UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-10198
The San Francisco Company
(Exact name of Registrant as specified in its charter)
Delaware 94-3071255
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
550 Montgomery Street, San Francisco, California 94111
(Address of principal executive office) (Zip Code)
(415) 781-7810
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
The Registrant had 31,728,782 shares of Class A Common Stock
outstanding on July 17,October 27, 1998.
PAGEpage
The San Francisco Company and Subsidiaries
Quarterly Report on Form 10-Q
Table of Contents
Page
Part I - Financial Information
Item 1. Consolidated Statements of Financial Condition
At JuneSeptember 30, 1998 and December 31, 1997 . . . . . . . . . . . 1
Consolidated Statements of Operations
For the Three and SixNine Months Ended JuneSeptember 30, 1998 and 1997 . .1997. 2
Consolidated Statements of Changes in Shareholders'Equity
For the SixNine Months Ended JuneSeptember 30, 1998 and 1997 . . . . . . . 4
Consolidated Statements of Cash Flows
For the Three and SixNine Months Ended JuneSeptember 30, 1998 and 1997 . .1997. 5
Notes to Consolidated Financial Statements . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 8
Part II - Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 15.18
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . 15.18
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . 15.18
Item 4. Submission of Matters to a Vote of Security HoldersHolders. . . . . . 15.18
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . 15.18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 15.18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PAGE.19
page
The San Francisco Company and Subsidiaries
Consolidated Statements of Financial Condition
JuneSeptember 30, 1998 and December 31, 1997
(Unaudited)
JuneSeptember 30, December 31,
(Dollars in Thousands Except Per Share Data) 1998 1997
Assets:
Cash and due from banks $2,031$3,567 $2,837
Federal funds sold 39,13517,280 14,150
Cash and cash equivalents 41,16620,847 16,987
Investment securities held-to-maturity, at cost
(Fair value: 1998 $4,830;$4,314;1997 $5,822) 4,8684,315 5,864
Investment securities available-for-sale,
at fair value 30,42931,204 32,669
Federal Home Loan Bank stock, at par 2,2521,565 1,499
Loans 52,92060,942 51,924
Deferred loan costs, net of fees (24)14 (61)
Allowance for loan losses (2,850)(1,775) (3,200)
Loans, net 50,04659,181 48,663
Other real estate owned, net 33758 410
Premises and equipment, net 7,7537,650 7,791
Interest receivable 700603 720
Other assets 1,8771,920 2,014
Total Assets $139,428$127,343 $116,617
Liabilities and Shareholders' Equity:
Non-interest bearing deposits $15,467$17,234 $19,691
Interest bearing deposits 86,98577,865 66,828
Total deposits 102,45295,099 86,519
Other borrowings 15,00010,000 10,000
Other liabilities and interest payable 3,5222,114 2,528
Total liabilities 120,974107,213 99,047
Shareholders' Equity:
Preferred Stock (par value $0.01 per share)
Series B - Authorized - 437,500 shares;
Issued and outstanding - 1998 and 1997 - 15,869 111 111
Common stock (par value $0.01 per share)
Class A - Authorized - 100,000,000 shares;
Issued and outstanding - 1998 - 31,728,782
and 1997 -31,723,782- 31,723,782 317 317
Additional paid-in capital 78,816 78,814
Retained deficit (60,777)(59,272) (61,656)
Accumulated other comprehensive loss (13)income (loss) 158 (16)
Total shareholders' equity 18,45420,130 17,570
Total Liabilities and Shareholders' Equity $139,428$127,343 $116,617
See accompanying notes to unaudited consolidated financial statements.
PAGEpage 1
The San Francisco Company and Subsidiaries
Consolidated Statements of Operations
Three and SixNine Months Ended JuneSeptember 30, 1998 and 1997
(Unaudited)
Three Months SixNine Months
Ended JuneSeptember 30, Ended JuneSeptember 30,
(Dollars in Thousands
Except Per Share Data) 1998 1997 1998 1997
Interest income:
Loans $1,252 $1,117 $2,463 $2,240$1,363 $1,234 $3,826 $3,473
Investments 819 813 1,645 1,559931 953 2,576 2,512
Dividends 22 9 45 21 10 66 31
Total interest income 2,093 1,939 4,153 3,8202,315 2,197 6,468 6,016
Interest expense:
Deposits 646 662 1,299 1,359778 775 2,077 2,113
Other borrowings 149154 -- 299453 --
Total interest expense 795 662 1,598 1,359932 775 2,530 2,113
Net interest income before
adjustment for loan losses 1,298 1,277 2,555 2,4611,383 1,442 3,938 3,903
Adjustment for loan losses (308)(1,075) -- (402)(1,477) --
Net interest income after
adjustment for loan losses 1,606 1,277 2,957 2,4612,458 1,442 5,415 3,903
Non-interest income:
Stock brokerage commissions and
fees 278 275 535 629220 440 755 1,069
Real estate rental income 274 232 531 479285 179 816 658
Service charges and fees 157 140 303 239181 198 484 437
Gain on sale of assets, net 25 212 25 23417 32 42 266
Loss on sale of securities, net -- (6)-- -- (6)
Other income 42 33 79 5528 39 107 94
Total non-interest income 776 886 1,473 1,630731 888 2,204 2,518
Non-interest expense:
Salaries and related benefits 1,013 926 1,986 1,8341,017 1,134 3,003 2,968
Occupancy expense 289 309 581 615318 288 899 903
Professional fees 133 115 259 21580 146 339 361
Data processing 103 112 214 22693 98 307 324
Corporate insurance premiums 34 48 90 10941 56 131 165
Property tax expense -- 2522 -- 6587
FDIC insurance premiums 9 40 19 792 10 21 89
Other operating expenses 214 355 392 572127 221 519 793
Total non-interest expense 1,795 1,930 3,541 3,7151,678 1,975 5,219 5,690
Income before income taxes 587 233 889 3761,511 355 2,400 731
Provision for income taxes 5 2 5 76 (3) 11 4
Net Income $582 $231 $884 $369$1,505 $358 $2,389 $727
Income per common share:
Basic: Net income $0.02$0.05 $0.01 $0.03 $0.01$0.08 $0.02
Weighted average
shares outstanding 31,727,134 29,357,766 31,725,458 29,068,48831,728,782 31,717,171 31,726,566 29,950,311
Diluted: Net income $0.02$0.05 $0.01 $0.03 $0.01$0.07 $0.02
Weighted average
shares outstanding 33,091,792 29,358,559 33,090,838 29,069,28133,204,853 31,717,964 33,129,248 29,951,104
See accompanying notes to unaudited consolidated financial statements.
PAGEpage 2
The San Francisco Company and Subsidiaries
Consolidated Statements of OperationsComprehensive Income
Three and SixNine Months Ended JuneSeptember 30, 1998 and 1997
(Unaudited)
Three Months SixNine Months
Ended JuneSeptember 30, Ended JuneSeptember 30,
(Dollars in Thousands
Except Per Share Data)Data 1998 1997 1998 1997
Net Income $582 $231 $884 $369$1,505 $358 $2,389 $727
Other comprehensive
income, (loss), net of tax:
Unrealized holding gains (losses) arising
during period, net 11 210 3 (17)171 112 174 95
Plus: reclassification
adjustment for losses
included in net income -- 6-- -- 6
Other comprehensive income (loss) 11 216 3 (11)171 112 174 101
Comprehensive income $593 $447 $887 $358
PAGE$1,676 $470 $2,563 $828
page 3
The San Francisco Company and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
SixNine Months Ended JuneSeptember 30, 1998 and 1997
(Unaudited)
Accu-Accumu
(Dollars in Thousands) mulatedlated
Other
Addi- Compre- Total
Additionaltional Compre- Retained Compre-hensive Share-
Preferred Common Paid-in hensive Earnings hensiveIncome/ holders'
Stock Stock Capital Income (Deficit) Income(Loss) Equity
Balances at
January 1, 1997 $111 $288 $77,841 $(67,099) $(77) $11,064
Net proceeds on
sale of stock -- 29 971 -- -- 1,000
Other comprehensive
loss,income, net of tax
Net unrealized (losses) gains,
net of reclassification
adjustments $(11)$101 -- (11) (11)101 101
Other comprehensive
income (11) -- -- --101
Net income (six(nine months) 369 369727 727 -- 369727
Comprehensive income $358$828
Balances at
JuneSeptember 30, 1997 111 317 78,812 (66,730) (88) 12,422(66,372) 24 12,892
Net proceeds from
the exercise of
stock options -- -- 2 -- -- 2
Other comprehensive
income, net of tax
Net unrealized gains (losses) $72losses $(40) -- 72 72(40) (40)
Other comprehensive income 72loss (40)
Net income (six(three months) 5,074 5,0744,716 4,716 -- 5,0744,716
Comprehensive income $5,146$4,676
Balances at
December 31, 1997 111 317 78,814 (61,656) (16) 17,570
Net proceeds from the
exercise of
stock options -- -- 2 -- -- -- 2
Dividend on
Preferred Stock -- -- -- (5) -- (5)
Other comprehensive
income, net of tax
Net unrealized gains (losses) $3$174 -- 3 3174 174
Other comprehensive income 3174
Net income (six(nine months) 884 8842,389 2,389 -- 8842,389
Comprehensive income $887$2,563
Balances at
JuneSeptember 30, 1998 $111 $317 $78,816 $(60,777) $(13) $18,454$(59,272) $158 $20,130
See accompanying notes to unaudited consolidated financial statements.
PAGEpage 4
The San Francisco Company and Subsidiaries
Consolidated Statements of Cash Flows
Three and SixNine Months Ended JuneSeptember 30, 1998 and 1997
(Unaudited)
Three Months SixEnded Nine Months Ended
JuneSeptember 30, Ended JuneSeptember 30
(Dollars in Thousands) 1998 1997 1998 1997
Cash Flows from
Operating Activities:
Net income $582 $231 $884 $369$1,505 $358 $2,389 $727
Adjustments to reconcile
net income to net cash
provided by operating activities:
Adjustment for loan losses (308)(1,075) -- (402)(1,477) --
Depreciation and amortization expense 127 139 251 277142 135 393 412
Loss on sale of investment securities -- 6-- -- 6
Net gain on sale of real estate owned (25) (212) (25) (234)(17) (37) (42) (271)
Provision for loss on
other real estate owned -- 182-- -- 182
(Increase) decreaseDecrease in interest
receivable and other assets (102) (217) 157 147
Increase (decrease)54 131 211 278
(Decrease) increase in interest
payable and other liabilities 1,350 (17) 995 99
(Increase) decrease(1,408) 388 (419) 487
Increase in deferred loan
fees -- (1) (37) 67net of costs (38) (114) (75) (47)
Net cash flows (used in)
provided by operating activities 1,624 111 1,823 913(837) 861 980 1,774
Cash Flows from Investing Activities:
Proceeds from maturities of
investment securities
held-to-maturity 590 207 996 417553 270 1,549 688
Proceeds from maturities of
investment securities
available-for-sale 4,488 312 12,529 1,92610,652 2,791 23,187 3,517
Proceeds from the sale of
investment securities
available-for-sale -- 5,000 -- 5,000-- 6,200
Proceeds from the sale of FHLB Stock 708 -- 708 --
Purchase of investment
securities available-for-sale (5,739) (9,974) (11,045) (9,974)available-or-sale (11,256) (5,585) (21,548) (15,538)
Purchase of FHLB Stock and
FHLB Stock dividends (21) (10) (774) (31)
Net (increase) decrease in loans (1,218) 715 (996) 3,078(8,022) 3,376 (9,018) 6,453
Recoveries of loans
previously charged off 42 20-- 48 52 281329
Proceeds from the sale of
other real estate owned 50 2,054 98 3,440296 93 394 3,533
Purchases of premises and equipment (88) (20) (213) (96)(39) (49) (252) (145)
Acquisition and capitalized
cost of real estate owned -- 28-- -- 28
Net cash (used in) provided
by investing activities (1,875) (1,658) 1,421 4,100(7,129) 934 (5,702) 5,034
Cash Flows from Financing Activities:
Net (decrease) increase (decrease) in deposits 13,411 (1,653) 15,933 (482)(7,353) 6,033 8,580 5,551
Net increasedecrease in other borrowings 5,000(5,000) -- 5,000-- --
Net proceeds from sale of stock 2 1,000-- -- 2 1,000
Net cash (used in) provided
by (used in)
financing activities 18,413 (653) 20,935 518
Increase (decrease)(12,353) 6,033 8,582 6,551
(Decrease) increase in
cash and cash equivalents 18,162 (2,200) 24,179 5,531(20,319) 7,828 3,860 13,359
Cash and cash equivalents
at beginning of period 23,004 23,35741,166 21,157 16,987 15,626
Cash and cash equivalents
at end of period $41,166 $21,157 $41,166 $21,157$20,847 $28,985 $20,847 $28,985
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the period for:
Interest $913 $719 $1,451 $1,389$811 $736 $2,413 $2,125
Payment of income taxes 6 2 184 -- 24 2
See accompanying notes to unaudited consolidated financial statements.
page 5
The San Francisco Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Organization
The San Francisco Company (the "Company") is a Delaware
corporation and a bank holding company registered under the Bank
Holding Company Act of 1956. Bank of San Francisco (the "Bank"),
a state chartered bank, was organized as a California banking
corporation in 1978 and became a wholly owned subsidiary of the
Company through a reorganization in 1982.
Note 2 - Principles of Consolidation and Presentation
The accompanying unaudited consolidated financial statements
of the Company have been prepared in accordance with the
instructions pursuant to Form 10-Q Quarterly Report and Articles 9
and 10 of Regulation S-X, and therefore, do not include all the
information and footnotes necessary to present the consolidated
financial condition, results of operations and cash flows of the
Company in conformity with generally accepted accounting
principles.
The data as of JuneSeptember 30, 1998, and for the three and sixnine
months ended JuneSeptember 30, 1998 and 1997 are unaudited, but in the
opinion of management, reflect all accruals and adjustments of a
normally recurring nature necessary for fair presentation of the
Company's financial condition and results of operations. Certain
amounts in the 1997 consolidated financial statements have been
reclassified for comparative purposes. The results of operations
for the three and sixnine months ended JuneSeptember 30, 1998 are not
necessarily indicative of the results to be expected for the entire
year of 1998. This report should be read in conjunction with the
Company's 1997 Annual Report on Form 10-K.
The accompanying financial statements include the accounts of
the Company, the Bank, and the Bank's wholly owned subsidiary, Bank
of San Francisco Realty Investors (the "BSFRI"). All material
intercompany transactions have been eliminated in consolidation.
Note 3 - Earnings Per Share (the "EPS")
The Company adopted Statement of Financial Accounting
Standards (the "SFAS") no. 128, "Earnings Per Share." SFAS No. 128
requires dual presentation of basic EPS and diluted EPS on the face
of the income statement and disclosure of the calculation of basic
EPS compared to diluted EPS in the footnotes to the financial
statements.
Basic EPS is calculated by dividing net income by the weighted
average number of Class A Common Shares (the "Common Stock"). The
dilutive EPS is calculated giving effect toassuming the exercise of all potentially
dilutive Common Shares, such as certain stock options, that were
outstanding during the period.
PAGE 6 The following tables present a
reconciliation of the amounts used in calculating basic and diluted
EPS for each of the periods shown.
page 6
(dollars in thousands except per-share amounts)
Per-share
1998 Income Shares amount
Three-months ended JuneSeptember 30:
Basic EPS $580 31,727,134 $0.02$1,503 31,728,782 $0.05
Effect of dilutive securities:
Series B Preferred Stock 2 793
Stock Options -- 1,363,8651,475,278
Diluted EPS $582 33,091,792 $0.02
Six-months$1,505 33,204,853 $0.05
Nine-months ended JuneSeptember 30:
Basic EPS $879 31,725,458 $0.03$2,382 31,726,566 $0.08
Effect of dilutive securities:
Series B Preferred Stock 57 793
Stock Options -- 1,364,5871,401,889
Diluted EPS $884 33,090,838 $0.03$2,389 33,129,248 $0.07
Per-share
1997 Income Shares amount
Three-months ended JuneSeptember 30:
Basic EPS $229 29,357,766$356 31,717,171 $0.01
Effect of dilutive securities:
Series B Preferred Stock 2 793
Stock Options -- --
Diluted EPS $231 29,358,559$358 31,717,964 $0.01
Six-monthsNine-months ended JuneSeptember 30:
Basic EPS $364 29,068,488 $0.01$72 29,950,311 $0.02
Effect of dilutive securities:
Series B Preferred Stock 57 793
Stock Options -- --
Diluted EPS $369 29,069,281 $0.01$727 29,951,104 $0.02
Note 4 - Dividend Restrictions
The Company is subject to dividend restrictions under the
Delaware General Corporation Law and regulations and policies of,
and a Written Agreement dated December 14, 1994 (the "Agreement")
with, the Federal Reserve Bank of San Francisco (the "FRB" ). The
Company's Series B Preferred Shares participate equally, share for
share, in cash dividends paid on the Common Shares in addition to
receiving the cash dividends to which they are entitled. In order
to bring the cash dividends current, the Board of Directors
declared a cash dividend on the Series B Preferred Stock totaling
$3.92 per share for stockholders of record on July 1, 1998 that was
paid on July 15, 1998.
PAGEpage 7
Note 5 - Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the
"FASB") issued SFAS No. 130, "Reporting Comprehensive Income" which
provides standards for reporting and displaying comprehensive
income and its components in the financial statements. This
statement is effective with the year-end 1998 financial statements
including interim financial statements. Reclassification of
financial statements for earlier periods is required. The Company
has included comprehensive income in its financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information", which requires
that a public company report financial and descriptive information
about its reportable operating segments on the basis that is used
internally for evaluating segment performance and deciding how to
allocate resources to segments. This statement is effective for
year-end 1998 financial statements. The Company is in the process
of determining its format for reporting segment information.
In February 1998, the FASB issued SFAS No. 132, "Accounting
for Pensions and Other Post- Retirement Benefit Plans", which
revises and standardizes the disclosure requirements for pension
and other post retirement benefit plans. The Company does not have
any pension or post retirement benefit plans that require
disclosure in accordance with SFAS No. 132.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which standardizes
the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring
that an entity recognize those items as assets or liabilities in
the statement of financial position and measure them at fair value.
This statement is effective for all quarters of fiscal years
beginning after June 15, 1999. As of JuneSeptember 30, 1998, the
Company did not have any derivative instruments or engage in
hedging activities.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise, an
amendment of FASB Statement No. 65". This statement is to conform
the subsequent accounting for securities retained after the
securitization of mortgage loans by mortgage banking enterprises
with that of non-mortgage banking enterprises. This statement is
effective for the first quarter beginning after December 15, 1998.
As of September 30, 1998, the Company did not have any mortgage-
backed securities retained after the securitization of mortgage
loans held for sale.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
This document contains forward-looking statements that are
subject to risks and uncertainties, including, but not limited to,
the Company's and Bank's ability to implement their respective
long-term business plan, the economy in general and the condition
of stock markets upon which the Company's stock brokerage business
and fee income is dependent, the continued services of the
Company's and Bank's key executives and managers, the real estate
market in California and other factors beyond the Company's and
Bank's control. Such risks, uncertainties and factors, including
those discussed herein, could cause actual results to differ
materially from those indicated. Readers should not place undue
reliance on forward-looking statements, which reflect management's
views only as of the date hereof. The Company and the Bank
undertake no obligation to revise these forward-looking statements
to reflect subsequent events or circumstances. Readers are also
encouraged to review the Company's publicly available filings with
the Securities and Exchange Commission.
page 8
Overview
The Company is a one-bank holding company registered in
Delaware under the Bank Holding Company Act of 1956. The principal
activity of the Company is to serve as the holding company for Bank
of San Francisco, a California chartered bank organized in 1978,
with deposits insured by the Federal Deposit Insurance
Corporation's Bank Insurance Fund. The information set forth in
this report, including unaudited interim financial statements and
related data, relates primarily to the Bank.
PAGE 8
The Company's Common Stock is not listed on any exchange and
is not actively traded. Van Kasper & Company of San Francisco,
California is the sole market maker in the Company's Common Stock.
As of June 30, 1998, the bid price was approximately $0.60.
The Company recorded net income of $582,000$1,505,000 for the three
months ended JuneSeptember 30, 1998 and $884,000$2,389,000 for the sixnine months
ended JuneSeptember 30, 1998, compared to a net income of $231,000$358,000 and
$369,000$727,000 for the same periods, respectively, in 1997. The increase
in the Company's net income of $351,000$1,147,000 for the three month
period was primarily from the adjustment for loan losses recorded
in 1998 of $308,000$1,075,000 and the reductionimprovement in the provision for other real estate
owned (the "OREO") lossescore operating income
in 1998 of $182,000$87,000 as compared with 1997. During the second quarter of 1997, the Bank also recognized
a gain on sale of OREO of $200,000 compared to $25,000 recognized
in 1998.
The increase in the Company's net income of $515,000$1,662,000 for the
first sixnine months of 1998 compared to the same period in 1997 was
primarily from the adjustment for loan losses of $402,000$1,477,000 and
lower provision for loss on OREOother real estate owned (the "OREO") of
$182,000, partially offset by reductions in gain on sale of OREO of
$197,000.$224,000.
At JuneSeptember 30, 1998, total assets were $139.4$127.3 million, an
increase of $22.8$10.7 million, or 19.6%9.2% from $116.6 million at December
31, 1997. As of JuneSeptember 30, 1998, total loans were $52.9$60.9
million, an increase of $1.0$9.0 million, or 1.9%17.3%, compared to $51.9
million at December 31, 1997. Total deposits were $102.5$95.1 million at
JuneSeptember 30, 1998, an increase of $16.0$8.6 million, or 18.5%9.9%, compared
to $86.5 million at December 31, 1997.
Regulatory Directives
Federal Reserve Board Written Agreement
The Agreement prohibits the Company, without prior approval of
the FRB, from: (a) paying any cash dividends to its shareholders;
(b) directly or indirectly, acquiring or selling any interest in
any entity, line of business, problem or other assets; (c)
executing any new employment, service, or severance contracts, or
renewing or modifying any existing contracts with any executive
officer; (d) engaging in any transactions with the Bank that exceed
an aggregate of $20,000 per month; (e) engaging in any cash
expenditures with any individual or entity that exceed $25,000 per
month; (f) increasing fees paid to any directors for attendance at
board or committee meetings, or paying any bonuses to any executive
officers; (g) incurring any new debt or increasing existing debt;
and (h) repurchasing any outstanding stock of the Company. The
Company is required to submit a progress report to the FRB on a
quarterly basis.
The Company was also required to submit to the FRB an
acceptable written plan to improve and maintain an adequate capital
position, a comprehensive business plan concerning current and
proposed business activities, and a comprehensive operating budget
for the Bank and the consolidated Company. In addition, the Board
of Directors was required to submit an acceptable written plan
designed to enhance their supervision of the operations and
management of the consolidated organization.
page 9
Management was notified by the FRB at its 19971998 examination
that the Company was in full compliance with the Agreement, and
management believes the Company continues to be in full compliance.
PAGE 9
Memorandum of Understanding
In June 1998, the Federal Deposit Insurance Corporation (the
"FDIC") and the California Department of Financial Institutions
(the "DFI") terminated the Bank's Memorandum of Understanding.
Results of Operations
Net Interest Income
The Company's net interest income was $1.3$1.4 million for the
quarters ended JuneSeptember 30, 1998 and 1997. The Company's net
interest income was $2.6$3.9 million for the sixnine months ended
JuneSeptember 30, 1998 compared to $2.5 million forand 1997. The net interest margin may decline
in the same period in 1997, or an
increase of 4%. The increase was primarily thefuture as a result of an
increase in total earning assets which was partially offset by a
decline in yield on earning assets and an increasethe recent reductions in the cost of
funds.prime and
fed funds rate indexes.
Adjustment for Loan Losses
The Company recorded a reduction to the Allowanceallowance for Loan
Lossesloan
losses of $308,000$1.1 million for the three months ended JuneSeptember 30,
1998 and $402,000$1.5 million for the sixnine months ended JuneSeptember 30, 1998
compared to none for the same periods in 1997. The adjustment for
loan losses reflects the amount necessary to reduce the allowance
for loan losses to a level that management believes is adequate
based on many factors that are more fully discussed herein under
"Loans - Allowance for Loan Losses".
Non-Interest Income
Non-interest income was $776,000$731,000 for the three months ended
JuneSeptember 30, 1998 compared to $886,000$888,000 for the same period in
1997. Non-interest income was $1.5$2.2 million for the sixnine months
ended JuneSeptember 30, 1998 compared to $1.6$2.5 million for the same
period in 1997. The decline in non-interest income was primarily
the result of the reduction in gain on sale of real estate owned
income in 1998 compared to 1997.
The net1997 and the reduction in brokerage
commissions, partially offset by an increase of $140,000, or 18%, in real estate rental
income, service charges and fees and other income for the first six
months of 1998 compared to 1997 more than offset theincome.
The decline in stock brokerage commissions and fees by $94,000,of
$314,000, or 15%29%, which was
primarilyfor the resultfirst nine months of lower transaction volume.1998 and $220,000,
or 50%, for the three months ended September 30, 1998 compared to
the same periods in 1997 resulted from a decline in brokerage
activity believed to be from the recent developments in the equity
markets. The Bank's earnings from Brokeragestock brokerage commissions and
fees is highly dependent on the trading prices of the stock
underlying the stock options of its clients and the overall
condition of the stock markets in which they trade. A continuing
reduced level of brokerage commissions would be expected if the
equity markets do not improve.
The net increase in real estate rental income of $158,000, or
24%, for the first nine months of 1998, and $106,000, or 59%, for
the three months ended September 30, 1998 compared to the same
periods in 1997 is the result of leasing additional space and from
an increase in market rents.
Some increase in real estate rental income is expected to continue
as other leases expire and are renewed at the market rental rates.
page 10
Non-Interest Expense
The Company's non-interest expenses declined $100,000$297,000 to $1.8$1.7
million from $1.9$2.0 million and $200,000$471,000 to $3.5$5.2 million from $3.7$5.7
million for the three month and sixnine month periods ended JuneSeptember
30, 1998 and 1997, respectively.
The Company's occupancy,professional fees, data processing, corporate
insurance premiums, property tax expense, FDIC insurance premiums
and other operating expenses all declined, and salaries and related benefits and professional fees
increased.declined. Generally, the
operating expenses that declined did so as a result of continuing
cost reductioncontainment measures and the overall improving financial
condition of the Company. PAGE 10The reduction in property taxes and
other operating expenses is primarily the result of lower non-
performing assets including OREO. The increase in salariesoccupancy
expenses occurred from an increase in utilities and related
expenses was primarily related
to an increase in business development personnel, andas a result of the increase in
professional fees was related primarily tofull occupancy of the legal services required
to assist management and the Board of Directors.Bank's
headquarter building.
Financial Condition
Liquidity and Capital Resources
Liquidity
The Bank's liquid assets, which include cash and short term
investments totaled $41.2$20.8 million, or 29.5%16.4% of total assets, at
JuneSeptember 30, 1998, an increase of $24.1$3.8 million, from $17.0
million, or 14.6% of total assets, at December 31, 1997.
The increase in
liquidity was the result of an increase in core deposits of $19.3
million and an increase in other short-term borrowings of $5.0
million. The increase in core deposits was primarily from an
increase in short-term escrow related deposits that are expected to
remain in the Bank less than 90 days. The Bank repaid the $5.0
million borrowing in July 1998.
As of JuneSeptember 30, 1998, the Bank had securities totaling
$16.3$11.7 million pledged to the Federal Home Loan Bank of San
Francisco (the "FHLB") as collateral for other borrowings. As of
JuneSeptember 30, 1998, the Bank had the ability to borrow up to 20% of
total assets from the FHLB upon the pledge of sufficient
collateral. In the future, long and short term borrowings from the
FHLB may be used as an on-
goingon-going source of liquidity and funding.
As of JuneSeptember 30, 1998, the Bank had other securities totaling
$1.6 million pledged as collateral for various other purposes.
As of JuneSeptember 30, 1998, the Bank had access to the discount
window at the FRB for a total borrowing facility of $2.0 million
upon the pledge of securities.securities, and to $3.5 million for day-light
overdrafts with the FRB. At JuneSeptember 30, 1998 and December 31,
1997, no securities were pledged as collateral for the FRB
facility.
Capital
At JuneSeptember 30, 1998, shareholders' equity was $18.5$20.1 million
compared to $17.6 million at December 31, 1997.
The Company and the Bank are subject to general regulations
issued by the FRB, FDIC, and DFI which require maintenance of a
certain level of capital. As of JuneSeptember 30, 1998, the Company
and the Bank were in compliance with the all minimum capital ratio
requirements.
page 11
The following table reflects both the Company's and the Bank's
capital ratios with respect to minimum capital requirements in
effect as of JuneSeptember 30, 1998:
Minimum
Capital
Company Bank Requirement
Leverage ratio 14.2% 14.1%13.9% 13.8% 4.0%
Tier 1 risk-based capital 19.6 19.320.7 20.5 4.0
Total risk-based capital 21.2 21.022.1 21.9 8.0
PAGE 11
Investment Activities
At JuneSeptember 30, 1998, the Company's investment securities,
including FHLB stock, totaled $37.5$37.1 million, or 26.9%29.1% of total
assets, compared to $40.0 million, or 34.3% of total assets, at
December 31, 1997. The net decline in investment securities was
primarily amortizationnormal principal repayment of mortgage backed securities,
and maturity or call of agency securities.
The Company's investment portfolio may from time to time
include treasury and agency securities, fixed and adjustable rate
mortgage backed securities, and to a limited extent collateralized
mortgage backed securities. Generally, the Bank's investment
securities held-to-maturity and available-for-sale have maturities
or principal amortization of five years or less.
At JuneSeptember 30, 1998, investment securities held-to-maturity
totaled $4.9$4.3 million, compared to $5.9 million at December 31,
1997, and are carried at amortized cost. At JuneSeptember 30, 1998,
the Company held $30.4$31.2 million in investment securities available-for-
sale,available-
for-sale, compared to $32.7 million at December 31, 1997.
Investment securities available-for-sale are accounted for at fair
value. Unrealized gains and losses are recorded as a component of
comprehensive income and are not reflected in the current earnings
of the Company. As of JuneSeptember 30, 1998, the investment
securities available-for-sale had an unrealized lossgain of $13,000$158,000
that was included as a component of comprehensive income to reflect
the current market value of these securities.
page 12
Loans
During the first halfnine months of 1998, total loans increased
$1.0$9.0 million, from $51.9 million at December 31, 1997 to $52.9$60.9
million at JuneSeptember 30, 1998. The net increase resulted primarily
from disbursement of new loan commitments. The composition of the
Bank's loan portfolio at JuneSeptember 30, 1998 and December 31, 1997
is summarized as follows:
JuneSeptember 30,December 31,
(Dollars in Thousands) 1998 1997
Real estate mortgage $39,355$43,598 $37,826
Secured commercial and financial 7,6329,112 4,912
Unsecured 5,6637,484 8,633
Other 269748 553
52,92060,942 51,924
Deferred costs and premiums
net of fees and discounts net (24)14 (61)
Allowance for possible loan losses (2,850)(1,775) (3,200)
Total loans, net $50,046$59,181 $48,663
During the first halfnine months of 1998, total loan commitments
available increased $10.4$11.5 million to $21.1$22.2 million as of JuneSeptember
30, 1998 primarily as a result of new secured commercial and
financial loan commitments.
PAGE 12
Classified Assets and Impaired Loans
Classified assets include non-accrual loans, OREO, and
performing loans that exhibit credit quality weaknesses. The table
below outlines the Bank's classified assets at JuneSeptember 30, 1998
and December 31, 1997:
JuneSeptember 30, December 31,
(Dollars in Thousands) 1998 1997
Loans - performing $4,392$4,253 $1,393
Non-accrual loans -- 171
OREO 33758 410
Total classified assets $4,729$4,311 $1,974
On JuneSeptember 30, 1998, the Bank had no loans that were 90 days
past due and still accruing and no loansone loan totaling $12,000 that was
past due between 31 and 89 days. Classified assets increased by
140%118% to $4.7$4.3 million as of JuneSeptember 30, 1998 compared to $2.0
million at December 31, 1997. The net increase was the result of
the downgrade of one loan. The loan that was downgraded was
originated in 1992 as a loan to facilitate the sale of OREO and the
borrower has performed and continues to perform in accordance with
the terms of the loan. As of JuneSeptember 30, 1998 and December 31,
1997, all OREO properties were classified.
The Company identifies loans with weak credit quality
characteristics for review in accordance with SFAS No. 114
"Accounting by Creditors for Impairment of a Loan" as amended by
SFAS No. 118 "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures" (the "SFAS No. 114"). As of
JuneSeptember 30, 1998 and December 31, 1997, the Company had impaired
loans totaling zero and $171,000, respectively. The impairment was
measured using the collateral value method. Total interest income
recognized on impaired loans during the first halfnine months of 1998
and 1997 was $4,000 and $32,000,$43,000, respectively.
page 13
There can be no assurance that the Bank will not experience
increases in the amount of classified assets or not experience
losses in attempting to collect or otherwise liquidate the non-
performing assets which are presently reflected on the Company's
statement of financial condition.
Allowance for Loan Losses
Generally, the Bank charges current earnings with a provision
for estimated losses on loans receivable. The Bank will provide an
adjustment if the total allowance for loan losses exceeds the
amount of estimated loan losses. The Bank recorded an adjustment
for loan losses of $308,000$1.1 million for the three months ended
JuneSeptember 30, 1998 and $402,000$1.5 million for the sixnine months ended
JuneSeptember 30, 1998 compared to none for the same periods in 1997.
The adjustment for loan losses reflects the amount necessary to
reduce the allowance for loan losses to a level that management
believes is adequate based on many factors including specifically
identified problem loans, the financial condition of the borrowers,
the fair value of the collateral, recourse to guarantors and other
factors.
Specific loss allowances are established based on the asset
classification and credit quality. Specific loss allowances are
utilized to ensure that the allowance is allocated based on the
credit quality including the present value of expected cash flows,
the terms and structure of the loan, the financial condition of the
borrower, and the fair value of underlying collateral. In
addition, the allowance for loan losses provides for losses that
may occur in the future based on present economic conditions,
trends, and related uncertainties. The following table summarizes
the loan loss experience of the Bank for the sixnine months ended
JuneSeptember 30, 1998:
PAGE 13
JuneSeptember 30,
(Dollars in Thousands) 1998
Beginning balance of allowance
for loan losses at December 31, 1997 $3,200
Charge-offs --
Recoveries 52
Adjustment (402)(1,477)
Ending balance of allowance for loan losses $2,850
For$1,775
At September 30, 1998, the six months ended Juneallowance for loan losses was 2.9%
of total loans compared to 6.2% as of December 31, 1997. At
September 30, 1998, the unallocated portion of the allowance for
loan losses totaled $1.3 million$403,000 compared to $1.4 million at December
31, 1997. As of JuneSeptember 30, 1998, nonethe Bank had no impaired
loans outstanding that required an allocation of the allowance for
loan losses, was allocable to
impaired loans, as identified in accordance with SFAS No. 114.
Deferred Tax Asset
As of September 30, 1998, the Company's estimated total
deferred tax assets net of deferred tax liabilities is estimated to
be $18.5 million compared to $20.4 million as of December 31, 1997.
As of September 30, 1998, the estimate includes net temporary
differences of $1.4 million, tax credits of $0.5 million, and $16.6
million in net operating loss carryforward benefits.
page 14
Deposits
The Bank had total deposits of $102.5$95.1 million at JuneSeptember 30,
1998 compared to $86.5 million at December 31, 1997, an increase of
$16.0$8.6 million or 18.5%9.9%. The increase was attributed to short-term
escrow related deposits and Association Bank Service deposits which
were partially offset by a decrease in Stock Option lending related
deposits and money desk deposits. A summary of deposits at JuneSeptember 30, 1998 and December
31, 1997 is as follows:
JuneSeptember 30, December 31,
(Dollars in Thousands) 1998 1997
Demand deposits $15,467$17,234 $19,691
NOW 17,34816,294 15,986
Money market and savings 37,84122,073 16,040
Total deposits with no stated maturity 70,65655,601 51,717
Time deposits:
Less than $100,000 17,72518,967 19,184
$100,000 and greater 14,07120,531 15,618
Total time deposits 31,79639,498 34,802
Total deposits $102,452$95,099 $86,519
The deposits from private and business banking customers
totaled $35.1$40.6 million, or 34.3%42.7% of total deposits, at JuneSeptember 30,
1998, compared to $34.7 million, or 40.1% of total deposits, at
December 31, 1997. The deposits from Association Bank Service
customers totaled $19.0$17.7 million, or 18.6% of total deposits at
JuneSeptember 30, 1998, compared to $17.2 million, or 19.9% of total
deposits at December 31, 1997. The deposits from Escrow customers
totaled $37.9$22.0 million, or 37.0%23.1% of total deposits at JuneSeptember 30,
1998, compared to $15.3 million, or 17.7% of total deposits at
December 31, 1997. The deposits related to Stock Option
transactions totaled $2.1 million, or 2%2.2% of total deposits at
JuneSeptember 30, 1998, compared to $7.6 million, or 8.8% of total
deposits at December 31, 1997.
The deposits acquired through the money desk operations
totaled $8.3$12.7 million, or 8.1%13.4% of total deposits at JuneSeptember 30,
1998, compared to $11.7 million, or 13.5% of total deposits at
December 31, 1997.
PAGE 14
Other Borrowings
As of JuneSeptember 30, 1998, the Bank had short-term FHLB borrowings
outstanding totaling $5.0 million and long-term FHLB
borrowings outstanding totaling $10.0 million secured by pledged
securities totaling $16.3$11.7 million. The Bank repaid the short-term borrowing
in July 1998. In the future, long and short
term borrowings from the FHLB may be used as an on-going source of
liquidity and funding.
Year 2000 Readiness Disclosure
The Company has adopted and is implementing a plan to
identify, assess, and address issues related to the Year 2000
problem (the "Y2K Plan"). The Year 2000 (the "Y2K") problem is a
computer programming issue that has occurred as a result of many
computer systems being programmed to use a two digit code to
identify the year. For example, the year 1998 would be signified
as "98", and, therefore, the year 2000 may be mis-recognized as
1900. This could result in the miscalculation of financial data
and/or result in processing errors in transactions or functions
that are date sensitive.
page 15
The following discussion of the implications of the Y2K
problem for the Company contains numerous forward-looking
statements based on inherently uncertain information. The cost of
the project and the date on which the Company plans to complete the
modifications are based on management's best estimates, which were
derived utilizing a number of assumptions of future events
including the continued availability of internal and external
resources, third party modifications and other factors. However,
there can be no guarantee that these estimates will be achieved and
actual results could differ. Moreover, although management
believes it will be able to make the necessary modifications in
advance, there can be no guarantee that failure to modify the
systems would not have a material adverse affect on the Company.
There also can be no guarantee that the failure of other third
parties to modify their systems would not have a material adverse
affect on the Company and the Bank.
Generally, the Bank's business risks come from internal
sources such as the Bank's own computer systems and from external
sources such as borrowers whose businesses might be adversely
impacted by the Y2K problem, deposit customers whose transactions
are transmitted electronically, and other third parties such as
institutions, vendors, and governmental agencies whose computer
systems may have a direct or indirect adverse impact on the Bank or
the Bank's customers. The Bank maintains much of its computer
hardware on the premises of third party vendors, uses software
under licensing agreements with vendors, and has outsourced its
data processing requirements to outside vendors. As a result, the
Bank is highly reliant on vendors to upgrade many of the Bank's
systems to be Y2K compliant in the timeframe specified by the Y2K
Plan.
The purpose of the Y2K Plan is to manage and mitigate the
business risks associated with the Y2K problem. The Y2K Plan is a
five step process; identification, assessment, renovation, testing,
and implementation. A project team, staffed by Bank employees, is
responsible for monitoring the Y2K Plan progress including vendor
commitments, and periodically reporting such progress to the Bank
Audit and Regulatory Committee of the Board. The Bank's internal audit
function periodically performs a review of the Y2K Plan progress.
The Bank is in the process of upgrading all of its core
banking hardware and software. These mission critical system
upgrades are projected to be operational by December 31, 1998 and
testing is expected to be completed by March 31, 1999. The Bank
has requested certification of compliance from all vendors and
intends to test the compliance of all major systems. The Bank will
attempt to obtain a certification of compliance of all major
systems from an independent third party where possible. The Bank
has sent notification to all loan and deposit customers apprising
them of the potential problems and requesting that they assess the
compliance of their computer systems. The Bank's lending policies
have been revised to require an assessment of a borrower's risks to
the Y2K problem, and the assessment has been incorporated into the
credit review process. In addition, the Y2K Plan includes
provisions that provide for manual processes, for a limited period
of time, if the Bank's systems are not operational, and that ensure
that additional liquidity is available in the event of a limited
disruption of customer cashflows.
The Y2K Plan includes a contingency plan if certain tasks are
not successfully completed by specified trigger dates. If the
Company's mission critical systems are not compliant by March 31,
1999, the Company will take the necessary steps to correct the
deficiency by implementing the contingency plan phase of the Y2K
Plan which includes engaging alternate vendors who are Y2K
compliant. If the Company implements the contingency phase,
additional costs are likely to be incurred.
page 16
The cost associated with executing the Y2K Plan and completing
the Y2K modifications are estimated to be approximately $250,000
including approximately $160,000 for the purchase of new hardware
which will be amortized over the useful life of the equipment. The
funds for these modifications are from general working capital.
These costs, exclusive of the cost of replacement systems that are
being capitalized and amortized in accordance with the Company's
policies, are being expensed as incurred. As of September 30,
1998, approximately $225,000 of Y2K costs have been incurred. No
significant information technology projects have been deferred as
a result of the Y2K efforts. There can be no assurance that the
cost to replace or modify the Company's date sensitive systems will
not exceed the Company's present estimate or that all business
risks and related exposure have been identified.
If the Company's date sensitive systems or the systems of
those third parties who have material business relationships with
the Company are not Y2K compliant by January 1, 2000, the Company's
business and results of operations may be materially and adversely
affected. The Company could experience time delays in its daily
operations and increased processing costs due to the required shift
to manual processes, and the Company may not be able to provide
customers with timely and pertinent information regarding their
accounts which may negatively affect customer relations and lead to
the potential loss of customers. In addition, the Company's
clients may experience liquidity problems which may result in the
Bank needing to increase its liquidity by obtaining funds from
other more expensive sources including money desk deposits, or
borrowing from the FHLB or FRB.
While there can be no assurances, the Company believes that
the greatest risk for disruptions to its business exists with Y2K
noncompliance of third parties that have major business relationships
with the Company. The possible consequences of noncompliance by third
parties include, among other things, delays in processing daily deposits
and withdrawals, and an increase in loan delinquencies from potential
business failures. These risks are inherent in the industry and not
specific to the Company. The Company is unable to estimate the potential
financial impact of the scenarios described above. However, the Company
believes that its Y2K Plan should reduce any material adverse
effect that any such disruption may have.
page 17
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Because of the nature of its business, the Company and its
subsidiaries, including the Bank, are from time-to-time a party to
legal actions. Based on information available to the Company and
the Bank, and its review of such outstanding claims to date,
management believes the liability relating to such claims, if any,
will not have a material adverse effect on the Company's liquidity,
consolidated financial condition or results of operations.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
Shareholders who expect to present a proposal at the 1999
Annual Meeting of Shareholders which is not included in the
Company's proxy statement should notify the Chief Financial Officer
of the Company at 550 Montgomery Street, San Francisco, California
94111 of the proposal by March 15, 1999. Without such notice,
proxy holders appointed by the Board of Directors of the Company
will be entitled to exercise their discretionary voting authority
when the proposal is raised at the annual meeting, without any
discussion of the proposal in the proxy statement.None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Employment Agreements effective April 22, 1998 between
each executive officer and the Company and the Bank.None
(b) Report on Form 8-K
None
PAGE 15page 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The San Francisco Company
(Registrant)
Date: July 31,October 28, 1998 /s/ James E. Gilleran
James E. Gilleran
Chairman of the Board and
Chief Executive Officer
Date: July 31,October 28, 1998 /s/ Keary L.ColwellL. Colwell
Keary L. Colwell
Chief Financial Officer and
Executive Vice President
PAGE 16
EXHIBITS
James E. Gilleran
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered
into as of April ___, 1998, by and between The San Francisco
Company (the "Company"), Bank of San Francisco (the "Bank")
(collectively, the "Employer"), and JAMES E. GILLERAN
("Executive").
R E C I T A L S:
A. The Employer desires to continue to employ
Executive to serve as Chairman of the Board and Chief
Executive Officer of the Company and Chairman of the Board
and Chief Executive Officer of the Bank, and the Boards of
Directors of the Company and the Bank have approved the
Employer's employment of Executive.
B. Executive hereby accepts such employment on the
terms and conditions set forth in this Agreement.
A G R E E M E N T:
1. Agreement to Employ. Subject to the terms
and conditions contained herein, the Employer hereby employs
Executive and Executive hereby accepts employment by the
Employer.
2. Term of Employment. Subject to the
provisions of section 8, below, Executive s employment
shall be for a period of three (3) years from the date of
this Agreement and will end on the third anniversary of the
date hereof (the Third Anniversary ). The term of this
Agreement will be extended on the second anniversary hereof
and will roll forward on a month-to-month basis so that
twelve (12) months continuously remain in the Agreement term
unless or until (A) a Change of Control occurs, or (B) any
party to this Agreement notifies the other parties that it
does not agree to extend the term of this Agreement. Such
written notification must be provided to all parties at
least one (1) month in advance of termination date. If
Executive chooses not to extend the term of this Agreement
and gives the applicable one (1) month notice, Executive
will be deemed to have voluntarily terminated and will be
entitled only to the benefits described in Section 9.e.,
below. If Employer chooses not to extend the term of this
Agreement and gives the applicable one (1) month notice,
Executive will be deemed to have been terminated without
cause and will be entitled only to the benefits described
in Section 9.d., below. For purposes of this Agreement, the
term Change of Control shall mean a sale to a third party
of a majority interest in, or substantially all of the
assets of, the Company or the Bank, but the term Change of
Control shall not include (A) a transfer of shares to any
voting trust or similar custodial arrangement, or (B) a
transaction in which Executive participates as a principal
or with any direct or indirect equity interest, whether
contingent or otherwise.
PAGE 1
3. Position and Duties/Authority of Executive.
During the term of this Agreement, Executive shall hold the
positions of Chairman of the Board and Chief Executive
Officer of the Company and Chairman of the Board and Chief
Executive Officer of the Bank. Executive shall perform such
additional duties and responsibilities, consistent with the
foregoing positions as may be assigned to Executive from
time to time by the respective Boards of Directors of the
Employer acting with reasonable discretion and in accord
with the scope of this Agreement.
4. Place of Employment. Executive's principal
place of employment shall be 550 Montgomery Street, San
Francisco, California. While discharging his duties and
responsibilities hereunder, Executive may be required to
travel from time to time and, as a result, be temporarily
absent from his place of employment.
5. Devotion of Time to Business. Except as
provided below, Executive shall devote his best efforts and
ability, and attention to the business and affairs of the
Employer and to performing the duties and responsibilities
set forth herein on behalf of the Employer. Notwithstanding
any language herein to the contrary, Executive shall be
entitled to devote time to charitable, political and civic
activities and speaking engagements, and Executive shall be
permitted to serve on the boards of directors of other
companies which do not directly compete with the Employer
provided such activities do not have a material, adverse
effect on Executive's performance hereunder.
6. Confidential Information/Trade Secrets.
a. In performing his duties under this
Agreement, Executive will have access to and become
acquainted with information concerning the Employer's
operations, including financial, personnel, marketing, and
other information and customer lists that are owned by the
Employer and regularly used in the Employer's business, and
such information is confidential and constitutes trade
secrets of the Employer.
b. Executive will not misuse, misappropriate, or
disclose any such trade secrets, directly or indirectly, to
any other person, or use them in any way, except as required
in the course of his employment hereunder.
c. The unauthorized use or disclosure of any of
the Employer's confidential information/trade secrets
(including without limitation information concerning current
or future proposed work, services, or products, the fact
that any such work, services, or products are planned, under
consideration, or in use, and any descriptions thereof)
constitute unfair competition.
PAGE 2
d. Any violation by Executive of any of the
provisions of this paragraph would result in irreparable
injury to the Employer, and the Employer shall be entitled
to injunctive relief to prevent or terminate such violation.
e. This paragraph shall not apply to any
information that becomes generally known to or available for
use by the public other than as a result of Executive's
acts.
f. The covenants set forth in this paragraph
shall survive termination of this Agreement for a period of
one year; provided, however, that with respect to the
Employer's customer lists and relationships, such period
shall be two years.
7. Compensation to Executive.
a. Salary and Benefits. Subject to the terms
and conditions contained herein, throughout the term of this
Agreement, Executive shall be entitled to receive the
following salary and benefits from the Employer:
i) Annual Base Salary. The Employer shall
pay to Executive as compensation for his services an
Annual Base Salary of Three Hundred Thousand Dollars
($300,000) in such intervals as other salaried
executives of the Employer are presently paid (but in
no case less frequently than monthly). The Annual Base
Salary shall be paid subject to all federal, state and
local rules for payment, deduction and withholding of
taxes. The Annual Base Salary shall be reassessed
annually by the Boards of Directors of Company and the
Bank at which time the Boards may, in their sole
discretion, vote to increase the Annual Base Salary.
ii) Annual Performance Bonus. For each
calendar year, Executive and the Boards of Directors of
the Company and the Bank shall establish reasonable
goals for such year performance against which will
result in a bonus payable to Executive from 0% to 100%
of his Annual Base Salary in cash. With respect to the
Bank, such goals shall be based upon positive
performance criteria as measured by achievement of
annually-set objectives.
iii) Special Incentive. The Employer shall
pay to Executive a one-time bonus of $150,000 at such
time subsequent to a regulatory examination that the
boards of directors of the Company and the Bank
determine, respectively, that the condition of the
Company and the condition of the Bank (as measured by
its capital, assets, management, earnings and
liquidity) are satisfactory. Such determination is not
to be negatively influenced by any ownership interests.
iv) Completion Incentive. On the Third
Anniversary, provided that Executive is then employed
pursuant to this Agreement (whether or not such
employment terminates on the Third Anniversary), the
PAGE 3
Employer shall pay Executive a Completion Incentive
in the amount of one (1) year of the then Annual Base
Salary, provided further, however, that (A) such
Incentive payment shall be subject to applicable
statutory or regulatory restrictions, and (B) no such
Incentive payment shall be made unless the Bank and
Company maintain a CAMEL 2 or satisfactory or better
(or equivalent) regulatory rating. If, upon payment of
the Completion Incentive, it appears that Executive s
employment with Employer will continue for an
additional period of years, the parties will negotiate
in good faith the terms of an additional retention
bonus.
b. Retirement Plan. The Employer shall provide
Executive with retirement benefits, including any Section
401(k) Plan, under which the Employer provides retirement or
similar benefits to the other Company or Bank employees.
The Company currently sponsors The San Francisco Company
401(k) Plan.
c. Benefits. The Employer shall, during the
term of this Agreement, make available to Executive the
following:
i) insurance coverage and benefits
according to its existing health plans;
ii) group term life insurance or other term
life insurance in an amount equal to four (4) times
Executive s Annual Base Salary, accidental death and
dismemberment insurance, and long-term group disability
insurance, and
iii) vacation of four weeks per year.
d. Expense Account. The Employer will require
Executive to incur travel, lodging, meal, entertainment, and
similar expenses. The Employer shall advance or promptly
reimburse Executive for all expenses reasonably incurred by
Executive in the performance of his duties for which
Executive furnishes the Employer with adequate records and
other documentary evidence as required by applicable federal
and state laws and regulations.
e. Stock Options.
i) The Board of Directors of the Company
has adopted an Executive Stock Option Plan (the "Stock
Plan") under which Executive has received anti-dilutive
options to purchase shares of the Company's Class A
Common Stock and for which there is a separate Stock
Option Agreement. These options are all vested and are
exercisable for a period of ten (10) years from the
date of grant.
PAGE 4
ii) Additional options (the "anti-dilution
options") shall be granted to Executive from time to
time at the then current fair market value and in such
amounts as to assure that Executive's anti-dilutive
options and shares previously issued to Executive upon
the exercise of such options will comprise not less
than five percent (5%) of the fully diluted number of
shares of all classes of the Company's Common Stock
(i.e., the sum of the number of shares of all classes
of Common Stock issued and outstanding, plus the number
of shares of all classes of Common Stock subject to
options, warrants, conversion rights and all other
outstanding rights to purchase any class of shares of
Common Stock). Such additional options shall be
granted at the fair market value at the date of grant
and shall be calculated pursuant to the methodology
adopted by the Board of Directors of the Company at its
February 11, 1998, meeting. Vested options granted on
account of options, warrants, conversion rights or
other rights to purchase Common Stock shall not be
exercisable unless and until Common Stock is issued
upon the exercise of such rights. The Company shall
have no obligation to grant Executive any antidilution
options with respect to any dilutive events occurring
after the completion of the next public offering by the
Company of its Common Stock.
iii) In addition to the anti-dilutive options
referred to in sections 7e i) and ii), above, the
Company s Board of Directors may, in its sole
discretion, award Executive additional options under
the Stock Plan not subject to anti-dilutive treatment.
f. Other Benefits. The Employer shall provide
Executive with such other pension, health and welfare
benefits as it may from time to time offer to other senior
executives in the ordinary course of its business, or as may
be reasonably required or necessary for him to perform his
duties.
8. Termination.
a. Termination by the Employer for Cause. The
Employer may terminate Executive's employment at any time
for "cause." For the purpose of the Employer's termination
of this Agreement, the term "cause" shall include any of the
following:
i) Adjudication of Executive's guilt in
connection with the commission of a felony or a
misdemeanor involving moral turpitude (excluding
traffic violations);
ii) Good faith finding by the Employer's
Boards of Directors of Executive's theft, conversion,
misappropriation, or embezzlement of any assets of the
Employer;
iii) Executive's (A) habitual neglect of his
duties, (B) failure to obey the lawful direction of the
Boards of Directors of the Employer that do not
contravene regulations or regulatory policies,
guidelines, agreements or orders, or (C) conduct that
has a direct, substantial and adverse effect on the
Employer's reputation, in each case, after written
notice and adequate opportunity to cure any such
asserted neglect, failure or conduct; or
PAGE 5
iv) Good faith finding by the Employer's
Boards of Directors that Executive's performance of his
duties resulted in a material deterioration in the
condition of the Company or the Bank, provided that
such deterioration is not the result of conditions
either existing on the date of Executive's employment
or external to the Company and the Bank and beyond
Executive's control.
b. Termination without Cause.
The Employer may terminate Executive's
employment without "cause" at any time subject only to the
provisions of this Agreement. A without cause termination
may include, but is not limited to, a termination upon a
Change of Control.
c. Termination for Death. Executive's
employment shall terminate upon Executive's death.
d. Termination for Disability. The Employer
may, to the extent permitted by law, terminate Executive's
employment upon the disability of Executive. As used
herein, the term "disability" shall mean sickness or
physical or mental disability that renders Executive unable
to perform a substantial portion of his duties under this
Agreement for an aggregate period of more than ninety (90)
days in any twelve (12) month period.
e. Notice of Termination. If the Employer
desires to terminate Executive's employment under this
Agreement, whether or not for cause, the Employer shall
deliver a notice of termination in writing to Executive (the
"Notice of Termination"). The Notice of Termination shall
specify whether the termination is (A) for cause (in which
case the conduct of Executive or the Employer giving rise to
the termination shall be specified), (B) for death, (C) for
disability or (D) without cause. The Notice of Termination
shall specify an effective date of termination (the
"Termination Date") on or after the date notice is given.
9. Effect of Termination. Upon the termination of
this Agreement by either party, the parties shall comply
with the following obligations and duties:
a. Termination for Cause. If the Employer
terminates Executive's employment for cause:
i) Annual Base Salary. The Employer shall
on the Termination Date pay Executive Executive's
Annual Base Salary through the Termination Date.
PAGE 6
ii) Reimbursement Expenses. The Employer
shall, on the Termination Date, pay Executive all
reimbursable expenses for which expense reports have
been provided to the Employer in accordance with the
Employer's policy.
iii) Annual Performance Bonus. Executive is
not entitled to be paid any bonus for any months served
during the current Bonus Plan Year. Executive is not
eligible to receive any bonus payment if terminated for
cause.
iv) Vesting of Stock Options. All of the
stock options granted to Executive which have vested
shall be exercisable in accordance with paragraph 7.e,
the Stock Plan, and Stock Option Agreement.
b. Termination for Death. If Executive's
employment is terminated as a result of Executive's death:
i) Annual Base Salary. The Employer's
obligation to pay Executive's salary shall terminate
upon his death.
ii) Reimbursable Expenses. The Employer
shall, within thirty (30) days following the date of
Executive's death, pay Executive's estate all
reimbursable expenses for which expense reports have
been provided to the Employer in accordance with the
Employer's policy.
iii) Annual Performance Bonus. The Employer
shall, within thirty (30) days following the date of
death, pay Executive's estate Executive's Annual
Performance Bonus at a rate of fifty percent (50%) of
Bonus Plan prorated by the number of full months served
during the current Bonus Plan year.
iv) Vesting of Stock Options. All of the
stock options granted to Executive which are vested
shall be exercisable by Executive's estate in
accordance with paragraph 7.e, the Stock Plan, and the
Stock Option Agreement.
c. Termination for Disability.
i) Annual Base Salary. The Employer shall
pay Executive Executive's Annual Base Salary through
Termination Date.
ii) Reimbursable Expenses. The Employer
shall, within thirty (30) days following the
Termination Day, pay Executive all reimbursable
expenses for which expense reports have been provided
to the Employer in accordance with the Employer's
policy.
iii) Annual Performance Bonus. The Employer
shall, within thirty (30) days following the
Termination Date, pay Executive Executive's Annual
Performance Bonus at a rate of fifty percent (50%) of
Bonus Plan prorated by the number of full months served
during the current Bonus Plan year.
PAGE 7
iv) Vesting of Stock Options. All of the
stock options granted to Executive which are vested
shall be exercisable in accordance with paragraph 7.e,
the Stock Plan, and the Stock Option Agreement.
d. Termination without Cause. If the Employer
terminates Executive's employment without cause:
i) Annual Base Salary and Separation Pay.
The Employer shall, on the Termination Date, pay
Executive his Annual Base Salary through the
Termination Date. In addition, the Employer shall, on
the Termination Date, pay Executive an additional one
(1) year of the then current Annual Base Salary, as
separation pay.
ii) In addition to the one (1) year
separaton pay described in section d.(i) above, in the
event of a termination without cause before the Third
Anniversary, and following a Change of Control,
Employer shall pay Executive an additional one (1) year
of the then current Annual Base Salary. In the event
of a termination without cause before the Third
Anniversary but not following a Change of Control,
Employer shall pay Executive a prorated portion of his
then Annual Base Salary, such amount prorated based on
the number of years of the initial three year term of
employment which Executive has served (Prorated
Separation Pay), provided that if such termination
occurs during the first year, Employer shall pay
Executive one-third of the then Annual Base Salary.
For example, (A) if Executive is terminated without
cause within or upon one year of employment under this
Agreement, in addition to the one (1) year separation
pay described in section d.(i), above, Employer shall
pay Executive one-third of the then current Annual Base
Salary and (B) if Executive is terminated without cause
after 18 months of employment under this Agreement, in
addition to the one (1) year separation pay described
in section d.(i) above, Employer shall pay Executive
one-half of the then current Annual Base Salary. If
Executive is terminated without cause after the Third
Anniversary, he is not entitled to any payment under
this section d.(ii) but shall only be entitled to the
payment under section d.(i).
iii) Reimbursable Expenses. The Employer
shall, within thirty (3) days following the Termination
Date, pay Executive all reimbursable expenses for which
expense reports have been provided to the Employer in
accordance with the Employer's policy.
iv) Annual Performance Bonus. The Employer
shall, within thirty (30) days following the
Termination Date, pay Executive Executive's Annual
Performance Bonus at a rate of one hundred percent
(100%) of Bonus Plan prorated by the number of full
months served during the current Bonus Plan year.
PAGE 8
v) Vesting of Stock Options. All of the
stock options granted to Executive shall be exercisable
in accordance with paragraph 7.e, the Stock Option
Agreement, and the Stock Plan.
e. Voluntary Termination by Executive. If
Executive terminates this Agreement voluntarily:
i) Annual Base Salary. The Employer shall,
within three (3) days following the Termination Date,
pay Executive Executive's Annual Base Salary through
the Termination Date.
ii) Reimbursable Expenses. The Employer
shall, within thirty (30) days following the
Termination Date, pay Executive all reimbursable
expenses for which expense reports have been provided
to the Employer in accordance with the Employer's
policy.
iii) Vesting of Stock Options. All of the
stock options granted to Executive which have vested
shall be exercisable in accordance with paragraph 7.e,
the Stock Plan, and the Stock Option Agreement.
10. Indemnification of Executive.
a. Pre-Execution Actions and Events.
Notwithstanding any other provision to the contrary
contained in this Agreement in addition to any rights
Executive has under any individual indemnification
agreements, the Employer shall indemnify, defend at its
expense, and hold Executive entirely harmless against and
from any claim, demand, cause of action, judgment, loss,
liability, damage, cost or expense whatsoever, including
without limitation reasonable attorneys' fees, which
Executive may suffer, sustain, incur or otherwise become
subject to either directly or indirectly as a result of any
claim, controversy, dispute, legal action or proceeding
whatsoever arising from actions taken by the Employer or
events relating to the business of the Bank or the Company
occurring prior to the execution of this Agreement.
b. Post-Execution Actions and Events.
Notwithstanding any other provision to the contrary
contained in this Agreement, but subject to an individual
indemnification agreement already approved by the Board of
Directors on February 11, 1998, the Employer shall
indemnify, defend at its expense, and hold Executive
entirely harmless against and from any claim, demand, cause
of action, judgment, loss, liability, damage, cost or
expense whatsoever, including without limitation reasonable
attorneys' fees, which Executive may suffer, sustain, incur
or otherwise become subject to either directly or indirectly
as a result of any claim, controversy, dispute, legal action
or proceeding whatsoever arising from actions taken by the
Employer or events relating to the business of the Bank or
the Company occurring subsequent to the execution of this
Agreement, other than any such claim, demand, cause of
action, judgment, loss, liability, damage, cost or expense
whatsoever which is directly and substantially due to
Executive's misconduct or gross negligence. Notwithstanding
the foregoing, in any administrative proceeding or civil
action initiated by any federal banking agency, the Bank or
the Company may only reimburse, indemnify or hold harmless
Executive if the Bank is in compliance with any applicable
statute, rule, regulation or policy of the Federal Deposit
Insurance Corporation, Federal Reserve Board, or the
California Department of Financial Institutions regarding
permissible indemnification payments.
PAGE 9
c. Payment of expenses. In the event the
Employer is obligated hereunder to defend and indemnify
Executive and in the event Executive is required to retain
independent legal counsel, other experts or professionals or
should incur any cost himself in connection with Paragraph
10.b. above, the Employer shall promptly pay such expenses
as incurred.
d. Survival of Indemnification. The obligations
of the Employer under this paragraph 10 to indemnify
Executive shall survive the expiration or termination of
this Agreement.
11. Insurance. The Employer agrees to make reasonable
efforts to maintain director's and officer's liability
insurance in an amount of not less than $5,000,000 for each
occurrence for the benefit of Executive.
12. General provisions.
a. Binding on Successors. Subject to any
restrictions stated in any other provision of this
Agreement, this Agreement shall be binding on and shall
inure to the benefit of the parties and their respective
successors and assigns.
b. Partial Invalidity/Severability. Should any
of the provisions of this Agreement be held to be invalid or
unenforceable, such invalidity or unenforceability shall not
affect the validity or enforceability of any other provision
of this Agreement.
c. Entire Agreement. This Agreement contains
the entire agreement between the parties with respect to the
subject matter of this Agreement and supersedes all prior
oral or written understandings and agreements, excluding the
Stock Option Plan, the Stock Option Agreement and any
individual indemnification agreement.
d. Amendments; Waivers. No provision of this
Agreement may be changed, waived, modified, discharged or
terminated, except by a written instrument executed by the
parties hereto.
e. Notices. Any notice to be given under this
Agreement shall be in writing and shall be deemed effective
only when hand-delivered or when delivered by overnight
courier, or three (3) days after the date postmarked if sent
by certified or registered mail, postage prepaid, return
receipt requested, addressed as follows:
PAGE 10
If to the Employer:
The San Francisco Company &
Bank of San Francisco
550 Montgomery Street
San Francisco, California 94111
Attn: Boards of Directors
If to Executive:
James E. Gilleran
3880 Sacramento Street
San Francisco, California 94118
f. Attorney's Fees and Costs. The Employer
shall bear all of the costs and expenses, including
attorney's fees, incurred by both parties in the negotiation
and drafting of this Agreement. In the event of a dispute
regarding this Agreement, the prevailing party in any
arbitration or litigation shall be entitled to its
reasonable legal fees and costs.
g. Governing Law. This Agreement shall be
construed and enforced in accordance with the laws of the
State of California.
h. Title and Headings. Title and headings to
paragraphs, subparagraphs and sub-subparagraphs of this
Agreement are for the purpose of reference only and shall
not affect the interpretation of this Agreement.
i. Regulatory Approval. This Agreement is
subject to and shall not become effective until any required
approval or non-disapproval of the Federal Reserve Bank.
j. Resolution of disputes. With the exception of
an action for equitable relief arising from a breach of any
provisions of Paragraph 6 a-f, above, any controversy between
Executive and Employer or between Executive and any employee
of Employer arising out of or related to Executive s
employment with Employer, including, but not limited to claims
of race, age, gender, religious, or national origin
discrimination under federal, state or local laws and those
involving the construction or application of any of the terms,
provisions or conditions of this Agreement, shall be settled
by arbitration in accordance with the dispute resolution rules
of the Judicial Arbitration & Mediation Service ( JAMS ), and
judgment on the award rendered by the arbitrator(s) may be
rendered by any court having jurisdiction thereof. Employer
and Executive shall share the costs of the arbitrator equally
but shall each bear their own costs and legal fees associated
with the arbitration. The location of the arbitration shall
be in San Francisco, California.
PAGE 11
In the event of a breach of any of the provisions
in Paragraph 6 of this Agreement, Executive or Employer
shall be entitled to institute proceedings in any court of
competent jurisdiction to obtain equitable relief,
including, but not limited to, specific performance or an
injunction against performance of any acts.
PAGE 12
k. Conflicts. The Employer and Executive are
aware of the Conflict of Interest provisions of Section
87400 et. seq. of the Government Code. To his knowledge,
Executive has not in the past participated in any proceeding
related to the Employer which is still outstanding within
the meaning of Section 87401(b) of the Government Code. The
Employer's Boards of Directors and Executive will not in the
future take any action that would violate Section 87400 et.
seq. of the Government Code.
IN WITNESS WHEREOF, the undersigned have hereunto
caused this Agreement to be executed as of the day and year
first above written.
THE SAN FRANCISCO COMPANY
By: _____________________________
BANK OF SAN FRANCISCO
By: _____________________________
EXECUTIVE:
_________________________________
James E. Gilleran
PAGE 13
Joanne Haakinson
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered
into as of April ___, 1998, by and between The San Francisco
Company (the "Company"), Bank of San Francisco (the "Bank")
(collectively, the "Employer"), and JOANNE HAAKINSON
("Executive").
R E C I T A L S:
A. The Employer desires to continue to employ
Executive to serve as Corporate Secretary for the Company
and Corporate Secretary, Executive Vice President and Chief
Administrative Officer for the Bank, and the Boards of
Directors of the Company and the Bank have approved the
Employer's employment of Executive.
B. Executive hereby accepts such employment on the
terms and conditions set forth in this Agreement.
A G R E E M E N T:
1. Agreement to Employ. Subject to the terms
and conditions contained herein, the Employer hereby employs
Executive and Executive hereby accepts employment by the
Employer.
2. Term of Employment. Subject to the
provisions of section 8, below, Executive s employment
shall be for a period of three (3) years from the date of
this Agreement and will end on the third anniversary of the
date hereof (the Third Anniversary ). The term of this
Agreement will be extended on the second anniversary hereof
and will roll forward on a month-to-month basis so that
twelve (12) months continuously remain in the Agreement term
unless or until (A) a Change of Control occurs, or (B) any
party to this Agreement notifies the other parties that it
does not agree to extend the term of this Agreement. Such
written notification must be provided to all parties at
least one (1) month in advance of termination date. If
Executive chooses not to extend the term of this Agreement
and gives the applicable one (1) month notice, Executive
will be deemed to have voluntarily terminated and will be
entitled only to the benefits described in Section 9.e.,
below. If Employer chooses not to extend the term of this
Agreement and gives the applicable one (1) month notice,
Executive will be deemed to have been terminated without
cause and will be entitled only to the benefits described
in Section 9.d., below. For purposes of this Agreement, the
term Change of Control shall mean a sale to a third party
of a majority interest in, or substantially all of the
assets of, the Company or the Bank, but the term Change of
Control shall not include (A) a transfer of shares to any
voting trust or similar custodial arrangement, or (B) a
transaction in which Executive participates as a principal
or with any direct or indirect equity interest, whether
contingent or otherwise.
PAGE 1
3. Position and Duties/Authority of Executive.
During the term of this Agreement, Executive shall hold the
positions of Corporate Secretary for the Company and
Corporate Secretary, Executive Vice President and Chief
Administrative Officer for the Bank. Executive shall
perform such additional duties and responsibilities,
consistent with the foregoing positions as may be assigned
to Executive from time to time by the respective Boards of
Directors of the Employer acting with reasonable discretion
and in accord with the scope of this Agreement.
4. Place of Employment. Executive's principal
place of employment shall be 550 Montgomery Street, San
Francisco, California. While discharging her duties and
responsibilities hereunder, Executive may be required to
travel from time to time and, as a result, be temporarily
absent from her place of employment.
5. Devotion of Time to Business. Except as
provided below, Executive shall devote her best efforts and
ability, and attention to the business and affairs of the
Employer and to performing the duties and responsibilities
set forth herein on behalf of the Employer. Notwithstanding
any language herein to the contrary, Executive shall be
entitled to devote time to charitable, political and civic
activities and speaking engagements, and Executive shall be
permitted to serve on the boards of directors of other
companies which do not directly compete with the Employer
provided such activities do not have a material, adverse
effect on Executive's performance hereunder.
6. Confidential Information/Trade Secrets.
a. In performing her duties under this
Agreement, Executive will have access to and become
acquainted with information concerning the Employer's
operations, including financial, personnel, marketing, and
other information and customer lists that are owned by the
Employer and regularly used in the Employer's business, and
such information is confidential and constitutes trade
secrets of the Employer.
b. Executive will not misuse, misappropriate, or
disclose any such trade secrets, directly or indirectly, to
any other person, or use them in any way, except as required
in the course of her employment hereunder.
c. The unauthorized use or disclosure of any of
the Employer's confidential information/trade secrets
(including without limitation information concerning current
or future proposed work, services, or products, the fact
that any such work, services, or products are planned, under
consideration, or in use, and any descriptions thereof)
constitute unfair competition.
PAGE 2
d. Any violation by Executive of any of the
provisions of this paragraph would result in irreparable
injury to the Employer, and the Employer shall be entitled
to injunctive relief to prevent or terminate such violation.
e. This paragraph shall not apply to any
information that becomes generally known to or available for
use by the public other than as a result of Executive's
acts.
f. The covenants set forth in this paragraph
shall survive termination of this Agreement for a period of
one year; provided, however, that with respect to the
Employer's customer lists and relationships, such period
shall be two years.
7. Compensation to Executive.
a. Salary and Benefits. Subject to the terms
and conditions contained herein, throughout the term of this
Agreement, Executive shall be entitled to receive the
following salary and benefits from the Employer:
i) Annual Base Salary. The Employer shall
pay to Executive as compensation for her services an
Annual Base Salary of One Hundred and Twenty Thousand
Dollars ($120,000) in such intervals as other salaried
executives of the Employer are presently paid (but in
no case less frequently than monthly). The Annual Base
Salary shall be paid subject to all federal, state and
local rules for payment, deduction and withholding of
taxes. The Annual Base Salary shall be reassessed
annually by the Boards of Directors of Company and the
Bank at which time the Boards may, in their sole
discretion, vote to increase the Annual Base Salary.
ii) Annual Performance Bonus. For each
calendar year, Executive and the Boards of Directors of
the Company and the Bank shall establish reasonable
goals for such year performance against which will
result in a bonus payable to Executive from 0% to 50%
of her Annual Base Salary in cash. With respect to the
Bank, such goals shall be based upon positive
performance criteria as measured by achievement of
annually-set objectives.
iii) Completion Incentive. On the Third
Anniversary, provided that Executive is then employed
pursuant to this Agreement (whether or not such
employment terminates on the Third Anniversary), the
Employer shall pay Executive a Completion Incentive
in the amount of one (1) year of the then Annual Base
Salary, provided further, however, that (A) such
Incentive payment shall be subject to applicable
statutory or regulatory restrictions, and (B) no such
Incentive payment shall be made unless the Bank and
Company maintain a CAMEL 2 or satisfactory or better
(or equivalent) regulatory rating. If, upon payment of
the Completion Incentive, it appears that Executive s
employment with Employer will continue for an
additional period of years, the parties will negotiate
in good faith the terms of an additional retention
bonus.
PAGE 3
b. Retirement Plan. The Employer shall provide
Executive with retirement benefits, including any Section
401(k) Plan, under which the Employer provides retirement or
similar benefits to the other Company or Bank employees.
The Company currently sponsors The San Francisco Company
401(k) Plan.
c. Benefits. The Employer shall, during the
term of this Agreement, make available to Executive the
following:
i) insurance coverage and benefits
according to its existing health plans;
ii) group term life insurance or other term
life insurance in an amount equal to two (2) times
Executive s Annual Base Salary, accidental death and
dismemberment insurance, and long-term group disability
insurance, and
iii) vacation of four weeks per year.
d. Expense Account. The Employer will require
Executive to incur travel, lodging, meal, entertainment, and
similar expenses. The Employer shall advance or promptly
reimburse Executive for all expenses reasonably incurred by
Executive in the performance of her duties for which
Executive furnishes the Employer with adequate records and
other documentary evidence as required by applicable federal
and state laws and regulations.
e. Stock Options. The Board of Directors of the
Company has adopted an Executive Stock Option Plan (the
"Stock Plan") under which Executive has received and may in
the future receive option grants as a senior manager
pursuant to the direction of the Board of Directors.
f. Other Benefits. The Employer shall provide
Executive with such other pension, health and welfare
benefits as it may from time to time offer to other senior
executives in the ordinary course of its business, or as may
be reasonably required or necessary for her to perform her
duties.
8. Termination.
a. Termination by the Employer for Cause. The
Employer may terminate Executive's employment at any time
for "cause." For the purpose of the Employer's termination
of this Agreement, the term "cause" shall include any of the
following:
PAGE 4
i) Adjudication of Executive's guilt in
connection with the commission of a felony or a
misdemeanor involving moral turpitude (excluding
traffic violations);
ii) Good faith finding by the Employer's
Boards of Directors of Executive's theft, conversion,
misappropriation, or embezzlement of any assets of the
Employer;
iii) Executive's (A) habitual neglect of her
duties, (B) failure to obey the lawful direction of the
Boards of Directors of the Employer that do not
contravene regulations or regulatory policies,
guidelines, agreements or orders, or (C) conduct that
has a direct, substantial and adverse effect on the
Employer's reputation, in each case, after written
notice and adequate opportunity to cure any such
asserted neglect, failure or conduct; or
iv) Good faith finding by the Employer's
Boards of Directors that Executive's performance of her
duties resulted in a material deterioration in the
condition of the Company or the Bank, provided that
such deterioration is not the result of conditions
either existing on the date of Executive's employment
or external to the Company and the Bank and beyond
Executive's control.
b. Termination without Cause.
The Employer may terminate Executive's
employment without "cause" at any time subject only to the
provisions of this Agreement. A without cause termination
may include, but is not limited to, a termination upon a
Change of Control.
c. Termination for Death. Executive's
employment shall terminate upon Executive's death.
d. Termination for Disability. The Employer
may, to the extent permitted by law, terminate Executive's
employment upon the disability of Executive. As used
herein, the term "disability" shall mean sickness or
physical or mental disability that renders Executive unable
to perform a substantial portion of her duties under this
Agreement for an aggregate period of more than ninety (90)
days in any twelve (12) month period except in the case of a
pregnancy-related disability. If Executive is prevented
from properly performing her duties by reason of a
pregnancy-related disability for a period of more than one
hundred and twenty (120) days in the aggregate in any twelve
(12) month period, then to the extent permitted by law, her
employment shall terminate.
e. Notice of Termination. If the Employer
desires to terminate Executive's employment under this
Agreement, whether or not for cause, the Employer shall
deliver a notice of termination in writing to Executive (the
"Notice of Termination"). The Notice of Termination shall
specify whether the termination is (A) for cause (in which
case the conduct of Executive or the Employer giving rise to
the termination shall be specified), (B) for death, (C) for
disability or (D) without cause. The Notice of Termination
shall specify an effective date of termination (the
"Termination Date") on or after the date notice is given.
PAGE 5
9. Effect of Termination. Upon the termination of
this Agreement by either party, the parties shall comply
with the following obligations and duties:
a. Termination for Cause. If the Employer
terminates Executive's employment for cause:
i) Annual Base Salary. The Employer shall
on the Termination Date pay Executive Executive's
Annual Base Salary through the Termination Date.
ii) Reimbursement Expenses. The Employer
shall, on the Termination Date, pay Executive all
reimbursable expenses for which expense reports have
been provided to the Employer in accordance with the
Employer's policy.
iii) Annual Performance Bonus. Executive is
not entitled to be paid any bonus for any months served
during the current Bonus Plan Year. Executive is not
eligible to receive any bonus payment if terminated for
cause.
iv) Vesting of Stock Options. All of the
stock options granted to Executive which have vested
shall be exercisable in accordance with paragraph 7.e,
the Stock Plan, and Stock Option Agreement.
b. Termination for Death. If Executive's
employment is terminated as a result of Executive's death:
i) Annual Base Salary. The Employer's
obligation to pay Executive's salary shall terminate
upon her death.
ii) Prorated Death Benefit. Employer shall
pay Executive a prorated portion of her then Annual
Base Salary, such amount prorated based on the number
of years of the initial three year term of employment
which Executive has served as of the time of death,
provided that if her death occurs during the first
year, Employer shall pay Executive one-third of the
then Annual Base Salary. For example, (A) if Executive
dies within or upon one year of employment under this
Agreement, Employer shall pay Executive one-third of
the then current Annual Base Salary and (B) if
Executive dies after 18 months of employment under this
Agreement, Employer shall pay Executive one-half of the
then current Annual Base Salary. If Executive dies
after the Third Anniversary, she is not entitled to any
payment under this section b.(ii).
PAGE 6
iii) Reimbursable Expenses. The Employer
shall, within thirty (30) days following the date of
Executive's death, pay Executive's estate all
reimbursable expenses for which expense reports have
been provided to the Employer in accordance with the
Employer's policy.
iv) Annual Performance Bonus. The Employer
shall, within thirty (30) days following the date of
death, pay Executive's estate Executive's Annual
Performance Bonus at a rate of fifty percent (50%) of
Bonus Plan prorated by the number of full months served
during the current Bonus Plan year.
v) Vesting of Stock Options. All of the
stock options granted to Executive which are vested
shall be exercisable by Executive's estate in
accordance with paragraph 7.e, the Stock Plan, and the
Stock Option Agreement.
c. Termination for Disability.
i) Annual Base Salary. The Employer shall
pay Executive Executive's Annual Base Salary through
Termination Date.
ii) Reimbursable Expenses. The Employer
shall, within thirty (30) days following the
Termination Day, pay Executive all reimbursable
expenses for which expense reports have been provided
to the Employer in accordance with the Employer's
policy.
iii) Annual Performance Bonus. The Employer
shall, within thirty (30) days following the
Termination Date, pay Executive Executive's Annual
Performance Bonus at a rate of fifty percent (50%) of
Bonus Plan prorated by the number of full months served
during the current Bonus Plan year.
iv) Vesting of Stock Options. All of the
stock options granted to Executive which are vested
shall be exercisable in accordance with paragraph 7.e,
the Stock Plan, and the Stock Option Agreement.
d. Termination without Cause. If the Employer
terminates Executive's employment without cause:
i) Annual Base Salary and Separation Pay.
The Employer shall, on the Termination Date, pay
Executive her Annual Base Salary through the
Termination Date. In addition, the Employer shall, on
the Termination Date, pay Executive an additional one
(1) year of the then current Annual Base Salary, as
separation pay.
PAGE 7
ii) In addition to the one (1) year
separaton pay described in section d.(i) above, in the
event of a termination without cause before the Third
Anniversary, and following a Change of Control,
Employer shall pay Executive an additional one (1) year
of the then current Annual Base Salary. In the event
of a termination without cause before the Third
Anniversary but not following a Change of Control,
Employer shall pay Executive a prorated portion of her
then Annual Base Salary, such amount prorated based on
the number of years of the initial three year term of
employment which Executive has served (Prorated
Separation Pay), provided that if such termination
occurs during the first year, Employer shall pay
Executive one-third of the then Annual Base Salary.
For example, (A) if Executive is terminated without
cause within or upon one year of employment under this
Agreement, in addition to the one (1) year separation
pay described in section d.(i), above, Employer shall
pay Executive one-third of the then current Annual Base
Salary and (B) if Executive is terminated without cause
after 18 months of employment under this Agreement, in
addition to the one (1) year separation pay described
in section d.(i) above, Employer shall pay Executive
one-half of the then current Annual Base Salary. If
Executive is terminated without cause after the Third
Anniversary, she is not entitled to any payment under
this section d.(ii) but shall only be entitled to the
payment under section d.(i).
iii) Reimbursable Expenses. The Employer
shall, within thirty (3) days following the Termination
Date, pay Executive all reimbursable expenses for which
expense reports have been provided to the Employer in
accordance with the Employer's policy.
iv) Annual Performance Bonus. The Employer
shall, within thirty (30) days following the
Termination Date, pay Executive Executive's Annual
Performance Bonus at a rate of one hundred percent
(100%) of Bonus Plan prorated by the number of full
months served during the current Bonus Plan year.
v) Vesting of Stock Options. All of the
stock options granted to Executive shall be exercisable
in accordance with paragraph 7.e, the Stock Option
Agreement, and the Stock Plan.
e. Voluntary Termination by Executive. If
Executive terminates this Agreement voluntarily:
i) Annual Base Salary. The Employer shall,
within three (3) days following the Termination Date,
pay Executive Executive's Annual Base Salary through
the Termination Date.
ii) Reimbursable Expenses. The Employer
shall, within thirty (30) days following the
Termination Date, pay Executive all reimbursable
expenses for which expense reports have been provided
to the Employer in accordance with the Employer's
policy.
PAGE 8
iii) Vesting of Stock Options. All of the
stock options granted to Executive which have vested
shall be exercisable in accordance with paragraph 7.e,
the Stock Plan, and the Stock Option Agreement.
10. Indemnification of Executive.
a. Pre-Execution Actions and Events.
Notwithstanding any other provision to the contrary
contained in this Agreement in addition to any rights
Executive has under any individual indemnification
agreements, the Employer shall indemnify, defend at its
expense, and hold Executive entirely harmless against and
from any claim, demand, cause of action, judgment, loss,
liability, damage, cost or expense whatsoever, including
without limitation reasonable attorneys' fees, which
Executive may suffer, sustain, incur or otherwise become
subject to either directly or indirectly as a result of any
claim, controversy, dispute, legal action or proceeding
whatsoever arising from actions taken by the Employer or
events relating to the business of the Bank or the Company
occurring prior to the execution of this Agreement.
b. Post-Execution Actions and Events.
Notwithstanding any other provision to the contrary
contained in this Agreement, but subject to an individual
indemnification agreement already approved by the Board of
Directors on February 11, 1998, the Employer shall
indemnify, defend at its expense, and hold Executive
entirely harmless against and from any claim, demand, cause
of action, judgment, loss, liability, damage, cost or
expense whatsoever, including without limitation reasonable
attorneys' fees, which Executive may suffer, sustain, incur
or otherwise become subject to either directly or indirectly
as a result of any claim, controversy, dispute, legal action
or proceeding whatsoever arising from actions taken by the
Employer or events relating to the business of the Bank or
the Company occurring subsequent to the execution of this
Agreement, other than any such claim, demand, cause of
action, judgment, loss, liability, damage, cost or expense
whatsoever which is directly and substantially due to
Executive's misconduct or gross negligence. Notwithstanding
the foregoing, in any administrative proceeding or civil
action initiated by any federal banking agency, the Bank or
the Company may only reimburse, indemnify or hold harmless
Executive if the Bank is in compliance with any applicable
statute, rule, regulation or policy of the Federal Deposit
Insurance Corporation, Federal Reserve Board, or the
California Department of Financial Institutions regarding
permissible indemnification payments.
c. Payment of expenses. In the event the
Employer is obligated hereunder to defend and indemnify
Executive and in the event Executive is required to retain
independent legal counsel, other experts or professionals or
should incur any cost herself in connection with Paragraph
10.b. above, the Employer shall promptly pay such expenses
as incurred.
PAGE 9
d. Survival of Indemnification. The obligations
of the Employer under this paragraph 10 to indemnify
Executive shall survive the expiration or termination of
this Agreement.
11. Insurance. The Employer agrees to make reasonable
efforts to maintain director's and officer's liability
insurance in an amount of not less than $5,000,000 for each
occurrence for the benefit of Executive.
12. General provisions.
a. Binding on Successors. Subject to any
restrictions stated in any other provision of this
Agreement, this Agreement shall be binding on and shall
inure to the benefit of the parties and their respective
successors and assigns.
b. Partial Invalidity/Severability. Should any
of the provisions of this Agreement be held to be invalid or
unenforceable, such invalidity or unenforceability shall not
affect the validity or enforceability of any other provision
of this Agreement.
c. Entire Agreement. This Agreement contains
the entire agreement between the parties with respect to the
subject matter of this Agreement and supersedes all prior
oral or written understandings and agreements, excluding the
Stock Option Plan, the Stock Option Agreement and any
individual indemnification agreement.
d. Amendments; Waivers. No provision of this
Agreement may be changed, waived, modified, discharged or
terminated, except by a written instrument executed by the
parties hereto.
e. Notices. Any notice to be given under this
Agreement shall be in writing and shall be deemed effective
only when hand-delivered or when delivered by overnight
courier, or three (3) days after the date postmarked if sent
by certified or registered mail, postage prepaid, return
receipt requested, addressed as follows:
If to the Employer:
The San Francisco Company &
Bank of San Francisco
550 Montgomery Street
San Francisco, California 94111
Attn: Boards of Directors
If to Executive:
Joanne Haakinson
41 Winfield Street
San Francisco, CA 94110
PAGE 10
f. Attorney's Fees and Costs. The Employer
shall bear all of the costs and expenses, including
attorney's fees, incurred by both parties in the negotiation
and drafting of this Agreement. In the event of a dispute
regarding this Agreement, the prevailing party in any
arbitration or litigation shall be entitled to its
reasonable legal fees and costs.
g. Governing Law. This Agreement shall be
construed and enforced in accordance with the laws of the
State of California.
h. Title and Headings. Title and headings to
paragraphs, subparagraphs and sub-subparagraphs of this
Agreement are for the purpose of reference only and shall
not affect the interpretation of this Agreement.
i. Regulatory Approval. This Agreement is
subject to and shall not become effective until any required
approval or non-disapproval of the Federal Reserve Bank.
j. Resolution of disputes. With the exception of
an action for equitable relief arising from a breach of any
provisions of Paragraph 6 a-f, above, any controversy between
Executive and Employer or between Executive and any employee
of Employer arising out of or related to Executive s
employment with Employer, including, but not limited to claims
of race, age, gender, religious, or national origin
discrimination under federal, state or local laws and those
involving the construction or application of any of the terms,
provisions or conditions of this Agreement, shall be settled
by arbitration in accordance with the dispute resolution rules
of the Judicial Arbitration & Mediation Service ( JAMS ), and
judgment on the award rendered by the arbitrator(s) may be
rendered by any court having jurisdiction thereof. Employer
and Executive shall share the costs of the arbitrator equally
but shall each bear their own costs and legal fees associated
with the arbitration. The location of the arbitration shall
be in San Francisco, California.
In the event of a breach of any of the provisions
in Paragraph 6 of this Agreement, Executive or Employer
shall be entitled to institute proceedings in any court of
competent jurisdiction to obtain equitable relief,
including, but not limited to, specific performance or an
injunction against performance of any acts.
IN WITNESS WHEREOF, the undersigned have hereunto
caused this Agreement to be executed as of the day and year
first above written.
THE SAN FRANCISCO COMPANY
By: _____________________________
PAGE 11
BANK OF SAN FRANCISCO
By: _____________________________
EXECUTIVE:
_________________________________
Joanne Haakinson
PAGE 12
John F. McGrath
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered
into as of April ___, 1998, by and between The San Francisco
Company (the "Company"), Bank of San Francisco (the "Bank")
(collectively, the "Employer"), and JOHN F. MCGRATH
("Executive").
R E C I T A L S:
A. The Employer desires to continue to employ
Executive to serve as President, Chief Operating Officer,
Chief Credit Officer and Director of the Company and the
Bank, and the Boards of Directors of the Company and the
Bank have approved the Employer's employment of Executive.
B. Executive hereby accepts such employment on the
terms and conditions set forth in this Agreement.
A G R E E M E N T:
1. Agreement to Employ. Subject to the terms
and conditions contained herein, the Employer hereby employs
Executive and Executive hereby accepts employment by the
Employer.
2. Term of Employment. Subject to the
provisions of section 8, below, Executive s employment
shall be for a period of three (3) years from the date of
this Agreement and will end on the third anniversary of the
date hereof (the Third Anniversary ). The term of this
Agreement will be extended on the second anniversary hereof
and will roll forward on a month-to-month basis so that
twelve (12) months continuously remain in the Agreement term
unless or until (A) a Change of Control occurs, or (B) any
party to this Agreement notifies the other parties that it
does not agree to extend the term of this Agreement. Such
written notification must be provided to all parties at
least one (1) month in advance of termination date. If
Executive chooses not to extend the term of this Agreement
and gives the applicable one (1) month notice, Executive
will be deemed to have voluntarily terminated and will be
entitled only to the benefits described in Section 9.e.,
below. If Employer chooses not to extend the term of this
Agreement and gives the applicable one (1) month notice,
Executive will be deemed to have been terminated without
cause and will be entitled only to the benefits described
in Section 9.d., below. For purposes of this Agreement, the
term Change of Control shall mean a sale to a third party
of a majority interest in, or substantially all of the
assets of, the Company or the Bank, but the term Change of
Control shall not include (A) a transfer of shares to any
voting trust or similar custodial arrangement, or (B) a
transaction in which Executive participates as a principal
or with any direct or indirect equity interest, whether
contingent or otherwise.
PAGE 1
3. Position and Duties/Authority of Executive.
During the term of this Agreement, Executive shall hold the
positions of President, Chief Operating Officer, Chief
Credit Officer and Director of the Company and the Bank.
Executive shall perform such additional duties and
responsibilities, consistent with the foregoing positions as
may be assigned to Executive from time to time by the
respective Boards of Directors of the Employer acting with
reasonable discretion and in accord with the scope of this
Agreement.
4. Place of Employment. Executive's principal
place of employment shall be 550 Montgomery Street, San
Francisco, California. While discharging his duties and
responsibilities hereunder, Executive may be required to
travel from time to time and, as a result, be temporarily
absent from his place of employment.
5. Devotion of Time to Business. Except as
provided below, Executive shall devote his best efforts and
ability, and attention to the business and affairs of the
Employer and to performing the duties and responsibilities
set forth herein on behalf of the Employer. Notwithstanding
any language herein to the contrary, Executive shall be
entitled to devote time to charitable, political and civic
activities and speaking engagements, and Executive shall be
permitted to serve on the boards of directors of other
companies which do not directly compete with the Employer
provided such activities do not have a material, adverse
effect on Executive's performance hereunder.
6. Confidential Information/Trade Secrets.
a. In performing his duties under this
Agreement, Executive will have access to and become
acquainted with information concerning the Employer's
operations, including financial, personnel, marketing, and
other information and customer lists that are owned by the
Employer and regularly used in the Employer's business, and
such information is confidential and constitutes trade
secrets of the Employer.
b. Executive will not misuse, misappropriate, or
disclose any such trade secrets, directly or indirectly, to
any other person, or use them in any way, except as required
in the course of his employment hereunder.
c. The unauthorized use or disclosure of any of
the Employer's confidential information/trade secrets
(including without limitation information concerning current
or future proposed work, services, or products, the fact
that any such work, services, or products are planned, under
consideration, or in use, and any descriptions thereof)
constitute unfair competition.
PAGE 2
d. Any violation by Executive of any of the
provisions of this paragraph would result in irreparable
injury to the Employer, and the Employer shall be entitled
to injunctive relief to prevent or terminate such violation.
e. This paragraph shall not apply to any
information that becomes generally known to or available for
use by the public other than as a result of Executive's
acts.
f. The covenants set forth in this paragraph
shall survive termination of this Agreement for a period of
one year; provided, however, that with respect to the
Employer's customer lists and relationships, such period
shall be two years.
7. Compensation to Executive.
a. Salary and Benefits. Subject to the terms
and conditions contained herein, throughout the term of this
Agreement, Executive shall be entitled to receive the
following salary and benefits from the Employer:
i) Annual Base Salary. The Employer shall
pay to Executive as compensation for his services an
Annual Base Salary of One Hundred and Seventy Thousand
Dollars ($170,000) in such intervals as other salaried
executives of the Employer are presently paid (but in
no case less frequently than monthly). The Annual Base
Salary shall be paid subject to all federal, state and
local rules for payment, deduction and withholding of
taxes. The Annual Base Salary shall be reassessed
annually by the Boards of Directors of Company and the
Bank at which time the Boards may, in their sole
discretion, vote to increase the Annual Base Salary.
ii) Annual Performance Bonus. For each
calendar year, Executive and the Boards of Directors of
the Company and the Bank shall establish reasonable
goals for such year performance against which will
result in a bonus payable to Executive from 0% to 100%
of his Annual Base Salary in cash. With respect to the
Bank, such goals shall be based upon positive
performance criteria as measured by achievement of
annually-set objectives.
iii) Completion Incentive. On the Third
Anniversary, provided that Executive is then employed
pursuant to this Agreement (whether or not such
employment terminates on the Third Anniversary), the
Employer shall pay Executive a Completion Incentive
in the amount of one (1) year of the then Annual Base
Salary, provided further, however, that (A) such
Incentive payment shall be subject to applicable
statutory or regulatory restrictions, and (B) no such
Incentive payment shall be made unless the Bank and
Company maintain a CAMEL 2 or satisfactory or better
(or equivalent) regulatory rating. If, upon payment of
the Completion Incentive, it appears that Executive s
employment with Employer will continue for an
additional period of years, the parties will negotiate
in good faith the terms of an additional retention
bonus.
PAGE 3
b. Retirement Plan. The Employer shall provide
Executive with retirement benefits, including any Section
401(k) Plan, under which the Employer provides retirement or
similar benefits to the other Company or Bank employees.
The Company currently sponsors The San Francisco Company
401(k) Plan.
c. Benefits. The Employer shall, during the
term of this Agreement, make available to Executive the
following:
i) insurance coverage and benefits
according to its existing health plans;
ii) group term life insurance or other term
life insurance in an amount equal to four (4) times
Executive s Annual Base Salary, accidental death and
dismemberment insurance, and long-term group disability
insurance, and
iii) vacation of four weeks per year.
d. Expense Account. The Employer will require
Executive to incur travel, lodging, meal, entertainment, and
similar expenses. The Employer shall advance or promptly
reimburse Executive for all expenses reasonably incurred by
Executive in the performance of his duties for which
Executive furnishes the Employer with adequate records and
other documentary evidence as required by applicable federal
and state laws and regulations.
e. Stock Options.
i) The Board of Directors of the Company
has adopted an Executive Stock Option Plan (the "Stock
Plan") under which Executive has received anti-dilutive
options to purchase shares of the Company's Class A
Common Stock and for which there is a separate Stock
Option Agreement. Two-thirds of these options have
vested and one-third of these options is scheduled to
vest on November 27, 1998.
ii) Additional options (the "anti-dilution
options") shall be granted to Executive from time to
time at the then current fair market value and in such
amounts as to assure that Executive's anti-dilutive
options and shares previously issued to Executive upon
the exercise of such options will comprise not less
than one percent (1%) of the fully diluted number of
shares of all classes of the Company's Common Stock
(i.e., the sum of the number of shares of all classes
of Common Stock issued and outstanding, plus the number
of shares of all classes of Common Stock subject to
options, warrants, conversion rights and all other
outstanding rights to purchase any class of shares of
Common Stock). Such additional options shall be
granted at the fair market value at the date of grant
and shall be calculated pursuant to the methodology
adopted by the Board of Directors of the Company at its
February 11, 1998, meeting. Vested options granted on
account of options, warrants, conversion rights or
other rights to purchase Common Stock shall not be
exercisable unless and until Common Stock is issued
upon the exercise of such rights. The Company shall
have no obligation to grant Executive any antidilution
options with respect to any dilutive events occurring
after the completion of the next public offering by the
Company of its Common Stock.
PAGE 4
iii) In addition to the anti-dilutive options
referred to in sections 7e i) and ii), above, the
Company s Board of Directors may, in its sole
discretion, award Executive additional options under
the Stock Plan not subject to anti-dilutive treatment.
f. Other Benefits. The Employer shall provide
Executive with such other pension, health and welfare
benefits as it may from time to time offer to other senior
executives in the ordinary course of its business, or as may
be reasonably required or necessary for him to perform his
duties.
8. Termination.
a. Termination by the Employer for Cause. The
Employer may terminate Executive's employment at any time
for "cause." For the purpose of the Employer's termination
of this Agreement, the term "cause" shall include any of the
following:
i) Adjudication of Executive's guilt in
connection with the commission of a felony or a
misdemeanor involving moral turpitude (excluding
traffic violations);
ii) Good faith finding by the Employer's
Boards of Directors of Executive's theft, conversion,
misappropriation, or embezzlement of any assets of the
Employer;
iii) Executive's (A) habitual neglect of his
duties, (B) failure to obey the lawful direction of the
Boards of Directors of the Employer that do not
contravene regulations or regulatory policies,
guidelines, agreements or orders, or (C) conduct that
has a direct, substantial and adverse effect on the
Employer's reputation, in each case, after written
notice and adequate opportunity to cure any such
asserted neglect, failure or conduct; or
iv) Good faith finding by the Employer's
Boards of Directors that Executive's performance of his
duties resulted in a material deterioration in the
condition of the Company or the Bank, provided that
such deterioration is not the result of conditions
either existing on the date of Executive's employment
or external to the Company and the Bank and beyond
Executive's control.
PAGE 5
b. Termination without Cause.
The Employer may terminate Executive's
employment without "cause" at any time subject only to the
provisions of this Agreement. A without cause termination
may include, but is not limited to, a termination upon a
Change of Control.
c. Termination for Death. Executive's
employment shall terminate upon Executive's death.
d. Termination for Disability. The Employer
may, to the extent permitted by law, terminate Executive's
employment upon the disability of Executive. As used
herein, the term "disability" shall mean sickness or
physical or mental disability that renders Executive unable
to perform a substantial portion of his duties under this
Agreement for an aggregate period of more than ninety (90)
days in any twelve (12) month period.
e. Notice of Termination. If the Employer
desires to terminate Executive's employment under this
Agreement, whether or not for cause, the Employer shall
deliver a notice of termination in writing to Executive (the
"Notice of Termination"). The Notice of Termination shall
specify whether the termination is (A) for cause (in which
case the conduct of Executive or the Employer giving rise to
the termination shall be specified), (B) for death, (C) for
disability or (D) without cause. The Notice of Termination
shall specify an effective date of termination (the
"Termination Date") on or after the date notice is given.
9. Effect of Termination. Upon the termination of
this Agreement by either party, the parties shall comply
with the following obligations and duties:
a. Termination for Cause. If the Employer
terminates Executive's employment for cause:
i) Annual Base Salary. The Employer shall
on the Termination Date pay Executive Executive's
Annual Base Salary through the Termination Date.
ii) Reimbursement Expenses. The Employer
shall, on the Termination Date, pay Executive all
reimbursable expenses for which expense reports have
been provided to the Employer in accordance with the
Employer's policy.
PAGE 6
iii) Annual Performance Bonus. Executive is
not entitled to be paid any bonus for any months served
during the current Bonus Plan Year. Executive is not
eligible to receive any bonus payment if terminated for
cause.
iv) Vesting of Stock Options. All of the
stock options granted to Executive which have vested
shall be exercisable in accordance with paragraph 7.e,
the Stock Plan, and Stock Option Agreement.
b. Termination for Death. If Executive's
employment is terminated as a result of Executive's death:
i) Annual Base Salary. The Employer's
obligation to pay Executive's salary shall terminate
upon his death.
ii) Reimbursable Expenses. The Employer
shall, within thirty (30) days following the date of
Executive's death, pay Executive's estate all
reimbursable expenses for which expense reports have
been provided to the Employer in accordance with the
Employer's policy.
iii) Annual Performance Bonus. The Employer
shall, within thirty (30) days following the date of
death, pay Executive's estate Executive's Annual
Performance Bonus at a rate of fifty percent (50%) of
Bonus Plan prorated by the number of full months served
during the current Bonus Plan year.
iv) Vesting of Stock Options. All of the
stock options granted to Executive which are vested
shall be exercisable by Executive's estate in
accordance with paragraph 7.e, the Stock Plan, and the
Stock Option Agreement.
c. Termination for Disability.
i) Annual Base Salary. The Employer shall
pay Executive Executive's Annual Base Salary through
Termination Date.
ii) Reimbursable Expenses. The Employer
shall, within thirty (30) days following the
Termination Day, pay Executive all reimbursable
expenses for which expense reports have been provided
to the Employer in accordance with the Employer's
policy.
iii) Annual Performance Bonus. The Employer
shall, within thirty (30) days following the
Termination Date, pay Executive Executive's Annual
Performance Bonus at a rate of fifty percent (50%) of
Bonus Plan prorated by the number of full months served
during the current Bonus Plan year.
PAGE 7
iv) Vesting of Stock Options. All of the
stock options granted to Executive which are vested
shall be exercisable in accordance with paragraph 7.e,
the Stock Plan, and the Stock Option Agreement.
d. Termination without Cause. If the Employer
terminates Executive's employment without cause:
i) Annual Base Salary and Separation Pay.
The Employer shall, on the Termination Date, pay
Executive his Annual Base Salary through the
Termination Date. In addition, the Employer shall, on
the Termination Date, pay Executive an additional one
(1) year of the then current Annual Base Salary, as
separation pay.
ii) In addition to the one (1) year
separaton pay described in section d.(i) above, in the
event of a termination without cause before the Third
Anniversary, and following a Change of Control,
Employer shall pay Executive an additional one (1) year
of the then current Annual Base Salary. In the event
of a termination without cause before the Third
Anniversary but not following a Change of Control,
Employer shall pay Executive a prorated portion of his
then Annual Base Salary, such amount prorated based on
the number of years of the initial three year term of
employment which Executive has served (Prorated
Separation Pay), provided that if such termination
occurs during the first year, Employer shall pay
Executive one-third of the then Annual Base Salary.
For example, (A) if Executive is terminated without
cause within or upon one year of employment under this
Agreement, in addition to the one (1) year separation
pay described in section d.(i), above, Employer shall
pay Executive one-third of the then current Annual Base
Salary and (B) if Executive is terminated without cause
after 18 months of employment under this Agreement, in
addition to the one (1) year separation pay described
in section d.(i) above, Employer shall pay Executive
one-half of the then current Annual Base Salary. If
Executive is terminated without cause after the Third
Anniversary, he is not entitled to any payment under
this section d.(ii) but shall only be entitled to the
payment under section d.(i).
iii) Reimbursable Expenses. The Employer
shall, within thirty (3) days following the Termination
Date, pay Executive all reimbursable expenses for which
expense reports have been provided to the Employer in
accordance with the Employer's policy.
iv) Annual Performance Bonus. The Employer
shall, within thirty (30) days following the
Termination Date, pay Executive Executive's Annual
Performance Bonus at a rate of one hundred percent
(100%) of Bonus Plan prorated by the number of full
months served during the current Bonus Plan year.
PAGE 8
v) Vesting of Stock Options. All of the
stock options granted to Executive shall be exercisable
in accordance with paragraph 7.e, the Stock Option
Agreement, and the Stock Plan.
e. Voluntary Termination by Executive. If
Executive terminates this Agreement voluntarily:
i) Annual Base Salary. The Employer shall,
within three (3) days following the Termination Date,
pay Executive Executive's Annual Base Salary through
the Termination Date.
ii) Reimbursable Expenses. The Employer
shall, within thirty (30) days following the
Termination Date, pay Executive all reimbursable
expenses for which expense reports have been provided
to the Employer in accordance with the Employer's
policy.
iii) Vesting of Stock Options. All of the
stock options granted to Executive which have vested
shall be exercisable in accordance with paragraph 7.e,
the Stock Plan, and the Stock Option Agreement.
10. Indemnification of Executive.
a. Pre-Execution Actions and Events.
Notwithstanding any other provision to the contrary
contained in this Agreement in addition to any rights
Executive has under any individual indemnification
agreements, the Employer shall indemnify, defend at its
expense, and hold Executive entirely harmless against and
from any claim, demand, cause of action, judgment, loss,
liability, damage, cost or expense whatsoever, including
without limitation reasonable attorneys' fees, which
Executive may suffer, sustain, incur or otherwise become
subject to either directly or indirectly as a result of any
claim, controversy, dispute, legal action or proceeding
whatsoever arising from actions taken by the Employer or
events relating to the business of the Bank or the Company
occurring prior to the execution of this Agreement.
b. Post-Execution Actions and Events.
Notwithstanding any other provision to the contrary
contained in this Agreement, but subject to an individual
indemnification agreement already approved by the Board of
Directors on February 11, 1998, the Employer shall
indemnify, defend at its expense, and hold Executive
entirely harmless against and from any claim, demand, cause
of action, judgment, loss, liability, damage, cost or
expense whatsoever, including without limitation reasonable
attorneys' fees, which Executive may suffer, sustain, incur
or otherwise become subject to either directly or indirectly
as a result of any claim, controversy, dispute, legal action
or proceeding whatsoever arising from actions taken by the
Employer or events relating to the business of the Bank or
the Company occurring subsequent to the execution of this
Agreement, other than any such claim, demand, cause of
action, judgment, loss, liability, damage, cost or expense
whatsoever which is directly and substantially due to
Executive's misconduct or gross negligence. Notwithstanding
the foregoing, in any administrative proceeding or civil
action initiated by any federal banking agency, the Bank or
the Company may only reimburse, indemnify or hold harmless
Executive if the Bank is in compliance with any applicable
statute, rule, regulation or policy of the Federal Deposit
Insurance Corporation, Federal Reserve Board, or the
California Department of Financial Institutions regarding
permissible indemnification payments.
PAGE 9
c. Payment of expenses. In the event the
Employer is obligated hereunder to defend and indemnify
Executive and in the event Executive is required to retain
independent legal counsel, other experts or professionals or
should incur any cost himself in connection with Paragraph
10.b. above, the Employer shall promptly pay such expenses
as incurred.
d. Survival of Indemnification. The obligations
of the Employer under this paragraph 10 to indemnify
Executive shall survive the expiration or termination of
this Agreement.
11. Insurance. The Employer agrees to make reasonable
efforts to maintain director's and officer's liability
insurance in an amount of not less than $5,000,000 for each
occurrence for the benefit of Executive.
12. General provisions.
a. Binding on Successors. Subject to any
restrictions stated in any other provision of this
Agreement, this Agreement shall be binding on and shall
inure to the benefit of the parties and their respective
successors and assigns.
b. Partial Invalidity/Severability. Should any
of the provisions of this Agreement be held to be invalid or
unenforceable, such invalidity or unenforceability shall not
affect the validity or enforceability of any other provision
of this Agreement.
c. Entire Agreement. This Agreement contains
the entire agreement between the parties with respect to the
subject matter of this Agreement and supersedes all prior
oral or written understandings and agreements, excluding the
Stock Option Plan, the Stock Option Agreement and any
individual indemnification agreement.
d. Amendments; Waivers. No provision of this
Agreement may be changed, waived, modified, discharged or
terminated, except by a written instrument executed by the
parties hereto.
e. Notices. Any notice to be given under this
Agreement shall be in writing and shall be deemed effective
only when hand-delivered or when delivered by overnight
courier, or three (3) days after the date postmarked if sent
by certified or registered mail, postage prepaid, return
receipt requested, addressed as follows:
PAGE 10
If to the Employer:
The San Francisco Company &
Bank of San Francisco
550 Montgomery Street
San Francisco, California 94111
Attn: Boards of Directors
If to Executive:
John F. McGrath
470 Crocker Road
Sacramento, CA 95864
f. Attorney's Fees and Costs. The Employer
shall bear all of the costs and expenses, including
attorney's fees, incurred by both parties in the negotiation
and drafting of this Agreement. In the event of a dispute
regarding this Agreement, the prevailing party in any
arbitration or litigation shall be entitled to its
reasonable legal fees and costs.
g. Governing Law. This Agreement shall be
construed and enforced in accordance with the laws of the
State of California.
h. Title and Headings. Title and headings to
paragraphs, subparagraphs and sub-subparagraphs of this
Agreement are for the purpose of reference only and shall
not affect the interpretation of this Agreement.
i. Regulatory Approval. This Agreement is
subject to and shall not become effective until any required
approval or non-disapproval of the Federal Reserve Bank.
j. Resolution of disputes. With the exception of
an action for equitable relief arising from a breach of any
provisions of Paragraph 6 a-f, above, any controversy between
Executive and Employer or between Executive and any employee
of Employer arising out of or related to Executive s
employment with Employer, including, but not limited to claims
of race, age, gender, religious, or national origin
discrimination under federal, state or local laws and those
involving the construction or application of any of the terms,
provisions or conditions of this Agreement, shall be settled
by arbitration in accordance with the dispute resolution rules
of the Judicial Arbitration & Mediation Service ( JAMS ), and
judgment on the award rendered by the arbitrator(s) may be
rendered by any court having jurisdiction thereof. Employer
and Executive shall share the costs of the arbitrator equally
but shall each bear their own costs and legal fees associated
with the arbitration. The location of the arbitration shall
be in San Francisco, California.
PAGE 11
In the event of a breach of any of the provisions
in Paragraph 6 of this Agreement, Executive or Employer
shall be entitled to institute proceedings in any court of
competent jurisdiction to obtain equitable relief,
including, but not limited to, specific performance or an
injunction against performance of any acts.
IN WITNESS WHEREOF, the undersigned have hereunto
caused this Agreement to be executed as of the day and year
first above written.
THE SAN FRANCISCO COMPANY
By: _____________________________
BANK OF SAN FRANCISCO
By: _____________________________
EXECUTIVE:
_________________________________
John F. McGrath
PAGE 12
Keary Colwell
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered
into as of April ___, 1998, by and between The San Francisco
Company (the "Company"), Bank of San Francisco (the "Bank")
(collectively, the "Employer"), and Keary Colwell
("Executive").
R E C I T A L S:
A. The Employer desires to continue to employ
Executive to serve as Executive Vice President and Chief
Financial Officer for the Company and the Bank, and the
Boards of Directors of the Company and the Bank have
approved the Employer's employment of Executive.
B. Executive hereby accepts such employment on the
terms and conditions set forth in this Agreement.
A G R E E M E N T:
1. Agreement to Employ. Subject to the terms
and conditions contained herein, the Employer hereby employs
Executive and Executive hereby accepts employment by the
Employer.
2. Term of Employment. Subject to the
provisions of section 8, below, Executive s employment
shall be for a period of three (3) years from the date of
this Agreement and will end on the third anniversary of the
date hereof (the Third Anniversary ). The term of this
Agreement will be extended on the second anniversary hereof
and will roll forward on a month-to-month basis so that
twelve (12) months continuously remain in the Agreement term
unless or until (A) a Change of Control occurs, or (B) any
party to this Agreement notifies the other parties that it
does not agree to extend the term of this Agreement. Such
written notification must be provided to all parties at
least one (1) month in advance of termination date. If
Executive chooses not to extend the term of this Agreement
and gives the applicable one (1) month notice, Executive
will be deemed to have voluntarily terminated and will be
entitled only to the benefits described in Section 9.e.,
below. If Employer chooses not to extend the term of this
Agreement and gives the applicable one (1) month notice,
Executive will be deemed to have been terminated without
cause and will be entitled only to the benefits described
in Section 9.d., below. For purposes of this Agreement, the
term Change of Control shall mean a sale to a third party
of a majority interest in, or substantially all of the
assets of, the Company or the Bank, but the term Change of
Control shall not include (A) a transfer of shares to any
voting trust or similar custodial arrangement, or (B) a
transaction in which Executive participates as a principal
or with any direct or indirect equity interest, whether
contingent or otherwise.
PAGE 1
3. Position and Duties/Authority of Executive.
During the term of this Agreement, Executive shall hold the
positions of Executive Vice President and Chief Financial
Officer for the Company and the Bank. Executive shall
perform such additional duties and responsibilities,
consistent with the foregoing positions as may be assigned
to Executive from time to time by the respective Boards of
Directors of the Employer acting with reasonable discretion
and in accord with the scope of this Agreement.
4. Place of Employment. Executive's principal
place of employment shall be 550 Montgomery Street, San
Francisco, California. While discharging her duties and
responsibilities hereunder, Executive may be required to
travel from time to time and, as a result, be temporarily
absent from her place of employment.
5. Devotion of Time to Business. Except as
provided below, Executive shall devote her best efforts and
ability, and attention to the business and affairs of the
Employer and to performing the duties and responsibilities
set forth herein on behalf of the Employer. Notwithstanding
any language herein to the contrary, Executive shall be
entitled to devote time to charitable, political and civic
activities and speaking engagements, and Executive shall be
permitted to serve on the boards of directors of other
companies which do not directly compete with the Employer
provided such activities do not have a material, adverse
effect on Executive's performance hereunder.
6. Confidential Information/Trade Secrets.
a. In performing her duties under this
Agreement, Executive will have access to and become
acquainted with information concerning the Employer's
operations, including financial, personnel, marketing, and
other information and customer lists that are owned by the
Employer and regularly used in the Employer's business, and
such information is confidential and constitutes trade
secrets of the Employer.
b. Executive will not misuse, misappropriate, or
disclose any such trade secrets, directly or indirectly, to
any other person, or use them in any way, except as required
in the course of her employment hereunder.
c. The unauthorized use or disclosure of any of
the Employer's confidential information/trade secrets
(including without limitation information concerning current
or future proposed work, services, or products, the fact
that any such work, services, or products are planned, under
consideration, or in use, and any descriptions thereof)
constitute unfair competition.
d. Any violation by Executive of any of the
provisions of this paragraph would result in irreparable
injury to the Employer, and the Employer shall be entitled
to injunctive relief to prevent or terminate such violation.
PAGE 2
e. This paragraph shall not apply to any
information that becomes generally known to or available for
use by the public other than as a result of Executive's
acts.
f. The covenants set forth in this paragraph
shall survive termination of this Agreement for a period of
one year; provided, however, that with respect to the
Employer's customer lists and relationships, such period
shall be two years.
7. Compensation to Executive.
a. Salary and Benefits. Subject to the terms
and conditions contained herein, throughout the term of this
Agreement, Executive shall be entitled to receive the
following salary and benefits from the Employer:
i) Annual Base Salary. The Employer shall
pay to Executive as compensation for her services an
Annual Base Salary of One Hundred and Twenty Thousand
Dollars ($120,000) in such intervals as other salaried
executives of the Employer are presently paid (but in
no case less frequently than monthly). The Annual Base
Salary shall be paid subject to all federal, state and
local rules for payment, deduction and withholding of
taxes. The Annual Base Salary shall be reassessed
annually by the Boards of Directors of Company and the
Bank at which time the Boards may, in their sole
discretion, vote to increase the Annual Base Salary.
ii) Annual Performance Bonus. For each
calendar year, Executive and the Boards of Directors of
the Company and the Bank shall establish reasonable
goals for such year performance against which will
result in a bonus payable to Executive from 0% to 50%
of her Annual Base Salary in cash. With respect to the
Bank, such goals shall be based upon positive
performance criteria as measured by achievement of
annually-set objectives.
iii) Completion Incentive. On the Third
Anniversary, provided that Executive is then employed
pursuant to this Agreement (whether or not such
employment terminates on the Third Anniversary), the
Employer shall pay Executive a Completion Incentive
in the amount of one (1) year of the then Annual Base
Salary, provided further, however, that (A) such
Incentive payment shall be subject to applicable
statutory or regulatory restrictions, and (B) no such
Incentive payment shall be made unless the Bank and
Company maintain a CAMEL 2 or satisfactory or better
(or equivalent) regulatory rating. If, upon payment of
the Completion Incentive, it appears that Executive s
employment with Employer will continue for an
additional period of years, the parties will negotiate
in good faith the terms of an additional retention
bonus.
PAGE 3
b. Retirement Plan. The Employer shall provide
Executive with retirement benefits, including any Section
401(k) Plan, under which the Employer provides retirement or
similar benefits to the other Company or Bank employees.
The Company currently sponsors The San Francisco Company
401(k) Plan.
c. Benefits. The Employer shall, during the
term of this Agreement, make available to Executive the
following:
i) insurance coverage and benefits
according to its existing health plans;
ii) group term life insurance or other term
life insurance in an amount equal to two (2) times
Executive s Annual Base Salary, accidental death and
dismemberment insurance, and long-term group disability
insurance, and
iii) vacation of four weeks per year.
d. Expense Account. The Employer will require
Executive to incur travel, lodging, meal, entertainment, and
similar expenses. The Employer shall advance or promptly
reimburse Executive for all expenses reasonably incurred by
Executive in the performance of her duties for which
Executive furnishes the Employer with adequate records and
other documentary evidence as required by applicable federal
and state laws and regulations.
e. Stock Options. The Board of Directors of the
Company has adopted an Executive Stock Option Plan (the
"Stock Plan") under which Executive has received and may in
the future receive option grants as a senior manager
pursuant to the direction of the Board of Directors.
f. Other Benefits. The Employer shall provide
Executive with such other pension, health and welfare
benefits as it may from time to time offer to other senior
executives in the ordinary course of its business, or as may
be reasonably required or necessary for her to perform her
duties.
8. Termination.
a. Termination by the Employer for Cause. The
Employer may terminate Executive's employment at any time
for "cause." For the purpose of the Employer's termination
of this Agreement, the term "cause" shall include any of the
following:
i) Adjudication of Executive's guilt in
connection with the commission of a felony or a
misdemeanor involving moral turpitude (excluding
traffic violations);
PAGE 4
ii) Good faith finding by the Employer's
Boards of Directors of Executive's theft, conversion,
misappropriation, or embezzlement of any assets of the
Employer;
iii) Executive's (A) habitual neglect of her
duties, (B) failure to obey the lawful direction of the
Boards of Directors of the Employer that do not
contravene regulations or regulatory policies,
guidelines, agreements or orders, or (C) conduct that
has a direct, substantial and adverse effect on the
Employer's reputation, in each case, after written
notice and adequate opportunity to cure any such
asserted neglect, failure or conduct; or
iv) Good faith finding by the Employer's
Boards of Directors that Executive's performance of her
duties resulted in a material deterioration in the
condition of the Company or the Bank, provided that
such deterioration is not the result of conditions
either existing on the date of Executive's employment
or external to the Company and the Bank and beyond
Executive's control.
b. Termination without Cause.
The Employer may terminate Executive's
employment without "cause" at any time subject only to the
provisions of this Agreement. A without cause termination
may include, but is not limited to, a termination upon a
Change of Control.
c. Termination for Death. Executive's
employment shall terminate upon Executive's death.
d. Termination for Disability. The Employer
may, to the extent permitted by law, terminate Executive's
employment upon the disability of Executive. As used
herein, the term "disability" shall mean sickness or
physical or mental disability that renders Executive unable
to perform a substantial portion of her duties under this
Agreement for an aggregate period of more than ninety (90)
days in any twelve (12) month period except in the case of a
pregnancy-related disability. If Executive is prevented
from properly performing her duties by reason of a
pregnancy-related disability for a period of more than one
hundred and twenty (120) days in the aggregate in any twelve
(12) month period, then to the extent permitted by law, her
employment shall terminate.
e. Notice of Termination. If the Employer
desires to terminate Executive's employment under this
Agreement, whether or not for cause, the Employer shall
deliver a notice of termination in writing to Executive (the
"Notice of Termination"). The Notice of Termination shall
specify whether the termination is (A) for cause (in which
case the conduct of Executive or the Employer giving rise to
the termination shall be specified), (B) for death, (C) for
disability or (D) without cause. The Notice of Termination
shall specify an effective date of termination (the
"Termination Date") on or after the date notice is given.
PAGE 5
9. Effect of Termination. Upon the termination of
this Agreement by either party, the parties shall comply
with the following obligations and duties:
a. Termination for Cause. If the Employer
terminates Executive's employment for cause:
i) Annual Base Salary. The Employer shall
on the Termination Date pay Executive Executive's
Annual Base Salary through the Termination Date.
ii) Reimbursement Expenses. The Employer
shall, on the Termination Date, pay Executive all
reimbursable expenses for which expense reports have
been provided to the Employer in accordance with the
Employer's policy.
iii) Annual Performance Bonus. Executive is
not entitled to be paid any bonus for any months served
during the current Bonus Plan Year. Executive is not
eligible to receive any bonus payment if terminated for
cause.
iv) Vesting of Stock Options. All of the
stock options granted to Executive which have vested
shall be exercisable in accordance with paragraph 7.e,
the Stock Plan, and Stock Option Agreement.
b. Termination for Death. If Executive's
employment is terminated as a result of Executive's death:
i) Annual Base Salary. The Employer's
obligation to pay Executive's salary shall terminate
upon her death.
ii) Prorated Death Benefit. Employer shall
pay Executive a prorated portion of her then Annual
Base Salary, such amount prorated based on the number
of years of the initial three year term of employment
which Executive has served as of the time of death,
provided that if her death occurs during the first
year, Employer shall pay Executive one-third of the
then Annual Base Salary. For example, (A) if Executive
dies within or upon one year of employment under this
Agreement, Employer shall pay Executive one-third of
the then current Annual Base Salary and (B) if
Executive dies after 18 months of employment under this
Agreement, Employer shall pay Executive one-half of the
then current Annual Base Salary. If Executive dies
after the Third Anniversary, she is not entitled to any
payment under this section b.(ii).
PAGE 6
iii) Reimbursable Expenses. The Employer
shall, within thirty (30) days following the date of
Executive's death, pay Executive's estate all
reimbursable expenses for which expense reports have
been provided to the Employer in accordance with the
Employer's policy.
iv) Annual Performance Bonus. The Employer
shall, within thirty (30) days following the date of
death, pay Executive's estate Executive's Annual
Performance Bonus at a rate of fifty percent (50%) of
Bonus Plan prorated by the number of full months served
during the current Bonus Plan year.
v) Vesting of Stock Options. All of the
stock options granted to Executive which are vested
shall be exercisable by Executive's estate in
accordance with paragraph 7.e, the Stock Plan, and the
Stock Option Agreement.
c. Termination for Disability.
i) Annual Base Salary. The Employer shall
pay Executive Executive's Annual Base Salary through
Termination Date.
ii) Reimbursable Expenses. The Employer
shall, within thirty (30) days following the
Termination Day, pay Executive all reimbursable
expenses for which expense reports have been provided
to the Employer in accordance with the Employer's
policy.
iii) Annual Performance Bonus. The Employer
shall, within thirty (30) days following the
Termination Date, pay Executive Executive's Annual
Performance Bonus at a rate of fifty percent (50%) of
Bonus Plan prorated by the number of full months served
during the current Bonus Plan year.
iv) Vesting of Stock Options. All of the
stock options granted to Executive which are vested
shall be exercisable in accordance with paragraph 7.e,
the Stock Plan, and the Stock Option Agreement.
d. Termination without Cause. If the Employer
terminates Executive's employment without cause:
i) Annual Base Salary and Separation Pay.
The Employer shall, on the Termination Date, pay
Executive her Annual Base Salary through the
Termination Date. In addition, the Employer shall, on
the Termination Date, pay Executive an additional one
(1) year of the then current Annual Base Salary, as
separation pay.
PAGE 7
ii) In addition to the one (1) year
separaton pay described in section d.(i) above, in the
event of a termination without cause before the Third
Anniversary, and following a Change of Control,
Employer shall pay Executive an additional one (1) year
of the then current Annual Base Salary. In the event
of a termination without cause before the Third
Anniversary but not following a Change of Control,
Employer shall pay Executive a prorated portion of her
then Annual Base Salary, such amount prorated based on
the number of years of the initial three year term of
employment which Executive has served (Prorated
Separation Pay), provided that if such termination
occurs during the first year, Employer shall pay
Executive one-third of the then Annual Base Salary.
For example, (A) if Executive is terminated without
cause within or upon one year of employment under this
Agreement, in addition to the one (1) year separation
pay described in section d.(i), above, Employer shall
pay Executive one-third of the then current Annual Base
Salary and (B) if Executive is terminated without cause
after 18 months of employment under this Agreement, in
addition to the one (1) year separation pay described
in section d.(i) above, Employer shall pay Executive
one-half of the then current Annual Base Salary. If
Executive is terminated without cause after the Third
Anniversary, she is not entitled to any payment under
this section d.(ii) but shall only be entitled to the
payment under section d.(i).
iii) Reimbursable Expenses. The Employer
shall, within thirty (3) days following the Termination
Date, pay Executive all reimbursable expenses for which
expense reports have been provided to the Employer in
accordance with the Employer's policy.
iv) Annual Performance Bonus. The Employer
shall, within thirty (30) days following the
Termination Date, pay Executive Executive's Annual
Performance Bonus at a rate of one hundred percent
(100%) of Bonus Plan prorated by the number of full
months served during the current Bonus Plan year.
v) Vesting of Stock Options. All of the
stock options granted to Executive shall be exercisable
in accordance with paragraph 7.e, the Stock Option
Agreement, and the Stock Plan.
e. Voluntary Termination by Executive. If
Executive terminates this Agreement voluntarily:
i) Annual Base Salary. The Employer shall,
within three (3) days following the Termination Date,
pay Executive Executive's Annual Base Salary through
the Termination Date.
ii) Reimbursable Expenses. The Employer
shall, within thirty (30) days following the
Termination Date, pay Executive all reimbursable
expenses for which expense reports have been provided
to the Employer in accordance with the Employer's
policy.
iii) Vesting of Stock Options. All of the
stock options granted to Executive which have vested
shall be exercisable in accordance with paragraph 7.e,
the Stock Plan, and the Stock Option Agreement.
PAGE 8
10. Indemnification of Executive.
a. Pre-Execution Actions and Events.
Notwithstanding any other provision to the contrary
contained in this Agreement in addition to any rights
Executive has under any individual indemnification
agreements, the Employer shall indemnify, defend at its
expense, and hold Executive entirely harmless against and
from any claim, demand, cause of action, judgment, loss,
liability, damage, cost or expense whatsoever, including
without limitation reasonable attorneys' fees, which
Executive may suffer, sustain, incur or otherwise become
subject to either directly or indirectly as a result of any
claim, controversy, dispute, legal action or proceeding
whatsoever arising from actions taken by the Employer or
events relating to the business of the Bank or the Company
occurring prior to the execution of this Agreement.
b. Post-Execution Actions and Events.
Notwithstanding any other provision to the contrary
contained in this Agreement, but subject to an individual
indemnification agreement already approved by the Board of
Directors on February 11, 1998, the Employer shall
indemnify, defend at its expense, and hold Executive
entirely harmless against and from any claim, demand, cause
of action, judgment, loss, liability, damage, cost or
expense whatsoever, including without limitation reasonable
attorneys' fees, which Executive may suffer, sustain, incur
or otherwise become subject to either directly or indirectly
as a result of any claim, controversy, dispute, legal action
or proceeding whatsoever arising from actions taken by the
Employer or events relating to the business of the Bank or
the Company occurring subsequent to the execution of this
Agreement, other than any such claim, demand, cause of
action, judgment, loss, liability, damage, cost or expense
whatsoever which is directly and substantially due to
Executive's misconduct or gross negligence. Notwithstanding
the foregoing, in any administrative proceeding or civil
action initiated by any federal banking agency, the Bank or
the Company may only reimburse, indemnify or hold harmless
Executive if the Bank is in compliance with any applicable
statute, rule, regulation or policy of the Federal Deposit
Insurance Corporation, Federal Reserve Board, or the
California Department of Financial Institutions regarding
permissible indemnification payments.
c. Payment of expenses. In the event the
Employer is obligated hereunder to defend and indemnify
Executive and in the event Executive is required to retain
independent legal counsel, other experts or professionals or
should incur any cost herself in connection with Paragraph
10.b. above, the Employer shall promptly pay such expenses
as incurred.
d. Survival of Indemnification. The obligations
of the Employer under this paragraph 10 to indemnify
Executive shall survive the expiration or termination of
this Agreement.
11. Insurance. The Employer agrees to make reasonable
efforts to maintain director's and officer's liability
insurance in an amount of not less than $5,000,000 for each
occurrence for the benefit of Executive.
PAGE 9
12. General provisions.
a. Binding on Successors. Subject to any
restrictions stated in any other provision of this
Agreement, this Agreement shall be binding on and shall
inure to the benefit of the parties and their respective
successors and assigns.
b. Partial Invalidity/Severability. Should any
of the provisions of this Agreement be held to be invalid or
unenforceable, such invalidity or unenforceability shall not
affect the validity or enforceability of any other provision
of this Agreement.
c. Entire Agreement. This Agreement contains
the entire agreement between the parties with respect to the
subject matter of this Agreement and supersedes all prior
oral or written understandings and agreements, excluding the
Stock Option Plan, the Stock Option Agreement and any
individual indemnification agreement.
d. Amendments; Waivers. No provision of this
Agreement may be changed, waived, modified, discharged or
terminated, except by a written instrument executed by the
parties hereto.
e. Notices. Any notice to be given under this
Agreement shall be in writing and shall be deemed effective
only when hand-delivered or when delivered by overnight
courier, or three (3) days after the date postmarked if sent
by certified or registered mail, postage prepaid, return
receipt requested, addressed as follows:
If to the Employer:
The San Francisco Company &
Bank of San Francisco
550 Montgomery Street
San Francisco, California 94111
Attn: Boards of Directors
If to Executive:
Keary Colwell
6700 Exeter Drive
Oakland, CA 94611
f. Attorney's Fees and Costs. The Employer
shall bear all of the costs and expenses, including
attorney's fees, incurred by both parties in the negotiation
and drafting of this Agreement. In the event of a dispute
regarding this Agreement, the prevailing party in any
arbitration or litigation shall be entitled to its
reasonable legal fees and costs.
PAGE 10
g. Governing Law. This Agreement shall be
construed and enforced in accordance with the laws of the
State of California.
h. Title and Headings. Title and headings to
paragraphs, subparagraphs and sub-subparagraphs of this
Agreement are for the purpose of reference only and shall
not affect the interpretation of this Agreement.
i. Regulatory Approval. This Agreement is
subject to and shall not become effective until any required
approval or non-disapproval of the Federal Reserve Bank.
j. Resolution of disputes. With the exception of
an action for equitable relief arising from a breach of any
provisions of Paragraph 6 a-f, above, any controversy between
Executive and Employer or between Executive and any employee
of Employer arising out of or related to Executive s
employment with Employer, including, but not limited to claims
of race, age, gender, religious, or national origin
discrimination under federal, state or local laws and those
involving the construction or application of any of the terms,
provisions or conditions of this Agreement, shall be settled
by arbitration in accordance with the dispute resolution rules
of the Judicial Arbitration & Mediation Service ( JAMS ), and
judgment on the award rendered by the arbitrator(s) may be
rendered by any court having jurisdiction thereof. Employer
and Executive shall share the costs of the arbitrator equally
but shall each bear their own costs and legal fees associated
with the arbitration. The location of the arbitration shall
be in San Francisco, California.
In the event of a breach of any of the provisions
in Paragraph 6 of this Agreement, Executive or Employer
shall be entitled to institute proceedings in any court of
competent jurisdiction to obtain equitable relief,
including, but not limited to, specific performance or an
injunction against performance of any acts.
IN WITNESS WHEREOF, the undersigned have hereunto
caused this Agreement to be executed as of the day and year
first above written.
THE SAN FRANCISCO COMPANY
By: _____________________________
BANK OF SAN FRANCISCO
By: _____________________________
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EXECUTIVE:
_________________________________
Keary Colwell
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