THE SAN FRANCISCO COMPANY
550 Montgomery Street, 10th Floor
San Francisco, California 94111
December 6, 1996
Dear Stockholder:
You are cordially invited to attend the 1996 Annual Meeting of
Stockholders (the "Annual Meeting") of The San Francisco Company (the
"Company"), to be held on December 18, 1996, at 10:00 a.m. local time, in
the Boardroom of the Company at 550 Montgomery Street, 11th Floor, San
Francisco, California, 94111. Enclosed are the Notice of the Annual Meeting,
a Proxy Statement describing the business to be transacted at the Annual
Meeting, and proxy cards for use in voting at the Annual Meeting. Separate
proxy cards are provided for the holders of the Company's Class A
Common Stock, $0.01 par value (the "Common Stock"), of the Company's 8%
Series B Convertible Preferred Stock, $0.01 par value (the "Series B
Preferred Stock"), and of the Company's 9% Series D Perpetual Preferred
Stock, $0.01 par value (the "Series D Preferred Stock"). A copy of the
Company's Annual Report on Form 10-K for the twelve months ended December 31,
1995 (the "1995 Annual Report") and the Quarterly Report on Form 10-Q for
the three and nine months ended September 30, 1996 accompany the Proxy
Statement.
At the Annual Meeting, stockholders will be asked:
(i) to elect nine (9) of the nine (9) authorized directors of the
Company, three (3) to serve for one-year terms, three (3) to serve for
two-year terms, and three (3) to serve for three-year terms;
(ii) to authorize the conversion of each share of the Series D Preferred
Stock into 59 shares of the Class A Common Stock (including those shares of
Series D Preferred Stock issuable pursuant to Warrants (the "Warrants"),
as of December 31, 1996, to be issued in accordance with the February 26,
1996 agreement with the Company's Principal Stockholder, Mr. Putra Masagung
(the "February 26, 1996 agreement") to acquire shares of Series D Preferred
Stock), (the "Conversion"), and in connection with the Conversion to amend
the Company's Certificate of Incorporation to increase the number of shares
of the Common Stock to 100,000,000 to permit the Conversion and the
issuance of the Common Stock issuable upon the exercise of the Warrants, to
provide the Company with the ability to raise capital in the future through
the issuance of the Common Stock, and, if the stockholders approve Item
(iii), to provide for sufficient shares to be issued pursuant to stock
options granted under The San Francisco Company Amended and Restated 1993
Stock Option Plan (the "Amended and Restated 1993 Stock Option Plan"). If
the Conversion is approved, the interests of the Company's Principal
Stockholder would increase from 88% of the outstanding voting securities
of the Company to 97.6%, assuming he does not dispose of any of his shares,
and as much as 99.1% if he were to exercise all of the Warrants he would hold
pursuant to the February 26, 1996 agreement. Such percentage ownership
interests of the Principal Stockholder do not account for the dilutive effect
of the exercise of options to purchase the Common Stock that may be granted
to employees and outside directors of the Company if the stockholders approve
Item (iii) below.
<PAGE>
(iii) to approve the Amended and Restated 1993 Stock Option Plan and the
grant of options pursuant to such plan to certain directors;
(iv) to ratify the Board of Directors' selection of KPMG Peat Marwick
LLP, independent public accountants, as the independent accounting firm for
the Company during the fiscal years ending December 31, 1995, 1996 and
1997; and
(v) to act upon such other business as may properly come before the
Annual Meeting or any adjournment thereof.
We hope that you will be able to attend the Annual Meeting. In any
event, please complete, date, sign, and promptly return the appropriate
enclosed proxy for the Common Stock, the Series B Preferred Stock and/or
the Series D Preferred Stock.
Sincerely yours,
JAMES E. GILLERAN
Chairman of the Board and,
Chief Executive Officer
You are urged to complete, date, sign, and promptly return your proxy
card(s) in the enclosed envelope whether or not you plan to attend the
Annual Meeting.
<PAGE>
THE SAN FRANCISCO COMPANY
550 Montgomery Street, 10th Floor
San Francisco, California 94111
NOTICE OF 1996 ANNUAL MEETING OF STOCKHOLDERS
To Be Held On December 18, 1996
To the holders of the Class A Common Stock, par value $.01 per share
(the "Common Stock"), the 8% Series B Convertible Preferred Stock, par value
$.01 per share (the "Series B Preferred Stock"), and the 9% Series D Perpetual
Preferred Stock, par value $.01 per share (the "Series D Preferred Stock"),
of the San Francisco Company (the "Company"):
The 1996 annual meeting of the stockholders of the Company will be held
on December 18, 1996 at 10:00 a.m. local time, in the Boardroom of the
Company, 550 Montgomery Street, 11th Floor, San Francisco, California 94111
(the "Annual Meeting") for the following purposes:
1. To elect nine (9) of the nine (9) authorized directors of the
Company, three (3) to serve for one-year terms, three (3) to serve
for two-year terms, and three (3) to serve for three-year terms;
2. To authorize the conversion of each share of the Series D Preferred
Stock into 59 shares of the Class A Common Stock (including those
shares of Series D Preferred Stock issuable pursuant to Warrants
(the "Warrants"), as of December 31, 1996, to be issued in
accordance with the February 26, 1996 agreement with the
Company's Principal Stockholder, Mr. Putra Masagung (the "February
26, 1996 agreement") to acquire shares of Series D Preferred Stock)
(the "Conversion"), and in connection with the Conversion to amend
the Company's Certificate of Incorporation to increase the
number of shares of the Common Stock to 100,000,000 to permit the
Conversion and the issuance of the Common Stock issuable upon the
exercise of the Warrants, to provide the Company with the ability
to raise capital in the future through the issuance of the
Common Stock, and, if the stockholders approve Item (3), to
provide for sufficient shares to be issued pursuant to stock
options granted under the Amended and Restated 1993 Stock Option
Plan. If the Conversion is approved, the interests of the
Company's Principal Stockholder would increase from 88% of the
outstanding voting securities of the Company to 97.6%, assuming he
does not dispose of any of his shares, and as much as 99.1% if
he were to exercise all of the Warrants he would hold pursuant
to the February 26, 1996 agreement. Such percentage ownership
interests of the Principal Stockholder do not account for the
dilutive effect of the exercise of options to purchase the
Common Stock that may be granted to employees and outside
directors of the Company if the stockholders approve Item (3)
below.
3. To approve the Amended and Restated 1993 Stock Option Plan and
the grant of options pursuant to such plan to certain directors;
<PAGE>
4. To ratify the Board of Directors' selection of KPMG Peat Marwick
LLP, independent public accountants, as the independent accounting
firm for the Company during the fiscal years ending December 31,
1995, 1996 and 1997; and
5. To act upon such other business as may properly come before the
Annual Meeting or any adjournment thereof.
These matters are more fully discussed in the enclosed Proxy Statement.
If the Company's Principal Stockholder votes all of his shares of the
Common Stock and Series D Preferred Stock in favor of any or all of these
proposals, then approval of such proposals would be assured. While the
Principal Stockholder has not entered into any agreements as to the
manner in which he will vote his shares, he has expressed his intent to
vote in favor of all of the above proposals.
Holders of the Common Stock, Series B Preferred Stock and Series D
Preferred Stock of the Company of record at the close of business on November
12, 1996 are entitled to vote at the Annual Meeting to the extent and in
the manner set forth in the Proxy Statement.
The Board of Directors has nominated: (1) Mr. Willard D. Sharpe, Mr.
Gary Williams and Mr. Jackson Schultz to serve as Class III directors for
terms until the Company's 1997 Annual Meeting of Stockholders or until
their successors are elected, (2) Mr. Gordon Swanson, Mr. James E. Gilleran
and Mr. Peter Foo to serve as Class I directors for terms until the
Company's 1998 Annual Meeting of Stockholders or until their successors are
elected, (3) and Mr. Kent D. Price, Mr. Steven R. Champion and Mr. Nicholas
Unkovic to serve as Class II directors for terms until the Company's 1999
Annual Meeting of Stockholders or until their successors are elected. Any
stockholder entitled to vote for directors may nominate candidates for
election as directors of the Company; provided, however, that nominations
for director of the Company by any person other than the Board of Directors
may be made only by a record stockholder who has delivered a written notice
to the Secretary of the Company no later than the close of business sixty
(60) days in advance of the Annual Meeting or ten (10) days after the date
on which notice of the Annual Meeting is first given to stockholders,
whichever is later. Such stockholder's notice shall set forth (a) as to each
person, if any, whom the stockholder proposes to nominate for election or
re-election as a director: (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
Company which are beneficially owned by such person, and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") (including without limitation such
person's written consent to being named in the proxy statement, if any, as
a nominee and to serving as a director if elected); and (b) as to the
stockholder giving the notice: (i) the name and address of such stockholder,
as they appear on the Company's books, and (ii) the class and number of
shares of the Company which are beneficially owned by such stockholder.
At the request of the Board of Directors, any person nominated by the
Board for election as a director shall furnish to the Assistant Secretary of
the Company that information required to be set
<PAGE>
forth in the stockholder's notice of nomination which pertains to the
nominee. No person shall be eligible for election as a director of the
Company unless nominated in accordance with the procedures set forth
herein. The Chairman of the Annual Meeting, if the facts warrant, shall
determine and declare at the Annual Meeting that a nomination was not made
in accordance with the procedures prescribed herein, and if he should so
determine, he shall so declare at the Annual Meeting and the defective
nomination shall be disregarded.
Any person giving a proxy has the power to revoke or suspend it before
its exercise. A proxy is revocable before the Annual Meeting by sending
written notice or a duly executed proxy bearing a later date to Keary L.
Colwell, Assistant Secretary of the Company, at the principal executive
offices of the Company. In addition, a stockholder giving a proxy may revoke
it by attending the Annual Meeting and electing to vote in person, before
any vote is taken. Unless otherwise instructed, each valid proxy returned
that is not revoked will be voted FOR the election as directors of the
person or persons specified on such proxy card; FOR each of the proposals
listed above; and at the proxy holder's discretion, upon management's
direction, on such other matters, if any, as may come before the Annual
Meeting (including any proposal to adjourn the Annual Meeting).
Please sign and date the appropriate enclosed proxy card or cards and
return them promptly in the envelope provided whether or not you plan to
attend the Annual Meeting. The Board of Directors unanimously recommends
a vote FOR the election as directors of the persons named on the proxy
card enclosed herein, and FOR each of the other proposals. The directors
of the Company intend to vote all of their shares FOR the approval of the
proposals described above.
By Order of the Board of Directors,
Keary L. Colwell, Assistant Secretary
December 6, 1996
(approximate mailing date
of proxy material)
<PAGE>
PROXY STATEMENT
OF
THE SAN FRANCISCO the Company
550 Montgomery Street, 10th Floor
San Francisco, California 94111
(415) 781-7810
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of the enclosed proxy by, and on behalf of, the Board of Directors of The San
Francisco Company (the "the Company"), a Delaware corporation and bank
holding company for Bank of San Francisco (the "Bank"). The enclosed
proxy is for use at the 1996 Annual Meeting of Stockholders of the Company
to be held on December 18, 1996, at 10:00 a.m. local time, in the Boardroom
of the Company, 550 Montgomery Street, 11th Floor, San Francisco, California,
94111 and at all postponements or adjournments thereof (the "Annual Meeting").
Purpose of the Annual Meeting
At the Annual Meeting, holders of the Company's Class A Common Stock,
par value $.01 per share (the "Common Stock"), 8% Series B Convertible
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock")
and 9% Series D Perpetual Preferred Stock, par value $.01 per share
(the "Series D Preferred Stock") will be asked to act on the following
proposals:
1. To elect nine (9) of the nine (9) authorized directors of the
Company, three (3) to serve for one-year terms, three (3) to serve
for two-year terms, and three (3) to serve for three-year terms;
2. To authorize the conversion of each share of the Series D
Preferred Stock into 59 shares of the Class A Common Stock
(including those shares of Series D Preferred Stock issuable
pursuant to Warrants (the "Warrants"), as of December 31, 1996,
to be issued in accordance with the February 26, 1996 agreement
with the Company's Principal Stockholder, Mr. Putra Masagung
(the "February 26, 1996 agreement") to acquire shares of Series
D Preferred Stock), (the "Conversion"), and in connection with
the Conversion to amend the Company's Certificate of
Incorporation to increase the number of shares of the Common Stock
to 100,000,000 to permit the Conversion and the issuance of the
Common Stock issuable upon the exercise of the Warrants, to
provide the Company with the ability to raise capital in the
future through the issuance of the Common Stock, and, if the
stockholders approve Item (3), to provide for sufficient shares
to be issued pursuant to stock options granted under the Amended
and Restated 1993 Stock Option Plan. If the Conversion is
approved, the interests of the Company's Principal Stockholder
would increase from 88% of the outstanding voting securities of
the Company to 97.6%, assuming he does not dispose of any of his
shares, and as much as 99.1% if he were to exercise all of the
Warrants he would hold pursuant to the February 26, 1996
agreement. Such percentage ownership interests of the Principal
Stockholder do not account for the dilutive
<PAGE>
effect of the exercise of options to purchase the Common Stock
that may be granted to employees and outside directors of the
Company if the stockholders approve Item (3) below.
3. To approve the Amended and Restated 1993 Stock Option Plan and
the grant of options pursuant to such plan to certain directors;
4. To ratify the Board of Directors' selection of KPMG Peat Marwick
LLP independent public accountants, as the independent accounting
firm for the Company during the fiscal years ending December 31,
1995, 1996 and 1997; and
5. To act upon such other business as may properly come before the
Annual Meeting or any adjournment thereof.
If the Company's Principal Stockholder votes all of his shares of the
Common Stock and Series D Preferred Stock in favor of any or all of these
proposals, then approval of such proposals would be assured. While the
Principal Stockholder has not entered into any agreements as to the manner
in which he will vote his shares, he has expressed his intent to vote in
favor of all of the above proposals.
Voting Securities
Only stockholders of record on November 12, 1996 (the "Record Date") are
entitled to notice of and to vote at the Annual Meeting. At the close of
business on that Record Date, the Company had outstanding five million,
seven hundred and sixty-five thousand, nine hundred and ninety-five
(5,765,995) shares of its Common Stock, fifteen thousand, eight hundred and
sixty-nine (15,869) shares of its Series B Preferred Stock, and three hundred
and ninety thousand (390,000) shares of its Series D Preferred Stock.
Each holder of the Common Stock, the Series B Preferred Stock and the
Series D Preferred Stock is entitled, with respect to each matter as to which
such holder is entitled to vote, to one (1) vote, in person or by proxy,
for each share of the Common Stock, Series B Preferred Stock or Series D
Preferred Stock outstanding in his or her name on the transfer books of the
Company as of the Record Date.
Revocability of Proxies
Any person giving a proxy has the power to revoke or suspend it before
its exercise. A proxy is revocable before the Annual Meeting by sending
written notice or a duly executed proxy bearing a later date to Keary L.
Colwell, Assistant Secretary of the Company, at the principal executive
offices of the Company. In addition, a stockholder giving a proxy in any
of the forms accompanying this Proxy Statement may revoke it by attending the
Annual Meeting and electing to vote in person, before any vote is taken.
<PAGE>
Votes Required
Holders of the Common Stock, Series B Preferred Stock and Series D
Preferred Stock are entitled to vote on each of the proposals to be presented
at the Annual Meeting. The following paragraphs explain, for each
proposal, the vote required for adoption. In each case, a quorum must
be present for the vote to be valid.
PROPOSAL ONE: ELECTION OF DIRECTORS, as to the Class I directors, the
validly-nominated nominees for election as directors, who rank first, second
and third in number of votes received from holders of the Common Stock, the
Series B Preferred Stock and the Series D Preferred Stock represented and
voting together as a single class will be elected as directors; as to the
Class II directors, the validly-nominated nominees for election as directors,
who rank first, second and third in number of votes received from holders of
the Common Stock, the Series B Preferred Stock and the Series D Preferred
Stock represented and voting together as a single class, will be elected
as directors; and as to the Class III directors, the validly-nominated
nominees for election as directors, who rank first, second, and third in
number of votes received from holders of the Common Stock, the Series B
Preferred Stock and the Series D Preferred Stock represented and voting
together as a single class, will be elected as directors, in each case even
if some or all of such nominees receive less than a majority of the total
votes.
PROPOSAL TWO: AUTHORIZATION OF THE CONVERSION OF SERIES D PREFERRED
STOCK AND AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED NUMBER OF SHARES OF THE COMMON STOCK requires an affirmative vote
of the holders of a majority of the shares of the Common Stock and the Series
B Preferred Stock represented and voting together as a single class, and an
affirmative vote of the holders of a majority of the shares of the Series
D Preferred Stock represented and voting as a separate class.
PROPOSAL THREE: APPROVAL OF THE AMENDED AND RESTATED 1993 STOCK
OPTION PLAN AND GRANT OF OPTIONS PURSUANT TO SUCH PLAN TO CERTAIN
DIRECTORS requires an affirmative vote of the holders of a majority of the
shares of the Common Stock, the Series B Preferred Stock and the Series D
Preferred Stock represented and voting together as a single class.
PROPOSAL FOUR: RATIFICATION OF SELECTION OF INDEPENDENT
ACCOUNTING FIRM FOR 1995, 1996, AND 1997 requires an affirmative vote of
the holders of a majority of the shares of the Common Stock, the Series B
Preferred Stock and the Series D Preferred Stock represented and voting
together as a single class.
Such other matters, if any, as may properly come before the Annual
Meeting will generally require the affirmative vote of the holders of a
majority of the shares of the Common Stock, the Series B Preferred Stock
and the Series D Preferred Stock represented and voting together as a single
class.
With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded from the vote and will
have no effect. Abstentions may be specified on all
<PAGE>
proposals (other than the election of directors) and will be counted as
shares that are present or represented at the Annual Meeting for purposes of
determining a quorum on the proposal on which the abstention is specified.
However, because such shares will be counted as represented at the Annual
Meeting, and because the success of the proposals (other than the election of
directors) is measured based on the number of affirmative votes out of the
number of shares represented at the Annual Meeting, abstentions will have
the effect of a negative vote.
Under applicable Delaware law, broker non-votes are counted for the
purpose of determining the presence or absence of a quorum for the transaction
of business but are not otherwise counted. Therefore, broker non-votes
will have no effect on the outcome of the election of directors but will
have the same effect as a vote against the other proposals.
Unless otherwise instructed, each valid proxy returned which is not
revoked will be voted FOR the election as directors of the persons specified
on such proxy card, FOR each of the other proposals, and at the proxy
holders' discretion, upon management's direction, on such other matters,
if any, that may come before the Annual Meeting (including any proposal
to adjourn the Annual Meeting).
Solicitation of Proxies
The Company will bear the entire cost of preparing, assembling, printing
and mailing proxy materials furnished by the Board of Directors to
stockholders. Copies of proxy materials also will be furnished to
brokerage houses, fiduciaries and custodians to be forwarded to the
beneficial owners of the Common Stock, the Series B Preferred Stock and the
Series D Preferred Stock. In addition to the solicitation of proxies by
use of the mail, some of the officers, directors and regular employees
of the Company and the Bank may (without additional compensation) solicit
proxies by telephone or personal interview, the costs of which the Company
will bear.
In the event that any of the nominees for election as director become
unavailable, which the Company does not expect, it is intended that, pursuant
to the accompanying proxy, votes will be cast for such substitute nominee
or nominees as may be designated by the Board of Directors, unless the
Board of Directors reduces the number of directors.
Annual Report
A copy of the Company's Annual Report on Form 10-K for the twelve months
ended December 31, 1995 (the "1995 Annual Report") and the Quarterly Report
Form 10-Q for the three and nine months ended September 30, 1996 accompany
this Proxy Statement. Additional copies of the 1995 Annual Report and
Quarterly Reports on Form 10-Q are available without cost upon request
by writing to Keary L. Colwell, Assistant Secretary, the San Francisco the
Company, 550 Montgomery Street, 10th Floor, San Francisco, California 94111.
Beneficial Ownership of Common and Preferred Stock
The following sets forth information regarding the beneficial ownership
of the holders of five percent (5%) or more of the Common Stock, all directors
and executive officers, as a group, and by
<PAGE>
all other stockholders as of November 12, 1996. Other than as set forth
below based upon filings made with the Securities and Exchange Commission
(the "SEC"), the Company is not aware of any person who is the beneficial
owner of five percent (5%) or more of the Common Stock. The address of Mr.
Putra Masagung is 55 M Thamrin, Jakarta, Indonesia. The address of Mr.
Kaharudin Latief is Tamara Center, 20th Floor, Jl Jend. Sudirman Kav.24,
Jakarta, Indonesia. The information does not assume the Conversion of any
of the Company's Series D Preferred Stock.
<TABLE>
<CAPTION>
Directors and
Executive All
Mr. Masagung Mr. Latief Officers Others
<S> <C> <C> <C> <C>
Common Stock 5,076,126 525,000 2,938 161,931
Percentage ownership 88.0% 9.1% 0.0% 2.9%
The following sets forth information regarding Mr. Putra Masagung's
beneficial ownership of Series D Preferred Stock as of November 12, 1996.
As of November 12, 1996, Mr. Masagung was the holder of all outstanding
shares of Series D Preferred Stock.
</TABLE>
<TABLE>
<CAPTION>
Mr. Masagung Others
<S> <C> <C>
Series D Preferred Shares 390,000 -
Percentage ownership 100.0% -
The following sets forth information regarding the beneficial ownership
of the Series B Preferred Stock as of November 12, 1996.
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Percentage
of Beneficially of
Owned Class
<S> <C> <C>
Gordon Swanson 7,200 45.4%
John A. Beal 2,143 13.5
John Volckman 3,500 22.1
All directors and
current executive
officers as a group 7,200 45.4
The address of Mr. Beal is 101 Rock Cove Court, Folsom, California
95630 and Mr. Volckman is 127 Alta Vista, Atherton, California 94027, and
the address of Mr. Swanson for the purpose of his ownership of the Series
B Preferred Stock is the principal executive office of the Company.
<PAGE>
Certain Transactions
The Bank has had and expects to continue to have banking transactions
with many of the directors and executive officers of the Company and the
Bank (and their associates). Loans by the Bank to any director or
executive officer of the Company or any of its subsidiaries (or any
associate of such persons) have been made in the ordinary course of business
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other
persons, and have not involved more than the normal risk of collection or
presented other unfavorable features. Loans by the Bank to any director,
executive officer or principal stockholder of the Company or any of its
subsidiaries (as such persons are defined by regulation) are subject to
limitations under California and federal law. Among other things, a loan by
the Bank to a director, executive officer, or principal stockholder of the
Company or any of its subsidiaries must be on non-preferential terms and,
if all loans to a given person exceed $25,000, such loans must be approved
in advance by the Bank's Board of Directors. The aggregate balance of such
loans at October 31, 1996 was zero.
The Company and the Bank have engaged the law firm of Graham & James
LLP to perform the function of General Counsel. Mr. Unkovic, a director of
the Company and the Bank, is a partner with Graham & James LLP.
The Company entered into an indemnification agreement with Mr. Unkovic
and Graham & James LLP dated December 16, 1994. The indemnification agreement
provides that Mr. Unkovic is indemnified from and against any and all
liabilities or expenses arising with respect to any action or inaction
taken in the course of his duties as a director of the Company and the Bank,
and that Graham & James LLP is indemnified against any and all liabilities
and expenses asserted against Graham & James LLP arising by reason of Mr.
Unkovic serving as a director of the Company and the Bank. The
indemnification does not include liabilities or expenses arising with respect
to legal services Mr. Unkovic or Graham & James LLP may render to the Company
or its subsidiaries, affiliates, directors, officers or stockholders.
Under their employment agreements, Messrs. Gilleran and McGrath are
indemnified by the Company and/or the Bank from any liability or expense
arising as a result of actions taken by the Company or the Bank, or events
relating to the business of the Company or the Bank, occurring prior
to the execution of the employment agreements. See "Employment Contracts and
Termination of Employment" for additional information on indemnification
agreements.
The Bank entered into an indemnification agreement with Mr. Thayer
Prentice, former Chairman of the Board, President and Chief Executive Officer
of the Company and the Bank. The Bank obtained an irrevocable standby
letter of credit in the amount of $300,000 issued by Transpacific National
Bank on December 30, 1995 on behalf of Thayer T. Prentice as collateral for
the Bank's obligations under its indemnification agreement. The
indemnification agreement expires August 31, 1997.
<PAGE>
Background Information
In 1995, the Company recorded its first year of profit since 1990.
During the period from 1991 through 1994, the Company suffered an aggregate
of $74.6 million in losses, primarily as a result of defaulted loans
secured by real estate and losses on direct real estate investments. The
Company and the Bank succeeded in avoiding insolvency during this period
only through the injection of new capital by the Company's Principal
Stockholder, Mr. Putra Masagung. As of November 12, 1996, Mr. Masagung
had contributed $54.6 million in new capital to the Company and, pursuant to
the February 26, 1996 agreement, he has committed to contribute an
additional $1.0 million.
The losses caused impairment of capital, and the breach of
restrictions and requirements on the Bank's and the Company's business
activities imposed by various regulatory authorities. Presently, the
Company is operating under a Written Agreement (the "Written Agreement") with
the Federal Reserve Bank (the "FRB") which imposes restrictions and
requirements including dividend restrictions, and the Bank is operating
under two Orders to Cease & Desist (the "Orders"). The Orders were issued
by the California State Department of Banking (the "SBD") and the Federal
Deposit Insurance Corporations (the "FDIC"). As of November 12, 1996,
management believes that the Company and the Bank are in full compliance
with the Written Agreement and the Orders, respectively. The Bank
achieved such full compliance with the Written Agreement and the Orders
primarily as a result of the continued capital infusions from the
Principal Stockholder in 1996 through the purchase of shares of Series D
Preferred Stock under the February 26, 1996 agreement.
The Superintendent of Banks for the State of California has issued
numerous Capital Impairment Orders (the "Impairment Orders") to the Bank.
The most recent Impairment Order, dated August 15, 1996, orders the Bank
to correct the impairment of its contributed capital within 60 days.
In response to the August 15, 1996 Impairment Order, the Bank notified
the SBD that it did not believe it would be in a position to comply with the
order within 60 days, and requested the SBD's cooperation as the Company
and the Bank continue to endeavor to achieve the requirements necessary
to effect a quasi-reorganization which would eliminate the negative retained
deficit and the impairment. The SBD has not yet agreed to a
quasi-reorganization. See the Company's 1995 Annual Report for more
discussion on the Written Agreement, the Orders and the Impairment Order.
Primarily, as a result of the losses incurred by the Company, the
American Stock Exchange (the "AMEX") suspended trading of the Company's
Common Stock on April 10, 1995. On November 1, 1995, the Company informed
the AMEX that it did not object to the removal of its Common Stock from
listing and registration on the AMEX, and on November 2, 1995, the AMEX
applied to the SEC for permission to delist the Company's Common Stock.
Presently, the Common Stock is trading over-the-counter. Van Kasper &
Company, located at 600 California Street, Suite 1700, San Francisco,
California, telephone number (800)652-1747, is making a market in the
Company's Common Stock.
Capital Contributions - 1995 and 1996
During 1995 and 1996, the Company's Principal Stockholder contributed
$7.8 million in capital to the Company through the purchase of shares of
Series D Preferred Stock. As of November 12, 1996, he held 390,000 shares
of Series D Preferred Stock. The rights and preferences
<PAGE>
of the Series D Preferred Stock are described in PROPOSAL TWO:
AUTHORIZATION OF THE CONVERSION OF SERIES D PREFERRED STOCK AND AMENDMENT
TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF
SHARES OF THE COMMON STOCK.
Investments by Principal Stockholder in 1995
As a result of the Company's and Bank's failure to meet certain minimum
capital requirements as of December 31, 1994, in 1995, the Company's
Principal Stockholder contributed $4.3 million in capital to the Company
through the purchase of 215,000 shares of Series D Preferred Stock at a price
of $20.00 per share.
Investments by Principal Stockholder in 1996
As a result of the continuing non-compliance with the Orders at the end
of 1995 and to provide for opportunity for growth, the Company and its
Principal Stockholder entered into an agreement (the "February 26, 1996
agreement") whereby the Company's Principal Stockholder committed to
invest an additional $4.5 million through the purchase of 225,000 shares of
Series D Preferred Stock and the Warrants to acquire up to 500,000 shares of
Series D Preferred Stock at an exercise price of $20.00 per share. The
Warrants will be exercisable in whole or in part at any time after the
Principal Stockholder completes his purchase of the 225,000 shares of Series
D Preferred Stock pursuant to the February 26, 1996 agreement, but in no
event later than February 26, 2003.
As of November 12, 1996, the Company's Principal Stockholder had timely
contributed $3.5 million of the $4.5 million he committed to contribute
pursuant to the February 26, 1996 agreement. The remaining $1.0 million is
due by December 31, 1996. The Company intends to issue 2,950,000 shares
of Common Stock upon the receipt of the remaining $1.0 million, as well as
the Warrants to purchase 29,500,000 shares of Common Stock, if the Conversion
as described in PROPOSAL TWO is approved. (See the table on page 31.)
<PAGE>
PROPOSAL ONE: ELECTION OF DIRECTORS
Directors and Nominees
The bylaws of the Company provide a procedure for nomination for
election of members of the Board of Directors, which procedure is printed
in full in the Notice of Annual Meeting of Stockholders accompanying this
Proxy Statement. If nomination is not made in accordance with the
procedures set forth in the Notice of Annual Meeting of Stockholders, the
Chairman of the Annual Meeting may, if the facts warrant, determine and
declare at the Annual Meeting that a nomination was not made in accordance
with the procedures set forth in the bylaws and direct that the defective
nomination be disregarded.
The bylaws of the Company presently provide that the number of directors
of the Company is subject to adjustment by resolution of the Board of
Directors, and the Board of Directors have adopted a resolution setting
the number of directors at nine (9). Pursuant to the reincorporation of
the Company in Delaware in 1988, the Board of Directors is divided into
three classes (Class I, ClassII, and Class III). The bylaws prescribe
that the three classes shall be as nearly equal in number as possible.
Accordingly, Classes I, II and III are each comprised of three (3) directors.
Each director serves for a term ending on the date of the third annual
meeting of the stockholders following the annual meeting at which the
director was elected. The Class I, II and III directors are presently
serving until the Annual Meeting. Notwithstanding the above, each
director serves pursuant to the bylaws until his successor is duly elected
and qualified or until his death, resignation or removal.
The Board has had significant turnover since the 1994 annual meeting of
stockholders, at which time the bylaws of the company provided for nine (9)
directors and there were eight (8) serving on the Board. Four (4) of the
eight (8) directors have resigned since the 1994 annual meeting. As
a result of the postponement of the 1995 annual meeting, and the nomination
of five (5) new directors, all nine (9) directors are to be elected at the
Annual Meeting.
Except as stated below, no director of the Company is a director of any
company with a class of securities registered pursuant to section 12 of the
Exchange Act, or subject to the requirements of section 15(d) of the Exchange
Act or of any company registered as an investment company under the
Investment the Company Act of 1940, as amended. Except for the Bank and
Peninsula Holdings, none of the corporations or organizations discussed
below is an affiliate of the Company. The Company's Principal Stockholder
owns a controlling interest in Peninsula Holdings and Mr. Peter Foo is the
President of Peninsula Holdings. No director, nominee for director or
executive officer of the Company or the Bank has any family relationship with
any other director or executive officer of the Company or director or
executive officer of the Bank.
No vacancy on the Board of Directors will exist after the election of
directors pursuant to this PROPOSAL ONE.
Class I Directors. Three (3) Class I directors are to be elected at
the Annual Meeting, each to hold office until the Company's 1998 annual
meeting of stockholders and until his respective successor is duly
elected and qualified, or until his death, resignation or removal. The
nominees for election as a Class I Director are Messrs. James E.Gilleran,
Gordon B. Swanson, and Peter Foo.
<PAGE>
Each is presently serving as a director. The following sets forth as to
each nominee for election as a Class I director of the Company, such person's
age, principal occupation during at least the last five years, and the
period during which each person has served as a director of the Company.
JAMES E. GILLERAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Gilleran has served as the Chairman and Chief Executive Officer of
the Company and the Bank since October 1994. He served as
Superintendent of Banks for the State of California from 1989 to
1994. At December 31, 1995, Mr. Gilleran was 62 years of age and he
has served as a director of the Company and the Bank since 1994.
GORDON B. SWANSON . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Swanson has been Vice President of Real Estate with Levi Strauss &
Company since 1993. He served as President of G. B. Swanson & Co., a
real estate advisory firm from 1991 to 1992. Mr. Swanson has served as
Director Emeritus of the San Francisco Chamber of Commerce since 1986
and as Managing Director of Jones Lang Wootton U.S.A., a commercial
real estate investment company, from 1989 to 1991. At December 31,
1995, Mr. Swanson was 51 years of age and he has served as a director
of the Company and the Bank since 1985.
PETER FOO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Foo has been the President of Peninsula Holdings Inc. since 1993.
He was the co-owner of Ampac Trading (USA) Co. from 1980 to 1993.
At December 31, 1995, Mr. Foo was 48 years of age. He has served as
a director of the Company and the Bank since 1996.
Class II Directors. Three (3) Class II directors are to be elected at
the Annual Meeting, each to hold office until the Company's 1999 annual
meeting of stockholders and until his respective successor is duly
elected and qualified, or until his death, resignation or removal. The
nominees for election as a Class II Director are Messrs. Steven R.
Champion, Kent D. Price, and Nicholas Unkovic. Each is presently
serving as a director. The following sets forth as to each nominee
for election as a Class II director of the Company, such person's age,
principal occupation during at least the last five years, and the
period during which each person has served as a director of the
Company.
STEVEN R. CHAMPION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Champion has provided consulting services to Aetna International
since September 1996. From 1995 to 1996, Mr. Champion served as
President and Chief Financial Officer of San Francisco and East Asia
Capital Management. Mr. Champion was the Vice Chairman and Chief
Financial Officer of the Company and the Bank, and Chief Investment
Officer of the Bank, from August 1993 to October 1994. He served
as Chief International Investment Officer of Bank of America from
1992 to 1993, President and Chief Executive Officer of the R.O.C.
- Taiwan Fund from 1989 to 1992, and President and Chief Executive
Officer of International Investment Trust Company in Taipei, Taiwan
from 1987 to 1992. At December
<PAGE>
31, 1995, Mr. Champion was 50 years of age and he has served as a
director of the Company and the Bank since 1993.
KENT D. PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Price has served as Executive Vice President of IBM since September
1994. Mr. Price was the Chairman and Chief Executive Officer of the
Company and the Bank from September 1993 to August 1994. He served
as Executive Vice President, Private Banking and Corporate
Development of Bank of America from 1991 to 1993; Chief Financial
Officer and Executive Vice President of Bank of New England Corporation
from 1990 to 1991; and Chief Operating Officer, Chief Financial
Officer and Director of Barr Rosenberg Investment Management in 1990.
At December 31, 1995, Mr. Price was 52 years of age and he has served
as a director of the Company since 1993 and was a director of the Bank
from 1993 to 1994.
NICHOLAS UNKOVIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Unkovic is and has been a partner for the law firm of Graham &
James LLP for more than five years. At December 31, 1995, Mr. Unkovic
was 44 years of age and he has served as a director of the Company
since 1994 and as director of the Bank since 1996.
Class III Directors. Three (3) Class III directors are to be elected
at the Annual Meeting, each to hold office until the Company's 1997 annual
meeting of stockholders and until his respective successor is duly elected
and qualified, or until his death, resignation or removal. The nominees for
election as a Class III Director are Messrs. Jackson Schultz, Willard D.
Sharpe, and Gary Williams. Each is presently serving as a director. The
following sets forth as to each nominee for election as a Class III
director of the Company, such person's age, principal occupation during at
least the last five years, and the period during which each person has served
as a director of the Company.
JACKSON SCHULTZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Schultz is a retired banker who has provided consulting services to
Wells Fargo Bank N.A. for more than five years. Prior to consulting,
Mr. Schultz served as a Senior Vice President of Wells Fargo. At
December 31, 1995, Mr. Schultz was 70 years of age and he has served
as a director of the Company and the Bank since 1996.
WILLARD D. SHARPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Sharpe is a retired economist who, at the time of his retirement
in 1987, served as a Vice President of Chase Manhattan Bank and as the
Bank's chief economist for Asia. In addition, since 1993, Mr. Sharpe
has been a Vice President of two privately held companies involved
in efforts to explore prospects for investment in Vietnam. At
December 31, 1995, Mr. Sharpe was 72 years of age and he has served as
a director of the Company and the Bank since 1993.
<PAGE>
GARY WILLIAMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Williams has served as the Dean of the McLaren School of Business
School at the University of San Francisco since 1986. At December 31,
1995, Mr. Williams was 63 years of age and he has served as a
director of the Company and the Bank since 1996.
Committees of the Boards of Directors
The Company's Board of Directors held twelve (12) meetings during 1995
and acted on several items by unanimous written consent. Mr. Price attended
less than seventy-five percent (75%) of the Board meetings during 1995.
The Company and the Bank reorganized their committee structures in
November 1994. The following sets forth information with respect to the
committees of the Company's and the Bank's Board of Directors following
such revisions. The Company's Board of Directors presently does not have
a standing nominating committee.
Present Committees
The Company's Personnel/Compensation Committee presently includes
outside directors Unkovic, Schultz, Williams, and Sharpe, and one employee
director, Mr. Gilleran. This Committee has responsibility for all personnel
and compensation policy matters pertaining to Bank employees, officers and
directors. It also monitors the Company's compliance with laws and
regulations applicable uniquely to the protection of employees and
officers. This Committee met eleven (11) times in the 1995 fiscal year.
The Bank's Personnel Committee presently includes directors Schultz,
Gilleran, Unkovic, Sharpe, McGrath, Williams, and one non-director
executive officer. This Committee is responsible for the oversight of the
management and administration of the benefit plans and monitoring
employment practices of the Bank's employees and officers. This Committee
met eleven (11) times in the 1995 fiscal year.
The Company's Audit and Examining Committee presently includes outside
directors Sharpe, Champion, Foo, Schultz and Unkovic. Mr. Gilleran serves
as an advisor to the Committee. This Committee evaluates Company
performance and compliance with respect to the Written Agreement and other
reports of examination from the FRB and appoints the Company's outside
auditors. It also initiates suitable audit examinations of the Company's
internal controls to preserve the Company's assets, and reviews periodic
reports from outside auditors. This Committee met eleven (11) times in
the 1995 fiscal year.
The Bank's Regulatory Committee presently includes outside directors
Swanson, Champion, Foo, Sharpe, Unkovic, and Schultz. This Committee is
responsible for reviewing management's progress toward meeting and
resolving all conditions contained in the Orders, monitoring compliance
with regulations, and monitoring corrective actions taken with regard
<PAGE>
to reports of examination issued by the FDIC and SBD. This Committee
met eleven (11) times in the 1995 fiscal year.
The Bank's Loan, Investment and Special Assets Committee presently
includes directors Gilleran, McGrath, Unkovic, Swanson and Foo, with
directors Champion, Sharpe, and Williams as alternate Committee members,
and one non-director executive officer. The Committee examines and
approves loans above a specified size and monitors regular reviews of the
entire loan portfolio. This Committee is responsible for lending, credit,
investment and asset/liability management policies and monitors compliance
with such policies. This Committee is responsible for oversight and some
approval actions related to the Bank's nonperforming assets and adversely
classified performing assets. This Committee met nineteen (19) times in
the 1995 fiscal year.
Executive Officers and Other Significant Officers
Each executive officer is selected annually by the Board of Directors
pursuant to provisions of the bylaws of the Company and the Bank. The
following is a list of executive officers of the Company and/or Bank,
their occupation for the previous five years, age and the length of
service as an officer.
JAMES E. GILLERAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(See description of Mr. Gilleran's position with the Company and the
Bank, and his background under the heading "Directors and Nominees").
JOHN McGRATH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. McGrath has served as President, Chief Operating Officer and Chief
Credit Officer of the Bank since December 1995. He served as President
and Chief Executive Officer of Sacramento First National Bank from 1982
to 1995. At December 31, 1995, Mr. McGrath was 53 years of age and
he has been serving as a director and officer of the Bank since 1995.
JOANNE GREENWOOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ms. Greenwood has served as Executive Vice President and Chief
Administrative Officer of the Bank, and Secretary of the Bank and
the Company since March 1996. She served as Executive Vice President
and Chief Financial Officer of Sacramento First National Bank from
1982 to 1995. At December 31, 1995, Ms. Greenwood was 54 years of age.
KEARY COLWELL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ms. Colwell has served as Executive Vice President and Chief Financial
Officer of the Bank since April 1996 and as Chief Accounting Officer
and Assistant Secretary of the Company since October 1993. She
served as Senior Vice President and Controller of the Bank and the
Company from 1992 to 1996. Prior to joining the Company and the
Bank, she served as Vice
<PAGE>
President at First Nationwide Bank from 1988 to 1992. At December
31, 1995, Ms. Colwell was 36 years of age.
Executive Compensation
Decisions on the compensation of the Company's and the Bank's
executives are generally made by the four-member Personnel/Compensation
Committee. The members of the Personnel/Compensation Committee are
members of the Board of Directors of the Company. All decisions by the
Personnel/Compensation Committee relating to the compensation of the
Company's and the Bank's executive officers are reviewed by the Company's
and the Bank's full Boards of Directors, except for decisions about awards
under certain of the Company's stock-based compensation plans, which are
made solely by the Committee in order for the grants or awards under
such plans to satisfy Rule 16b-3 under the Exchange Act.
PERSONNEL/COMPENSATION COMMITTEE REPORT
Set forth below is a report of the Personnel/Compensation Committee
addressing the Company's compensation policies for 1995 as they affected the
Chief Executive Officer of the Company and the Bank serving at the end of
1995, the Chief Operating Officer of the Bank in 1995, and an officer who
would have qualified for disclosure if he had not terminated employment,
(collectively, the "Named Executives") as of December 31, 1995. The Named
Executives' compensation in 1995 is shown in the "Executive Compensation
Tables" below.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions The Company's Personnel/Compensation Committee, which during 1995
consisted of Mrs. Donna Miller Casey, Mr. Gilleran (Chairman and Chief
Executive Officer of the Company and the Bank), Mr. Unkovic and Mr.
Sharpe, makes decisions and recommendations to the Company's full Board
of Directors with respect to the compensation of executive officers. In
1996, Mr. Schultz filled Mrs. Casey's position as Chairman of the
Personnel/Compensation Committee. There are no director interlocks.
Board of Directors' Fees
The Company and the Bank pay director fees to each outside Director
for attendance at Board meetings and Committee meetings, which are held
monthly. The fee for attendance at a Board meeting is $750 per meeting.
The Chairman of each committee receives $300 and each member receives
$200 for each committee meeting attended.
Compensation Philosophy
The compensation policies adopted by the Personnel/Compensation
Committee and approved by the Board of Directors of the Company and the
Bank in 1992, and continued since then, were designed to provide
competitive levels of compensation, reward improvements in corporate
<PAGE>
performance, recognize above-average individual achievements and
initiative, and thereby assist the Bank in attracting and retaining
qualified employees.
The Personnel/Compensation Committee either approved or recommended
to the Board of Directors payment amounts and award levels for all
executives of the Bank including the Named Executives. With regard to
compensation actions affecting Mr. Gilleran, Chairman and Chief
Executive Officer of the Company and Bank, all of the non-employee members
of the Board of Directors acted as the approving body.
The Company and the Bank experienced substantial financial losses
from 1991 to 1994 and continued to be in noncompliance with various
regulatory orders, as described under "Background Information" above.
During such period, as well as during 1995, the Named Executives were
required to devote a substantial and unusual amount of time and effort
in dealing with non-performing assets, raising new capital, responding to
regulatory concerns and implementing changes in operating systems and
controls. Consequently, the use of traditional corporate performance
measures such as earnings per share or increases in book value to
determine executive compensation was not considered to be in the
Company's best interests. Therefore, there was no direct relationship
in 1994 or 1995 between executive compensation and the Company's financial
performance, either as compared to the Company's prior performance or as
compared to the banking companies with which the Company competes for
executive talent. Instead, the 1994 and 1995 executive compensation
programs of the Bank were designed to provide compensation which would
allow the Bank to attract and retain talented and experienced executives
necessary for management of the Bank's turnaround program. The focus of
the executive compensation program was on base salary and longer term
incentives through the grant of stock options. None of the Named
Executives received a cash bonus in 1994 or 1995.
Going forward, in addition to the philosophies described above, the
Committee will also be guided by the terms of the FDIC Order in setting
executive compensation. The FDIC Order provides that, without the prior
written approval of the FDIC, the Bank may not (a) pay a bonus to an
executive officer, or (b) provide compensation to an executive officer
at a rate exceeding his or her average rate of compensation (excluding
bonuses, stock options and profit-sharing) during the twelve (12) calendar
months preceding the months in which the Bank first became undercapitalized.
James E. Gilleran
Nicholas Unkovic
Willard D. Sharpe
<PAGE>
Executive Compensation Tables
Summary of 1993-1995 Compensation. The following table sets forth the
annual compensation, long-term compensation and other compensation paid to
each of the Named Executives. Compensation is listed as of December 31,
1995, 1994 and 1993.
</TABLE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual compensation Long term compensation
Awards
Salary Bonus Other Restricted All other
($) ($) annual Stock Compen-
compen- award(s) Options/ sation
sation ($) SARs(#) ($)(2)
($)(1) (4)
Name and
Principal
position Year
(a) (b) (c) (d) (e) (f) (g) (i)
<S> <C> <C> <C> <C> <C> <C> <C>
Chairman/CEO 1995 262,507 0 0 0 0 0
James E. 1994 51,681 0 7,936 0 313,369(3) 0
Gilleran 1993 0 0 0 0 0 0
President/COO 1995 0 0 11,308 0 0 0
/CCO-Bank 1994 0 0 0 0 0 0
John McGrath 1993 0 0 0 0 0 0
EVP - Former 1995 142,339 0 0 0 0 29,327
Stephen V.R. 1994 150,000 0 0 0 0 0
Spaulding 1993 25,096 0 17,692 0 0 0
(1) "Other annual compensation" consists solely of consulting fees
paid for consulting services prior to formal appointment into
designated positions.
(2) "All other compensation" consists of group term life insurance
coverage and severance expenses related to the termination of
employment.
(3) These options were granted pursuant to Mr. Gilleran's employment
described under PROPOSAL ONE: ELECTION OF DIRECTORS-Employment
Contracts and Termination of Employment.
(4) The options granted are out-of-the-money with an exercise price
of $5.68 per share.
401(k) Profit Sharing Plan. In 1986 the Company established a
401(k) Profit Sharing Plan (the "Plan") which is intended to qualify under
Sections 401(a) and 401(k) of the Internal Revenue Code. The Plan permits
each participating employee with six months of service to contribute to the
Plan through payroll deductions ("salary deferral contributions") of from
2% to 16% of the participant's eligible compensation from the Company and
its subsidiaries, thereby deferring taxes on all or a portion of these
amounts. Under the Plan, the Company currently will match a participant's
tax deferred contributions by an amount equal to 100% of such contribution
for each year, except that
<PAGE>
the matching contribution by the Company for the participant may not
exceed 2% of the participant's eligible compensation for that year.
The Company may also make additional contributions to the Plan in
such amounts as may be determined by the Company's Board of Directors. Any
such additional contributions are allocated among Plan participants based
upon their compensation levels. The Company's contribution vests 100%
after a participant has completed five years of participation in the Plan,
with vesting of 20% per year for each of years one through five. In
addition, the Company's contribution vests upon a participant's
retirement at age 65 or upon a participant's death or permanent disability.
Participants are entitled to receive their salary deferral contributions and
vested benefits under the Plan upon termination of employment, retirement,
death or disability. Participants have the right to allocate their
salary deferral contributions among four different investment funds.
Employment Contracts and Termination of Employment
Employment Agreement of Mr. Gilleran. The Company and the Bank
entered into an employment agreement with Mr. Gilleran dated October 1, 1994
which provided, among other things, for Mr. Gilleran to receive an annual
salary of at least $250,000 per year, payable in accordance with
the Bank's usual payment practices. Mr. Gilleran's annual base salary
will be increased to $300,000 upon the conclusion of the Company's third
consecutive profitable quarter (which has occurred), subject to regulatory
approval (which has not been obtained). In addition, the employment
agreement provides for an annual cash performance bonus of between 0% and
100% of base salary, and a special incentive one-time bonus of $150,000
at such time as the condition of the Company and the Bank are
deemed satisfactory. The employment contract expires on September 30, 1998.
The agreement provides that the Board of Directors shall grant
Mr. Gilleran options under the 1993 Executive Stock Option Plan to acquire
shares of the Company's Common Stock equal to 5% of the fully-diluted
shares of the Common Stock, with additional anti-dilution options to be
granted in the future as necessary to maintain the 5% interest until after
the next public offering of the Company's Common Stock. If PROPOSAL
THREE, (which involves the approval of the Amended and Restated 1993 Stock
Option Plan), is approved, for purposes of determining the number of
fully-diluted shares, the Common Stock issuable on the exercise of the
Warrants would not be counted until they become exercisable, which is
expected to occur in late December, 1996 upon receipt of the final $1.0
million investment by the Principal Shareholder pursuant to the February
26, 1996 agreement. Effective October 1, 1994, options to acquire 313,639
shares of the Common Stock were granted to Mr. Gilleran pursuant to his
employment agreement. The exercise price of these options is $5.68 per
share.
Based on the capitalization of the Company as of November 12,
1996, and assuming the Conversion and the issuance of additional shares of
the Common Stock and Warrants to Mr. Putra Masagung in accordance with
the February 26, 1996 agreement if PROPOSAL TWO (which involves the
approval of the Conversion) and PROPOSAL THREE (which involves the approval
of the amendment and restatement of the 1993 Stock Option Plans) are
approved, Mr. Gilleran would hold options to purchase 313,639 shares of
the Common Stock with an exercise price of $5.68 per share, options to
purchase 184 shares of the Commons Stock with an exercise price of $4.50
per share, and
<PAGE>
options to purchase 3,076,851 shares of the Common Stock with an exercise
price of $0.34 per share (the effective price of the Second Quarter 1995
and the 1996 investments by Mr. Masagung). The options granted to Mr.
Gilleran, including those granted if PROPOSAL TWO is approved, vest over
a three-year period, with one-third vesting on each anniversary date of
the employment agreement except that if the Company closes a public
offering of its shares of the Common Stock all options will vest. As of
November 12, 1996, his options are 66.6% vested. The exercise price of
subsequent anti-dilution options would be at then-current fair market value
per share of the Common Stock or the price per share for the Common Stock
issued to others in a public offering of the Company's Common Stock.
Under the employment agreement, Mr. Gilleran is indemnified by
the Company and the Bank from any liability or expense arising as a result
of actions taken by the Company or the Bank, or events relating to the
business of the Company or the Bank, occurring prior to the execution of
the employment agreement. Subject to certain limitations, Mr. Gilleran is
also indemnified by the Company and the Bank from any liability or expense
arising as a result of actions taken by the Company or the Bank, or
events relating to the business of the Company or the Bank, occurring after
the execution of the employment agreement, unless such liability or
expense is due to his bad faith or gross negligence.
Employment Agreement of Mr. McGrath. The Bank entered into an
employment agreement with Mr. McGrath dated November 27, 1995 which
provides, among other things, for Mr. McGrath to receive an annual salary
of at least $170,000 per year, payable in accordance with the Bank's usual
payment practices. In addition, the employment agreement provides for an
annual cash performance bonus of between 0% and 50% of base salary. The
employment contract expires on November 27, 1998.
The agreement provides that the Board of Directors shall grant
Mr. McGrath options under the 1993 Executive Stock Option Plan to acquire
shares of the Company's Common Stock equal to 1% of the fully-diluted
shares of the Common Stock, with additional anti-dilution options to be
granted in the future as necessary to maintain the 1% interest until
after the next public offering of the Company's Common Stock. For
purposes of determining the number of fully-diluted shares of the Common
Stock, the Common Stock issuable upon the exercise of the Warrants would
not be counted until they become exercisable, which is expected to occur in
late December, 1996 upon the receipt of the final $1.0 million investment
from the Principal Shareholder pursuant to the February 26, 1996
agreement. The initial grant of options to acquire 62,819 shares of the
Common Stock are to be granted effective November 27, 1995.
Based on the capitalization of the Company as of November 12,
1996, and assuming the conversion of Series D Preferred Stock into the
Common Stock and the issuance of additional shares of the Common Stock
and the Warrants to Mr. Putra Masagung in accordance with the February 26,
1996 agreement, if PROPOSAL TWO and PROPOSAL THREE are approved, Mr. McGrath
would hold options to purchase 678,135 shares of the Common Stock with an
exercise price of $0.34 per share (the effective price of the Second Quarter
1995 and 1996 investments by Mr. Masagung). The options granted to Mr.
McGrath, including those granted if PROPOSAL TWO is approved, vest over
a three-year period, with one-third vesting on each anniversary date of
the employment agreement except that if the Company closes a public offering
of its shares of the Common Stock all options will
<PAGE>
vest. As of November 12, 1996, none of his options are vested. The exercise
price of subsequent anti-dilution options would be at then-current fair
market value per share of the Common Stock or the price per share of the
Common Stock issued to others in a public offering of the Company's Common
Stock.
Under the employment agreement, Mr. McGrath is indemnified by the
Bank from any liability or expense arising as a result of actions taken by
the Bank or the Company, or events relating to the business of the Bank or
the Company, occurring prior to the execution of the employment agreement.
Subject to certain limitations, Mr. McGrath is also indemnified by the
Bank from any liability or expense arising as a result of actions taken
by the Bank or the Company, or events relating to the business of the
Bank or the Company, occurring after the execution of the employment
agreement, unless such liability or expense is due to the his bad faith or
gross negligence.
Separation Agreements with Certain Former Executive Officers of
the Bank. During 1994, certain executive officers resigned from their
employment with the Bank. Effective September 16, 1994, Mr. Price
resigned as Chairman and Chief Executive Officer of the Bank and the Company.
Effective November 1, 1994, Mr. Champion resigned as Vice Chairman and
Chief Financial Officer of the Bank and the Company.
The separation agreements with Messrs. Price and Champion provide
for the termination of prior employment agreements with them. In
consideration for the termination of such employment agreements, the
Board of Directors granted each of Messrs. Price and Champion options
under the 1993 Executive Stock Option Plan to acquire shares of the
Company's Common Stock equal to 1% and 2%, respectively, of the fully-
diluted shares of the Common Stock, with additional anti-dilution
options to be granted in the future as necessary to maintain the 1% and 2%
interest, respectively, until after the next public offering of the
Company's Common Stock. For purposes of determining the number of fully-
diluted shares of the Common Stock, the Common Stock issuable upon exercise
of the Warrants are not counted until they become exercisable, which is
expected to occur in late December, 1996 upon the receipt of the final $1.0
million investment from the Principal Shareholder pursuant to the February
26, 1996 agreement. As of December 31, 1995, the total options granted
to Messrs, Price and Champion are 62,728 and 125,455, respectively. The
exercise price of these options is $5.68 per share of the Common Stock.
Based on the capitalization of the Company as of November 12,
1996, and assuming the conversion of Series D Preferred Stock into the
Common Stock and the issuance of additional shares of the Common Stock
and Warrants to Mr. Putra Masagung in accordance with the February 26,
1996 agreement, if PROPOSAL TWO and PROPOSAL THREE are approved, Mr. Price
would hold options to purchase an additional 615,370 shares of the Common
Stock with an exercise price of $0.34 per share and 37 shares of the
Common Stock with an exercise price of $4.50 per share, and Mr. Champion
would hold options to purchase an additional 1,230,742 shares of the
Common Stock at $0.34 per share and 72 shares of the Common Stock with an
exercise price of $4.50 per share. The $0.34 per share exercise price of
the options is the effective price of the Second Quarter 1995 and 1996
investments by Mr. Masagung, and the exercise price of subsequent anti-
dilution options would be at the then-current fair market value per share
of the Common Stock or the price per share of the Common Stock issued to
others in a public offering of the Company's Common Stock. The options
granted to Messrs. Price and Champion vest immediately.
<PAGE>
Compliance with Reporting Requirements of Section 16
Under Section 16(a) of the Exchange Act, the Company's directors,
executive officers, and any person holding ten percent (10%) or more of the
Company's Common Stock are required to report their ownership of any class
of stock and any changes in that ownership to the Securities and Exchange
Commission (the "SEC") and to furnish the Company with copies of such
reports. Specific due dates for these reports have been established, and
the Company is required to report any failure to file on a timely basis
by such persons. Based solely upon review of copies of reports filed with
the SEC during the fiscal year ended December 31, 1995, all reporting
persons filed reports on a timely basis, except for Form 4 Statement of
Changes in Beneficial Ownership (Form 4) and Form 5 Annual Statement of
Changes in Beneficial Ownership, from Mr. Putra Masagung, the Principal
Stockholder, with respect to the purchases of Series D Preferred Stock
and the sale of 525,000 shares of the Common Stock during 1995.
PROPOSAL TWO: AUTHORIZATION OF THE CONVERSION OF THE SERIES D PREFERRED
STOCK AND THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED NUMBER OF THE COMMON STOCK
Introduction
The Board of Directors of the Company has unanimously adopted a
resolution that submits for stockholder approval at the Annual Meeting a
proposal to provide for the Conversion of all outstanding shares of
Series D Preferred Stock and the substitution of shares of the Common
Stock for shares of Series D Preferred Stock issuable pursuant to the
February 26, 1996 agreement and the Warrants as of December 31, 1996. A
vote in favor of PROPOSAL TWO will constitute a vote in favor of the
proposed amendment of the Company's Certificate of Incorporation to
increase the authorized the Common Stock from 40,000,000 to 100,000,000, as
shown in Appendix A and will constitute a vote in favor of the Conversion
resulting in a significant increase in the number of shares of the Common
Stock outstanding.
Reasons for Approving PROPOSAL TWO
As described in more detail in "Background Information" above, to
satisfy the Company's and Bank's capital requirements, the Company's
Principal Stockholder desired to purchase Common Stock in 1995 and 1996,
and the Board of Directors would have approved such a sale to him at that
time if that sale could have been accomplished in a timely fashion to comply
with the Written Agreement and the Orders. Because it was not possible to
issue Common Stock in a timely manner, the Principal Shareholder agreed
to purchase Series D Preferred Stock. When the Company's Principal
Stockholder agreed to purchase shares of Series D Preferred Stock and
Warrants to purchase shares of Series D Preferred Stock, which shares
would be convertible into the Common Stock, subject to obtaining
stockholder approval, the Board agreed to recommend to the stockholders
that they approve the Conversion. Not only is approval of the Conversion
a matter of fairness to the Principal Stockholder, who provided
critically-needed capital to the Company upon very short notice, management
also believes that causing the Conversion will greatly simplify the capital
structure of
<PAGE>
the Company and may make it easier to raise additional capital in the
future. The Conversion will result in the conversion of each share of
Series D Preferred Stock into 59 shares of the Common Stock. The
Conversion pursuant to the February 26, 1996 agreement, the Warrants, and
the options for shares of the Common Stock to be issued under the anti-
dilution provisions of the employment and separations agreements,
require at least 75,000,000 shares of the Common Stock to be authorized.
To provide sufficient shares of the Common Stock for further issuance,
the Board of Directors has determined that the appropriate number of shares
of authorized the Common Stock should be 100,000,000.
If PROPOSAL TWO is approved, the Company shall eliminate the
Series D Preferred Stock entirely as a separate class of the Company's
stock by filing a Certificate of Elimination with the Delaware Secretary
of State's Office, stating that no shares of Series D Preferred are
outstanding and that the Company does not plan on issuing any shares of
the Series D Preferred Stock.
The approval of PROPOSAL TWO will result in significant dilution
of existing stockholders.
Although dividends on the Series D Preferred Stock are not
cumulative, the payment of dividends is restricted by the Written Agreement,
and it is highly unlikely that the Company will pay dividends on any
class of its capital stock in the foreseeable future, conversion of the
Series D Preferred Stock will eliminate the requirement that dividends at
the rate of 9% per annum be paid on the Series D Preferred Stock in any
given year before dividends can be paid on the Common Stock, and will
eliminate the liquidation preference of $20.00 per share of Series D
Preferred Stock that would otherwise be paid on the Series D Preferred Stock
on the dissolution and liquidation of the Company. These dividend and
liquidation preferences of the Series D Preferred Stock may make an
investment in the Company's Common Stock less attractive.
In addition, although capital attributable to noncumulative
preferred stock such as the Series D Preferred Stock is normally included
in Tier 1 capital for the Company and the Bank under FRB and FDIC
regulatory minimum capital requirements, the applicable regulations of both
agencies also indicate that it is desirable from a supervisory standpoint
that voting common equity remain the dominant form of Tier 1 capital.
If the Principal Stockholder were to vote all of his shares of
the Common Stock and Series D Preferred Stock in favor of PROPOSAL TWO,
which he has indicated his intent to do, approval of PROPOSAL TWO would
be assured.
Ownership of Series D Preferred Stock
At present, the Principal Stockholder owns all of the 390,000
shares of Series D Preferred Stock that are issued and outstanding.
Description of Series D Preferred Stock
The principal features of the Certificate of Designation of the
Series D Preferred Stock and the actions of the Company's Board of Directors
pursuant to which the Series D Preferred Stock was issued are as follows:
<PAGE>
1. Dividends. Holders of shares of Series D Preferred Stock are
entitled to receive, if, as and when declared by the Board of Directors
of the Company, an annual cash dividend of One Dollar and Eighty Cents
($1.80) per share, payable semi-annually in April and October of each year,
before any dividends can be paid on the Common Stock of the Company.
Dividends on the Series D Preferred Stock are junior to payment of dividends
at the stated annual rate of Fifty-Six Cents ($.56) per share on the
Series B Preferred Stock. Dividends on the Series D Preferred Stock are
not cumulative and the Board of Directors has the right at any time to
eliminate or defer such dividends during any fiscal year of the Company.
If PROPOSAL TWO is approved, it is likely that no dividends will ever be
paid on the Series D Preferred Stock. Even if PROPOSAL TWO is not
approved, it is highly unlikely that the Company will pay dividends on the
Series D Preferred Stock in the foreseeable future.
2. Voting Rights. Subject to applicable law, the holders of
shares of Series D Preferred Stock are entitled to one vote per each
share of Series D Preferred Stock on all matters on which stockholders
are entitled to vote, including the election of directors. Holders of shares
of Series D Preferred Stock generally vote with the holders of shares of the
Common Stock and the Series B Preferred Stock as a single class, except that
the holders of shares of the Series D Preferred Stock are entitled to
vote as a separate class on any modifications to the rights of the holders
of shares of Series D Preferred Stock and otherwise as required by law. The
Series D Preferred Stock will vote as a separate class with respect to
Proposal Two.
3. Liquidation Preference. In the event of any liquidation,
dissolution, receivership, bankruptcy or winding up of the Company,
voluntarily or involuntarily, the holders of shares of Series D Preferred
Stock are entitled to receive the sum of Twenty Dollars ($20.00) per share,
plus any declared but unpaid dividends thereon, before any distributions
will be made to the holders of shares of the Common Stock or any other
class of stock junior in preference upon liquidation, but after
distributions at the rate of Seven Dollars ($7.00) per share on the Series
B Preferred Stock and after or concurrent with distributions to be made
at the stated rate on any other preferred stock of any series ranking on
a parity with or senior in preference upon liquidation to the Series D
Preferred Stock.
4. Conversion. Shares of the Series D Preferred Stock are not
currently convertible. If PROPOSAL TWO is approved by the stockholders
at the Annual Meeting, each share of Series D Preferred Stock outstanding
will be mandatorily converted into 59 shares of the Common Stock (i.e.,
such shares will be converted at a conversion price of approximately $0.34
per share of the Common Stock).
Effect of Conversion
The Principal Stockholder currently owns and controls the voting
power of 5,076,126 or 88.0% of the issued and outstanding shares of the
Common Stock and 390,000 or 100% of the issued and outstanding shares of
Series D Preferred Stock. e currently does not own any of the 15,869
issued and outstanding shares of Series B Preferred Stock. If PROPOSAL
TWO is approved by the stockholders at the Annual Meeting causing all of
the Principal Stockholder's shares of Series D Preferred Stock to be
converted into the Common Stock he would receive 25,960,000 shares of the
Common Stock and would then own 28,086,126 shares of the Common Stock or
approximately
<PAGE>
97.6% of the Company's outstanding voting securities. On a
fully diluted basis, subject to the issuance of options to purchase the
Common Stock pursuant to options that may be granted under the
Amended and Restated 1993 Stock Option Plan, if PROPOSAL THREE is
approved, the Principal Stockholder would own the Common Stock and the
Warrants to acquire shares of the Common Stock totaling 60,536,126, or
approximately 99.1% of the ownership of the Common Stock of the Company.
Thus, if PROPOSAL TWO is approved at the Annual Meeting, the Principal
Stockholder's voting power and control over the Company will increase.
If PROPOSAL TWO is approved and the Common Stock is issued to the Principal
stockholder in accordance with the February 26, 1996 agreement, the book
value per share of the Common Stock, as of September 30, 1996, would
decline to $0.38 from $0.52 and the earnings per share of the Common
Stock for the same period would decline from $0.10 to less than $0.01.
The holdings of the existing stockholders would be diluted by the
Conversion. In addition, the Principal Stockholder's control would
increase further and existing stockholders will be further diluted if
PROPOSAL TWO is approved by the stockholders, and the Principal Stockholder
completes his acquisition of additional shares of the Company's Common
Stock.
The following table assumes the Conversion pursuant to the
February 26, 1996 agreement as if the Conversion were effected November 12,
1996.
</TABLE>
<TABLE>
<CAPTION>
Directors and
Executive All
Mr. Masagung Mr. Latief Officers Other
<S> <C> <C> <C> <C>
Common Stock 28,086,126 525,000 2,938 161,931
Percentage ownership 97.6% 1.8% 0.0% 0.6%
The following table assumes the Conversion and the issuance of
additional Common Stock pursuant to the February 26, 1996 agreement as if
the Conversion, the issuance of additional the Common Stock, and the
exercise of the Warrants were effected as of November 12, 1996. The
figures shown below do not take into account the dilutive effect of the
issuance of the Common Stock pursuant to the exercise of Options that may
be granted pursuant to the Amended and Restated 1993 Stock Option Plan
as discussed under PROPOSAL THREE.
</TABLE>
<TABLE>
<CAPTION>
Director and
Executive All
Mr. Masagung Mr. Latief Officers Others
<S> <C> <C> <C> <C>
Common Stock 60,536,126 525,000 2,938 161,931
Percentage ownership 99.1% 0.7% 0.0% 0.2%
As a result of his existing ownership of the Common Stock, the
Principal Stockholder has, and will in all likelihood continue to have for
the near future, sufficient voting power to enable him to exercise
control over virtually all aspects of the operations of the Company and the
Bank except to the extent that he sells securities owned by him or other
parties purchase additional securities. If the Principal Stockholder
were to vote all of his shares of the Common Stock and Series D Preferred
<PAGE>
Stock in favor of PROPOSAL TWO, which he has indicated his intent to do,
approval would be assured.
Conversion Of Certain Shares Of Series D Preferred Stock
The Series D Certificate of Designation provides that, upon
obtaining the requisite approval of the stockholders of the Company holding
Common Stock and Series B Preferred Stock, all of the shares of Series D
Preferred Stock that are owned by the Principal Stockholder and which
represent all the outstanding Series D Preferred Stock will be converted
into shares of the Common Stock as described above, at any time from the
date of adoption by the stockholders as described herein. It is proposed
that the Conversion will occur as of December 31, 1996.
Rights Of Dissenting Stockholders
Under the Delaware General Corporation Law, stockholders of the
Company are not entitled to any rights of appraisal or dissenters' rights
in connection with the adoption of PROPOSAL TWO: AUTHORIZATION OF
CONVERSION OF SERIES D PREFERRED STOCK AND AMENDMENT TO THE CERTIFICATE
OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF THE COMMON STOCK.
The Board of Directors recommends a vote FOR
PROPOSAL TWO: AUTHORIZATION OF THE CONVERSION OF THE SERIES D PREFERRED
STOCK AND AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE
THE AUTHORIZED NUMBER OF THE COMMON STOCK
<PAGE>
PROPOSAL THREE: APPROVAL OF THE AMENDED AND RESTATED 1993 STOCK OPTION
PLAN AND GRANTS TO CERTAIN DIRECTORS
Introduction
The Board of Directors of the Company believe that a stock option
incentive program is an important factor in attracting, retaining, and
motivating highly qualified employees and directors who will dedicate
their productive efforts towards the advancement of the interests of the
Company and the Bank.
In 1994, the Board of Directors and the stockholders of the
Company approved The 1993 Executive Stock Option Plan and the 1993
Nonemployee Directors Stock Option Plan, (collectively the "1993 Plans").
The Board of Directors has approved and is submitting to the stockholders
for approval the Amended and Restated 1993 Stock Option Plan. If PROPOSAL
THREE is approved, the Amended and Restated 1993 Stock Option Plan will
consolidate the 1993 Plans under one plan, and the options available for
grant under the Amended and Restated 1993 Stock Option Plan will increase
from 575,000 to 9,000,000.
Further, each of the Board of Directors is submitting to the
stockholders for approval, the initial grant of options to purchase
26,438 shares of the Common Stock to each of directors Swanson, Unkovic,
Sharpe, Williams, Schultz, and Foo under the Amended and Restated 1993
Stock Option Plan as described below. The stockholders are being asked
to approve such grants to ensure that the directors will maintain their
disinterested status and, therefore, are able to take the actions necessary
to administer the Amended and Restated 1993 Stock Option Plan.
Set forth below are descriptions of the principal terms and
conditions of the Amended and Restated 1993 Stock Option Plan. The
following descriptions are summaries and do not purport to be fully
descriptive and reference should be made to the actual Amended and
Restated 1993 Stock Option Plan for more detailed information. Copies of
the Amended and Restated 1993 Stock Option Plan are attached to this
Proxy Statement as Appendix B.
Purchase Price of Shares Issuable Upon Exercise of Options
The exercise price of options under the Amended and Restated 1993
Stock Option Plan shall be such price, as is determined by a Committee of
the Board of Directors, consisting of outside disinterested directors
(the "Committee"), which shall in no event be less than the fair market
value of the shares of the Common Stock on the date the option is granted.
The fair market value of the Common Stock shall be determined by the
Committee, using such criteria as it deems relevant; provided however,
that if there is a public market for the Common Stock, the fair market
value of the shares shall be the average of the last reported bid and asked
prices of the Common Stock on the date of grant, as reported in The Wall
Street Journal, or if not so reported, as otherwise reported by a market
maker in the Company's Common Stock, or the National Association of
Securities Dealers Automated Quotation (NASDAQ) System, or used in recent
transactions involving the Common Stock or securities convertible into
the Common Stock such as a recapitalization or in the event the Common
<PAGE>
Stock is listed on a national securities exchange (within the meaning
of Section 6 of the Exchange Act) or on the NASDAQ National Market System
(or any successor national market system), the fair market value of the
shares shall be the closing price on such exchange on the date of grant of
the option, as reported in The Wall Street Journal.
Fair market value in the case of nonstatutory stock options which
do not meet the requirements for exemption from the qualification
requirements under the California Corporate General Law shall have the
same meaning as set forth in Section 260.140.150 of the California Code of
Regulations.
Payments Under The Amended and Restated 1993 Stock Option Plan
All shares purchased pursuant to an option under the Plan must be
paid for in cash or by tendering shares of Common Stock, or a combination
thereof, upon exercise of the option. Shares tendered are valued at
their fair market value on the date of exercise.
Terms of Options and Exercisability
The terms of options granted under the Amended and Restated 1993
Stock Option Plan may not exceed ten (10) years. The Committee has the
right to provide for the vesting of options in installments and at such
times and subject to such conditions as it may determine.
Transfer of Options
Options granted under the Amended and Restated 1993 Stock Option
Plan are not transferable except by will or the laws of descent.
Therefore, during the lifetime of an option holder, an option may be
exercised only by the option holder (or personal representative in the
case of disability).
Termination of Employment or Director Status
In the event that the holder of options ceases to be an employee
due to a reason other than death, disability, or termination for cause,
all options held by the holder that are not exercisable expire upon
termination and all that are exercisable must be exercised within 30 days
after the date of such termination. In the event of death or disability,
all options held by the holder that are not exercisable within 90 days of
termination will expire and all options that are exercisable must be
exercised within 90 days for disability and within 180 days for death.
Employees terminated for cause forfeit all options.
In the event that the holder of options ceases to be a non-
employee director for any reason other than death or disability, all
options held by the holder that are not exercised within 30 days after
the date of such termination shall expire with the exception of those
held by Messrs. Price and Champion. Messrs. Price's and Champion's options
terminate ten (10) years of the date of grant regardless of their
affiliation with the Company.
<PAGE>
Dilutions and Other Adjustments
The number of shares of Common Stock issuable on the exercise of
options granted will increase or decrease and the exercise price shall be
adjusted accordingly if the number of shares of the Company's Common
Stock increase or decrease through a corporate reorganization, stock split
or similar transaction. The Amended and Restated 1993 Stock Option Plan
also provides the Committee discretion to grant options that contain
provisions that adjust the number of shares of Common Stock issuable upon
the exercise of such options, due to the increase or decrease in the fully
diluted number of shares of all classes of Common Stock or securities
convertible into Common Stock including options, warrants, conversions
rights, and all other outstanding rights to purchase any class of shares
of Common Stock and securities convertible on to Common Stock, provided
that such adjustment provisions terminate immediately following the closing
of the next offering of the Company's Common Stock to the public pursuant
to an effective registration statement filed by the Company pursuant to
the Securities Act of 1933, as amended.
Section 162(m) of the Internal Revenue Code of 1986, as amended
Options under the Amended and Restated 1993 Stock Option Plan shall
be subject to the conditions of Section 162(m) of the Internal Revenue Code
of 1986, as amended and any Treasury Regulations promulgated thereunder.
In addition, the maximum number of shares of the Common Stock with respect
to which options may be granted during any calendar year to any employee
shall not exceed three million, five hundred thousand (3,500,000) shares
(subject to adjustment). Calculation of the total number of shares covered
by option grants during a calendar year shall be made in accordance with
the provisions of any applicable Treasury Regulations under Section 162(m)
of the Internal Revenue Code of 1986, as amended.
Federal Income Tax Considerations
Options granted may be either incentive stock options in accordance
with the provisions of Sections 422 of the Internal Revenue Code of 1986,
as amended, or non-qualified stock options that do not meet the
requirements of Section 422.
In the case of incentive stock options, the optionee will realize
no taxable income upon either the grant or exercise of an incentive stock
option, nor will the Company obtain any deduction from its taxable income.
Upon subsequent disposition of shares acquired pursuant to the exercise of
an incentive stock option, if the shares have not been disposed of prior
to two years from the date of grant nor within one year from the date of
exercise, the excess, if any, of the sales price of the shares upon
disposition over the exercise price of the option will be treated as
long-term capital gain to the optionee. If the shares acquired pursuant
to the exercise of an incentive stock option are disposed of prior to the
expiration of the required holding period, the optionee recognizes ordinary
income to the extent of the lesser of the sales price of the shares upon
disposition over the exercise price of the option, or the excess, if any,
of the market value of the shares on the date of exercise over the exercise
price of the option. In this case, the Company will be allowed a deduction
to the extent of the ordinary income recognized by the optionee.
<PAGE>
Upon the grant of a non-qualified option, no taxable income will
generally be recognized by the optionee nor will any deduction from the
Company's taxable income be allowed. Upon the exercise of a non-qualified
stock option, the excess, if any, of the fair market value of the shares on
the date of exercise over the exercise price of the option will be treated
as ordinary income to the optionee, and the Company will be allowed a
deduction to the extent of the ordinary income recognized by the optionee.
Upon subsequent disposition of shares acquired through the exercise of
a non-qualified stock option, if the shares have been held for more than
twelve (12) months, the excess, if any, of the sales price of the shares
upon disposition over the fair market value of the shares on the date of
exercise will be treated as long-term capital gain to the optionee; if the
shares have been held for less the twelve (12) months, the excess, if any,
will be treated as a short-term capital gain.
Administration, Modification and Termination of the Plans
The Amended and Restated 1993 Stock Option Plan will be
administered by the Personnel/Compensation Committee, which is composed of
non-employee disinterested directors in accordance with the terms and
conditions thereof. The Committee interprets and makes appropriate
determinations under the Amended and Restated 1993 Stock Option Plan,
including to whom options shall be granted, the number of options to be
granted to each qualified employee and new director, the exercise price of
each option, any vesting period or other conditions to exercise, and the
period during which each option may be exercised. Awards will be
discretionary based on job performance and/or contribution to the
Company's goals.
The Committee may amend the Amended and Restated 1993 Stock Option
Plan, except that stockholder approval is required to (i) increase the
number of shares available other than for anti-dilution purposes related
to a reorganization as described above, or (ii) reduce the exercise prices
of options granted thereunder below those specified in the Amended and
Restated 1993 Stock Option Plan. Further, the Committee may not, without
stockholder approval, amend the Amended and Restated 1993 Stock Option
Plan to: (i) increase the aggregate number of shares of the Common Stock
which may be issued pursuant to the provisions of the Amended and Restated
1993 Stock Option Plan, (ii) change the minimum option price, (iii) change
the class of employees eligible to receive options or increase materially
the benefits accruing to employees under the Amended and Restated 1993 Stock
Option Plan, (iv) extend the maximum period during which options may be
granted under the Amended and Restated 1993 Stock Option Plan, (v) modify
materially the requirements as to eligibility for participation in the
Amended and Restated 1993 Stock Option Plan, or (vi) decrease any authority
granted to the Committee in contravention of Rule 16b-3 of the Exchange Act.
The Amended and Restated 1993 Stock Option Plan will terminate in
2003 unless earlier terminated. Upon termination no more options may be
granted, although termination will not affect the options previously granted.
Initial Grants Under the Amended and Restated 1993 Stock Option Plan
The Committee has determined that to provide an incentive for
attracting, retaining and motivating highly qualified employees and
directors, options, other than options to be granted under the contracts
discussed below, should be provided for qualified employees and directors.
Incentive
<PAGE>
stock options are to be granted to employees of the Company; nonstatutory
stock options shall be granted to non-employee directors. The Committee
has approved the allocation of approximately 324,400 options or
approximately 1% of the outstanding shares of the Common Stock to be set
aside for grants to directors, and approximately 634,500 or approximately
2% of the outstanding shares of the Common Stock to be set aside for the
grants to qualified employees. The Committee has determined that an
initial grant totalling one-half of the available options to acquire
Common Stock should be made to certain qualified employees and directors
effective October 1, 1996.
If PROPOSAL THREE is approved, approximately 475,900 options will
be granted to qualified employees and directors effective October 1, 1996.
The Board of Directors recommends, for approval by the stockholders, the
initial grant of 26,438 options at an exercise price of $0.34 per share to
be granted to each of directors Foo, Schultz, Sharpe, Swanson, Unkovic, and
Williams (directors not covered by an existing contract). The stockholders
are asked to vote on this initial grant to ensure that such directors will
maintain their disinterested status and, therefore, be able to take the
actions necessary to administer the Amended and Restated 1993 Stock Option
Plan. (A disinterested director is generally any director who has not
received a grant of options within one year prior to beginning as a member
of the Committee or during such service). The Board of Directors is unable
to determine at this time the qualified employees that will be granted
options under the Amended and Restated 1993 Stock Option Plan.
Reasons for Approving PROPOSAL THREE
If PROPOSAL THREE is approved, the 1993 Non-employee Stock Option
Plan and the 1993 Executive Management Stock Option Plan will be merged into
one plan known as the Amended and Restated 1993 Stock Option Plan, the
number of options available will increase from 575,000 to 9,000,000, and
an initial grant of 158,628 options will be made to directors Foo, Schultz,
Sharpe, Swanson, Unkovic and Williams. If PROPOSAL TREE is not approved,
the Company and the Bank will be in violation of the Employment and
Termination of Employment Contracts entered into with certain officers and
directors as described above as there will be insufficient shares of the
Common Stock to cover options required to be granted under those agreements.
The violation of these agreements could result in legal and settlement
expenses. In addition, the ability of the Company to attract, retain and
motivate qualified employees and directors would be restricted.
The employment agreements which the Company has entered into with
Messrs. Gilleran and McGrath, and the separation agreements which the
Company has entered into with Messrs. Price and Champion, as described in
"Employment Contracts and Termination of Employment," provide that the
Board of Directors shall grant each of Messrs. Gilleran, McGrath, Price and
Champion options to acquire shares of the Company's Common Stock in an
aggregate amount equal to 9% of the outstanding fully-diluted shares of
the Common Stock, with additional options to be granted in the future as
necessary to maintain the 9% interest. If PROPOSAL TWO is approved there
will be insufficient options available in the 1993 Plans to grant the
number of options required to maintain such 9% interest. Based on the
current capitalization of the Company, if PROPOSAL TWO is approved, (i)
each of Messrs. Price and McGrath should receive options to purchase 672,984
shares or 1% each of the outstanding shares of the Common Stock including
the Common Stock equivalent securities of the Company, effective September
30, 1994 and November 27, 1995, respectively, (ii) Mr. Champion should
receive options to purchase 1,345,967 shares or 2% of the outstanding shares
<PAGE>
of the Common Stock including the Common Stock equivalent securities of the
Company, effective November 1, 1994, and (iii) Mr. Gilleran should receive
options to purchase 3,364,918 shares or 5% of the outstanding shares of
the Common Stock including the Common Stock equivalent securities of the
Company, effective October 1, 1994.
The options granted to Messrs. Price and Champion would be fully
vested. The options granted to Messrs. Gilleran and McGrath would
retroactively vest over a three-year period, with one-third vesting on
each anniversary of their respective employment agreements. The exercise
price of the options to be granted effective prior to April 20, 1995 would
be $5.68 per share of the Common Stock, and the exercise price of
subsequent anti-dilution options to be granted effective for between
April 20, 1995 and December 31, 1996 would be $0.34 per share of the
Common Stock, and all future options would be granted at then-current fair
market value per share of the Common Stock or the price per share of the
Common Stock issued to others in a public offering of the Company's Common
Stock.
Awards under the Amended and Restated 1993 Stock Option Plan, if
not covered by an existing contract, will be discretionary and will be
based on the performance of the Company, the director's or officer's job
performance, the importance of his or her position, and his or her
contribution to the Company's goals for the award period (which goals in
the short term are likely to focus more on compliance with regulatory
requirements, increasing market share, and improvements in financial
performance than on financial performance comparable to other bank
holding companies).
If PROPOSALS TWO AND THREE are approved, after options are granted
under the contracts discussed above, the Amended and Restated 1993 Stock
Option Plan will provide for a total of approximately 2,943,000 of
additional options, or approximately 3% of the outstanding Common
Stock, and the Common Stock issuable under the Warrants and options to
acquire the Common Stock. These additional options will be available for
grant to directors and qualified employees. The Board of Directors has
determined that it is in the best interest of the Company that approximately
324,400 of the additional options, or approximately 1% of the outstanding
shares of the Common Stock to be set aside for grants to directors, and
that approximately 634,500, or approximately 2% of the outstanding shares
of the Common Stock be set aside for grants to qualified employees. The
exercise of such options will result in further anti-dilution options being
issued. If all the options anticipated to be granted to directors and
qualified employees were exercised, an additional 1,238,564 anti-dilution
options would be required to be granted. If PROPOSAL THREE is approved,
approximately half of the options allocated to directors will be granted
effective October 1, 1996.
Effect of the Approval of the Amended and Restated 1993 Stock Option Plan
and the Approval of Grants to Directors
If PROPOSAL TWO AND THREE are approved and the Principal
Stockholder were to purchase the remaining shares of the Common Stock he
has committed to purchase under the February 26, 1996 agreement and
exercise the Warrants, and options the Company is obligated to grant and
those options anticipated to be granted under the Amended and Restated
1993 Stock Option Plan were granted and exercised, the Principal
Stockholder would own and control the voting power of 87% of
<PAGE>
the Company's Common Stock, employees, directors and management would
own and control the voting power of 12% of the Common Stock, and the
remaining 1% would be held by other outside stockholders. The book value
per share of the Common Stock, assuming the approval of PROPOSAL TWO AND
THREE, the purchase of additional shares of the Common Stock and the exercise
of the Warrants by the Principal Stockholder, and the granting and exercising
of all options under the Amended and Restated 1993 Stock Option Plan, as of
September 30, 1996, would decline to $0.35 from $0.52 and the earnings per
share of the Common Stock for the same nine month period would decline
from $0.10 to less than $0.01.
The following sets forth information regarding the beneficial
ownership assuming the approval of PROPOSAL TWO AND THREE, the purchase
of additional shares of the Common Stock and the exercise of the Warrants
by the Principal Stockholder, and the granting and exercising of all options
under the Amended and Restated 1993 Stock Option Plan:
</TABLE>
<TABLE>
<CAPTION>
Mr. Directors/ All
Masagung Mr. Latief Officers Others
<S> <C> <C> <C> <C>
Common Stock 31,036,126 525,000 2,938 161,933
Warrants 29,500,000 -- -- --
Amended and Restated
1993 Stock Option Plan -- -- 8,349,003 --
Total 60,536,126 525,000 8,351,941 161,933
Percentage 87% 0.8% 12% 0.2%
<PAGE>
The following table shows grants to be made if PROPOSAL TWO AND THREE are
approved under the Amended and Restated 1993 Stock Option Plan for the
individuals and groups set forth below:
</TABLE>
<TABLE>
<CAPTION>
Name and Position Number of Shares of
the Common Stock
Underlying Options
Granted or to be
Granted Through
December 31, 1996(5)
<S> <C>
James E. Gilleran (1)
Director of the Company and the Bank 3,390,674
John McGrath (2)
Director of the Bank 678,135
Kent D. Price (3)
Director of the Company and the Bank 678,135
Steven R. Champion (4)
Director of the Company and the Bank 1,356,269
Peter Foo (6)
Director of the Company and Bank 26,438
Nicholas Unkovic (6)
Director of the Company and Bank 27,315
Willard D. Sharpe (6)
Director of the Company and Bank 30,138
Gordon B. Swanson (6)
Director of the Company and Bank 30,138
Jackson Schultz (6)
Director of the Company and Bank 26,438
Gary G. Williams (6)
Director of the Company and Bank 26,438
Other members of Senior Management (7) 317,260
Executive and Senior Management Group 4,386,069
Outside Director Group 2,201,409
_____________________
(1) Includes 313,639 options with an exercise price of $5.68. See
Employment Agreement - Mr. Gilleran above.
(2) Options will be granted with an effective date of November 27, 1995
at an exercise price of $0.34. See Employment Agreement - Mr.
McGrath above.
<PAGE>
(3) Includes 62,728 options which were granted to Mr. Price in 1994 at
an exercise price of $5.68. All options granted and to be granted
are or will be fully vested.
(4) Includes 125,455 options where were granted to Mr. Champion in 1994
at an exercise price of $5.68. All options granted and to be
granted are or will be fully vested.
(5) The table includes options to be granted pursuant to the
anti-dilution provisions of existing contracts described as if
PROPOSAL TWO were approved. All anti-dilution options have an
exercise price of $0.34 per share.
(6) Each outside director not covered by an existing contract will be
granted options to acquire 26,438 shares of the Common Stock at
a price of $0.34 effective October 1, 1996. These options will
vest based on seniority with Messrs. Swanson and Sharpe being
fully vested, Mr. Unkovic 75% vested and Messrs. Foo, Schultz and
Williams 25% vested. One former Director, Donna Miller Casey,
has 1,250 options with an exercise price of $30.00 per share
which expire December 31, 1996 and are not included in the above
table.
(7) Certain officers not covered by an existing contract will be
granted options to acquire 317,260 shares of the Common Stock at
an exercise price of $0.34 effective October 1, 1996. Options
will vest based on seniority.
As a result of his existing ownership of the Common Stock, the
Principal Stockholder has, and will in all likelihood continue to have for
the near future, sufficient voting power to enable him to exercise control
over virtually all aspects of the operations of the Company and the Bank
except to the extent that he sells securities owned by him or other parties
purchase additional securities. If the Principal Stockholder were to vote
all of his shares of the Common Stock and Series D Preferred Stock in favor
of PROPOSAL TREE, which he has indicated his intent to do, approval would be
assured.
The Board of Directors recommends a vote FOR
PROPOSAL THREE: APPROVAL OF THE AMENDED AND RESTATED 1993 STOCK
OPTION PLAN AND GRANTS TO CERTAIN DIRECTORS
PROPOSAL FOUR: RATIFICATION OF SELECTION
OF INDEPENDENT ACCOUNTING FIRM FOR 1995, 1996 AND 1997
The firm of KPMG Peat Marwick LLP independent public accountants,
was appointed in 1995 and 1996 to audit the books and records of the
Company and the Bank for 1995 and 1996, respectively. In October 1996,
the Board of Directors appointed KPMG Peat Marwick LLP to audit the books
and records of the Company for 1997.
The selection of an independent accounting firm to provide audit
services for the Company has been approved annually by the Company's Board
of Directors. The Board engaged KPMG Peat Marwick LLP to perform auditing
services for 1995 prior to ratification by the stockholders. The Board
desires to have KPMG Peat Marwick LLP continue as the independent
accounting firm for the
<PAGE>
Company for the current 1996 fiscal year and for the 1997 fiscal year.
Accordingly, stockholders are being asked to act upon a proposal to ratify
the Board of Directors' selection of KPMG Peat Marwick LLP for 1995, 1996
and 1997.
KPMG Peat Marwick LLP has advised the Company that one or more
of its representatives will be present at the Annual Meeting to make a
statement if they so desire and to respond to appropriate questions.
As a result of his existing ownership of the Common Stock, the
Principal Stockholder has, and will in all likelihood continue to have for
the near future, sufficient voting power to enable him to exercise control
over virtually all aspects of the operations of the Company and the Bank
except to the extent that he sells securities owned by him or other
parties purchase additional securities. If the Principal Stockholder were
to vote all of his shares of the Common Stock and Series D Preferred Stock
in favor of PROPOSAL FOUR, which he has indicated his intent to do,
approval would be assured.
The Board of Directors recommends a vote FOR
PROPOSAL FOUR: RATIFICATION OF SELECTION
OF INDEPENDENT ACCOUNTING FIRM FOR 1995, 1996 AND 1997
STOCKHOLDER PROPOSALS
The deadline for stockholders to submit proposals to be considered
for inclusion in the Company's proxy statement and form of proxy for the
Annual Meeting of stockholders is January 2, 1997.
OTHER PROPOSED ACTION
The Board of Directors is not aware of other business which will
come before the Annual Meeting, but if any such matters are properly
presented, proxies solicited hereby will be voted, at the proxy holder's
discretion, upon the direction of management. All shares represented by
duly executed proxies will be voted at the Annual Meeting.
The SAN FRANCISCO COMPANY
KEARY L. COLWELL
Assistant Secretary
San Francisco, California
December 6, 1996
<PAGE>
THE SAN FRANCISCO COMPANY
AMENDED AND RESTATED 1993 STOCK OPTION PLAN
1. Purposes of the Plan. The San Francisco Company Amended and
Restated 1993 Stock Option Plan (the "Plan") amends and restates The San
Francisco Company 1993 Executive Officers Stock Option Plan adopted and
approved by the Stockholders of The San Francisco Company at the May 23,
1993 Annual Meeting. The Plan also subsumes The San Francisco Company
1993 Non-employee Directors Stock Option Plan also adopted and approved
by the Stockholders of The San Francisco Company at the May 23, 1993 Annual
Meeting. The purposes of the Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentives to Employees or Non-Employee Directors of the Company
and its Subsidiaries, and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options at the discretion of the Committee. This is
intended to be a stock option plan for purposes of Section 408 of the
California General Corporation Law.
2. Definitions. As used herein, and in any Option granted
hereunder, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Change of Control Value" shall mean the amount determined in
Clause (i), (ii), or (iii), whichever is applicable, as follows: (i) the
per share price offered to shareholders of the Company in any merger,
consolidation, sale of assets or dissolution transaction, (ii) the price
per share offered to shareholders of the Company in any tender offer or
exchange offer whereby a Corporate Change takes place or (iii) if a
Corporate Change occurs other than as described in Clause (i) or Clause
(ii), the fair market value per share determined by the Board as of the
date determined by the Board to be the date of cancellation and surrender
of an Option. If the consideration offered to shareholders of the Company
in any transaction described in this paragraph or Section 11 consists of
anything other than cash, the Board shall determine the fair cash
equivalent of the portion of the consideration offered which is other than
cash.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" shall mean the Class A Common Stock, par value
of $0.01 per share, of the Company.
(e) "Company" shall mean The San Francisco Company, a Delaware
corporation.
<PAGE>
(f) "Committee" shall mean the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan. If the Board does
not appoint or ceases to maintain a Committee in accordance with such
paragraph, the term "Committee" shall refer to the Board or a committee
appointed by the Board.
(g) "Corporate Change" shall mean one of the following events: (i)
the merger, consolidation or other reorganization of the Company in which
the outstanding Common Stock is converted into or exchanged for a different
class of securities of the Company, a class of securities of any other
issuer (except a Subsidiary or Parent), cash or other property other than
(a) a merger, consolidation or reorganization of the Company which would
result in the voting stock 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 sixty
percent (60%) of the combined voting power of the voting stock of the
Company or such surviving entity outstanding immediately after such merger,
consolidation or reorganization of the Company, or (b) merger,
consolidation or reorganization of the Company effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than forty-nine percent (49%) of the combined voting power of
the Company's then outstanding stock; (ii) the sale, lease or exchange of
all or substantially all of the assets of the Company to any other corporation
or entity (except a subsidiary or parent company); (iii) the adoption by
the stockholders of the Company of a plan of liquidation and dissolution;
(iv) the acquisition (other than acquisition pursuant to any other clause
of this definition) by any person or entity, including without limitation
a "group" as contemplated by Section 13(d)(3) of the Exchange Act, of
beneficial ownership, as contemplated by such Section, of more than
twenty-five percent (25%) (based on voting power) of the Company's
outstanding capital stock or acquisition by a person or entity who
currently has beneficial ownership which increases such person's or
entity's beneficial ownership to fifty percent (50%) or more (based on
voting power) of the Company's outstanding capital stock; or (v) as a
result of or in connection with a contested election of directors, the
persons who were directors of the Company before such election shall cease
to constitute a majority of the Board. Notwithstanding the provisions of
clause (iv) above, a Corporate Change shall not be considered to have
occurred upon the acquisition (other than acquisition pursuant to any other
clause of the preceding sentence) by any person or entity, including without
limitation a "group" as contemplated by Section 13(d)(3) of the Exchange
Act, of beneficial ownership, as contemplated by such Section, of more
than twenty-five percent (25%) (based on voting power) of the Company's
outstanding capital stock or the requisite percentage to increase their
ownership to fifty percent (50%) resulting from a public offering of
securities of the Company under the Securities Act of 1933, as amended.
(h) "Continuous Employment" shall mean the absence of any
interruption or termination of service as an Employee or Non-Employee
Director by the Company or any Parent or Subsidiary. Continuous Employment
shall not be considered interrupted during any period of sick leave,
military leave or any other leave of absence
<PAGE>
approved by the Board or in the case of transfers between locations of the
Company or between the Company and any Parent, Subsidiary or successor of
the Company.
(i) "Covered Employee" shall mean any individual whose compensation
is subject to the limitations on tax deductibility provided by Section
162(m) of the Code and any Treasury Regulations promulgated thereunder in
effect at the close of the taxable year of the Company in which an Option
has been granted to such individual.
(j) "Disinterested Person" shall mean a person who has not at any
time within one year prior to service as a member of the Committee (or
during such service) been granted or awarded Options or other equity
securities pursuant to the Plan or any other plan of the Company or any
Parent or Subsidiary. Notwithstanding the foregoing, a member of the
Committee shall not fail to be a Disinterested Person merely because he or
she participates in a plan meeting the requirements of Rule 16b-3(c)(2)(i)
(A) or (B) promulgated under the Exchange Act.
(k) "Employee" shall mean any person, including officers (whether
or not they are directors), employed by the Company or any Parent or
Subsidiary.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(m) "Incentive Stock Option" shall mean any Option granted under the
Plan and any other Option granted to an Employee in accordance with the
provisions of Section 422 of the Code, and the regulations promulgated
thereunder.
(n) "Non-Employee Director" shall mean any director of the Company
or any Parent or Subsidiary who is not employed by the Company or such
Parent or Subsidiary.
(o) "Nonstatutory Stock Option" shall mean an Option granted under
the Plan that is subject to the provisions of Section 1.83-7 of the
Treasury Regulations promulgated under Section 83 of the Code.
(p) "Option" shall mean a stock option granted pursuant to the Plan.
(q) "Option Agreement" shall mean a written agreement between the
Company and the Optionee regarding the grant and exercise of Options to
purchase Shares and the terms and conditions thereof as determined by the
Committee pursuant to the Plan.
(r) "Optioned Shares" shall mean the Common Stock subject to an
Option.
<PAGE>
(s) "Optionee" shall mean an Employee or Non-Employee Director
who receives an Option.
(t) "Outside Director" shall mean a director of the Company who
qualifies as an outside director as such term is used in Section 162(m) of
the Code and defined in any applicable Treasury Regulations promulgated
thereunder.
(u) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined by Section 424(e) and (g) of the Code.
(v) "Plan" shall mean this The San Francisco Company Amended and
Restated 1993 Stock Option Plan.
(w) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(x) "Share" shall mean a share of the Common Stock subject to an
Option, as adjusted in accordance with Section 11 of the Plan.
(y) "Subsidiary" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section
11 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 9,000,000 Shares. The Shares may be
authorized but unissued or reacquired shares of Common Stock. If an Option
expires or becomes unexercisable for any reason without having been
exercised in full, the Shares which were subject to the Option but as to
which the Option was not exercised shall become available for other Option
grants under the Plan, unless the Plan shall have been terminated.
4. Administration of the Plan.
(a) Procedure. The Plan shall be administered either by: (i) the
full Board, provided that all members of the Board are Disinterested
Persons; or (ii) a Committee of two (2) or more Outside Directors, each of
whom is a Disinterested Person. Once appointed, the Committee shall
continue to serve until otherwise directed by the Board. From time to time,
the Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies, however caused, and
remove all members of the Committee and, thereafter, directly administer
the Plan, subject, however, to the requirements of Code Section 162(m) and
the applicable Treasury Regulations thereunder. Members of the Board or
the Committee who are either eligible for Options or have been granted
Options may vote on any matters affecting the administration of the Plan
or the grant of Options pursuant to the Plan, except that no such member
shall act upon the granting
<PAGE>
of an Option to himself, but any such member may be counted in determining
the existence of a quorum at any meeting of the Board or the Committee
during which action is taken with respect to the granting of an Option to
him or her. The Board or the Committee shall take all action necessary to
administer the Plan in accordance with the then effective provisions of
Rule 16b-3 promulgated under the Exchange Act, provided that any amendment
to the Plan required for compliance with such provisions shall be made
consistent with the provisions of Section 13 of the Plan, and such
regulations. Options can be granted to members of the Board or the
Committee only if: (i) the Plan is being administered by a Committee
consisting solely of Disinterested Persons; or (ii) a majority of the
Board and a majority of the directors acting with respect to such Option
grants consists of Disinterested Persons.
The Committee shall meet at such times and places and upon such
notice as the chairperson determines. A majority of the Committee shall
constitute a quorum. Any acts by the Committee may be taken at any
meeting at which a quorum is present and shall be by majority vote of
those members entitled to vote. Additionally, any acts reduced to writing
or approved in writing by all members of the Committee shall be valid acts
of the Committee.
(b) Powers of the Committee. Subject to the provisions of the
Plan, the Committee shall have the authority: (i) to determine, upon
review of relevant information, the fair market value of the Common Stock;
(ii) to determine the exercise price of Options to be granted, the
Employees or Directors to whom and the time or times at which Options shall
be granted, and the number of Shares to be represented by each Option;
(iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules
and regulations relating to the Plan; (v) to determine the terms and
provisions of each Option granted under the Plan (which need not be
identical) and, with the consent of the holder thereof, to modify or amend
any Option; (vi) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option
previously granted by the Committee; (vii) to accelerate or (with the
consent of the Optionee) defer an exercise date of any Option, subject to
the provisions of Section 9(a) of the Plan; (viii) to determine whether
Options granted under the Plan will be Incentive Stock Options or
Nonstatutory Stock Options; and (ix) to make all other determinations
deemed necessary or advisable for the administration of the Plan.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Committee shall be final and binding on all
potential or actual Optionees, any other holder of an Option or other
equity security of the Company and all other persons.
5. Eligibility.
(a) Persons Eligible for Options. Options under the Plan may be
granted only to Employees or Non-Employee Directors whom the Committee, in
its sole discretion, may designate from time to time; provided, however,
that Incentive Stock Options
<PAGE>
may be granted only to Employees. An Employee who has been granted an
Option, if he or she is otherwise eligible, may be granted an additional
Option or Options. However, the aggregate fair market value (determined
in accordance with the provisions of Section 8(a) of the Plan) of the
Shares subject to one or more Incentive Stock Options grants that are
exercisable for the first time by an Optionee during any calendar year
(under all stock option plans of the Company and its Parents and
Subsidiaries) shall not exceed $100,000 (determined as of the grant date).
Options under the Plan shall be granted to Covered Employees upon
satisfaction of the conditions to such grants provided pursuant to Section
162(m) of the Code and any Treasury Regulations promulgated thereunder.
In addition, the maximum number of Shares with respect to which Options
may be granted during any calendar year to any Employee shall not exceed
three million, five hundred thousand (3,500,000) Shares (subject to
adjustment as provided in Section 11, hereof). Finally, calculation of
the total number of Shares covered by Option grants during a calendar year
shall be made in accordance with the provisions of any applicable
Treasury Regulations promulgated under Section 162(m) of the Code.
(b) No Right to Continuing Employment. Neither the establishment
nor the operation of the Plan shall confer upon any Optionee or any other
person any right with respect to continuation of employment or other
service with the Company or any Parent or Subsidiary, nor shall the Plan
interfere in any way with the right of the Optionee or the right of the
Company (or any Parent or Subsidiary) to terminate such employment or
service at any time.
6. Term of Plan. The Plan shall become effective upon its adoption
by the Board or its approval by vote of the holders of the outstanding
shares of the Company entitled to vote on the adoption of the Plan (in
accordance with the provisions of Section 18 hereof), whichever is
earlier. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 13 of the Plan.
7. Term of Option. Unless the Committee determines otherwise,
the term of each Option granted under the Plan shall be ten (10) years
from the date of grant. The term of the Option shall be set forth in the
Option Agreement. No Incentive Stock Option shall be exercisable after
the expiration of ten (10) years from the date such Option is granted;
provided, however, that no Incentive Stock Option granted to any Employee
who, at the date such Option is granted, owns (within the meaning of
Section 424(d) of the Code) more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent
or Subsidiary shall be exercisable after the expiration of five (5) years
from the date such Option is granted.
8. Option Price and Consideration.
(a) Option Price. Except as provided in subsections (b) and (c)
below, the option price for the Shares to be issued pursuant to any Option
(whether an Incentive Stock Option or Non-statutory Stock Option) shall be
such price
<PAGE>
as is determined by the Committee, which shall in no event be
less than the fair market value of such Shares on the date the Option is
granted. Fair market value of the Common Stock shall be determined by the
Committee, using such criteria as it deems relevant; provided, however,
that if there is a public market for the Common Stock, the fair market
value per Share shall be the average of the last reported bid and asked
prices of the Common Stock on the date of grant, as reported in The Wall
Street Journal, or, if not so reported, as otherwise reported by a market
maker in the Company's stock, or the National Association of Securities
Dealers Automated Quotation (NASDAQ) System), or used in recent
transactions involving the Common Stock or securities convertible into
Common Stock such as a recapitalization, or in the event the Common Stock
is listed on a national securities exchange (within the meaning of Section
6 of the Exchange Act) or on the NASDAQ National Market System (or any
successor national market system), the fair market value per Share shall
be the closing price on such exchange on the date of grant of the Option,
as reported in The Wall Street Journal. Fair market value in the case of
Nonstatutory Stock Options which do not meet the requirements for
exemption from the qualification requirements under the California General
Corporation Law shall have the same meaning as set forth in Section
260.140.50 of the California Code of Regulations.
(b) Ten Percent Shareholders. No Incentive Stock Option shall be
granted to any Employee who, at the date such Option is granted, owns
(within the meaning of Section 424(d) of the Code) more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary, unless the option price for the
Shares to be issued pursuant to such Option is at least equal to one
hundred ten percent (110%) of the fair market value of such Shares on the
grant date determined by the Committee in the manner set forth in
subsection (a) above.
(c) Consideration. The consideration to be paid for the Optioned
Shares shall be payment in cash or by check unless payment in some other
manner, including by promissory note, other shares of the Company's Common
Stock or such other consideration and method of payment for the issuance
of Optioned Shares as may be permitted under applicable law, is authorized
by the Committee at the time of the grant of the Option. Any cash or
other property received by the Company from the sale of Shares pursuant to
the Plan shall constitute part of the general assets of the Company.
9. Exercise of Option.
(a) Vesting Period. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Committee and as shall be permissible under the terms of the Plan, which
shall be specified in the Option Agreement evidencing the Option.
(b) Exercise Procedures. An Option shall be deemed to be exercised
when written notice of such exercise has been given to the Company and the
Committee in accordance with the terms of the Option by the person
entitled to exercise
<PAGE>
the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company. If the Options being
exercised are Nonstatutory Stock Options, full payment must include any
withholding tax required by law. Any exercise of an Option by any person
subject to short-swing trading liability under Section 16(b) of the
Exchange Act shall comply with the relevant requirements of Rule 16b-3(d)
or (e) promulgated under the Exchange Act. In lieu of delivery of a cash
payment for the purchase price of the Shares with respect to which the
Option is exercised, the Optionee may deliver to the Company a sell order
to a broker for the Shares being purchased and an agreement to pay (or
have the broker remit payment for) the purchase price for the Shares being
purchased on or before the settlement date for the sale of such shares to
the broker. As soon as practicable following the exercise of an Option in
the manner set forth above, the Company shall issue or cause its transfer
agent to issue stock certificates representing the Shares purchased. Until
the issuance of such stock certificates (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of
the Company), no right to vote or receive dividends or any other rights
as a shareholder shall exist with respect to the Optioned Shares
notwithstanding the exercise of the Option. No adjustment will be made
for a dividend or other rights for which the record date is prior to the
date of the transfer by the Optionee of the consideration for the purchase
of the Shares, except as provided in Section 11 of the Plan.
(c) Exercise of Option With Stock. If an Optionee is permitted to
exercise an Option by delivering shares of the Company's Common Stock, the
Option Agreement covering such Option may include provisions authorizing
the Optionee to exercise the Option, in whole or in part, by (i)
delivering whole shares of the Company's Common Stock previously owned by
such Optionee (whether or not acquired through the prior exercise of a
stock option) having a fair market value equal to the option price; or
(ii) directing the Company to withhold from the Shares that would
otherwise be issued upon exercise of the Option that number of whole
Shares having a fair market value equal to the option price. Shares of the
Company's Common Stock so delivered or withheld shall be valued at their
fair market value at the close of the last business day immediately
preceding the date of exercise of the Option, as determined by the
Committee. Any balance of the option price shall be paid in cash. Any
Shares delivered or withheld in accordance with this provision shall
again become available for purposes of the Plan and for Options
subsequently granted thereunder. After the Registration Date, any
exercise of an Option under Section 9(c)(i) or 9(c)(ii) above by any
person subject to short-swing trading liability under Section 16(b) of the
Exchange Act shall comply with the relevant requirements of Rule 16b-3(d)
or (e) promulgated under the Exchange Act.
(d) Termination of Status as Employee or Non-Employee Director. In
the event of the termination of the employment of the Optionee including a
termination that is voluntary on the part of the Optionee and with Good
Reason, other than (a) a termination that is either (i) for Cause or (ii)
voluntary on the part of the Optionee and without Good Reason, (b) a
termination by reason of retirement or disability within the meaning of
the then existing long-term disability plan maintained by the Company, or
<PAGE>
(c) death, the Optionee may exercise the Option at any time within thirty
(30) days of such termination of employment unless the exercise period is
extended by the Committee which shall be specified in the Option Agreement
evidencing the Option, but in no event after ten (10) years from the date
of granting thereof, but only to the extent of the number of Shares for
which the Option is exercisable by him or her at the date of the
termination of employment.
In the event of a termination of the employment of the Optionee
that is either (i) for Cause or (ii) voluntary on the part of the Optionee
and without Good Reason, the Option, to the extent not previously
exercised, shall forthwith terminate on the date of such termination of
employment. Except as may be otherwise provided in the Plan, an Option
granted hereunder shall not be affected by any change of employment so
long as Optionee continues to be employed by the Company, a Parent or a
Subsidiary.
"Cause" shall mean, as determined by the Committee, in its sole
discretion exercised in a nondiscriminatory manner, (i) the continued
failure of the Optionee to substantially perform his duties for the
Company, a Parent or a Subsidiary (other than any such failure resulting
from disability as defined above), (ii) the engaging by the Optionee in
willful, reckless or grossly negligent misconduct which is determined by
the Committee to be materially injurious to the Company or any of its
affiliates, monetarily or otherwise, or (iii) the Optionee's pleading
guilty to or conviction of a felony.
"Good Reason" shall mean, as determined by the Committee, in its
sole discretion exercised in a nondiscriminatory manner, the occurrence of
any of the following events without the Optionee's express written consent:
(i) a substantial and adverse change in the Optionee's duties,
control, authority or status or position, or the assignment to the
Optionee or any duties or responsibilities which are inconsistent with
such status or position, or a reduction in the duties and responsibilities
previously exercised by the Optionee, or a loss of title, loss of office,
loss of significant authority, power or control, or any removal of him or
her from or any failure to reappoint or reelect him to such positions,
except in connection with the termination of his employment for Cause or
disability (as defined above), or as a result of his death;
(ii) a reduction in the Optionee's base salary or a material
reduction in the Optionee's total compensation of ten percent (10%) or
more); or
(iii)any material breach by the Company of any provisions of
any agreement with the Optionee.
(e) Disability of Optionee. In the event of the permanent and
total disability during the Option period of an Optionee who is at the
time of such disability (as defined in Section 9(d) above), or was within
the 90-day period prior thereto, an Employee
<PAGE>
or Non-Employee Director and who was in Continuous Employment as such from
the date of the grant of the Option until the date of disability or
termination, the Option may be exercised at any time within 90 days
following the date of disability, but only to the extent of the accrued
right to exercise at the time of the termination or disability, whichever
comes first, subject to the condition that no Option shall be exercised
after the expiration of the Option period.
(f) Death of Optionee. In the event of the death during the Option
period of an Optionee who is at the time of his or her death, or was
within the 90-day period immediately prior thereto, an Employee or
Non-Employee Director and who was in Continuous Employment as such from
the date of the grant of the Option until the date of death or
termination, the Option may be exercised, at any time within 180 days
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest, inheritance or
otherwise as a result of the Optionee's death, but only to the extent of
the accrued right to exercise at the time of the termination or death,
whichever comes first, subject to the condition that no Option shall be
exercised after the expiration of the Option period.
10. Non-Transferability of Options. An Option may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent and distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization. Subject to any
required action by the shareholders of the Company, the number of Optioned
Shares covered by each outstanding Option, and the per Optioned Share
exercise price of each such Option, shall be proportionately adjusted for
any increase or decrease in the number of issued and/or outstanding
shares of Common Stock resulting from a stock split, reverse stock split,
recapitalization, combination, reclassification, the payment of a stock
dividend on the Common Stock or any other increase or decrease in the
number of such shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be
made by the Committee, whose determination in that respect shall be final,
binding and conclusive. The Committee shall have the authority to grant
Options that contain provisions that proportionately adjust the number of
Optioned Shares covered by such Options for any increase or decrease in
the fully diluted number of shares of Common Stock or securities of the
Company convertible into Common Stock, including options, warrants,
conversions rights, and all other outstanding rights to purchase Common
Stock, and securities convertible into Common Stock (a "Common Stock
Adjustment Provision") provided that all Common Stock Adjustment
Provisions and the Committee's authority to grant Options containing such
provisions shall terminate immediately following the closing of an offering
of the Company's Common Stock to the public made pursuant to an effective
registration statement filed by the Company pursuant to the Securities
Act at any time after the approval of the Plan by the
<PAGE>
Company's stockholders (other than a registration statement relating solely
to the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan, including the Plan, or to a
transaction contemplated by Rule 145 promulgated by the Securities
Exchange Commission pursuant to the Securities Act). Except as expressly
provided herein or by written agreement, no issue by the Company of shares
of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common Stock subject
to an Option.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for proportionately adjusting the number
or class of securities covered by any Option, as well as the price to be
paid therefor, in the event of a Corporate Change.
In the event of a Corporate Change, unless otherwise deemed to be
impractical by the Board, then no later than (i) two business days prior
to any Corporate Change referenced in clause (i), (ii), (iii) or (v) of
the definition thereof or (ii) ten business days after any Corporate
Change referenced in Clause (iv) of the definition thereof, the Board,
acting in its sole discretion without the consent or approval of any
Optionee, shall act to effect one or more of the following alternatives
with respect to outstanding Options which acts may vary among individual
Optionees and, with respect to acts taken pursuant to clause (i) above,
may be contingent upon effectuation of the Corporate Change: (A)
accelerate the time at which Options then outstanding may be exercised so
that such Options may be exercised in full for a limited period of time on
or before a specified date (before or after such Corporate Change) fixed
by the Board, after which specified date all unexercised Options and all
rights of Optionees thereunder shall terminate; (B) require the mandatory
surrender to the Company by selected Optionees of some or all of the
outstanding Options held by such Optionees (irrespective of whether such
Options are then exercisable under the provisions of the Plan) as of a
date (before or after such Corporate Change) specified by the Board, in
which event the Board shall thereupon cancel such Options and pay to each
Optionee an amount of cash per Share equal to the excess, if any, of the
Change of Control Value of the shares subject to such Option over the
exercise price(s) under such Options for such Shares; (C) make such
adjustments to Options then outstanding as the Board deems appropriate
to reflect such Corporate Change (provided, however, that the Board may
determine in its sole discretion that no adjustment is necessary to
Options then outstanding); or (D) provide that thereafter upon any
exercise of an Option theretofore granted the Optionee shall be entitled
to purchase under such Option, in lieu of the number of Shares as to which
such Option shall then be exercisable, the number and class of shares of
stock or other securities or property (including, without limitation,
cash) to which the Optionee would have been entitled pursuant to the
terms of the agreement of merger, consolidation or sale of assets or plan
of liquidation and dissolution if, immediately prior to such merger,
consolidation or sale of assets or any distribution in liquidation and
dissolution of the Company, the Optionee had been the holder of record of
the number of shares of Common Stock then covered by such Option.
<PAGE>
12. Time of Granting Options. Unless otherwise specified by the
Committee, the date of grant of an Option under the Plan shall be the date
on which the Committee makes the determination granting such Option.
Notice of the determination shall be given to each Optionee to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan. The Board in its
discretion may terminate the Plan or any Option or alter or amend the Plan
or any part thereof or any Option from time to time; provided, however,
that no change in any Option previously granted may be made which would
impair the rights of the Optionee without the consent of the Optionee, and
provided further, that the Board may not, without approval of the
shareholders amend the Plan:
(a) to increase the aggregate number of Shares which may be issued
pursuant to the provisions of the Plan on exercise or surrender of Options;
(b) to change the minimum Option price;
(c) to change the class of Employees eligible to receive Options or
increase materially the benefits accruing to Employees under the Plan;
(d) to extend the maximum period during which Options may be
granted under the Plan;
(e) to modify materially the requirements as to eligibility for
participation in the Plan; or
(f) to decrease any authority granted to the Board hereunder in
contravention of Rule 16b-3.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an Option granted under the Plan unless the exercise of
such Option and the issuance and delivery of such Shares pursuant thereto
shall comply with all relevant provisions of law, including, without
limitation, the Securities Act, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As
a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by
any of the aforementioned relevant provisions of law.
<PAGE>
15. Reservation of Shares. During the term of the Plan the Company
will at all times reserve and keep available the number of Shares as shall
be sufficient to satisfy the requirements of the Plan. Inability of the
Company to obtain from any regulatory body having jurisdiction and
authority deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder shall relieve the Company of
any liability in respect of the nonissuance or sale of such Shares as to
which such requisite authority shall not have been obtained.
16. Information to Optionee. During the term of any Option granted
under the Plan, the Company shall provide or otherwise make available to
each Optionee a copy of its annual report to shareholders and financial
information which is provided to its shareholders in accordance with the
provisions of the Company's Bylaws and applicable law.
17. Option Agreement. Options granted under the Plan shall be
evidenced by Option Agreements.
18. Shareholder Approval. The Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months before or after
the Plan is adopted. Any amendments to the Plan requiring shareholder
approval must be approved by the affirmative vote of the holders of a
majority of the outstanding shares of voting stock present or represented
and entitled to vote at a duly held meeting at which a quorum is present,
or by the written consent of the shareholders in the manner provided by
Delaware law.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE SAN FRANCISCO COMPANY
1. That at a meeting of the Board of Directors of The San
Francisco Company (the "Corporation") resolutions were duly adopted
setting forth a proposed amendment of the certificate of incorporation
of the Corporation for consideration thereof. The resolution setting
forth the proposed amendment is as follows:
RESOLVED, that the certificate of incorporation of the Corporation
be amended by changing the Article and Section thereof numbered
"FOURTH, Section A" so that, as amended, Article FOURTH, Section
A shall be read as follows:
"FOURTH. Capital Stock.
A. This corporation is authorized to issue two classes
of shares, which shall be known as Preferred Stock and Class A
Common Stock. The total number of shares of stock of all
classes that this corporation is authorized to issue is One
Hundred Five Million (105,000,000). Each share of each
class of stock of this corporation shall have a par value
of $0.01. The total number of shares of Preferred Stock
which this corporation is authorized to issue is Five
Million (5,000,000). The total number of shares of Class A
Common Stock which this corporation is authorized to issue
is One Hundred Million (100,000,000)."
2. That thereafter, pursuant to resolution of the Board of
Directors, the annual meeting of the stockholders of the Corporation was
duly called and held, upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in favor of
the amendment.
3. That said amendment has been duly adopted in accordance with
the provisions of Section 242 of the Delaware General Corporation Law.
4. That the effective time of the foregoing amendment shall
be _____________________, 1996.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed
by James E. Gilleran, its authorized officer, this __________ day
of __________________, 1996.
_____________________________________
James E. Gilleran, Chairman and Chief
Executive Officer
Attest:
_____________________________________
Keary L. Colwell, Assistant Secretary
</TABLE>
