintain a 7% Leverage Capital ratio;
(d) reduce assets classified "Substandard" as of September 30, 1996 (the date of the most recent full-scope FDIC
and DFI Report of Examination of the Bank), to no
more than $12.0 million byas of June 30, 1997, $10.0 million as of September
30, 1997, and $8.0 million as of December 31, 1997; (e) maintain an
adequate reserve for loan losses; (f) develop and
implement written policy recommendations outlined in the Report of
Examination; (g)(f) implement a policypolice which establishes a range for the Bank's
volatile liabilitiesliability dependency ratio, and which ratio shall not be more than
15%; (h)(g) submit a strategic plan covering the period 1997 - 2002; (i) not(h) no pay
cash dividends without prior written consent from the Regional Director and
the Commissioner; and (j)(i) report to the Regional Director and the
Commissioner on a quarterly basis the form and manner of any actions taken to
secure compliance with the MOU.
page 7
TheAs of March 31, 1998, the Bank has filed all of the required submissions
with the FDIC and the FDIDFI in accordance with the MOU, and management believes
that the Bank is in full compliance with the requirements of the MOU.
Capital Impairment Orders
Under the California Financial Code as presently in effect,
if a bank's deficit retained earnings exceeds 40% of its
contributed capital, its capital is deemed to be impaired, and
the bank may be required by the DFI to levy an assessment on its
shares to correct the impairment (the "Capital Impairment Law").
The DFI has deemed the Bank's capital to be impaired, but has not
required the Bank to levy any assessment on its shares. The
Capital Impairment Law has been rescinded by the California
Legislature, effective January 1, 1998. All assessment
provisions shall terminate and the Bank may take expedited steps
to remove all assessment provisions from its bylaws.
Results of Operations
Net Interest Income
The Company's net interest income increased to $3.9was $1.3 million in the first nine months of 1997 from $3.0quarter ended
March 31, 1998 compared to $1.2 million in the same
period in 1996, an increase of $866,000 or 29%. The net interest
rate margin improved to 5.2% for the first nine months of 1997
from 4.3% for the same period in 1996 as a result of an increase
in average earning assets of $6.0 million and an decrease in
average interest bearing liabilities of $6.3 million. The
increase in average earning assets was comprised of an increase
in investment securities and Federal funds sold partially offset
by a decline in loans. The weighted average yield on average
interest-earning assets increased to 8.0% during the first nine
months of 1997, from 7.7% during the same period in 1996 and the
weighted average cost of funds on average deposits declined to
3.0% in 1997 from 3.3% in 1996.
The increase in average earnings assets was primarily from a
decline in the average non-performing assets of $5.9 million to
$4.6 million as of September 30,1997 from $10.5 million as of
December 31, 1996. The improvement in the yield on average
earning assets was primarily the increase in the Fed Funds rate
and the prime interest rate in 1997 compared to 1996. An increase
in average non-interest bearing deposits resulted in the decline
in the average cost of funds on total deposits. The decline in
interest bearing deposits was primarily due to the maturity of
higher costing time deposits.
The Company's net interest income increased to $1.4 million
in the third quarter from $1.0 million in the same quarter in
1996,or an
increase of $431,000 or 43%6%. The increase was the
result of an increase in net interest rate margin, average
earning assets, non-interest bearing liabilities and capital.
The increase in the net interest rate margin of 87 basis points
to 5.3% for the third quarter of 1997 from 4.4% for the same
period in 1996 was primarily the result of an increase in
earning assets.
Provision (Adjustment) for Loan Losses
The Company recorded an adjustment for loan losses of $94,000 for the
yieldfirst quarter of 1998 compared to none in the same period in 1997. The
adjustment for loan losses reflects the amount necessary to reduce the
allowance for loan losses to a level that management believes is adequate
based on loans and amany factors that are more fully discussed under "Loans - Allowance
for Loan Losses".
Non-Interest Income
Non-interest income was $697,000 at March 31, 1998 compared to $741,000
at March 31, 1997. The decline in the costnon-interest income of funds for the
certificate of deposits. The increase in the yield on loans$44,000 was
primarily the result of the recognition of deferred loan fees
upon the prepayment of related loans. The Bank's cost of funds
declined primarily as a result of the reduction in higher costing
money desk certificates of deposits from $20.8 million as of
September 30, 1996stock option and brokerage
commission income in 1998 compared to $15.6 million as of September 30,
1997.
Non-Interest Income
Non-interest income decreased $103,000 for the first nine
months of 1997 to $2.5 million compared to $2.6 million for the
same period in 1996. The decline was primarily the result of a
reduction in the sale of other real
estate owned (the "OREO") for the first nine months of 1997
compared to the same period in 1996. The reduction in OREO
resulted in fewer sales, which in turn resulted in a lower gain
on sale of assets in 1997 of $260,000 compared to $659,000 in
1996.
page 8
Non-interest income increased $101,000, for the third
quarter of 1997 to $888,000 compared to $787,000 for the same
period in 1996. The improvement was primarily the increase in
transactions that generated the commissions, charges and fees
related to increased activity of the exercise of the underlying
stock options and discount brokerage transactions executed by the
Bank's customers.
Non-Interest Expense
The Company's operatingnon-interest expenses increased by $377,000, or
7% during the first nine months of 1997 compareddeclined slightly to the same
period in 1996 primarily as a result of an increase in
compensation and related benefits, data processing costs and
other operating costs which were partially offset by declines in
professional fees and insurance premiums. The increase in
compensation and benefit costs was primarily the result of an
increase in incentive related compensation accrued as a result of
the Company's improved core operating performance$1.7 million
from $1.8 million for the first
nine months ofthree month period ended March 31, 1998 and 1997,
compared to the same period in 1996,
including a one time accrual for a special one-time bonus that is
likely to be payable to the Chief Executive Officer. The
increase in data processing costs for the first nine months of
1997 compared to 1996 was the result of outsourcing certain data
processing functions during the second quarter of 1996, which
resulted in higher data processing costs beginning late in the
second quarter of 1996. The increase in data processing costs
was offset by reductions in data processing related compensation
expenses. The increase in other operating costs was primarily
related to a provision for possible loss on sale of OREO recorded
as other operating expense in the second quarter of 1997.
The decline in FDIC and corporate insurance premiums
reflects improvement in the financial condition of the Company
and the Bank in 1997 compared to 1996. The decline in
professional fees reflects a reduction in the need for legal, and
business and consulting services
The Company's operating expenses increased by $208,000
during the third quarter of 1997 compared to the same period in
1996 primarily as a result of an increase in compensation and
benefits related expenses partially offset by a reduction in
other operating expenses for the reasons discussed above.respectively.
page 9
Financial Condition
Liquidity and Capital Resources
Liquidity
The Bank's liquid assets, which include cash and short term investments
totaled $29.0$23.0 million, or 26%19.3% of total assets, asat March 31, 1998, an
increase of September 30, 1997 compared to $15.6$6.0 million, from $17.0 million, or 15%14.6% of total assets, at
December 31, 1996.1997. The increase in liquidity was funded by a
decline in net loansthe result of $6.5 million and OREO of $3.5 million,
and an increase
in core deposits of $5.6$2.5 million and capital of $1.8a decrease in investment securities
totaling $3.1 million.
As of September 30, 1997,March 31, 1998, the Bank had pledged loans and
securities totaling $6.6$11.5
million enabling the Bankpledged to borrow
approximately $5.7 million from the Federal Home Loan Bank of San Francisco (the "FHLB"). The
as collateral for other borrowings. As of March 31, 1998, the Bank did not draw on this lending
facility duringhas the
first nine monthsability to borrow up to 20% of 1997. Intotal assets or $23.8 million from the FHLB
upon the pledge of sufficient collateral.In the future, long and short-termshort term
borrowings from the FHLB may be used as an on-going source of liquidity and
funding. As of September 30, 1997,March 31, 1998, the Bank had loansother securities totaling $1.6
million pledged as collateral for public funds, trust, and securities
pledgeda letter of credit
facility with another Bank.
The Bank has access to the FRB totaling $1.9 million, which provide
collateral to borrow up to $1.8 million fromdiscount window at the FRB discount
window.
page 9for a total
borrowing facility of $1.7 million upon the pledge of securities. At March
31, 1998 and December 31, 1997, no securities were pledged as collateral for
the FRB facility.
Capital
At September 30, 1997,March 31, 1998, shareholders' equity was $12.9$17.9 million compared to
$11.1$17.6 million at December 31, 1996 primarily
as a result of $727,000 in net income for the nine months then
ended and a shareholder's capital investment of $1.0 million.1997.
The Company and the Bank are subject to general regulations issued by
the FRB, FDIC, and DFI which require maintenance of a certain levelslevel of
capital, and the Bank is under specific capital requirements as a result of
the MOU. As of September 30, 1997,March 31, 1998, the Company and the Bank are in compliance
with the all minimum capital ratio requirements including the minimum
Leverage Capital ratio of 7% mandated by the MOU.
The following table reflects both the Company's and the Bank's capital
ratios with respect to minimum capital requirements in effect as of September 30, 1997:March 31,
1998:
Minimum
Capital
Company Bank Requirement MOU(1)MOU
Leverage ratio 11.0% 10.8%14.0% 13.8% 4.0% 7.0%
Tier 1 risk-based capital 19.2 18.820.7 20.5 4.0 -N/A
Total risk-based capital 22.2 21.722.6 22.4 8.0 -
(1) Bank only requirement
On June 13, 1997, Mr. Putra Masagung, the record holder of a
majority of the Company's Common Stock invested $1.0 million in
capital pursuant to a February 26, 1996 agreement as
consideration for issuance of 2,941,176 shares of the Company's
Common Stock.
Mr. Masagung recently advised the Company that PT Gunung
Agung, an Indonesian company, beneficially acquired a majority
ownership of the Company's Common Stock. See "Change in
Beneficial Ownership" below for additional discussion.N/A
Investment Activities
At September 30, 1997,March 31, 1998, the Company's investment securities, including Fed
funds sold, totaled $67.0$54.4 million, or 60%48.0% of total assets, compared to
$47.9$54.2 million, or 46.0%46.5% of total assets, at December 31, 1996.1997. The increasedecrease
in investment securities resulted primarily from principal amortization on
mortgage related securities and the maturity and call of certain agency
securities. The Company's investment portfolio of
$19.1 million was funded by the disposition of $6.7 million in
non-performing assets, reduction in performing loans of $3.3
million, a $1.8 million increase in capital, a $5.6 million
increase in deposits and a net decrease in other assets and other
liabilities of $1.7 million. The investment portfolio has
includedmay from time to time include
treasury and agency securities, fixed and adjustable rate mortgage backed
securities, and to a limited extent collateralized mortgage backed
securities. Generally, the Bank's investment securities held-to-maturity and
available-for-sale have maturities or principal amortization of five years or
less.
page 10
At September 30, 1997,March 31, 1998, investment securities held-to-maturity totaled $6.2$5.5
million, compared to $6.9$5.9 million at December 31, 1996,1997, and wereare carried at
amortized cost. At September 30, 1997,March 31, 1998, the Company held $34.3$29.9 million in
investment
securities available-for-sale, compared to $28.3$32.7 million at December 31,
1996. The increase in investment1997. Investment securities available-for-sale of $6.0 million was primarily
investments in fixed rate balloon mortgage-backed securities and
discounted callable agency securities with a weighted average
term to maturity of approximately two years. The investment
securities available-for-sale wereare accounted for at fair
value. Unrealized gains and losses are recorded as an adjustment to equity
and are not reflected in the current earnings of the Company. As of September 30, 1997,March
31, 1998, the investment securities available-for-sale hadhave an unrealized
gainloss of $24,000 that iswas included as a separate component of shareholder's
equity to reflect the current market value of these securities.
page 10
Loans
During the first nine monthsquarter of 1997,1998, total loans decreased by $6.5 million,slightly, from
$43.8$51.9 million at December 31, 19961997 to $37.3$51.7 million at September 30, 1997,March 31, 1998. The
reduction resulted primarily as a result of loan
repayments.from lower outstanding unsecured loans. The
composition of the Bank's loan portfolio at September 30, 1997March 31, 1998 and December 31,
19961997 is summarized as follows:
September 30,March 31, December 31,
(Dollars in Thousands) 1998 1997 1996
Real estate mortgage $ 25,21938,399 $ 28,02237,826
Secured commercial and financial 4,413 6,2295,536 4,912
Unsecured 5,968 7,8007,130 8,633
Other 1,708 1,711
37,308 43,762637 553
51,702 51,924
Deferred fees and discounts, net (143) (190)(24) (61)
Allowance for possible loan losses (5,991) (5,663)(3,116) (3,200)
Total loans, net $31,174 $ 37,90948,562 $ 48,663
Classified Assets and Impaired Loans
Classified assets include non-accrual loans, OREOother real estate owned
(the "OREO"), and performing loans that exhibit well-defined credit quality weaknesses.
The table below outlines the Bank's classified assets at September 30, 1997March 31, 1998 and
December 31, 1996:
September 30,1997:
March 31, December 31,
(Dollars in Thousands) 1998 1997 1996
Loans - performing $ 3,166 $10,3914,672 $ 1,393
Non-accrual loans 207 3,400-- 171
OREO 1,661 5,133362 410
Total classified assets $ 5,034 $ 18,9241,974
On March 31, 1998, the Bank had one loan totaling $101,000 secured by
cash collateral and in the process of collection that was 90 days past due
and still accruing, and there were no loans past due between 31 and 89 days.
Classified assets declinedincreased by 74%155% to $5.0 million as of September 30, 1997March 31, 1998
compared to $18.9$2.0 million at December 31, 1996.1997. The decreasenet increase was primarily the
result of the downgrade of one loan. The loan payoffs,that was downgraded was
originated in 1992 as a loan to facilitate the sale of OREO and loan upgrades.the borrower
has performed and continues to perform in accordance with the terms of the
loan. As of September 30, 1997March 31, 1998 and December 31, 1996,1997, all OREO properties were
classified. As of September 30,
1997, the Bank did not have any loans that were between 31 and 89
days delinquent and still accruing.
The Company identifies loans with weak credit quality characteristics
for review in accordance with SFAS No. 114 "Accounting by Creditors for
Impairment of a Loan" (SFAS No. 114)
as amended by SFAS No. 118 "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures" (the "SFAS No.114").
page 11
As of September 30, 1997March 31, 1998 and December 31, 1996,1997, the Company had impaired
loans totaling $207,000zero and $3.4 million,$171,000, respectively. The impairment was measured
using the collateral value method. The collateral value method uses an appraisal or other market
valuation to determine the value of the loans underlying
collateral in addition to other collection criteria to determine
overall collectability. TheTotal interest income recognized on
impaired loans during the first nine monthsquarter of 1998 and 1997 was $4,000 and
1996 was
$43,000 and $60,000, respectively.
page 11$31,000.
There can be no assurancesassurance that the Bank will continue tonot experience declinesincreases in
the amount of its classified assets or not experience losses in attempting to
collect the classified loans or otherwise liquidate the non-performing assets which are presently
reflected on the Company's statement of financial condition.
The Bank expects that to the extent that
non-performing assets continue to decline, it will be able to
reduce the costs incurred for managing and carrying those assets.
Allowance for Loan Losses
TheGenerally, the Bank charges current earnings with provisionsa provision for
estimated losses on loans receivable. The Bank will provide an adjustment if
the total allowance for loan losses exceeds the amount of estimated loan
losses. The provisions or adjustments take into consideration specifically
identified problem loans, the financial condition of the borrowers, the fair
value of the collateral, recourse to guarantors and other factors compared to
the total allowance for loan losses. Generally, a charge to
current earnings is required when the total allowance for loan
losses is less than the specific loss allowances, which are
determined as described below.factors.
Specific loss allowances are established based on the asset
classification and credit quality grade.quality. Specific loss allowances are utilized to
ensure that the allowance is allocated based on the credit quality including
the present value of the
expected future cash flows, the terms and structure of the
loan, the financial condition of the borrower, and the fair value of
underlying collateral. As of September 30, 1997, $31,000 inMarch 31, 1998, none of the allowance offor loan
losses was allocable to impaired loans, as identified in accordance with SFAS
No. 114, which had an
outstanding principal balance totaling $207,000.114. In addition, the Bank carries an "unallocated" loan loss allowance
to provide for losses that may occur in the future in loans that are or are
not presently classified, based on present economic conditions, trends, and
related uncertainties. The following table summarizes the loan loss
experience of the Bank for the nine
monthsquarter ended September 30, 1997:
September 30,March 31, 1998:
March 31,
(Dollars in Thousands) 19971998
Beginning balance of allowance for loan losses at December 31, 19961997 $ 5,6633,200
Charge-offs --
Recoveries 32810
Provision --(adjustment) (94)
Ending balance of allowance for loan losses $ 5,991
The3,116
For the quarter ended March 31, 1998, the unallocated portion of the
allowance for loan loss totaled $3.7$1.5 million at September 30, 1997 compared to $2.4$1.4 million at
December 31, 1996. The increase in the unallocated
allowance was primarily the result of recoveries and the
reduction in classified loans that require a higher allocation of
reserves.1997.
page 12
Deposits
The Bank had total deposits of $96.7$89.0 million at September
30, 1997,March 31, 1998 compared
to $91.2$86.5 million at December 31, 1996,1997, an increase of $5.5 million.$2.5 million or 2.9%.
The increase was attributed to escrow related customer's deposits of $6.9
million partially offset by a decrease in Stock Option lending related
deposits of approximately $3.1 million and volatile deposits of $900,000. A
summary of deposits at September 30,
1997March 31, 1998 and December 31, 19961997 is as follows:
September 30,March 31, December 31,
(Dollars in Thousands) 1998 1997 1996
Demand deposits $ 21,76019,714 $ 16,50519,691
NOW 16,075 18,29515,729 15,986
Money market 16,779 17,376
Savings 1,329 1,343and savings 18,932 16,040
Total deposits with no stated maturity 55,943 53,51954,375 51,717
Time deposits:
Less than $100,000 24,008 29,15419,650 19,184
$100,000 and greater 16,766 8,49315,016 15,618
Total time deposits 40,774 37,64734,666 34,802
Total deposits $ 96,71789,041 $ 91,16686,519
The Bank's deposits from private and business banking customer's depositscustomers totaled
$36.2$34.4 million, or 37.5%38.6% of total deposits, at September
30, 1997,March 31, 1998, compared to
$36.4$34.7 million, or 40.0%40.1% of total deposits, at December 31, 1996.1997. Deposits
of the Bank'sfrom Association Bank Services clientscustomers totaled $17.1 million, or 17.7%19.2% of
total deposits at September 30, 1997,March 31, 1998, compared to $18.2$17.2 million, or 21.8%19.9% of
total deposits at December 31, 1996.1997. Deposits acquired through the money
desk operations totaled $15.6$10.8 million, or 16.1%12.1% of total deposits at September 30, 1997,March
31, 1998, compared to $20.1$11.7 million, or 23.0%13.5% of total deposits at December
31, 1996. Escrow
customer's1997. The Bank expects to decrease money desk deposits totaled $19.8 million, or 20.5%during the
remainder of totalthe year with the intention of replacing these deposits at September 30, 1997 compared to $10.0 million or 11.0%
of total deposits as of December 31, 1996.with
core deposits.
Concentrations of deposits acquired through the money desk operations and certificates of deposit of $100,000 and more
have been classified by bank regulators as volatile liabilities associated
with certain risks, including the risks of reduced liquidity if a bank is
unable to retain such deposits and of
reduced margins if its interest costs are
increased by a bank in order to retain such deposits. As a result of the
MOU, the Bank is required to maintain a volatile liability dependency ratio
of not more than 15%, which. The Bank's volatile dependency ratio at March 31, 1998
was below the 15.0% requirement.
Other Borrowings
As of March 31, 1998, the Bank was in compliance withhad long-term FHLB borrowings outstanding
totaling $10.0 million secured by pledged securities totaling $11.5 million.
In the future, long and short term borrowings from the FHLB may be used as an
on-going source of September 30, 1997.
Change in Beneficial Ownership
Mr. Putra Masagung, the record holder of 97.8% of the
Company's Common Stock, has advised the Company that a majority
ownership of the Company's Common Stock was beneficially acquired
by PT Gunung Agung (the "GA"), an Indonesian company, in a series
of transactions from 1992 to 1995. This acquisition of a
majority ownership occurred without the required prior approval
of the stateliquidity and federal regulatory authorities. The Company
believes that without such regulatory approval, GA will be
prevented from exercising its rights as a shareholder. The
Company advised the appropriate regulatory authorities of these
events. Representatives of both GA and Mr. Masagung have
initiated discussions with the regulatory agencies to determine
the appropriate steps to be taken under the circumstances.
Based on the facts known at this time, management of the
Company does not believe this development will have a material
impact on the operations or the current financial condition of
the Company or the Bank. This development is not expected to
materially reduce the net operating loss carryforwards that the
Company may use to reduce any future income tax liability.
However, any future change in control could materially reduce the
net present value of net operating loss carryforwards.
page 13funding.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Because of the nature of its business, the Company and its subsidiaries,
including the Bank, are from time-to-time, partiesa party to legal actions. Based
on information available to the Company and the Bank, and its review of such
outstanding claims to date, management believes the liability relating to
such claims, if any, will not have a material adverse effect on the Company's
liquidity, consolidated financial condition or results of operations.
page 13
Item 2 - Changes in Securities
See "Financial Condition - Liquidity and Capital Resources".None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
NoneIndemnification Agreements dated March 18, 1998 between each
director and executive officer of the Company and the Bank.
(b) Report on Form 8-K
A Report on Form 8-K, filed on August 8, 1997,
regarding a change in beneficial ownership is incorporated by
reference. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Change in
Beneficial Ownership".None
page 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
The San Francisco Company
(Registrant)
Date: November 12, 1997May 8, 1998 /s/ James E. Gilleran
James E. Gilleran
Chairman of the Board and
Chief Executive Officer
Date: November 12, 1997May 8, 1998 /s/ Keary L. Colwell
Keary L. Colwell
Chief Financial Officer and
Executive Vice President
page 15
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of March
18, 1998, between The San Francisco Company, a Delaware corporation (the
"Corporation"), and ________________, an individual (the "Director").
RECITALS
A. The Director is a member of the Corporation's Board of
Directors and the Corporation desires that the Director continue to serve
in such capacity. The Director is willing to continue to serve on the
Corporation's Board of Directors if the Director receives the protection
provided by this Agreement.
B. The Corporation maintains directors and officers liability
insurance ("D&O Insurance") and intends to continue to maintain such D&O
Insurance in accordance with the provisions of this Agreement.
C. The Corporation believes that (1) it is increasingly
difficult to attract and keep qualified directors because of potential
liabilities; (2) it is important for a director to have assurance that
indemnification will be available to the fullest extent permitted by law;
and (3) it is in the best interests of the Corporation and its shareholders
for the Corporation to contractually obligate itself to indemnify the
Director and to set forth the details of the indemnification process.
Therefore, in consideration of the premises and the mutual
promises herein contained, the Corporation and the Director agree as
follows:
1. Agreement to Serve. The Director will continue to serve as
a member of the Board of Directors of the Corporation so long as the
Director is duly elected and qualified to so serve or until the Director
resigns or is removed from the Corporation's Board of Directors.
2. Indemnification.
(a) The Corporation shall indemnify and hold harmless the
Director to the fullest extent permitted under applicable law (including
without limitation Section 28(k) of the Federal Deposit Insurance Act and
Part 359 of the Rules and regulations of the Federal Deposit Insurance
Commission (the "FDIC Rules")) if the Director was or is a party or
threatened to be made a party to any threatened, pending or completed
action, suit, arbitration (or other alternative dispute resolution
mechanism), or proceeding of any kind, wherever brought, whether civil,
criminal, administrative or investigative and whether formal or informal
(including actions by or in the right of the Corporation and any
preliminary inquiry or claim by any person or authority), by reason of or
associated with the fact that the Director is or was a director, officer,
partner, trustee, employee, consultant or agent of the Corporation or is or
was serving at the Corporation's request, or for the convenience of or
page 1
otherwise to benefit or represent the interests of the Corporation or a
subsidiary of the Corporation, as a director, officer, employee or agent of
another corporation, limited liability company, partnership, joint venture,
trust, employee benefit plan or other enterprise (collectively, an
"Affiliate"), whether or not for profit, or by reason of anything done or
not done by the Director in any such capacity (collectively, "Covered
Matters"). Such indemnification will cover all Expenses (as defined
below), liabilities, judgments (including punitive and exemplary damages),
penalties, fines (including excise taxes relating to employee benefit plans
and civil penalties) and amounts paid or to be paid in settlement which are
incurred by or imposed upon the Director in connection with a Covered
Matter, including all interest assessments on any of the foregoing
(collectively, "Indemnified Amounts"). "Expenses" means all direct or
indirect costs and expenses (including, without limitation, attorneys'
fees, retainers, transcripts, witness fees, expert fees, other professional
fees, court costs and travel costs) incurred by the Director in connection
with a Covered Matter, together with interest thereon commencing 30 days
after incurrence, other than liabilities, judgments, penalties, fines and
settlement amounts.
(b) The Director will be so indemnified for all Indemnified
Amounts and the Corporation will defend the Director against claims
(including threatened claims and investigations) which are covered matters,
including claims brought by or on behalf of the Corporation or any
Affiliate, except if it is finally determined by the court of last resort
(or by a lower court if not timely appealed) that the payment is prohibited
by applicable law.
(c) If the Director is entitled under this Agreement to
indemnification for less than all of the amounts incurred by the Director
in connection with a Covered Matter, the Corporation will indemnify the
Director for the indemnifiable amount.
3. Claims for Indemnification. The Director will give the
Corporation written notice of any claim for indemnification under this
Agreement, but failure to do so shall not affect the Director's rights
hereunder. Payment requests will include a schedule setting forth in
reasonable detail the amount requested and will be accompanied (or, if
necessary, followed) by copies of the relevant invoices or other
documentation. The Corporation will pay Indemnified Amounts directly
without requiring the Director to make any prior payment.
4. Determination of Right to Indemnification.
(a) The Director will be presumed to be entitled to
indemnification under this Agreement and will receive such indemnification,
subject to paragraph 4(b) below, irrespective of whether the Covered Matter
involves allegations of gross negligence or intentional misconduct, alleged
violations of Section 10(b) of the Securities Exchange Act of 1934
(including Rule 10b-5 thereunder), alleged breach of the Director's
fiduciary duties (including duties of loyalty or care) or any other claim.
(b) The Director shall be conclusively presumed to have met
any required standard of conduct established by applicable law, unless a
determination is made in the written opinion of independent counsel to the
Corporation, applicable law (including the FDIC Rules) permits
page 2
indemnification in a Covered Matter only as authorized in the specific case
upon a determination that indemnification is proper in the circumstances
because the Director has met the required standard of conduct. In such
event:
(1) The Corporation will immediately give the Director
notice, with a copy of counsel's opinion, that an evaluation and
determination will be made under this paragraph 4(b).
(2) Such evaluation and determination will be made, as
promptly as possible and in good faith, by a majority vote of the members
of the Corporation's Board of Directors who are not parties or threatened
to be made parties to the Covered Matter in question or, if so requested by
the Director, in a written opinion by independent counsel to the
Corporation (who shall not be the same as the counsel referred to above),
or by such other procedure as the Corporation and the Director agree.
(3) The Director will be entitled to present
information, and to be represented by counsel, in connection with such
evaluation and determination.
(4) The Director will be presumed to have met the
required standard of conduct unless it is conclusively demonstrated to the
determining firm or body that the Director has not met the required
standard of conduct. If the Director is successful (which includes a
settlement without admission of liability) on the merits or otherwise or in
the defense of any claim, issue or matter therein, he shall be conclusively
presumed to have met the required standard of conduct.
(5) The cost of any evaluation and determination under
this paragraph 4(b) (including attorneys' fees and other expenses incurred
by the Director) will be borne by the Corporation.
(6) If the requested indemnification falls within the
scope of the FDIC Rules, the FDIC Rules will also be observed.
(7) The termination of any proceeding by judgment,
order, settlement, arbitration award or conviction, or upon a plea of nolo
contendere or its equivalent shall not affect this presumption or, except
as determined by a judgment or other final adjudication adverse to the
Director, establish a presumption with regard to any factual matter
relevant to determining the Director's rights to indemnification hereunder.
(c) Determination of the Director's entitlement to
indemnification shall be made not later than thirty (30) days after the
Corporation's receipt of his written request for such indemnification. If
page 3
the person or persons so empowered to make a determination pursuant to
paragraph 4 hereof shall have failed to make the requested determination
within thirty (30) days after any judgment, order, settlement, dismissal,
arbitration award, conviction, acceptance of a plea of nolo contendere or
its equivalent, or other disposition or partial disposition of any
proceeding or any other event which could enable the Corporation to
determine the Director's entitlement to indemnification, the requisite
determination that the Director is entitled to indemnification shall be
deemed to have been made.
5. Advance of Expenses.
(a) Subject to paragraphs 5(b) and (c), and notwithstanding
Section 4(b), before final adjudication of a Covered Matter, upon the
Director's request pursuant to paragraph 3 above, the Corporation will
promptly advance Expenses directly; provided, however, if the Director has
already paid any Expenses, the Corporation will promptly reimburse the
Director for all such Expenses.
(b) If, in the opinion of counsel to the Corporation, the
FDIC Rules permit advancement of Expenses with respect to a federal banking
agency proceeding or action only as authorized upon a determination that
the Director has met a standard of conduct established by the FDIC Rules,
the determination will be made in accordance with paragraph 4(b) above to
the extent not inconsistent with FDIC Rules.
(c) The Director will repay any Expenses that are advanced
under this paragraph 5 if so required by the FDIC Rules or if it is
ultimately determined, in a final, nonappealable judgment rendered by the
court of last resort (or by a lower court if not timely appealed), that the
Director is not entitled to be indemnified against such Expenses and
requires repayment.
(d) The Corporation shall use its best efforts to provide
the Director on or before the time of any Change of Control security and
liquidity for the obligations of the Corporation to indemnify and advance
Expenses to the Director pursuant to this Agreement (whether by letter of
credit, the posting of assets as security, or other means).
6. Defense of Claim.
(a) The Corporation, jointly with any other indemnifying
party, will be entitled to assume the defense of any Covered Matter as to
which the Director requests indemnification, provided, however, the
Corporation shall not be entitled to assume the defense if there has been a
Change of Control or the Director is entitled to employ the Director's own
counsel under paragraph 6(c) below, in which case both parties shall be
entitled to participate in the defense.
(b) Counsel selected by the Corporation to defend any
Covered Matter will be subject to the Director's advance written approval.
page 4
(c) The Director may employ the Director's own counsel in a
Covered Matter and will be fully reimbursed therefor if (1) the Corporation
approves, in writing, the employment of such counsel or (2) either (A) the
Director has reasonably concluded that there may be a conflict of interest
between the Corporation and the Director or between the Director and other
parties represented by counsel employed by the Corporation to represent the
Director in such action or (B) the Corporation has not employed counsel
reasonably satisfactory to the Director to assume the defense of such
Covered Matter promptly after the Director's request.
(d) Neither the Corporation nor the Director will settle
any Covered Matter without the other's written consent, which will not be
unreasonably withheld.
(e) If the Director is required to testify (in court
proceedings, depositions, informal interviews or otherwise), consult with
counsel, furnish documents or take any other reasonable action in
connection with a Covered Matter, the Corporation will reimburse the
Director's reasonable expenses in connection therewith and also pay the
Director reasonable compensation for time spent by the Director for which
the Director is otherwise not compensated by the Corporation.
7. Disputes; Enforcement.
(a) If there is a dispute relating to the validity or
enforceability of this Agreement or a denial of indemnification, advance of
Expenses or payment of any other amounts due under this Agreement or the
Corporation's Certificate of Incorporation or Bylaws, the Corporation will
provide such indemnification, advance of Expenses or other payment until a
final, nonappealable judgment that the Director is not entitled to such
indemnification, advance of Expenses or other payment has been rendered by
the court of last resort (or by a lower court if not timely appealed). The
Director will repay such amounts if such final, nonappealable judgment so
requires.
(b) In the event that (i) a determination pursuant to
Section 4(b) hereof is made that the Director is not entitled to
indemnification, (ii) advances of Expenses are not made pursuant to this
Agreement, (iii) payment has not been timely made following a determination
of entitlement to indemnification pursuant to this Agreement, or (iv) the
Director otherwise seeks enforcement of this Agreement, the Director shall
be entitled to a final adjudication in the Court of Chancery of the State
of Delaware of the remedy sought. Alternatively, unless court approval is
required by law for the indemnification sought by the Director, the
Director at his option may seek an award in arbitration to be conducted by
a single arbitrator pursuant to the commercial arbitration rules of the
American Arbitration Association now in effect, which award is to be made
within ninety (90) days following the filing of the demand for arbitration.
The Corporation shall not oppose the Director's right to seek any such
adjudication or arbitration award. In any such proceeding or arbitration
the Director shall be presumed to be entitled to indemnification and
advancement of Expenses under this Agreement and the Corporation shall have
the burden of proof to overcome that presumption. In the event that a
page 5
determination that Director is not entitled to indemnification, in whole or
in part, has been made pursuant to Section 4(b) hereof, the decision in the
judicial proceeding or arbitration provided in this Section 7 shall be made
de novo and the Director shall not be prejudiced by reason of a
determination that he is not entitled to indemnification. If a
determination that the Director is entitled to indemnification has been
made pursuant to Section 4(b) hereof, or is deemed to have been made
pursuant to Section 4 hereof or otherwise pursuant to the terms of this
Agreement, the Corporation shall be bound by such determination in the
absence of a misrepresentation of a material fact by the Director in
connection with such determination. The Corporation shall be precluded
from asserting that the procedures and presumptions of this Agreement are
not valid, binding and enforceable. The Corporation shall stipulate in any
such court or arbitration that the Corporation is bound by all the
provisions of this Agreement and is precluded from making any assertion to
the contrary.
(c) The Corporation will reimburse all of the Director's
reasonable expenses (including attorneys' fees) in pursuing an action to
enforce the Director's rights under this Agreement unless a final,
nonappealable judgment against the Director has been rendered in such
action by the court of last resort (or by a lower court if not timely
appealed) or unless the FDIC Rules otherwise require to the same effect as
set forth in Section 5(c). At the Director's request, such expenses will
be advanced by the Corporation to the Director as incurred before final
resolution of such action by the court of last resort; such expenses will
be repaid by the Director if a final, nonappealable judgment in the
Corporation's favor is rendered in such action by the court of last resort
(or by a lower court if not timely appealed) to the same effect as set
forth in Section 5(c).
8. Insurance.
(a) The Corporation hereby covenants and agrees that, as
long as the Director continues to serve as a director of the Corporation
and thereafter as long as the Director may be subject to any possible
Covered Matter, the Corporation, subject to paragraph 8(c) below, shall
maintain in full force and effect D&O Insurance from established and
reputable insurers in amounts not less than, and with coverage comparable
to, those in effect as of the date of this Agreement.
(b) In all D&O Insurance policies, the Director shall be
named as an insured in such a manner as to provide the Director the same
rights and benefits as are accorded the most favorably insured of the
Company's directors.
(c) The Corporation will not be required to maintain D&O
Insurance if the Board of Directors of the Corporation determines, after
diligent inquiry, that (1) such insurance is not available; (2) the
premiums for available insurance are disproportionate to the amount of
coverage and to the premiums paid by other corporations similarly situated;
or (3) the coverage provided by such insurance is so limited by exclusions
that it provides an insufficient benefit. The Board of Directors of the
Corporation will, from time to time, in good faith review any decision not
to maintain D&O Insurance and will purchase such insurance at any time that
the conditions of this paragraph 8(c) cease to apply.
page 6
(d) The parties will cooperate to obtain advances of
Expenses, indemnification payments and consents from D&O Insurance carriers
in any Covered Matter to the full extent of applicable D&O Insurance. The
existence of D&O Insurance coverage will not diminish or limit the
Corporation's obligation to make indemnification payments to the Director.
Amounts paid directly to the Director with respect to a Covered Matter by
the Corporation's D&O Insurance carriers will be credited to the amounts
payable by the Corporation to the Director under this Agreement.
(e) Payments under any D&O Insurance policies shall be
subject to the FDIC Rules.
9. Limitations of Actions; Limitation of Indemnity.
(a) No action will be brought by or on behalf of the
Corporation against the Director or the Director's heirs or personal
representatives relating to the Director's service as a director, after the
expiration of one year from the date the Director ceases (for any reason)
to serve as a director of the Corporation, and any claim or cause of action
of the Corporation will be extinguished and deemed released unless asserted
by the filing of a legal action before the expiration of such period.
(b) Notwithstanding the provisions hereof, the Corporation
shall not be obligated pursuant to the terms of this Agreement:
(1) Claims Initiated by the Director. To indemnify or
advance expenses to the Director with respect to proceedings or claims
initiated or brought voluntarily by the Director and not by way of defense,
except with respect to proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other statute or law or
otherwise as required under Section 145 of the Delaware General Corporation
Law, but such indemnification or advancement of expenses may be provided by
the Corporation in specific cases if the Board of Directors has approved
the initiation or bringing of such suit;
(2) Lack of Good Faith. To indemnify the Director for
any expenses incurred by the Director with respect to any proceeding
instituted by the Director to enforce or interpret this Agreement, if a
court of competent jurisdiction determines that each of the material
assertions made by the Director in such proceeding was not made in good
faith or was frivolous;
(3) Insured Claims. To indemnify the Director for
expenses or liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) which have been paid directly to the Director by an insurance
carrier under D&O Insurance maintained by the Corporation; or
page 7
(4) FDIC Rules. To make any indemnification payment
contrary to the FDIC Rules.
(5) Short Swing Profits. To indemnify the Director
for expenses or liabilities incurred by the Director under Section 16 of
the Securities and Exchange Act of 1934.
10. Rights Not Exclusive; Benefit of Amendments to Law. The
indemnification provided to the Director under this Agreement will be in
addition to any indemnification provided to the Director by any law,
agreement, Board resolution, provision of the Certificate of Incorporation
or Bylaws of the Corporation or otherwise (including, but not limited to,
under that certain Indemnification Agreement (the "Bank Agreement") made as
of March 18, 1998, between The Bank of San Francisco, a California
corporation (the "Bank") and the Director). If applicable laws, rules or
regulations are amended after the date of this Agreement to permit
indemnification of a type or to an extent beyond or greater than that
provided by this Agreement, the Director shall be entitled to
indemnification hereunder of such further types or to such further extent
as is then permitted; provided, however, that no such amendment shall in
any way restrict or limit the rights of the Director hereunder and the term
"applicable law" shall refer only to the same as amended to the extent such
amendment permits the Corporation to provide such greater indemnification.
The Corporation and the Director agree that the Director may pursue his
remedies under both this Agreement and the Bank Agreement, under only this
Agreement, or under only the Bank Agreement, and that the manner in which
the Director chooses to pursue (or not to pursue) his remedies under this
Agreement and/or under the Bank Agreement shall not in any way restrict or
limit the rights of the Director under this Agreement.
11. Change in Control. "Change in Control" shall mean the
occurrence of any of the following after January 1, 1998:
(a) Both (1) any "person" (as defined below) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing at
least 15% of the total voting power represented by the Corporation's then
outstanding voting securities; and (2) the beneficial ownership by such
person of securities representing such percentage has not been approved by
a majority of the "continuing directors" (as defined below); or
(b) Any "person" (as defined below) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing at
least 50% of the total voting power represented by the Corporation's then
outstanding voting securities; or
(c) A change in the composition of the Board occurs, as a
result of which fewer than two-thirds of the incumbent directors are
directors who either (1) had been directors of the Corporation on January
1, 1998 (the "Original Directors") or (2) were elected, or nominated for
election, to the Board with the affirmative votes of at least a majority in
the aggregate of the Original Directors who were still in office at the
time of the election or nomination and directors whose election or
nomination was previously so approved (the "continuing directors"); or
page 8
(d) The stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, if such merger
or consolidation would result in the voting securities of the Corporation
outstanding immediately prior thereto representing (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) 50% or less of the total voting power represented by the voting
securities of the Corporation or such surviving entity outstanding
immediately after such merger or consolidation; or
(e) The stockholders of the Corporation approve (1) a plan
of complete liquidation of the Corporation or (2) an agreement for the sale
or disposition by the Corporation of all or substantially all of the
Corporation's assets.
For purposes of Subsection (a) above, the term "person" shall have the
same meaning as when used in sections 13(d) and 14(d) of the Exchange Act,
but shall exclude (x) a trustee or other fiduciary holding securities under
an employee benefit plan of the Corporation or of a parent or subsidiary of
the Corporation or (y) a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions as
their ownership of the common stock of the Corporation.
Any other provisions of this Section 11 notwithstanding, the term
"Change in Control" shall not include (1) a transaction, if undertaken at
the election of the Corporation, the result of which is to sell all or
substantially all of the assets of the Corporation to another corporation
(the "surviving corporation"); provided that the surviving corporation is
owned directly or indirectly by the stockholders of the Corporation
immediately following such transaction in substantially the same
proportions as their ownership of the Corporation's common stock
immediately preceding such transaction; and provided, further that the
surviving corporation expressly assumes this Agreement; or (2) an
acquisition of voting and other rights on outstanding shares by a voting
trustee who is approved (and the agreement under which he acts is approved)
by the continuing directors, but not any subsequent Change of Control
effected by the voting trustee or his successor.
12. Subrogation. Upon payment of any Indemnified Amount under
this Agreement, the Corporation will be subrogated to the extent of such
payment to all of the Director's rights of recovery therefor and the
Director will take all reasonable actions requested by the Corporation (at
no cost or penalty to the Director) to secure the Corporation's rights
under this paragraph 11 including executing documents.
13. Continuation of Indemnity. All of the Corporation's
obligations under this Agreement will continue as long as the Director is
subject to any actual or possible Covered Matter, notwithstanding the
Director's termination of service as a director, and in any event for at
least five (5) years subsequent to the date when the Director ceases to be
a director of the Corporation. The right to indemnification conferred
herein shall be presumed to have been relied upon by the Director in
serving or continuing to serve as a director of the Corporation or in any
capacity with any Affiliate and shall be enforceable as a contract right.
page 9
14. Amendments. Neither the Corporation's Certificate of
Incorporation nor its Bylaws will be changed to increase liability of
directors or to limit the Director's indemnification. Any repeal or
modification of the Corporation's Certificate of Incorporation or Bylaws or
any repeal or modification of the relevant provisions of any applicable
law, rules or regulations will not in any way diminish any of the
Director's rights or the Corporation's obligations under this Agreement.
This Agreement cannot be amended except with the written consent of the
Corporation and the Director.
15. Governing Law. This Agreement will be governed by Delaware
law without regard to such state's conflicts of laws principles.
16. Successors.
(a) This Agreement will be binding upon and inure to the
benefit of the parties and their respective heirs, legal representatives
and assigns.
(b) The Corporation will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business or assets of the Corporation to assume
all of the Corporation's obligations under this Agreement. Such assumption
will not release the Corporation from its obligations under this Agreement.
17. Severability. The provisions of this Agreement will be
deemed severable, and if any part of any provision is held illegal, void or
invalid under applicable law, such provision may be changed to the extent
reasonably necessary to make the provision, as so changed, legal, valid and
binding. If any provision of this Agreement is held illegal, void or
invalid in its entirety, the remaining provisions of this Agreement will
not in any way be affected or impaired but will remain binding in
accordance with their terms.
18. Notices. All notices given under this Agreement will be in
writing and delivered either personally, by registered or certified mail
(return receipt requested, postage prepaid), by recognized overnight
courier or by telecopy (if promptly followed by a copy delivered
personally, by registered or certified mail or overnight courier), as
follows:
If to the Director: _______________________
_______________________
_______________________
page 10
If to the Corporation: The San Francisco Company
550 Montgomery Street
San Francisco CA 94111
Attn.: Chief Executive Officer
or to such other address as either party furnishes to the other in writing.
19. Counterparts. This Agreement may be signed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first written above.
THE SAN FRANCISCO COMPANY
______________________________
By: __________________________
Its:___________________________
DIRECTOR
______________________________
page 11
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of March
18, 1998, between The San Francisco Company, a Delaware corporation (the
"Corporation"), and ________________, an individual (the "Officer").
RECITALS
A. The Officer is a member of the Corporation's Executive
Management Committee and the Corporation desires that the Officer continue
to serve in such capacity. The Officer is willing to continue to serve on
the Corporation's Executive Management Committee if the Officer receives
the protection provided by this Agreement.
B. The Corporation maintains directors and officers liability
insurance ("D&O Insurance") and intends to continue to maintain such D&O
Insurance in accordance with the provisions of this Agreement.
C. The Corporation believes that (1) it is increasingly
difficult to attract and keep qualified senior officers because of
potential liabilities; (2) it is important for a senior officer to have
assurance that indemnification will be available to the fullest extent
permitted by law; and (3) it is in the best interests of the Corporation
and its shareholders for the Corporation to contractually obligate itself
to indemnify the Officer and to set forth the details of the
indemnification process.
Therefore, in consideration of the premises and the mutual
promises herein contained, the Corporation and the Officer agree as
follows:
1. Agreement to Serve. The Officer will continue to serve as a
member of the Executive Management Committee of the Corporation at the
pleasure of the Corporation's Board of Directors.
2. Indemnification.
(a) The Corporation shall indemnify and hold harmless the
Officer to the fullest extent permitted under applicable law (including
without limitation Section 28(k) of the Federal Deposit Insurance Act and
Part 359 of the Rules and regulations of the Federal Deposit Insurance
Commission (the "FDIC Rules")) if the Officer was or is a party or
threatened to be made a party to any threatened, pending or completed
action, suit, arbitration (or other alternative dispute resolution
mechanism), or proceeding of any kind, wherever brought, whether civil,
criminal, administrative or investigative and whether formal or informal
(including actions by or in the right of the Corporation and any
preliminary inquiry or claim by any person or authority), by reason of or
associated with the fact that the Officer is or was a director, officer,
partner, trustee, employee, consultant or agent of the Corporation or is or
was serving at the Corporation's request, or for the convenience of or
otherwise to benefit or represent the interests of the Corporation or a
subsidiary of the Corporation, as a director, officer, employee or agent of
another corporation, limited liability company, partnership, joint venture,
trust, employee benefit plan or other enterprise (collectively, an
"Affiliate"), whether or not for profit, or by reason of anything done or
not done by the Officer in any such capacity (collectively, "Covered
Matters").
page 1
Such indemnification will cover all Expenses (as defined
below), liabilities, judgments (including punitive and exemplary damages),
penalties, fines (including excise taxes relating to employee benefit plans
and civil penalties) and amounts paid or to be paid in settlement which are
incurred by or imposed upon the Officer in connection with a Covered
Matter, including all interest assessments on any of the foregoing
(collectively, "Indemnified Amounts"). "Expenses" means all direct or
indirect costs and expenses (including, without limitation, attorneys'
fees, retainers, transcripts, witness fees, expert fees, other professional
fees, court costs and travel costs) incurred by the Officer in connection
with a Covered Matter, together with interest thereon commencing 30 days
after incurrence, other than liabilities, judgments, penalties, fines and
settlement amounts.
(b) The Officer will be so indemnified for all Indemnified
Amounts and the Corporation will defend the Officer against claims
(including threatened claims and investigations) which are covered matters,
including claims brought by or on behalf of the Corporation or any
Affiliate, except if it is finally determined by the court of last resort
(or by a lower court if not timely appealed) that the payment is prohibited
by applicable law.
(c) If the Officer is entitled under this Agreement to
indemnification for less than all of the amounts incurred by the Officer in
connection with a Covered Matter, the Corporation will indemnify the
Officer for the indemnifiable amount.
3. Claims for Indemnification. The Officer will give the
Corporation written notice of any claim for indemnification under this
Agreement, but failure to do so shall not affect the Officer's rights
hereunder. Payment requests will include a schedule setting forth in
reasonable detail the amount requested and will be accompanied (or, if
necessary, followed) by copies of the relevant invoices or other
documentation. The Corporation will pay Indemnified Amounts directly
without requiring the Officer to make any prior payment.
4. Determination of Right to Indemnification.
(a) The Officer will be presumed to be entitled to
indemnification under this Agreement and will receive such indemnification,
subject to paragraph 4(b) below, irrespective of whether the Covered Matter
involves allegations of gross negligence or intentional misconduct, alleged
violations of Section 10(b) of the Securities Exchange Act of 1934
(including Rule 10b-5 thereunder), alleged breach of the Officer's
fiduciary duties (including duties of loyalty or care) or any other claim.
(b) The Officer shall be conclusively presumed to have met
any required standard of conduct established by applicable law, unless a
determination is made in the written opinion of independent counsel to the
Corporation, applicable law (including the FDIC Rules) permits
indemnification in a Covered Matter only as authorized in the specific case
upon a determination that indemnification is proper in the circumstances
because the Officer has met the required standard of conduct. In such
event:
(1) The Corporation will immediately give the Officer
notice, with a copy of counsel's opinion, that an evaluation and
determination will be made under this paragraph 4(b).
(2) Such evaluation and determination will be made, as
promptly as possible and in good faith, by a majority vote of the members
of the Corporation's Board of Directors who are not parties or threatened
to be made parties to the Covered Matter in question or, if so requested by
the Officer, in a written opinion by independent counsel to the Corporation
(who shall not be the same as the counsel referred to above), or by such
other procedure as the Corporation and the Officer agree.
page 2
(3) The Officer will be entitled to present
information, and to be represented by counsel, in connection with such
evaluation and determination.
(4) The Officer will be presumed to have met the
required standard of conduct unless it is conclusively demonstrated to the
determining firm or body that the Officer has not met the required standard
of conduct. If the Officer is successful (which includes a settlement
without admission of liability) on the merits or otherwise or in the
defense of any claim, issue or matter therein, he shall be conclusively
presumed to have met the required standard of conduct.
(5) The cost of any evaluation and determination under
this paragraph 4(b) (including attorneys' fees and other expenses incurred
by the Officer) will be borne by the Corporation.
(6) If the requested indemnification falls within the
scope of the FDIC Rules, the FDIC Rules will also be observed.
(7) The termination of any proceeding by judgment,
order, settlement, arbitration award or conviction, or upon a plea of nolo
contendere or its equivalent shall not affect this presumption or, except
as determined by a judgment or other final adjudication adverse to the
Officer, establish a presumption with regard to any factual matter relevant
to determining the Officer's rights to indemnification hereunder.
(c) Determination of the Officer's entitlement to
indemnification shall be made not later than thirty (30) days after the
Corporation's receipt of his written request for such indemnification. If
the person or persons so empowered to make a determination pursuant to
paragraph 4 hereof shall have failed to make the requested determination
within thirty (30) days after any judgment, order, settlement, dismissal,
arbitration award, conviction, acceptance of a plea of nolo contendere or
its equivalent, or other disposition or partial disposition of any
proceeding or any other event which could enable the Corporation to
determine the Officer's entitlement to indemnification, the requisite
determination that the Officer is entitled to indemnification shall be
deemed to have been made.
5. Advance of Expenses.
(a) Subject to paragraphs 5(b) and (c), and notwithstanding
Section 4(b), before final adjudication of a Covered Matter, upon the
Officer's request pursuant to paragraph 3 above, the Corporation will
promptly advance Expenses directly; provided, however, if the Officer has
already paid any Expenses, the Corporation will promptly reimburse the
Officer for all such Expenses.
page 3
(b) If, in the opinion of counsel to the Corporation, the
FDIC Rules permit advancement of Expenses with respect to a federal banking
agency proceeding or action only as authorized upon a determination that
the Officer has met a standard of conduct established by the FDIC Rules,
the determination will be made in accordance with paragraph 4(b) above to
the extent not inconsistent with FDIC Rules.
(c) The Officer will repay any Expenses that are advanced
under this paragraph 5 if so required by the FDIC Rules or if it is
ultimately determined, in a final, nonappealable judgment rendered by the
court of last resort (or by a lower court if not timely appealed), that the
Officer is not entitled to be indemnified against such Expenses and
requires repayment.
(d) The Corporation shall use its best efforts to provide
the Officer on or before the time of any Change of Control security and
liquidity for the obligations of the Corporation to indemnify and advance
Expenses to the Officer pursuant to this Agreement (whether by letter of
credit, the posting of assets as security, or other means).
6. Defense of Claim.
(a) The Corporation, jointly with any other indemnifying
party, will be entitled to assume the defense of any Covered Matter as to
which the Officer requests indemnification, provided, however, the
Corporation shall not be entitled to assume the defense if there has been a
Change of Control or the Officer is entitled to employ the Officer's own
counsel under paragraph 6(c) below, in which case both parties shall be
entitled to participate in the defense.
(b) Counsel selected by the Corporation to defend any
Covered Matter will be subject to the Officer's advance written approval.
(c) The Officer may employ the Officer's own counsel in a
Covered Matter and will be fully reimbursed therefor if (1) the Corporation
approves, in writing, the employment of such counsel or (2) either (A) the
Officer has reasonably concluded that there may be a conflict of interest
between the Corporation and the Officer or between the Officer and other
parties represented by counsel employed by the Corporation to represent the
Officer in such action or (B) the Corporation has not employed counsel
reasonably satisfactory to the Officer to assume the defense of such
Covered Matter promptly after the Officer's request.
(d) Neither the Corporation nor the Officer will settle any
Covered Matter without the other's written consent, which will not be
unreasonably withheld.
(e) If the Officer is required to testify (in court
proceedings, depositions, informal interviews or otherwise), consult with
counsel, furnish documents or take any other reasonable action in
connection with a Covered Matter, the Corporation will reimburse the
Officer's reasonable expenses in connection therewith and also pay the
Officer reasonable compensation for time spent by the Officer for which the
Officer is otherwise not compensated by the Corporation.
page 4
7. Disputes; Enforcement.
(a) If there is a dispute relating to the validity or
enforceability of this Agreement or a denial of indemnification, advance of
Expenses or payment of any other amounts due under this Agreement or the
Corporation's Certificate of Incorporation or Bylaws, the Corporation will
provide such indemnification, advance of Expenses or other payment until a
final, nonappealable judgment that the Officer is not entitled to such
indemnification, advance of Expenses or other payment has been rendered by
the court of last resort (or by a lower court if not timely appealed). The
Officer will repay such amounts if such final, nonappealable judgment so
requires.
(b) In the event that (i) a determination pursuant to
Section 4(b) hereof is made that the Officer is not entitled to
indemnification, (ii) advances of Expenses are not made pursuant to this
Agreement, (iii) payment has not been timely made following a determination
of entitlement to indemnification pursuant to this Agreement, or (iv) the
Officer otherwise seeks enforcement of this Agreement, the Officer shall be
entitled to a final adjudication in the Court of Chancery of the State of
Delaware of the remedy sought. Alternatively, unless court approval is
required by law for the indemnification sought by the Officer, the Officer
at his option may seek an award in arbitration to be conducted by a single
arbitrator pursuant to the commercial arbitration rules of the American
Arbitration Association now in effect, which award is to be made within
ninety (90) days following the filing of the demand for arbitration. The
Corporation shall not oppose the Officer's right to seek any such
adjudication or arbitration award. In any such proceeding or arbitration
the Officer shall be presumed to be entitled to indemnification and
advancement of Expenses under this Agreement and the Corporation shall have
the burden of proof to overcome that presumption. In the event that a
determination that Officer is not entitled to indemnification, in whole or
in part, has been made pursuant to Section 4(b) hereof, the decision in the
judicial proceeding or arbitration provided in this Section 7 shall be made
de novo and the Officer shall not be prejudiced by reason of a
determination that he is not entitled to indemnification. If a
determination that the Officer is entitled to indemnification has been made
pursuant to Section 4(b) hereof, or is deemed to have been made pursuant to
Section 4 hereof or otherwise pursuant to the terms of this Agreement, the
Corporation shall be bound by such determination in the absence of a
misrepresentation of a material fact by the Officer in connection with such
determination. The Corporation shall be precluded from asserting that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable. The Corporation shall stipulate in any such court or
arbitration that the Corporation is bound by all the provisions of this
Agreement and is precluded from making any assertion to the contrary.
(c) The Corporation will reimburse all of the Officer's
reasonable expenses (including attorneys' fees) in pursuing an action to
enforce the Officer's rights under this Agreement unless a final,
nonappealable judgment against the Officer has been rendered in such action
by the court of last resort (or by a lower court if not timely appealed) or
unless the FDIC Rules otherwise require to the same effect as set forth in
Section 5(c). At the Officer's request, such expenses will be advanced by
the Corporation to the Officer as incurred before final resolution of such
action by the court of last resort; such expenses will be repaid by the
Officer if a final, nonappealable judgment in the Corporation's favor is
rendered in such action by the court of last resort (or by a lower court if
not timely appealed) to the same effect as set forth in Section 5(c).
page 5
8. Insurance.
(a) The Corporation hereby covenants and agrees that, as
long as the Officer continues to serve as an officer of the Corporation and
thereafter as long as the Officer may be subject to any possible Covered
Matter, the Corporation, subject to paragraph 8(c) below, shall maintain in
full force and effect D&O Insurance from established and reputable insurers
in amounts not less than, and with coverage comparable to, those in effect
as of the date of this Agreement.
(b) In all D&O Insurance policies, the Officer shall be
named as an insured in such a manner as to provide the Officer the same
rights and benefits as are accorded the most favorably insured of the
Company's directors or officers.
(c) The Corporation will not be required to maintain D&O
Insurance if the Board of Directors of the Corporation determines, after
diligent inquiry, that (1) such insurance is not available; (2) the
premiums for available insurance are disproportionate to the amount of
coverage and to the premiums paid by other corporations similarly situated;
or (3) the coverage provided by such insurance is so limited by exclusions
that it provides an insufficient benefit. The Board of Directors of the
Corporation will, from time to time, in good faith review any decision not
to maintain D&O Insurance and will purchase such insurance at any time that
the conditions of this paragraph 8(c) cease to apply.
(d) The parties will cooperate to obtain advances of
Expenses, indemnification payments and consents from D&O Insurance carriers
in any Covered Matter to the full extent of applicable D&O Insurance. The
existence of D&O Insurance coverage will not diminish or limit the
Corporation's obligation to make indemnification payments to the Officer.
Amounts paid directly to the Officer with respect to a Covered Matter by
the Corporation's D&O Insurance carriers will be credited to the amounts
payable by the Corporation to the Officer under this Agreement.
(e) Payments under any D&O Insurance policies shall be
subject to the FDIC Rules.
9. Limitations of Actions; Limitation of Indemnity.
(a) No action will be brought by or on behalf of the
Corporation against the Officer or the Officer's heirs or personal
representatives relating to the Officer's service as an officer, after the
expiration of one year from the date the Officer ceases (for any reason) to
serve as an officer of the Corporation, and any claim or cause of action of
the Corporation will be extinguished and deemed released unless asserted by
the filing of a legal action before the expiration of such period.
(b) Notwithstanding the provisions hereof, the Corporation
shall not be obligated pursuant to the terms of this Agreement:
(1) Claims Initiated by the Officer. To indemnify or
advance expenses to the Officer with respect to proceedings or claims
initiated or brought voluntarily by the Officer and not by way of defense,
except with respect to proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other statute or law or
otherwise as required under Section 145 of the Delaware General Corporation
Law, but such indemnification or advancement of expenses may be provided by
the Corporation in specific cases if the Board of Directors has approved
the initiation or bringing of such suit;
page 6
(2) Lack of Good Faith. To indemnify the Officer for
any expenses incurred by the Officer with respect to any proceeding
instituted by the Officer to enforce or interpret this Agreement, if a
court of competent jurisdiction determines that each of the material
assertions made by the Officer in such proceeding was not made in good
faith or was frivolous;
(3) Insured Claims. To indemnify the Officer for
expenses or liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) which have been paid directly to the Officer by an insurance
carrier under D&O Insurance maintained by the Corporation; or
(4) FDIC Rules. To make any indemnification payment
contrary to the FDIC Rules.
(5) Short Swing Profits. To indemnify the Officer for
expenses or liabilities incurred by the Officer under Section 16 of the
Securities and Exchange Act of 1934.
10. Rights Not Exclusive; Benefit of Amendments to Law. The
indemnification provided to the Officer under this Agreement will be in
addition to any indemnification provided to the Officer by any law,
agreement, Board resolution, provision of the Certificate of Incorporation
or Bylaws of the Corporation or otherwise (including, but not limited to,
under that certain Indemnification Agreement (the "Bank Agreement") made as
of _________, 1998, between The Bank of San Francisco, a California
corporation (the "Bank") and the Officer). If applicable laws, rules or
regulations are amended after the date of this Agreement to permit
indemnification of a type or to an extent beyond or greater than that
provided by this Agreement, the Officer shall be entitled to
indemnification hereunder of such further types or to such further extent
as is then permitted; provided, however, that no such amendment shall in
any way restrict or limit the rights of the Officer hereunder and the term
"applicable law" shall refer only to the same as amended to the extent such
amendment permits the Corporation to provide such greater indemnification.
The Corporation and the Officer agree that the Officer may pursue his
remedies under both this Agreement and the Bank Agreement, under only this
Agreement, or under only the Bank Agreement, and that the manner in which
the Officer chooses to pursue (or not to pursue) his remedies under this
Agreement and/or under the Bank Agreement shall not in any way restrict or
limit the rights of the Officer under this Agreement.
11. Change in Control. "Change in Control" shall mean the
occurrence of any of the following after January 1, 1998:
(a) Both (1) any "person" (as defined below) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing at
least 15% of the total voting power represented by the Corporation's then
outstanding voting securities; and (2) the beneficial ownership by such
person of securities representing such percentage has not been approved by
a majority of the "continuing directors" (as defined below); or
page 7
(b) Any "person" (as defined below) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing at
least 50% of the total voting power represented by the Corporation's then
outstanding voting securities; or
(c) A change in the composition of the Board occurs, as a
result of which fewer than two-thirds of the incumbent directors are
directors who either (1) had been directors of the Corporation on January
1, 1998 (the "Original Directors") or (2) were elected, or nominated for
election, to the Board with the affirmative votes of at least a majority in
the aggregate of the Original Directors who were still in office at the
time of the election or nomination and directors whose election or
nomination was previously so approved (the "continuing directors"); or
(d) The stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, if such merger
or consolidation would result in the voting securities of the Corporation
outstanding immediately prior thereto representing (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) 50% or less of the total voting power represented by the voting
securities of the Corporation or such surviving entity outstanding
immediately after such merger or consolidation; or
(e) The stockholders of the Corporation approve (1) a plan
of complete liquidation of the Corporation or (2) an agreement for the sale
or disposition by the Corporation of all or substantially all of the
Corporation's assets.
For purposes of Subsection (a) above, the term "person" shall have the
same meaning as when used in sections 13(d) and 14(d) of the Exchange Act,
but shall exclude (x) a trustee or other fiduciary holding securities under
an employee benefit plan of the Corporation or of a parent or subsidiary of
the Corporation or (y) a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions as
their ownership of the common stock of the Corporation.
Any other provisions of this Section 11 notwithstanding, the term
"Change in Control" shall not include (1) a transaction, if undertaken at
the election of the Corporation, the result of which is to sell all or
substantially all of the assets of the Corporation to another corporation
(the "surviving corporation"); provided that the surviving corporation is
owned directly or indirectly by the stockholders of the Corporation
immediately following such transaction in substantially the same
proportions as their ownership of the Corporation's common stock
immediately preceding such transaction; and provided, further that the
surviving corporation expressly assumes this Agreement; or (2) an
acquisition of voting and other rights on outstanding shares by a voting
trustee who is approved (and the agreement under which he acts is approved)
by the continuing directors, but not any subsequent Change of Control
effected by the voting trustee or his successor.
page 8
12. Subrogation. Upon payment of any Indemnified Amount under
this Agreement, the Corporation will be subrogated to the extent of such
payment to all of the Officer's rights of recovery therefor and the Officer
will take all reasonable actions requested by the Corporation (at no cost
or penalty to the Officer) to secure the Corporation's rights under this
paragraph 11 including executing documents.
13. Continuation of Indemnity. All of the Corporation's
obligations under this Agreement will continue as long as the Officer is
subject to any actual or possible Covered Matter, notwithstanding the
Officer's termination of service as an officer, and in any event for at
least five (5) years subsequent to the date when the Officer ceases to be
an officer of the Corporation. The right to indemnification conferred
herein shall be presumed to have been relied upon by the Officer in serving
or continuing to serve as an officer of the Corporation or in any capacity
with any Affiliate and shall be enforceable as a contract right.
14. Amendments. Neither the Corporation's Certificate of
Incorporation nor its Bylaws will be changed to increase liability of
officers or to limit the Officer's indemnification. Any repeal or
modification of the Corporation's Certificate of Incorporation or Bylaws or
any repeal or modification of the relevant provisions of any applicable
law, rules or regulations will not in any way diminish any of the Officer's
rights or the Corporation's obligations under this Agreement. This
Agreement cannot be amended except with the written consent of the
Corporation and the Officer.
15. Governing Law. This Agreement will be governed by Delaware
law without regard to such state's conflicts of laws principles.
16. Successors.
(a) This Agreement will be binding upon and inure to the
benefit of the parties and their respective heirs, legal representatives
and assigns.
(b) The Corporation will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business or assets of the Corporation to assume
all of the Corporation's obligations under this Agreement. Such assumption
will not release the Corporation from its obligations under this Agreement.
17. Severability. The provisions of this Agreement will be
deemed severable, and if any part of any provision is held illegal, void or
invalid under applicable law, such provision may be changed to the extent
reasonably necessary to make the provision, as so changed, legal, valid and
binding. If any provision of this Agreement is held illegal, void or
invalid in its entirety, the remaining provisions of this Agreement will
not in any way be affected or impaired but will remain binding in
accordance with their terms.
18. Notices. All notices given under this Agreement will be in
writing and delivered either personally, by registered or certified mail
(return receipt requested, postage prepaid), by recognized overnight
courier or by telecopy (if promptly followed by a copy delivered
personally, by registered or certified mail or overnight courier), as
follows:
page 9
If to the Officer: _______________________
_______________________
_______________________
If to the Corporation: The San Francisco Company
550 Montgomery Street
San Francisco CA 94111
Attn.: Chief Executive Officer
or to such other address as either party furnishes to the other in writing.
19. Counterparts. This Agreement may be signed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first written above.
THE SAN FRANCISCO COMPANY
______________________________
By: __________________________
Its:___________________________
OFFICER
______________________________
page 10