SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
[x] Definitive Proxy Statement the Commission Only (as
[ ] Definitive Additional Materials permitted by
[ ] Soliciting Material Pursuant to Rule 14a-6(e)(2))
Section 240.14a-11(c)
or Section 240.14a-12
SOUTHERN PACIFIC FUNDING CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
<PAGE>
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
SOUTHERN PACIFIC FUNDING CORPORATION
4949 Meadows Road, Suite 600
Lake Oswego, Oregon 97035
(503) 303-5400
April 30, 1998
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders
(the "Meeting") of Southern Pacific Funding Corporation ("Southern Pacific" or
the "Company"), which will be held on Monday, June 8, 1998, at 1:30 p.m., at the
Embassy Suites Hotel, 9000 SW Washington Square Road, Tigard, Oregon 97223.
The attached Notice of Annual Meeting of Stockholders and proxy
statement describe the formal business to be transacted at the Meeting.
Directors and officers of Southern Pacific, as well as a representative of KPMG
Peat Marwick LLP, the Company's independent auditors, will be present at the
Meeting to respond to stockholders' questions.
The Board of Directors of Southern Pacific has determined that an
affirmative vote on each of the matters to be considered at the Meeting is in
the best interests of the Company and its stockholders and unanimously
recommends a vote "FOR" each of these matters.
Please complete, date, sign and return the enclosed proxy card
promptly. Your cooperation is appreciated and necessary to establish a quorum
for the conduct of business at the meeting. Every stockholder's vote is
important.
On behalf of the Board of Directors and all of the employees of
Southern Pacific, we wish to thank you for your continued support. We appreciate
your interest.
Sincerely yours,
/s/ ROBERT W. HOWARD
Robert W. Howard
Chief Executive Officer
<PAGE>
SOUTHERN PACIFIC FUNDING CORPORATION
4949 Meadows Road, Suite 600
Lake Oswego, Oregon 97035
(503) 303-5400
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 8, 1998
The annual meeting of stockholders (the "Meeting") of Southern Pacific
Funding Corporation, a California corporation ("Southern Pacific" or the
"Company"), will be held on Monday, June 8, 1998, at 1:30 p.m., at the Embassy
Suites Hotel, 9000 SW Washington Square Road, Tigard, Oregon 97223.
The Meeting is for the purpose of considering and voting upon the
following matters:
1. The election of six directors for terms of one year each and until
their successors have been elected and qualified;
2. The ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors of the Company for the year ending December 31, 1998;
3. A proposal to amend the Company's 1995 Stock Option, Deferred Stock
and Restricted Stock Plan to increase the number of authorized shares available
for grant under the plan by 1,500,000 shares; and
4. Such other matters as may properly come before the Meeting or any
adjournment or postponement thereof.
The Company's Board of Directors ("Board" or "Board of Directors") has
established April 23, 1998, as the record date for the Meeting. Only
stockholders of record as of the close of business on that date will be entitled
to notice of and to vote at the Meeting or any adjournment or postponement
thereof. A list of stockholders entitled to vote at the Meeting will be
available at the headquarters of Southern Pacific Funding Corporation, at the
address set forth above, for a period of ten days prior to the Meeting and at
the Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. STOCKHOLDERS MAY VOTE IN PERSON OR BY PROXY. ANY
STOCKHOLDER MAY REVOKE HIS OR HER PROXY AT ANY TIME BEFORE IT IS EXERCISED AND
VOTE PERSONALLY AT THE MEETING.
By Order of the Board of Directors
Wendy Beth Oliver
Secretary
Lake Oswego, Oregon
April 30, 1998
<PAGE>
SOUTHERN PACIFIC FUNDING CORPORATION
4949 Meadows Road, Suite 600
Lake Oswego, Oregon 97035
(503) 303-5400
--------------
PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
JUNE 8, 1998
GENERAL INFORMATION
SOLICITATION AND VOTING OF PROXIES
This proxy statement is furnished to stockholders of Southern Pacific
Funding Corporation ("Southern Pacific" or the "Company") in connection with the
solicitation by the Board of Directors of the Company (the "Board" or "Board of
Directors") of proxies to be used at the annual meeting of stockholders to be
held at the Embassy Suites Hotel, 9000 SW Washington Square Road, Tigard, Oregon
97223, on Monday, June 8, 1998, at 1:30 p.m., and at any adjournment or
postponement thereof (the "Meeting"). The Company's 1997 Annual Report to
Stockholders accompanies this proxy statement. This proxy statement is first
being mailed to stockholders on or about May 4, 1998.
PROXY INFORMATION
At the Meeting, stockholders will be asked to vote on the matters set
forth in the accompanying Notice of Annual Meeting of Stockholders and described
in this proxy statement. The enclosed proxy card enables stockholders to vote on
matters to be considered at the Meeting without the necessity of attending the
Meeting. All proxies signed, dated, and returned to the Company prior to the
Meeting will be voted as specified in the proxy. In the event that a proxy does
not specify a preference on matters to be considered at the Meeting, the proxy
will be voted FOR each of the nominees for election as directors, FOR
ratification of the appointment of the Company's independent auditors, and FOR
amendment of the Company's 1995 Stock Option, Deferred Stock and Restricted
Stock Plan (the "1995 Stock Option Plan").
If any other matters are properly brought before the Meeting, the
execution of a proxy confers on the designated proxyholders the discretionary
authority to vote the shares in accordance with their judgment. The Company is
not aware of any additional matters that will be presented for consideration at
the Meeting.
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<PAGE>
A proxy may be revoked at any time prior to its exercise by notifying
the Secretary of the Company in writing of your intent to revoke your proxy, by
submitting a duly executed proxy bearing a later date, or by attending the
Meeting and voting in person. However, if you are a stockholder whose shares are
not registered in your own name, you will need appropriate documentation from
the holder of record of your shares to vote personally at the Meeting.
The Company will bear all costs of preparing this proxy statement and
of soliciting proxies on behalf of management. In addition to soliciting proxies
by mail, the Company and its officers, directors, and employees may solicit
proxies personally or by telephone, facsimile transmission or telegram. No
additional compensation will be paid for solicitation of proxies by these
individuals. The Company will reimburse banks, brokerage houses, and other
custodians, nominees, and fiduciaries for their reasonable expenses in
forwarding the proxy materials to stockholders whose stock is held of record by
such entities.
VOTING SECURITIES
The Board of Directors has fixed the close of business on April 23,
1998, as the record date (the "Record Date") for determining stockholders
entitled to vote at the Meeting and any adjournment or postponement thereof. On
the Record Date, the Company had outstanding 20,738,838 shares of common stock,
without par value (the "Common Stock"). The Common Stock is the only outstanding
voting security of the Company.
Each share entitles its owner to one vote on all matters to be voted on
at the Meeting. In addition, stockholders are entitled to cumulative voting
rights in the election of directors. Under the cumulative voting method, a
stockholder may multiply the number of shares owned by the number of directors
to be elected and cast this total number of votes for any one candidate or
distribute the total number of votes in any proportion among as many candidates
as the stockholder desires. A stockholder may not cumulate his or her votes for
a candidate unless such candidate's name has been placed in nomination and the
stockholder has given notice at the Meeting prior to the voting of his or her
intention to cumulate his or her votes. If any stockholder gives such notice,
then all stockholders may cumulate their votes.
In the election of directors, the seven candidates receiving the
highest number of affirmative votes will be elected. The proposals to ratify the
appointment of independent auditors and to amend the 1995 Stock Option Plan will
each be approved upon the affirmative vote of a majority of the shares
represented and voting upon the proposal at the Meeting (which shares voting
affirmatively must also constitute at least a majority of the required quorum).
The presence, in person or by proxy, of the holders of at least a
majority of the total number of shares of Common Stock entitled to vote is
necessary to constitute a quorum at the Meeting. Abstentions and broker
non-votes are counted for purposes of determining a quorum. For purposes of
determining the number of shares voting on a particular proposal, only shares
voted "For" or "Against" are treated as shares "represented and voting" at the
Meeting. Accordingly, abstentions and broker non-votes will have no effect on
the required vote on the proposals specified in the accompanying Notice of
Annual Meeting of Stockholders. In the event that a quorum is not obtained, or
if fewer shares of Common Stock are voted to approve or ratify any proposal than
the number required for approval or ratification, the Meeting may be adjourned
or postponed in order to permit the further solicitation of proxies. At any
subsequent reconvening of the Meeting, all proxies, unless properly revoked,
will be voted in the same manner as such proxies would have been voted at the
original convening of the Meeting.
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<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP TABLE
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of the Record Date, by (i) each of the
Company's directors and nominees for director, (ii) each executive officer named
in the Summary Compensation Table below, and (iii) all directors and executive
officers as a group. In addition, the table sets forth share ownership
information for each person or group known to the Company to own beneficially
more than 5% of the outstanding shares of Common Stock on the Record Date, as
disclosed in certain reports regarding such ownership filed with the Securities
and Exchange Commission (the "SEC") in accordance with Section 13 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). For the
purposes of the following table, in accordance with Rule 13d-3 under the
Exchange Act, a person is deemed to "beneficially own" any securities (a) over
which such person has, directly or indirectly, sole or shared voting or
investment power or (b) of which such person has the right to acquire beneficial
ownership, including through the exercise of stock options, within 60 days after
the Record Date.
<TABLE>
<CAPTION>
Amount and
Nature of
Name (and Address if Beneficial Percent of
5% Beneficial Owner) Position with Company Ownership(1)(2) Class(3)
<S> <C> <C> <C>
Imperial Credit Industries, Inc. -- 9,742,500(4) 46.9%
23550 Hawthorne
Building 1, Suite 240
Torrance, CA 90505
Wellington Management Company, -- 1,465,800(5) 7.1%
LLP
75 State Street
Boston, MA 02109
Brookhaven Capital Management -- 1,229,000(6) 5.9%
Co., Ltd.
3000 Sandhill Road
Bldg. 3, Ste. 105
Menlo Park, CA 94025
H. Wayne Snavely........................... Chairman of the Board 152,000 *
and Director
Robert W. Howard........................... Vice Chairman and Chief 442,777(7) 2.1%
Executive Officer and
Director
Bernard A. Guy............................. President and Chief 452,473(7) 2.1%
Operating Officer and
Director
Thomas Bowser.............................. Executive Vice President, 12,944(7) *
Production
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<PAGE>
Peter F. Makowiecki........................ Executive Vice President 13,000 *
and Chief Financial
Officer
Frank A. Frazzitta......................... Senior Vice President, 21,789 *
Strategic Alliance
John D. Dewey.............................. Director 24,800 *
E. James Hedemark.......................... Nominee for Director - *
Allan Van Ruiter........................... Director 27,000 *
Stephen J. Shugerman....................... Director 83,500 *
Frank P. Willey............................ Director 23,000 *
All directors and executive officers 1,257,283 5.7%
as a group (12 persons)
</TABLE>
* Less than 1% of outstanding Common Stock.
(1) Except as otherwise noted and subject to community property laws, each
person whose shares are included herein exercises sole (or shares with
spouse, relative or affiliate) voting and dispositive power as to
reported shares.
(2) Includes shares subject to options exercisable within 60 days after the
Record Date as follows: Mr. Snavely - 152,000 shares, Mr. Howard -
408,440 shares, Mr. Guy - 408,440 shares, Mr. Bowser - 12,500 shares,
Mr. Makowiecki - 10,000 shares, Mr. Frazzitta - 6,000 shares, Mr.
Shugerman - 77,000 shares, Messrs. Dewey, Ruiter and Willey - 17,000
shares each; and all directors and executive officers as a group -
1,127,380 shares.
(3) Each percentage has been calculated on the basis of 20,738,838 shares
of Common Stock outstanding on the Record Date, plus the number of
shares of Common Stock which each person or group has the right to
acquire within 60 days after the Record Date.
(4) In October 1994, Imperial Credit Industries, Inc. ("ICII"),
incorporated the Company as part of a strategic decision to form a
separate subsidiary through which to operate the residential lending
division of Southern Pacific Bank (formerly Southern Pacific Thrift &
Loan Association) ("SPB"), a wholly owned subsidiary of ICII. To
further this strategy, in December 1994, ICII made a capital
contribution of $250,000 to the Company in exchange for 100% of its
outstanding capital stock. The Company completed an initial public
offering of its Common Stock in June 1996. As a result of three
secondary offerings during 1996 and 1997, ICII has reduced its
beneficial ownership of the Common Stock outstanding to approximately
46.9%.
(5) Information is based on a Schedule 13G filed in January 1998, in which
Wellington Management Company, LLP ("Wellington"), a registered
investment adviser, disclosed that it had shared voting power as to
802,200 shares and shared dispositive power over all of the listed
shares.
(6) Information is based on a Schedule 13D filed in December 1997, in which
Brookhaven Capital Management Co., Ltd. ("BCM"), an investment adviser
to various investment limited
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<PAGE>
partnerships, and its affiliates disclosed that they have shared voting
and dispositive power as to the listed shares, except that BCM has sole
voting and dispositive power as to 48,800 shares and Vincent A.
Carrino, the sole director and president of BCM and one of the general
partners of certain investment limited partnerships, has sole voting
and dispositive power as to 75,000 shares.
(7) Includes shares allocated to the accounts of participants in the
Company's 401(k) profit sharing plan, as to which they have voting
power, as follows: Mr. Howard - 337 shares, Mr. Guy - 5,533 shares, and
Mr. Bowser - 444 shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
certain officers, and certain holders of more than 10% of the Company's Common
Stock to file reports of beneficial ownership and changes in ownership with the
SEC and the New York Stock Exchange. Based solely on a review of copies of such
reports furnished to the Company, or written representations that no reports
were required, the Company believes that, during 1997, its officers, directors
and 10% owners complied with all Section 16(a) filing requirements.
PROPOSALS TO BE VOTED ON AT THE MEETING
PROPOSAL 1: ELECTION OF DIRECTORS
The Company's Bylaws provide that the Company's Board of Directors
shall consist of no fewer than three and no more than seven members as
determined from time to time by the Board. Although the Board currently consists
of seven members, the board has voted to reduce the size of the Board of
Directors to six members effective as of the Meeting. Directors are elected
annually to serve until the next annual meeting of stockholders and thereafter
until their successors are elected and qualified.
The six nominees proposed for election at the Meeting are H. Wayne
Snavely, Robert W. Howard, Bernard A. Guy, E. James Hedemark, Stephen J.
Shugerman, and Frank P. Willey. John D. Dewey and Allan Van Ruiter, who have
been directors of the Company since June 1996, are not standing for reelection.
The Board has nominated E. James Hedemark to fill the remaining vacancy. For a
description of Mr. Hedemark's qualifications, see "Information with Respect to
Nominees." There are no arrangements or understandings between the Company and
any nominee pursuant to which such person was elected or nominated to be a
director of the Company.
In the event that any nominee is unable to serve or declines to serve
for any reason, proxies will be voted for the election of all other nominees
named and for such other person or persons as may be designated by the present
Board of Directors. The Board has no reason to believe that any of the nominees
named will be unable or unwilling to serve.
Any vacancy that occurs during the term of a director, including by
reason of an increase in positions, may be filled until the next annual meeting
of stockholders by the affirmative vote of a majority of the remaining
directors. The Board expects that it will take the necessary action to increase
the number of positions on the Board to seven and to elect a director to fill
the resulting vacancy at some time following the Meeting. Any such new director
would be subject to a vote of stockholders at the 1999 annual meeting of
stockholders, if nominated.
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<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
ELECTION OF ALL NOMINEES FOR DIRECTOR.
INFORMATION WITH RESPECT TO NOMINEES
Certain information with respect to each person nominated for election
as a director is set forth below. Ages given are as of the Record Date. No
family relationships exist among any of the executive officers and nominees for
director of the Company. For information with respect to ownership of Common
Stock by directors, see "Security Ownership of Certain Beneficial Owners and
Management."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
H. Wayne Snavely................. 56 Chairman of the Board
Robert W. Howard................. 51 Vice Chairman and Chief Executive Officer and Director
Bernard A. Guy................... 41 President and Chief Operating Officer and Director
E. James Hedemark................ 49 Nominee for Director
Stephen J. Shugerman............. 50 Director
Frank P. Willey.................. 44 Director
</TABLE>
H. Wayne Snavely has been Chairman of the Board of the Company since
April 1995. He has been Chairman and Chief Executive Officer of ICII
(Nasdaq-ICII) since December 1991, Chairman of the Board of Franchise Mortgage
Investment Corp. (Nasdaq-FMAX) since August 1997, Chairman of the Board of Impaq
Mortgage Holdings, Inc. (AMEX-IMH) since August 1995, and Chairman of the Board
of Imperial Credit Commercial Mortgage Investment Corporation (Nasdaq-ICMI)
since July 1997. Mr. Snavely served as a director of Imperial Bancorp (NYSE-IMP)
from 1994 to 1998.
Robert W. Howard currently serves as Vice Chairman and Chief Executive
Officer of the Company and has been a director of the Company since April 1995.
Until July 1997, Mr. Howard also served as President of the Company. From
January 1994 to April 1995, Mr. Howard was Senior Vice President of SPB's
Residential Lending Division and from December 1992 to January 1994, he was Vice
President of the same division. From January 1990 to December 1992, Mr. Howard
was Senior Vice President at Preferred Financial Funding Corp., a retail
mortgage banking company specializing in non-conforming credit loans. Mr. Howard
is a licensed Certified Public Accountant in the state of California.
Bernard A. Guy has been President and Chief Operating Officer of the
Company since July 1997. Prior to becoming President, he served as Executive
Vice President of the Company. Mr. Guy has been a director of the Company since
April 1995. From January 1994 to April 1995, he was Senior Vice President of
SPB's Residential Lending Division and from December 1992 to January 1994, he
was Vice President of the same division. From June 1989 to December 1992, Mr.
Guy was Senior Vice President at Preferred Financial Funding Corp., a retail
mortgage banking company specializing in non-conforming credit loans.
E. James Hedemark is being nominated for election as a director at the
Meeting. Mr. Hedemark has been a private consultant to Hedemark & Company since
1994. Previously, he was President and Chief Executive Officer of Napa Valley
Bank. Prior to 1993, he served in various capacities at Bank of America N.T. &
S.A. including, beginning in 1992, as President and Chief Executive Officer of
Bank of America Texas, N.A. Mr. Hedemark is also a director of Napa National
Bank.
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<PAGE>
Stephen J. Shugerman has been a director of the Company since April
1995. Mr. Shugerman has served as President of SPB since June 1987. Mr.
Shugerman is a past president of the California Association of Thrift & Loan
Companies. Mr. Shugerman also serves as a director of ICII.
Frank P. Willey has been a director of the Company since June 1996. He
has been President of Fidelity National Financial, Inc. since January 1995. From
1984 to 1994, Mr. Willey was Executive Vice President and General Counsel of
Fidelity National Title Insurance Company. Mr. Willey is a director of CKE
Restaurants, Inc., Mortgage Capital Resources Company, and Ugly Duckling
Holdings, Inc.
MEETINGS AND COMMITTEES OF THE BOARD
During 1997, the Board of Directors of the Company held 11 regular
meetings and no special meetings. Each director attended more than 75% of the
aggregate of the total number of meetings of the Board and the total number of
meetings held by all committees of the Board on which such director served
during 1997.
The Audit Committee of the Board is presently comprised of Mr. Ruiter
(Chair) and Mr. Willey, and is responsible for making recommendations concerning
the engagement of independent auditors, approving professional services provided
by the independent auditors, and reviewing the adequacy of the Company's
internal accounting controls. The Audit Committee met four times during 1997.
The Compensation Committee of the Board is presently comprised of
Messrs. Snavely (Chair), Ruiter, and Willey. The Compensation Committee met once
during 1997. The Compensation Committee is responsible for reviewing the
philosophy and policies of the Company with respect to executive compensation,
for recommending to the Board senior officer salaries and compensation packages,
for reviewing decisions made by an internal management committee as to
compensation policies relating to employees other than executive officers, and
for the administration of the Company's stock option plans. A subcommittee of
the Compensation Committee currently comprised of Messrs. Ruiter and Willey is
authorized to approve grants of options under the 1995 Stock Option Plan and to
consider compensation intended to be deductible pursuant to Section 162(m) of
the Internal Revenue Code.
The Board of Directors does not have a Nominating Committee. The Board
as a whole considers potential nominees for director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Board as a whole acted on certain executive compensation decisions
during 1997. Mr. Snavely is Chairman of the Board. Messrs. Howard and Guy are
each an executive officer of the Company. Messrs. Howard and Guy participated in
all compensation matters considered by the Board, except those relating to their
own compensation. See "Non-Employee Director Compensation."
NON-EMPLOYEE DIRECTOR COMPENSATION
During 1997, the Company paid its non-employee directors a $20,000
annual retainer and $1,500 for each Board meeting attended. In addition, Messrs.
Ruiter and Willey were each paid $1,750 in connection with two Audit Committee
meetings held in January 1997. The Company also reimbursed its directors for
reasonable expenses incurred in attending meetings.
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<PAGE>
On April 23, 1997, the Company granted options to purchase 10,000
shares of Common Stock at an exercise price of $10.25 per share under its 1995
Stock Option Plan to each of its five non-employee directors. The options become
exercisable in five equal annual installments beginning one year after the date
of grant and have a term of 10 years. The option term will expire one year after
the holder ceases to be a director due to death or disability or three months
after ceasing to be a director for any other reason.
The Company has a five-year consulting agreement with The Dewey
Consulting Group (the "Dewey Group"), which is owned by Mr. Dewey, that will
expire in June 2001. Pursuant to the agreement, the Dewey Group assists the
Company in the development of strategic alliances with selected mortgage
lenders. The Dewey Group is compensated based on the number of strategic
alliances entered into and the volume of loan production and earnings resulting
from those alliances. The Company paid the Dewey Group approximately $538,640
for services rendered during 1997. If the Company receives warrants in
connection with entering into a strategic alliance, the Dewey Group is also
entitled to receive 15% of the warrant interest received by the Company. In the
event of acquisition of a strategic alliance partner, the Dewey Group receives
cash based on the per share acquisition price compared to the warrant exercise
price.
The Dewey Group is continuing to provide consulting services to the
Company in connection with the investigation of possible acquisitions and
strategic alliances. Should any of these acquisitions or alliances be completed,
the Dewey Group is likely to receive substantial additional compensation in the
future.
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended December
31, 1997, were KPMG Peat Marwick LLP. The Board of Directors has reappointed
KPMG Peat Marwick LLP to act as independent auditors for the Company for the
fiscal year ending December 31, 1998, subject to ratification of such
appointment by the stockholders. Representatives of KPMG Peat Marwick LLP are
expected to attend the Meeting. They will be given an opportunity to make a
statement if they desire and will be available to respond to appropriate
questions from stockholders present at the Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY.
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<PAGE>
PROPOSAL 3: AMENDMENT TO THE 1995 STOCK OPTION PLAN
DESCRIPTION OF AMENDMENT
Stockholders are being asked to consider and approve an amendment to
the Company's 1995 Stock Option Plan to increase the number of shares of Common
Stock available for grant by 1,500,000 shares, to a total of 3,442,200 shares.
The Board adopted the amendment, subject to stockholder approval, at a meeting
held on March 30, 1998. The 1995 Stock Option Plan was initially approved by
ICII, as the Company's sole stockholder.
At April 23, 1998, options to purchase 15,750 shares had been exercised
under the 1995 Stock Option Plan, 1,487,800 shares were subject to outstanding
options, and 438,650 shares (not including the 1,500,000 shares) were available
for additional awards. Also at that date, 231 persons held options under the
1995 Stock Option Plan, including each of the Company's five non-employee
directors, each of its executive officers and 219 other employees. The optionees
represent the pool of persons presently considered eligible to participate in
the 1995 Stock Option Plan. The Company expects that persons who become
employees of the Company in connection with businesses acquired by the Company
will be among the recipients of future awards under the 1995 Stock Option Plan.
However, no awards or specific plans with respect thereto have been made
regarding the additional 1,500,000 shares authorized by the proposed amendment.
The closing sale price for the Common Stock reported on the New York Stock
Exchange on April 23, 1998, was $17.625.
A summary description of certain terms and provisions of the 1995 Stock
Option Plan follows.
SUMMARY OF TERMS OF 1995 STOCK OPTION PLAN
The purpose of the 1995 Stock Option Plan is to enable the Company to
obtain and retain competent personnel who will contribute to the Company's
success by their ability, ingenuity, and industry, and to provide incentives to
such personnel that are linked directly to increases in stockholder value, and
will, therefore, inure to the benefit of all stockholders of the Company.
The 1995 Stock Option Plan provides for awards (collectively, "Awards")
of incentive stock options ("ISOs") qualified under Section 422 of the Internal
Revenue Code, as amended (the "Code"), nonqualified stock options, deferred
stock, restricted stock, stock appreciation rights ("SARs"), and limited SARs.
Awards may be granted to officers and other key employees of the Company and to
the Company's non-employee directors, except that non-employee directors are not
eligible to receive ISOs. To the extent that an Award granted under the 1995
Stock Option Plan is canceled or forfeited or expires, the shares subject to the
terminated portion of such Award will again become available for the grant of
additional Awards under the 1995 Stock Option Plan. No Awards may be granted
after October 31, 2005.
The 1995 Stock Option Plan is administered by a committee of directors
appointed by the Board (the "Committee"), which presently is comprised of the
members of the Compensation Committee. Grants of options under the 1995 Stock
Option Plan in the future will be made by a subcommittee of the Compensation
Committee.
The exercise price for any option granted under the 1995 Stock Option
Plan must be at least 100% (or 110% in the case of ISOs granted to an employee
who is deemed to own in excess of 10% of the outstanding Common Stock) of the
fair market value of the shares of Common Stock at the time the option is
granted. Options granted under the 1995 Stock Option Plan will become
exercisable upon the
- 9 -
<PAGE>
terms and be subject to the restrictions contained in each Award agreement
authorized by the Committee. Options will be exercisable for a term of not more
than ten years as fixed by the Committee (five years in the case of an ISO
granted to an employee who is deemed to own in excess of 10% of the outstanding
Common Stock). The aggregate number of shares subject to options granted to a
single participant during a given fiscal year shall not exceed 50% of the total
shares of Common Stock reserved for issuance under the 1995 Stock Option Plan.
The exercise price of any option granted under the 1995 Stock Option
Plan is payable in full (1) in cash, (2) by surrender of shares of Common Stock
already owned by the optionholder having a market value equal to the aggregate
exercise price of all shares to be purchased (including, in the case of the
exercise of a nonqualified stock option, restricted stock subject to an Award
under the 1995 Stock Option Plan), (3) by cancellation of indebtedness owed by
the Company to the optionee, (4) by a full recourse promissory note or (5) by
any combination of the foregoing. The Company may make loans available to
optionees, subject to Board approval, in connection with the exercise of
options. The amount of any such loan may not exceed the sum of the exercise
price plus any federal, state, or local income taxes attributable to such
exercise. Such loans will bear interest at the rate, if any, determined by the
Committee and have a term of up to seven years. Unless the Committee determines
otherwise, shares of Common Stock shall be pledged as collateral for such loans.
If such shares are returned to the Company in satisfaction of the loan, the
shares will again be available for grants of future Awards.
A recipient of SARs will receive, upon exercise, a payment (in cash or
shares of Common Stock, as determined by the Committee) based on the excess of
the fair market value of a share of Common Stock on the date of exercise over
the base price of the SARs, which will not be less than the fair market value of
a share of Common Stock on the date of grant. SARs may be granted in conjunction
with an option or may be granted as free-standing Awards. Limited SARs may be
exercised only in the event of a change in control (as defined in the 1995 Stock
Option Plan) of the Company.
Awards of restricted stock and deferred stock will be subject to such
terms and conditions as the Committee deems appropriate. The restrictions will
generally include a requirement that the Awards be forfeited upon termination of
the participant's employment prior to the expiration of a specified period of
time. The Committee may also specify performance objectives applicable to Awards
of restricted stock and deferred stock. Recipients of restricted stock Awards
are issued stock certificates with dividend and voting rights, but may not
transfer the shares until all restrictions have lapsed. Recipients of deferred
stock Awards are not issued certificates until the lapse of all restrictions,
but are entitled to receive payments equal to any dividends paid on the
outstanding Common Stock during the restriction period.
In the event of a stock split, stock dividend, or other change in
capitalization, the Committee may make such proportional adjustments in the
aggregate number of shares for which Awards may be granted under the 1995 Stock
Option Plan and the number of shares covered by, and the exercise or base price
of, any outstanding Awards, as the Committee in its sole discretion may deem
appropriate.
Unless otherwise determined by the Committee or the Board at or after
grant but prior to a change of control, if a change of control of the Company
occurs, (i) any indebtedness extended by the Company for the purpose of
exercising any option will be forgiven and collateral pledged will be released,
(ii) all Awards of restricted stock and deferred stock, SARs outstanding for at
least six months and stock options will become fully vested, and (iii) the value
of all outstanding stock options, SARs and restricted stock and deferred stock
Awards will, to the extent determined by the Committee at or after grant, be
cashed out. This cash-out will be based on the higher of the highest price per
share paid or offered in any transaction related to a change of control or the
highest sale price per share reported on the New York Stock Exchange during the
preceding 60-day period, except that in the case of ISOs and
- 10 -
<PAGE>
related SARs, the price will be based only on transactions reported for the date
on which the Committee decides to cash out the ISOs.
The Board of Directors may from time to time revise or amend the 1995
Stock Option Plan, and may suspend or discontinue it at any time. However, no
such revision or amendment may impair the rights of any participant under any
outstanding Awards without such participant's consent or may, without
stockholder approval, increase the number of shares reserved for issuance
pursuant to the 1995 Stock Option Plan, decrease the exercise price of a stock
option to less than 100% of fair market value on the date of grant (with the
exception of adjustments resulting from changes in capitalization), materially
modify the class of participants eligible to receive Awards, materially increase
the benefits accruing to participants, or extend the maximum option term.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal anticipated federal
income tax consequences of grants of stock options under the 1995 Stock Option
Plan to participants and to the Company.
Incentive Stock Options. An optionee does not realize taxable income
upon the grant or exercise of an ISO. The amount realized on the sale or taxable
exchange of shares issued upon exercise of an ISO will be taxed as capital gain
(or recorded as capital loss) in an amount equal to the excess (if any) of the
fair market value of the shares at exercise over the exercise price ("Gain"),
unless such disposition occurs within two years from the date of grant or within
one year from the date of exercise. To the extent that an optionee qualifies for
capital gains treatment, no deduction is allowed to the Company for federal
income tax purposes. For purposes of determining alternative minimum taxable
income, an ISO is treated as a nonqualified stock option.
If shares of Common Stock acquired upon the exercise of an ISO are
disposed of prior to the expiration of the two-year and one-year holding periods
described above (a "disqualifying disposition"), then (a) the optionee realizes
ordinary income in the year of disposition in an amount equal to the Gain and
(b) the Company is entitled to deduct such amount. Any further gain realized is
taxed as a capital gain and does not result in any deduction to the Company. A
disqualifying disposition in the year of exercise will generally avoid the
alternative minimum tax consequences of the exercise of an ISO.
Nonqualified Stock Options. No income is realized by the optionee at
the time a nonqualified stock option is granted. Upon exercise, (a) an optionee
will realize ordinary income in an amount equal to the difference between the
exercise price and the fair market value of the shares on the date of exercise
and (b) the Company receives a tax deduction for the same amount. Upon
disposition of the shares, appreciation or depreciation after the date of
exercise is treated as a capital gain or loss and will not result in any
deduction to the Company.
Payment of Exercise Price in Shares. Participants may pay all or a
portion of the exercise price of stock options using previously acquired shares
of Common Stock. If an option is exercised and payment is made in previously
held shares, there is no taxable gain or loss to the participant other than any
gain recognized as a result of exercise of the option, as described above.
Limitation on Deductibility of Certain Compensation. Section 162(m) of
the Code generally makes nondeductible to the Company taxable compensation paid
to a single individual in excess of $1 million in any calendar year if the
individual is the Chief Executive Officer or one of the next four highest-paid
executive officers unless the excess compensation is considered to be
"performance based." Among other requirements contained in Section 162(m), the
material terms of a compensation plan must
- 11 -
<PAGE>
be approved by stockholders. Although certain Awards previously granted under
the 1995 Stock Option Plan would not qualify for deductibility under Section
162(m) to the extent that the $1 million threshold were to be exceeded, the
Company may in the future consider structuring Awards to attempt to meet the
requirements of Section 162(m) if it determines the action to be advisable.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
PROPOSAL TO AMEND THE 1995 STOCK OPTION PLAN.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert W. Howard 51 Vice Chairman and Chief Executive
Officer
Bernard A. Guy 41 President and Chief Operating Officer
Thomas Bowser 43 Executive Vice President, Production
John D. Horak 50 Executive Vice President, Credit Risk
Peter F. Makowiecki 38 Executive Vice President and Chief
Financial Officer
J. Dwaine Rhea 47 Executive Vice President, Operations
Frank A. Frazzitta 34 Senior Vice President, Strategic Alliance
</TABLE>
For biographical summaries of Messrs. Howard and Guy, see "Election of
Directors."
Thomas Bowser has been Executive Vice President of Production since
October 1997. Prior to that date, Mr. Bowser served as Senior Vice President of
the Company's Wholesale Division from August 1995 to October 1997 and as a
Regional Vice President of the Wholesale Division for the northwest region from
January 1993 to August 1995.
John D. Horak has been Executive Vice President, Credit Risk of the
Company since April 1997. From September 1994 until March 1996, he served as
Vice President of Credit Administration at First Interstate Bancorp of Los
Angeles, California. From 1988 to 1994, Mr. Horak served as Vice President of
Credit Management for ITT Consumer Financial Corp. and Senior Vice President,
Credit, of ITT's First Consumer National Bank.
Peter F. Makowiecki has been Executive Vice President and Chief
Financial Officer of the Company since June 1997. He also served as Secretary
until October 1997. From October 1996 to June 1997, Mr. Makowiecki served as
Executive Vice President and Chief Financial Officer of Fleet Mortgage Group
("Fleet"). He served as Senior Vice President and Controller of Fleet from
October 1990 to May 1993 and from February 1994 to October 1996. Mr. Makowiecki
served as Director of Finance of Citicorp Mortgage from May 1993 to February
1994.
J. Dwaine Rhea has been Executive Vice President, Operations of the
Company since September 1997. From 1988 to 1997, Mr. Rhea was employed at Chase
Financial Corporation, most recently as Executive Vice President, Business
Manager, Consumer Products Lending Group.
- 12 -
<PAGE>
Frank A. Frazzitta has been Senior Vice President, Strategic Alliance
of the Company since January 1997. From February 1996 to December 1996, Mr.
Frazzitta served as Vice President, Treasurer and Controller of the Company; he
continued to serve as Treasurer until October 1997. From January 1995 to May
1995, Mr. Frazzitta served as Vice President and Treasurer of Allied Federal
Savings Bank. He served as Assistant Vice President, Cash Management for North
American Mortgage Company from April 1992 to January 1995.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth for the years indicated information
concerning the annual and long-term compensation earned by the Company's Chief
Executive Officer and its four other most highly compensated executive officers
(the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options/SARs Compensation
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert W. Howard(1)........... 1997 $ 253,750 $ 1,295,619 100,000 $ 3,600(4)
Vice Chairman and Chief 1996 250,000 721,289 - 6,019(4)
Executive Officer 1995 60,000 400,250 971,100 6,109(4)
Bernard A. Guy(1)............. 1997 253,860 1,295,619 100,000 3,600(4)
President and Chief 1996 250,000 721,289 - 6,019(4)
Operating Officer 1995 60,000 400,250 971,100 6,109(4)
Peter F. Makowiecki(2)........ 1997 100,000 75,000 50,000 49,325(5)
Executive Vice President
and Chief Financial
Officer
Thomas Bowser................. 1997 117,719 188,487 25,000 3,943(4)
Executive Vice President, 1996 75,000 112,164 37,500 -
Production 1995 63,250 68,000 - -
Frank A. Frazzitta(3)......... 1997 125,111 62,500 - 3,600(4)
Senior Vice President, 1996 75,000 40,000 15,000 -
Strategic Alliance
</TABLE>
(1) Each of Messrs. Howard and Guy entered into a five-year employment agreement
effective January 1, 1996, at an annual salary of $250,000, plus a bonus
equal to 1 1/2% of the Company's pretax earnings. See "Employment
Agreements."
(2) Mr. Makowiecki became an employee of the Company in June 1997.
(3) Mr. Frazzitta became an employee of the Company in February 1996.
(4) Represents cash contributions made by the Company to its 401(k) profit
sharing plan.
(5) Represents moving expenses reimbursed by the Company.
- 13 -
<PAGE>
EMPLOYMENT AGREEMENTS
Mr. Howard serves as Chief Executive Officer and Mr. Guy serves as
President of the Company pursuant to the terms of an employment agreement with
each officer which expires January 1, 2001, unless extended by mutual agreement
between the Company and the officer. Under the terms of each agreement, Messrs.
Howard and Guy each receive an annual salary of $250,000 (adjusted annually in
accordance with a cost of living index and subject to upward adjustment at the
sole discretion of the Company) and a quarterly bonus equal to 1 1/2% of the
Company's pretax earnings each quarter as determined in accordance with
generally accepted accounting principles. In addition to salary and bonus, each
officer receives an automobile allowance of $1,000 per month. In the event of
termination of the officer's employment by the Company without cause (as defined
in the agreement), or due to death or disability, the Company will pay the
present value of compensation and benefits to which the officer would have been
entitled during the remaining term of the agreement, including bonus payments at
the same rate as most recently paid. In the event Mr. Howard or Mr. Guy
voluntarily terminates his employment, he will be restricted from competing with
the Company for one year.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the stock options granted to the Named
Executive Officers during 1997.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------
Percent of
Total Potential Realizable Value at
Number of Options Assumed Annual Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees Exercise for Option Term
Options in Fiscal Price Per Expiration -------------------
Name Granted (1) Year Share (2) Date 5% 10%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Howard 100,000 12.8% $ 10.25 4/23/07 $ 644,617 $ 1,633,586
Bernard A. Guy 100,000 12.8% 10.25 4/23/07 644,617 1,633,586
Peter F. Makowiecki 50,000 6.4% 10.56 12/17/07 332,056 841,496
Thomas Bowser 25,000 3.2% 10.25 4/23/07 161,154 408,397
Frank A. Frazzitta - - - - - -
</TABLE>
(1) The stock options vest 20% per year over a period of five years after
the date of grant except for the options granted to Mr. Makowiecki,
which vest in five equal annual installments beginning June 23, 1998.
(2) The exercise price for all options equaled the fair market value of
such shares at the date of grant.
- 14 -
<PAGE>
FISCAL YEAR-END OPTION VALUES(1)
The following table lists the value of unexercised options held by the
Named Executive Officers at December 31, 1997:
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-
Unexercised Options at Fiscal Year- Money Options at Fiscal Year-End
End (2)
------------------------------------------- ------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert W. Howard 388,400 682,700 $ 3,476,050 $ 4,027,213
Bernard A. Guy 388,400 682,700 3,476,050 4,027,213
Peter F. Makowiecki - 50,000 - 140,750
Thomas Bowser - 55,000 - 139,385
Frank A. Frazzitta 3,000 12,000 6,126 24,504
</TABLE>
(1) The named executive officers neither exercised any options or stock
appreciation rights ("SARs") during 1997 nor held any SARs at December
31, 1997.
(2) In-the-money stock options are options for which the exercise price is
less than the market value of the underlying stock on a particular
date. The values shown in the table are based on the difference between
$13.375, which was the average of the high and low sales prices of the
Common Stock as reported on the New York Stock Exchange on December 31,
1997, and the applicable exercise price.
REPORT ON EXECUTIVE COMPENSATION
The following Report of the Company's Board of Directors is provided in
accordance with the rules and regulations of the SEC. Pursuant to such rules and
regulations, this Report is not to be deemed "soliciting material" filed with
the SEC subject to Regulation 14A or 14C of the SEC or subject to Section 18 of
the Exchange Act.
The Compensation Committee is responsible for reviewing the philosophy
and policies of the Company with respect to executive compensation, for
recommending to the Board senior officer salaries and compensation packages, and
for the administration of the Company's stock option plans. In addition, the
Compensation Committee is responsible for reviewing decisions made by the
Management Compensation Committee (the "MCC"), an internal management committee
formed in November 1997 consisting of Messrs. Bowser, Guy, Horak, Howard,
Makowiecki and Rhea and Ms. Terry Ness, who is Senior Vice President, Human
Resources. The MCC will establish and review policies of the Company relating to
all salaries (other than for executive officers), management incentive programs
and bonus payments and will make recommendations with respect to the grant of
options under the 1995 Stock Option Plan to employees other than executive
officers. In January 1998, the Board appointed a subcommittee of the
Compensation Committee that is authorized to approve grants of options under the
1995 Stock Option Plan and to consider compensation intended to be deductible
pursuant to Section 162(m) of the Internal Revenue Code.
In 1997, the Board of Directors as a whole reviewed certain of the
Company's executive compensation matters and set executive compensation
policies. The compensation packages of Peter F. Makowiecki and J. Dwaine Rhea,
who were hired as executive officers during 1997, were reviewed and approved by
the Board.
- 15 -
<PAGE>
The compensation for Robert W. Howard, the Chief Executive Officer of
the Company, and Bernard A. Guy, President of the Company, is governed by the
terms of an employment agreement with each officer. See "Executive
Compensation--Employment Agreements." The employment agreements were entered
into prior to the time the Company's stock became publicly traded and their
terms were not approved by the Compensation Committee.
Generally, the Company's compensation policies are structured to link
the compensation of the Chief Executive Officer and other executives of the
Company with corporate performance. Through the establishment of short-term and
long-term incentive compensation programs, the Company has attempted to align
the financial interests of its executives with the Company's financial results
and the creation of value for stockholders. The Company's compensation programs
are also designed to be competitive in order to attract top leadership. However,
because the industry increasingly relies on compensation programs contingent
upon annual and long-term financial performance, the Company's actual
compensation levels in any particular year may be above or below those of
competitors.
The Company attempts to set base salaries at a median market rate
supplemented by performance-based variable compensation. A large portion of the
compensation of Messrs. Howard and Guy fluctuates in accordance with the
Company's pretax earnings. A substantial portion of the compensation for Thomas
Bowser, the Company's Executive Vice President, Production, is also linked to
performance.
In addition, the Company awards stock options in order to base a part
of executive compensation on value received by stockholders. During 1997, the
Company granted stock options to a broad range of management employees,
including its executive officers. In general, the size of individual option
grants to executive officers was based on the executive's duties and position
and length of service with the Company.
Section 162(m) of the Internal Revenue Code limits the deductibility of
compensation paid to the Chief Executive Officer and the other Named Executive
Officers to the extent that compensation of a particular executive exceeds
$1,000,000 during a given year, unless certain exceptions apply. The Company has
attempted to structure the compensation paid to executives to maximize
deductibility, although payments under agreements entered into prior to the
Company's initial public offering may be subject to a loss of deduction. The
Company will continue to review the its compensation program to determine the
deductibility of future compensation paid or awarded to its executives and will
seek guidance with respect to changes that will enable the Company to continue
to attract and retain key executives while optimizing the deductibility to the
Company of amounts paid as compensation.
The Board believes that the overall executive compensation program of
the Company has been successful in providing competitive compensation to its
executives, enabling the Company to attract and retain highly qualified
individuals while creating incentives that encourage strong financial
performance and creation of additional shareholder value.
BOARD OF DIRECTORS
H. Wayne Snavely John P. Dewey
Robert W. Howard Allan Van Ruiter
Bernard A. Guy Stephen J. Shugerman
Frank P. Willey
- 16 -
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the Company's total cumulative stockholder
return from June 13, 1996, to December 31, 1997, to the S&P 500 Stock Index and
the Dow Jones Financial Services--Diversified Index--Number 850, which includes
seven companies in the diversified financial services industry.
The information contained in the performance graph shall not be deemed
"soliciting material" or to be "filed" with the SEC, nor shall such information
be incorporated by reference into any future filing under the Securities Act of
1933, as amended, or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing.
The graph is based on an investment of $100 on June 13, 1996 in the
Common Stock at a price of $11.33 or in an index.
<TABLE>
<CAPTION>
JUNE 13, 1996 DEC. 31, 1996 DEC. 31, 1997
<S> <C> <C> <C>
Southern Pacific
Funding Corporation $ 100 $ 183 $ 116
S&P 500 Index 100 112 150
Dow Jones Financial
Services--Diversified
Index 100 125 201
</TABLE>
THERE CAN BE NO ASSURANCE THAT STOCK PERFORMANCE WILL CONTINUE INTO THE
FUTURE WITH THE SAME OR SIMILAR TRENDS DEPICTED IN THE GRAPH ABOVE.
- 17 -
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH CERTAIN RELATED PERSONS
From time to time the Company and its subsidiaries and affiliates make
mortgage loans and consumer loans to its executive officers, directors and
employees. Such loans are made in the ordinary course of business and on the
same terms, including interest rate and collateral, as those prevailing at the
time for comparable transactions with other persons, and do not involve more
than the normal risk of collectibility or present other unfavorable features.
During 1997, one executive officer, Frank A. Frazzitta, was indebted to the
Company in a maximum amount of $244,800, bearing interest at a rate of 7.5% per
annum. The loan was sold into one of the Company's quarterly securitizations
during 1997. See also "Non-Employee Director Compensation."
ARRANGEMENTS WITH ICII AND ITS AFFILIATES
The Company and ICII have entered into agreements for the purpose of
defining their ongoing relationship. The agreements have been developed in the
context of a parent/subsidiary relationship and therefore are not the result of
arm's-length negotiations between independent parties. The Company believes that
such agreements and the transactions provided for therein, taken as a whole, are
fair to both parties, while continuing certain mutually beneficial arrangements.
However, there can be no assurance that each of such agreements, or the
transactions provided for therein, have been effected on terms at least as
favorable to the Company as could have been obtained from unaffiliated parties.
Additional or modified arrangements and transactions may be entered
into by the Company, ICII and their respective affiliates in the future. Any
such future arrangements and transactions will be determined through
negotiations between the Company and ICII; nonetheless, it is possible that
conflicts of interest will develop. The nonemployee directors of the Company who
are not affiliated with ICII or SPB must independently approve all transactions
between the Company and ICII.
The Company has entered into an agreement (the "Tax Agreement") with
ICII for the purposes of (1) providing for the filing of certain tax returns,
(2) allocating certain tax liabilities and (3) establishing procedures for
certain audits or contests of tax liabilities.
Under the Tax Agreement, ICII agreed to indemnify and hold the Company
harmless from any tax liability attributable to periods ending on or before June
1996 in excess of such taxes as the Company had already paid or provided for.
For periods ending after June 1996, the Company will pay its tax liabilities
directly to the appropriate taxing authorities. To the extent that (1) there are
audit adjustments that result in a tax detriment to the Company or (2) the
Company incurs losses that are carried back to an earlier year, and any such
adjustment described in (1) or loss described in (2) results in a benefit to
ICII or its affiliates, then ICII will pay to the Company an amount equal to the
tax benefit as that benefit is realized. ICII also agreed to indemnify the
Company for any liability arising out of the filing of a federal consolidated
return by ICII or any return filed with any state or local tax authority. To the
extent there are audit adjustments that result in any tax detriment to ICII or
any of its affiliates with respect to any period ending on or before June 1996,
and, as a result thereof, the Company for any taxable period after June 1996
realizes a tax benefit, then the Company shall pay to ICII the amount of such
benefit at such time or times as the Company actually realizes such benefit.
ICII generally will control audits and administrative and judicial
proceedings with respect to periods ending on or before June 1996, although ICII
cannot compromise or settle any issue that increases
- 18 -
<PAGE>
the Company's liability without first obtaining the consent of the Company. The
Company generally controls all other audits and administrative and judicial
proceedings.
In November 1996, the Company entered into a Registration Rights
Agreement with ICII, pursuant to which the Company has agreed to register for
sale in the future under the Securities Act of 1933 all of ICII's remaining
shares of the Common Stock subject to certain conditions set forth in the
agreement.
The Company pays a fee of $10,000 per month to ICII for use of data
storage and processing capacity on ICII's general mainframe computer. The
Company expects to continue this arrangement for the foreseeable future. ICII
also provided administrative services with respect to the Company's 401(k)
profit sharing plan until November 1, 1997.
In June 1997, the Company purchased $6.9 million in loans from SPB on
terms comparable to transactions entered into with unrelated third parties.
On July 17, 1997, the Company borrowed $15,000,000 from ICII due on
October 17, 1997, bearing interest at an annual rate of 12 percent. The
indebtedness was repaid on August 11, 1997, together with $125,000 in interest.
STOCKHOLDER PROPOSALS
Stockholders who wish to include proposals for action at the Company's
1999 Annual Meeting of Stockholders must cause their proposals to be received by
the Secretary of the Company not later than December 31, 1998. Such proposals
should be addressed to the Company's Secretary at the address set forth on the
first page of this proxy statement, and may be included in the Company's 1999
proxy statement if they comply with all rules and regulations of the SEC under
the Exchange Act.
By Order of the Board of Directors,
Wendy Beth Oliver
Secretary
- 19 -
<PAGE>
REVOCABLE PROXY
SOUTHERN PACIFIC FUNDING CORPORATION
4949 Meadows Road
Lake Oswego, Oregon 97035
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SOUTHERN PACIFIC FUNDING CORPORATION FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON JUNE 8, 1998.
The undersigned stockholder of Southern Pacific Funding Corporation
hereby appoints Timothy Breedlove and Philip Forbini, or any of them, with full
powers of substitution, to represent and to vote as proxy, as designated, all
shares of common stock of Southern Pacific Funding Corporation held of record by
the undersigned on April 23, 1998, at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at 1:30 p.m. on June 8, 1998, or at any adjournment
or postponement thereof, upon the matters described in the accompanying Notice
of Annual Meeting of Stockholders and Proxy Statement, dated April 30, 1998, and
upon such other matters as may properly come before the Annual Meeting. The
undersigned hereby revokes all prior proxies.
This Proxy, when property executed, will be voted in the manner
directed herein by the undersigned stockholder. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES LISTED IN ITEM 1, FOR THE
PROPOSAL LISTED IN ITEM 2, AND FOR THE PROPOSAL LISTED IN ITEM 3.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE
REVERSE SIDE AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
<TABLE>
<CAPTION>
<S> <C> <C>
1. ELECTION OF SIX DIRECTORS for [ ] FOR all nominees [ ] WITHHOLD
terms of one year each and thereafter (except as other- as to all
until their successors are elected and wise indicated) nominees
qualified. Nominees: H. Wayne
Snavely, Robert W. Howard,
Bernard A. Guy, Stephen J.
Shugerman, E. James Hedemark,
and Frank P. Willey.
To withhold authority to vote FOR any
individual nominee, write that nominee's
name in the space provided:
- -----------------------------------------------------
- 1 -
<PAGE>
2. Ratification of the appointment of [ ] FOR [ ] AGAINST [ ] ABSTAIN
KPMG Peat Marwick LLP as
independent auditors of Southern
Pacific Funding Corporation for the
fiscal year ending December 31, 1998.
3. Proposal to amend the 1995 Stock [ ] FOR [ ] AGAINST [ ] ABSTAIN
Option, Deferred Stock and
Restricted Stock Plan.
The undersigned hereby acknowledges receipt of the Notice
of Annual Meeting of Stockholders of Southern Pacific
Funding Corporation, a Proxy Statement dated April 30,
1998, for the Annual Meeting and the Annual Report to
Stockholders.
PLEASE SIGN AND DATE BELOW AND RETURN PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
Date
Signature
Please sign name exactly as it appears on this proxy.
Joint owners should each sign personally. When signing as
attorney, executor, administrator, trustee or guardian,
please give your full title as such. Corporate or
partnership proxies should be signed by an authorized
officer.
</TABLE>
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April 30, 1998
To: All 401(K) Plan Participants
Re: Annual Meeting of Stockholders of Southern Pacific Funding Corporation
to be held on June 8, 1998
Dear Participants:
As you know, employees of Southern Pacific Funding Corporation (the "Company")
are eligible to participate in the Southern Pacific Funding Corporation 401(K)
Plan and Trust (the "401(K) Plan"). The 401(K) Plan includes an investment
alternative to purchase the stock of the Company using funds from your 401(K)
Plan account (the "401(K) Stock Fund"). These shares are held by KeyTrust
Company National Association as trustee (the "Trustee") for the 401(K) Plan.
Interests in shares that you have purchased in the 401(K) Stock Fund are being
held by the Trustee for your benefit. The 401(K) Plan allows participants
(including former participants and beneficiaries) to direct certain voting
rights at the Company's stockholder meetings.
In connection with the Annual Meeting of Stockholders of Southern Pacific
Funding Corporation to be held on June 8, 1998, enclosed are the following
documents:
1. Proxy Card (if you did not have any shares of Company stock
allocated to your 401(K) Stock Fund as of April 23, 1998, there will be no Proxy
Card enclosed with this letter);
2. Proxy Statement dated April 30, 1998, including a Notice of Annual
Meeting of Stockholders; and
3. 1998 Annual Report to Stockholders.
As a participant in the 401(K) Plan, you have the right to direct the Trustee
how to vote the shares held in the 401(K) Stock Fund as of April 23, 1998, the
record date for the Annual Meeting ("Record Date"), on the proposals to be voted
on by the Company's stockholders. Your rights as a participant in the 401(K)
Plan will vary depending on whether the matter being voted on is an "Anticipated
Proposal" or an "Unanticipated Proposal".
ANTICIPATED PROPOSALS
In general, 401(K) Plan participants have the right to direct how the Trustee,
as Trustee for the 401(K) Plan, should vote the shares in the 401(K) Stock Fund.
In general, the Trustee will vote FOR and AGAINST each proposal specified on the
Proxy Card in the same proportions as instructions to cast votes FOR and AGAINST
such proposal are given by 401(K) Plan participants entitled to give voting
instructions. The instructions given by each 401(K) Plan participant will be
weighted according to the value of his or her respective interest in the 401(K)
Stock Fund as of April 23, 1998. For purposes of the 401(K) Plan, if you ABSTAIN
as to a proposal, or if you do not return your Proxy Card to the Trustee by May
29, 1998, your instructions will not be counted.
UNANTICIPATED PROPOSALS
It is possible, although very unlikely, that proposals other than those
specified on the Proxy Card will be presented for stockholder action at the 1998
Annual Meeting of Stockholders. If this should happen, the Trustee will vote
upon such matters in its discretion, or will cause such matters to be voted upon
in the discretion of the individuals named in any proxies executed by it.
Your Proxy is very important. You are encouraged to review the enclosed
materials carefully and to complete, sign and date the enclosed Proxy Card to
signify your instructions to the Trustee. You should then mail the completed
card using the enclosed postage-paid return envelope. The Proxy Card must be
received by May 29, 1998.
Please note that the voting instructions will be kept confidential by the
Trustee. If you have any questions regarding your voting rights or the terms of
the 401(K) Plan, please call Jennifer Struble at 503-540-5415, ext. 3332.
Very truly yours,
Southern Pacific Funding Corporation
Enclosures
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SOUTHERN PACIFIC FUNDING CORPORATION
1995 STOCK OPTION, DEFERRED STOCK
AND
RESTRICTED STOCK PLAN
(as amended March 30, 1998)
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
(a) This plan is intended to implement and govern the Stock
Option, Deferred Stock and Restricted Stock Plan (the "Plan") of Southern
Pacific Funding Corporation, a California corporation (the "Company") . The Plan
was adopted by the Board on November 1, 1995, subject to the approval of the
Company's shareholders. The purpose of the Plan is to enable the Company and its
Subsidiaries, to obtain and retain competent personnel who will contribute to
the Company's success by their ability, ingenuity and industry, and to provide
incentives to such personnel and members that are linked directly to increases
in shareholder value, and will therefore inure to the benefit of all
shareholders of the Company.
(b) For purposes of the Plan, the following terms shall be
defined as set forth below:
(1) "Award" means any award of Deferred Stock, Restricted
Stock, Stock Appreciation Right, Limited Stock Appreciation Right or Stock
Option.
(2) "Board" means the Board of Directors of the Company.
(3) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto.
(4) "Committee" means the Compensation Committee of the Board
plus such additional directors of the Company as the Board shall designate.
(5) "Company" means Southern Pacific Funding Corporation, a
California corporation organized under the laws of the State of California (or
any successor corporation).
(6) "Deferred Stock" means an award made pursuant to Section 7
below of the right to receive Stock at the end of a specified deferral period.
(7) "Disability" means permanent and total disability as
determined under the Company's disability program or policy.
(8) "Effective Date" shall mean the date provided pursuant to
Section 16.
(9) "Eligible Employee" means an employee of the Company or
any Subsidiary eligible to participate in the Plan pursuant to Section 4.
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(10) "Fair Market Value" means, as of any given date, with
respect to any Awards granted hereunder, at the discretion of the Committee and
subject to such limitations as the Committee may impose, (A) the closing sale
price of the Stock on such date as reported in the Western Edition of the Wall
Street Journal Composite Tape or (B) the average on such date of the closing
price of the Stock on each day on which the Stock is traded over a period of up
to twenty trading days immediately prior to such date or (C) if on the date for
which current fair market value is to be determined the Stock is not listed on
any securities exchange or quoted in the NASDAQ System or over-the-counter
market, the current fair market value of the Stock shall be the highest price
per share which the Company could then obtain from a willing buyer (not a
current employee or director) for shares of the Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by the Board.
(11) "Incentive Stock Option" means any Stock option intended
to be designated as an "incentive stock option" within the meaning of Section
422 of the Code.
(12) "IPO" means the Company's initial public offering of its
Stock on Registration Statement Form S-1.
(13) "Limited Stock Appreciation Right" means a Stock
Appreciation Right that can be exercised only in the event of a Change of
Control as defined in Section 10.
(14) "Non-Qualified Stock Option" means any Stock Option that
is not an Incentive Stock Option, including any Stock Option that provides (as
of the time such option is granted) that it will not be treated as an Incentive
Stock Option.
(15) "Parent Corporation" means any corporation (other than
the Company) in an unbroken chain of corporations ending with the Company, if
each of the corporations other than the Company owns stock possessing 50% or
more of the combined voting power of all classes of stock in one of the other
corporations in the chain.
(16) "Participant" means any Eligible Employee selected by the
Committee, pursuant to the Committee's authority in Section 2 below, to receive
grants of Stock Options or Awards or any combination of the foregoing.
(17) "Restricted Period" means the period set by the Committee
as it pertains to Deferred Stock or Restricted Stock awards pursuant to Section
7.
(18) "Restricted Stock" means an award of shares of Stock that
is subject to restrictions under Section 7 that will lapse with the passage of
time or upon the attainment of performance objectives.
(19) "Stock" means the Common Stock, no par value per share,
of the Company.
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(20) "Stock Appreciation Right" means the right pursuant to an
award granted under Section 6 below to receive an amount equal to the difference
between (i) the Fair Market Value, as of the date such Stock Appreciation Right
or portion thereof is surrendered, of the shares of Stock covered by such right
or such portion thereof and (ii) the aggregate exercise price of such right or
such portion thereof.
(21) "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5.
(22) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if each
of the corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
(a) The Plan shall be administered by the Committee which
shall be appointed by the Board and which shall serve at the pleasure of the
Board.
(b) The Committee shall have the power and authority to grant
to Eligible Employees, pursuant to the terms of the Plan: (A) Stock Options, (B)
Stock Appreciation Rights, (C) Deferred Stock, (D) Restricted Stock, or (E) any
combination of the foregoing.
In particular, the Committee shall have the authority;
(1) to select those employees of the Company or its
Subsidiaries who are Eligible Employees;
(2) to determine whether and to what extent Stock Options,
Stock Appreciation Rights, Deferred Stock, Restricted Stock or a combination of
the foregoing, are to be granted to Eligible Employees hereunder;
(3) to determine the number of shares of Stock to be covered
by each such Award;
(4) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any such Award including, but not limited to, (x)
the restricted period applicable to Deferred Stock or Restricted Stock awards,
(y) the date or dates on which restrictions applicable to such Deferred Stock or
Restricted Stock shall lapse during such period, and (z) when and in what
increments shares covered by Stock Options may be purchased; and
(5) to determine the terms and conditions, not inconsistent
with the terms of the Plan, which shall govern all written instruments
evidencing the Stock Options, Stock Appreciation Rights, Deferred Stock,
Restricted Stock or any combination of the foregoing.
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(c) The Committee shall have the authority to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan as
it shall from time to time deem advisable; to interpret the terms and provisions
of the Plan and any Award issued under the Plan; and to otherwise supervise the
administration of the Plan.
(d) All decisions made by the Committee pursuant to the
provisions of the Plan shall be final and binding on all persons, including the
Company and its Subsidiaries and the Participants.
SECTION 3. STOCK SUBJECT TO PLAN.
(a) The total number of shares of Stock reserved and available
for issuance under the Plan shall be three million four hundred forty-two
thousand two hundred (3,442,200) shares of Stock. Such shares shall consist of
authorized but unissued shares.
(b) To the extent that (i) a Stock Option expires or is
otherwise terminated without being exercised or (ii) any shares of Stock subject
to any Deferred Stock or Restricted Stock award granted hereunder are forfeited,
such shares shall again be available for issuance in connection with future
Awards under the Plan. If any shares of Stock have been pledged as collateral
for indebtedness incurred by a Participant in connection with the exercise of a
Stock Option and certificates representing such shares are surrendered to the
Company in satisfaction of such indebtedness, such shares shall again be
available for issuance in connection with future Awards under the Plan.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, a substitution or adjustment shall be made in (i) the
aggregate number of shares reserved for issuance under the Plan, and (ii) the
kind, number and option price of shares subject to outstanding Stock Options
granted under the Plan as may be determined by the Committee, in its sole
discretion, provided that the number of shares subject to any Award shall always
be a whole number. Such other substitutions or adjustments shall be made as may
be determined by the Committee, in its sole discretion. An adjusted option price
shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company or its
Subsidiaries who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company or its Subsidiaries, and the
directors of the Company and its Subsidiaries, shall be eligible to be granted
Non-Qualified Stock Options, Stock Appreciation Rights, and Deferred Stock or
Restricted Stock awards hereunder. Officers and other key employees of the
Company or its Subsidiaries shall also be eligible to be granted Incentive Stock
Options hereunder. The Participants under the Plan shall be selected from time
to time by the Committee, in its sole discretion, from among Eligible Employees
recommended by the senior management of the
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Company, and the Committee shall determine, in its sole discretion, the number
of shares covered by each Award.
SECTION 5. STOCK OPTION FOR ELIGIBLE EMPLOYEES.
(a) Stock Options may be granted to Eligible Employees alone
or in addition to other Awards granted under the Plan. Any Stock Option granted
under the Plan shall be in such form as the Committee may from time to time
approve, and the provisions of Stock Options need not be the same with respect
to each optionee. Recipients of Stock Options shall enter into a Stock Option
Agreement with the Company, in such form as the Committee shall determine, which
agreement shall set forth, among other things, the exercise price of the option,
the term of the option and provisions regarding exercisability of the option
granted thereunder.
i) The Stock Options granted under the Plan to
Eligible Employees may be of two types: (x) Incentive
Stock Options and (y) Non-Qualified Stock Options.
ii) The Committee shall have the authority to grant
any Eligible Employee (x) Incentive Stock Options
(provided such Eligible Employee is also an employee
of the Company or its Subsidiaries), (y)
Non-Qualified Stock Options, or (z) both types of
Stock Options (in each case with or without Stock
Appreciation Rights or Limited Stock Appreciation
Rights). To the extent that any Stock Option does not
qualify as an Incentive Stock Option, it shall
constitute a separate Non-Qualified Stock Option.
(b) Stock Options granted under this Section 5 shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:
i) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined
by the Committee at the time of grant but shall be
not less than 100% of the Fair Market Value of the
Stock on such date. If an employee owns or is deemed
to own (by reason of the attribution rules applicable
under Section 424(d) of the Code) more than 10% of
the combined voting power of all classes of stock of
the Company or any Parent Corporation or Subsidiary
and an Incentive Stock Option is granted to such
employee, the option price of such Incentive Stock
Option (to the extent required by the Code at the
time of grant) shall be no less than 110% of the Fair
Market Value of the Stock on the date such Incentive
Stock Option is granted.
ii) Option Term. The term of each Stock Option shall
be fixed by the Committee, but no Stock Option shall
be exercisable more than ten years after the date
such Stock Option is granted; provided, however, that
if an
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employee owns or is deemed to own (by reason of the
attribution rules of Section 424(d) of the Code) more
than 10% of the combined voting power of all classes
of stock of the Company or any Parent Corporation or
Subsidiary and an Incentive Stock Option is granted
to such employee, the term of such Incentive Stock
Option (to the extent required by the Code at the
time of grant) shall be no more than five years from
the date of grant.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee at or after grant; provided, however, that, except as provided
herein or unless otherwise determined by the Committee at or after grant, Stock
Options shall be exercisable one year following the date of grant of the option.
If the Committee provides, in its discretion, that any Stock Option is
exercisable only in installments, the Committee may waive such installment
exercise provisions at any time in whole or in part based on such factors as the
Committee may determine in its sole discretion.
(d) Method of Exercise. Subject to Section 5(c) above, Stock
Options may be exercised in whole or in part at any time during the option
period, by giving written notice of exercise to the Company specifying the
number of shares to be purchased, accompanied by payment in full of the purchase
price in cash or its equivalent, as determined by the Committee. As determined
by the Committee, in its sole discretion, payment in whole or in part may also
be made (i) in the form of unrestricted Stock already owned by the optionee, or,
in the case of the exercise of a Non-Qualified Stock Option, Restricted Stock
subject to an Award hereunder (based, in each case, on the Fair Market Value of
the Stock on the date the option is exercised), (ii) by cancellation of any
indebtedness owed by the Company to the optionee, (iii) by a full recourse
promissory note executed by the optionee, or (iv) by any combination of the
foregoing; provided, however, that in the case of an Incentive Stock Option, the
right to make payment in the form of already owned shares may be authorized only
at the time of grant. An optionee shall generally have the rights to dividends
and other rights of a stockholder with respect to shares subject to the option
only after the optionee has given written notice of exercise, has paid in full
for such shares, and, if requested, has given the representation described in
paragraph (a) of Section 11.
(e) The Committee may require the voluntary surrender of all
or a portion of any Stock Option granted under the Plan as a condition precedent
to a grant of a new Stock Option. Subject to the provisions of the Plan, such
new Stock Option shall be exercisable at the price, during such period and on
such other terms and conditions as are specified by the Committee at the time
the new Stock Option is granted; provided, however, should the Committee so
require, the number of shares subject to such new Stock Option shall not be
greater than the number of shares subject to the surrendered Stock Option. Upon
their surrender, the Stock Options shall be canceled and the shares previously
subject to such canceled Stock Options shall again be available for the grants
of Stock Options and other Awards hereunder.
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(f) Loans. The Company may make loans available to Stock
Option holders as the Committee, in its discretion, may determine in connection
with the exercise of outstanding options granted under the Plan. Such loans
shall (i) be evidenced by promissory notes entered into by the holders in favor
of the Company, (ii) be subject to the terms and conditions set forth in this
Section 5(f) and such other terms and conditions, not inconsistent with the
Plan, as the Committee shall determine, (iii) bear interest, if any, at such
rate as the Committee shall determine and (iv) be subject to Board approval. In
no event may the principal amount of any such loan exceed the sum of (x) the
exercise price less the par value of the shares of Stock covered by the option,
or portion thereof, exercised by the holder and (y) any Federal, state, local
income tax attributable to such exercise. The initial term of the loan, the
schedule of payments of principal and interest under the loan, the extent to
which the loan is to be with or without recourse against the holder with respect
to principal or interest and the conditions upon which the loan will become
payable in the event of the holder's termination of employment shall be
determined by the Committee; provided, however, that the term of the loan,
including extensions, shall not exceed seven years. Unless the Committee
determines otherwise, when a loan shall have been made, shares of Common Stock
having a Fair Market Value at least equal to the principal amount of the loan
shall be pledged by the holder to the Company as security for payment of the
unpaid balance of the loan, and such pledge shall be evidenced by a pledge
agreement, the terms of which shall be determined by the Committee, in its
discretion; provided, however, that each loan shall comply with all applicable
laws, regulations and rules of the Board of Governors of the Federal Reserve
System and any other governmental agency having jurisdiction.
(g) Non-transferability of Options. No Stock Options shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee. To the extent such Options and
intended to qualify as Incentive Stock Options no disposition of an Optioned
Share may be made by optionee within two (2) years from the date of the granting
of the Option(s) nor within one (1) year after the transfer of such Optioned
Share to him.
(h) Termination by Death. If an optionee's employment with the
Company and any Subsidiary terminates by reason of death, the Stock Option may
thereafter be immediately exercised, to the extent then exercisable (or on such
accelerated basis as the Committee shall determine at or after grant), by the
legal representative of the estate or by the legatee of the optionee under the
will of the optionee, for a period of twelve months (or such shorter period as
the Committee shall specify at grant) from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is shorter.
(i) Termination by Reason or Disability. If an optionee's
employment with the Company or any Subsidiary terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of such termination (or on such
accelerated basis as the Committee shall determine at the time of grant), for a
period of twelve months (or such shorter period as the Committee shall specify
at grant) from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is shorter;
provided, however, that, if the optionee dies
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within such twelve-month period (or such shorter period as the Committee shall
specify at grant) and prior to the expiration of the stated term of such Stock
Option, any unexercised Stock Option held by such optionee shall thereafter be
exercisable to the extent to which it was exercisable at the time of death for a
period of twelve months (or such shorter period as the Committee shall specify
at grant) from the time of death or until the expiration of the stated term of
such Stock Option, whichever period is shorter. In the event of a termination of
employment by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified
Stock Option.
(j) Other Termination. Except as otherwise provided in this
paragraph or otherwise determined by the Committee, if an optionee's employment
with the Company or any Subsidiary terminates for any reason other than death or
Disability, the Stock Option may be exercised until the earlier to occur of (A)
three months from the date of such termination or (B) the expiration of such
Stock Option's term.
(k) Annual Limit on Incentive Stock Options. To the extent
that the aggregate Fair Market Value (determined as of the date the Incentive
Stock Option is granted) of the shares of Stock with respect to which Incentive
Stock Options granted under this Plan and all other option plans of the Company,
its Parent Corporation and any Subsidiary become exercisable for the first time
by an optionee during any calendar year exceed $100,000, such options shall be
treated as Non-Qualified Stock Options.
(l) Annual Limit on Stock Options. More than one Stock Option
may be granted to an Eligible Employee during any fiscal year of the Company,
but the aggregate number of shares of Stock underlying Stock Options granted to
any Eligible Employee during any such fiscal year shall not exceed fifty percent
(50%) of the shares of Stock reserved for issuance under the Plan pursuant to
Section 3 of the Plan.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be
granted to Eligible Employees either alone ("Free Standing Rights") or in
conjunction with all or part of any Stock Option granted under the Plan
("Related Rights"). In the case of a Non-Qualified Stock Option, Related Rights
may be granted either at or after the time of the grant of such Stock Option. In
the case of an Incentive Stock Option, Related Rights may be granted only at the
time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that,
unless otherwise provided by the Committee at the time of grant, a Related Right
granted with respect to less than the full number of shares covered by a related
Stock Option shall only be reduced if and to the extent that the number of
shares covered by the exercise or termination of the related Stock Option
exceeds the number of shares not covered by the Stock Appreciation Right.
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A Related Right may be exercised by an optionee, in accordance
with paragraph (b) of this Section 6, by surrendering the applicable portion of
the related Stock Option. Upon such exercise and surrender, the optionee shall
be entitled to receive an amount determined in the manner prescribed in
paragraph (b) of this Section 6. Stock Options which have been so surrendered,
in whole or in part, shall no longer be exercisable to the extent the Related
Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be
subject to such terms and conditions, not inconsistent with the provisions of
the Plan, as shall be determined from time to time by the Committee, including
the following;
i) Stock Appreciation Rights that are Related Rights
("Related Stock Appreciation Rights") shall be
exercisable only at such time or times and to the
extent that the Stock Options to which they relate
shall be exercisable in accordance with the
provisions of Section 5 and this Section 6 of the
Plan; provided, however, that any Related Stock
Appreciation Right shall not be exercisable during
the first six months of the term of the Related Stock
Appreciation Right, except that this additional
limitation shall not apply in the event of death or
Disability of the optionee prior to the expiration of
the six-month period.
ii) Upon the exercise of a Related Stock Appreciation
Right, an optionee shall be entitled to receive up
to, but not more than, an amount in cash or that
number of shares of Stock (or in some combination of
cash and shares of Stock) equal in value to the
excess of the Fair Market Value of one share of Stock
over the option price per share specified in the
related Stock Option multiplied by the number of
shares in respect of which the Related Stock
Appreciation Right shall have been exercised, with
the Committee having the right to determine the form
of payment.
(c) Related Stock Appreciation Rights shall be transferable
only when and to the extent that the underlying Stock Option would be
transferable under paragraph (g) of Section 5 of the Plan.
(d) Upon the exercise of a Related Stock Appreciation Right,
the Stock Option or part thereof to which such Related Stock Appreciation Right
is related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 of the Plan on the number of shares of Stock
to be issued under the Plan, but only to the extent of the number of shares
issued under the Related Stock Appreciation Right.
(e) A Related Stock Appreciation Right granted in connection
with an Incentive Stock Option may be exercised only if and when the market
price of the stock subject to an Incentive Stock Option exceeds the exercise
price of such Stock Option.
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(f) Stock Appreciation Rights that are Free Standing Rights
("Free Standing Stock Appreciation Rights") shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee at or after grant; provided, however, that Free Standing Stock
Appreciation Rights shall not be exercisable during the first six months of the
term of the Free Standing Stock Appreciation Right, except that this limitation
shall not apply in the event of death or Disability of the recipient of the Free
Standing Stock Appreciation Right prior to the expiration of the six-month
period.
(g) The term of each Free Standing Stock Appreciation Right
shall be fixed by the Committee, but no Free Standing Stock Appreciation Right
shall be exercisable more than ten years after the date such right is granted.
(h) Upon the exercise of a Free Standing Stock Appreciation
Right, a recipient shall be entitled to receive up to, but not more than, an
amount in cash or that number of shares of Stock (or any combination of cash or
shares of Stock) equal in value to the excess of the Fair Market Value of one
share of Stock over the price per share specified in the Free Standing Stock
Appreciation Right (which shall be no less than 100% of the Fair Market Value of
the Stock on the date of grant) multiplied by the number of shares in respect to
which the right is being exercised, with the Committee having the right to
determine the form of payment.
(i) No Free Standing Stock Appreciation Right shall be
transferable by the recipient otherwise than by will or by the laws of descent
and distribution, and all such rights shall be exercisable, during the
recipient's lifetime, only by the recipient.
(j) In the event of the termination of an employee who has
received Free Standing Stock Appreciation Rights, such rights shall be
exercisable to the same extent that a Stock Option would have been exercisable
in the event of the termination of the optionee.
SECTION 7. DEFERRED STOCK AND RESTRICTED STOCK.
(a) General. Deferred Stock and Restricted Stock awards may be
issued to Eligible Employees either alone or in addition to other Awards granted
under the Plan. The Committee shall determine to whom, and the time or times at
which, grants of Deferred Stock or Restricted Stock awards will be made; the
number of shares to be awarded; the price, if any, to be paid by the recipient
of Deferred Stock or Restricted Stock awards; the Restricted Period (as defined
in paragraph (c) hereof) applicable to Deferred Stock or Restricted Stock
awards; the performance objective applicable to Deferred Stock or Restricted
Stock awards; the date or dates on which restrictions applicable to such
Deferred Stock or Restricted Stock awards shall lapse during such Restricted
Period; and all other conditions of the Deferred Stock or Restricted Stock
awards. The Committee may also condition the grant of Deferred Stock or
Restricted Stock awards upon the exercise of Stock Options, or upon such other
criteria as the Committee may determine, in its sole discretion. The provisions
of Deferred Stock or Restricted Stock awards need not be the same with respect
to each recipient.
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(b) Awards and Certificates. The prospective recipient of a
Deferred Stock or Restricted Stock award shall not have any rights with respect
to such Award, unless and until such recipient has executed an agreement
evidencing the Award (an "Award Agreement") and has delivered a fully executed
copy thereof to the Company, within a period of sixty days (or such other period
as the Committee may specify after the Award date).
Each Participant who is awarded Restricted Stock shall be
issued a stock certificate in respect of such shares of Restricted Stock; and
such certificate shall be registered in the name of the Participant, and shall
bear an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award, substantially in the following form:
The shares of stock represented by this certificate are subject to
restrictions and limitations on transferability contained in the
Southern Pacific Funding Corporation 1995 Stock Option, Deferred Stock
and Restricted Stock Plan (the "Plan") and a Restricted Stock Award
Agreement (the "Agreement") entered into between the registered owner
of the shares of stock represented by this certificate and Southern
Pacific Funding Corporation, a California corporation (the "Company") .
Copies of the Plan and the Agreement will be furnished by the Company
to any holder of this certificate upon request and without charge.
The Company shall require that the stock certificates
evidencing such shares be held in the custody of the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the Participant shall have delivered a stock power,
endorsed in blank, relating to the Stock covered by such Award.
With respect to Deferred Stock awards, at the expiration of
the Restricted Period, stock certificates in respect of such shares of Deferred
Stock shall be delivered to the Participant, or his legal representative, in a
number equal to the shares of Stock covered by the Deferred Stock award.
(c) Restriction and Conditions. The Deferred Stock or
Restricted Stock awards granted pursuant to this Section 7 shall be subject to
the following restrictions and conditions:
(i) Subject to the provisions of the Plan and the
Deferred Stock or Restricted Stock Award Agreements,
during such period as may be set by the Committee
commencing on the grant date (the "Restricted
Period"), the Participant shall not be permitted to
sell, transfer, pledge or assign shares of Deferred
Stock awarded under the Plan. Within these limits,
the Committee may, in its sole discretion, provide
for the lapse of such restrictions in installments
and may accelerate or waive such restrictions in
whole or in part based on such factors and such
circumstances as the Committee may determine, in its
sole discretion, including, but not limited to, the
attainment of certain performance related goals, the
Participant's termination, death or Disability or the
occurrence of a "Change of Control" as defined in
Section 10 below.
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(ii) With respect to Deferred Stock awards, the
Participant shall generally not have the rights of a
stockholder of the Company, including the right to
vote the shares during the Restricted Period;
provided, however, that dividends declared during the
Restricted Period with respect to the number of
shares covered by a Deferred Stock award shall be
paid to the Participant. Certificates for shares of
unrestricted Stock shall be delivered to the
Participant promptly after, and only after, the
Restricted Period shall expire without forfeiture in
respect of such shares of Deferred Stock, except as
the Committee shall otherwise determine. With respect
to the shares of Restricted Stock, except as provided
in paragraph (b) of this Section 7, the Participant
shall have all of the rights of a shareholder of the
Company, including the right to vote the shares, and
the right to receive any dividends thereon during the
Restricted Period.
(iii) Subject to the provisions of the Deferred Stock
or Restricted Stock Award Agreement and this Section
7, upon termination of employment for any reason
during the Restricted Period, all shares still
subject to restriction shall be forfeited by the
Participant, and the Participant shall only receive
the amount, if any, paid by the Participant for such
Deferred Stock or Restricted Stock, plus simple
interest at 8% per year.
SECTION 8. AMENDMENT AND TERMINATION.
(a) The Board may amend, alter or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made that would impair the
rights of the Participant under any Award theretofore granted without such
Participant's consent, or that without the approval of the stockholders (as
described below) would:
(i) except as provided in Section 3, increase the
total number of shares of Stock reserved for the
purpose of the Plan;
(ii) except as provided in this Plan, decrease the
option price of any Stock Option to less than 100% of
the Fair Market Value on the date of the grant of the
option;
(iii) materially change the employees or class of
employees eligible to participate in the Plan;
(iv) materially increase the benefits accruing to
Participants under the Plan; or
(v) extend the maximum option period under paragraph
(b) of Section 5 of the Plan.
(b) The Committee may amend the terms of any Award theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his or her consent.
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SECTION 9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for
incentive compensation. With respect to any payments not yet made to a
Participant or optionee by the Company, nothing contained herein shall give any
such Participant or optionee any rights that are greater than those of a general
creditor of the Company.
SECTION 10. CHANGE OF CONTROL.
The following acceleration and valuation provisions shall
apply in the event of a "Change of Control", as defined in paragraph (b) of this
Section 10:
(a) in the event of a "Change of Control," unless otherwise
determined by the Committee or the Board in writing at or after grant (including
under any individual agreement), but prior to the occurrence of such Change of
Control;
(i) any Stock Appreciation Rights outstanding for at
least six months and any Stock Options awarded under
the Plan not previously exercisable and vested shall
become fully exercisable and vested;
(ii) the restrictions applicable to any Restricted
Stock or Deferred Stock awards under the Plan shall
lapse, and such shares and Awards shall be deemed
fully vested;
(iii) any indebtedness incurred pursuant to Section
5(f) above shall be forgiven and the collateral
pledged in connection with any such loan shall be
released; and
(iv) the value of all outstanding Stock Options,
Stock Appreciation Rights, Limited Stock Appreciation
Rights, Restricted Stock and Deferred Stock awards
shall, to the extent determined by the Committee at
or after grant, be cashed out on the basis of the
"Change of Control Price" (as defined in paragraph
(c) of this Section 10) as of the date the Change of
Control occurs or such other date as the Committee
may determine prior to the Change of Control.
(b) For purposes of paragraph (a) of this Section 10, a
"Change of Control" shall be deemed to have occurred if;
(i) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of
1934 (the "Exchange Act") (other than the Company;
any trustee or other fiduciary holding securities
under an employee benefit plan of the Company; or any
company owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of the Stock of the
Company) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company
(not including in the securities beneficially owned
by such Person or any securities acquired directly
from the Company or its affiliates) representing 30%
or more of the combined voting power of the Company's
then outstanding securities; or
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(ii) during any period of two consecutive years (not
including any period prior to the Effective Date),
individuals who at the beginning of such period
constitute the Board, and any new director (other
than a director designated by a person who has
entered into an agreement with the Company to effect
a transaction described in clause (i), (iii) or (iv)
of this Section 10(b)) whose election by the Board or
nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute at least
a majority thereof; or
(iii) the shareholders of the Company approve a
merger or consolidation of the Company with any other
corporation, other than (A) a merger or consolidation
which would result in the voting securities of the
Company outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity), in combination
with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of
the Company, at least 75% of the combined voting
power of the voting securities of the Company or such
surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or
consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no person acquires more than
50% of the combined voting power of the Company's
then outstanding securities; or
(iv) the shareholders of the Company approve a plan
of complete liquidation of the Company or an
agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets.
(c) For purposes of this Section 10, "Change of Control Price"
means the higher of (i) the highest price per share paid or offered in any
transaction related to a Change of Control of the Company or (ii) the highest
price per share paid in any transaction reported on the exchange or national
market system on which the Stock is listed, at any time during the preceding
sixty day period as determined by the Committee, except that, in the case of
Incentive Stock Options and Stock Appreciation Rights or Limited Stock
Appreciation Rights relating to Incentive Stock Options, such price shall be
based only on transactions reported for the date on which the Committee decides
to cash out such options.
SECTION 11. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares
pursuant to a Stock Option to represent to and agree with the Company in writing
that such person is acquiring the shares without a view to distribution thereof.
The certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan
shall be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commissions, any
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<PAGE>
stock exchange upon which the Stock is then listed, and any applicable Federal
or state securities law, and the Committee may cause a legend or legends to be
placed on any such certificates to make appropriate reference to such
restrictions.
(b) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to shareholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan shall not confer upon any employee of the Company or any Subsidiary any
right to continued employment with the Company or a Subsidiary, as the case may
be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(c) Each Participant shall, no later than the date as of which
the value of an Award first becomes includable in the gross income of the
Participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of, any Federal,
state, or local taxes of any kind required by law to be withheld with respect to
the Award. The obligations of the Company under the Plan shall be conditional on
such payment or arrangements, and the Company (and, where applicable, its
Subsidiaries) shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the Participant.
(d) No member of the Board or the Committee, nor any officer
or employee of the Company acting on behalf of the Board or the Committee, shall
be personally liable for any action, determination, or interpretation taken or
made in good faith with respect to the Plan, and all members of the Board or the
Committee and each and any officer or employee of the Company acting on their
behalf shall, to the extent permitted by law, be fully indemnified and protected
by the Company in respect of any such action, determination or interpretation.
SECTION 12. SPECIFIC PERFORMANCE.
The Stock Options granted under this Plan and the Shares
issued pursuant to the exercise of such Stock Options cannot be readily
purchased or sold in the open market, and, for that reason among others, the
Company and its stockholders will be irreparably damaged in the event that this
Plan is not specifically enforced. In the event of any controversy concerning
the right or obligation to purchase or sell any such Option or Optioned Stock,
such right or obligation shall be enforceable in a court of equity by a decree
of a specific performance. Such remedy shall, however, be cumulative and not
exclusive, and shall be in addition to any other remedy which the parties may
have.
SECTION 13. INVALID PROVISION.
In the event that any provision of this Plan is found to be
invalid or otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein invalid or unenforceable, and all
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<PAGE>
such other provisions shall be given full force and effect to the same extent as
though the invalid unenforceable provision was not contained herein.
SECTION 14. APPLICABLE LAW.
This Plan shall be governed by and construed in accordance
with the laws of the State of California.
SECTION 15. SUCCESSORS AND ASSIGNS.
This Plan shall be binding on and inure to the benefit of the
Company and the employees to whom an Option is granted hereunder, and such
employees' heirs, executors, administrators, legatees, personal representatives,
assignees and transferees.
SECTION 16. EFFECTIVE DATE OF PLAN.
The Plan became effective (the "Effective Date") on November
1, 1995.
SECTION 17. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Deferred Stock or
Restricted Stock award shall be granted pursuant to the Plan on or after the
tenth anniversary of the Effective Date, but Awards theretofore granted may
extend beyond that date.
IN WITNESS WHEREOF, pursuant to the due authorization and
adoption of this plan by the Board on the day and year first above written, the
Company has caused this Plan to be duly executed by its duly authorized
officers.
SOUTHERN PACIFIC FUNDING CORPORATION
By: /s/ ROBERT W. HOWARD
Robert W. Howard,
President
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