<PAGE> 1
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FORM 10-K
------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 1-8007
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FREMONT GENERAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEVADA 95-2815260
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2020 SANTA MONICA BOULEVARD,
SANTA MONICA, CALIFORNIA 90404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 315-5500
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, $1.00 PAR VALUE
LIQUID YIELD OPTION(TM) NOTES DUE 2013 (ZERO COUPON-SUBORDINATED)
FREMONT GENERAL FINANCING I -- 9% TRUST ORIGINATED PREFERRED SECURITIES(SM)
(TITLE OF EACH CLASS)
NEW YORK STOCK EXCHANGE
(NAME OF EACH EXCHANGE ON WHICH REGISTERED)
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 22, 1996:
COMMON STOCK, $1.00 PAR VALUE -- $395,582,000
The number of shares outstanding of each of the issuer's classes of common
stock as of March 22, 1996:
COMMON STOCK, $1.00 PAR VALUE -- 25,393,000 SHARES
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the proxy statement for the 1996 annual meeting of stockholders
are incorporated by reference into Part III of this report.
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<PAGE> 2
ITEM 1. BUSINESS
GENERAL
Fremont General Corporation is a nationwide insurance and financial
services holding company, operating select businesses in niche markets. The
primary operating strategy of Fremont General is to build upon its core business
units through acquisition opportunities and new business development. Fremont
General's secondary strategy is to achieve income balance and geographic
diversity among its business units in order to limit the exposure of Fremont
General and its subsidiaries ("Fremont General" or "the Company") to industry,
market and regional concentrations.
The Company is one of the largest mono-line workers' compensation insurers
in the United States, with major market positions in California and Illinois,
and a presence in Arizona, Indiana, Michigan and Wisconsin. For the year ended
December 31, 1995, the Company's workers' compensation insurance premiums were
evenly divided between the western and the mid-western regions. For the year
ended December 31, 1995 and 1994, the Company had workers' compensation
insurance premiums earned of $575 million and $401 million, respectively. See
"Insurance Operations." The Company recently expanded its workers' compensation
insurance operations through the acquisition on February 22, 1995 of Casualty
Insurance Company ("Casualty") and its wholly-owned subsidiary Workers'
Compensation and Indemnity Company ("WCIC"). Casualty is the largest underwriter
of workers' compensation insurance in Illinois with additional operations,
directly or indirectly, in Indiana, Michigan and Wisconsin. Fremont General
believes that this acquisition provides the Company with a national platform
upon which to build its workers' compensation insurance business, while
providing greater geographic diversification. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note B of Notes to Consolidated Financial Statements. A.M. Best rates the
Company's workers' compensation insurance subsidiaries on a consolidated basis
as "A-" (Excellent). An "A-" rating is A.M. Best's fourth highest rating
category out of fifteen rating categories ranging from "A++" (Superior) to "F"
(In Liquidation).
The Company also has growing financial services operations engaged
primarily in commercial and residential real estate lending in California and
commercial finance lending, principally to small and middle market companies
nationwide. The Company's financial services loan portfolio has grown from $536
million at December 31, 1991 to $1.5 billion at December 31, 1995. By engaging
in several selected businesses which are geographically diverse the Company
believes it can achieve greater stability in its operating results. Over the
five years ended December 31, 1995, the Company's income before taxes grew at a
compound annual rate of approximately 21% to $100 million in 1995. The Company's
book value increased from $175 million at December 31, 1990 to $498 million at
December 31, 1995. The Company's assets were $4.5 billion at December 31, 1995.
See "Financial Services Operations."
Management believes that ownership of the Company's Common Stock by
employees has been an important element in the Company's success by enabling the
Company to attract and retain the best available personnel for positions of
substantial responsibility and to provide additional incentive and motivation to
such individuals to promote the success of the Company. As of December 31, 1995,
officers and directors of the Company, their families and the Company's ESOP
beneficially owned approximately 30% of the Company's outstanding Common Stock.
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in this section and
elsewhere in this
Form 10-K.
Fremont General, a Nevada corporation, was incorporated in 1972.
INSURANCE OPERATIONS
Workers' Compensation Insurance
Fremont Compensation Insurance Company and its subsidiaries ("Fremont
Compensation") underwrites workers' compensation insurance principally in
California and Illinois, with a smaller presence in Arizona, Indiana, Michigan,
and Wisconsin. With the acquisition of Casualty in 1995, Fremont Compensation is
one of the largest mono-line workers' compensation insurers in the United
States. In 1995, Fremont
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Compensation's workers' compensation insurance premiums were evenly divided
between the western and mid-western regions. The Company believes this
geographic diversity mitigates potential fluctuations in earnings from cyclical
downturns in various regional economies. A.M. Best rates the Company's workers'
compensation insurance subsidiaries on a consolidated basis as "A-" (Excellent).
In 1995, income before taxes from workers' compensation insurance operations was
$85 million.
Workers' compensation is a statutory system which requires every employer
to either purchase insurance or self-insure in order to provide its employees
with medical care and other specified benefits for work-related injuries or
illnesses. Compensation is payable regardless of who was at fault. Most
employers provide for this potential liability by purchasing workers'
compensation insurance from insurance carriers. There are four types of benefits
payable under workers' compensation policies: medical benefits, vocational
rehabilitation benefits, disability benefits and death benefits. The amounts of
disability and death benefits payable for claims are established by statute,
vocational rehabilitation benefits are provided with certain limitations in some
jurisdictions, including California, and no dollar limitation is set forth for
medical benefits. See "Regulation -- Insurance Regulation."
Premiums. Workers' compensation insurance premiums are based upon the
policyholder's payroll and may be significantly affected by changes in general
economic conditions which impact employment and wage levels, as well as by
government regulation. Insurance premiums are also subject to supervision and
regulation by the state insurance authority in each state. In July 1993, the
California legislature enacted legislation to reform the workers' compensation
system and to, among other things, adopt an open rating system through the
repeal of the minimum rate law effective January 1, 1995. Illinois has been
operating under an open rating system since 1982. In an open rating system,
workers' compensation insurers are provided with advisory rates by job
classification and each insurance company determines its own rates based in part
upon its particular operating and loss costs. Although insurance companies are
not required to adopt such advisory rates, companies in Illinois generally
follow such rates. However, insurance companies in California have, since the
adoption of an open rating system, generally set their premium rates below such
advisory rates. Before January 1, 1995, California operated under a minimum rate
law, whereby premium rates established by the California Department of Insurance
were the minimum rates which could be charged by an insurance carrier. See
"Regulation -- Insurance Regulation." The repeal of the minimum rate law has
resulted in lower premiums and lower profitability on the Company's California
workers' compensation insurance policies due to increased price competition. The
Company expects that the premiums earned in California will continue to
decrease, principally due to price competition. In addition, the Company
anticipates price competition to continue in Illinois, where an additional
overall decrease in advisory rates of 13.6% was effective January 1, 1996. See
"Competition."
Underwriting and Loss Control. Prior to insuring a workers' compensation
account, the Company's underwriting department reviews the employer's prior loss
experience, safety record, credit history, operations, geographic location and
employment classifications. The Company generally avoids industries and
businesses involving hazardous conditions or high exposure to multiple injuries
resulting from a single occurrence. The Company targets accounts that appear to
have a strong work ethic among employees, long-term employees, and a genuine
interest in the adoption of and adherence to loss control standards.
The loss control department participates in the initial underwriting
process and provides continuing services while the policy is in force. In the
initial underwriting phase, a Company loss control consultant will generally
survey the employer's operations, review the employer's prior loss patterns and
assess the extent to which such losses may be prevented. The loss control
consultant will also meet with the employer's management to assess the extent to
which management is committed to safety in the workplace. After the policy is
issued, the loss control department provides continuing assistance to the
employer in developing and maintaining safety programs and procedures, reviews
periodic loss reports, attempts to identify weaknesses in the employer's loss
control procedures and assists the employer in correcting these weaknesses.
Policyholders' Dividends. In 1995, the Company's workers' compensation
insurance policies, both in California and those underwritten by Casualty, were
predominately written as non-participating, which does not include provisions
for the insurer to declare and pay dividends to a policyholder after the
expiration of the
2
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policy. In 1994 and prior, the Company's policies were predominately written as
participating, thereby obligating the Company to consider the payment of
dividends to a policyholder, based upon the policyholder's loss experience, the
Company's overall loss experience and competitive conditions. This shift in
policy type is due primarily to the increased competition in the California
market which has resulted from the repeal of the minimum rate law, effective
January 1, 1995. See "Premiums" and "Regulation -- Insurance Regulation." The
Company anticipates that this shift to non-participating policies will continue
and be a characteristic element of the competitive environment.
Claims Administration. The Company's policy is to settle valid claims
promptly and to work closely with policyholders to return injured workers to the
job quickly, while avoiding litigation if possible. Claims personnel communicate
frequently with policyholders, injured employees and medical providers. The
Company's policy is to control the number of cases assigned to its claims
personnel, to identify and investigate questionable claims and to produce early
and cost-effective case settlements of valid claims. As part of its "zero
tolerance" program, the Company refuses to settle any claim that it believes to
be fraudulent. In most claims litigated administratively, the Company utilizes
its own non-lawyer hearing representatives and has found this practice to be
significantly less expensive than using legal counsel.
The Company provides rehabilitation programs for insured employees and
medical cost containment programs. The Company monitors medical care bills to
determine if they are reasonable, audits hospital bills, reviews hospital
utilization and becomes involved in the selection of treatment facilities.
Competition. The insurance industry is characterized by competition on the
basis of price and service. Prior to January 1, 1995, minimum premium rates were
prescribed for workers' compensation insurance in California by the Department
of Insurance, and competition for underwriting such insurance in California had
been based principally upon an insurance carrier's financial strength and
history of paying policyholders' dividends. Secondary considerations included
loss control and claims administration, the ability to respond promptly to
agents and brokers, and commission schedules for agents and brokers. The repeal
of the California minimum rate law effective January 1, 1995 has resulted in
increased price competition which is adversely affecting the Company's results
of operations for its workers' compensation insurance business in California.
See "Regulation -- Insurance Regulation." The Company recently expanded its
workers' compensation operation through the acquisition on February 22, 1995 of
Casualty, which underwrites workers' compensation insurance in several
mid-western states, primarily in Illinois. Although Casualty is the largest
underwriter of workers' compensation insurance in the Illinois market, based on
the competitive nature of the insurance industry and the inherent risks
associated with the Company entering into a new geographic market, there can be
no assurance that Casualty will continue to maintain its market share in the
future. In addition, advisory premium rates established by the National Council
on Compensation Insurance, which workers' compensation insurance companies in
Illinois generally tend to follow, decreased in 1995. An additional average
overall decrease in such advisory rates of 13.6% went into effect on January 1,
1996. As a result, the Company anticipates price competition to continue in
Illinois. Furthermore, state regulatory changes could affect competition in the
states where the Company transacts insurance business. Although the Company is
one of the largest writers of workers' compensation insurance in California and
Illinois, certain of the Company's competitors are larger and have greater
resources than the Company.
Marketing. The Company markets its workers' compensation insurance
products through more than 1,200 non-exclusive independent insurance agents and
brokers, many of whom have been associated with the Company for more than 15
years. During 1995, the ten largest agents accounted for approximately 9% of the
Company's workers' compensation insurance premiums written, and no single agent
or broker accounted for more than 2% of premiums written.
Medical Malpractice Insurance
The Company's medical malpractice insurance operation underwrites primarily
standard professional liability insurance on a "claims made" basis in
California. Coverage is provided for claims reported to the Company during the
policy period arising from incidents that occurred at any time that the insured
was covered by the policy. Fremont Indemnity Company, within which the medical
malpractice insurance is
3
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written, is currently rated "B++" (Very Good) by A.M. Best. The Company offers
coverage for individual medical doctors, anesthesiologists, podiatrists, as well
as medical groups, community clinics, laboratories and miscellaneous medical
clinics. The Company markets its policies exclusively through approximately 300
non-exclusive independent insurance agents and brokers. Revenues from this
subsidiary were not significant in 1995, 1994 and 1993.
Reinsurance Ceded
Reinsurance is ceded primarily to reduce the liability on individual risks
and to protect against catastrophic losses. The Company follows the industry
practice of reinsuring a portion of its risks. For this coverage, the Company
pays the reinsurer a portion of the premiums received on all policies.
The Company maintains excess of loss reinsurance treaties with various
reinsurers for each of its insurance lines. Under the current workers'
compensation reinsurance treaties, various reinsurers assume liability on that
portion of the loss that exceeds $1 million per occurrence, up to a maximum of
$199 million per occurrence. Further, in conjunction with the acquisition of
Casualty, certain treaties were established between the Company and The
Continental Insurance Company ("Continental") whereby certain liabilities of
Casualty, which were not part of the business acquired, were ceded to
Continental. For medical malpractice insurance, excess of loss reinsurance
treaties cover claims and losses above $1 million, up to a maximum of $5
million. Although reinsurance makes the assuming reinsurer liable to the insurer
to the extent of the reinsurance ceded, it does not legally discharge an insurer
from its primary liability for the full amount of the policy liability. All of
the foregoing reinsurance is with non-affiliated reinsurers. The Company
believes that the terms of its reinsurance contracts are consistent with
industry practice and, based on its review of the reinsurers' financial
statements and reputations in the reinsurance marketplace, that its reinsurers
are financially sound. The Company encounters disputes from time to time with
its reinsurers, which, if not settled, are typically resolved in arbitration.
The Company's treaties are generally for annual terms. The Company has
maintained reinsurance treaties with many of these same reinsurers for a number
of years and believes that suitable alternative reinsurance treaties are readily
obtainable at the present time. In general, the reinsurance agreements are of
the treaty variety and cover all underwritten risks of types specified in the
treaties. As of December 1995, The Continental Insurance Company and General
Reinsurance Corporation were the only reinsurers that accounted for more than
10% of total amounts recoverable from all reinsurers on paid and unpaid losses.
Operating Data
Set forth below is certain information pertaining to the Company's workers'
compensation insurance business as determined in accordance with GAAP for the
years indicated. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of certain of this
information.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C>
Workers' Compensation
Net premiums earned............... $574,952 $401,455 $426,793 $378,468 $371,981
Net investment income and
other(1)....................... 87,304 52,747 56,733 67,458 62,370
Underwriting profit (loss)........ (2,295) 9,452 (6,958) (25,659) (21,132)
Net income before taxes........... 85,009 62,199 49,775 41,799 41,238
Loss Ratio..................... 75.9% 62.1% 70.4% 82.2% 70.9%
Expense ratio.................. 24.5% 23.1% 20.6% 21.8% 25.0%
Policyholders' dividend
ratio........................ 0.0% 12.4% 10.6% 2.8% 9.8%
-------- -------- -------- -------- --------
Total combined ratio...... 100.4% 97.6% 101.6% 106.8% 105.7%
</TABLE>
- ---------------
(1) Includes net realized investment gains and interest expense.
Statutory Combined Ratio. The following table reflects the combined ratios
of the Company's insurance subsidiaries determined in accordance with statutory
accounting practices, together with the property and
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casualty industry-wide combined ratios after policyholders' dividends, as
compiled by A.M. Best for the years indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
------------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Workers' compensation:
Company.................................... 100.1% 98.5% 98.8% 110.4% 104.8%
Industry(1)................................ not available 101.4% 109.1% 121.5% 122.6%
</TABLE>
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(1) Nationwide statutory combined ratio information for the workers'
compensation insurance industry for 1991 through 1994 is from A.M. Best's
Aggregates & Averages, Property-Casualty (1992 through 1995 editions).
Premium-to-Surplus Ratio. Regulatory authorities regard the
premium-to-surplus ratio as an important indicator of operating leverage, since
the lower the ratio, the greater the insurer's ability to withstand abnormal
loss experience. Guidelines established by the National Association of Insurance
Commissioners ("NAIC") provide that a property and casualty insurer's
premium-to-surplus ratio is satisfactory if it is below 3 to 1.
The following table sets forth the Company's consolidated ratio of net
property and casualty premiums written during the period to policyholders'
surplus on a statutory basis at the end of the period, for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
Net premiums written during the
year.............................. $683,711(1) $425,631 $454,867 $414,218 $404,701
Policyholders' surplus at end of
year.............................. 299,408 235,294 221,857 162,714 158,512
Ratio............................... 2.3x 1.8x 2.1x 2.5x 2.6x
</TABLE>
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(1) Includes net written premium for Casualty and WCIC for the period January 1,
1995 through February 21, 1995, which was prior to the Company's acquisition
of Casualty on February 22, 1995.
Loss and Loss Adjustment Expense Reserves
In many cases, significant periods of time, ranging up to several years or
more, may elapse between the occurrence of an insured loss, the reporting of the
loss to the insurer, and the insurer's payment of that loss. To recognize
liabilities for future unpaid losses, insurers establish reserves, which are
balance sheet liabilities, representing estimates of future amounts needed to
pay claims with respect to insured events that have occurred. Reserves are also
established for loss adjustment expense reserves ("LAE") representing the
estimated expenses of settling claims, including legal and other fees, and
general expenses of administering the claims adjustment process.
Reserves for losses and LAE are based not only on historical experience but
also on management's judgment of the effects of matters such as future economic
and social forces likely to impact the insurer's experience with the type of
risk involved, circumstances surrounding individual claims, and trends that may
affect the probable number and nature of claims arising from losses not yet
reported. Consequently, loss reserves are inherently subject to a number of
highly variable circumstances.
Reserves for losses and LAE are revalued periodically using a variety of
actuarial and statistical techniques for producing current estimates of expected
claim costs. Claim frequency and severity and other economic and social factors
are considered in the reevaluation process. A provision for inflation in the
calculation of estimated future claim costs is implicit since reliance is placed
on both actual historical data, which reflect past inflation, and on other
factors which are judged to be appropriate modifiers of past experience.
Adjustments to liabilities are reflected in operating results for the periods to
which they are made.
Reconciliation of Loss and Loss Adjustment Expense Reserves. The following
table shows in accordance with GAAP the reconciliation of the estimated
liability for losses and LAE for the Company's property
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and casualty insurance subsidiaries (excluding discontinued operations) and the
effect on income for each of the three years indicated.
RECONCILIATION OF RESERVES FOR LOSSES AND LAE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
---------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Reserves for losses and LAE, net of reinsurance
recoverable, at beginning of year.................... $ 610,510 $ 644,190 $ 633,394
Incurred losses and LAE:
Provision for insured events of the current year, net
of reinsurance.................................... 459,951 290,833 323,279
Increase (decrease) in provision for insured events
of prior years, net of reinsurance................ 1,382 (17,234)(1) (4,126)
---------- --------- ---------
Total incurred losses and LAE................ 461,333 273,599 319,153
Payments:
Losses and LAE, net of reinsurance, attributable to
insured events of:
Current year...................................... (132,358) (70,505) (67,805)
Prior years....................................... (358,423) (236,774) (240,552)
---------- --------- ---------
Total payments............................... (490,781) (307,279) (308,357)
---------- --------- ---------
Subtotal..................................... 581,062 610,510 644,190
Liability for losses and LAE for Casualty Insurance
Company acquired during the current year............. 604,644 -- --
---------- --------- ---------
Reserves for losses and LAE, net of reinsurance
recoverable, at end of year.......................... 1,185,706 610,510 644,190
Reinsurance recoverable for losses and LAE, at end of
year................................................. 269,986 136,151 138,737
---------- --------- ---------
Reserves for losses and LAE, gross of reinsurance
recoverable, at end of year.......................... $1,455,692 $ 746,661 $ 782,927
========== ========= =========
</TABLE>
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(1) See "Analysis of Loss and Loss Adjustment Expense Development" below for
discussion of the decrease in reserve estimates during 1994.
Analysis of Loss and Loss Adjustment Expense Development. The following
table shows the cumulative amount paid against the previously recorded liability
at the end of each succeeding year and the cumulative development of the
estimated liability for the ten years ending December 31, 1995. Conditions and
trends that have affected the development of these reserves and payments in the
past will not necessarily recur in the future. Accordingly, it would not be
appropriate to use this cumulative history to project future performance.
The re-estimated liability portion of the following table shows the year by
year development of the previously estimated liability at the end of each
succeeding year. The re-estimated liabilities are increased or decreased as more
information becomes known about the frequency and severity of claims for
individual years. The increases or decreases are reflected in the current year's
operating earnings. Each column shows the reserve held at the indicated calendar
year-end and cumulative data on re-estimated liabilities for the year and all
prior years making up those calendar year end liabilities. The effect on income
of the charge (credit) during the current period (i.e., the difference between
the estimated liability at December 31 and the liability estimated one year
later) is shown in the table above for each of three most recent years as
"Increase (decrease) in provision for insured events of prior years."
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<PAGE> 8
CHANGES IN HISTORICAL RESERVES FOR LOSS AND LAE FOR THE LAST TEN YEARS
GAAP BASIS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991
-------- -------- -------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Reserves for Loss and LAE, net of reinsurance
recoverable.................................... $382,066 $384,923 $390,799 $406,823 $647,559 $652,284 $627,103
Net reserve re-estimated as of:
One year later.................................. 409,681 413,549 402,902 396,091 636,039 624,953 668,107
Two years later................................. 406,550 410,654 389,973 377,080 607,253 647,959 660,729
Three years later............................... 390,847 403,767 374,330 356,961 607,492 638,879 651,482
Four years later................................ 392,108 394,868 361,209 350,736 599,052 627,194 654,403
Five years later................................ 385,919 384,891 358,645 375,550 593,527 631,165
Six years later................................. 385,247 385,732 369,320 373,514 596,808
Seven years later............................... 382,482 391,036 371,863 375,364
Eight years later............................... 385,334 394,790 372,920
Nine years later................................ 388,250 396,359
Ten years later................................. 388,744
Net cumulative redundancy (deficiency)........... (6,678) (11,436) 17,879 31,459 50,751 21,119 (27,300)
Cumulative amount of reserve paid, net of reserve
recoveries, through:
One year later.................................. 134,969 136,523 128,565 125,563 226,101 245,777 257,591
Two years later................................. 226,952 228,926 213,323 211,529 374,876 403,105 419,638
Three years later............................... 282,748 286,155 266,605 263,229 461,366 495,707 521,729
Four years later................................ 317,928 320,729 298,956 291,817 514,890 550,404 583,013
Five years later................................ 339,771 342,673 316,483 320,511 547,535 585,094
Six years later................................. 352,179 354,069 333,461 339,998 567,871
Seven years later............................... 359,469 365,410 346,547 351,805
Eight years later............................... 367,029 375,384 353,517
Nine years later................................ 373,853 380,437
Ten years later................................. 377,177
Net reserve -- December 31.......................
Reinsurance recoverable..........................
Gross reserve -- December 31.....................
Net re-estimated reserve.........................
Re-estimated reinsurance recoverable.............
Gross re-estimated reserve.......................
Gross cumulative redundancy (deficiency).........
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1992 1993 1994 1995
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Reserves for Loss and LAE, net of reinsurance
recoverable.................................... $633,394 $644,190 $610,510 $1,185,709
Net reserve re-estimated as of:
One year later.................................. 629,268 626,956 611,892 --
Two years later................................. 615,747 633,333
Three years later............................... 621,348
Four years later................................
Five years later................................
Six years later.................................
Seven years later...............................
Eight years later...............................
Nine years later................................
Ten years later.................................
Net cumulative redundancy (deficiency)........... 12,046 10,857 (1,382) --
Cumulative amount of reserve paid, net of reserve
recoveries, through:
One year later.................................. 240,552 236,774 241,667(1) --
Two years later................................. 402,048 392,237
Three years later............................... 499,924
Four years later................................
Five years later................................
Six years later.................................
Seven years later...............................
Eight years later...............................
Nine years later................................
Ten years later.................................
Net reserve -- December 31....................... $610,510 $1,185,709
Reinsurance recoverable.......................... 136,151 269,983
-------- ----------
Gross reserve -- December 31..................... $746,661 $1,455,692
========= ===========
Net re-estimated reserve......................... $611,892
Re-estimated reinsurance recoverable............. 135,931
--------
Gross re-estimated reserve....................... $747,823
=========
Gross cumulative redundancy (deficiency)......... $ (1,162)
=========
</TABLE>
- ---------------
(1) Excludes $116,756,000 in loss and LAE payments on 1994 and prior years
related to reserves acquired from Casualty.
The Company is required to maintain reserves to cover its estimated
ultimate liability for losses and LAE with respect to reported and unreported
claims incurred as of the end of each accounting period. These reserves do not
represent an exact calculation of liabilities, but rather are estimates
involving actuarial projections at a given time of what the Company expects the
ultimate settlement and administration of claims will cost based on facts and
circumstances then known, predictions of future events, estimates of future
trends in claims' frequency and severity and judicial theories of liability as
well as other factors. The Company regularly reviews its reserving techniques,
overall reserve position and its reinsurance. In light of present facts and
current legal interpretations, management believes that adequate provision has
been made for loss reserves. In making this determination, management has
considered its claims experience to date, loss development history for prior
accident years, estimates of future trends of claims frequency and severity, and
various external factors such as judicial theories of liability. However,
establishment of appropriate reserves is an inherently uncertain process, and
there can be no certainty that currently established reserves will prove
adequate in light of subsequent actual experience. Subsequent actual experience
has resulted and could result
7
<PAGE> 9
in loss reserves being too high or too low. Future loss development could
require reserves for prior periods to be increased, which would adversely impact
earnings in future periods.
In 1995, there was relatively insignificant development on 1994 and prior
accident years of $1.4 million. In 1994, the Company decreased its losses and
LAE reserves for 1993 and prior accident years by $17.2 million. This reserve
decrease was partially offset by an increase in the liability for dividends to
policyholders. Further, this reduction in reserves represents the recognition of
a continued decrease in the frequency and severity of reported claims on 1994
and prior accident years. For the 1993 calendar year, losses and LAE development
on 1992 and prior accident years was a relatively modest $4.1 million decrease
in loss and LAE reserves. The Company is not able to determine with certainty
the specific cause or causes of increases and decreases in claims experience
that led to these changes in reserves but has reached its own conclusion based
on a review of its internal data base and a subjective evaluation of external
factors. The following discussion is a summary of the principal considerations
that the Company evaluated in determining workers' compensation insurance
reserve adjustments during 1994 and 1993.
The Company believes that a number of factors including the economic
recession in California (including unemployment rates) in the early 1990's,
primarily 1990 and 1991, led to increases in the occurrence and magnitude of
post-employment stress claims submitted to the Company, including many
fraudulent claims. These conditions mirrored those of the California workers'
compensation industry in general as private workers' compensation insurers in
California, including the Company, substantially increased loss reserves in
calendar year 1992 for the 1990 and 1991 accident years. The effect of fraud on
the industry during 1990 and 1991 is further supported by the impact of actions
taken by the California legislature in 1992 to limit workers' compensation
fraud. In connection with this legislation, the Company instituted its "zero
tolerance" program and began to aggressively investigate and prosecute those
attempting to defraud policyholders through filing and encouraging fraudulent
workers' compensation insurance claims. Thus, while unemployment continued to
remain high in California during 1992 the number of claims and loss ratios for
the industry on the 1992 accident year declined. The Company believes the
decline in claim frequency and severity, which continued into 1994, is due
primarily to the anti-fraud legislation enacted in California and the anti-fraud
campaigns thereafter undertaken by the Company and other members of the workers'
compensation insurance industry. In 1993, the Company only partially recognized
this decline in claim frequency and severity, due in part to a lack of
sufficient information to confirm the continued trend in claim frequency and
severity decreases. The significant reserve decrease in 1994 for losses and LAE
on 1993 and prior accident years of $17.2 million represents the Company's
additional recognition of these claim frequency and severity decreases, and
reflects the results of the Company's review of statistical evidence that
emerged in 1994 which further confirmed the claim frequency and severity
decreases related to the 1993 and prior accident years.
INVESTMENT PORTFOLIO
The Company manages its investments internally. The following portfolio
information reflects the Company's continuing operations. See "Discontinued
Operations."
8
<PAGE> 10
The following table reflects the amortized cost and fair value of fixed
maturity investments and non-redeemable preferred equity securities by major
category, as well as the amortized cost and fair value of cash and short-term
investments on the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- --------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Available for sale:
United States Treasury securities and
obligations of other US government
agencies and corporations............. $ 136,626 $ 149,250 $ 53,045 $ 45,152
Redeemable preferred stock............... 15,887 15,764 4,249 3,491
Mortgage-backed securities............... 340,682 337,133 189,551 130,675
Corporate securities
Banks................................. 123,144 125,836 24,744 20,125
Financial............................. 117,013 120,242 10,000 8,225
Transportation........................ 16,888 17,241 -- --
Utilities............................. 13,427 13,820 -- --
Industrial............................ 491,767 517,264 30,112 27,774
---------- ---------- -------- --------
Total............................ 1,255,434 1,296,550 311,701 235,442
Non-redeemable preferred stock........... 285,337 277,451 213,935 189,632
---------- ---------- -------- --------
Total............................ $1,540,771 $1,574,001 $ 525,636 $425,074
========== ========== ======== ========
Held to maturity:
United States Treasury securities and
obligations of other US government
agencies and corporations............. $ -- $ -- $ 53,695 $ 51,407
Mortgage-backed securities............... -- -- 152,721 147,696
---------- ---------- -------- --------
Total............................ $ -- $ -- $ 206,416 $199,103
========== ========== ======== ========
Short-term investments..................... $ 362,163 $ 362,163 $ 255,751 $255,751
Cash....................................... 39,559 39,559 31,058 31,058
</TABLE>
As of December 31, 1995, substantially all of the fixed maturity
investments in the portfolio were rated investment grade. Using Standard and
Poor's, Moody's and Fitch's rating services, 59% were rated "A" or higher, 40%
were rated BBB and 1% were rated BB. As of December 31, 1995, these investment
securities had an approximate fair value of $1.3 billion, which was higher than
amortized cost by approximately $41 million. The Company does not currently plan
or intend to invest in securities rated below investment grade.
9
<PAGE> 11
The following table reflects the average cash and investment assets of the
Company and its subsidiaries for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- --------
(THOUSANDS OF DOLLARS, EXCEPT
PERCENTS)
<S> <C> <C> <C>
Average cash and investment assets
Cash.................................................. $ 24,657 $ 29,693 $ 33,700
Investment assets..................................... 1,591,972 1,060,001 925,794
----------- ----------- --------
Total......................................... $1,616,629 $1,089,694 $959,494
=========== =========== ========
Percent earned on (excluding realized gains and losses):
Cash and investment assets............................ 7.38% 6.99% 7.83%
Investment assets only................................ 7.49% 7.19% 8.11%
Percent earned on (including realized gains and losses):
Cash and investment assets............................ 7.38% 6.97% 8.05%
Investment assets only................................ 7.49% 7.16% 8.34%
</TABLE>
The Company's general investment philosophy is to hold fixed income
securities for long term investment. As a result of changing accounting and
industry practice and management's evaluation of the investment portfolio, the
Company has segregated its portfolio into investments held to maturity and those
that would be available for sale in response to changing market conditions,
liquidity requirements, interest rate movements and other investment factors. At
December 31, 1995 and 1994, Company held securities having an amortized cost of
$1.5 billion and $526 million, respectively, as available for sale. See "Item 7.
Management's Discussion and Analysis" and Notes A and C of Notes to Consolidated
Financial Statements.
The following table sets forth maturities in the fixed maturity and
short-term investment portfolios at December 31, 1995:
<TABLE>
<CAPTION>
AMORTIZED
COST PERCENTAGE
---------- ----------
(THOUSANDS OF DOLLARS,
EXCEPT PERCENTS)
<S> <C> <C>
One year or less..................................... $ 389,521 24%
Over 1 year through 5 years.......................... 245,447 15
Over 5 years through 10 years........................ 495,154 31
Over 10 years........................................ 146,793 9
Mortgage-backed securities........................... 340,682 21
----------- ---
Totals..................................... $1,617,597 100%
=========== ===
</TABLE>
Using Standard and Poor's, Moody's and Fitch's rating services, the
following table sets forth the quality mix of the Company's fixed maturity
investment portfolio at December 31, 1995:
<TABLE>
<CAPTION>
PERCENTAGE
-----------
<S> <C>
AAA (Including US government obligations)....................... 31%
AA.............................................................. 2
A............................................................... 26
BBB............................................................. 40
BB.............................................................. 1
---
Total................................................. 100%
===
</TABLE>
10
<PAGE> 12
FINANCIAL SERVICES OPERATIONS
Real Estate Lending
In 1990, the Company acquired Investors Bancor, a holding company for
Fremont Investment & Loan (formerly Investors Thrift), a California thrift and
loan from Tomar Financial Corporation for approximately $6.7 million. Fremont
Investment & Loan ("Fremont I & L") serves more than 23,000 customers through
its 12 branches, and its deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC"). See "Regulation -- Thrift and Loan Regulation." Fremont I
& L's operations are primarily engaged in commercial and residential real estate
lending. Income before taxes from the real estate lending operation has
increased significantly from $2.5 million in 1991 to $10.6 million in 1995.
Assets of the real estate lending operation have grown from $278 million at the
end of 1991 to $1.05 billion at the end of 1995, due to increased loan
originations and to the purchase of loan portfolios from other financial
institutions. Fremont I & L funds its lending activities through its deposits
and capital. Deposits consists of full-paid investment certificates (which are
similar to certificates of deposit) and installment investment certificates
(which are similar to passbook accounts and money market accounts). Deposits
totaled $926 million at December 31, 1995.
The ability of the Company to continue to originate loans, and of borrowers
to repay outstanding loans, may be impaired by adverse changes in local or
regional economic conditions which affect such areas or by adverse changes in
the real estate market in those areas. Such events could also significantly
impair the value of the underlying collateral. If the Company's collateral were
to prove inadequate, the Company's results of operations could be adversely
affected. In addition, the financial services industry is characterized by
competition on the basis of price and service.
Loan Origination. Fremont I & L originates loans through independent loan
brokers and through its own loan agents. In 1994, Fremont I & L purchased an
aggregate of $366 million in primarily California commercial real estate loan
portfolios from financial institutions. Acquisition costs of purchased loan
portfolios are significantly lower than if loans were originated by the Company.
In 1995, no portfolios of commercial real estate loans were purchased, primarily
due to increased competition which resulted in inadequate yields or unacceptable
risk profiles for the portfolios considered. The Company originates and
purchases loans primarily for its own portfolio rather than for resale to third
parties. The Company performs an internal evaluation of the underlying
collateral at the time each loan is purchased and applies strict underwriting
guidelines that include conservative loan-to-value ratios.
Fremont I & L has primarily focused on the origination of commercial real
estate loans secured by first trust deeds on income-producing properties in
California. The real estate securing these loans include a wide variety of
property types, such as small office buildings, small shopping centers,
owner-user office/warehouses and retail properties. Fremont I & L does not
originate commercial real estate construction and development loans. The
majority of the commercial real estate loans originated are adjustable rate
loans and generally range between $1 to $5 million. As of December 31, 1995, the
average loan size was $1,030,000 and the approximate average loan-to-value ratio
was 66%, using the most current available appraised values and current balances
outstanding. The total amount of commercial real estate loans outstanding at
December 31, 1995 was $731 million or 81% of the loan portfolio. Loans secured
by commercial real estate are generally considered to entail a higher level of
risk than loans secured by residential real estate. Although the properties
securing the Company's commercial real estate loans generally have good
operating histories, there is no assurance that such properties will continue to
generate sufficient funds to allow their owners to make full and timely mortgage
loan payments. At December 31, 1995, Fremont I & L had forty-seven non-accrual
commercial real estate loans totaling approximately $21.5 million and commercial
real estate owned of approximately $4.4 million.
Fremont I & L also originates loans secured by single-family residences. At
December 31, 1995, single family residential real estate secured loans,
represented $166 million, or 18%, of Fremont I & L's loan portfolio.
Substantially all of these loans are secured by first trust deeds. These loans
have principal amounts primarily below $300,000, have maturities of nine to
thirty years and are approved in accordance with lending policies approved by
Fremont I & L's Board of Directors which includes standards covering, among
other things, collateral value, loan to value and debt ratio. At December 31,
1995, the average single-family loan amount was $118,000, and the approximate
average loan-to-value ratio was 74%, using appraised values at the time of loan
origination and current balances outstanding.
11
<PAGE> 13
The portfolio of Fremont I & L's loans receivable as of the dates indicated
are summarized in the following table by type of primary collateral.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Commercial real estate loans................................... $730,599 $687,198 $302,202
Residential real estate loans.................................. 165,888 103,532 64,608
Contract loans................................................. 547 32,990 52,214
Installment loans.............................................. 1,783 3,191 5,638
Finance leases................................................. -- 114 794
-------- -------- --------
Loans receivable before deferred fees and costs................ 898,817 827,025 425,456
Purchase discount and deferred fees and costs.................. (9,865) (19,498) (24)
-------- -------- --------
Total loans receivable, purchase discount and deferred
fees and costs.......................................... 888,952 807,527 425,432
Less allowance for possible loan losses........................ (17,498) (14,391) (11,880)
-------- -------- --------
Loans receivable, net..................................... $871,454 $793,136 $413,552
======== ======== ========
</TABLE>
Funding Sources. Fremont I & L obtains funds from depositors by offering
full-paid investment certificates and installment investment certificates
insured by the FDIC to the legal maximum through its 12 branches in California.
Fremont I & L has typically offered higher interest rates to its depositors than
do most full service financial institutions. At the same time, it has minimized
the cost of maintaining these accounts by not offering transaction accounts or
services such as checking, safe deposit boxes, money orders, ATM access and
other traditional retail services. Fremont I & L generally effects deposit
withdrawals by issuing checks rather than disbursing cash, which minimizes
operating costs associated with handling and storing cash. Additional financing
became available from the Federal Home Loan Bank of San Francisco effective
January 1995. This financing is available at varying rates and terms. As of
December 31, 1995, $170 million was available under the facility and no
borrowings were outstanding.
The table below summarizes Fremont I & L's investment certificates as of
December 31, 1995 which are stated in amounts of $100,000 or more, by maturity
and by type.
<TABLE>
<CAPTION>
INVESTMENT CERTIFICATES $100,000 OR MORE, MATURING
------------------------------------------------------
3 MONTHS OVER 3 THROUGH OVER 6 THROUGH OVER
OR LESS 6 MONTHS 12 MONTHS 12 MONTHS TOTAL
-------- -------------- -------------- --------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Retail.................................. $2,285 $2,500 $3,845 $ 6,624 $15,254
IRA's................................... 227 201 316 436 1,180
Wholesale............................... 311 300 2,967 5,359 8,937
Brokered................................ 5,550 2,494 1,451 46,027 55,522
------ ------ ------ ------- -------
Total.............................. $8,373 $5,495 $8,579 $58,446 $80,893
====== ====== ====== ======= =======
</TABLE>
Commercial Finance
The Company's commercial finance subsidiary, Fremont Financial Corporation
("Fremont Financial"), provides working capital loans, primarily secured by
accounts receivable and inventory, to small and middle market companies on a
nationwide basis. Fremont Financial's total loan portfolio has grown from $189
million at December 31, 1991 to $569 million at December 31, 1995. This growth
has been achieved through development of Fremont Financial's customer base
through loan originations and through participation in syndicated loan
transactions. In 1995, income before taxes from commercial finance was $22.8
million. The lending market has become increasingly competitive for small to
middle market commercial borrowers. As a result, Fremont Financial has
experienced decreasing yields on its commercial finance loans. In addition,
adverse economic developments can negatively affect the Company's business and
results of operations in a number of ways. Such developments can reduce the
demand for loans, impair the ability of borrowers to pay loans and impair the
value of the underlying collateral. Commercial finance loans made by Fremont
Financial
12
<PAGE> 14
are primarily on a revolving short-term basis (generally two or three years) and
secured by assets which primarily include accounts receivable, inventory,
machinery and equipment and, to a lesser extent, real estate and other types of
collateral. In addition, Fremont Financial also makes term loans secured
primarily by equipment and real estate. The term loans originated in conjunction
with revolving loans are cross-collateralized (i.e., the same collateral is used
to support both the term loans and all the related revolving loans) and
coterminous with the related revolving loan made to the same borrower. The term
to maturity for the term loans is generally five to seven years; however,
certain term loans are "balloon loans" that amortize over a longer period and
therefore do not amortize fully before their respective maturities. Commercial
loans also include secured loans originated and serviced by other asset-based
lenders and participated in by Fremont Financial. As of December 31, 1995, the
average outstanding commercial loan balance was $2.7 million. Loans outstanding
to a single borrower generally range in size from $500,000 to $15,000,000.
The major avenue of growth for Fremont Financial remains the establishment
of new lending relationships. The Company has a national presence with regional
offices in Santa Monica, Chicago, New York and Atlanta, as well as eight other
marketing offices across the country. To provide a stable source of funds to
facilitate the continued expansion of its asset-based lending business, the
Company, in 1993, established the Fremont Small Business Loan Master Trust
("Fremont Trust") for the purpose of securitizing the greater part of its
commercial finance loan portfolio. The Fremont Trust is a master trust that can
issue multiple series of asset-backed certificates which represent undivided
interests in the Fremont Trust's assets (primarily commercial finance loans) and
Fremont Financial will continue to service the loans thereunder. The proceeds
from the sale of the initial series of asset-backed certificates ("Series A")
under this program in April 1993 were $200 million bearing interest at the rate
of LIBOR plus 0.47%. In November 1993, an additional $100 million of these
certificates ("Series B") were sold bearing interest at the rate of LIBOR plus
0.5%. The securities issued in this program have a scheduled maturity of three
and four years, but could mature earlier depending on fluctuations in
outstanding balances of loans in the portfolio and other factors. During April
1995, the Company issued $30 million in subordinated variable rate asset-backed
certificates, which mature in 2000, via a private placement. As of December 31,
1995, up to $500 million in additional publicly offered asset-backed
certificates may be issued pursuant to a shelf registration statement to fund
future growth in the commercial finance loan portfolio. In February 1996, $135
million in asset-backed certificates ("Series C") were issued which mature in
2000. The proceeds were used, in conjunction with existing cash, to retire the
$200 million in Series A certificates. The Series B certificates are scheduled
to mature in 1997. In December 1995, a commercial paper facility was established
as part of the asset securitization program. This facility provides for the
issuance of up to $150 million in commercial paper, dependent upon the level of
assets within the asset securitization program. This facility, which expires in
December 1998, had no amounts outstanding under it as of December 31, 1995. The
commercial finance operation also has an unsecured revolving line of credit with
a syndicated bank group that presently permits borrowings of up to $300 million,
of which $185 million was outstanding as of December 31, 1995. This credit line
is primarily used to finance assets which are not included in the Company's
asset securitization program. This credit line expires August 1998.
The Company's customer base consists primarily of small to middle market
manufacturers and distributors which generally require financing for working
capital and debt restructuring. At December 31, 1995, the Company had
approximately 195 loans outstanding in 34 states and the District of Columbia.
Approximately 32% of total loans outstanding were made to companies based in
California, and no other state accounted for more than 10% of total loans
outstanding.
Asset-based revolving loans permit a company to borrow from the lender at
any time during the term of the loan agreement, up to the lesser of a maximum
amount set forth in the loan agreement or a percentage of the value of the
collateral which primarily secures such loans. Under an asset-based lending
agreement, the borrower retains the credit and collection risk with respect to
the collateral in which the lender takes a security interest. Cash collections
are received as often as daily by or on behalf of the borrower after the loan is
initially made. These collections are paid to the lender to reduce the loan
balance.
While consideration is given to the net worth and profitability of a
client, asset-based loans are generally extended to borrowers who do not have
bank sources of credit readily available and are based on the estimated
liquidation value of the collateral pledged to secure the loan. The largest
percentage of realized losses has resulted from fraud or collateral
misrepresentations by the borrower. Fremont Financial seeks to protect itself
13
<PAGE> 15
against this risk through a comprehensive system of collateral monitoring and
control. Fremont Financial's auditors perform auditing procedures of a
borrower's books and records and physically inspects the collateral prior to
approval and funding, as well as approximately every 90 days during the term of
the loan. General economic conditions beyond the Company's control can and do
impact the ability of borrowers to repay loans and also the value of the assets
collateralizing such loans.
Over the past four years, the majority of Fremont Financial's loans that
have been liquidated have been fully repaid, as Fremont Financial attempts to
work closely with the borrower through the liquidation to ensure repayment of
the loan. Fremont Financial seeks to maintain conservative collateral valuations
and perfection of security interests.
Fremont Financial primarily competes with commercial finance companies and
banks, most of whom are larger and have greater financial resources than Fremont
Financial. The principal competitive factors are the rates and terms upon which
financing is provided and customer service. The lending market has become
increasingly competitive for small to middle market commercial borrowers. As a
result, Fremont Financial has experienced decreasing yields on its commercial
finance loans.
Premium Financing and Life Insurance
The Company finances property and casualty insurance premiums through its
subsidiary, Fremont Premium Finance Corporation. This premium finance loan
portfolio is collateralized by the unearned premiums of the underlying insurance
policies. Revenues and operating income from this subsidiary were not
significant in 1995, 1994 or 1993.
Prior to January 1, 1996, the Company offered life insurance products,
including annuities, credit life and disability insurance and term life
insurance for consumers, through its subsidiary, Fremont Life Insurance Company.
On December 31, 1995 and on January 1, 1996, the Company entered into
reinsurance and assumption agreements with a reinsurer whereby assets and
liabilities related to certain life insurance and annuity policies were ceded to
the reinsurer. These reinsurance agreements are part of several other agreements
which collectively act to significantly reduce the Company's life insurance
operations. The effect on operations from these agreements is not expected to be
material, and revenues and operating income from this subsidiary were not
significant in 1995, 1994 or 1993.
DISCONTINUED OPERATIONS
The Company's discontinued operations consist primarily of assumed treaty
and facultative reinsurance business that was discontinued between 1986 and
1991. In 1990, the Company established a management group to actively manage the
liquidation of this business. The liabilities associated with this business are
long term in duration and therefore, the Company continues to be subject to
claims being reported. Claims under these reinsurance treaties include
professional liability, product liability and general liability which include
environmental claims.
The Company supports these discontinued operations with $191 million in
cash and investment grade fixed income securities, reinsurance recoverables of
$54 million and other assets totaling $18 million. The Company estimates that
the dedicated assets supporting these operations and all future cash inflows
will be adequate to fund future obligations. However, should those assets
ultimately prove to be insufficient, the Company believes that its property and
casualty subsidiaries would be able to provide whatever additional funds might
be needed to complete the liquidation without having a material adverse effect
on the Company's consolidated financial position or results of operations. See
Note M of Notes to Consolidated Financial Statements. The discontinued
operations have investment portfolios which resemble the portfolios in the
ongoing operations with regard to asset allocation, quality, performance and
maturities.
14
<PAGE> 16
REGULATION
Insurance Regulation
The Company's workers' compensation insurance operations are concentrated
in California and Illinois, with additional writings in Arizona, Indiana,
Michigan and Wisconsin. Insurance companies are subject to supervision and
regulation by the state insurance authority in each state in which they transact
business. Such supervision and regulation relate to numerous aspects of an
insurance company's business and financial condition. The primary purpose of
such supervision and regulation is the protection of policyholders rather than
investors or shareholders of an insurer. The extent of such regulation varies,
but generally derives from state statutes that delegate regulatory, supervisory
and administrative authority to state insurance departments. Accordingly, the
authority of the state insurance departments includes the establishment of
standards of solvency which must be met and maintained by insurers, the
licensing to do business of insurers and agents, the nature of and limitations
on investments by insurers, premium rates for certain property and casualty
insurance, and life and disability insurance, the provisions which insurers must
make for current losses and future liabilities and the approval of policy forms.
Additionally, most states require issuers to participate in assigned risk plans
which provide insurance coverage to individuals or entities who are unable to
obtain coverage from existing insurers in those states. The net profit or loss
incurred in the administration of these plans is allocated back to participant
insurers based on the insurers' relative market share (i.e. insurance premiums)
in each state. State insurance departments also conduct periodic examinations of
the affairs of insurance companies and require the filing of annual and other
reports relating to the financial condition of insurance companies. The
Company's multistate insurance operations require, and will continue to require,
significant resources of the Company in order to continue to comply with the
regulations of each state in which it transacts business.
Workers' Compensation Regulation. Illinois began operating under an open
rating system in 1982 and California began operating under such a system
effective January 1, 1995. In an open rating system, workers' compensation
companies are provided with advisory rates by job classification and each
insurance company determines its own rates based in part upon its particular
operating and loss costs. Although insurance companies are not required to adopt
such advisory rates, companies in Illinois generally follow such rates. However,
insurance companies in California have, since the adoption of an open rating
system, generally set their premium rates below such advisory rates. Before
January 1, 1995, California operated under a minimum rate law, whereby premium
rates established by the California Department of Insurance were the minimum
rates which could be charged by an insurance carrier.
In July 1993, California enacted legislation to reform the workers'
compensation insurance system and to, among other things, (i) reduce workers'
compensation manual premium rates by 7% effective July 16, 1993 and (ii) adopt
an open rating system through the repeal of the minimum rate law effective
January 1, 1995. In addition to the July 1993 legislation, in December 1993, the
California Insurance Commissioner reduced workers' compensation manual premium
rates on new and renewal business an additional 12.7% effective January 1, 1994.
In September 1994, California workers' compensation manual premium rates were
further reduced by 16% effective October 1, 1994 on all business incepting on or
after January 1, 1994.
The repeal of the minimum rate law on January 1, 1995 has resulted in lower
premiums and lower profitability in the Company's California workers'
compensation insurance business due to increased price competition. The Company
believes that its acquisition of Casualty, with policies written primarily
outside of California, has lessened the impact of the repeal of the minimum rate
law by providing geographic diversity, which mitigates the impact of economic
and regulatory changes within a regional marketplace.
Prior to January 1, 1995, the Company's policies were predominately written
as participating, thereby obligating the Company to consider the payment of
dividends to policyholders. The ability of the Company's subsidiaries to pay
policyholder dividends on workers' compensation insurance policies was subject
to California regulations which stated in part that dividends under a workers'
compensation policy could only be paid from surplus accumulated on workers'
compensation policies issued in California. Beginning in 1995, the payment of
policyholder dividends in respect of workers' compensation policies written in
California is not limited. However, in 1995 the Company's workers' compensation
insurance policies, both in California and Illinois, were predominately written
as non-participating, which does not include provisions for dividend
consideration. This shift in policy type
15
<PAGE> 17
is due primarily to the increased competition in the California market which has
resulted from the repeal of the minimum rate law, effective January 1, 1995. The
Company anticipates that this shift to non-participating policies will continue
and be a characteristic element of the competitive environment. In addition, the
Company's subsidiaries are required, with respect to their workers' compensation
line of business, to maintain on deposit investments meeting specified standards
that have an aggregate market value equal to the Company's loss reserves.
Insurance Guaranty Association Laws. Under insolvency or guaranty fund
laws in most states in which the Company's insurance subsidiaries operate,
insurers doing business in those states can be assessed, up to the prescribed
limits, for losses incurred by policyholders as a result of the insolvency of
other insurance companies. The amount and timing of such assessments are beyond
the control of the Company and generally have not had an adverse impact on the
Company's earnings in years in which such assessments have been made. Premiums
written under workers' compensation policies are subject to assessment only with
respect to covered losses incurred by the insolvent insurer under workers'
compensation policies. The Company believes it does not face any material
exposure to guaranty fund assessments.
Holding Company Regulation. The Company is subject to the California
Insurance Holding Company System Regulatory Act (the "Holding Company Act").
This act, and similar laws in other states, require the Company to periodically
file information with the California Department of Insurance and other state
regulatory authorities, including information relating to its capital structure,
ownership, financial condition and general business operations. Certain
transactions between an insurance company and its affiliates, including sales,
loans or investments which in any twelve month period aggregate at least 5% of
its admitted assets or 25% of its statutory capital and surplus, also are
subject to prior approval by the Department of Insurance.
The Holding Company Act also provides that the acquisition or change of
"control" of a California domiciled insurance company or of any person who
controls such an insurance company cannot be consummated without the prior
approval of the Insurance Commissioner. In general, presumption of "control"
arises from the ownership of voting securities and securities that are
convertible into voting securities, which in the aggregate constitute 10% or
more of the voting securities of a California insurance company or of a person
that controls a California insurance company, such as Fremont General. The
Liquid Yield Option(TM) Notes ("LYONs") constitute a security convertible into
the voting Common Stock of the Company, and the shares of Common Stock into
which a holder's LYONs are convertible and any other securities convertible into
Common Stock must be aggregated with any other shares of Common Stock of the
holder for purposes of determining the percentage ownership. A person seeking to
acquire "control," directly or indirectly, of the Company must generally file
with the Insurance Commissioner an application for change of control containing
certain information required by statute and published regulations and provide a
copy of the application to the Company. The Holding Company Act also effectively
restricts the Company from consummating certain reorganizations or mergers
without prior regulatory approval.
The Holding Company Act also limits the ability of the Company's insurance
subsidiaries to pay dividends to the Company. The act permits a property and
casualty insurance company to pay dividends in any year which, together with
other dividends or other distributions made within the preceding twelve months,
do not exceed the greater of 10% of its statutory surplus or 100% of its net
income as of the end of the preceding year, subject to a limit equal to prior
year end unassigned funds less unrealized capital gains contained within
unassigned funds. Larger dividends are payable only upon prior regulatory
approval. Applicable regulations further require that an insurer's statutory
surplus following a dividend or other distribution be reasonable in relation to
its outstanding liabilities and adequate to its financial needs. Based upon
restrictions presently in effect, the maximum amount available for payment of
dividends by the Company's direct property and casualty subsidiaries during 1996
without prior regulatory approval is approximately $30 million. In addition,
insurance regulations require that the Department of Insurance be given fifteen
days advance notice of any dividend payment.
Other Regulations. The NAIC has adopted a formula to calculate risk based
capital ("RBC") of property and casualty insurance companies for inclusion in
annual statements. The purpose of the RBC model is to help state regulatory
authorities monitor the capital adequacy of property and casualty insurance
companies by measuring several major areas of risk facing property and casualty
insurers including underwriting, credit and investment risks. Companies having
less statutory surplus than the RBC model calculates will be required to
adequately address these risk factors and will be subject to varying degrees of
16
<PAGE> 18
regulatory intervention, depending on the level of capital inadequacy. As of
December 31, 1995 the Company's insurance subsidiaries engaged in continuing
operations exceed all RBC levels requiring any regulatory intervention.
Thrift and Loan Regulation
Fremont I & L is subject to supervision and regulation by the Department of
Corporations of the State of California (the "DOC") and, as an insured
institution, by the FDIC. Neither Investors Bancor nor Fremont I & L is
regulated or supervised by the Office of Thrift Supervision, which regulates
savings and loan institutions. Fremont General is generally not directly
regulated or supervised by the DOC, the FDIC, the Federal Reserve Board or any
other bank regulatory authority, except with respect to guidelines concerning
its relationship with Investors Bancor and Fremont I & L. Such guidelines
include (i) general regulatory and enforcement authority of the DOC and the FDIC
over transactions and dealings between Fremont General and Fremont I & L, (ii)
specific limitations regarding ownership of the capital stock of the parent
company of any thrift and loan company, and (iii) specific limitations regarding
the payment of dividends from Fremont I & L as discussed below. Fremont I & L is
examined on a regular basis by both agencies.
Federal and state regulations prescribe certain minimum capital
requirements and, while Fremont I & L is currently in compliance with such
requirements, the Company could in the future be required to make additional
investments in Fremont I & L in order to maintain compliance with such
requirements. Federal and state regulatory authorities have the power to
prohibit or limit the payment of dividends by Fremont I & L. Future changes in
government regulation and policy could adversely affect the thrift and loan
industry, including Fremont I & L.
The FDIC conducted an examination of Fremont I & L as of August 31, 1994.
The examination resulted in the FDIC requiring Fremont I & L to enter into a
Memorandum of Understanding in January 1995 ("the MOU"). The MOU requires, among
other things, that Fremont I & L: (a) maintain management acceptable to the
FDIC, (b) maintain a ratio of Tier 1 capital as a percentage of average
quarterly assets of at least 8.5%, (c) maintain an adequate reserve for loan
losses, (d) reduce its dependence on volatile liabilities, (e) not pay cash
dividends without the prior written consent of the FDIC, and (f) effect
revisions and enhancements to certain policies and procedures, including
lending, collection, reserve for loan losses, asset/liability management and
affiliate transaction policies and procedures.
The FDIC conducted another examination as of March 31, 1995, in conjunction
with a DOC examination as of the same date. The FDIC's and DOC's reports issued
as a result of this examination indicated that Fremont I & L's compliance with
the MOU was satisfactory. The Company does not believe that the restrictions on
Fremont I & L's ability to pay dividends imposed by the MOU or by federal or
state law will adversely affect the ability of Fremont General to meet its
obligations. However, no assurances can be given as to when, or if, the MOU will
be terminated.
California Law. The thrift and loan business conducted by Fremont I & L is
governed by the California Industrial Loan Law and the rules and regulations of
the Commissioner which, among other things, regulate the collateral requirements
and maximum maturities of the various types of loans that are permitted to be
made by California-chartered industrial loan companies, i.e., thrift and loan
companies or investment and loans.
Subject to restrictions imposed by applicable California law, Fremont I & L
is permitted to make secured and unsecured consumer and non-consumer loans. The
maximum term for repayment of loans made by thrift and loan companies range up
to forty years and thirty days depending upon collateral and priority of secured
position, except that loans with repayment terms in excess of thirty years and
thirty days may not in the aggregate exceed 5% of total outstanding loans and
obligations of the thrift. Consumer loans secured by real property with terms in
excess of three years must be repayable in substantially equal periodic payments
unless such loans are covered under the Garn-St. Germain Depository Institutions
Act of 1982 (primarily single-family residential loans). Non-consumer loans may
be repayable in unequal periodic payments during their respective terms.
California law limits lending activities outside of California by thrift and
loan companies to no more than 30% of total assets.
17
<PAGE> 19
California law contains extensive requirements for the diversification of
the loan portfolios of thrift and loan companies. A thrift and loan with
outstanding investment certificates may not, among other things, place more than
5% of its loans or other obligations in loans or obligations which are secured
only partially, but not primarily, by real property; may not make any one loan
secured primarily by improved real property which exceeds 20% of its paid-up and
unimpaired capital stock and surplus not available for dividends; may not lend
an amount in excess of 5% of its paid-up and unimpaired capital stock and
surplus not available for dividends upon the security of the stock of any one
corporation; may not make loans to, or hold the obligations of, any one person
as primary obligor in an aggregate principal amount exceeding 20% of its paid-up
and unimpaired capital stock and surplus not available for dividends; and may
have no more than 70% of its total assets in loans which have remaining terms to
maturity in excess of seven years and are secured solely or primarily by real
property. At December 31, 1995, Fremont I & L was in compliance with all of
these requirements.
A thrift and loan generally may not make any loans to, or hold an
obligation of, any of its directors or officers or any director or officer of
its holding company or affiliates, except in specified cases and subject to
regulation by the DOC. Further, a thrift and loan may not make any loan to, or
hold an obligation of, any of its shareholders or any shareholder of its holding
company or affiliates, except that this prohibition does not apply to persons
who own less than 10% of the stock of a holding company or affiliate which is
listed on a national securities exchange, such as Fremont General. Any person
who wishes to acquire (i) 10% or more of the voting securities of a California
thrift and loan company, or (ii) 10% or more of the voting securities of a
holding company of a California thrift and loan company, such as the Company,
must obtain the prior approval of the DOC. The LYONs are not voting securities
of the Company, but the shares of Common Stock into which such LYONs are
convertible constitute voting securities of the Company. Fremont I & L must also
obtain prior written approval from the DOC before it may open or relocate any
branch or loan production office or close a branch office.
The Industrial Loan Law prohibits an industrial loan company from having
deposits at any time in an aggregate sum in excess of 20 times the aggregate
amount of its paid-up unimpaired capital and such of its unimpaired surplus as
is declared by its by-laws not to be available for cash dividends. Fremont I & L
currently has an authorized ratio of deposits to such capital of 17 to 1.
Federal Law. Fremont I & L's deposits are insured by the FDIC to the full
extent permitted by law. As an insurer of deposits, the FDIC issues regulations,
conducts examinations, requires the filing of reports and generally supervises
the operations of institutions to which it provides deposit insurance. Fremont I
& L is subject to the rules and regulations of the FDIC to the same extent as
other financial institutions which are insured by that entity. The approval of
the FDIC is required prior to any merger, consolidation or change in control or
the establishment or relocation of any branch office of Fremont I & L. This
supervision and regulation is intended primarily for the protection of the
insured deposit funds. Prior written notice to the FDIC is required to close a
branch office.
Fremont I & L is subject to federal risk-based capital adequacy guidelines
which provide a measure of capital adequacy and are intended to reflect the
degree of risk associated with both on- and off-balance sheet items, including
residential real estate loans sold with recourse, legally binding loan
commitments and standby letters of credit. A financial institution's risk-based
capital ratio is calculated by dividing its qualifying capital by its
risk-weighted assets. Financial institutions are generally expected to meet a
minimum ratio of qualifying total capital to risk-weighted assets of 8%, of
which at least 4% of qualifying total capital must be in the form of core
capital ("Tier 1") -- common stock, noncumulative perpetual preferred stock,
minority interests in equity capital accounts of consolidated subsidiaries and
allowed mortgage servicing rights, less all intangible assets other than allowed
mortgage servicing rights and eligible purchased credit card relationships.
Supplementary capital ("Tier 2") consists of the allowance for loan and lease
losses up to 1.25% of risk-weighted assets, cumulative perpetual preferred
stock, long-term preferred stock (original maturity of at least 20 years),
perpetual preferred stock, hybrid capital instruments, term subordinated debt
and intermediate term preferred stock (original average maturity of five years
or more). The maximum amount of Tier 2 capital which may be recognized for
risk-based capital purposes is limited to 100% of Tier 1 capital (after any
deductions for disallowed intangibles). The aggregate amount of term
subordinated debt and intermediate term preferred stock that may be treated as
Tier 2 capital is limited to 50% of Tier 1 capital. Certain other limitations
and restrictions also apply. At December 31, 1994, the Tier 2 capital of Fremont
I & L consisted of
18
<PAGE> 20
approximately $10.6 million of allowance for possible loan losses. As of
December 31, 1995, Fremont I & L's allowance for possible loan losses for Tier 2
capital increased to $11.9 million. See "Financial Services -- Real Estate
Lending." The following table presents Fremont I & L's risk-based capital
position at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------ ------------------------
PERCENT OF PERCENT OF
RISK-WEIGHTED RISK-WEIGHTED
AMOUNT ASSETS AMOUNT ASSETS
--------- ------------- --------- -------------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C>
Tier 1 capital.......................... $ 89,374 9.46% $ 80,385 9.57%
Minimum requirement..................... 37,782 4.00 33,590 4.00
-------- ----- -------- -----
Excess........................ $ 51,592 5.46% $ 46,795 5.57%
======== ===== ======== =====
Total capital........................... $ 101,248 10.72% $ 90,937 10.83%
Minimum requirement..................... 75,564 8.00 67,179 8.00
-------- ----- -------- -----
Excess........................ $ 25,684 2.72% $ 23,758 2.83%
======== ===== ======== =====
Risk-weighted assets.................... $ 944,553 $ 839,743
======== ========
</TABLE>
The FDIC has adopted a 3% minimum leverage ratio which is intended to
supplement risk-based capital requirements and to ensure that all financial
institutions continue to maintain a minimum level of core capital. A minimum
leverage ratio of 3% is required for institutions which have been determined to
be the highest of five categories used by regulators to rate financial
institutions. All other institutions (including Fremont I & L) will likely be
required to maintain leverage ratios of at least 100 to 200 basis points above
the 3% minimum. It is improbable, however, that an institution with a 3% core
capital-to-total assets ratio would be rated in the highest category since a
strong capital position is so closely tied to the rating system. Therefore, the
"minimum" leverage ratio is, for all practical purposes, significantly above 3%.
The following table presents Fremont I & L's leverage ratio (the ratio of Tier 1
capital to the quarterly average of total assets) at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------ ------------------------
PERCENT OF PERCENT OF
AVERAGE TOTAL AVERAGE TOTAL
AMOUNT ASSETS AMOUNT ASSETS
--------- ------------- --------- -------------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C>
Tier 1 capital............................ $ 89,374 9.02% $ 80,385 9.79%
Minimum requirement....................... 29,735 3.00 24,643 3.00
-------- ---- -------- ----
Excess.......................... 59,639 6.02% $ 55,742 6.79%
======== ==== ======== ====
Average total assets for the quarter ended
December 31,............................ $ 991,163 $ 821,434
======== ========
</TABLE>
The FDIC has designated Fremont I & L as a "well-capitalized" institution
under the regulations promulgated under the Federal Deposit Insurance
Corporation Improvement Act of 1991. A "well-capitalized" institution has a
total risk-based capital ratio of at least 10%, has a Tier 1 risk-based capital
ratio of at least 6.0%, has a leverage ratio of at least 5.0% and is not subject
to any written agreement, order, capital directive or prompt corrective action
directive issued by the FDIC under Section 8 or Section 38 of the Federal
Deposit Insurance Act to meet and maintain a specific capital level for any
capital measure. The total risk-based capital ratio is the ratio of qualifying
total capital to risk-weighted assets and the Tier 1 risk-based capital ratio is
the ratio of Tier 1 capital to risk-weighted assets. In August 1994, an
additional $23 million was contributed to the capital of Fremont I & L to
support the growth in the loan portfolio during 1994.
As a "well-capitalized" institution, Fremont I & L's annual FDIC insurance
premiums were 23 cents per $100 of eligible domestic deposits in 1994. In 1995,
this annual insurance premium rate was increased to 26 cents for the period
January 1, 1995 through June 30, 1995, and then significantly decreased to 7
cents for the period July 1, 1995 through December 31, 1995. This rate has been
further decreased to 3 cents effective for the period January 1, 1996 through
June 30, 1996. The insurance premium payable is subject to semi-
19
<PAGE> 21
annual adjustment. The FDIC, by the first day of the month preceding each
semi-annual period, is required to notify each insured institution of its
assessment risk-classification upon which the insurance premium assessment for
the following period will be based. The FDIC has the authority to assess to all
insured institutions collectively, additional premiums to cover losses and
expenses associated with insuring deposits maintained at financial institutions
and for other purposes it deems necessary.
Limitations on Dividends. Under California law, a thrift is not permitted
to declare dividends on its capital stock unless it has at least $750,000 of
unimpaired capital plus additional capital of $50,000 for each branch office
maintained. In addition, no distribution of dividends is permitted unless: (i)
such distribution would not exceed a thrift's retained earnings; (ii) any
payment would result in violation of the approved maximum capital to thrift
investment certificate ratio; or (iii) in the alternative, after giving effect
to the distribution, the sum of a thrift and loan's qualified assets would be
not less than 125% of certain of its liabilities, or with certain exceptions,
current assets would be not less than current liabilities. In addition, a thrift
and loan is prohibited from paying dividends from that portion of capital which
its board of directors has declared restricted for dividend payment purposes. In
policy statements, the FDIC has advised insured institutions that the payment of
cash dividends in excess of current earnings from operations is inappropriate
and may be cause for supervisory action. Under the Financial Institutions
Supervisory Act and the Financial Institutions Reform, Recovery and Enforcement
Act of 1989, federal regulators also have authority to prohibit financial
institutions from engaging in business practices which are considered to be
unsafe or unsound. It is possible that, depending upon the financial condition
of Fremont I & L and other factors, such regulators could assert that the
payment of dividends in some circumstances might constitute unsafe or unsound
practices and could prohibit payment of dividends even though technically
permissible.
Fremont I & L is also subject to federal consumer protection laws,
including the Truth In Savings Act, the Truth in Lending Act, the Community
Reinvestment Act and the Real Estate Settlement Procedures Act.
Commercial Finance
Fremont Financial is licensed under the California Finance Lenders Law by
the California Department of Corporations as a commercial finance lender and a
personal property broker and holds certain other licenses.
Intercompany Transactions
The payment of stockholders' dividends and the advancement of loans to the
Company by its subsidiaries are and may continue to be subject to certain
statutory and regulatory restrictions.
EMPLOYEES
At December 31, 1995, the Company had 1,826 employees, none of whom is
represented by a collective bargaining agreement. The Company believes its
relations with employees are good.
ITEM 2. PROPERTIES
Substantially all facilities used by the Company are leased.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries and affiliates are parties to various
legal proceeding, which in some instances include claims for punitive damages,
all of which are considered routine and incidental to their business. The
Company believes that ultimate resolution or settlement of such matters will not
have a material adverse effect on its consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
20
<PAGE> 22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange
("NYSE") under the trading symbol "FMT." The following table sets forth the high
and low sales prices of the Company's Common Stock adjusted retroactively for a
three for two stock split effective January 8, 1996 and a ten percent stock
dividend distributed June 15, 1995 as reported as composite transactions on the
NYSE and the adjusted cash dividends declared on the Company's Common Stock
during each quarter presented.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
------ ------ ---------
<S> <C> <C> <C>
1995
1st Quarter...................................... 14 5/32 11 3/4 $0.12
2nd Quarter...................................... 17 13/32 17 7/16 0.13
3rd Quarter...................................... 19 5/32 16 0.13
4th Quarter...................................... 24 27/32 17 21/32 0.13
-----
Total.......................................... $0.51
=====
1994
1st Quarter...................................... 15 1/16 13 1/32 $0.11
2nd Quarter...................................... 14 15/16 13 1/32 0.11
3rd Quarter...................................... 15 3/4 13 7/8 0.11
4th Quarter...................................... 15 13 11/32 0.12
-----
Total.......................................... $0.45
=====
</TABLE>
On December 31, 1995, the closing sale price of the Company's Common Stock
on the NYSE was $24.50 per share. There were 1,320 stockholders of record as of
December 31, 1995.
The Company has paid cash dividends in every quarter since its initial
public offering in 1977. While the Company intends to continue to pay dividends,
the decision to do so is made quarterly by the Board of Directors and is
dependent on the earnings of the Company, management's assessment of future
capital needs, and other factors. As a holding company, Fremont General's
ability to pay dividends to its stockholders is partially dependent on dividends
from its subsidiaries. The ability of several of these subsidiaries to
distribute dividends is subject to certain statutory and regulatory restrictions
and various agreements, principally loan agreements, of the subsidiaries that
restrict the ability of the respective subsidiaries to pay cash dividends or
advance loans and other payments to the Company and is contingent upon the
earnings of those subsidiaries. See Note J to Consolidated Financial Statements
and "Business -- Regulation."
21
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995(1) 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Property and casualty premiums
earned.......................... $ 606,917 $ 433,584 $ 455,765 $ 411,956 $ 413,156
Net investment income.............. 119,523 76,821 77,198 70,820 73,796
Loan interest income............... 162,992 113,382 87,244 73,310 60,685
Realized investment gains
(losses)........................ 1 (315) 2,165 16,208 5,290
Other revenue...................... 34,381 29,676 29,033 26,399 28,247
---------- ---------- ---------- ---------- ----------
Total revenues..................... $ 923,814 $ 653,148 $ 651,405 $ 598,693 $ 581,174
========= ========= ========= ========= =========
Property and casualty income....... $ 83,092 $ 61,265 $ 52,092 $ 45,187 $ 37,946
Financial services income.......... 35,737 28,014 21,456 14,878 9,340
Other interest and corporate
expense......................... (18,502) (7,708) (9,200) (11,484) (6,277)
---------- ---------- ---------- ---------- ----------
Income before taxes, discontinued
operations and cumulative effect
of accounting change............ 100,327 81,571 64,348 48,581 41,009
Income tax expense................. (32,305) (25,759) (21,638) (13,381) (8,878)
Discontinued operations............ -- -- -- -- (964)
Cumulative effect of accounting
change for income taxes......... -- -- -- 43,509 --
---------- ---------- ---------- ---------- ----------
Net income......................... $ 68,022 $ 55,812 $ 42,710 $ 78,709 $ 31,167
========= ========= ========= ========= =========
GAAP RATIOS FOR PROPERTY AND CASUALTY
SUBSIDIARIES:
Loss ratio......................... 76.0% 63.1% 70.0% 80.4% 72.7%
Expense ratio...................... 24.5% 23.4% 21.3% 22.5% 24.5%
Policyholder dividends ratio....... 0.0% 11.5% 9.9% 2.5% 8.8%
---------- ---------- ---------- ---------- ----------
Combined ratio..................... 100.5% 98.0% 101.2% 105.4% 106.0%
========= ========= ========= ========= =========
PER SHARE DATA (2):
Cash dividends declared............ $ 0.51 $ 0.45 $ 0.44 $ 0.39 $ 0.35
Stockholders' equity:
Including FASB 115 for 1994 and
1995 (3)...................... 19.62 13.82 N/A N/A N/A
Excluding FASB 115 for 1994 and
1995 (3)...................... 18.76 16.40 14.55 13.39 9.79
Income before discontinued
operations and cumulative effect
of accounting change:
Primary......................... 2.61 2.16 1.85 1.73 1.57
Fully diluted................... 2.17 1.82 1.65 1.53 1.43
Net income:
Primary......................... 2.61 2.16 1.85 3.84 1.52
Fully diluted................... 2.17 1.82 1.65 3.29 1.39
WEIGHTED AVERAGE SHARES USED TO
CALCULATE PER SHARE DATA (2):
Primary............................ 26,079 25,823 23,039 20,498 20,491
Fully diluted...................... 33,343 33,034 28,243 24,734 24,481
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1995(1) 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets....................... $4,477,399 $3,134,390 $2,669,290 $2,070,533 $1,952,169
Fixed income and other
investments..................... 1,937,890 888,918 1,055,289 782,542 772,947
Loans receivable................... 1,499,043 1,440,774 846,443 689,443 519,874
Claims and policy liabilities...... 1,971,719 1,012,704 1,007,054 812,081 838,459
Short-term debt.................... 72,191 176,325 78,087 208,013 147,450
Long-term debt..................... 693,276 468,390 451,581 100,572 101,303
Stockholders' equity:
Including FASB 115 for 1994 and
1995(3)....................... 498,090 351,013 N/A N/A N/A
Excluding FASB 115 for 1994 and
1995(3)....................... 476,491 416,378 369,369 271,710 198,724
</TABLE>
- ---------------
(1) The Company acquired Casualty Insurance Company on February 22, 1995.
(2) Adjusted for a three-for-two split of the Common Stock distributed on
February 7, 1996 to stockholders of record at close of business on January
8, 1996; a ten percent stock dividend distributed June 1995; and a
three-for-two split of the Common Stock effected June 1993.
(3) Effective January 1994, FASB 115 changed the accounting treatment afforded
the Company's investment portfolio wherein unrealized gains and losses on
securities designated by the Company as available for sale are included, net
of deferred taxes, as a component of stockholders' equity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Fremont General Corporation, a nationwide property and casualty insurance
and financial services holding company, operates through its wholly-owned
subsidiaries in select businesses in niche markets. The three core operating
lines of business are workers' compensation insurance, real estate lending and
commercial finance lending. Additionally, on a smaller scale, the Company is
involved in underwriting various other insurance products. The primary operating
strategy of the Company is to build upon its core business units through
acquisition opportunities and new business development. The Company's secondary
strategy is to achieve income balance and geographic diversity among its
business units in order to limit the exposure of the Company to industry, market
and regional concentrations.
The Company began its workers' compensation insurance operations in 1959
and continues to derive the majority of its revenues from this business. The
Company's workers' compensation insurance business has grown through internal
expansion, as well as through the acquisition of other workers' compensation
insurance companies. In 1989, the Company restructured its workers' compensation
insurance operations under a single management group. By consolidating duplicate
offices and functions, this management group has increased efficiency and
achieved substantial cost savings.
More recently, on February 22, 1995, the Company completed the acquisition
of all outstanding stock of Casualty Insurance Company ("Casualty") and its
wholly-owned subsidiary Workers' Compensation and Indemnity Company ("WCIC")
from the Buckeye Union Insurance Company ("Buckeye"). Casualty underwrites
workers' compensation insurance primarily in Illinois and several other
mid-western states, as well as a modest amount through WCIC in California.
Casualty currently is the largest underwriter of workers' compensation insurance
in Illinois and has provided the Company with a significant presence in the mid-
western region. The Casualty acquisition has provided geographic diversity
within the Company's workers' compensation insurance business segment and the
Company's 1995 revenues from workers' compensation insurance premiums were
evenly divided between the west and mid-west regions. The Company believes this
geographic diversity mitigates potential fluctuations in earnings from cyclical
downturns in various regional economies.
23
<PAGE> 25
The Company's balance sheet at December 31, 1995 has been significantly
impacted by the acquisition of Casualty. The purchase price was $250 million,
comprised of $225 million in cash and $25 million in a note payable to Buckeye.
In addition, $6.5 million of costs were incurred in connection with the
acquisition bringing the total cost to $256.5 million. The acquisition was
treated as a purchase for accounting purposes and approximately ten months of
Casualty's operating results are included in the Company's results of operations
for the year ended December 31, 1995. At the acquisition date, the assets
acquired and liabilities assumed, net of the purchase price and purchase
accounting adjustments, are summarized in the following table:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C>
Assets acquired:
Fixed maturity investments -- at fair value............. $ 15,646
Short-term investments.................................. 472,166
Premiums receivable and agents' balances................ 67,117
Reinsurance recoverable on paid and unpaid losses....... 185,145
Deferred policy acquisition costs....................... 12,656
Deferred income taxes................................... 59,830
Costs in excess of net assets acquired.................. 45,036
Other assets, including cash, accrued investment income,
state deferred taxes and trade name.................. 37,719
--------
Total assets acquired........................... $895,315
========
Liabilities assumed:
Losses and loss adjustment expenses..................... $787,663
Unearned premiums....................................... 83,323
Dividends to policyholders.............................. 17,660
Other liabilities....................................... 6,669
--------
Total liabilities assumed....................... $895,315
========
</TABLE>
Since the date of acquisition, the Company has re-invested the short-term
investments acquired into longer term investments. This accounts for the
significant increase in the Company's fixed maturity and non-redeemable
preferred stock portfolios for the year ended December 31, 1995. See Note B of
Notes to Consolidated Financial Statements for additional information with
respect to the acquisition of Casualty.
In July 1993, California enacted legislation to reform the workers'
compensation insurance system and to, among other things, adopt an open rating
system through the repeal of the minimum rate law effective January 1, 1995. The
repeal of the minimum rate law has resulted in lower premiums and lower
profitability on the Company's California workers' compensation insurance
policies due to increased price competition. The Company expects that the
premiums earned in California will continue to decrease, principally due to
price competition. See "Results of Operations -- Property and Casualty Insurance
Operations -- Premiums." The Company believes that its acquisition of Casualty,
with policies written primarily outside of California, has lessened the impact
of the repeal of the minimum rate law by providing geographic diversity, which
mitigates the impact of economic and regulatory changes within a regional
marketplace. In Illinois, where Casualty underwrites the majority of its
workers' compensation insurance premiums, price competition will continue to
impact workers' compensation companies due to an overall average decrease in
advisory rates of 13.6% which became effective January 1, 1996. Although
insurance companies are not required to adopt such advisory rates, companies in
Illinois generally follow such rates. See "Results of Operations -- Property and
Casualty Insurance Operations -- Workers' Compensation Regulation."
In 1990, the Company acquired Fremont Investment & Loan (formerly Investors
Thrift), a California thrift and loan that now serves more than 23,000 customers
through its 12 branches. The thrift and loan operations are primarily engaged in
commercial and residential real estate lending. For commercial real estate
loans, principal amounts primarily range between $1 to $5 million and for
residential real estate loans, principal amounts are generally below $300,000.
The Company's operating strategy is to pursue growth of the
24
<PAGE> 26
loan portfolio through origination of new loans and acquisition of loan
portfolios that meet its underwriting guidelines applied to origination of new
loans. Assets of the real estate lending operation grew from $278 million at the
end of 1991 to $1.05 billion at the end of 1995, due primarily to increased loan
originations and to the purchase of loan portfolios from other financial
institutions. See "Item 1. Business -- Financial Services Operations -- Real
Estate Lending." The ability of the Company to continue to originate loans, and
of borrowers to repay outstanding loans, may be impaired by adverse changes in
local or regional economic conditions which affect such areas or by adverse
changes in the real estate market in those areas. Such events could also
significantly impair the value of the underlying collateral. If the Company's
collateral were to prove inadequate, the Company's results of operations could
be adversely affected.
The Company's commercial finance subsidiary, Fremont Financial Corporation
("Fremont Financial"), provides working capital loans, primarily secured by
accounts receivable and inventory, to small and middle market companies on a
nationwide basis. Fremont Financial's total loan portfolio grew from $189
million at December 31, 1991 to $569 million at December 31, 1995. This growth
has been achieved through development of Fremont Financial's customer base
through loan originations and through participation in syndicated loan
transactions. See "Item 1. Business -- Financial Service
Operations -- Commercial Finance." The lending market has become increasingly
competitive for small to middle market commercial borrowers. As a result,
Fremont Financial has experienced decreasing yields on its commercial finance
loans.
Adverse economic developments can negatively affect the Company's business
and results of operations in a number of ways. Such developments can reduce the
demand for loans, impair the ability of borrowers to pay loans and impair the
value of the underlying collateral.
Between 1986 and 1991, the Company discontinued its domestic treaty
reinsurance business, its other primary and excess property and casualty
insurance operations and the underwriting of all remaining assumed reinsurance.
In 1990, a single management group was put in charge of all discontinued
operations, and it is the intention of the Company to complete the liquidation
of these operations by the commutation of liabilities and as claims are paid.
See "Item 1. Business -- Discontinued Operations" and Note M of Notes to
Consolidated Financial Statements.
On December 4, 1995, the Company announced a three-for-two stock split of
its Common Stock for stockholders of record at January 8, 1996. The stock split
was distributed on February 7, 1996.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of a variety
of factors, including the risk factors set forth within Management's Discussion
and Analysis of Financial Condition and Results of Operations and elsewhere
herein.
RESULTS OF OPERATIONS
By providing diverse insurance and financial services to small and
medium-sized businesses, the Company has achieved growth in both revenues and
net income during the three years ended December 31, 1995. Higher revenues and
net income in 1995 were also achieved through the acquisition of Casualty. The
25
<PAGE> 27
following table presents information for each of the three years in the period
ended December 31, 1995 with respect to the Company's core business segments.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues:
Workers' compensation............................ $671,110 $458,461 $489,126
Professional medical liability, corporate and
other......................................... 37,077 37,251 33,999
-------- -------- --------
Total property and casualty................... 708,187 495,712 523,125
Financial services............................... 214,975 154,398 125,732
Corporate........................................ 652 3,038 2,548
-------- -------- --------
Total......................................... $923,814 $653,148 $651,405
======== ======== ========
Income (Loss) Before Taxes:
Workers' compensation............................ $ 85,009 $ 62,199 $ 49,775
Professional medical liability, corporate and
other......................................... (1,917) (934) 2,317
-------- -------- --------
Total property and casualty................... 83,092 61,265 52,092
Financial services............................... 35,737 28,014 21,456
Corporate........................................ (18,502) (7,708) (9,200)
-------- -------- --------
Total......................................... $100,327 $ 81,571 $ 64,348
======== ======== ========
</TABLE>
The Company generated revenues of $924 million for 1995, as compared to
revenues of $653 million and $651 million for 1994 and 1993, respectively.
Revenues were higher in 1995 as compared to 1994, due primarily to higher
workers' compensation insurance premiums, net investment income and loan
interest income. The higher workers' compensation insurance premiums and net
investment income are due primarily to the acquisition of Casualty, partially
offset by lower insurance premiums earned in California. See "Property and
Casualty Insurance Operations -- Premiums." Revenues between 1994 and 1993 were
flat due primarily to the combined effects of higher loan interest,
substantially offset by lower workers' compensation insurance premiums. Realized
investment gains (losses) were $1,000, $(315,000) and $2,165,000 in 1995, 1994
and 1993, respectively.
The Company had net income of $68.0 million or $2.61 per share for 1995, as
compared to $55.8 million or $2.16 per share and $42.7 million or $1.85 per
share for 1994 and 1993, respectively. Income before taxes for 1995 was $100.3
million as compared to $81.6 million and $64.3 million for 1994 and 1993,
respectively.
Workers' compensation insurance operations posted income before taxes of
$85.0 million for 1995, as compared to $62.2 million for 1994 and $49.8 million
for 1993. The 37% increase in income before taxes in 1995 is due primarily to
the acquisition of Casualty, offset partially by lower income on the Company's
California business. The 25% increase in income before taxes in 1994 is due
primarily to the continued decline in the frequency and severity of reported
claims incurred on the 1992 through 1994 accident years and lower than expected
operating costs, offset partially by lower premiums. The combined ratio for 1995
was 100.4% compared to 97.6% and 101.6% for 1994 and 1993, respectively.
The Company's professional medical liability, corporate and other segment
is composed principally of revenues and expenses that pertain to the Company's
professional medical liability business ("medical malpractice"), as well as
miscellaneous expenses associated with the Company's downstream property and
casualty insurance holding company, Fremont Insurance Group, Inc., ("Fremont
Insurance Group"). Medical malpractice revenues were flat at $34.3 million in
1995 as compared to $33.0 million for 1994. Medical malpractice revenues
increased in 1994 from $29.2 million in 1993 due primarily to a shift in
underwriting focus towards those medical specialties that had higher premiums.
Income before taxes for the medical malpractice business was $5.2 million, $6.6
million and $10.2 million for 1995, 1994 and 1993, respectively. The decrease in
income before taxes in 1995 and 1994, as compared to 1993, is due primarily to
an increase in the frequency and severity of reported claims. Expenses of
Fremont Insurance Group include
26
<PAGE> 28
interest expense on debt and other obligations of $6.7 million, $5.5 million and
$4.5 million, respectively, for 1995, 1994 and 1993, and overhead expenses of
$2.2 million, $3.1 million and $3.3 million for the corresponding periods. Since
the operations of Fremont Insurance Group consist primarily of interest expense
and overhead expenses management does not expect it to operate at a profit.
The financial services business segment posted increases of 28% and 31% in
income before taxes for 1995 and 1994, respectively. These increases are
consistent with increases in financial services revenues and are due primarily
to the significant growth in the average loan portfolio over the three year
period ended December 31, 1995 from $783 million in 1993 to $1.5 billion in
1995. Contributing to this growth in the average loan portfolio is the
acquisition of approximately $366 million in primarily commercial real estate
loan portfolios which were completed during the last six months of 1994. This
segment, which consists principally of real estate lending and commercial
finance operations, recorded income before taxes of $35.7 million, $28.0 million
and $21.5 million for 1995, 1994 and 1993, respectively.
Corporate revenues consisted primarily of investment income, while
corporate expenses consisted primarily of interest expense and general and
administrative expense. The corporate loss before income taxes was $18.5
million, $7.7 million and $9.2 million for 1995, 1994 and 1993, respectively.
The increase in the corporate loss before taxes in 1995 over 1994 was due
primarily to increased interest expense and decreased investment income. The
increase in interest expense is due primarily to additional debt incurred in the
acquisition of Casualty, along with modest increases in administrative expenses.
The decrease in corporate loss before taxes in 1994 compared to 1993 was
primarily due to increased investment income and higher intercompany interest
income from the Company's subsidiaries.
Income tax expense of $32.3 million, $25.8 million and $21.6 million for
1995, 1994 and 1993, respectively, represent effective tax rates of 32%, 32% and
34% on pretax income of $100.3 million, $81.6 million and $64.3 million for the
corresponding periods. The Company's effective tax rates for all years presented
are lower than the enacted federal income tax rate of 35%, due primarily to tax
exempt investment income which reduces the Company's taxable income.
Property and Casualty Insurance Operations
The following table represents information with respect to the Company's
property and casualty insurance operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues........................................... $708,187 $495,712 $523,125
Expenses........................................... 625,095 434,447 471,033
-------- -------- --------
Income Before Taxes................................ $ 83,092 $ 61,265 $ 52,092
======== ======== ========
</TABLE>
Revenues from the property and casualty insurance operations consist
primarily of workers'compensation insurance premiums earned and net investment
income. Expenses consist primarily of loss and loss adjustment expenses, policy
acquisition costs, other operating costs and expenses and, for the years ended
December 1994 and 1993, dividends to policyholders.
Premiums. Premiums earned from the Company's workers' compensation
insurance operations were $575.0 million in 1995, as compared to $401.5 million
and $426.8 million in 1994 and 1993, respectively. Premiums were significantly
higher in 1995 due primarily to the acquisition of Casualty, partially offset by
lower premiums earned in California. For the year ended December 31, 1995, the
Company's workers' compensation insurance premiums earned in its western region,
consisting primarily of California, accounted for $292 million, or 51% of the
Company's total workers' compensation insurance premiums earned for such period,
representing a decrease of $109 million from 1994. This decrease was due
primarily to the increased price competition resulting from California's
adoption of an open rating system and the repeal of the minimum rate law. See
"Workers' Compensation Regulation." This increased price competition has led to
(i) lower premium rates and (ii) a lower average policy size due to the
Company's shift in focus to smaller employers.
27
<PAGE> 29
Additionally, non-renewing polices have increased in 1995 which has also
contributed to the lower premium volume in California. The increase in
non-renewing polices occurs as a result of certain premium prices falling below
required minimum pricing pursuant to the Company's underwriting standards. The
Company expects that the premiums earned in California will continue to
decrease, principally due to price competition. For the year ended December 31,
1995, the Company's workers' compensation insurance premiums earned in its mid-
western region, consisting primarily of Illinois, accounted for $283 million, or
49% of the Company's total workers' compensation insurance premiums earned. In
addition, the Company anticipates price competition to continue in Illinois,
where an additional overall average decrease of 13.6% in advisory rates, which
workers' compensation insurance companies in Illinois tend to follow, became
effective January 1, 1996. Premiums were lower in 1994 as compared to 1993, due
primarily to reductions in California workers' compensation manual premium rates
which occurred in the last six months of 1993.
Net Investment Income. Net investment income within the property and
casualty insurance operations was $101.3 million, $62.2 million and $65.7
million in 1995, 1994 and 1993, respectively. Significantly higher invested
assets, due primarily to the acquisition of Casualty, resulted in increased
investment income in 1995 as compared to 1994 and 1993. The effects of lower
invested assets and lower investment yields during 1994 resulted in net
investment income levels lower as compared to 1993. See "Item 1.
Business -- Investment Portfolio."
Loss and Loss Adjustment Expense. Workers' compensation loss and loss
adjustment expenses ("LAE") were $436.7 million, $249.4 million and $300.5
million in 1995, 1994 and 1993, respectively. In addition, the ratio of these
losses and LAE to workers' compensation insurance premiums earned was 75.9%,
62.1% and 70.4% in 1995, 1994 and 1993, respectively. The increase in incurred
loss and LAE in 1995 as compared to 1994 is due primarily to the acquisition of
Casualty, partially offset by lower incurred loss and LAE in California.
Additionally, the increase in the loss and LAE ratio in 1995 as compared to
1994, is partially due to lower premiums on California policies which resulted
from increased competition in 1995. See "Premiums." The decrease in California
premiums was greater than the decrease in California incurred loss and LAE,
thereby resulting in a higher loss and LAE ratio. The negative impact on the
Company's profitability resulting from the higher loss and LAE ratio has been
mitigated to an extent by the elimination of dividends accrued on California
workers' compensation business in 1995. The dividend elimination occurred as the
majority of the workers' compensation policies written in 1995 were
non-participating. This type of policy is not eligible for dividend
consideration. See "Dividends to Policyholders." The decrease in the loss ratio
in 1994 as compared to 1993 is due primarily to the positive impacts of the
continued decrease in the frequency and severity of reported claims on the 1992
and subsequent accident years, particularly in Southern California, which began
in mid-1992. The Company attributes this reduction in claim frequency and
severity to aggressive loss control and improved underwriting. Improved loss
control has been achieved through a significant effort to reduce fraudulent
workers' compensation claims by California law enforcement and regulatory
authorities, the insurance industry and the Company under its "zero tolerance"
program. Underwriting improvements were made to focus on businesses with stable
work environments and less hazardous occupations. See "Item 1.
Business -- Insurance Operations -- Loss and Loss Adjustment Expense Reserves."
The Company regularly reviews its reserving techniques, overall reserve
position and reinsurance. In light of present facts and current legal
interpretations, management believes that adequate provisions have been made for
loss reserves. In making this determination, management has considered its
claims experience to date, loss development history for prior accident years and
estimates of future trends of claims frequency and severity. However,
establishment of appropriate reserves is an inherently uncertain process, and
there can be no certainty that currently established reserves will prove
adequate in light of subsequent actual experience. Subsequent actual experience
has resulted and could result in loss reserves being too high or too low. Future
loss development could require reserves for prior periods to be increased, which
would adversely impact earnings in future periods.
Policy Acquisition Costs and Other Operating Costs and Expenses. The ratio
of policy acquisition costs and other operating costs and expenses to premiums
earned is referred to as the expense ratio, which was 24.5%, 23.4% and 21.3% in
1995, 1994 and 1993, respectively. The increase in this ratio in 1995 and 1994,
as compared to 1993, was due primarily to higher agents' commission costs.
28
<PAGE> 30
Dividends to Policyholders. In 1995 there were no dividends accrued. This
is compared to $49.7 million and $45.2 million in dividends accrued in 1994 and
1993, respectively. The ratio of dividends accrued to workers' compensation
insurance premiums earned therefore decreased to 0% in 1995 from 12.4% and 10.6%
in 1994 and 1993, respectively. The significant decrease in dividends accrued is
due in part to a change in the type of workers' compensation insurance policy
written on and after January 1, 1995. In 1995, the Company's workers'
compensation insurance policies, both in California and those underwritten by
Casualty, were predominately written as non-participating, which does not
include provisions for dividend consideration. In 1994 and prior, the Company's
policies were predominately written as participating, thereby obligating the
Company to consider the payment of dividends. This shift in policy type is due
primarily to the increased competition in the California market which has
resulted from the repeal of the minimum rate law, effective January 1, 1995. The
Company anticipates that this shift to non-participating policies will continue
and be a characteristic element of the competitive environment established by
the July 1993 California legislation. See "Workers' Compensation Regulation."
Variability of Operating Results. The Company's profitability can be
affected significantly by many factors including competition, the severity and
frequency of claims, interest rates, regulations, court decisions, the judicial
climate, and general economic conditions and trends, all of which are outside of
the Company's control. These factors have contributed, and in the future could
contribute, to significant variation of results of operations in different
aspects of the Company's business from quarter to quarter and year to year. With
respect to the workers' compensation insurance business, changes in economic
conditions can lead to reduced premium levels due to lower payrolls as well as
increased claims due to the tendency of workers who are laid off to submit
workers' compensation claims. Legislative and regulatory changes can also
contribute to variable operating results for workers' compensation insurance
businesses. For example, in 1995, the Company experienced the negative impact of
lower premiums and lower profitability on the Company's California workers'
compensation business due to increased price competition resulting from
legislation enacted in California in July 1993 which, among other things,
repealed the minimum rate law effective January 1, 1995. See "Workers'
Compensation Regulation." The Company anticipates that its workers' compensation
insurance premiums earned in California will continue to decrease as a result of
this increased price competition, which could adversely affect the Company's
results of operations and financial condition. See "Premiums." Also, the
establishment of appropriate reserves necessarily involves estimates, and
reserve adjustments have caused significant fluctuations in operating results
from year to year.
Workers' Compensation Regulation. Illinois began operating under an open
rating system in 1982 and California began operating under such a system
effective January 1, 1995. In an open rating system, workers' compensation
companies are provided with advisory rates by job classification and each
insurance company determines its own rates based in part upon its particular
operating and loss costs. Although insurance companies are not required to adopt
such advisory rates, companies in Illinois generally follow such rates. However,
insurance companies in California have, since the adoption of an open rating
system, generally set their premium rates below such advisory rates. Before
January 1, 1995, California operated under a minimum rate law, whereby premium
rates established by the California Department of Insurance were the minimum
rates which could be charged by an insurance carrier.
In July 1993, California enacted legislation to reform the workers'
compensation insurance system and to, among other things, (i) reduce workers'
compensation manual premium rates by 7% effective July 16, 1993 and (ii) repeal
the minimum rate law effective January 1, 1995. In addition to the July 1993
legislation, in December 1993, the California Insurance Commissioner reduced
workers' compensation manual premium rates on new and renewal business an
additional 12.7% effective January 1, 1994. In September 1994, California
workers' compensation manual premium rates were further reduced by 16% effective
October 1, 1994 on all business incepting on or after January 1, 1994.
The repeal of the minimum rate law on January 1, 1995 has resulted in lower
premiums and lower profitability in the Company's California workers'
compensation insurance business due to increased price competition. The Company
believes that its acquisition of Casualty, with policies written primarily
outside of California, has lessened the impact of the repeal of the minimum rate
law by providing geographic diversity, which mitigates the impact of economic
and regulatory changes within a regional marketplace. See "Item 1.
Business -- Regulation -- Insurance Regulation."
29
<PAGE> 31
Financial Services
The Company's financial services operations are principally engaged in
commercial and residential real estate lending through Fremont Investment & Loan
and asset-based lending through Fremont Financial. The Company also has small
life insurance and premium finance operations included in this segment. See Note
P of Notes to Consolidated Financial Statements. Revenues consist principally of
interest income and, to a lesser extent, life insurance premiums, fees and other
income.
The following table presents information with respect to the Company's
financial services operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues........................................... $214,975 $154,398 $125,732
Expenses........................................... 179,238 126,384 104,276
-------- -------- --------
Income Before Taxes................................ $ 35,737 $ 28,014 $ 21,456
======== ======== ========
</TABLE>
Revenues increased 39% in 1995 and 23% in 1994, due primarily to greater
loan interest and fee revenue attributable to the growth in the average loan
portfolios of the real estate lending and commercial finance operations from
$1.1 billion in 1994 to $1.5 billion in 1995. Contributing to this growth in the
average loan portfolio was the acquisition of approximately $366 million in
primarily commercial real estate loan portfolios which were completed during the
last six months of 1994. In 1995, no portfolios of commercial real estate loans
were purchased, primarily due to increased competition which resulted in
inadequate yields or unacceptable risk profiles for the portfolios considered.
Income before taxes in the financial services operations was $35.7 million,
$28.0 million and $21.5 million for 1995, 1994 and 1993, respectively. The 28%
increase in income before taxes in 1995 as compared to 1994 is due primarily to
continued growth in the loan portfolios, offset partially by increases in the
provision for loan losses and other expenses. The 31% increase in 1994 as
compared to 1993, is due primarily to the growth in the loan portfolios and a
lower provision for loan losses. See "Item 1. Business -- Financial Services
Operations."
30
<PAGE> 32
The following table identifies the interest income, interest expense,
average interest-bearing assets and liabilities, and interest margins for the
Company's thrift and loan and commercial finance subsidiaries:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------ ------------------------------ ----------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
---------- -------- ------ ---------- -------- ------ -------- -------- ------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing assets(1):
Commercial finance and other
assets..................... $ 619,431 $ 73,376 11.85 % $ 483,778 $ 52,128 10.78 % $323,479 $ 33,474 10.35 %
Thrift and loan:
Cash equivalents........... 105,470 5,883 5.58 56,014 2,282 4.07 34,744 1,032 2.97
Investments................ 1,053 33 3.13 4,503 450 9.99 220 6 2.73
Commercial real estate
loans.................... 683,331 67,952 9.94 452,950 43,582 9.62 243,701 23,732 9.74
Residential real estate
loans.................... 133,761 12,843 9.60 67,053 8,293 12.37 100,646 14,170 14.08
Contract loans............. 5,640 743 13.17 42,204 5,595 13.26 58,113 8,104 13.95
Installment loans.......... 2,433 310 12.74 4,294 541 12.60 6,799 866 12.74
Finance leases............. 37 3 8.11 377 47 12.47 1,903 223 11.72
---------- -------- ---------- -------- -------- -------
Total interest bearing
assets................... $1,551,156 $161,143 10.39 % $1,111,173 $112,918 10.16 % $769,605 $ 81,607 10.60 %
========== ======== ========== ======== ======== =======
Interest bearing liabilities:
Savings deposits............. $ 136,588 $ 7,279 5.33 % $ 81,475 $ 2,940 3.61 % $ 95,674 $ 3,824 4.00 %
Time deposits................ 664,397 40,072 6.03 464,960 23,928 5.15 277,765 15,868 5.71
Commercial paper and other... 15,873 1,189 7.49 14,332 820 5.72 14,545 882 6.06
Securitization obligation.... 321,667 21,200 6.59 300,094 14,653 4.88 165,278 6,171 3.73
Debt with banks.............. 174,816 12,308 7.04 80,770 4,921 6.09 71,572 3,561 4.98
Debt from affiliates......... 49,369 2,388 4.84 28,499 2,205 7.74 24,830 1,905 7.67
---------- -------- ---------- -------- -------- -------
Total interest bearing
liabilities................ $1,362,710 $ 84,436 6.20 % $ 970,130 $ 49,467 5.10 % $649,664 $ 32,211 4.96 %
========== ======== ========== ======== ======== =======
Net interest income............ $ 76,707 $ 63,451 $ 49,396
======== ======== =======
Net yield...................... 4.95 % 5.71 % 6.42 %
</TABLE>
- ---------------
(1) Average loan balances include non-accrual loan balances.
The margin between the Company's interest income and cost of funds
decreased in 1995 and 1994, due primarily to changes in the mix of loans in the
real estate lending operation, as well as a decrease in the net margins in the
commercial finance lending segment. In the real estate lending operation, the
change in portfolio mix occurred under a corporate strategy which began in 1993,
to shift away from high rate, high risk loans secured by personal property or
junior liens on real estate, to lower yielding commercial and residential first
trust deed real estate loans. The lower yields on the commercial and residential
real estate portfolios are compensated for by the improved underlying collateral
and by the improved lien position on the collateral. The net margins decreased
in the commercial finance segment due primarily to increases in the credit
quality of the loan portfolio which has resulted in lower net margins, as well
as to an increase in the competitive environment.
Interest rate sensitivity data for the Company's thrift and loan and
commercial finance subsidiaries as of December 31, 1995 is presented in the
table below. The relationships shown are for one day only and significant
changes can occur in the sensitivity relationships as a result of market forces
and management decisions. The interest rate gaps reported in the table arise
when assets are funded with liabilities having different repricing intervals and
to this degree earnings will be sensitive to interest rate changes. The Company
31
<PAGE> 33
attempts to match interest rate sensitive assets and liabilities to minimize the
effect of fluctuations in interest rates.
<TABLE>
<CAPTION>
REPRICING PERIODS
--------------------------------------------------------------------
WITHIN WITHIN WITHIN OVER
0-3 MONTHS 4-12 MONTHS 1-5 YEARS 5 YEARS TOTAL
---------- ----------- --------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Interest sensitive assets:
Commercial finance and other........... $ 577,236 $ 37,571 $ 1,516 $ 28,939 $ 645,262
Thrift and loan:
Cash equivalents..................... 152,118 -- -- -- 152,118
Investments.......................... 1,715 -- -- -- 1,715
Commercial real estate loans......... 344,317 215,909 153,175 17,198 730,599
Residential real estate loans........ 58,495 82,972 20,844 3,577 165,888
Contract loans....................... 96 207 244 -- 547
Installment loans.................... 341 739 702 -- 1,782
---------- -------- -------- -------- --------
Total interest sensitive assets........ $1,134,318 $ 337,398 $ 176,481 $ 49,714 $1,697,911
========== ======== ======== ======== ========
Interest sensitive liabilities:
Savings deposits....................... $ 228,151 $ -- $ -- $ -- $ 228,151
Time deposits.......................... 223,542 308,605 166,014 -- 698,161
Commercial paper and other............. 5,953 1,238 -- -- 7,191
Securitization obligation.............. 330,000 -- -- -- 330,000
Debt with banks........................ 185,000 -- -- -- 185,000
Debt from affiliates................... 34,760 -- 20,000 -- 54,760
---------- -------- -------- -------- --------
Total interest sensitive liabilities... $1,007,406 $ 309,843 $ 186,014 $ -- $1,503,263
========== ======== ======== ======== ========
Incremental interest rate sensitivity
gap.................................... $ 126,912 $ 27,555 $ (9,533) $ 49,714 $ 194,648
========== ======== ======== ======== ========
Cumulative gap........................... $ 126,912 $ 154,467 $ 144,934 $194,648
========== ======== ======== ========
</TABLE>
Loans Receivable and Reserve Activity. The following table shows loans
receivable in the various financing categories and the percentages of the total
represented by each category:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------- -------------------- ------------------
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
---------- ----- ---------- ----- -------- -----
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C> <C>
Accounts receivable and inventory loans:
Commercial finance...................... 415,038 27% $ 409,580 28% $315,467 36%
Term loans:
Commercial finance...................... 110,647 7 124,379 8 63,814 7
Thrift and loan......................... 888,952 58 807,527 55 425,432 49
Other................................... 116,187 8 126,694 9 66,952 8
---------- --- ---------- --- -------- ---
Total term loans...................... 1,115,786 73 1,058,600 72 556,198 64
---------- --- ---------- --- -------- ---
Total loans........................... 1,530,824 100% 1,468,180 100% 871,665 100%
Less allowance for possible loan losses... 31,781 2 27,406 2 25,222 3
---------- --- ---------- --- -------- ---
Loans receivable........................ 1,499,043 98% $1,440,774 98% $846,443 97%
========== === ========== === ======== ===
</TABLE>
32
<PAGE> 34
The following table illustrates the maturities of the Company's loans
receivable:
<TABLE>
<CAPTION>
MATURITIES AT DECEMBER 31, 1995
--------------------------------------------------
1 TO 24 25 TO 60 OVER 60
MONTHS MONTHS MONTHS TOTAL
--------- --------- --------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Accounts receivable and inventory
loans -- variable rate.............. $ 415,038 $ -- $ -- $ 415,038
Term loans -- variable rate........... 164,620 147,324 623,402 935,346
Term loans -- fixed rate.............. 90,523 48,911 41,006 180,440
-------- -------- -------- ----------
Total....................... $ 670,181 $ 196,235 $ 664,408 $ 1,530,824
======== ======== ======== ==========
</TABLE>
The Company monitors the relationship of fixed and variable rate loans and
interest bearing liabilities in order to minimize interest rate risk.
Adverse economic developments can negatively affect the Company's business
and results of operations in a number of ways. Such developments can reduce the
demand for loans, impair the ability of borrowers to pay loans and impair the
value of the underlying collateral.
33
<PAGE> 35
The following table describes the asset classifications, loss experience
and reserve reconciliation of the real estate lending and commercial finance
operations as of or for the periods ended as shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1995 1994 1993
---------- ---------- --------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C>
Non-accrual loans............................... $ 33,467 $ 21,834 $ 17,304
Accrual loans 90 days past due.................. 3,025 1,711 1,763
Real estate owned ("REO")....................... 4,941 17,467 842
---------- ---------- --------
Total non-performing assets..................... $ 41,433 $ 41,012 $ 19,909
========== ========== ========
Beginning allowance for possible loan losses.... $ 27,406 $ 25,222 $ 22,819
Provision for loan losses....................... 14,575 11,980 16,873
Reserves established with portfolio
acquisitions.................................. -- 3,605 --
Charge-offs:
Commercial finance and other loans............ 2,421 4,265 7,614
Thrift and loan:
Commercial real estate loans............... 9,248 4,833 176
Residential real estate loans.............. 1,012 2,685 4,835
Contract and installment loans............. 480 2,434 2,627
Finance leases............................. -- 37 314
---------- ---------- --------
Total charge-offs............................. 13,161 14,254 15,566
---------- ---------- --------
Recoveries:
Commercial finance and other loans............ 1,034 207 360
Thrift and loan:
Commercial real estate loans............... 37 10 --
Residential real estate loans.............. 1,659 265 128
Contract and installment loans............. 230 349 468
Finance leases............................. 1 22 140
---------- ---------- --------
Total recoveries.............................. 2,961 853 1,096
---------- ---------- --------
Net charge-offs................................. 10,200 13,401 14,470
---------- ---------- --------
Ending allowance for possible loan losses....... $ 31,781 $ 27,406 $ 25,222
========== ========== ========
Allocation of allowance for possible loan
losses:
Commercial finance and other loans............ $ 14,283 $ 13,015 $ 13,092
Thrift and loan............................... 17,498 14,391 12,130
---------- ---------- --------
Total allowance for possible loan losses...... $ 31,781 $ 27,406 $ 25,222
========== ========== ========
Total loans receivable.......................... $1,530,824 $1,468,180 $871,665
Average total loans receivable.................. 1,505,779 1,082,622 783,132
Net charge-offs to average total loans
receivable.................................... 0.68% 1.24% 1.85%
Non-performing assets to total loans
receivable.................................... 2.71% 2.79% 2.28%
Allowance for possible loan losses to total
loans receivable.............................. 2.08% 1.87% 2.89%
Allowance for possible loan losses to
non-performing assets......................... 76.70% 66.82% 126.69%
Allowance for possible loan losses to
non-accrual loans and accrual loans 90 days
past due...................................... 87.09% 116.40% 132.28%
</TABLE>
Non-performing assets remained relatively stable at December 31, 1995 as
compared to December 31, 1994, due primarily to a $11.6 million increase in
non-accrual loans, more than offset by a $12.5 million decrease in REO assets.
Of the increase in non-accrual loans, $8.9 million is represented by one loan in
the
34
<PAGE> 36
commercial finance operation. The collateral securing this loan is closely
monitored by the Company and the Company believes it currently has adequate
reserves in the allowance for possible loan losses to cover any potential loss
on this loan. The decrease in REO assets during 1995 relates entirely to the
real estate lending operation. At December 31, 1995, the balance in REO includes
eight commercial real estate properties totaling $4.4 million. Non-performing
assets increased $21.1 million at December 31, 1994 as compared to the prior
year end due primarily to a $16.6 million increase in REO assets in the real
estate lending operation.
The higher provision for loan losses in 1995 as compared to 1994 is
consistent with the significant overall growth in average loans receivable.
Charge-offs in 1995 as compared to 1994 decreased in the commercial finance
operation and remained relatively stable in the real estate lending operation.
In 1994 total charge-offs decreased from the prior year due to lower charge-offs
in the commercial finance operation, partially offset by higher charge-offs in
the real estate lending operation. The commercial finance charge-offs were
unusually high in 1993 as the Company charged-off substantially all of the loans
from the Company's terminated commercial mortgage banking operation. (These
loans had already been provided for in the allowance for possible loan losses in
prior years.) Higher charge-offs in the real estate lending operation in 1994 as
compared to 1993 are consistent with the significant growth in the real estate
loan portfolio in 1994. Overall, total charge-offs have decreased over the three
years ended December 31, 1995 and these reductions occurred during a period in
which loans receivable increased.
Included in the reserves established with portfolio acquisitions in 1994 is
$3.2 million in reserves relating to a $225 million commercial real estate loan
portfolio acquisition by Fremont Investment & Loan which was completed in August
1994.
LIQUIDITY AND CAPITAL RESOURCES
The property and casualty insurance operations must have cash and liquid
assets available to meet their obligations to policyholders in accordance with
contractual obligations, in addition to having the funds available to meet
ordinary operating costs. These operations have several sources of funds to meet
their obligations, including cash flow from operations, recoveries from
reinsurance contracts and investment securities. By statute, the majority of the
cash from these operations is required to be invested in investment grade
securities to provide protection for policyholders. The Company invests in fixed
income and preferred equity securities with an objective of providing a
reasonable return while limiting credit and liquidity risk. The Company's
investment portfolio had an unrealized gain (loss) of $33.2 million and $(107.9)
million at December 31, 1995 and 1994, respectively.
The Company's thrift and loan subsidiary finances its lending activities
primarily through customer deposits, which have grown from $747 million at
December 31, 1994 to $926 million at December 31, 1995. In January 1995, Fremont
Investment & Loan became eligible for financing through the Federal Home Loan
Bank of San Francisco. This financing is available at varying rates and terms.
As of December 31, 1995, $170 million was available under the facility and no
borrowings were outstanding.
The Company's commercial finance operation funds its lending activities
primarily through its asset securitization program, an unsecured revolving line
of credit with a syndicated bank group and its capital. The asset securitization
program was established to provide a stable and cost effective source of funds
to facilitate the expansion of this business. The proceeds from the sale of the
initial series of asset-backed certificates ("Series A") under this program in
April 1993 were $200 million bearing interest at the rate of LIBOR plus 0.47%.
In November 1993, an additional $100 million of these certificates ("Series B")
were sold bearing interest at the rate of LIBOR plus 0.5%. The securities issued
in this program have a scheduled maturity of three and four years, but could
mature earlier depending on fluctuations in outstanding balances of loans in the
portfolio and other factors. During April 1995, the Company issued $30 million
in subordinated variable rate asset-backed certificates, which mature in 2000,
via a private placement. As of December 31, 1995, up to $500 million in
additional publicly offered asset-backed certificates may be issued pursuant to
a shelf registration statement to fund future growth in the commercial finance
loan portfolio. In February 1996, $135 million in asset-backed certificates
("Series C") were issued which mature in 2000. The proceeds were used, in
conjunction with existing cash, to retire the $200 million in Series A
certificates. The Series B
35
<PAGE> 37
certificates are scheduled to mature in 1997. In December 1995, a commercial
paper facility was established as part of the asset securitization program. This
facility provides for the issuance of up to $150 million in commercial paper,
dependent upon the level of assets within the asset securitization program. This
facility, which expires in December 1998, had no amounts outstanding under it as
of December 31, 1995. The commercial finance operation's unsecured revolving
line of credit is with a syndicated bank group that presently permits borrowings
of up to $300 million, of which $185 million was outstanding as of December 31,
1995. This credit line is primarily used to finance assets which are not
included in the Company's asset securitization program. This credit line expires
August 1998.
As a holding company, Fremont General pays its operating expenses, meets
its other obligations and pays stockholders' dividends from its cash on hand,
management fees paid by its subsidiaries and dividends paid by its subsidiaries.
During 1995, stockholders' dividends totaling $12.6 million were paid.
Stockholders' dividends declared aggregated $13.1 million, $11.5 million and
$10.1 million during 1995, 1994 and 1993, respectively. Several of the Company's
subsidiaries are subject to certain statutory and regulatory restrictions and
various agreements, principally loan agreements, that restrict their ability to
distribute dividends to the Company. The Company expects that during the next
few years dividends from its subsidiaries will consist of dividends from its
property and casualty subsidiaries and dividends on preferred stock of its
thrift and loan holding company and commercial finance subsidiaries. The maximum
amount available for payment of dividends by the property and casualty
subsidiaries at December 31, 1995 without prior regulatory approval is
approximately $30 million.
To facilitate general corporate operations, in August 1994 the Company
obtained a revolving line of credit with a syndicated bank group that permitted
borrowings of up to $150 million. In August 1995, the Company negotiated an
increase of this line to $200 million, of which $85 million was outstanding as
of December 31, 1995. In August 1997, this credit line converts to a term loan
of up to $100 million, with scheduled semi-annual payments through August 2001.
In addition, in July 1994 the Company replaced its internally financed loan to
its Employee Stock Ownership Plan ("ESOP") with an external bank-financed loan
totaling $11 million. The maximum principal amount of this loan was increased to
$15 million in August 1995. The loan is due in seven equal annual installments
commencing on April 1, 1996 and is secured by certain shares of the ESOP. The
balance outstanding at December 31, 1995 was $6.6 million. The interest and
principal payments are guaranteed by the Company. Interest is based on, at the
Company's option, the bank's prime lending rate, LIBOR plus 1% or an applicable
certificate deposit rate. The rate at December 31, 1995 was 6.69%.
On February 22, 1995, the Company completed the acquisition of Casualty
which resulted in the disbursement of funds totaling $256.5 million, comprised
of $231.5 million in cash and $25 million in a note payable to the seller. In
September 1995, the note payable to the seller was refinanced using the
Company's existing revolving line of credit. The cash used to fund the
acquisition includes $55 million in borrowings under the Company's existing line
of credit and the remainder from internally generated funds. See "General. "
On March 1, 1996, Fremont General Financing I, a statutory business trust
(the "Trust") and consolidated wholly-owned subsidiary of the Company, sold $100
million of 9% Trust Originated Preferred SecuritiesSM ("the Preferred
Securities") in a public offering. The Preferred Securities represent preferred
undivided beneficial interests in the assets of the Trust. The proceeds from the
sale of the Preferred Securities were invested in 9% Junior Subordinated
Debentures of the Company ("the Junior Subordinated Debentures"). The $100
million Junior Subordinated Debentures are the sole asset of the Trust. The
Preferred Securities will be redeemed upon maturity of the Junior Subordinated
Debentures in 2026, subject to the election available to the Company to extend
the maturity up to 2045, and they may be redeemed, in whole or in part, at any
time on or after March 31, 2001 and under certain specified circumstances. The
Junior Subordinated Debentures rank pari passu with the Company's $373,750,000
aggregate principal amount at maturity of Liquid Yield Option(TM) Notes due
2013, and subordinate and junior to all senior indebtedness of the Company.
Payment of distributions out of cash held by the Trust, and payments on
liquidation of the Trust or the redemption of the Preferred Securities are
guaranteed by the Company. The Company will use the proceeds from the sale of
the Junior Subordinated Debentures to reduce outstanding debt under the
Company's revolving line of credit by approximately $50 million, with the
remaining proceeds used for general corporate purposes.
36
<PAGE> 38
Net cash provided by operating activities of continuing operations was
$39.5 million, $68.0 million and $85.1 million for the years ended December 31,
1995, 1994 and 1993, respectively. Net cash provided by continuing operations
decreased in 1995 over 1994 due primarily to the following items: (i) a smaller
net decrease in agents' balances and reinsurance recoverables; (ii) an increase
in accrued investment income; (iii) a greater decrease in claims and policy
liabilities; (iv) and higher policy acquisition costs deferred, net of
amortization. These conditions were partially offset by higher net income, a net
increase in other liabilities, net of other assets and a significant increase in
the provision for deferred income taxes. The decreases in agents' balances and
claims and policy liabilities are primarily due to lower premium volume in the
Company's California workers' compensation insurance business. Higher policy
acquisition costs deferred are due primarily to increases in annuity contract
receipts in the Company's life insurance operation (see Notes F and P of Notes
to Consolidated Financial Statements). The net increase in other liabilities,
net of other assets, is due primarily to increased accruals for other operating
costs. Net cash provided by continuing operations decreased in 1994 compared to
the prior year due primarily to a decrease in claims and policy liabilities,
partially offset by an increase in net income and a net decrease in agents'
balances and reinsurance recoverables.
Net cash used in investing activities was $514.0 million, $551.1 million
and $448.1 million in 1995, 1994 and 1993, respectively. Net cash used in
investing activities decreased in 1995 as compared to 1994, due primarily to a
decrease in bulk loan purchases, net of loan repayments, in the real estate
lending operation. This net decrease is due in part to $366 million in bulk
commercial real estate loan purchases which the Company completed in 1994. The
decrease in net loan purchases was offset partially by the acquisition of
Casualty and an increase in investment purchases, net of sales, maturities, and
calls. Net cash used in investing activities increased in 1994 as compared to
1993, due primarily to an increase in bulk loan purchases and loan originations,
net of loan repayments, offset partially by a decrease in investment purchases,
net of sales, maturities and calls.
Net cash provided by financing activities was $483.0 million, $485.6
million and $346.7 million for 1995, 1994 and 1993, respectively. Net cash
provided by financing activities decreased modestly in 1995 as compared to 1994,
due primarily to a lower increase in thrift deposits partially offset by a net
increase in short-term and long-term debt and an increase in annuity contract
receipts. Repayments of short-term debt increased and proceeds from long-term
debt increased primarily due to a reclassification of the commercial finance
operation's credit line from short-term debt to long-term debt as of December
31, 1995. This reclassification was made pursuant to the terms of the credit
line, which was renegotiated in August 1995. Net cash provided by financing
activities increased in 1994 as compared to 1993, due primarily to an increase
in net thrift deposits, partially offset by a net decrease in short-term and
long-term debt. The 1993 year is additionally impacted by $40.8 million in
proceeds from a public offering of the Company's Common Stock in July 1993.
The amortized cost of the Company's invested assets were $1.91 billion,
$.99 billion, and $1.06 billion at December 31, 1995, 1994 and 1993,
respectively. Contributing to the $.92 billion increase in the invested assets
was approximately $512 million resulting from the Casualty acquisition and $199
million increase in net annuity receipts in the Company's life insurance
operation. The modest decrease in 1994 as compared to 1993 is due primarily to a
decrease in premium volume. As of July 1, 1995 the Company's held to maturity
portfolio totaling $319.4 million was transferred to available for sale in
accordance with the provisions of Financial Accounting Standards Board Statement
115 ("FASB 115"), "Accounting for Certain Investments in Debt and Equity
Securities." In addition, at this date there was a net unrealized gain of $9.9
million (net of deferred taxes of $5.3 million) on the held to maturity
portfolio which was transferred to stockholders' equity. The transfer became
necessary as the Company sold certain investment securities in July which were
classified as held to maturity at June 30, 1995. These investment sales were
part of an overall review and restructuring of the investment portfolio
performed in conjunction with the investing of cash received in the acquisition
of Casualty. This review and restructuring caused the Company to consider the
appropriateness of the remaining held to maturity investments, which resulted in
the reclassification.
The Company's property and casualty premium to surplus ratio for the year
ended December 31, 1995 was 2.3 to 1, which is within industry guidelines. The
FDIC has established certain capital and liquidity
37
<PAGE> 39
standards for its member institutions, and Fremont Investment & Loan was in
compliance with these standards as of December 31, 1995. See "Item 1.
Business -- Regulation -- Thrift and Loan Regulation." In August 1994 an
additional $23 million was contributed to the capital of Fremont Investment &
Loan to support the growth in the loan portfolio during 1994.
The Company believes that its existing cash, its bank lines of credit,
revenues from operations and other available sources of liquidity will be
sufficient to satisfy its liquidity needs for the next several years.
The Company's strategy is to expand its business to the extent possible
without adversely impacting its loan portfolio and policyholder base. However,
the Company's strategic model is not dependent on growth as a source of
liquidity. While the level of revenues will obviously affect results of
operations, the Company's liquidity is not dependent on future revenue growth.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121 ("FASB 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of ", which requires impairment
losses to be recorded on long-lived assets used in operations, including
intangible assets, when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. FASB 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company will adopt
FASB 121 in the first quarter of 1996 and, based on current circumstances, the
effect of adoption will not be material.
Also, in 1995, the FASB issued Statement 123 ("FASB 123"), "Accounting for
Stock-Based Compensation" that is effective for fiscal years beginning after
December 15, 1995. FASB 123 establishes a method of accounting for stock-based
compensation that is based on the fair value of stock options and similar
instruments and encourages, but does not require, adoption of that method. The
Company has elected to continue following Accounting Principles Board Opinion
No. 25 for measuring compensation cost. Pursuant to FASB 123, the Company will
disclose pro forma net income and earnings per share calculated as if the
recognition and measurement provisions of the new standard had been adopted.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements, including supplementary
data, are set forth in the "Index" on page 43 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
38
<PAGE> 40
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the subheadings "Election of Directors,"
"Executive Officers and Compensation," and the last paragraph under the
subheading "Principal and Management Stockholders" in the Company's Proxy
Statement for the 1996 Annual Meeting of Stockholders is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the subheadings "Election of Directors,"
"Compensation of Directors," "Officers and Compensation," "Summary Compensation
Table," "Summary Compensation Table -- Explanations," "Option/SAR Grants in Last
Fiscal Year," "Option Exercises and Year-End Values Table/Aggregate Option
Exercises in Last Fiscal Year and Fiscal Year-End Option Values," "Employment
Agreements" and "Retirement and Other Benefit Plans, A-D" in the Company's Proxy
Statement for the 1996 Annual Meeting of Stockholders is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the subheading "Principal and Management
Stockholders" in the Company's Proxy Statement for the 1996 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information immediately following the caption "Election of Directors"
and "Employment Agreements" in the Company's Proxy Statement for the 1996 Annual
Meeting of Stockholders is incorporated herein by reference.
39
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (a)(2) and (d) FINANCIAL STATEMENTS AND SCHEDULES. Reference is
made to the "Index -- Consolidated Financial
Statements and Financial Statements Schedules --
Annual Report on Form 10-K" filed as part of this
Annual Report.
(a)(3) an (c) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------------------
<C> <S>
2.1 Stock Purchase Agreement among Fremont Compensation Insurance Company, Fremont
General Corporation, the Buckeye Union Insurance Company, The Continental
Corporation and Casualty Insurance Company, Dated as of December 16, 1994.
(Filed as Exhibit No. 2.1 to Current Report on Form 8-K, as of February 22,
1995, Commission File Number 1-8007, and incorporated herein by reference.)
2.2 Amendment No. 1 to Stock Purchase Agreement among Fremont Compensation
Insurance Company, Fremont General Corporation, the Buckeye Union Insurance
Company, The Continental Corporation and Casualty Insurance Company, Dated as
of December 16, 1994. (Filed as Exhibit No. 2.2 to Current Report on Form 8-K,
as of February 22, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
3.1 Restated Articles of Incorporation of Fremont General Corporation. (Filed as
Exhibit No. 3.1 to Registration Statement on Form S-3 File No 33-64771 which
was declared effective on March 1, 1996, and incorporated herein by
reference.)
3.2 Certificate of Amendment of Articles of Incorporation of Fremont General
Corporation. (Filed as Exhibit 3.2 to Registration Statement on Form S-3 File
No. 33-64771 which was declared effective on March 1, 1996 and herein
incorporated by reference.)
3.3 Amended and Restated By-Laws of Fremont General Corporation.
4.1 Form of Stock Certificate for Common Stock of the Registrant. (Filed as
Exhibit No. (1) Form 8-A filed on March 17, 1993, Commission File Number
1-8007, and incorporated herein by reference.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013 between the
Registrant and Bankers Trust Company. (Filed as Exhibit No. (4)(iv) to
Registration Statement on Form S-3 filed on October 1, 1993, and incorporated
herein by reference.)
4.3 Indenture among the Registrant, the Trust and First Interstate Bank of
California, a California banking corporation, as trustee.
4.4 Declaration of Trust among the Registrant, the Regular Trustees and The Chase
Manhattan Bank (USA), a Delaware banking corporation, as Delaware trustee.
4.5 Amended and Restated Declaration of Trust among the Registrant, the Regular
Trustees, The Chase Manhattan Bank (USA), a Delaware banking corporation, as
Delaware trustee, and The Chase Manhattan Bank, N.A., a national banking
association, as Institutional Trustee.
4.6 Preferred Securities Guarantee Agreement between the Registrant and The Chase
Manhattan Bank, N.A., a national banking association, as Preferred Guarantee
Trustee.
4.7 Common Securities Guarantee Agreement by the Registrant.
4.8 Form of Preferred Securities. (included in Exhibit 4.5).
4.9 Form of 9% Junior Subordinated Debenture. (included in Exhibit 4.3).
10.1 Fremont General Corporation Employee Stock Ownership Plan as amended.
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------------------
<C> <S>
10.2 Amended and Restated Trust Agreement for Fremont General Corporation Employee
Stock Ownership Plan.
10.3 Fremont General Corporation and Affiliated Companies Investment Incentive
Program as amended.
10.4(a) Trust Agreement for Investment Incentive Program. (Filed as Exhibit No.
(10)(xi) to Annual Report on Form 10-K, for the fiscal year ended December 31,
1993, Commission File Number 1-8007, and incorporated herein by reference.)
10.4(b) Amendment to Trust Agreement for Investment Incentive Program.
10.5(a) Supplemental Retirement Plan of the Company. (Filed as Exhibit No. (10)(v) to
Annual Report on Form 10-K, for the fiscal year ended December 31, 1990,
Commission File Number 1-8007, and incorporated herein by reference.)
10.5(b) Amendment to Supplemental Retirement Plan.
10.6 Trust Agreement for Supplemental Retirement Plan of the Company and the Senior
Supplemental Retirement Plan of the Company, as amended.
10.7 Senior Supplemental Retirement Plan, as amended.
10.8(a) Excess Benefit Plan of The Company. (Filed as Exhibit No. (10)(vi) to Annual
Report on Form 10-K, for the fiscal year ended December 31, 1993, Commission
File No.> 1-8007 and incorporated herein by reference.)
10.8(b) Amendment to Excess Benefit Plan of the Company.
10.8(c) Trust Agreement for Excess Benefit Plan.
10.9 Non-Qualified Stock Option Plan of 1989 of the Company.
10.10 Long-Term Incentive Compensation Plan of the Company.
10.11 1995 Restricted Stock Award Plan.
10.12 Fremont General Corporation Employee Benefits Trust Agreement ("Grantor
Trust") dated September 7, 1995 between the Company and Merrill Lynch Trust
Company of California.
10.13 Employment Agreement between the Company and James A. McIntyre. (Filed as
Exhibit No. (10)(i) to Quarterly Report on Form 10-Q for the period ended
March 31, 1994, Commission File Number 1-8007, and incorporated herein by
reference.)
10.14(a) Employment Agreement between the Company and Louis J. Rampino.
10.14(b) Employment Agreement between the Company and Wayne R. Bailey.
10.15 Management Continuity Agreement between the Company and Raymond G. Meyers.
10.16 1995 Management Incentive Compensation Plan of the Company. (Filed as Exhibit
No. (10)(vi) to Quarterly Report on Form 10-Q, for the period ended June 30,
1995, Commission File Number 1-8007, and incorporated herein by reference.)
10.17 Continuing Compensation Plan for Retired Directors.
10.18 Non-Employee Directors' Deferred Compensation Plan.
10.19(a) Credit Agreement among Fremont General Corporation, Various Lending
Institutions and the Chase Manhattan Bank, N.A., As Agent. (Filed as Exhibit
No. (10)(xiv) to Quarterly Report on Form 10-Q for the period ended September
30, 1994, Commission File Number 1-8007, and incorporated herein by
reference.)
10.19(b) Amendment to Credit Agreement.
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------------------
<C> <S>
10.20 Keep Well Agreement, dated as of August 24, 1995 by the Company in connection
with the Credit Agreement among Fremont General Corporation, Various Lending
Institutions and the Chase Manhattan Bank, N.A., As Agent.
10.21 Credit Agreement $15,000,000 by and among Merrill Lynch Trust Company of
California as trustee for the Fremont General Corporation Employee Stock
Ownership Trust. The Plan Committee (hereinafter described) on behalf of the
Fremont General Corporation Employee Stock Ownership Plan, Fremont General
Corporation, and First Interstate Bank of California August 10, 1995. (Filed
as Exhibit No. (10)(viii) to Quarterly Report on Form 10-Q for the period
ended September 30, 1995, and incorporated herein by reference.)
(11) Statement re: Computation of per share earnings.
(21) Subsidiaries of the Company.
(23) Consent of Ernst & Young LLP independent Auditors.
(27) Financial Data Schedule
(28) Information from reports provided to state insurance regulatory authorities.
</TABLE>
(b) REPORT ON FORM 8-K. None filed during the quarter ended December 31,
1995.
42
<PAGE> 44
FREMONT GENERAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
ANNUAL REPORT ON FORM 10-K
------------------------
INDEX
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Report of Independent Auditors....................................................... 44
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1994....................... 45
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993................................................ 46
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993................................................ 47
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993................................................ 48
Notes to Consolidated Financial Statements......................................... 49
Schedules:
III -- Condensed Financial Information of Registrant........................... 72
V -- Supplementary Insurance Information..................................... 76
VI -- Reinsurance............................................................. 77
VIII -- Valuation and Qualifying Accounts....................................... 78
Supplemental Information Concerning Property/Casualty Insurance
X -- Operations.............................................................. 79
</TABLE>
All other schedules are omitted because of the absence of conditions under
which they are required or because the necessary information is provided in the
consolidated financial statements or notes thereto.
43
<PAGE> 45
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Fremont General Corporation
We have audited the accompanying consolidated balance sheets of Fremont
General Corporation and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, cash flows and changes in
stockholders' equity for each of the three years in the period ended December
31, 1995. Our audits also included the financial statement schedules listed in
the Index at Item 14(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Fremont General Corporation and subsidiaries at December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
As discussed in Note A to the consolidated financial statements, the
Company made certain accounting changes in 1994.
ERNST & YOUNG LLP
Los Angeles, California
March 14, 1996
44
<PAGE> 46
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Securities available for sale at fair value:
Fixed maturity investments (cost: 1995 -- $1,255,434;
1994 -- $311,701)................................................ $1,296,550 $ 235,442
Non-redeemable preferred stock (cost: 1995 -- $285,337;
1994 -- $213,935)................................................ 277,451 189,632
----------- -----------
Total securities available for sale......................... 1,574,001 425,074
Securities held to maturity at amortized cost:
Fixed maturity investments (fair value: 1994 -- $199,103)........... -- 206,416
Loans receivable...................................................... 1,499,043 1,440,774
Short-term investments................................................ 362,163 255,751
Other investments..................................................... 1,726 1,677
----------- -----------
TOTAL INVESTMENTS AND LOANS................................. 3,436,933 2,329,692
Cash.................................................................. 39,559 31,058
Accrued investment income............................................. 30,396 13,622
Premiums receivable and agents' balances.............................. 107,973 48,556
Reinsurance recoverable on paid losses................................ 9,422 7,204
Reinsurance recoverable on unpaid losses.............................. 289,461 136,151
Deferred policy acquisition costs..................................... 76,638 59,286
Costs in excess of net assets acquired................................ 70,656 28,776
Deferred income taxes................................................. 78,619 88,426
Other assets.......................................................... 75,240 54,806
Assets held for discontinued operations............................... 262,502 336,813
----------- -----------
TOTAL ASSETS................................................ $4,477,399 $3,134,390
=========== ===========
LIABILITIES
Claims and policy liabilities:
Losses and loss adjustment expenses................................. $1,455,692 $ 746,661
Life insurance benefits and liabilities............................. 374,724 172,425
Unearned premiums................................................... 100,481 47,551
Dividends to policyholders.......................................... 40,822 46,067
----------- -----------
TOTAL CLAIMS AND POLICY LIABILITIES......................... 1,971,719 1,012,704
Reinsurance premiums payable and funds withheld....................... 5,452 6,961
Other liabilities..................................................... 81,371 68,721
Thrift deposits....................................................... 926,312 746,977
Short-term debt....................................................... 72,191 176,325
Long-term debt........................................................ 693,276 468,390
Liabilities of discontinued operations................................ 228,988 303,299
----------- -----------
TOTAL LIABILITIES........................................... 3,979,309 2,783,377
Commitments and contingencies.........................................
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share -- Authorized: 1995 -- 49,500,000
and 1994 -- 30,000,000 shares; issued and outstanding:
(1995 -- 25,393,000 and 1994 -- 15,388,000)......................... 25,393 15,388
Additional paid-in capital............................................ 110,103 80,264
Retained earnings..................................................... 347,607 331,713
Unearned Employee Stock Ownership Plan shares......................... (6,612) (10,987)
Net unrealized gain (loss) on investments, net of deferred taxes...... 21,599 (65,365)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.................................. 498,090 351,013
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $4,477,399 $3,134,390
=========== ===========
</TABLE>
See notes to consolidated financial statements.
45
<PAGE> 47
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
(THOUSANDS OF DOLLARS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
REVENUES
Property and casualty premiums earned.......................... $606,917 $433,584 $455,765
Net investment income.......................................... 119,523 76,821 77,198
Loan interest.................................................. 162,992 113,382 87,244
Realized investment gains (losses)............................. 1 (315) 2,165
Other revenue.................................................. 34,381 29,676 29,033
-------- -------- --------
Total Revenues............................................ 923,814 653,148 651,405
EXPENSES
Losses and loss adjustment expenses............................ 461,333 273,599 319,153
Policy acquisition costs....................................... 126,099 86,990 82,255
Provision for loan losses...................................... 14,575 11,980 16,873
Other operating costs and expenses............................. 120,963 90,078 79,180
Dividends to policyholders..................................... -- 49,654 45,218
Interest expense............................................... 100,517 59,276 44,378
-------- -------- --------
Total Expenses............................................ 823,487 571,577 587,057
-------- -------- --------
Income before taxes............................................ 100,327 81,571 64,348
Income tax expense............................................. 32,305 25,759 21,638
-------- -------- --------
NET INCOME........................................... $ 68,022 $ 55,812 $ 42,710
======== ======== ========
PER SHARE DATA:
Net Income:
Primary...................................................... $ 2.61 $ 2.16 $ 1.85
Fully diluted................................................ 2.17 1.82 1.65
</TABLE>
See notes to consolidated financial statements.
46
<PAGE> 48
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- --------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................................... $ 68,022 $ 55,812 $ 42,710
Adjustments to reconcile net income to net cash provided by
operating activities:
Change in premiums receivable and agents' balances and
reinsurance recoverable on paid losses........................ 7,495 32,411 (10,060)
Change in accrued investment income.............................. (21,186) 5,349 (6,429)
Change in claims and policy liabilities.......................... (72,824) (43,741) 29,750
Amortization of policy acquisition costs......................... 126,099 86,990 82,255
Policy acquisition costs deferred................................ (148,365) (91,048) (79,936)
Provision for deferred income taxes.............................. 22,810 (4,391) (973)
Provision for loan losses........................................ 14,575 11,980 16,873
Provision for depreciation and amortization...................... 20,334 15,709 10,512
Net amortization on fixed maturity investments................... (1,793) 1,001 1,270
Realized investment (gains) losses............................... (1) 315 (2,165)
Change in other assets and liabilities........................... 24,323 (2,338) 1,316
----------- ---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES..................... 39,489 68,049 85,123
INVESTING ACTIVITIES
Securities available for sale:
Purchases of securities.......................................... (2,773,842) (975,495) (1,079,114)
Sales of securities.............................................. 2,000,772 1,302,486 788,946
Securities matured or called..................................... 101,957 61,752 24,907
Securities held to maturity:
Purchases of securities.......................................... (117,660) (206,416) --
Sales of securities.............................................. -- -- 6,354
Securities matured or called..................................... 5,464 -- 65,946
Decrease (increase) in short-term and other investments............ 615,705 (116,668) (74,691)
Loan originations and bulk purchases funded........................ (458,801) (727,715) (401,493)
Receipts from repayments of loans.................................. 377,768 121,404 227,620
Acquisition of Casualty Insurance Company, less cash acquired...... (255,803) -- --
Purchases of property and equipment................................ (9,527) (10,402) (6,557)
----------- ---------- -----------
NET CASH USED IN INVESTING ACTIVITIES......................... (513,967) (551,054) (448,082)
FINANCING ACTIVITIES
Proceeds from short-term debt...................................... 30,134 140,813 29,740
Repayments of short-term debt...................................... (199,268) (46,646) (159,666)
Proceeds from long-term debt....................................... 325,000 26,000 435,013
Repayments of long-term debt....................................... (42,808) (12,500) (56,790)
Net increase in thrift deposits.................................... 179,335 334,661 45,141
Annuity contract receipts.......................................... 217,648 57,929 27,315
Annuity contract withdrawals....................................... (18,874) (5,952) (1,221)
Dividends paid..................................................... (12,618) (11,344) (9,369)
Proceeds from sale of Common Stock................................. -- -- 40,803
Stock options exercised............................................ 80 22 251
Purchase of fractional shares...................................... (25) -- (8)
Decrease (increase) in unearned Employee Stock Ownership Plan
shares........................................................... 4,375 2,647 (4,475)
----------- ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES..................... 482,979 485,630 346,734
----------- ---------- -----------
INCREASE (DECREASE) IN CASH........................................ 8,501 2,625 (16,225)
Cash at beginning of year........................................ 31,058 28,433 44,658
----------- ---------- -----------
CASH AT END OF YEAR................................................ $ 39,559 $ 31,058 $ 28,433
=========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
47
<PAGE> 49
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
ADDITIONAL UNEARNED UNREALIZED
COMMON PAID-IN RETAINED ESOP GAIN (LOSS) ON
STOCK CAPITAL EARNINGS SHARES INVESTMENTS TOTAL
------- ---------- -------- -------- -------------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993...... $ 8,200 $ 17,891 $254,778 $ (9,159) $ -- $271,710
Net income for 1993........... -- -- 42,710 -- -- 42,710
Cash dividends to
stockholders............... -- -- (10,089) -- -- (10,089)
Conversion of 7 1/4%
debentures................. 1,201 27,266 -- -- -- 28,467
Issuance of Common Stock...... 1,250 39,553 -- -- -- 40,803
Three-for-two stock split..... 4,725 (4,725) -- -- -- --
Purchase of fractional
shares..................... -- (8) -- -- -- (8)
Stock options exercised....... 11 240 -- -- -- 251
Additional loan to ESOP less
amount collected........... -- -- -- (4,475) -- (4,475)
------- -------- -------- -------- -------- --------
Balance at December 31, 1993.... 15,387 80,217 287,399 (13,634) -- 369,369
Cumulative effect of change in
accounting for
investments................ -- -- -- -- 28,532 28,532
Net income for 1994........... -- -- 55,812 -- -- 55,812
Cash dividends to
stockholders............... -- -- (11,498) -- -- (11,498)
Stock options exercised....... 1 21 -- -- -- 22
ESOP contribution accrual cost
to market adjustment....... -- 26 -- -- -- 26
ESOP shares allocated less
additional shares
purchased.................. -- -- -- 2,647 -- 2,647
Net change in unrealized gain
(loss) on investments, net
of deferred taxes.......... -- -- -- -- (93,897) (93,897)
------- -------- -------- -------- -------- --------
Balance at December 31, 1994.... 15,388 80,264 331,713 (10,987) (65,365) 351,013
Net income for 1995........... -- -- 68,022 -- -- 68,022
Cash dividends to
stockholders............... -- -- (13,080) -- -- (13,080)
Ten percent stock dividend.... 1,538 37,498 (39,036) -- -- --
Three-for-two stock split..... 8,464 (8,464) -- -- -- --
Purchase of fractional
shares..................... -- (13) (12) -- -- (25)
Stock options exercised....... 3 77 -- -- -- 80
Accrued reductions to option
exercise price............. -- 741 -- -- -- 741
ESOP shares allocated......... -- -- -- 4,375 -- 4,375
Net change in unrealized gain
(loss) on investments, net
of deferred taxes.......... -- -- -- -- 86,964 86,964
------- -------- -------- -------- -------- --------
Balance at December 31, 1995.... $25,393 $ 110,103 $347,607 $ (6,612) $ 21,599 $498,090
======= ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
48
<PAGE> 50
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Fremont General Corporation, a nationwide insurance and financial services
holding company, operates through its wholly-owned subsidiaries in select
businesses in niche markets. The three core operating business lines are
workers' compensation insurance, real estate lending and commercial finance
lending. Additionally, on a smaller scale, various other insurance products are
underwritten. Workers' compensation insurance has accounted for over 90% of
property and casualty premiums earned. In 1995 workers' compensation premiums
were evenly divided between the western region, primarily California, and the
mid-west region, primarily Illinois. Prior to 1995, substantially all of the
premium revenue was derived from the California market. Real estate lending
represents over 50% of loan interest revenues (1994 -- 51%; 1993 -- 54%) and
represents both commercial and residential lending secured by real estate
located in California. Commercial finance accounts for substantially all of the
remaining loan interest revenues (1994 -- 44%; 1993 -- 38%) and represents
asset-based loans to middle market companies nationwide (32% in California),
primarily secured by accounts receivable and inventory.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles which, as to the
subsidiary insurance companies, differ from statutory accounting practices
prescribed or permitted by regulatory authorities. The significant accounting
policies followed by Fremont General Corporation and subsidiaries ("the
Company") that materially affect financial reporting are summarized below.
Consolidation: The consolidated financial statements include the accounts
and operations, after intercompany eliminations, of Fremont General Corporation
and all subsidiaries. See Note M for the accounting treatment of discontinued
operations.
Use of Estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Investments: Fixed maturity investments represent bonds and redeemable
preferred stocks that mature more than one year after the purchase date.
Non-redeemable preferred stocks are equity securities, the majority of which
include adjustable dividend yield provisions. As of January 1, 1994, the Company
adopted the provisions of Financial Accounting Standards Board Statement 115
("FASB 115"), "Accounting for Certain Investments in Debt and Equity
Securities." The cumulative effect as of January 1, 1994 of adopting FASB 115
was to increase stockholders' equity by $28,532,000 (net of deferred income
taxes of $15,634,000) to reflect the net unrealized holding gains on securities
classified as available for sale that were previously carried at amortized cost.
There was no effect on net income.
Premiums and discounts on investments are amortized using the interest
method over the contractual lives of the investments. Adjustments for
other-than-temporary market declines are recorded when determination of loss is
probable and is reflected with a write-down of amortized cost to net realizable
value. Short-term investments are carried at cost, which approximates their fair
value. Realized investment gains and losses are included as a component of
revenues based on specific identification of the investment sold.
Loans: Loans are stated net of unearned income and allowance for possible
loan losses. The allowance is increased by provisions charged against operations
and reduced by loan amounts charged off by management. The allowance is
maintained at a level considered adequate to provide for potential losses on
loans based on management's evaluation of the loan portfolio. While management
uses all available information to estimate the level of the allowance for credit
losses, future additions may be necessary based on changes in the amounts and
timing of future cash flows expected due to changes in collateral values
supporting loans, general economic conditions and borrowers' financial
conditions.
49
<PAGE> 51
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Beginning in 1995, the Company adopted FASB Statement No. 114 ("FASB 114"),
"Accounting by Creditors for Impairment of a Loan." Under FASB 114, the 1995
allowance for credit losses on loans that are identified for evaluation in
accordance with the new standard are based on discounted cash flows using the
loans' effective interest rate or the fair value of the collateral for
collateral dependent loans. Prior to 1995, the allowance for credit losses on
these loans was based on undiscounted cash flows or the fair value of the
collateral for collateral dependent loans. The effect on net income was not
material.
Management classifies loans as non-accrual when the collection of future
interest is not assured by the borrower's financial condition and the value of
underlying collateral and guarantees securing the loan. Subsequent collections
on non-accrual loans are applied as a reduction of principal. The Company's
charge-off policy is based on a monthly loan-by-loan review.
Loans in process of foreclosure, repossessed assets, and in-substance
foreclosures are included in the financial statements at the lower of cost or
estimated realizable value (net of estimated costs to sell). Estimated
realizable values are based on management's evaluation of numerous factors,
including appraisals, sales of comparable assets and estimated market
conditions.
Furniture and Equipment: Furniture and equipment are included in other
assets and are stated at cost, less accumulated depreciation. Leasehold
improvements are amortized over the terms of the lease. Generally, depreciation
is computed by the straight-line method over periods ranging from three to
twelve years.
Premium Income: Revenues from property and casualty premiums are
recognized proportionately over the terms of the related policies. Direct
property and casualty premiums earned but not billed at the end of each
accounting period are estimated and accrued, and differences between such
estimates and final billings are included in current operations. Revenues for
universal life and investment-type insurance products consist of policy charges
for the cost of insurance, policy initiation, administration and surrender fees
and are included in other revenue. Premiums receivable and agents' balances and
reinsurance recoverable on paid and unpaid losses include allowances for
doubtful accounts of $11,147,000 and $6,959,000 at December 31, 1995 and 1994,
respectively.
Losses and Loss Adjustment Expenses: The estimated liabilities for losses
and loss adjustment expenses include the accumulation of estimates for losses
and claims reported prior to the balance sheet dates, estimates (based on
projections of historical developments) of claims incurred but not reported and
estimates of expenses for investigating and adjusting all incurred and
unadjusted claims. Amounts reported are estimates of the ultimate costs of
settlement, net of subrogation and salvage recoveries, which are necessarily
subject to the impact of future changes in economic and social conditions.
Management believes that, given the inherent variability in any such estimates,
the aggregate reserves are within a reasonable and acceptable range of adequacy.
Reserves are continually monitored and reviewed, and as settlements are made or
reserves adjusted, differences are included in current operations.
Included in the loss and loss adjustment expense liability recorded on the
consolidated balance sheet at December 31, 1995 is $100,413,000 of workers'
compensation accident and health permanent disability and death reserves which
have been discounted at 5%. These reserves arise from the acquisition on
February 22, 1995 of Casualty Insurance Company ("Casualty"), which is an
Illinois domiciled insurance company (see Note B). The Company has continued the
practice previously adopted by Casualty of discounting permanent disability loss
reserves for both statutory accounting practices and generally accepted
accounting principles.
Unearned Premiums: Property and casualty insurance unearned premiums are
calculated using the monthly pro rata basis.
Life Insurance Benefits and Liabilities: Policyholder contract liabilities
for universal life and investment-type products represent the premiums received
plus accumulated interest, less mortality and other administrative charges under
the contracts and before applicable surrender charges. Policy benefits and
claims
50
<PAGE> 52
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that are charged to expense include benefit claims incurred in excess of related
policy account balances. Interest credited on such policies ranged from 4.5% to
6.5% at December 31, 1995. (See Notes F and P).
Deferred Policy Acquisition Costs: Commissions, premium taxes and certain
sales and underwriting expenses are capitalized and amortized as premiums are
earned over the terms of the related property and casualty policies. Anticipated
investment income is considered in determining if premium deficiencies exist.
The costs of acquiring new and renewal life and annuity insurance contracts,
principally commissions and certain variable selling expenses which vary with,
and are primarily related to, the acquisition of new and renewal insurance
contracts have been deferred. These deferred acquisition costs are being
amortized over anticipated gross margins for such contracts.
Dividends to Policyholders: Dividends, if applicable, to policyholders on
workers' compensation insurance contracts are accrued during the period in which
the related premiums are earned.
Thrift Deposits: Thrift deposits consist primarily of investment
certificates at the Company's California thrift and loan subsidiary. Such
balances are credited with interest at rates ranging from 3.60% to 8.81% at
December 31, 1995. The estimated fair value of the thrift deposits was
$929,560,000 at December 31, 1995.
Intangibles: The excess of the costs of acquisitions over net assets
acquired (net of accumulated amortization: 1995 -- $17,513,000;
1994 -- $14,357,000) is being amortized over various periods ranging primarily
from 7 to 25 years, which represents the estimated life of the intangible assets
associated with such acquisitions. Additionally, the trade name acquired in the
acquisition of Casualty (net of accumulated amortization: 1995 -- $326,000) is
being amortized over 40 years. See Note B regarding intangibles related to the
acquisition of Casualty.
Per Share Data: Primary earnings per share data have been computed based
on the weighted average number of common and common equivalent shares
outstanding, which were as follows: 1995 -- 26,079,000, 1994 -- 25,823,000 and
1993 -- 23,039,000. The weighted average number of shares were adjusted
retroactively for a 10% stock dividend distributed June 15, 1995 and a
three-for-two stock split effected January 8, 1996. Stock options granted to
certain key members of management are considered common stock equivalents for
the computation of primary earnings per share.
For the computation of fully-diluted earnings per share, stock options (see
Note J) and convertible securities (see Note I) had a dilutive effect of $0.44,
$0.34 and $0.20 per share for 1995, 1994 and 1993, respectively. Fully-diluted
earnings per share were computed based on 33,343,000, 33,034,000 and 28,243,000
weighted average number of shares outstanding for 1995, 1994 and 1993,
respectively.
Credit Risk: Financial instruments which potentially subject the Company
to concentrations of credit risk consist principally of temporary cash
investments, fixed maturity securities, preferred stocks, mortgage and
commercial finance loans and reinsurance recoverables. The Company places its
temporary cash investments with high credit quality financial institutions and
limits the amounts of credit exposure to any one financial institution.
Concentrations of credit risk with respect to investments in fixed maturities,
preferred stocks and commercial finance loans are limited due to the large
number of such investments and their distribution across many different
industries and geographics. Concentration of credit risk with respect to thrift
and loan finance receivables is limited due to the large number of borrowers;
however, substantially all thrift and loan finance receivables are from
borrowers within the state of California. To minimize its exposure to
significant losses from reinsurance insolvencies, the Company evaluates the
financial condition of its reinsurers and monitors concentrations of credit risk
arising from similar geographic regions, activities, or economic characteristics
of the reinsurers. As of December 1995, Continental Insurance Company and
General Reinsurance Corporation, were the only reinsurers that accounted for
more than 10% of total amounts recoverable from all reinsurers on paid and
unpaid losses. The remaining reinsurance recoverables were spread over 146
reinsurers.
51
<PAGE> 53
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Values of Financial Instruments: The Company uses various methods and
assumptions in estimating its fair value disclosures for financial instruments.
For fixed maturity investments and preferred stocks, fair values are determined
from certain valuation services, as well as from quoted market prices. Loans
receivable with variable rates, as well as thrift deposits for passbook and
money market type accounts, are deemed to be at fair value. The fair values of
thrift investment certificates, mortgage loans and other fixed rate loans are
estimated using discounted cash flow analyses, using interest rates currently
being offered for similar accounts or loans to borrowers with similar credit
ratings.
For short-term debt, the carrying amount of the Company's borrowings
approximates fair value. The fair value of the Company's long-term debt is based
on quoted market prices for securities actively traded. For long-term debt not
actively traded, and for bank borrowings, the fair value is estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1995 are summarized in the following table:
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Fixed maturity investments (Note C)......................... $1,296,550 $1,296,550
Non-redeemable preferred stock (Note C)..................... 277,451 277,451
Loans receivable (Note D)................................... 1,499,043 1,503,101
LIABILITIES
Thrift deposits (Note A).................................... 926,312 929,560
Short-term debt (Note H).................................... 72,191 72,191
Long-term debt (Note I)..................................... 693,276 717,304
</TABLE>
Insurance related financial instruments, other than those classified as
investment contracts, are exempt from fair value disclosure requirements. The
carrying amount of reinsurance paid recoverables approximates their fair value
as they are expected to be realized within one year.
New Accounting Standards: In March 1995, the FASB issued Statement No. 121
("FASB 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations, including intangible assets,
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. FASB 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company will adopt FASB 121 in the first quarter
of 1996 and, based on current circumstances, the effect of adoption will not be
material.
Also in 1995, the FASB issued Statement 123 ("FASB 123"), "Accounting for
Stock-Based Compensation," that is effective for fiscal years beginning after
December 15, 1995. FASB 123 establishes a method of accounting for stock-based
compensation that is based on the fair value of stock options and similar
instruments and encourages, but does not require, adoption of that method. The
Company has elected to continue following Accounting Principles Board Opinion
No. 25 for measuring compensation cost. Pursuant to FASB 123, the Company will
disclose pro forma net income and earnings per share calculated as if the
recognition and measurement provisions of the new standard had been adopted.
Reclassifications: Certain 1994 and 1993 amounts have been reclassified to
conform to the 1995 presentation.
52
<PAGE> 54
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- ACQUISITION
On February 22, 1995 the Company, through its subsidiary Fremont
Compensation Insurance Company, completed the acquisition of 100% of the
outstanding common stock of Casualty Insurance Company ("Casualty") from the
Buckeye Union Insurance Company ("Buckeye"). The purchase price paid by the
Company was $250 million, comprised of $225 million in cash and $25 million in a
note payable to Buckeye. In addition, $6.5 million of costs were incurred in
connection with the acquisition bringing the total cost to $256.5 million. The
acquisition, accounted for as a purchase, included approximately $45 million of
costs in excess of net assets acquired which is being amortized over 25 years,
and approximately $15 million of an intangible asset for the trade name which is
being amortized over 40 years. Income from Casualty has been included in the
consolidated income statement since February 22, 1995.
Casualty, based in Chicago, Illinois and its California-based subsidiary,
Workers' Compensation and Indemnity Company, underwrites workers' compensation
insurance primarily in Illinois and California. Casualty is currently the
largest underwriter of workers' compensation insurance in Illinois and is
licensed in six states.
The following schedule summarizes certain proforma unaudited results of
operations for the years ended December 31, 1995 and 1994, assuming the purchase
of Casualty had been consummated as of January 1, 1994:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1995 1994
-------- ----------
(THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Property and casualty premiums earned........................ $663,917 $ 819,981
Net investment income........................................ 124,523 115,261
Other revenues............................................... 197,374 149,680
-------- ----------
Total revenues............................................. 985,814 1,084,922
Losses and loss adjustment expenses.......................... 509,327 579,383
Policy acquisition costs..................................... 128,483 161,646
Other operating costs and expenses........................... 244,274 230,390
-------- ----------
882,084 971,419
-------- ----------
Income before taxes.......................................... 103,730 113,503
Income tax expense........................................... 33,708 40,360
-------- ----------
Net income................................................. $ 70,022 $ 73,143
======== ==========
Per share data:
Net income................................................. $ 2.68 $ 2.83
======== ==========
</TABLE>
53
<PAGE> 55
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The assets acquired and liabilities assumed, net of the purchase price, at
the date of the acquisition of Casualty, are summarized in the following table:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C>
Assets acquired:
Fixed maturity investments -- at fair value..................... $ 15,646
Short-term investments.......................................... 472,166
Premiums receivable and agents' balances........................ 67,117
Reinsurance recoverable on paid and unpaid losses............... 185,145
Deferred policy acquisition costs............................... 12,656
Deferred income taxes........................................... 59,830
Costs in excess of net assets acquired.......................... 45,036
Other assets, including cash, accrued investment income, state
deferred taxes and trade name................................ 37,719
--------
Total assets acquired................................... $895,315
========
Liabilities assumed:
Losses and loss adjustment expenses............................. $787,663
Unearned premiums............................................... 83,323
Dividends to policyholders...................................... 17,660
Other liabilities............................................... 6,669
--------
Total liabilities assumed............................... $895,315
========
</TABLE>
54
<PAGE> 56
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INVESTMENTS
The amortized cost and fair values of the fixed maturity investments and
non-redeemable preferred stock by major category are summarized in the following
table:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Available for sale:
At December 31, 1995
United States Treasury securities and
obligations of other US government agencies
and corporations............................ $ 136,626 $ 13,914 $ 1,290 $ 149,250
Redeemable preferred stock.................... 15,887 1,940 2,063 15,764
Mortgage-backed securities.................... 340,682 11,223 14,772 337,133
Corporate securities
Banks....................................... 123,144 4,944 2,252 125,836
Financial................................... 117,013 3,266 37 120,242
Transportation.............................. 16,888 353 -- 17,241
Utilities................................... 13,427 393 -- 13,820
Industrial.................................. 491,767 25,771 274 517,264
---------- -------- -------- ----------
Total.................................... 1,255,434 61,804 20,688 1,296,550
Non-redeemable preferred stock................ 285,337 5,392 13,278 277,451
---------- -------- -------- ----------
Total.................................... $1,540,771 $ 67,196 $ 33,966 $1,574,001
========== ======== ======== ==========
Available for sale:
At December 31, 1994
United States Treasury securities and
obligations of other US government agencies
and corporations............................ $ 53,045 $ 78 $ 7,971 $ 45,152
Redeemable preferred stock.................... 4,249 -- 758 3,491
Mortgage-backed securities.................... 189,551 -- 58,876 130,675
Corporate securities
Banks....................................... 24,744 -- 4,619 20,125
Financial................................... 10,000 -- 1,775 8,225
Industrial.................................. 30,112 -- 2,338 27,774
---------- -------- -------- ----------
Total.................................... 311,701 78 76,337 235,442
Non-redeemable preferred stock................ 213,935 -- 24,303 189,632
---------- -------- -------- ----------
Total.................................... $ 525,636 $ 78 $ 100,640 $ 425,074
========== ======== ======== ==========
Held to maturity:
At December 31, 1994
United States Treasury securities and
obligations of other US government agencies
and corporations............................ $ 53,695 $ 31 $ 2,319 $ 51,407
Mortgage-backed securities.................... 152,721 -- 5,025 147,696
---------- -------- -------- ----------
Total.................................... $ 206,416 $ 31 $ 7,344 $ 199,103
========== ======== ======== ==========
</TABLE>
55
<PAGE> 57
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and fair value of debt securities at December 31, 1995
by contractual maturity, are summarized in the following table:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Available for sale:
One year or less.......................................... $ 27,358 $ 27,461
Over 1 year through 5 years............................... 245,447 247,933
Over 5 years through 10 years............................. 495,154 520,484
Over 10 years............................................. 146,793 163,539
Mortgage-backed securities................................ 340,682 337,133
---------- ----------
Totals............................................ $1,255,434 $1,296,550
========== ==========
</TABLE>
The contractual maturities in the foregoing table may differ from actual
maturities because certain borrowers have the right to sell or repay obligations
with or without call or prepayment penalties.
Proceeds from sales of investments in debt securities and related realized
gains and losses are summarized in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Proceeds from sales............................. $2,000,772 $1,302,486 $795,300
Gross realized gains............................ 20,923 13,987 14,028
Gross realized losses........................... 20,922 14,302 11,863
</TABLE>
Investment income by major category of investments is summarized in the
following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Fixed maturities..................................... $ 75,581 $48,677 $71,476
Non-redeemable preferred stock....................... 25,661 19,407 238
Short-term........................................... 19,354 9,520 5,701
Other................................................ 109 206 255
-------- ------- -------
120,705 77,810 77,670
Investment expenses.................................. 1,182 989 472
-------- ------- -------
Net investment income...................... $119,523 $76,821 $77,198
======== ======= =======
</TABLE>
The Company relies on external rating agencies to establish quality ratings
for its investments. The Company only purchases securities that are rated
investment grade by at least one rating agency, but may hold investments that
are subsequently downgraded to non-investment grade. As of December 31, 1995,
all investments held by the Company are current as to principal and interest,
with no investment in default. Included in investments is $27,794,000 of fixed
maturity investments and $31,223,000 of non-redeemable preferred stock of
Bankers Trust Company that in total exceeds 10% of stockholders' equity at
December 31,
56
<PAGE> 58
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995. Using Standard and Poor's, Moody's and Fitch's rating services, the
quality mix of the Company's fixed maturity investment portfolio at December 31,
1995 is summarized in the following table:
<TABLE>
<S> <C>
AAA (including US government obligations).............................. 31%
AA..................................................................... 2
A...................................................................... 26
BBB.................................................................... 40
BB..................................................................... 1
---
100%
===
</TABLE>
As of July 1, 1995 the Company's held to maturity portfolio totaling $319.4
million was transferred to available for sale in accordance with the provisions
of FASB 115. In addition, at this date there was a net unrealized gain of $9.9
million (net of deferred taxes of $5.3 million) on the held to maturity
portfolio which was transferred to stockholders' equity. The transfer became
necessary as the Company sold certain investment securities in July which were
classified as held to maturity at June 30, 1995. These investment sales were
part of an overall review and restructuring of the investment portfolio
performed in conjunction with the investing of cash received in the acquisition
of Casualty (see Note B). This review and restructuring caused the Company to
consider the appropriateness of the remaining held to maturity investments,
which resulted in the reclassification.
The par value of fixed maturity investments and cash totaling $834,433,000
at December 31, 1995 were on deposit with regulatory authorities in compliance
with legal requirements related to the insurance operations.
The Company currently holds no derivative financial instruments subject to
FASB Statement 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments."
NOTE D -- LOANS RECEIVABLE
Loans receivable consist of commercial finance, commercial and residential
real estate loans, and insurance premium notes receivable. Commercial finance
loans are asset-based loans that are secured by the borrowers' eligible trade
accounts receivable, inventories and equipment. Commercial and residential real
estate loans are secured by real property. Insurance premium notes receivable
are collateralized by security interests in return premiums.
Commercial finance loans are stated at the unpaid balance of cash advanced
net of allowance for possible loan losses of $12,554,000 and $12,464,000 at
December 31, 1995 and 1994, respectively. The amount of cash advanced under
these loans is based on stated percentages of the borrowers' eligible
collateral. The majority of the loans are callable within 30 days at the option
of the Company. Interest on the commercial loans is computed on the basis of
daily outstanding balances times the contractual interest rate and is reported
as earned income on the accrual method. Total loan balances on which income
recognition has been suspended were $9,344,000 and $380,000 at December 31, 1995
and 1994, respectively. The 1995 balance consists of three loans, including one
with a balance of $8,881,000. The 1994 balance consists of six loans.
Commercial finance loans are shown net of participation by other financial
institutions of $8,119,000 at December 31, 1995 and $9,764,000 at December 31,
1994. The participation agreements are generally made for a fixed percentage of
the commercial loan balance and are made without recourse to the Company.
The Company's thrift and loan subsidiary generates primarily real estate
loans. Commercial and residential real estate loans have terms ranging from one
to thirty years. Finance charges are recognized as revenue over the life of the
loan using the interest method. Loan origination fees and the related costs are
deferred and amortized over the life of the loan using the interest method. The
loans are net of allowance for
57
<PAGE> 59
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
possible loan losses of $17,498,000 and $14,391,000 at December 31, 1995, and
1994, respectively. Included in loans receivable are real estate loans which
have been placed on non-accrual status totaling $23,544,000 and $21,454,000 at
December 31, 1995 and 1994, respectively. Real estate acquired in foreclosure,
which is classified under other assets, totaled $4,942,000 and $17,467,000 at
December 31, 1995 and 1994, respectively, and is recorded at the lower of the
carrying value of the loan or the estimated fair value less disposal costs.
Insurance premium notes receivable mature within one year and are net of
allowances for possible loan losses of $1,024,000 and $551,000 at December 31,
1995 and 1994, respectively. Interest income on these notes is recognized using
the rule-of-seventy-eight method which results in approximately level interest
rate yield over the life of the notes.
Activity in the allowance for possible loan losses is summarized in the
following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Balance, beginning of year.................................... $27,406 $25,222 $22,819
Provision for loan losses..................................... 14,575 11,980 16,873
Recoveries.................................................... 2,961 853 1,096
Charge-offs................................................... (13,161) (14,254) (15,566)
Reserves established with portfolio acquisitions.............. -- 3,605 --
------- ------- -------
Balance, end of year.......................................... $31,781 $27,406 $25,222
======= ======= =======
</TABLE>
At December 31, 1995, the recorded investment in loans that are considered
to be impaired under FASB 114 was $33,425,000, of which $32,889,000 were on a
non-accrual basis. The Company's policy is to place on a non-accrual basis any
loans deemed impaired under FASB 114 as the Company's loans are generally
collateral dependent. As a result of charge-offs, these impaired loans do not
necessarily have a related specific reserve for credit losses allocated to them.
However, $18,427,000 of loans considered impaired do have an allowance that
totaled $2,575,000. The average net investment in impaired loans during the year
ended December 31, 1995 was $31,325,000 and no interest income has been
recognized on loans classified as impaired during the year ended December 31,
1995.
The carrying amounts at December 31, 1995 and 1994 and estimated fair
values at December 31, 1995 of loans receivable are summarized in the following
table:
<TABLE>
<CAPTION>
1995 1994
------------------------- ----------
CARRYING ESTIMATED CARRYING
AMOUNT FAIR VALUE AMOUNT
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Commercial finance loans............................... $ 532,693 $ 532,693 $ 472,193
Real estate loans...................................... 980,283 984,341 969,921
Other loans............................................ 45,896 45,896 67,809
---------- ---------- ----------
1,558,872 1,562,930 1,509,923
Purchase discount and deferred fees.................... (28,048) (28,048) (41,743)
Allowance for possible loan losses..................... (31,781) (31,781) (27,406)
---------- ---------- ----------
Loans receivable....................................... $1,499,043 $1,503,101 $1,440,774
========== ========== ==========
</TABLE>
58
<PAGE> 60
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- CLAIM LIABILITIES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The following table provides a reconciliation of the beginning and ending
reserve balances for the Company's claim liabilities for losses and loss
adjustment expenses ("LAE") on a net-of-reinsurance basis to the gross amounts
reported in the Company's consolidated balance sheets.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
---------- ---------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Reserves for losses and LAE, net of reinsurance
recoverable, at beginning of year.................... $ 610,510 $ 644,190 $ 633,394
Incurred losses and LAE:
Provision for insured events of the current year, net
of reinsurance.................................... 459,951 290,833 323,279
Increase (decrease) in provision for insured events
of prior years, net of reinsurance................ 1,382 (17,234) (4,126)
---------- -------- ---------
Total incurred losses and LAE................ 461,333 273,599 319,153
Payments:
Losses and LAE, net of reinsurance, attributable to
insured events of:
Current year...................................... (132,358) (70,505) (67,805)
Prior years....................................... (358,423) (236,774) (240,552)
---------- -------- ---------
Total payments............................... (490,781) (307,279) (308,357)
---------- -------- ---------
Subtotal................................... 581,062 610,510 $ 644,190
Liability for losses and LAE for Casualty Insurance
Company acquired during the current year............. 604,644 -- --
---------- -------- ---------
Reserves for losses and LAE, net of reinsurance
recoverable, at end of year.......................... 1,185,706 610,510 $ 644,190
Reinsurance recoverable for losses and LAE, at end of
year................................................. 269,986 136,151 138,737
---------- -------- ---------
Reserves for losses and LAE, gross of reinsurance
recoverable, at end of year.......................... $1,455,692 $ 746,661 $ 782,927
========== ======== =========
</TABLE>
The foregoing reconciliation shows that a $17 million redundancy in the
December 31, 1993 reserve emerged in 1994. This redundancy resulted primarily
from lower than previously estimated claim frequency and severity on workers'
compensation claims incurred in 1993 and prior years.
NOTE F -- REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that
may arise from catastrophes or other events that cause unfavorable underwriting
results by reinsuring certain levels of risk in various areas of exposure with
other insurance enterprises or reinsurers. Amounts recoverable from reinsurers
are estimated in a manner consistent with the claim liability associated with
the reinsured policy.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. The failure of reinsurers to honor their obligations could result
in losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition and economic
characteristics of its reinsurers to minimize its exposure to significant losses
from reinsurer insolvencies.
59
<PAGE> 61
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effect of ceded reinsurance on property and casualty premiums are
summarized in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1995 1994 1993
--------------------- --------------------- ---------------------
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
-------- -------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Direct..................... $564,675 $580,442 $431,500 $438,482 $460,164 $459,293
Assumed.................... 41,613 55,572 4,264 4,224 3,109 3,916
Ceded...................... 22,498 29,097 9,332 9,122 7,606 7,444
-------- -------- -------- -------- -------- --------
Net property and casualty
premiums............... $583,790 $606,917 $426,432 $433,584 $455,667 $455,765
======== ======== ======== ======== ======== ========
</TABLE>
The effect of ceded reinsurance on losses and loss adjustment expenses was
a decrease (increase) in expenses of $19,651,000, $7,456,000 and $(12,427,000)
for the three years ended December 31, 1995, 1994 and 1993, respectively.
Effective December 31, 1995, the Company entered into a reinsurance and
assumption agreement with a reinsurer whereby all of the Company's universal
life insurance business was ceded to the reinsurer. This reinsurance agreement
was entered into as of December 31, 1995 as part of several other agreements
that became effective January 1, 1996. These agreements collectively act to
significantly reduce the Company's life insurance operations. (See Note P). The
effect of reinsurance on life insurance premiums and life insurance benefits was
not significant for the three years ended December 31, 1995.
NOTE G -- INCOME TAXES
The major components of income tax expense (benefit) are summarized in the
following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Federal income tax
Current............................................. $ 6,964 $30,132 $20,460
Deferred............................................ 22,810 (4,391) (973)
------- ------- -------
29,774 25,741 19,487
State income tax...................................... 2,531 18 2,151
------- ------- -------
Total income tax provision.......................... $32,305 $25,759 $21,638
======= ======= =======
</TABLE>
60
<PAGE> 62
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the effective federal tax rates in the consolidated
statements of income with the prevailing federal income tax rate of 35% is
summarized in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Federal income tax at 35%............................. $35,114 $28,550 $21,769
Effects of:
Dividends received deduction........................ (5,678) (3,865) (229)
Dividends in Employee Stock Ownership Plan shares... (432) (455) (402)
Amortization of costs in excess of net assets
acquired......................................... 839 366 511
Change in tax rate.................................. -- -- (1,408)
Other............................................... (69) 1,145 (754)
------- ------- -------
Federal income tax provision..................... $29,774 $25,741 $19,487
======= ======= =======
</TABLE>
The deferred income tax balance includes the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and for income tax purposes. Details of the deferred tax
expense (benefit) are summarized in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Discount on loss reserves............................. $22,134 $ 703 $ 1,460
Dividends to policyholders............................ 7,985 60 (2,508)
Life insurance benefits and liabilities............... (6,862) (1,669) (83)
Deferred loan origination costs....................... 3,832 -- --
Accrued compensation expense.......................... (2,441) (1,131) --
Unearned premiums..................................... 2,373 (811) (235)
Retrospective premium payable......................... (1,400) 1,228 (1,604)
Provisions for loan losses and other doubtful
accounts............................................ (1,164) (1,984) (50)
Deferred policy acquisition costs..................... (128) 2,008 (1,568)
Earned but unbilled premiums.......................... -- (3,363) --
Deferred income....................................... -- -- 1,454
Salvage and subrogation............................... -- -- 1,268
Effect of change in tax rate.......................... -- -- (1,408)
Other................................................. (1,519) 568 2,301
------- ------- -------
Deferred tax expense (benefit)...................... $22,810 $(4,391) $ (973)
======= ======= =======
</TABLE>
Net payments made for federal and state income taxes were $13,429,000,
$18,471,000 and $9,000,000 for 1995, 1994 and 1993, respectively.
61
<PAGE> 63
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the Company's deferred tax assets as of December 31, 1995
and 1994 are summarized in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Discount on loss reserves...................................... $ 68,619 $ 35,656
Net unrealized loss on investments............................. -- 35,196
Dividends to policyholders..................................... 14,288 16,088
Life insurance benefits and liabilities........................ 13,432 6,570
Allowance for possible loan losses and other doubtful
accounts..................................................... 12,507 10,739
Unearned premiums.............................................. 12,316 3,538
Other, net..................................................... 3,431 3,123
-------- --------
Deferred income tax asset amounts.................... 124,593 110,910
Deferred policy acquisition costs.............................. (26,814) (19,731)
Net unrealized gain on investments............................. (11,630) --
Deferred loan origination costs................................ (3,832) --
Earned but unbilled premiums................................... (3,698) --
Excess intangibles amortization................................ -- (2,753)
-------- --------
Deferred income tax liability amounts................ (45,974) (22,484)
-------- --------
Net deferred income tax asset................... $ 78,619 $ 88,426
======== ========
</TABLE>
The Company's principal deferred tax assets arise due to the discounting of
loss reserves (which delays a portion of the loss reserve deduction for income
tax purposes), the accrual of dividends to policyholders, certain life insurance
benefits and liabilities, the provision for doubtful loan accounts and a portion
of the unearned premiums. The effect of discounting the loss reserves for tax
purposes is to effectively tax the future investment income stream associated
with holding the investments necessary to support the reserves. Future
investment income, irrespective of other operating income, should be sufficient
to allow the future loss reserve deduction (i.e., the accretion of the discount
for income tax purposes) to be utilized. Similarly, the recognition of the tax
benefits in future periods associated with life insurance benefits and
liabilities will be realized through future investment income to be earned on
the underlying policies. With respect to the accrual of policyholders'
dividends, the future periods will permit the recognition of the tax benefits
associated with these accruals as the amounts are linked to future taxable
income arising from existing policyholders of the Company.
In the Company's opinion, the deferred tax assets will be fully realized
and no valuation allowance is necessary because the Company has the ability to
generate sufficient future taxable income in both the insurance and financial
services segments to realize the tax benefits.
62
<PAGE> 64
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- SHORT-TERM DEBT
Short-term debt is summarized in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Bank lines of credit by a subsidiary of the Company (weighted
average interest rate; 1994 - 6.91%).......................... $ -- $157,000
Commercial paper issued by a subsidiary, maturity dates through
May 10, 1996 (weighted average interest rate, 1995 - 7.13%;
1994 - 6.68%)................................................. 7,191 17,754
Current portion of long-term debt............................... 65,000 1,571
-------- ---------
$72,191 $176,325
======== =========
</TABLE>
The commercial finance subsidiary has lines of credit with banks totaling
$15,000,000 that expire September 30, 1996. Interest is based on the prime
lending rate. At December 31, 1995, there were no outstanding advances under
these lines of credit.
NOTE I -- LONG-TERM DEBT
Long-term debt is summarized in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Fremont General Corporation
Liquid Yield Option Notes due 2013, less discount
(1995 - $222,115; 1994 - $229,810)........................ $151,635 $143,940
$200 million Revolving Credit Facility....................... 85,000 15,000
Note Payable due 2002........................................ 6,620 11,000
Subsidiaries:
Variable Rate Asset Backed Certificates...................... 330,000 300,000
$300 million Senior Revolving Credit Facility................ 185,000 --
Other Notes Payable, interest rate at year end, 7.25%........ 21 21
-------- --------
758,276 469,961
Less current portion......................................... 65,000 1,571
-------- --------
$693,276 $468,390
======== ========
</TABLE>
In August 1995, the Company amended and restated an agreement on a
$200,000,000 Revolving Credit Facility with several banks. Borrowings and
repayments are at the option of the Company until the conversion date of August
31, 1997, at which time the facility converts to a term loan with a limit of
$100 million that matures in 2001. Interest is based on, at the Company's
option, the higher of the Federal Funds rate plus 1/2% or the banks' prime
lending rate plus an applicable margin, Eurodollar rates plus an applicable
margin or by competitive bids by the banks. All applicable margins are based on
the Company's credit rating. The rate at December 31, 1995 on the outstanding
balance of $85,000,000 was 6.20%. A facility fee ranging from .25% to .45%,
dependent on the Company's credit rating, is charged on the total facility. The
facility fee rate during 1995 was .30%. The stock of a subsidiary insurance
holding company has been pledged as collateral for this loan.
During July 1994, the Fremont General Employee Stock Ownership Plan
("ESOP") borrowed $11,000,000 (see Note K) from a bank due in seven equal annual
installments commencing on April 1, 1996.
63
<PAGE> 65
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The maximum principal amount of this loan was increased to $15 million in
August, 1995 and the term was extended to April 1, 2002. The note payable is
secured by certain shares of the ESOP and the interest and principal payments
are guaranteed by the Company. Interest is based on, at the Company's option,
the bank's prime lending rate, LIBOR plus 1%, or an applicable certificate of
deposit rate. The rate at December 31, 1995 was 6.69%.
In October 1993 the Company sold in a public offering an aggregate
$373,750,000 principal amount at maturity of Liquid Yield Option Notes due
October 12, 2013 (Zero Coupon-Subordinated) (the "LYONs") at an issue price of
$372.42 for a total net proceeds to the Company of approximately $135,000,000.
The yield to maturity is 5% with no periodic payments of interest. The LYONs are
convertible into the Company's Common Stock at a price of $19.31 per share and
are non-callable for 5 years.
The Variable Rate Asset Backed Certificates reflect the sale of
certificates pursuant to the asset securitization program established in 1993 by
a commercial finance subsidiary of the Company. The proceeds from the sale of
the initial series of certificates ("Series A") under this program in April 1993
were $200 million bearing interest at the rate of LIBOR plus 0.47%. In November
1993, this subsidiary sold an additional $100 million principal amount of these
certificates ("Series B") bearing interest at the rate of LIBOR plus 0.5%. The
securities issued in this program have a scheduled maturity of three to four
years but could mature earlier depending on fluctuations in outstanding balances
of loans in the portfolio and other factors. In April 1995, $30 million
principal amount of certificates which mature in 2000, bearing interest at the
rate of LIBOR plus .95%, were sold via a private placement. In February 1996,
$135 million in certificates ("Series C") were issued which mature in 2000. The
proceeds were used, in conjunction with existing cash, to retire the $200
million in Series A certificates. In December 1995, a commercial paper facility
was established as part of the asset securitization program. This facility
provides for the issuance of up to $150 million in commercial paper, dependent
upon the level of assets within the asset securitization program. This facility,
which expires in December 1998, had no amounts outstanding under it as of
December 31, 1995.
This subsidiary also has an unsecured revolving line of credit with a
syndicated bank group that presently permits borrowings of up to $300 million,
of which $185 million was outstanding as of December 31, 1995. This credit line
which expires August 1998 replaced a short-term credit facility that expired in
August, 1995. The weighted average interest rate at December 31, 1995 was 6.39%
The carrying amounts and the estimated fair values of long-term borrowings
at December 31, 1995 are summarized in the following table:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
LYONs.......................................................... $151,635 $ 175,663
Variable Rate Asset Backed Certificates........................ 330,000 330,000
$200 million Revolving Credit Facility, expiring 1997.......... 85,000 85,000
$300 million Senior Revolving Credit Facility.................. 185,000 185,000
Note Payable due 2002.......................................... 6,620 6,620
Other Notes Payable............................................ 21 21
-------- --------
Total long-term borrowings........................... $758,276 $ 782,304
======== ========
</TABLE>
64
<PAGE> 66
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate amount of maturities on long-term debt and sinking fund
requirements are summarized in the following table (thousands of dollars):
<TABLE>
<S> <C>
1996.............................................................. $ 65,000
1997.............................................................. 100,356
1998.............................................................. 197,196
1999.............................................................. 16,446
2000.............................................................. 194,197
Thereafter........................................................ 185,081
--------
$758,276
========
</TABLE>
Total interest payments on all debt were $91,278,000, $49,294,000, and
$37,433,000 in 1995, 1994 and 1993, respectively.
NOTE J -- STOCKHOLDERS' EQUITY AND RESTRICTIONS
On December 4, 1995, the Board of Directors declared a three-for-two Common
Stock split for stockholders of record on January 8, 1996 that was distributed
on February 7, 1996. Also during 1995, a ten percent stock dividend was
distributed June 15, 1995 to stockholders of record May 30, 1995.
In 1993 the Company distributed a three-for-two split of Common Stock and
sold 3,094,000 shares of Common Stock in a public offering.
The Company is authorized to issue up to 2,000,000 shares of $.01 par value
Preferred Stock; however none has been issued to date.
Consolidated stockholders' equity is restricted by the provisions of
certain long-term debt agreements. At December 31, 1995, the most restrictive
loan covenants require the Company to maintain total stockholders' equity before
FASB 115 adjustments of at least $375,000,000.
The Company has adopted a stock option plan for the benefit of certain key
members of management. Under the plan, up to 2,681,000 shares are allocable to
participants. Options are granted at exercise prices not less than the fair
value of the stock on the date of grant. Upon the fifth anniversary of the date
of the option grant and on each successive anniversary thereafter (until that
option is either exercised or expires) the exercise price of each unexercised
option is automatically reduced by one-sixth of the original option price, as
reflected in the table below and a charge to compensation expense is recorded.
Grantees vest at the rate of 25%
65
<PAGE> 67
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
per year beginning on the first anniversary of the grant. The stock option
activity is summarized in the following table:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OPTION PRICES
--------- --------------
<S> <C> <C>
Outstanding at January 1, 1993............................ 1,237,985 $ 5.05 - 10.81
Granted................................................. 227,123 13.44 - 15.00
Exercised............................................... (17,162) 5.05 - 10.10
Forfeited............................................... (14,334) 5.05 - 10.10
----------
Outstanding at December 31, 1993.......................... 1,433,612 5.05 - 15.00
Granted................................................. 367,538 14.32 - 14.62
Exercised............................................... (1,546) 8.89
----------
Outstanding at December 31, 1994.......................... 1,799,604 5.05 - 15.00
Granted................................................. 30,938 15.68
Exercised............................................... (19,488) 8.89 - 13.43
Forfeited............................................... (11,013) 10.81 - 15.00
----------
Outstanding at December 31, 1995.......................... 1,800,041 4.21 - 15.68
==========
</TABLE>
The portion of the consolidated stockholders' equity represented by the
Company's investment in its insurance subsidiaries and its thrift and loan
subsidiary is subject to various laws and regulations, whereby amounts available
for payment of dividends are restricted. Retained earnings and additional
paid-in capital of the property and casualty companies currently available for
dividend distribution is $29,941,000. No dividends are currently available from
the thrift and loan subsidiary.
Net income and stockholders' equity of domestic insurance subsidiaries, as
filed with regulatory authorities on the basis of statutory accounting
practices, are summarized in the following table:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Statutory net income for the year.................. $104,032 $ 48,220 $ 56,366
Statutory stockholder's equity at year end......... 321,148 250,633 234,604
</TABLE>
NOTE K -- EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) Plan and a leveraged Employee Stock Ownership
Plan ("ESOP"), both of which cover substantially all employees with at least one
year of service. Contribution expense for these plans amounted to $11,015,000,
$8,464,000 and $5,947,000 for 1995, 1994 and 1993, respectively, of which
$8,656,000, $5,961,000 and $4,227,000 related to the ESOP. Cash contributions to
the ESOP, which relate to 1995, 1994 and 1993, were $3,000,000, $4,375,000 and
$4,147,000, respectively. The contributions, which are generally discretionary,
are based on total compensation of the participants.
From 1990 to 1994, the ESOP purchased 2,904,000 shares of the Company's
Common Stock with funds provided by the Company in return for a note maturing in
2000 and bearing interest at 8%. In July 1994 the ESOP borrowed $11 million from
a bank under a term loan due 2001 (See Note I). Proceeds from the loan were used
to repay the note with the Company. The principal of the bank loan has been
recorded as a liability of the Company. The maximum principal amount of this
loan was increased to $15,000,000 in August, 1995 and the term was extended to
April 1, 2002. Shares pledged as collateral are reported as unearned ESOP shares
in the consolidated balance sheet. The annual contributions made by the Company
to the ESOP are used to repay the loan. As the debt is repaid, shares are
released from collateral and are allocated to participants based on total
compensation. Dividends received by the ESOP on its investment in the Company's
Common Stock, amounting to $374,000, $545,000 and $645,000 in 1995, 1994 and
1993,
66
<PAGE> 68
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively, were additionally used to service these loans. Interest expense
was $196,000 for the year ended December 31, 1995.
All shares held by the ESOP are considered outstanding for earnings per
share purposes. Of the 2,814,000 shares of Company stock owned by the plan at
December 31, 1995, 2,088,000 shares are allocated to participants and 726,000
shares are not allocated to participants. Unearned shares acquired prior to
December 31, 1992 continue to be accounted for in accordance with the historical
cost approach (AICPA Statement of Opinion 76-3). All of the unearned ESOP shares
held as of December 31, 1995 were acquired prior to December 31, 1992.
NOTE L -- COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a number of legal actions arising primarily
from claims made under insurance polices or in connection with previous
reinsurance agreements. Those actions have been considered in establishing the
Company's liabilities. Management and its legal counsel are of the opinion that
the settlement of those actions will not have a material effect on the Company's
financial position or results of operations.
An insurance subsidiary of the Company outsourced its data processing
operation to Electronic Data Systems in 1992. Under terms of the contract, this
subsidiary will pay a minimum $7,500,000 per year for a period of ten years,
until 2002.
Total rental expense for 1995, 1994 and 1993, was $14,909,000, $9,115,000,
and $8,926,000, respectively. The Company leases office facilities and certain
equipment under non-cancelable operating leases, the terms of which range from
one to ten years. Certain leases provide for an increase in the basic rental to
compensate the lessor for increases in operating and maintenance costs. The
leases also provide renewal options.
Under present leases, rental commitments are summarized in the following
table (thousands of dollars):
<TABLE>
<S> <C>
1996............................................................... $13,604
1997............................................................... 12,808
1998............................................................... 11,194
1999............................................................... 9,876
2000............................................................... 7,570
Thereafter......................................................... 2,238
-------
$57,290
=======
</TABLE>
NOTE M -- DISCONTINUED OPERATIONS
The Company discontinued all of its assumed reinsurance operations, as well
as certain other insurance operations, during the period 1986 to 1991. These
operations consisted primarily of facultative and treaty reinsurance covering
primary and excess property and casualty insurance coverages. All discontinued
insurance operations are accounted for using the liquidation basis of accounting
whereby all future cash inflows and outflows are considered in determining
whether dedicated assets are sufficient to meet all future obligations.
The Company determines the adequacy of the assets dedicated to fund the
liabilities of discontinued operations by: (i) estimating the ultimate remaining
liabilities; (ii) discounting these liabilities using estimates of payment
patterns and investment yields derived from the dedicated investment portfolio;
and (iii) comparing this discounted estimate of liabilities to the dedicated
assets.
The Company estimates that the dedicated assets (primarily cash, investment
securities and reinsurance recoverables) supporting these operations and all
future cash inflows will be adequate to fund future
67
<PAGE> 69
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obligations. However, should those assets ultimately prove to be insufficient,
the Company believes that its property and casualty subsidiaries would be able
to provide whatever additional funds might be needed to complete the liquidation
without having a material adverse effect on the Company's consolidated financial
position or results of operations.
A statement of financial condition of the discontinued operations is
summarized in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Assets
Cash and invested assets, at amortized cost.................. $190,777 $249,737
Reinsurance recoverables..................................... 54,448 71,493
Federal income taxes......................................... 6,125 5,762
Other assets................................................. 11,152 9,821
-------- --------
Total................................................ $262,502 $336,813
======== ========
Liabilities
Reserves for loss and loss adjustment expenses............... $162,219 $190,433
Deferred income taxes........................................ 41,810 34,736
Reinsurance payable and funds withheld....................... 21,713 30,658
Other liabilities............................................ 3,246 47,472
-------- --------
Total................................................ $228,988 $303,299
======== ========
</TABLE>
The amortized cost and fair value of cash and invested assets of the
discontinued operations as of December 31, 1995 are summarized in the following
table:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Fixed maturities............................................... $ 87,920 $ 88,725
Non-redeemable preferred stock................................. 71,878 69,808
Cash and other invested assets................................. 30,979 30,979
-------- --------
Cash and invested assets..................................... $190,777 $189,512
======== ========
</TABLE>
The average maturity of the fixed income portfolio was 5.10 years at
December 31, 1995. The quality mix of the fixed maturity portfolio as of
December 31, 1995 is summarized in the following table:
<TABLE>
<S> <C>
AAA (including US government obligations)...................................... 50%
A.............................................................................. 10
BBB............................................................................ 11
BB............................................................................. 29
----
100%
====
</TABLE>
At December 31, 1995, all investments included in discontinued operations
were current with respect to principal and interest. It is the Company's belief
that the carrying value of the investments will be fully realized.
68
<PAGE> 70
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- OPERATIONS BY INDUSTRY SEGMENT
The following data for the years ended December 31, 1995, 1994 and 1993
provide certain information necessary for industry segment disclosure.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
REVENUES
Workers' compensation.................................. $ 671,110 $ 458,461 $ 489,126
Professional medical liability, corporate and other.... 37,077 37,251 33,999
---------- ---------- ----------
Total property and casualty.................. 708,187 495,712 523,125
Financial services..................................... 214,975 154,398 125,732
Corporate.............................................. 652 3,038 2,548
---------- ---------- ----------
$ 923,814 $ 653,148 $ 651,405
========== ========== ==========
INCOME (LOSS) BEFORE INCOME TAXES
Workers' compensation.................................. $ 85,009 $ 62,199 $ 49,775
Professional medical liability, corporate and other.... (1,917) (934) 2,317
---------- ---------- ----------
Total property and casualty.................. 83,092 61,265 52,092
Financial services..................................... 35,737 28,014 21,456
Corporate.............................................. (18,502) (7,708) (9,200)
---------- ---------- ----------
$ 100,327 $ 81,571 $ 64,348
========== ========== ==========
AMORTIZATION AND DEPRECIATION EXPENSE
Workers' compensation.................................. $ 8,501 $ 4,808 $ 5,051
Professional medical liability, corporate and other.... 176 377 517
---------- ---------- ----------
Total property and casualty.................. 8,677 5,185 5,568
Financial services..................................... 3,032 2,442 1,962
Corporate.............................................. 8,625 8,082 2,982
---------- ---------- ----------
$ 20,334 $ 15,709 $ 10,512
========== ========== ==========
CAPITAL EXPENDITURES
Property and casualty*................................. $ 7,404 $ 5,642 $ 3,362
Financial services..................................... 1,931 4,107 2,982
Corporate.............................................. 192 653 213
---------- ---------- ----------
$ 9,527 $ 10,402 $ 6,557
========== ========== ==========
</TABLE>
69
<PAGE> 71
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Property and casualty*................................. $2,055,511 $1,096,781 $1,139,899
Financial services..................................... 2,131,412 1,678,039 1,119,534
Corporate.............................................. 27,974 22,757 85,661
---------- ---------- ----------
$4,214,897 $2,797,577 $2,345,094
========== ========== ==========
</TABLE>
- ---------------
* It is not practicable to allocate asset amounts among lines of business within
the property and casualty insurance segment. Assets held for discontinued
operations are excluded from the above table.
NOTE O -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1995
Revenues.................................... $ 199,157 $252,995 $ 238,499 $233,163
Net Income.................................. 14,206 16,867 18,265 18,684
Net income per share........................ 0.55 0.65 0.70 0.71
1994
Revenues.................................... $ 156,058 $157,992 $ 173,749 $165,349
Net Income.................................. 13,487 14,077 14,095 14,153
Net income per share........................ 0.52 0.55 0.55 0.55
</TABLE>
The revenues, net income, and net income per share for the quarters ended
after March 31, 1995 are greater than all other quarters presented, due
primarily to the acquisition of Casualty Insurance Company which was completed
on February 22, 1995. (See Note B).
NOTE P -- SUBSEQUENT EVENTS
Public Offering: On March 1, 1996, Fremont General Financing I, a
statutory business trust (the "Trust") and consolidated wholly-owned subsidiary
of the Company, sold $100 million of 9% Trust Originated Preferred
Securities(SM) ("the Preferred Securities") in a public offering. The Preferred
Securities represent preferred undivided beneficial interests in the assets of
the Trust. The proceeds from the sale of the Preferred Securities were invested
in 9% Junior Subordinated Debentures of the Company ("the Junior Subordinated
Debentures"). The $100 million Junior Subordinated Debentures are the sole asset
of the Trust.
The Preferred Securities will be redeemed upon maturity of the Junior
Subordinated Debentures in 2026, subject to the election available to the
Company to extend the maturity up to 2045, and they may be redeemed, in whole or
in part, at any time on or after March 31, 2001 and under certain specified
circumstances.
The Junior Subordinated Debentures rank pari passu with the Company's
$373,750,000 aggregate principal amount at maturity of Liquid Yield Option Notes
due 2013, and subordinate and junior to all senior indebtedness of the Company.
Payment of distributions out of cash held by the Trust, and payments on
liquidation of the Trust or the redemption of the Preferred Securities are
guaranteed by the Company.
70
<PAGE> 72
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reinsurance: On January 1, 1996, the Company entered into a reinsurance
and assumption agreement with a reinsurer whereby assets and liabilities related
to certain life and annuity insurance polices, primarily investment-type
contracts and credit life and accident and health, were ceded to the reinsurer.
This reinsurance agreement is part of several other agreements which
collectively act to significantly reduce the Company's life insurance operations
(see Note F). The effect on operations from these agreements is not expected to
be material.
Stockholders' Equity: During the first quarter of 1996, the Company
completed a stock repurchase program. This program, previously announced on
November 17, 1995, was initiated to fund stock-based management and employee
benefit programs. A total of 819,300 shares (adjusted for the three-for-two
stock split effected January 8, 1996) were purchased at a cost of $19,535,000.
71
<PAGE> 73
FREMONT GENERAL CORPORATION (PARENT COMPANY)
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
ASSETS
Cash................................................................... $ 304 $ 794
Notes receivable from subsidiaries*.................................... 85,310 91,403
Investment in subsidiaries*............................................ 660,663 413,529
Short-term investments................................................. 8,554 7,405
Excess of cost of acquisition of subsidiaries over net assets
acquired............................................................. 7,876 8,204
Other receivables from subsidiaries*................................... 4,033 3,330
Deferred income taxes.................................................. 78,619 88,426
Other assets........................................................... 27,222 5,709
-------- --------
TOTAL ASSETS......................................................... $872,581 $618,800
======== ========
LIABILITIES
Accrued expenses and other liabilities................................. $ 14,318 $ 18,818
Amounts due to subsidiaries*........................................... 110,793 73,267
Amounts due to run-off subsidiaries*................................... 6,125 5,762
Current portion of long-term debt...................................... -- 1,571
Long-term debt......................................................... 243,255 168,369
-------- --------
TOTAL LIABILITIES.................................................... 374,491 267,787
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred Stock, par value $.01-authorized 2,000,000 shares; none
issued
Common Stock, par value $1 per share -- Authorized: 1995 - 49,500,000
and 1994 - 30,000,000 shares; issued and outstanding:
(1995 - 25,393,000 and 1994 - 15,388,000)............................ 25,393 15,388
Additional paid-in capital............................................. 110,103 80,264
Retained earnings...................................................... 347,607 331,713
Unearned Employee Stock Ownership Plan shares.......................... (6,612) (10,987)
Net unrealized gain (loss) on investments, net of deferred taxes....... 21,599 (65,365)
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................................... 498,090 351,013
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................... $872,581 $618,800
======== ========
</TABLE>
- ---------------
* Eliminated in consolidation
See notes to condensed financial statements.
72
<PAGE> 74
FREMONT GENERAL CORPORATION (PARENT COMPANY)
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
INCOME
Interest income from subsidiaries*........................... $ 4,170 $ 3,623 $ 654
Dividends from consolidated subsidiary*...................... 6,051 3,407 6,155
Net investment income........................................ 648 3,014 2,296
Realized investment gains.................................... -- -- 248
Other income*................................................ 8,518 5,508 5,221
------- ------- -------
TOTAL INCOME............................................... 19,387 15,552 14,574
EXPENSES
Interest expense............................................. 13,282 8,163 6,439
General and administrative................................... 18,883 12,018 11,505
------- ------- -------
TOTAL EXPENSES............................................. 32,165 20,181 17,944
------- ------- -------
(12,778) (4,629) (3,370)
Income tax expense (benefit)................................. (1,632) (3,351) 1,573
------- ------- -------
Loss before equity in undistributed income of subsidiary
companies.................................................. (11,146) (1,278) (4,943)
Equity in undistributed income of subsidiary companies....... 79,168 57,090 47,653
------- ------- -------
NET INCOME................................................. $ 68,022 $55,812 $42,710
======= ======= =======
</TABLE>
- ---------------
* Eliminated in consolidation
See notes to condensed financial statements.
73
<PAGE> 75
FREMONT GENERAL CORPORATION (PARENT COMPANY)
SCHEDULE III-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
-------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 68,022 $ 55,812 $ 42,710
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed income from continuing
operations of subsidiaries......................... (79,168) (57,090) (47,653)
Change in accrued investment income.................. (1) 216 (220)
Change in amounts due to or from subsidiaries........ 6,676 102 3,337
Provision for (reduction in) deferred income taxes... 22,810 (4,391) (973)
Provision for depreciation and amortization.......... 8,612 8,082 2,982
Realized investment gains............................ -- -- (248)
Change in other assets and liabilities............... (9,002) 6,022 (1,693)
--------- --------- ----------
NET CASH PROVIDED BY (USED IN) CONTINUING
OPERATIONS.................................... 17,949 8,753 (1,758)
Effect of discontinued operations....................... 363 (9,573) 9,380
--------- --------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.................................... 18,312 (820) 7,622
INVESTING ACTIVITIES
Purchases of fixed maturity investments................. (4,988) (46,712) (113,569)
Sales of fixed maturity investments..................... -- 92,003 113,817
Fixed maturity investments matured or called............ 5,000 11,600 --
Decrease (increase) in short-term and other
investments.......................................... (1,149) 7,928 (69,273)
Net decrease (increase) in credit lines with
subsidiaries......................................... 6,094 (57,652) (18,648)
Purchase of and additional investments in
subsidiaries......................................... (81,000) (23,000) (35,088)
Purchase of property and equipment...................... (192) (653) (213)
--------- --------- ----------
NET CASH USED IN INVESTING ACTIVITIES........... (76,235) (16,486) (122,974)
FINANCING ACTIVITIES
Repayment of short-term debt............................ (1,571) -- (8,250)
Proceeds from long-term debt............................ 110,000 26,000 135,013
Repayment of long-term debt............................. (42,808) -- (38,040)
Dividends paid.......................................... (12,618) (11,344) (9,369)
Proceeds from sale of Common Stock...................... -- -- 40,803
Stock options exercised................................. 80 22 251
Purchase of fractional shares........................... (25) -- (8)
Decrease (increase) in unearned Employee Stock Stock
Ownership Plan shares................................ 4,375 2,647 (4,475)
--------- --------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES....... 57,433 17,325 115,925
--------- --------- ----------
INCREASE (DECREASE) IN CASH..................... (490) 19 573
Cash at beginning of year............................... 794 775 202
--------- --------- ----------
CASH AT END OF YEAR............................. $ 304 $ 794 $ 775
========= ========= ==========
</TABLE>
See notes to condensed financial statements.
74
<PAGE> 76
FREMONT GENERAL CORPORATION (PARENT COMPANY)
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
In the parent company financial statements, the parent's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since date of acquisition. Parent company financial statements
should be read in conjunction with the Company's consolidated financial
statements.
75
<PAGE> 77
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
SCHEDULE V -- SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ----------- ------------ -------- ---------
RESERVES
DEFERRED FOR CLAIMS, DIVIDENDS
POLICY BENEFITS AND TO
ACQUISITION SETTLEMENT UNEARNED POLICY-
SEGMENT COSTS EXPENSES PREMIUMS HOLDERS
------- ----------- ------------ -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
1995
Life insurance.................................... $48,938 $ 374,724 $ -- $ --
Workers' compensation............................. 25,610 1,419,821 93,229 40,822
Professional medical liability,
corporate and other............................. 2,090 35,871 7,252 --
------- ---------- ------- -------
$76,638 $1,830,416 $100,481 $40,822
======= ========== ======= =======
1994
Life insurance.................................... $42,156 $ 172,425 $ -- $ --
Workers' compensation............................. 13,237 703,567 37,690 46,067
Professional medical liability,
corporate and other............................. 3,893 43,094 9,861 --
------- ---------- ------- -------
$59,286 $ 919,086 $47,551 $46,067
======= ========== ======= =======
1993
Life insurance.................................... $37,985 $ 123,066 $ -- $ --
Workers' compensation............................. 13,364 728,582 45,472 46,337
Professional medical liability,
corporate and other............................. 3,879 54,345 9,252 --
------- ---------- ------- -------
$55,228 $ 905,993 $54,724 $46,337
======= ========== ======= =======
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
COLUMN F COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
-------- ---------- ------------ ------------ --------- --------
AMORTIZATION
CLAIMS, OF DEFERRED
NET BENEFITS AND POLICY OTHER NET
PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT REVENUE INCOME EXPENSES COSTS EXPENSES WRITTEN
------- -------- ---------- ------------ ------------ --------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
1995
Life insurance.................................... $ 14,469 $ 19,457 $ 19,928 $ 7,716 $ 4,412 $ N/A
Workers' compensation............................. 574,952 96,158 435,040 113,404 24,074 554,459
Professional medical liability,
corporate and other............................. 31,965 5,112 26,293 4,979 2,821 29,331
-------- -------- -------- -------- ------- --------
$621,386 $120,727 $481,261 $126,099 $31,307 $583,790
======== ======== ======== ======== ======= ========
1994
Life insurance.................................... $ 14,689 $ 10,595 $ 13,002 $ 6,669 $ 3,453 $ N/A
Workers' compensation............................. 401,455 57,047 249,370 74,621 17,137 393,755
Professional medical liability,
corporate and other............................. 32,129 5,122 24,229 5,700 2,629 32,677
-------- -------- -------- -------- ------- --------
$448,273 $ 72,764 $286,601 $ 86,990 $23,219 $426,432
======== ======== ======== ======== ======= ========
1993
Life insurance.................................... $ 14,268 $ 11,404 $ 8,829 $ 9,809 $ 4,276 $ N/A
Workers' compensation............................. 426,793 60,710 300,468 66,911 19,933 427,651
Professional medical liability,
corporate and other............................. 28,972 5,027 18,685 5,535 2,681 28,016
-------- -------- -------- -------- ------- --------
$470,033 $ 77,141 $327,982 $ 82,255 $26,890 $455,667
======== ======== ======== ======== ======= ========
</TABLE>
76
<PAGE> 78
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
SCHEDULE VI -- REINSURANCE
<TABLE>
<CAPTION>
COLUMN D COLUMN F
COLUMN C --------- ----------
COLUMN B --------- ASSUMED COLUMN E PERCENTAGE
---------- CEDED TO FROM ---------- OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
COLUMN A AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- --------------------------------- ---------- --------- --------- ---------- ----------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Life insurance in force*......... $1,513,199 $822,309 $ 8,742 $ 699,632 1%
========== ======== ======== ==========
Premium Revenue
Life insurance premiums........ $ 15,166 $ 2,333 $ 1,636 $ 14,469 11%
Workers' compensation.......... 543,892 22,368 53,428 574,952 9%
Professional medical liability,
corporate and other......... 35,953 6,729 2,741 31,965 9%
---------- -------- -------- ----------
$ 595,011 $ 31,430 $ 57,805 $ 621,386
========== ======== ======== ==========
YEAR ENDED DECEMBER 31, 1994
Life insurance in force*......... $1,559,869 $380,609 $334,124 $1,513,384 22%
========== ======== ======== ==========
Premium Revenue
Life insurance premiums........ $ 11,990 $ (1,114) $ 1,585 $ 14,689 11%
Workers' compensation.......... 408,519 7,064 -- 401,455 0%
Professional medical liability,
corporate and other......... 34,187 2,058 -- 32,129 0%
---------- -------- -------- ----------
$ 454,696 $ 8,008 $ 1,585 $ 448,273
========== ======== ======== ==========
YEAR ENDED DECEMBER 31, 1993
Life insurance in force*......... $1,769,668 $460,946 $297,060 $1,605,782 18%
========== ======== ======== ==========
Premium Revenue
Life insurance premiums........ $ 13,427 $ 551 $ 1,392 $ 14,268 10%
Workers' compensation.......... 432,743 5,950 -- 426,793 0%
Professional medical liability,
corporate and other......... 29,658 1,494 808 28,972 3%
---------- -------- -------- ----------
$ 475,828 $ 7,995 $ 2,200 $ 470,033
========== ======== ======== ==========
</TABLE>
- ---------------
* Balance at end of year.
Intercompany transactions have been eliminated.
77
<PAGE> 79
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C
---------------------------
COLUMN B ADDITIONS COLUMN E
---------- --------------------------- COLUMN D ----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO ---------- BALANCE AT
- ------------------------------------- BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- ------------------------------------- ---------- ---------- -------------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Deducted from asset accounts:
Allowance for possible loan
losses........................ $ 27,406 $ 14,575 $ -- $ 10,200(2) $ 31,781
Premiums receivable and agents'
balances and reinsurance
recoverable................... 6,959 2,465 1,723(1) -- 11,147
------- ------- ------ ------- -------
Totals..................... $ 34,365 $ 17,040 $1,723 $ 10,200 $ 42,928
======= ======= ====== ======= =======
YEAR ENDED DECEMBER 31, 1994
Deducted from asset accounts:
Allowance for possible loan
losses........................ $ 25,222 $ 11,980 $3,605(1) $ 13,401(2) $ 27,406
Premiums receivable and agents'
balances and reinsurance
recoverable................... 6,991 320 -- 352(2) 6,959
------- ------- ------ ------- -------
Totals..................... $ 32,213 $ 12,300 $3,605 $ 13,753 $ 34,365
======= ======= ====== ======= =======
YEAR ENDED DECEMBER 31, 1993
Deducted from asset accounts:
Allowance for possible loan
losses........................ $ 22,819 $ 16,873 $ -- $ 14,470(2) $ 25,222
Premiums receivable and agents'
balances and reinsurance
recoverable................... 5,866 3,143 -- 2,018(2) 6,991
------- ------- ------ ------- -------
Totals..................... $ 28,685 $ 20,016 $ -- $ 16,488 $ 32,213
======= ======= ====== ======= =======
</TABLE>
- ---------------
(1) Reserves established with company and portfolio acquisitions.
(2) Uncollectible accounts written off, net of recoveries and reclassifications.
78
<PAGE> 80
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY/CASUALTY INSURANCE OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
DECEMBER 31, COLUMN H
---------------------------------------------- --------------------------
COLUMN C
---------- COLUMN D CLAIMS AND CLAIM
COLUMN B RESERVES -------- ADJUSTMENT
----------- FOR UNPAID DISCOUNT COLUMN G EXPENSES INCURRED
COLUMN A DEFERRED CLAIMS IF ANY COLUMN E COLUMN F ---------- RELATED TO
- ------------------------ POLICY AND CLAIM DEDUCTED -------- -------- NET --------------------------
AFFILIATION WITH ACQUISITION ADJUSTMENT IN UNEARNED EARNED INVESTMENT (1) (2)
REGISTRANT COSTS EXPENSES COLUMN C PREMIUMS PREMIUMS INCOME CURRENT YEAR PRIOR YEARS
- ------------------------ ----------- ---------- -------- -------- -------- ---------- ------------ -----------
(THOUSANDS OF DOLLARS)
Fremont Insurance Group and Consolidated Subsidiaries
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995.................... $27,700 $1,455,692 $23,126 $100,481 $606,917 $101,270 $459,951 $ 1,382
1994.................... $17,130 $ 746,661 $ -- $ 47,551 $433,584 $ 62,169 $290,833 $ (17,234)
1993.................... $17,243 $ 782,927 $ -- $ 54,724 $455,765 $ 65,737 $323,279 $ (4,126)
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
COLUMN I
----------- COLUMN J
AMORTIZA- ----------
TION OF PAID
COLUMN A DEFERRED CLAIMS COLUMN K
- ------------------------ POLICY AND CLAIM --------
AFFILIATION WITH ACQUISITION ADJUSTMENT PREMIUMS
REGISTRANT COSTS EXPENSES WRITTEN
- ------------------------ ----------- ---------- --------
(THOUSANDS OF DOLLARS)
Fremont Insurance Group and Consolidated Subsidiaries
<S> <C> <C> <C>
1995.................... $ 118,383 $490,781 $583,790
1994.................... $ 80,321 $307,279 $426,432
1993.................... $ 72,446 $308,357 $455,667
</TABLE>
79
<PAGE> 81
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, on the 28th day of
March 1996.
FREMONT GENERAL CORPORATION
By: /s/ JOHN A. DONALDSON
--------------------------------
Title: Controller and chief
Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ---------------
<C> <S> <C>
/s/ JAMES A. MCINTYRE Chairman of the Board and March 28, 1996
- ------------------------------------------ Chief Executive Officer
James A. McIntyre (Principal Executive
Officer)
/s/ LOUIS J. RAMPINO President, Chief Operating March 28, 1996
- ------------------------------------------ Officer and Director
Louis J. Rampino
/s/ WAYNE R. BAILEY Executive Vice President, March 28, 1996
- ------------------------------------------ Treasurer and Chief
Wayne R. Bailey Financial Officer (Principal
Financial Officer)
/s/ JOHN A. DONALDSON Controller and March 28, 1996
- ------------------------------------------ Chief Accounting Officer
John A. Donaldson (Principal Accounting
Officer)
/s/ HOUSTON I. FLOURNOY Director March 28, 1996
- ------------------------------------------
Houston I. Flournoy
/s/ C. DOUGLAS KRANWINKLE Director March 28, 1996
- ------------------------------------------
C. Douglas Kranwinkle
/s/ DAVID W. MORRISROE Director March 28, 1996
- ------------------------------------------
David W. Morrisroe
/s/ DICKINSON C. ROSS Director March 28, 1996
- ------------------------------------------
Dickinson C. Ross
/s/ KENNETH L. TREFFTZS Director March 28, 1996
- ------------------------------------------
Kenneth L. Trefftzs
</TABLE>
80
<PAGE> 82
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
2.1 Stock Purchase Agreement among Fremont Compensation Insurance Company,
Fremont General Corporation, the Buckeye Union Insurance Company, The
Continental Corporation and Casualty Insurance Company, Dated as of
December 16, 1994. (Filed as Exhibit No. 2.1 to Current Report on Form
8-K, as of February 22, 1995, Commission File Number 1-8007, and
incorporated herein by reference)......................................
2.2 Amendment No. 1 to Stock Purchase Agreement among Fremont Compensation
Insurance Company, Fremont General Corporation, the Buckeye Union
Insurance Company, The Continental Corporation and Casualty Insurance
Company, Dated as of December 16, 1994. (Filed as Exhibit No. 2.2 to
Current Report on Form 8-K, as of February 22, 1995, Commission File
Number 1-8007, and incorporated herein by reference)...................
3.1 Restated Articles of Incorporation of Fremont General Corporation.
(Filed as Exhibit No. 3.1 to Registration Statement on Form S-3 File No
33-64771 which was declared effective on March 1, 1996, and
incorporated herein by reference.).....................................
3.2 Certificate of Amendment of Articles of Incorporation of Fremont
General Corporation. (Filed as Exhibit 3.2 to Registration Statement on
Form S-3 File No. 33-64771 which was declared effective on March 1,
1996 and herein incorporated by reference).............................
3.3 Amended and Restated By-Laws of Fremont General Corporation............
4.1 Form of Stock Certificate for Common Stock of the Registrant. (Filed as
Exhibit No. (1) Form 8-A filed on March 17, 1993, Commission File
Number 1-8007, and incorporated herein by reference)...................
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013 between
the Registrant and Bankers Trust Company. (Filed as Exhibit No. (4)(iv)
to Registration Statement on Form S-3 filed on October 1, 1993, and
incorporated herein by reference)......................................
4.3 Indenture among the Registrant, the Trust and First Interstate Bank of
California, a California banking corporation, as trustee...............
4.4 Declaration of Trust among the Registrant, the Regular Trustees and The
Chase Manhattan Bank (USA), a Delaware banking corporation, as Delaware
trustee................................................................
4.5 Amended and Restated Declaration of Trust among the Registrant, the
Regular Trustees, The Chase Manhattan Bank (USA), a Delaware banking
corporation, as Delaware trustee, and The Chase Manhattan Bank, N.A., a
national banking association, as Institutional Trustee.................
4.6 Preferred Securities Guarantee Agreement between the Registrant and The
Chase Manhattan Bank, N.A., a national banking association, as
Preferred Guarantee Trustee............................................
4.7 Common Securities Guarantee Agreement by the Registrant................
4.8 Form of Preferred Securities. (included in Exhibit 4.5)................
4.9 Form of 9% Junior Subordinated Debenture. (included in Exhibit 4.3)....
10.1 Fremont General Corporation Employee Stock Ownership Plan as amended...
10.2 Amended and Restated Trust Agreement for Fremont General Corporation
Employee Stock Ownership Plan..........................................
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
10.3 Fremont General Corporation and Affiliated Companies Investment
Incentive Program as amended...........................................
10.4(a) Trust Agreement for Investment Incentive Program. (Filed as Exhibit No.
(10)(xi) to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1993, Commission File Number 1-8007, and incorporated
herein by reference)...................................................
10.4(b) Amendment to Trust Agreement for Investment Incentive Program..........
10.5(a) Supplemental Retirement Plan of the Company. (Filed as Exhibit No.
(10)(v) to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1990, Commission File Number 1-8007, and incorporated
herein by reference)...................................................
10.5(b) Amendment to Supplemental Retirement Plan..............................
10.6 Trust Agreement for Supplemental Retirement Plan of the Company and the
Senior Supplemental Retirement Plan of the Company, as amended.........
10.7 Senior Supplemental Retirement Plan, as amended........................
10.8(a) Excess Benefit Plan of The Company. (Filed as Exhibit No. (10)(vi) to
Annual Report on Form 10-K, for the fiscal year ended December 31,
1993, Commission File No.> 1-8007 and incorporated herein by
reference).............................................................
10.8(b) Amendment to Excess Benefit Plan of the Company........................
10.8(c) Trust Agreement for Excess Benefit Plan................................
10.9 Non-Qualified Stock Option Plan of 1989 of the Company.................
10.10 Long-Term Incentive Compensation Plan of the Company...................
10.11 1995 Restricted Stock Award Plan.......................................
10.12 Fremont General Corporation Employee Benefits Trust Agreement ("Grantor
Trust") dated September 7, 1995 between the Company and Merrill Lynch
Trust Company of California............................................
10.13 Employment Agreement between the Company and James A. McIntyre. (Filed
as Exhibit No. (10)(i) to Quarterly Report on Form 10-Q for the period
ended March 31, 1994, Commission File Number 1-8007, and incorporated
herein by reference)...................................................
10.14(a) Employment Agreement between the Company and Louis J. Rampino..........
10.14(b) Employment Agreement between the Company and Wayne R. Bailey...........
10.15 Management Continuity Agreement between the Company and Raymond G.
Meyers.................................................................
10.16 1995 Management Incentive Compensation Plan of the Company. (Filed as
Exhibit No. (10)(vi) to Quarterly Report on Form 10-Q, for the period
ended June 30, 1995, Commission File Number 1-8007, and incorporated
herein by reference)...................................................
10.17 Continuing Compensation Plan for Retired Directors.....................
10.18 Non-Employee Directors' Deferred Compensation Plan.....................
10.19(a) Credit Agreement among Fremont General Corporation, Various Lending
Institutions and the Chase Manhattan Bank, N.A., As Agent. (Filed as
Exhibit No. (10)(xiv) to Quarterly Report on Form 10-Q for the period
ended September 30, 1994, Commission File Number 1-8007, and
incorporated herein by reference)......................................
10.19(b) Amendment to Credit Agreement..........................................
10.20 Keep Well Agreement, dated as of August 24, 1995 by the Company in
connection with the Credit Agreement among Fremont General Corporation,
Various Lending Institutions and the Chase Manhattan Bank, N.A., As
Agent..................................................................
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
10.21 Credit Agreement $15,000,000 by and among Merrill Lynch Trust Company
of California as trustee for the Fremont General Corporation Employee
Stock Ownership Trust. The Plan Committee (hereinafter described) on
behalf of the Fremont General Corporation Employee Stock Ownership
Plan, Fremont General Corporation, and First Interstate Bank of
California August 10, 1995. (Filed as Exhibit No. (10)(viii) to
Quarterly Report on Form 10-Q for the period ended September 30, 1995,
and incorporated herein by reference)..................................
(11) Statement re: Computation of per share earnings........................
(21) Subsidiaries of the Company............................................
(23) Consent of Ernst & Young LLP independent Auditors......................
(27) Financial Data Schedule................................................
(28) Information from reports provided to state insurance regulatory
authorities............................................................ P
</TABLE>
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
FREMONT GENERAL CORPORATION
A Nevada Corporation
Date of adoption by the
Board of Directors:
November 9, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - OFFICE 1
SECTION 1. PRINCIPAL OFFICE 1
SECTION 2. OTHER OFFICES 1
ARTICLE II - MEETINGS OF STOCKHOLDERS 1
SECTION 1. PLACE OF MEETINGS 1
SECTION 2. ANNUAL MEETINGS 1
SECTION 3. NOTICE OF STOCKHOLDERS' MEETINGS 1
SECTION 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE 2
SECTION 5. SPECIAL MEETINGS 2
SECTION 6. NOTICE OF STOCKHOLDER BUSINESS 2
SECTION 7. ADJOURNED MEETINGS AND NOTICE THEREOF 3
SECTION 8. VOTING 3
SECTION 9. RECORD DATE 5
SECTION 10. QUORUM 5
SECTION 11. CONSENT OF ABSENTEES 6
SECTION 12. ACTION WITHOUT MEETING 6
SECTION 13. PROXIES 6
SECTION 14. INSPECTORS OF ELECTION 7
ARTICLE III - DIRECTORS 7
SECTION 1. POWERS 7
SECTION 2. NUMBER AND QUALIFICATION OF DIRECTORS 8
SECTION 3. ELECTION AND TERM OF OFFICE 8
SECTION 4. REMOVAL 8
SECTION 5. VACANCIES 9
SECTION 6. PLACE OF MEETING 9
SECTION 7. REGULAR MEETINGS 9
SECTION 8. SPECIAL MEETINGS; NOTICE 10
SECTION 9. TELEPHONE MEETINGS 10
SECTION 10. WAIVER OF NOTICE 10
SECTION 11. QUORUM 10
SECTION 12. ADJOURNMENT 11
SECTION 13. NOTICE OF ADJOURNMENT 11
SECTION 14. FEES AND COMPENSATION 11
SECTION 15. ACTION WITHOUT MEETING 11
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV - COMMITTEES 11
SECTION 1. COMMITTEES OF DIRECTORS 11
SECTION 2. COMMITTEE MINUTES 12
SECTION 3. MEETINGS AND ACTION OF COMMITTEES 12
ARTICLE V - OFFICERS 13
SECTION 1. OFFICERS 13
SECTION 2. ELECTION 13
SECTION 3. SUBORDINATE OFFICERS 13
SECTION 4. REMOVAL AND RESIGNATION 13
SECTION 5. VACANCIES 14
SECTION 6. CHAIRMAN OF THE BOARD 14
SECTION 7. VICE CHAIRMAN OF THE BOARD 14
SECTION 8. PRESIDENT 14
SECTION 9. EXECUTIVE VICE PRESIDENT 14
SECTION 10. VICE PRESIDENT 14
SECTION 11. SECRETARY 15
SECTION 12. CHIEF FINANCIAL OFFICER AND TREASURER 15
SECTION 13. CONTROLLER 16
SECTION 14. CASHIER 16
ARTICLE VI - MISCELLANEOUS 16
SECTION 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER 16
SECTION 2. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. 17
SECTION 3. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS 17
SECTION 4. ANNUAL REPORT 17
SECTION 5. CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED 17
SECTION 6. CERTIFICATES OF STOCK 17
SECTION 7. LOST CERTIFICATES 18
SECTION 8. REPRESENTATION OF SHARES OF OTHER CORPORATIONS 18
SECTION 9. MAINTENANCE AND INSPECTION OF BYLAWS 18
ARTICLE VII - AMENDMENTS 19
SECTION 1. POWER OF STOCKHOLDERS 19
SECTION 2. POWER OF DIRECTORS 19
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VIII - INDEMNIFICATION 19
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. 19
SECTION 2. INDEMNIFICATION OF OTHERS. 19
SECTION 3. PAYMENT OF EXPENSES IN ADVANCE. 20
SECTION 4. INDEMNITY NOT EXCLUSIVE. 20
SECTION 5. INSURANCE INDEMNIFICATION. 20
SECTION 6. CONFLICTS. 20
SECTION 7. INDEMNITY AGREEMENTS 20
</TABLE>
-iii-
<PAGE> 5
AMENDED AND RESTATED BYLAWS
OF
FREMONT GENERAL CORPORATION
ARTICLE I
OFFICE
SECTION 1. PRINCIPAL OFFICE. The principal office for the
transaction of business of the corporation is hereby fixed and located in
Carson City, State of Nevada. The Board of Directors is hereby granted full
power and authority to change said principal office from one location to
another in said state.
SECTION 2. OTHER OFFICES. Branch or subordinate offices may at
any time be established by the Board of Directors at any place or places where
the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual meetings of
stockholders and all other meetings of stockholders shall be held either at the
principal office or at any other place within or without the State of Nevada
which may be designated either by the Board of Directors pursuant to authority
hereinafter granted to said Board.
SECTION 2. ANNUAL MEETINGS. Unless a different date is
specifically designated in advance by the Board of Directors, the annual
meetings of stockholders shall be held on the first Tuesday of May of each
year, at 3:00 p.m. of said day; provided, however, that should said day fall
upon a legal holiday, then any such annual meeting of stockholders shall be
held at the same time and place on the next day thereafter ensuing which is not
a legal holiday. At such meetings directors shall be elected, reports of the
affairs of the corporation shall be considered, and any other business may be
transacted which is within the powers of the stockholders.
SECTION 3. NOTICE OF STOCKHOLDERS' MEETINGS. All notices of
meetings with stockholders shall be sent or otherwise given in accordance with
Section 4 of these Bylaws not less than ten (10) nor more than sixty (60) days
before each annual meeting. The notice shall specify the place, date and hour
of such meeting and (i) shall be signed by the President, a Vice-President, the
Secretary, or an Assistant Secretary or by such other person or persons
designated by the Board of Directors, and (ii) shall state those matters which
the Board of Directors, at the time of giving notice, intends to present for
action by the stockholders. The notice of
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any meeting at which directors are to be elected shall include the name of any
nominee or nominees intended at the time of the notice to be presented by the
Board of Directors for election.
SECTION 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Written notice of any meeting of stockholders shall be given to each
stockholder entitled to vote, either personally or by mail or other means of
written communication, charges prepaid, addressed to such stockholder at the
stockholder's address appearing on the books of the corporation or given by
such stockholder to the corporation for the purpose of notice. If a
stockholder gives no address, notice shall be deemed to have been given if sent
by mail or other means of written communication addressed to the place where
the principal office of the corporation is situated, or if published at least
once in some newspaper of general circulation in the county in which said
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other means of written
communication.
An affidavit of the mailing or other means of giving any
notice of any stockholders' meeting, executed by the Secretary, Assistant
Secretary or any transfer agent of the corporation giving the notice, shall be
prima facie evidence of the giving of such notice.
SECTION 5. SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose or purposes whatsoever, may be called at any time
by the President or by the Board of Directors. Except in special cases where
other express provision is made by statute, notice of such special meetings
shall be given in the same manner as for annual meetings of stockholders. No
business other than that specified in the notice may be transacted.
SECTION 6. NOTICE OF STOCKHOLDER BUSINESS. To be properly
brought before the meeting, business must be of a nature that is appropriate
for consideration at an annual meeting and must be (i) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board of Directors, (ii) otherwise properly brought before the meeting by or at
the direction of the Board of Directors, or (iii) otherwise properly brought
before the meeting by a stockholder.
In addition to any other applicable requirements, for business
to be properly brought before the annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, each such notice must be given either by
personal delivery or by United States mail, postage prepaid, to the Secretary
of the corporation not later than (i) with respect to a matter to be brought
before an annual meeting of stockholders or a special meeting in lieu of an
annual meeting, sixty (60) days prior to the date set forth in the Bylaws for
the annual meeting and (ii) with respect to a matter to be brought before a
special meeting of the stockholders not in lieu of an annual meeting, the close
of business on the tenth day
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following the date on which notice of such meeting is first given to
stockholders. The notice shall set forth (i) information concerning the
stockholder, including the stockholder's name and address, (ii) a lawful
representation that the stockholder is entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to present the matter
specified in the notice, and (iii) such other information with respect to such
matter as would be required to be included in a proxy statement soliciting
proxies for the presentation of such matter to the meeting.
Notwithstanding anything in these Bylaws to the contrary, no
business shall be transacted at the annual meeting except in accordance with
the procedures set forth in this section; provided, however, that nothing in
this section shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting in accordance with these
Bylaws.
SECTION 7. ADJOURNED MEETINGS AND NOTICE THEREOF. Any
stockholders' meeting, annual or special, whether or not a quorum is present,
may be adjourned from time to time by the vote of a majority of the shares, the
holders of which are either present in person or represented by proxy thereat,
but in the absence of a quorum no other business may be transacted at such
meeting, except as provided in Section 10 of these Bylaws.
When any stockholders' meeting, either annual or special, is
adjourned for thirty (30) days or more, notice of the adjourned meeting shall
be given as in the case of an original meeting. Save as aforesaid, it shall
not be necessary to give any notice of an adjournment or of the business to be
transacted at an adjourned meeting, other than by announcement at the meeting
at which such adjournment is taken. At any adjourned meeting the corporation
may transact any business which might have been transacted at the original
meeting.
SECTION 8. VOTING. The stockholders entitled to notice of any
meeting or to vote at any such meeting shall be only persons in whose name
shares stand on the stock records of the corporation on the record date
determined in accordance with Section 9 of this Article.
Voting shall in all cases be subject to the following provisions:
(a) Shares held by an administrator, executor, guardian,
conservator or custodian may be voted by such holder either in person or by
proxy, without a transfer of such shares into the holder's name; and shares
standing in the name of a trustee may be voted by the trustee, either in person
or by proxy, but no trustee shall be entitled to vote shares held by such
trustee without a transfer of such shares into the trustee's name.
(b) Shares standing in the name of a receiver may be
voted by such receiver; and shares held by or under the control of a receiver
may be voted by such receiver without the transfer thereof into the receiver's
name if authority to do so is contained in the order of the court by which such
receiver was appointed.
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(c) Except where otherwise agreed in writing between the
parties, a stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
(d) Shares standing in the name of a minor may be voted
and the corporation may treat all rights incident thereto as exercisable by the
minor, in person or by proxy, whether or not the corporation has notice, actual
or constructive, of the nonage, unless a guardian of the minor's property has
been appointed and written notice of such appointment given to the corporation.
(e) Shares standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxy- holder as
the bylaws of such other corporation may prescribe or, in the absence of such
provision, as the Board of Directors of such other corporation may determine
or, in the absence of such determination, by the chairman of the board,
president or any vice president of such other corporation, or by any other
person authorized to do so by the board, president or any vice president of
such other corporation.
(f) If shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a stockholder voting agreement
or otherwise, or if two or more persons (including proxy-holders) have the same
fiduciary relationship respecting the same shares, unless the Secretary of the
corporation is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect:
(i) If only one votes, such act binds all:
(ii) If more than one votes, the act of the majority so
voting binds all;
(iii) If more than one votes, but the votes are evenly
split on any particular matter, each faction may vote the securities in
question proportionately.
If the instrument so filed or the registration of the shares shows
that any such tenancy is held in unequal interests, a majority or even split
for the purpose of this Section shall be a majority or even split in interest.
The stockholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
stockholder at the meeting and before the voting has begun.
Except as may be otherwise provided in the Articles of Incorporation,
each outstanding share, regardless of class, shall be entitled to the vote on
each matter submitted to a vote of the stockholders. Any stockholder entitled
to vote on any matter may vote part of the shares in favor of the proposal and
refrain from voting the
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remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the stockholder fails to specify the
number of shares which the stockholder is voting affirmatively, it will be
conclusively presumed that the stockholder's approving vote is with respect to
all shares which the stockholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the stockholders, unless the vote of a greater number or a vote
by classes is required by the Code or by the Articles of Incorporation.
SECTION 9. RECORD DATE. The Board may fix, in advance, a
record date for the determination of the stockholders entitled to notice of any
meeting or to vote or entitled to receive payment of any dividend or other
distribution, or any allotment of rights, or to exercise rights in respect of
any other lawful action. The record date so fixed shall be not more than sixty
(60) nor less than ten (10) days prior to the date of any meeting and not more
than sixty (60) days prior to any other action.
When a record date is so fixed, only stockholders of record at the
close of business on that date are entitled to notice of and to vote at the
meeting or to receive the dividend, distribution, or allotment of rights, or to
exercise of the rights, as the case may be, notwithstanding any transfer of
shares on the books of the corporation after the record date. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting unless the Board
fixes a new record date for the adjourned meeting. The Board shall fix a new
record date if the meeting is adjourned for more than forty-five (45) days from
the date set for the original meeting.
If no record date is fixed by the Board, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
SECTION 10. QUORUM. The presence in person or by proxy of
persons entitled to vote a majority of the voting shares at any meeting shall
constitute a quorum for the transaction of business. The stockholders present
at a duly called or held meeting at which a quorum is present may continue to
do business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
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SECTION 11. CONSENT OF ABSENTEES. The transactions of any
meeting of stockholders, either annual or special, however called and noticed,
shall be as valid as if taken at a meeting duly held after regular call and
notice, if a quorum be present either by person or by proxy, and if, either
before or after the meeting, each of the stockholders entitled to vote, not
present in person or by proxy, signs a written waiver of notice, or a consent
to the holding of such meeting, or an approval of the minutes thereof. All
such waivers, consents or approvals shall be filed with the corporate records
or made a part of the minutes of the meeting. Attendance by a person at a
meeting shall also constitute a waiver of notice of and presence at that
meeting, except when the person objects at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 12. ACTION WITHOUT MEETING. The stockholders of the
corporation may not take action by written consent without a meeting, but must
take any such actions at a duly called annual or special meeting.
SECTION 13. PROXIES. Every person entitled to vote or execute
consents shall have the right to do so either in person or by one or more
agents authorized by a written proxy executed by such person or his duly
authorized agent and filed with the Secretary of the corporation. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy
(whether by manual signature, typewriting, telegraphic transmission or
otherwise) by the stockholder or the stockholder's duly authorized agent.
Except in special cases where other express provision is made by statute,
determination of the authenticity and validity of such proxy shall be made by
the corporation or its duly appointed agent(s).
A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) the person who
executed the proxy revokes it prior to the time of voting by delivering a
writing to the Secretary of the corporation stating that the proxy is revoked
or by executing a subsequent proxy and filing such subsequent proxy with the
Secretary of the corporation in accordance with the procedures set forth in
these Bylaws for filing proxies, or (ii) lawful written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no such proxy
shall be valid after the expiration of six (6) months from the date of its
execution unless coupled with an interest, or unless the person executing it
specifies therein the length of time for which such proxy is to continue in
force, which in no case shall exceed seven (7) years from the date of its
execution. The dates contained on the forms of proxy presumptively determine
the order of execution, regardless of postmark dates on the envelopes in which
they are mailed, or electronic transmission dates if delivered electronically.
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SECTION 14. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board may appoint any persons other than nominees for office
as inspectors of election to act at such meeting or any adjournment thereof.
If inspectors of election be not so appointed, or if any persons so appointed
fail to appear or refuse to act, the chairman of any such meeting may, and on
the request of any stockholder or stockholder's proxy shall, make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more stockholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors shall be appointed.
The duties of such inspectors shall include: determining the
number of shares outstanding and the voting power of each; determining the
number of shares represented at the meeting and the existence of a quorum;
determining the authenticity, validity, and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the right to vote; counting and tabulating
all votes or consents, provided, however, that the Board of Directors may
appoint its transfer agent or other such authorized agent to assist with
counting and tabulating such votes; determining when the polls shall close;
determining the result of any vote; and doing such acts as may be proper to
conduct the election or vote with fairness to all stockholders. If there are
three inspectors of election, the decision, act, or certificate of a majority
is effective in all respects as decision, act, or certificate of all.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Subject to limitations of the Articles of
Incorporation, of the Bylaws, and of the laws of the State of Nevada as to
action which shall be authorized or approved by the stockholders, and subject
to the duties of directors as prescribed by the Bylaws, all corporate powers
shall be exercised by or under the authority of, and the business and affairs
of the corporation shall be controlled by, the Board of Directors. Without
prejudice to such general powers, but subject to the same limitations, it is
hereby expressly declared that the directors shall have the following powers:
FIRST: To select and remove all the officers, agents and
employees of the corporation, prescribe such powers
and duties for them as may not be inconsistent with
the law, with the Articles of Incorporation or
Bylaws, fix their compensation, and require from them
security for faithful service.
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SECOND: To conduct, manage and control the affairs and
business of the corporation, and to make such rules
and regulations therefor not inconsistent with law,
or with the Articles of Incorporation or the Bylaws,
as they may deem best.
THIRD: To authorize the issue of shares of stock of the
corporation from time to time, upon such terms as may
be lawful, in consideration of money paid, labor done
or services actually rendered, debts or securities
cancelled, or tangible or intangible property
actually received, or in the case of shares issued as
a dividend, against amounts transferred from surplus
to stated capital.
FOURTH: To borrow money and incur indebtedness for the
purposes of the corporation, and to cause to be
executed and delivered therefor, in the corporate
name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations or other
evidences of debt and securities therefor.
FIFTH: To appoint an executive committee and other
committees, and to delegate to the executive
committee any of the powers and authority of the
Board of Directors in the management of the business
and affairs of the corporation, except as set forth
in Article IV of these Bylaws.
SECTION 2. NUMBER AND QUALIFICATION OF DIRECTORS. The number of
directors of the corporation shall be not less than five nor more than seven
until changed by amendment of the Articles of Incorporation or by a Bylaw duly
adopted by the stockholders amending this Section 2. The exact number of
directors shall be fixed from time to time, within the limits specified in the
Articles of Incorporation or in this Section 2, by a Bylaw or amendment thereof
duly adopted by the stockholders or by the Board of Directors. Pursuant
thereto, it is hereby specified that the corporation shall have seven (7)
Directors.
SECTION 3. ELECTION AND TERM OF OFFICE. The directors shall be
elected at each annual meeting of stockholders, but if any such annual meeting
is not held, or the directors are not elected thereat, the directors may be
elected at any special meeting of stockholders held for that purpose. All
directors shall hold office until their respective successors are elected
unless removed in the manner provided in Section 4 of this Article III, by
resignation, or the director otherwise vacates such office.
SECTION 4. REMOVAL. Any or all of the directors may be removed
without cause if such removal is approved by not less than two- thirds of the
issued and outstanding shares entitled to vote, provided, however, that (i) if
the Articles of Incorporation or an amendment thereto provide for the election
of directors by cumulative voting, no director shall be removed from office
except upon the vote or written consent of stockholders owning
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sufficient shares to have prevented his election to office in the first
instance, (ii) the Articles of Incorporation may require the concurrence of a
larger percentage of the stock entitled to voting power in order to remove a
director, and (iii) when by the provisions of the Articles of Incorporation the
holders of the shares of any class or series, voting as a class or series, are
entitled to elect one or more directors, any director so selected may be
removed only by the applicable vote of the holders of the shares of that class
or series.
SECTION 5. VACANCIES. Vacancies in the Board of Directors may
be filled by a majority of the remaining directors, though less than a quorum,
or by a sole remaining director, and each director so elected shall hold office
until his successor is elected at an annual or a special meeting of the
stockholders.
A vacancy or vacancies in the Board of Directors shall be
deemed to exist in case (i) of the death, resignation or removal of any
director, (ii) the authorized number of directors is increased, (iii) the
stockholders fail at any annual or special meeting of stockholders at which any
director or directors are elected to elect the full authorized number of
directors to be voted for at that meeting, or (iv) the Board of Directors by
resolution declares vacant the office of director who has been declared of
unsound mind by an order of court or convicted of a felony.
The stockholders may elect a director or directors at any time
to fill any vacancy or vacancies not filled by the Board of Directors. If the
Board of Directors accepts the resignation of a director tendered to take
effect at a future time, the Board or the stockholders shall have the power to
elect a successor to take office when the resignation is to become effective.
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of his term of
office.
SECTION 6. PLACE OF MEETING. Regular meetings of the Board of
Directors shall be held at any place within or without the State of Nevada
which has been designated from time to time by resolution of the Board of
Directors or by written consent of all members of the Board of Directors. In
the absence of such designation, regular meetings shall be held at the
principal office of the corporation. Special meetings of the Board may be held
either at a place so designated or at the principal office.
SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held without call on the first Tuesday of the second month
following the close of each calendar quarter; provided, however, should said
day fall upon a legal holiday, then said meeting shall be held at the same time
on the next day thereafter ensuing which is not a legal holiday. Notice of all
such regular meetings of the Board of Directors is hereby dispensed with.
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SECTION 8. SPECIAL MEETINGS; NOTICE. Special meetings of the
Board of Directors for any purpose or purposes shall be called at any time by
the President or, if he is absent or unable or refuses to act, by any Vice
President or by any two directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by mail or
telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least forty-eight
(48) hours prior to the time of the holding of the meeting. If the notice is
delivered personally or by telephone or telegram, it shall be delivered
personally or by telephone or to the telegraph company at least twenty-four
(24) hours before the time of the holding of the meeting. Any oral notice
given personally or by telephone may be communicated either to the director or
to a person at the office of the director who the person giving notice
reasonably believes will promptly communicate it to the director. The notice
need not specify the purpose or the place of the meeting if the meeting is to
be held at the principal executive office of the corporation.
SECTION 9. TELEPHONE MEETINGS. Any meeting, regular or special,
may be held by conference telephone or similar communication equipment, so long
as all directors participating in the meeting can hear one another, and all
such directors shall be deemed to be present in person at the meeting.
SECTION 10. WAIVER OF NOTICE. The transactions of any meeting of
the Board of Directors, however called and noticed or wherever held, shall be
as valid as if taken at a meeting duly held after regular call and notice, if a
quorum is present, and (i) if either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding
such meeting or an approval of the minutes thereof, or (ii) the director
attended the meeting without protesting, prior thereto or at its commencement,
to the lack of notice to such director. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. A waiver of notice need not specify the purpose of any
regular or special meeting of the Board of Directors.
SECTION 11. QUORUM. A majority of the authorized number of
directors shall constitute a quorum for the transaction of business, except to
adjourn as provided in Section 12 of these Bylaws. Every act or decision done
or made by a majority of the directors present at a meeting duly held at which
a quorum is present shall be regarded as the act of the Board of Directors,
unless a greater number is required by law or by the Articles of Incorporation.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
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SECTION 12. ADJOURNMENT. A majority of the directors present,
whether or not a quorum, may adjourn any meeting to another time and place.
SECTION 13. NOTICE OF ADJOURNMENT. Notice of the time and place
of holding an adjourned meeting need not be given to absent directors if the
time and place be fixed at the meeting adjourned. If the meeting is adjourned
for more than twenty-four (24) hours, notice of any adjournment to another time
or place shall be given prior to the time of the adjourned meeting to the
directors who were not present at the time of the adjournment.
SECTION 14. FEES AND COMPENSATION. Directors shall not receive
any stated salary for their services as directors, but, by resolution of the
Board, a fixed fee, with or without expenses for attendance, may be allowed for
attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent, employee, or otherwise, and receiving compensation therefor.
SECTION 15. ACTION WITHOUT MEETING. Unless otherwise restricted
by the Articles of Incorporation or Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent thereto is signed by all
the members of the Board or of such committee. Such written consent shall be
filed with the minutes of the proceedings of the Board or of such committee.
Such action by written consent shall have the same force and effect as a
unanimous vote of such directors.
ARTICLE IV
COMMITTEES
SECTION 1. COMMITTEES OF DIRECTORS. The Board of Directors may,
by resolution passed by a majority of the whole Board, designate one or more
committees, with each committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
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Any such committee, to the extent provided in the resolution
of the Board of Directors or in the Bylaws of the corporation, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it;
but no such committee shall have the power or authority to (i) amend the
Articles of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board of Directors as provided in Section 78.195
of the Nevada General Corporation Law, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), (ii) adopt an agreement or
plan of merger, consolidation or share exchange under the Nevada General
Corporation Law, (iii) recommend to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
(iv) recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution, (v) amend the Bylaws of the corporation, (vi)
approve any action which, under the laws of the State of Nevada also requires
stockholders' approval or approval of the outstanding shares, (vii) fill
vacancies of the Board of Directors or in any committee, (viii) fix the
compensation of the Directors for serving on the Board or any committee, (ix)
amend or repeal any resolution of the Board of Directors which by its express
terms is not so amendable or repealable, (x) appoint any other committees of
the Board of Directors or the members of such committees; and, unless the Board
resolution establishing the committee, the Bylaws or the Articles of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to
adopt a plan of merger pursuant to Section 78.457 of the Nevada General
Corporation Law.
SECTION 2. COMMITTEE MINUTES. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors when
required.
SECTION 3. MEETINGS AND ACTION OF COMMITTEES. Meetings and
actions of committees shall be governed by, and held and taken in accordance
with, the provisions of these Bylaws applicable to the full Board of Directors,
with such changes in the context of those Bylaws as are necessary to substitute
the committee and its members for the Board of Directors and its members;
provided, however, that (i) the time of regular meetings of committees may be
determined either by resolution of the Board of Directors or by resolution of
the committee, and (ii) special meetings of committees may also be called by
resolution of the Board of Directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right
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to attend all meetings of the committee. The Board of Directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these Bylaws.
ARTICLE V
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation shall be a
President, a Vice President, a Secretary, a Treasurer and a Chief Financial
Officer. The corporation may also have, at the discretion of the Board of
Directors, a Chairman of the Board, a Vice Chairman of the Board, a Cashier,
one or more additional Vice Presidents, one or more Assistant Secretaries, one
or more Assistant Treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article V. One person may
hold two or more offices.
SECTION 2. ELECTION. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section
3 or Section 5 of this Article V, shall be chosen annually by the Board of
Directors, and each such officer shall hold office until he or she shall resign
or shall be removed or otherwise disqualified to serve, or his or her successor
shall be elected and qualified.
SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may
appoint such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority and perform
such duties as are provided in the Bylaws or as the Board of Directors may from
time to time determine.
SECTION 4. REMOVAL AND RESIGNATION. Any officer may be removed,
either with or without cause, by a majority of the directors at the time in
office, at any regular or special meeting of the Board, or, except in case of
an officer chosen by the Board of Directors, by any officer upon whom such
power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to
the Board of Directors, the President, or to the Secretary of the corporation.
Any such resignation shall take effect at the date of the receipt of such
notice or at any later time specified therein; and, unless otherwise specified
in that notice, the acceptance of such resignation shall not be necessary to
make it effective. Any resignation is without prejudice to the rights, if any,
of the corporation under any contract to which the officer is a party.
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SECTION 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in the Bylaws for regular appointments to such office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
such officer shall be elected, shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors and Executive
Committee (and with the advice and consent of the Board of Directors, implement
broad policy guidance to the corporation through the Executive Committee). He
shall be ex officio a member of all the standing committees, a member of the
Executive Committee, and shall have such other powers and duties as may be
prescribed by the Board of Directors or the Bylaws. At the discretion of the
Board of Directors, the Chairman of the Board may also be the Chief Executive
Officer. The Chief Executive Officer shall have, subject to the control of the
Board, general supervision, direction, and control of the business and officers
of the corporation.
SECTION 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the
Board, if such officer shall be elected, shall, if present, and in the absence
of the Chairman of the Board, preside at all meetings of the Board of Directors
and Executive Committee, and exercise and perform such other powers and duties
as may be from time to time assigned to him by the Board of Directors or
prescribed by the Bylaws.
SECTION 8. PRESIDENT. The President shall have direct
supervision and control of the corporate business, and in the absence of the
Chairman of the Board and the Vice Chairman of the Board, if such officer shall
be elected, shall preside over Board of Directors and Executive Committee
meetings and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
Bylaws. At the discretion of the Board of Directors, the President may also be
the Chief Operating Officer of the corporation, and/or the Chief Executive
Officer is such position is not held by the Chairman of the Board.
SECTION 9. EXECUTIVE VICE PRESIDENT. The Executive Vice
President shall have such direct supervision and control of the corporate
business as shall be assigned to him by the President or Chairman of the Board.
He shall be a member of the Executive Committee, and in the absence or
disability of the President, the Executive Vice President shall perform all the
duties of the President and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the President. The Executive Vice
President shall have such other powers and perform such other duties as may be
from time to time assigned to him by the Board of Directors or prescribed by
the Bylaws.
SECTION 10. VICE PRESIDENT. In the absence or disability of the
President and the Executive Vice President, the Vice Presidents in order of
their rank as fixed by the Board of Directors, or if not ranked, the Vice
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President designated by the Board of Directors, shall perform all the duties of
the President, and when so acting shall have all the powers of, and be subject
to all the restrictions upon, the President. The Vice Presidents shall have
such other powers and perform such other duties as may be from time to time
assigned to them respectively by the Board of Directors or prescribed by the
Bylaws.
SECTION 11. SECRETARY. The Secretary shall keep, or cause to be
kept, a book of minutes at the principal office or such other place as the
Board of Directors may order, of all meetings of directors (including meetings
of committees) and stockholders, with the time and place of holding, whether
regular or special, and if special, how authorized, the notice thereof given,
the names of those present at directors' meetings (including meetings of
committees), the number of shares present or represented at stockholders'
meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the
principal office or at the office of the corporation's transfer agent, a share
register, or a duplicate share register, showing the names of the stockholders
and their addresses; the number and classes of shares held by each; the number
and date of certificates issued for the same; and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all
the meetings of the stockholders and of the Board of Directors required by the
Bylaws or by law to be given, and shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be from time to time assigned to him by the Board of Directors or
prescribed by the Bylaws.
SECTION 12. CHIEF FINANCIAL OFFICER AND TREASURER. The Chief
Financial Officer shall be the Treasurer of the corporation and shall keep and
maintain, or cause to be kept and maintained, adequate and correct accounts of
the properties and business transactions of the corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital,
surplus and shares. Any surplus, including earned surplus, paid-in surplus and
surplus arising from a reduction of stated capital, shall be classified
according to source and shown in a separate account and shall at all reasonable
times be open to inspection by any director.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the Board of Directors. The Chief
Financial Officer shall disburse the funds of the corporation as may be ordered
by the Board of Directors, shall render to the President and directors,
whenever they request it, whether or not they request it, an account of all
transactions as Treasurer and of the financial condition of the corporation,
and shall have such other powers and perform such other duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
Bylaws.
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SECTION 13. CONTROLLER. The Controller shall keep adequate and
correct accounts of the corporation's business transactions (except those kept
by the Treasurer as herein provided). The Controller shall verify the assets
of the corporation and see that all books and accounts of the corporation,
wherever located, are audited from time to time, and shall perform such other
duties as may be assigned from time to time by the Board of Directors, the
Executive Committee and/or other Committee of the Board of Directors.
SECTION 14. CASHIER. The Cashier shall, subject to the direction
of the Chief Financial Officer, be responsible for the corporate banking
transactions. The Cashier shall keep and maintain reporting systems related to
banking and cash management; develop internal and external asset-liability
analysis programs, alternative banking facilities and relationships; and assist
the Chief Financial Officer in executing the corporate commercial paper
borrowing policy. The Cashier shall be responsible for cash management and
cash flow analysis; foreign bank account operations; and for the taxable fixed
income investment reporting system. The Cashier shall execute investment
transactions and shall have such other powers, duties and authority as may be
set forth elsewhere in these Bylaws and as may be prescribed by the President
or the Board of Directors from time to time.
ARTICLE VI
MISCELLANEOUS
SECTION 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. Any
person who has been a stockholder of record of the corporation for at least six
(6) months immediately preceding such stockholder's demand, or any person
holding, or thereunto authorized in writing by the holders of, at least five
percent (5%) of all its outstanding shares, upon at least five (5) days'
written demand, or any judgment creditor of the corporation without prior
demand, shall have the right to inspect in person or by agent or attorney,
during usual business hours, the stock ledger or duplicate stock ledger.
Holders of voting trust certificates representing shares of the corporation
shall be regarded as stockholders for the purpose of this section.
Such inspection may be denied to such stockholder or other
person upon refusal by such stockholder or other person to furnish to the
corporation an affidavit that such inspection is (i) not desired for a purpose
which is in the interest of a business or object other than the business of the
corporation, and (ii) that such stockholder or other person has not at any time
sold or offered for sale any list of stockholders of any domestic or foreign
corporation or aided or abetted any person in procuring any such record of
stockholders for any such purpose.
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SECTION 2. MAINTENANCE AND INSPECTION OF OTHER CORPORATE
RECORDS. The accounting books and records and the minutes of proceedings of
the stockholders, of the Board of Directors, and of any committee or committees
of the Board of Directors shall be kept at such place or places as are
designated by the Board of Directors or, in absence of such designation, at the
principal executive office of the corporation. The minutes shall be kept in
written form, and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to
inspection upon the written demand of any stockholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a stockholder or as the
holder of a voting trust certificate. The inspection may be made in person or
by an agent or attorney and shall include the right to copy and make extracts.
Such rights of inspection shall extend to the records of each subsidiary
corporation of the corporation.
SECTION 3. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All
checks, drafts or other orders for payment of money, notes or other evidences
of indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time
to time, shall be determined by resolution of the Board of Directors.
SECTION 4. ANNUAL REPORT. The Board of Directors of this
corporation shall cause an Annual Report to be sent to the stockholders. In
accordance with the requirements of ___________ _____________ of the Securities
and Exchange Commission. The annual report shall contain (i) a balance sheet
as of the end of the fiscal year, (ii) an income statement, (iii) a statement
of changes in financial position for the fiscal year, and (iv) any report of
independent accountants or, if there is no such report, the certificate of an
authorized officer of the corporation that the statements were prepared without
audit from the books and records of the corporation.
SECTION 5. CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.
The Board of Directors, except as otherwise provided in the Bylaws, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances; and unless so
authorized by the Board of Directors, no officer, agent or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit to render it liable for any purpose or to any amount.
SECTION 6. CERTIFICATES OF STOCK. A certificate or certificates
for shares of the capital stock of the corporation shall be issued to each
stockholder when any such shares are fully paid. All such certificates shall
be signed by the President or Executive Vice President or a Vice President and
the Secretary or
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<PAGE> 22
an Assistant Secretary, or be authenticated by facsimiles of the signatures of
the President and the Secretary, or by a facsimile of the signature of the
President or the Executive Vice President or a Vice President and the written
signature of the Secretary or an Assistant Secretary.
Every certificate authenticated by a facsimile of a signature
must be countersigned by a transfer agent or transfer clerk, and be registered
by an incorporated bank or trust company, either domestic or foreign, as
registrar of transfer, before issuance. If any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if such person were an officer, transfer agent, or registrar at
the date of issue.
Certificates for shares may be issued prior to full payment
under such restrictions and for such purposes as the Board of Directors or the
Bylaws may provide; provided, however, that any such certificate so issued
prior to full payment shall state the amount remaining unpaid and the terms of
payment thereof.
SECTION 7. LOST CERTIFICATES. Except as provided in this
Section, no new certificate for shares shall be issued in lieu of an old one
unless the latter is surrendered and cancelled at the same time. The Board
may, however, in case any certificate for shares is alleged to have been lost,
stolen, or destroyed, authorize the issuance of a new certificate in lieu
thereof, and the corporation may require that the corporation be given a bond
or other adequate security sufficient to indemnify it against any claim that
may be made against it (including expense or liability) on account of the
alleged loss, theft, or destruction of such certificate or the issuance of such
new certificate.
SECTION 8. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
President, Executive Vice President, or any Vice President and the Secretary or
Assistant Secretary of this corporation are authorized to vote, represent and
exercise on behalf of this corporation all rights incident to any and all
shares of any other corporation or corporations standing in the name of this
corporation. The authority herein granted to said officer or officers to vote
or represent on behalf of this corporation any and all shares held by this
corporation in any other corporation or corporations may be exercised either by
such officer or officers in person or by any person authorized to do so by
proxy or power of attorney duly executed by said officer or officers.
SECTION 9. MAINTENANCE AND INSPECTION OF BYLAWS. The
corporation shall keep in its principal office for the transaction of business
the original or a copy of the Bylaws as amended or otherwise altered to date,
certified by the Secretary, which shall be open to inspection by the
stockholders at all reasonable times during office hours.
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ARTICLE VII
AMENDMENTS
SECTION 1. POWER OF STOCKHOLDERS. New Bylaws may be adopted or
these Bylaws may be amended or repealed by the vote of stockholders entitled to
exercise a majority of the voting power of the corporation, except as otherwise
provided by law or by the Articles of Incorporation.
SECTION 2. POWER OF DIRECTORS. Subject to the right of
stockholders as provided in Section 1 of this Article VII to adopt, amend or
repeal Bylaws, Bylaws other than a Bylaw or amendment thereof changing the
authorized number of directors may be adopted, amended or repealed by the Board
of Directors.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The
corporation shall, to the maximum extent and in the manner permitted by the law
of the State of Nevada, indemnify each of its directors and officers against
expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason of the
fact that such person is or was an agent of the corporation. For purposes of
this Section 1, a "director" or "officer" of the corporation includes any
person (i) who is or was a director or officer of the corporation, (ii) who is
or was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise, or
(iii) who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
SECTION 2. INDEMNIFICATION OF OTHERS. The corporation shall have
the power, to the extent and in the manner permitted by the law of the State of
Nevada, to indemnify each of its employees and agents (other than directors and
officers) against expenses, judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Article VIII, an "employee" or "agent" of the corporation
(other than a director or officer) includes any person (i) who is or was an
employee or agent of the corporation, (ii) who is or was serving at the request
of the corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or (iii) who was an employee or agent
of a
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corporation which was a predecessor corporation of the corporation or of
another enterprise at the request of such predecessor corporation.
SECTION 3. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in
defending any civil or criminal action or proceeding for which indemnification
is required pursuant to Section 1 or for which indemnification is permitted
pursuant to Section 2 following authorization thereof by the Board of Directors
shall be paid by the corporation in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by or on behalf of the
indemnified party to repay such amount if it shall ultimately be determined
that the indemnified party is not entitled to be indemnified as authorized in
this Article VIII.
SECTION 4. INDEMNITY NOT EXCLUSIVE. The indemnification provided
by this Article VIII shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any Bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
an official capacity and as to action in another capacity while holding such
office, to the extent that such additional rights to indemnification are
authorized in the Articles of Incorporation.
SECTION 5. INSURANCE INDEMNIFICATION. The corporation shall have
the power to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation against any
liability asserted against or incurred by such person in such capacity or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under the
provisions of this Article VIII.
SECTION 6. CONFLICTS. No indemnification or advance shall be
made under this Article VIII, except where such indemnification or advance is
mandated by law or the order, judgment or decree of any court of competent
jurisdiction, in any circumstance where it appears:
(1) That it would be inconsistent with a provision of the Articles
of Incorporation, these Bylaws, a resolution of the stockholders or an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
SECTION 7. INDEMNITY AGREEMENTS. The corporation may enter into
indemnity agreements with the persons who are members of its Board of Directors
from time to time, and with such officers, employees and agents of the
corporation and with such officers, directors, employees and agents of
subsidiaries as the Board of Directors may designate, such indemnity agreements
to provide in substance that the corporation will
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indemnify such persons as contemplated by this Article VIII, and to include any
other substantive or procedural provisions regarding indemnification as are not
inconsistent with the law of the State of Nevada. The provisions of such
indemnity agreements shall prevail to the extent that they limit or condition
or differ from the provisions of this Article VIII.
Amended and Restated Bylaws
Adopted by the Board of Directors on
November 9, 1995
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of FREMONT
GENERAL CORPORATION, a Nevada corporation; and
(2) That the foregoing Amended and Restated Bylaws, comprising 25
pages constitute the Amended and Restated Bylaws of said corporation in full
force and effect as of the date of this certification.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said corporation this 9th day of November, 1995.
Secretary
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EXHIBIT 4.3
FREMONT GENERAL CORPORATION
TO
FIRST INTERSTATE BANK OF CALIFORNIA
a California banking corporation, Trustee
---------
Indenture
Dated as of March 6, 1996
9% Junior Subordinated Debentures due March 31, 2026
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recitals of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . 3
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Board Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Corporate Trust Office . . . . . . . . . . . . . . . . . . . . . . . . 3
Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Depository . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Extension Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Fremont Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Global Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Institutional Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 4
Interest Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . 4
Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . 4
Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Parent Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Predecessor Security . . . . . . . . . . . . . . . . . . . . . . . . . 5
Preferred Securities . . . . . . . . . . . . . . . . . . . . . . . . . 5
Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Regular Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Responsible Officer . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Security Register . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Security Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Special Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Tax Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Trust Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . 7
U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . . . 7
Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 102. Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . 7
SECTION 103. Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . 7
SECTION 104. Acts of Holders; Record Dates . . . . . . . . . . . . . . . . . . . . . 8
SECTION 105. Notices, Etc. to Trustee and the Company . . . . . . . . . . . . . . . 9
SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 107. Conflict with Trust Indenture Act . . . . . . . . . . . . . . . . . . . 9
SECTION 108. Effect of Headings and Table of Contents . . . . . . . . . . . . . . . 9
SECTION 109. Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 110. Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 111. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 112. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 202. Form of Face of Security . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 203. Form of Reverse of Security . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 204. Form of Trustee's Certificate of Authentication . . . . . . . . . . . . 15
ARTICLE THREE
The Securities
SECTION 301. Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 302. Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 303. Execution, Authentication, Delivery and Dating . . . . . . . . . . . . 17
SECTION 304. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 305. Registration; Registration of Transfer and Exchange . . . . . . . . . . 18
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . . . . . 19
SECTION 307. Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . 19
SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 309. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 310. Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 311. Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 312. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 313. Global Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE FOUR
Satisfaction and Discharge; Defeasance
SECTION 401. Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . 23
SECTION 402. Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 403. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 404. Conditions to Defeasance or Covenant Defeasance . . . . . . . . . . . . 24
SECTION 405. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 406. Indemnity for U.S. Government Obligations . . . . . . . . . . . . . . . 25
ARTICLE FIVE
Remedies
SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 502. Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . 27
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee . . . . 27
SECTION 504. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . 28
SECTION 505. Trustee May Enforce Claims Without Possession of Securities . . . . . . 28
SECTION 506. Application of Money Collected . . . . . . . . . . . . . . . . . . . . 29
SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 508. Unconditional Right of Holders to Receive Principal and Interest . . . 29
SECTION 509. Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . 30
SECTION 510. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . 30
SECTION 511. Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . 30
SECTION 512. Control by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 514. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 515. Waiver of Stay or Extension Laws . . . . . . . . . . . . . . . . . . . 31
SECTION 516. Preferred Security Holders Rights . . . . . . . . . . . . . . . . . . . 31
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities . . . . . . . . . . . . . . . . . . 32
SECTION 602. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 604. Not Responsible for Recitals or Issuance of Securities . . . . . . . . 33
SECTION 605. May Hold Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 607. Compensation; Reimbursement; and Indemnity . . . . . . . . . . . . . . 34
SECTION 608. Disqualification; Conflicting Interests . . . . . . . . . . . . . . . . 34
SECTION 609. Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . 34
SECTION 610. Resignation and Removal; Appointment of Successor . . . . . . . . . . . 35
SECTION 611. Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . 36
SECTION 612. Merger, Conversion, Consolidation or Succession to Business . . . . . . 36
SECTION 613. Preferential Collection of Claims Against Company . . . . . . . . . . . 36
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders . . . . . . . 36
SECTION 702. Preservation of Information; Communications to Holders . . . . . . . . 37
SECTION 703. Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 704. Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Successor Substituted . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders . . . . . . . . . . 38
SECTION 902. Supplemental Indentures with Consent of Holders . . . . . . . . . . . . 38
SECTION 903. Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . 39
SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . 39
SECTION 905. Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . 39
SECTION 906. Reference in Securities to Supplemental Indentures . . . . . . . . . . 39
ARTICLE TEN
Covenants; Representations and Warranties
SECTION 1001. Payment of Principal and Interest . . . . . . . . . . . . . . . . . . . 40
SECTION 1002. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . 40
SECTION 1003. Money for Security Payments to Be Held in Trust . . . . . . . . . . . . 40
SECTION 1004. Statement by Officers as to Default . . . . . . . . . . . . . . . . . . 41
SECTION 1005. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 1006. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 1007. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . 41
SECTION 1008. Additional Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 1009. Additional Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 1010. Waiver of Certain Covenants . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE ELEVEN
Subordination of Securities
SECTION 1101. Securities Subordinate to Senior Indebtedness . . . . . . . . . . . . . 43
SECTION 1102. Default on Senior Indebtedness . . . . . . . . . . . . . . . . . . . . 43
SECTION 1103. Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . . . . . 44
SECTION 1104. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 1105. Trustee to Effectuate Subordination . . . . . . . . . . . . . . . . . . 46
SECTION 1106. Notice by the Company . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 1107. Rights of the Trustee; Holders of Senior Indebtedness . . . . . . . . . 46
SECTION 1108. Subordination May Not be Impaired . . . . . . . . . . . . . . . . . . . 47
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
ARTICLE TWELVE
Redemption of Securities
SECTION 1201. Optional Redemption; Conditions to Optional Redemption . . . . . . . . 47
SECTION 1202. Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 1203. Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . 48
SECTION 1204. Selection by Trustee of Securities to Be Redeemed . . . . . . . . . . . 48
SECTION 1205. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 1206. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 1207. Securities Payable on Redemption Date . . . . . . . . . . . . . . . . . 49
SECTION 1208. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE THIRTEEN
Expenses
SECTION 1301. Payment of Expense . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 1302. Payment Upon Resignation or Removal . . . . . . . . . . . . . . . . . . 50
</TABLE>
v
<PAGE> 7
Sections 310 through 318 of the Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
----------- -------
<S> <C>
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608, 610
Section 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613
Section 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702(b)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702(c)
Section 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(a)
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101, 1004
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(a)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(b)
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 704
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514
Section 316(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104(c)
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1003
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
</TABLE>
vi
<PAGE> 8
INDENTURE, dated as of March 6, 1996, between Fremont General
Corporation, a corporation duly organized and existing under the laws of the
State of Nevada (herein called the "Company"), having its principal office at
2020 Santa Monica Boulevard, Suite 600, Santa Monica, California 90404, and
First Interstate Bank of California, a California banking corporation, as
Trustee (herein called the "Trustee"). Unless otherwise defined herein, all
capitalized items used herein shall have the meanings ascribed to them in the
Amended and Restated Declaration of Trust between the Company, as Depositor,
and The Chase Manhattan Bank, N.A., (the "Institutional Trustee") The Chase
Manhattan Bank (USA), (the "Delaware Trustee") Louis J. Rampino and Wayne R.
Bailey as "Regular Trustees," dated as of March 6, 1996 (the "Declaration" or
"Trust Agreement"), as in effect on the date hereof, and which is incorporated
by reference hereto.
RECITALS OF THE COMPANY
WHEREAS, Fremont Financing (as defined herein) will pursuant to the
Purchase Agreement dated March 1, 1996 (the "Purchase Agreement"), and a
Pricing Agreement, dated March 1, 1996 (the "Pricing Agreement") among the
Company, Fremont Financing and the Underwriters named therein, issue
$103,092,784 (or $118,556,702 if the over-allotment option set forth in Section
2 of the Purchase Agreement is exercised in full) aggregate liquidation
preference of its 9% Trust Originated Preferred Securities (the "Preferred
Securities") with a liquidation preference of $25 per Preferred Security (or
$115,000,000 if the over-allotment option set forth in Section 2 of the
Purchase Agreement is exercised in full);
WHEREAS, this Indenture is subject to the provisions of the Trust
Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions;
WHEREAS, the Company is guaranteeing the payment of distributions on
the Preferred Securities and the Common Securities, liquidation preference $25
per Common Security (the "Common Securities") (together with the Preferred
Securities, the "Trust Securities"), of Fremont Financing and payment of the
Redemption Price and payments on liquidation with respect to the Trust
Securities, to the extent provided in the Preferred Securities Guarantee
Agreement and the Common Securities Guarantee Agreement, both dated March 6,
1996, by the Company and The Chase Manhattan Bank, N.A., as guarantee trustee
(collectively the "Parent Guarantees") for the benefit of the holders of the
Trust Securities;
WHEREAS, the Company wishes to sell to Fremont Financing, and Fremont
Financing wishes to purchase from the Company, Securities (as defined below) in
an aggregate principal amount of $103,092,784 (or $118,556,702 if the
over-allotment option set forth in Section 2 of the Purchase Agreement is
exercised in full) and in satisfaction of the purchase price for such
Securities, the trustees of Fremont Financing, on behalf of Fremont Financing,
wish (i) to execute and deliver to the Company Common Securities certificates
evidencing an ownership interest in Fremont Financing, registered in the name
of the Company, in an aggregate amount of 123,711 (or 142,268 if the
over-allotment option set forth in Section 2 of the Purchase Agreement is
exercised in full) Common Securities having an aggregate liquidation amount of
up to $3,092,784 (or $3,556,701 if the over-allotment option set forth in
Section 2 of the Purchase Agreement is exercised in full), and (ii) to deliver
to the Company the sum of $3,092,784 (or $3,556,701 if the over-allotment
option set forth in Section 2 of the Purchase Agreement is exercised in full);
WHEREAS, the Company has duly authorized the creation of an issue of
its 9% Junior Subordinated Debentures due March 31, 2026 (the "Securities"), of
substantially the tenor and amount hereinafter set
1
<PAGE> 9
forth and to provide therefor the Company has duly authorized the execution and
delivery of this Indenture; and
WHEREAS, all things necessary to make the Securities, when executed by
the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holder thereof, it is mutually agreed, for the equal and proportionate
benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions of General Application
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with generally
accepted accounting principles;
(4) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other subdivision;
(5) a reference to any Person shall include its
successors and assigns;
(6) a reference to any agreement or instrument shall mean
such agreement or instrument as supplemented, modified, amended or
amended and restated and in effect from time to time;
(7) a reference to any statute, law, rule or regulation,
shall include any amendments thereto applicable to the relevant
Person, and any successor statute, law, rule or regulation; and
(8) a reference to any particular rating category shall
be deemed to include any corresponding successor category, or any
corresponding rating category issued by a successor or subsequent
rating agency.
"Act," when used with respect to any Holder, has the meaning specified in
Section 104.
"Additional Interest" has the meaning specified in Section 1008.
"Additional Taxes" means the sum of any additional taxes, duties and other
governmental charges to which Fremont Financing has become subject from time to
time as a result of a Tax Event.
2
<PAGE> 10
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee to act on
behalf of the Trustee to authenticate Securities.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board, as the context requires.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in the City of New York are authorized or required
by law or executive order to remain closed or a day on which the Corporate
Trust Office of the Trustee, or the principal office of the Institutional
Trustee, under the Trust Agreement, is closed for business.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Securities" has the meaning specified in the Recitals to this
Indenture.
"Common Stock" means the common stock, par value $1.00 per share, of the
Company.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order signed
in the name of the Company by its Chairman of the Board, its Vice Chairman of
the Board, its President or a Vice President, and by its Treasurer, an
Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to
the Trustee.
"Compound Interest" has the meaning specified in Section 301.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered. As
of the date hereof, the Corporate Trust Office of the Trustee is located at 707
Wilshire Boulevard, W11-1, Los Angeles, California 90017, Attn.: Corporate
Trust.
"Covenant Defeasance" has the meaning specified in Section 403.
"Declaration" has the meaning specified in the Recitals.
"Defaulted Interest" has the meaning specified in Section 307.
3
<PAGE> 11
"Defeasance" has the meaning specified in Section 402.
"Depositary" means, with respect to Securities issuable in whole or in part
in the form of one or more Global Securities, a clearing agency registered
under the Exchange Act that is designated to act as Depositary for such
Securities.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor legislation.
"Extension Period" has the meaning specified in Section 301.
"Fremont Financing" means the statutory business trust Fremont General
Financing I declared and established pursuant to the Delaware Business Trust
Act by the Trust Agreement.
"Global Security" means a Security that evidences all or part of the
Securities and is authenticated and delivered to, and registered in the name
of, the Depositary for such Securities or a nominee thereof.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including,
for all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and
govern this instrument and any such supplemental indenture, respectively.
"Institutional Trustee" has the meaning set forth in the Declaration.
"Interest Payment Date," when used with respect to any installment of
interest on a Security, means the date specified in such Security as the fixed
date on which an installment of interest with respect to the Securities is due
and payable.
"Maturity," when used with respect to any Security, means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration,
call for redemption or otherwise.
"Officers' Certificate" means a certificate signed by (a) the Chairman of
the Board, a Vice Chairman of the Board, the President or a Vice President, and
(b) the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 1004 shall be the
principal executive, financial or accounting officer of the Company. Any
Officers' Certificate delivered with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definitions
relating thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in rendering
the Officers' Certificate;
4
<PAGE> 12
(c) a statement that each such officer has made
such examination or investigation as, in such officer's
opinion, is necessary to enable such officer to express an
informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of
each such officer, such condition or covenant has been
complied with.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company (and who may be an employee of the Company), and who shall be
reasonably acceptable to the Trustee. An opinion of counsel may rely on
certificates as to matters of fact.
"Outstanding," when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except: (i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation; (ii) Securities for whose payment or
redemption money in the necessary amount has been theretofore deposited with
the Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory to the Trustee
has been made; and (iii) Securities which have been paid pursuant to Section
306, or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the Trustee
proof satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company.
"Parent Guarantees" has the meaning specified in the Recitals to this
instrument.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company.
"Person" means any individual, corporation, partnership, association,
limited liability company, joint venture, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Securities" has the meaning specified in the Recitals to this
instrument.
"Purchase Agreement" has the meaning specified in the Recitals to this
instrument.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the Business Day next preceding such Interest Payment Date.
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"Responsible Officer," when used with respect to the Trustee, means an
officer of the Trustee with primary responsibility for administering
Trustee's duties under this Indenture.
"Securities" has the meaning specified in the Recitals to this instrument.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Senior Indebtedness" means, with respect to the Company and its
Subsidiaries, (i) the principal, premium, if any, and interest in respect of
(A) indebtedness of the Company and its Subsidiaries, for money borrowed and
(B) indebtedness evidenced by securities, debentures, bonds or other similar
instruments issued by the Company and its Subsidiaries, including, without
limitation, all obligations of the Company and its Subsidiaries under the $200
million Credit Facility due 2001, $300 million Senior Revolving Credit Facility
due 1998, and Variable Rate Asset Backed Certificates, and certain other notes
payable, short term debt and open letters of credit of the Company currently
outstanding, (ii) all capital lease obligations of the Company, (iii) all
obligations of the Company issued or assumed as the deferred purchase price of
property, all conditional sale obligations of the Company and all obligations
of the Company under any title retention agreement (but excluding trade
accounts payable arising in the ordinary course of business), (iv) all
obligations of the Company for the reimbursement on any letter of credit,
banker's acceptance, security purchase facility or similar credit transaction,
(v) all obligations arising under any rate or basis swap, forward contract,
commodity swap or option, equity or equity index swap or option, bond, note or
bill option, interest rate option, foreign currency exchange transaction,
crosscurrency rate swap, currency option, cap, collar or floor transaction,
swap option, synthetic trust product, synthetic lease or any similar
transaction or agreement (vi) all obligations of other Persons for the payment
of which the Company is responsible or liable as obligor, guarantor or
otherwise including all obligations of the Company and its Subsidiaries to
insure specified levels of equity capital for another person or otherwise to
maintain the net worth or solvency of another person and (vii) all obligations
of the type referred to in clauses (i) through (vi) above of other Persons
secured by any lien on any property or asset of the Company (whether or not
such obligation is assumed by the Company), except for (1) any such
indebtedness that is by its terms subordinated to or pari passu with the
Securities and (2) any indebtedness between or among the Company or its
affiliates, including all other debt securities and guarantees in respect of
those debt securities, issued to any other trust, or a trustee of such trust,
partnership or other entity affiliated with the Company that is a financing
vehicle of the Company (a "financing entity") in connection with the issuance
by such financial entity of Preferred Securities or other securities that rank
pari passu with, or junior to, the Preferred Securities. Such Senior
Indebtedness shall continue to be Senior Indebtedness and be entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification, waiver, refinancing, whether by the same creditor or group of
creditors or a successor creditor or group or restructuring of any Senior
Indebtedness, including any of the foregoing which increase the principal
amount thereof, the interest rate thereon or other amounts payable in respect
thereof, shortens the term to maturity thereof, enhances the relative priority
thereof, requires or establishes sinking fund payments, guarantees, collateral
security or other credit support therefore or otherwise renders the terms
thereof more favorable to the holders thereof.
"Special Record Date" for the payment of any Defaulted Interest means a date
fixed by the Trustee pursuant to Section 307.
"Stated Maturity," when used with respect to any Security or any installment
of interest thereon, means the date specified in such Security as the date on
which the principal, together with any accrued and unpaid interest (including
Additional Interest), of such Security or such installment of interest is due
and payable (whether the initial such date or, if pursuant to Section 301 the
Company elects to extend the Stated Maturity of any principal or, as the case
may be, defer such interest payment, such later date as is chosen by the
Company pursuant to Section 301).
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"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For the purposes of this definition, "voting stock" means stock which
ordinarily has voting power for the election of directors, whether at all times
or only so long as no senior class of stock has such voting power by reason of
any contingency.
"Tax Event" means the receipt by Fremont Financing of an Opinion of Counsel
experienced in such matters to the effect that, as a result of (a) any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or (b) as a result of any
amendment to, or change in an interpretation or application of such laws or
regulations by any legislative body, court, governmental agency or regulatory
authority which amendment or change is enacted, promulgated, issued or
announced or which interpretation or pronouncement is issued or announced or
which action is taken, (in each case on or after the date of issuance of the
Preferred Securities), there is more than an insubstantial risk that (i)
Fremont Financing is, or will be within 90 days of the date thereof, subject to
United States Federal income tax with respect to interest received on the
Securities, (ii) interest payable by the Company on the Securities is not, or
within 90 days of the date thereof will not be, deductible, in whole or in
part, for United States Federal income tax purposes or (iii) Fremont Financing
is, or will be within 90 days of the date thereof, subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
"Trust Agreement" has the meaning specified in the Recitals to this
Indenture.
"Trust Securities" has the meaning specified in the Recitals to this
Indenture.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"U.S. Government Obligations" has the meaning specified in Section 404.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of
an Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirement set forth in
this Indenture.
SECTION 103. Form of Documents Delivered to Trustee.
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In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee at its Corporate Trust Office and, where it is hereby
expressly required, to the Company. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
601) conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining
the Holders entitled to give or take any request, demand, authorization,
direction, notice, consent, waiver or other action, or to vote on any action,
authorized or permitted to be given or taken by Holders. If not set by the
Company prior to the first solicitation of a Holder made by any Person in
respect of any such action, or, in the case of any such vote, prior to such
vote, the record date for any such action or vote shall be the 30th day (or, if
later, the date of the most recent list of Holders required to be provided
pursuant to Section 701) prior to such first solicitation or vote, as the case
may be.
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With regard to any record date, only the Holders on such date (or their duly
designated proxies) shall be entitled to give or take, or vote on, the relevant
action.
(d) The ownership of Securities shall be proved by the Security
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made
upon such Security.
SECTION 105. Notices, Etc. to Trustee and the Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with:
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office;
or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its
principal office specified in the first paragraph of this instrument
or at any other address previously furnished in writing to the Trustee
by the Company.
Notwithstanding anything to the contrary set forth in this Indenture,
any request, demand, authorization, direction, notice, consent, waiver or Act
of Holders or other document provided or permitted under this Indenture shall
not be deemed to be made, given, filed or furnished to the Trustee unless made,
given, filed or furnished in writing to the Trustee at its Corporate Trust
Office.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders
is given by mail, neither the failure to mail such notice, nor any defect in
any notice so mailed, to any particular Holder shall affect the sufficiency of
such notice with respect to other Holders. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act that is required under such Trust Indenture Act to be a
part of and govern this Indenture, the latter provision
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<PAGE> 17
shall control. If any provision of this Indenture modifies or excludes any
provision of the Trust Indenture Act that may be so modified or excluded, the
latter provision shall be deemed to apply to this Indenture as so modified or
to be excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness, the holders of Preferred
Securities (to the extent provided herein) and the Holders of Securities, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS
OF LAW PRINCIPLES THEREOF. THIS INDENTURE IS SUBJECT TO THE PROVISIONS OF THE
TRUST INDENTURE ACT OF 1939, AS AMENDED, THAT ARE REQUIRED TO BE PART OF THIS
INDENTURE AND SHALL, TO THE EXTENT APPLICABLE, BE GOVERNED BY SUCH PROVISIONS.
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest or
principal of the Securities need not be made on such date, but may be made on
the next succeeding Business Day (except that, if such Business Day is in the
next succeeding calendar year, such Interest Payment Date, Redemption Date or
Stated Maturity, as the case may be, shall be the immediately preceding
Business Day) with the same force and effect as if made on the Interest Payment
Date, the Redemption Date, or at the Stated Maturity, provided that no interest
shall accrue for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity, as the case may be.
SECTION 113. Indenture and Notes Solely Corporate Obligations.
No recourse for the payment of the principal of or premium, if any, or
interest on any Security, or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in this Indenture or in any supplemental indenture or
in any Security, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, stockholder, employee, agent,
officer or director, as such, past, present or future, of the Company or of any
successor corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any
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assessment or penalty or otherwise; it being expressly understood that all such
liability is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of the
Securities.
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally.
The Securities and the Trustee's certificates of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these or other methods, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.
SECTION 202. Form of Face of Security.
FREMONT GENERAL CORPORATION
9% Junior Subordinated Debenture, Due March 31, 2026
$_________________
No. ____
CUSIP No. 357288AG4
FREMONT GENERAL CORPORATION, a corporation duly organized and existing under
the laws of the State of Nevada (herein called the "Company", which term
includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to ________________________ or
registered assigns, the principal sum of
____________________________________________________ on March 31, 2026,
provided that the Company may extend the maturity date subject to certain
conditions specified in Section 301 of the Indenture, which extended maturity
date shall in no case be later than March 31, 2045, and to pay interest on said
principal sum from March 6, 1996 or from the most recent interest payment date
(each such date, an "Interest Payment Date") to which interest has been paid or
duly provided for, quarterly (subject to deferral as set forth herein) in
arrears on March 31, June 30, September 30, and December 31 of each year,
commencing March 31, 1996, at the rate of 9% per annum plus Additional
Interest, if any, until the principal hereof shall have become due and payable,
and on any overdue principal and (without duplication and to the extent that
payment of such interest is enforceable under applicable law) on any overdue
installment of interest at the same rate per annum. The Company will pay
Compound Interest, if any, in accordance with the provisions of Section 301 of
the Indenture. The amount of interest payable for any period will be computed
on the basis of twelve 30-day months and a 360- day year. The amount of
interest payable for any period shorter than a full quarterly period for which
interest is computed, will be computed on the basis of actual number of days
elapsed per 30-day month. In the event that any date on which interest is
payable on this Security is not a Business Day, then a payment of the interest
payable on such date will be made on the next succeeding day which is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on the date the payment was
originally payable. A "Business Day"
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shall mean any day other than a day on which banking institutions in the City
of New York are authorized or required by law or executive order to remain
closed or a day on which the Corporate Trust Office of the Trustee, or the
principal office of the Institutional Trustee under the Trust Agreement, is
closed for business. The interest installment so payable, and punctually paid
or duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities, as defined in the Indenture) is registered at the close
of business on the Regular Record Date for such interest installment, which
shall be the close of business on the Business Day next preceding such Interest
Payment Date, subject to certain exceptions provided in said Indenture. Any
such interest installment not so punctually paid or duly provided for shall
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities not less than
10 days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.
The Company shall have the right at any time during the term of this
Security, from time to time, to extend the interest payment period of such
Security for up to 20 consecutive quarters (an "Extension Period"), during
which periods interest will compound quarterly and the Company shall have the
right to make partial payments of interest on any Interest Payment Date, and at
the end of which Extension Period the Company shall pay all interest then
accrued and unpaid (including any Additional Interest), together with interest
thereon at the rate specified for the Securities to the extent that payment of
such interest is permitted by applicable law ("Compound Interest"); provided
that during any such Extension Period, the Company shall not, and shall cause
any Subsidiary of the Company (other than its wholly owned Subsidiaries) not
to, (a) declare or pay any dividends on, or make a distribution with respect
to, or redeem, purchase or acquire, or make a liquidation payment with respect
to, any of its capital stock (other than (i) repurchases or acquisitions of
shares of the Common Stock of the Company as contemplated by any employment
arrangement, benefit plan or other similar contract with or for the benefit of
employees, officers or directors entered into in the ordinary course of
business, (ii) as a result of an exchange or conversion of any class or series
of the Company's capital stock for the Company's Common Stock, (iii) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such Company capital stock
or the security being converted or exchanged, or (iv) the payment of any stock
dividend by the Company payable in the Company's Common Stock) or make any
guarantee payments with respect to the foregoing and (b) make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank pari passu with or junior to
the Security except as (i) required in accordance with the terms thereof
(including, in the case of junior debt, the subordination provisions thereof),
(ii) in connection with a contemporaneous refinancing of such debt securities
with the proceeds of a new issuance of debt securities which have terms and
provisions no more favorable to the holder than those of the debt securities
repurchased or refinanced (iii) in connection with the contemporaneous
conversion or exchange of such debt securities for Common Stock of the Company;
provided, however, that in no event shall the amount to be paid by the Company
or any of its subsidiaries under (a) or (b)(ii) or (iii) above exceed in the
aggregate $500,000 per year. Prior to the termination of any such Extension
Period, the Company may further extend the interest payment period, provided
that such Extension Period together with all such previous and further
extensions thereof shall not exceed 20 consecutive quarters or extend beyond
the Maturity of this Security. Upon the termination of any such Extension
Period and upon the payment of all accrued and unpaid interest and any
Additional Interest then due, the Company may select a new Extension Period,
subject to the above requirements. No interest shall be due and payable during
an Extension Period, except at the end thereof. The Company shall give the
Trustee notice of its selection of an Extension Period at least one Business
Day prior to the earlier of (i) the Interest Payment Date or (ii)
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the date Fremont Financing is required to give notice to the New York Stock
Exchange (or other applicable self-regulatory organization) or to holders of
the Preferred Securities of the record date or the date such distributions are
payable, but in any event not less than one Business Day prior to such record
date. If the Institutional Trustee shall not be the sole holder of the
Securities, the Company shall give the holders of the Securities notice of its
selection of such Extension Period ten Business Days prior to the earlier of
(i) the Interest Payment Date or (ii) the date upon which the Company is
required to give notice to the New York Stock Exchange (or other applicable
self-regulatory organization) or to holders of the Securities of the record or
payment date of such related interest payment.
Payment of the principal of and interest on this Security will be made at
the office or agency of the Paying Agent maintained for that purpose in the
United States, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company, payment of interest may
be made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes. Each Holder hereof, by his acceptance hereof, waives all notice of
the acceptance of the subordination provisions contained herein and in the
Indenture by each holder of Senior Indebtedness, whether now outstanding or
hereafter incurred, and waives reliance by each such holder upon said
provisions.
Reference is hereby made to the further provisions of the Indenture
summarized on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, Fremont General Corporation has caused this instrument
to be duly executed under its corporate seal.
Dated: __________________
FREMONT GENERAL CORPORATION
By: _______________________________
Name:
Title:
Attest:
_______________________________
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SECTION 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of the
"Company", designated as its 9% Junior Subordinated Debentures, due March 31,
2026 (provided that the Company may extend the maturity date subject to certain
conditions specified in Section 301 of the Indenture), (herein called the
"Securities"), limited in aggregate principal amount to $118,556,702 issued
under an Indenture, dated as of March 6, 1996 (herein called the "Indenture"),
between the Company and First Interstate Bank of California, a California
banking corporation, as Trustee (herein called the "Trustee," which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Trustee, the Company and the Holders of the Securities, and of the terms
upon which the Securities are, and are to be, authenticated and delivered.
All terms used in this Security which are defined in the Indenture or in the
Declaration attached as Annex A thereto shall have the meanings assigned to
them in the Indenture or the Declaration, as the case may be.
At any time on or after March 31, 2001, the Company shall have the right,
subject to the terms and conditions of Article Twelve of the Indenture, to
redeem this Security at the option of the Company, without premium or penalty,
in whole or in part, at a Redemption Price equal to 100% of the principal
amount to be redeemed plus accrued but unpaid interest, including any
Additional Interest, if any, to, but excluding, the Redemption Date. If a Tax
Event as defined in Article Twelve of the Indenture shall occur and be
continuing, the Company shall have the right, subject to the terms and
conditions of Article Twelve of the Indenture, to redeem this Security at the
option of the Company, without premium or penalty, in whole but not in part, at
a Redemption Price equal to 100% of the principal amount thereof plus accrued
but unpaid interest, including any Additional Interest, if any, to the
Redemption Date. Any redemption pursuant to this paragraph will be made upon
not less than 30 nor more than 60 days' notice to the Holders, at the
Redemption Price. If the Securities are only partially redeemed by the
Company, the Securities will be redeemed pro rata. If a partial redemption of
the Preferred Securities resulting from a partial redemption of the Securities
would result in the delisting of the Preferred Securities, the Company may only
redeem the Securities in whole. In the event of redemption of this Security in
part only, a new Security or Securities for the unredeemed portion hereof will
be issued in the name of the Holder hereof upon the cancellation hereof.
If an Event of Default with respect to the Securities shall occur and be
continuing, the principal of the Securities may be declared due and payable in
the manner, with the effect and subject to the conditions provided in the
Indenture.
The Indenture contains provisions for satisfaction and discharge at any time
of the entire indebtedness of this Security upon compliance by the Company with
certain conditions set forth in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of Holders of not less than a majority in principal amount of
the Outstanding Securities affected by such modification, to modify the
Indenture in a manner affecting the rights of the Holders of the Securities;
provided that no such modification may, without the consent of the Holder of
each Outstanding Security affected (or if the Securities are held by Fremont
Financing, the holders of each of the Preferred Securities) thereby, (i) change
the fixed maturity of the Securities except as provided in the Indenture, or
reduce the principal amount thereof, or reduce the rate or, except as described
below, extend the time of payment of interest thereon, or reduce any premium
payable upon the redemption thereof, or (ii) reduce the percentage of principal
amount of the Securities, the Holders of which are required to consent to any
such modification of the Indenture. The Indenture also contains provisions
permitting Holders of
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specified percentages in principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all Securities, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Security at the times, place and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in New York, New York, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to
the designated transferee or transferees. No service charge shall be made for
any such registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Securities are issuable only in registered form without coupons. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities are exchangeable for a like aggregate principal amount of Securities
of a different authorized denomination, as requested by the Holder surrendering
the same.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES THEREOF.
SECTION 204. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within-mentioned Indenture.
FIRST INTERSTATE BANK OF CALIFORNIA
as Trustee
By: _______________________________________
Authorized Officer
ARTICLE THREE
The Securities
SECTION 301. Title and Terms.
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The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is limited to $103,092,784 (or $118,556,702 if
the over-allotment option set forth in Section 2 of the Purchase Agreement is
exercised in full) except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities pursuant to Section 304, 305, 306, 906 or 1208.
The Securities shall be known and designated as the "9% Junior Subordinated
Debentures, Due March 31, 2026" of the Company. Their initial Stated Maturity
shall be March 31, 2026. Not more than one year or less than one month prior
to the initial Stated Maturity, the Company may, in its sole discretion, extend
the Stated Maturity no more than one time for up to an additional 19 years from
the initial Maturity Date, provided that all of the following conditions are
satisfied at the time the Company elects to extend the Stated Maturity: (i)
the Company is not in bankruptcy, insolvent or in liquidation, (ii) the Company
is not in default in the payment of any interest or principal under this
Indenture, or to any trustee of the Trust in connection with the issuance of
the Trust Securities, (iii) the Company has made timely payments on the
Securities for the immediately preceding six quarters without deferrals or
extensions of the interest payment period, (iv) Fremont Financing is not in
arrears on payments of distributions on the Preferred Securities, (v) the
Securities are rated not less than BBB or better by Standard & Poors Ratings
Group or Baa2 or better by Moody's Investors Service, Inc. or the equivalent by
any other nationally recognized statistical rating organization, and (vi) the
extended Stated Maturity is no later than the 49th anniversary of the issuance
of the Preferred Securities.
The Securities shall bear interest at the rate of 9% per annum, from March
6, 1996 or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, as the case may be, payable quarterly (subject
to deferral as set forth herein), in arrears, on March 31, June 30, September
30, and December 31 of each year, commencing March 31, 1996 until the principal
thereof is paid or made available for payment. Interest will compound
quarterly and will accrue at the rate of 9% per annum on any interest
installment in arrears for more than one quarter or during an Extension Period
of an interest payment period as set forth below in this Section 301. In the
event that any date on which interest is payable on the Securities is not a
Business Day, then a payment of the interest payable on such date will be made
on the next succeeding day which is a Business Day (except that, if such
Business Day is in the next succeeding calendar year, such Interest Payment
Date shall be the immediately preceding Business Day) (and without any interest
or other payment in respect of any such delay).
The Company shall have the right, at any time during the term of the
Securities, to extend the interest payment period, from time to time, for up to
20 consecutive quarters (the "Extension Period") during which period interest
will compound quarterly and the Company shall have the right to make partial
payments of interest on any Interest Payment Date, and at the end of which
Extension Period the Company shall pay all interest then accrued and unpaid
thereon (together with Additional Interest at the rate specified for the
Securities to the extent permitted by applicable law ("Compound Interest"),
provided, however, that during any such Extension Period, the Company shall
not, and shall cause any Subsidiary (other than its wholly owned Subsidiaries)
not to, (a) declare or pay any dividends on, or make a distribution with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (other than (i) repurchases or
acquisitions of shares of the Common Stock of the Company as contemplated by
any employment arrangement, benefit plan or other similar contract with or for
the benefit of employees, officers or directors entered into in the ordinary
course of business, (ii) as a result of an exchange or conversion of any class
or series of the Company's capital stock for the Company's Common Stock, (iii)
the purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such Company capital stock
or the security being converted or exchanged, or (iv) the payment of any stock
dividend by the Company payable in the Company's Common Stock) or make any
guarantee payments with respect to the foregoing and (b) make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank pari passu with or junior to
the Security except as (i) required
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in accordance with the terms thereof (including, in the case of junior debt,
the subordination provisions thereof), (ii) in connection with a
contemporaneous refinancing of such debt securities with the proceeds of a new
issuance of debt securities which have terms and provisions no more favorable
to the holder than those of the debt securities repurchased or refinanced or
(iii) in connection with the contemporaneous conversion or exchange of such
debt securities for Common Stock of the Company; provided, however, that in no
event shall the amount to be paid by the Company or any of its Subsidiaries
under (a) or (b)(ii) or (iii) above exceed in the aggregate $500,000 per year.
Prior to the termination of any such Extension Period, the Company may further
extend the interest payment period, provided that such Extension Period
together with all such previous and further extensions thereof shall not exceed
20 consecutive quarters or extend beyond the Maturity of the Securities. Upon
termination of any Extension Period and upon the payment of all accrued and
unpaid interest and any Additional Interest then due, the Company may select a
new Extension Period, subject to the above requirements. No interest shall be
due and payable during an Extension Period, except at the end thereof. The
Company shall give the Institutional Trustee and the Administrative Trustees
(as defined in the Declaration) and the Trustee notice of its selection of such
Extension Period at least one Business Day prior to the earlier of (i) the
Interest Payment Date or (ii) the date the Administrative Trustees are required
to give notice to the New York Stock Exchange or other applicable
self-regulatory organization or to holders of the Preferred Securities of the
record date or the date such distributions are payable, but in any event not
less than one Business Day prior to such record date. If the Institutional
Trustee shall not be the sole holder of the Securities, the Company shall give
the holders of the Securities notice of its selection of such Extension Period
ten Business Days prior to the earlier of (i) the Interest Payment Date or (ii)
the date upon which the Company is required to give notice to the New York
Stock Exchange (or other applicable self-regulatory organization) or to holders
of the Securities of the record or payment date of such related interest
payment.
The Trustee shall promptly give notice of the Company's selection of such
Extension Period to the holders of the Preferred Securities.
The principal of and interest on the Securities shall be payable at the
office or agency of the Paying Agent in the United States maintained for such
purpose and at any other office or agency maintained by the Company for such
purpose in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Company payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address
shall appear in the Security Register.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Eleven.
The Securities shall be redeemable as provided in Article Twelve.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form, without coupons.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman of
the Board, its Vice Chairman of the Board, its President or one of its Vice
Presidents, under its manual or facsimile corporate seal reproduced thereon
attested by its Treasurer or one of its Assistant Treasurers or Secretary or
one of its Assistant Secretaries. The signature of any of these officers on
the Securities may be manual or facsimile.
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Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Securities in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities
of authorized denominations. Until so exchanged the temporary Securities shall
in all respects be entitled to the same benefits under this Indenture as
definitive Securities.
SECTION 305. Registration; Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is
hereby appointed "Security Registrar" for the purpose of registering Securities
and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at an office or
agency of the Company designated pursuant to Section 1002 for such purpose, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denominations and of a like aggregate principal amount.
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At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Security Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made to the Holder for any registration of
transfer or exchange of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 304, 906 or 1208 not
involving any transfer.
If the Securities are to be redeemed in part, the Company shall not be
required (A) to issue, register the transfer of or exchange any Securities
during a period beginning at the opening of business 15 days before the day of
the mailing of a notice of redemption of any such Securities selected for
redemption under Section 1203 and ending at the close of business on the day of
such mailing, or (B) to register the transfer of or exchange any Security so
selected for redemption in whole or in part, except the unredeemed portion of
any Security being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or
is about to become due and payable, the Company in its discretion may, instead
of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any destroyed,
lost or stolen Security shall constitute an original additional contractual
obligation of the Company, whether or not the destroyed, lost or stolen
Security shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Securities duly issued hereunder.
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The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable (including any Additional
Interest), and is punctually paid or duly provided for, on any Interest Payment
Date shall be paid to the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest. The Company shall pay Compound Interest, if
any, in accordance with the provisions of Section 301 hereof.
Any interest on any Security which is payable, but is not punctually paid or
duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in clause (1) or (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the Securities (or
their respective Predecessor Securities) are registered at the close
of business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this clause provided. Thereupon the Trustee shall fix
a Special Record Date for the proposed payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10
days prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the written notice of the
proposed payment. The Trustee shall promptly notify the Company of
such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it
appears in the Security Register, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so mailed,
such Defaulted Interest shall be paid to the Persons in whose names
the Securities (or their respective Predecessor Securities) are
registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be
listed, and, if so listed, upon such notice as may be required by such
exchange, if, after notice given by the Company in writing to the
Trustee of the proposed payment pursuant to this clause, such manner
of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security delivered
under this Indenture upon registration of transfer of or in exchange for or in
lieu of any other Security shall carry the rights to interest accrued and
unpaid, and to accrue (including in each such case Additional Interest), which
were carried by such other Security.
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SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee shall treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 307) interest (including Additional Interest) on such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and
neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of transfer
or exchange shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly cancelled by the Trustee. No Securities shall be authenticated in
lieu of or in exchange for any Securities cancelled as provided in this
Section, except as expressly permitted by this Indenture. All cancelled
Securities held by the Trustee shall be disposed of as directed by a Company
Order.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day year
of twelve 30-day months. The amount of interest payable for any period shorter
than a full quarterly period for which interest is computed, will be computed
on the basis of actual number of days elapsed per 30-day month.
SECTION 311. Right of Set-Off.
Notwithstanding anything to the contrary in the Indenture, the Company shall
have the right to set-off any payment it is otherwise required to make
thereunder to the extent the Company has theretofore made, or is concurrently
on the date of such payment making, a payment under the Parent Guarantees. The
Company shall promptly provide notice in writing to the Trustee of any payment
it makes under the Parent Guarantees that it intends to set-off against any
payment the Company is required to make pursuant to this Indenture.
SECTION 312. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be
affected by any defect in or omission of such numbers.
SECTION 313. Global Securities.
If the Securities are distributed to holders of Preferred Securities in
liquidation of such holder's interests in Fremont Financing, such Securities
will initially be issued as a Global Security. If the Company shall establish
that the Securities are to be issued in the form of one or more Global
Securities, then the Company shall execute and the Trustee shall, in accordance
with Section 303 and the Company Order, authenticate and deliver one or more
Global Securities that (i) shall represent and shall be
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denominated in an amount equal to the aggregate principal amount of all of the
Securities to be issued in the form of Global Securities and not yet cancelled,
(ii) shall be registered in the name of the Depositary for such Global Security
or Securities or the nominee of such Depositary, and (iii) shall be delivered
by the Trustee to such Depositary or pursuant to such Depositary's
instructions.
Global Securities shall bear a legend substantially to the following effect:
This Security is a Global Security within the meaning of the
Indenture hereinafter referred to and is registered in the name of a
Depositary or a nominee of a Depositary. This Global Security is
exchangeable for Securities registered in the name of a Person other
than the Depositary or its nominee only in the limited circumstances
described in the Indenture, and no transfer of this Security (other
than a transfer of this Security as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary) may be registered
except in such limited circumstances. Every Security delivered upon
registration of transfer of, or in exchange for, or in lieu of, this
Global Security shall be a Global Security subject to the foregoing,
except in the limited circumstances described above.
Unless this certificate is presented by an authorized
representative of The Depositary Trust Company, a New York corporation
("DTC"), to the Company or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the
name of Cede & Co. or in such other name as is requested by an
authorized representative of DTC (and any payment is to be made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.
Notwithstanding the provisions of Section 305, unless and until it is
exchanged in whole or in part for Securities in definitive registered form, a
Global Security representing all or a part of the Securities may not be
transferred in the manner provided in Section 305 except as a whole by the
Depositary to a nominee of such Depositary or by a nominee of such Depositary
to such Depositary or another nominee of such Depositary or by such Depositary
or any such nominee to a successor Depositary or a nominee of such successor
Depositary.
If at any time the Depositary for any Securities represented by one or more
Global Securities notifies the Company that it is unwilling or unable to
continue as Depositary for such Securities or if at any time the Depositary for
such Securities shall no longer be eligible under this Section 313, the Company
shall appoint a successor Depositary with respect to such Securities. If a
successor Depositary for such Securities is not appointed by the Company within
90 days after the Company receives such notice or becomes aware of such
ineligibility, the Company's election that such Securities be represented by
one or more Global Securities shall no longer be effective and the Company
shall execute, and the Trustee, upon receipt of a Company Order for the
authentication and delivery of definitive Securities, will authenticate and
deliver Securities in definitive registered form, in any authorized
denominations, in an aggregate principal amount equal to the principal amount
of the Global Security or Securities representing such Securities in exchange
for such Global Security or Securities.
The Company may at any time and in its sole discretion determine that the
Securities issued in the form of one or more Global Securities shall no longer
be represented by a Global Security or Securities. In such event the Company
shall execute, and the Trustee, upon receipt of a Company Order or an Officers'
Certificate for the authentication and delivery of definitive Securities, shall
authenticate and deliver, Securities in definitive registered form, in any
authorized denominations, in an aggregate principal
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amount equal to the principal amount of the Global Security or Securities
representing such Securities, in exchange for such Global Security or
Securities.
In accordance with the provisions of this Section 313, the Depositary for
such Global Security shall surrender such Global Security in exchange in whole
or in part for Securities in definitive registered form on such terms as are
reasonably acceptable to the Company and such Depositary. Thereupon, the
Company shall execute, and the Trustee shall authenticate and deliver, without
service charge to the Holder;
(i) to the Person specified by such Depositary, a new
Security or Securities, of any authorized denominations as requested
by such Person, in an aggregate principal amount equal to and in
exchange for such Person's beneficial interest in the Global Security;
and
(ii) to such Depositary a new Global Security in a
denomination equal to the difference, if any, between the principal
amount of the surrendered Global Security and the aggregate principal
amount of Securities authenticated and delivered pursuant to clause
(i) above.
Upon the exchange of a Global Security for Securities in definitive
registered form in authorized denominations, such Global Security shall be
cancelled by the Trustee or an agent of the Company or the Trustee. Securities
in definitive registered form issued in exchange for a Global Security pursuant
to this Section 313 shall be registered in such names and in such authorized
denominations as the Depositary for such Global Security, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee or an agent of the Company or the Trustee. The Trustee or
such agent shall deliver at its office such Securities to or as directed by the
Persons in whose names such Securities are so registered.
ARTICLE FOUR
Satisfaction and Discharge; Defeasance
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Securities herein
expressly provided for), and the Trustee, on written demand of and at the
expense of the Company, shall execute instruments supplied by the Company
acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306 and
(ii) Securities for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
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(iii) if redeemable at the option of the Company,
are to be called for redemption within one
year under arrangements satisfactory to the
Trustee for the giving of notice of
redemption by the Trustee in the name, and
at the expense, of the Company
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to
the Trustee for cancellation, for principal and interest (including
Additional Interest) to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Defeasance and Discharge.
The following provisions shall apply to the Securities unless specifically
otherwise provided in a Board Resolution, Officers' Certificate or indenture
supplemental hereto provided pursuant to Section 301. In addition to discharge
or defeasance of this Indenture pursuant to Sections 401 and 403, in the case
of any Securities with respect to which the exact amount described in
subparagraph (a) of Section 404 can be determined at the time of making the
deposit referred to in such subparagraph (a), the Company shall be deemed to
have paid and discharged the entire indebtedness on all the Securities as
provided in this Section on and after the date the conditions set forth in
Section 404 are satisfied, and the provisions of this Indenture with respect to
the Securities shall no longer be in effect (except as to (i) rights of
registration of transfer and exchange of Securities, (ii) substitution of
mutilated, defaced, destroyed, lost or stolen Securities, (iii) rights of
Holders of Securities to receive, solely from the trust fund described in
subparagraph (a) of Section 404, payments of principal thereof and interest, if
any, thereon upon the original stated due dates therefor (but not upon
acceleration), (iv) the rights, obligations, duties and immunities of the
Trustee hereunder, (v) this Section 402 and (vi) the rights of the Holders of
Securities as beneficiaries hereof with respect to the property so deposited
with the Trustee payable to all or any of them) (hereinafter called
"Defeasance"), and the Trustee at the cost and expense of the Company, shall
execute proper instruments acknowledging the same.
SECTION 403. Covenant Defeasance.
In the case of any Securities with respect to which the exact amount
described in subparagraph (a) of Section 404 can be determined at the time of
making the deposit referred to in such subparagraph (a), (i) the Company shall
be released from its obligations under any covenants specified in or pursuant
to this Indenture (except as to (i) rights of registration of transfer and
exchange of Securities, (ii) substitution of mutilated, defaced, destroyed,
lost or stolen Securities, (iii) rights of Holders of Securities to receive,
from the Company pursuant to Section 1001, payments of principal thereof and
interest, if any, thereon upon the original stated due dates therefor (but not
upon acceleration), (iv) the rights, obligations, duties and
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immunities of the Trustee hereunder and (v) the rights of the Holders of
Securities as beneficiaries hereof with respect to the property so deposited
with the Trustee payable to all or any of them), and (ii) the occurrence of any
event specified in Section 501(3) (with respect to any of the covenants
specified in or pursuant to this Indenture) shall be deemed not to be or result
in an Event of Default, in each case with respect to the Outstanding Securities
as provided in this Section on and after the date the conditions set forth in
Section 404 are satisfied (hereinafter called "Covenant Defeasance"), and the
Trustee, at the cost and expense of the Company, shall execute proper
instruments acknowledging the same. For this purpose, such Covenant Defeasance
means that the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant (to
the extent so specified in the case of Section 501(4)), whether directly or
indirectly by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein
or in any other document, but the remainder of this Indenture and the
Securities shall be unaffected thereby.
SECTION 404. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section 402
or 403 to the Outstanding Securities:
(a) with reference to Section 402 or 403, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee as funds in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of Securities (i) cash
in an amount, or (ii) direct obligations of the United States of
America, backed by its full faith and credit ("U.S. Government
Obligations"), maturing as to principal and interest, if any, at such
times and in such amounts as will insure the availability of cash, or
(iii) a combination thereof, in each case sufficient, in the opinion
of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee,
to pay and discharge (A) the principal of and interest, if any, on all
Securities on each date that such principal or interest, if any, is
due and payable, and (B) any mandatory sinking fund payments on the
dates on which such payments are due and payable in accordance with
the terms of this Indenture and the Securities;
(b) in the case of Defeasance under Section 402, the
Company has delivered to the Trustee an Opinion of Counsel based on
the fact that (x) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (y), since the
date hereof, there has been a change in the applicable United States
federal income tax law, in either case to the effect that, and such
opinion shall confirm that, the Holders of the Securities of such
series will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit, Defeasance and discharge and
will be subject to federal income tax on the same amount and in the
same manner and at the same times, as would have been the case if such
deposit, Defeasance and discharge had not occurred;
(c) in the case of Covenant Defeasance under Section 403,
the Company has delivered to the Trustee an Opinion of Counsel to the
effect that, and such opinion shall confirm that, the Holders of the
Securities will not recognize income, gain or loss for United States
federal income tax purposes as a result of such deposit and Covenant
Defeasance and will be subject to federal income tax on the same
amount and in the same manner and at the same times, as would have
been the case if such deposit and Covenant Defeasance had not
occurred;
(d) such Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under, any
agreement or instrument to which the Company is a party or by which it
is bound; and
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(e) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent contemplated by this provision have been complied
with.
SECTION 405. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
and U.S. Government Obligations deposited with the Trustee pursuant to Section
401 shall be held in trust and such money and all money from such U.S.
Government Obligations shall be applied by it, in accordance with the
provisions of the Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of
the principal and interest for whose payment such money and U.S. Government
Obligations has been deposited with the Trustee.
SECTION 406. Indemnity for U.S. Government Obligations.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 404 or the principal or interest received in
respect of such obligations other than any such tax, fee or other charge that
by law is for the account of the Holders of Outstanding Securities.
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the following
events that has occurred and is continuing (whatever the reason for such Event
of Default and whether it shall be occasioned by the provisions of Article
Eleven or be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) failure for 30 days to pay any interest on the
Securities, including any Additional Interest in respect thereof, when
due; provided, however, that during an Extension Period, no such
failure shall be deemed to exist with respect to interest payments due
during such Extension Period; or
(2) failure to pay any principal on the Securities when
due whether at Stated Maturity, following notice of redemption, by
declaration or otherwise; provided, however, that the Securities shall
not be deemed to have matured solely by virtue of an extension of
their maturity in accordance with the terms of the Indenture; or
(3) failure to observe or perform in any material respect
any other covenant herein for 90 days after written notice to the
Company from the Trustee or the Holders of at least 25% in principal
amount of the Outstanding Securities; or
(4) default under any bond, debenture or any other
evidence of indebtedness for money borrowed by the Company having an
aggregate outstanding principal amount in excess of $15 million, which
default shall have resulted in such indebtedness being accelerated,
without such indebtedness being discharged or such acceleration having
been rescinded or annulled within 30 days after receipt of notice
thereof by the Company from the Trustee or by the
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Company and the Trustee from the Holders of not less than 25% in
aggregate principal amount at Maturity of the Securities then
Outstanding; or
(5) the voluntary or involuntary dissolution, winding-up
or other termination of the existence of Fremont Financing except in
connection with the distribution of Securities to the holders of
Preferred Securities in liquidation of Fremont Financing, the
redemption of all of the Trust Securities of Fremont Financing or
certain mergers, consolidations or amalgamations, each as permitted by
the Declaration; or
(6) entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order adjudging the Company a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company
under any applicable Federal or State law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or of substantially all of the property of the
Company, or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of 90
consecutive days; or
(7) (A) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case
or proceeding to be adjudicated a bankrupt or insolvent, or (B) the
consent by the Company or to the entry of a decree or order for relief
in respect of itself in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against the Company, or (C) the filing
by the Company of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or State law, or
(D) the consent by the Company to the filing of such petition or to
the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official
of the Company or of all or substantially all of the property of the
Company, or (E) the making by the Company of an assignment for the
benefit of creditors.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default occurs and is continuing, then and in every such case
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have the right to declare the principal of and the
interest on all the Securities (including any Additional Interest) and any
other amounts payable hereunder to be due and payable immediately, provided,
however, that if upon an Event of Default, the Trustee or the Holders of at
least 25% in aggregate principal amount of the outstanding Securities fail to
declare the payment of all amounts on the Securities to be immediately due and
payable, the holders of at least 50% in aggregate liquidation preference of
Preferred Securities then outstanding shall have such right, by a notice in
writing to the Company (and to the Trustee if given by Holders or the holders
of Preferred Securities) to declare all amounts outstanding in respect of the
Preferred Securities to be due and payable and upon any such declaration such
principal and all accrued interest shall become immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
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(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest (including any Additional
Interest) on all Securities,
(B) the principal of (and premium, if any, on) any
Securities which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities,
and
(D) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel;
(2) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(1) default is made in the payment of any interest
(including any Additional Interest) on any Security when such interest
becomes due and payable and such default continues for a period of 30
days, or
(2) default is made in the payment of the principal of
any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and interest (including any Additional Interest), and,
to the extent that payment thereof shall be legally enforceable, interest on
any overdue principal and on any overdue interest (including any Additional
Interest), at the rate borne by the Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company (or any other obligor upon the Securities),
its property or its creditors, the Trustee shall be entitled and empowered, by
intervention in such proceeding or otherwise, to take any and all actions
authorized under the Trust Indenture Act in order to have claims of the Holders
and the Trustee allowed in any such proceeding. In particular, the
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Trustee shall be authorized to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Subject to Article Eleven, any money collected by the Trustee pursuant to
this Article shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal upon presentation of the Securities and the notation thereon of
the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607; and
SECOND: To the payment of the amounts then due and unpaid for
principal of and interest (including any Additional Interest) on the
Securities in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Securities for
principal and interest (including any Additional Interest),
respectively.
THIRD: Any remainder, to any other Person lawfully entitled
thereto or to the Company.
SECTION 507. Limitation on Suits.
No Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment
of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to
the Trustee of a continuing Event of Default;
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(2) the Holders of not less than 25% in principal amount
of the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default
in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any
such proceeding; and
(5) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the Holders
of a majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal and
Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and (subject to Section 307) interest (including
any Additional Interest) on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any
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such Event of Default or an acquiescence therein. Every right and remedy given
by this Article or by law to the Trustee or to the Holders may be exercised
from time to time, and as often as may be deemed expedient, by the Trustee or
by the Holders, as the case may be.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule
of law or with this Indenture; and
(2) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
Subject to Sections 902 and 1010 hereof, the Holders of not less than a
majority in principal amount of the Outstanding Securities may on behalf of the
Holders of all the Securities waive any past default hereunder and its
consequences, except a default
(1) in the payment of the principal of or interest
(including any Additional Interest) on any Security (unless such
default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by
acceleration has been deposited with the Trustee); or
(2) in respect of a covenant or provision hereof which
under Article Nine cannot be modified or amended without the consent
of the Holder of each Outstanding Security affected;
provided, however, that such waiver or modification to such waiver shall not be
effective until the holders of a majority in liquidation preference of Trust
Securities shall have consented to such waiver or modification to such waiver;
provided further, that if the consent of the Holder of each of the Outstanding
Securities is required, such waiver shall not be effective until each Holder of
the Trust Securities shall have consented to such waiver.
Upon any such waiver, such default shall cease to exist, effective as of the
date specified in such waiver (and effective retroactively to the date of
default, if so specified) and any Event of Default arising therefrom shall be
deemed to have been cured, for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other default or impair any right
consequent thereon.
SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture,
or in any suit against the Trustee for any action taken, suffered or omitted by
it as Trustee, a court may require any party litigant in such suit to file an
undertaking to pay the costs of such suit, and may assess costs against any
such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided, that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to
make such an assessment in any suit instituted by the Company or the Trustee or
in any suit for the enforcement of the right to receive the principal of and
interest (including any Additional Interest) on any Security.
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SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any
such law and covenants that it will not hinder, delay or impede the execution
of any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 516. Preferred Security Holders Rights.
If an Event of Default constituting the failure to pay interest or principal
on the Securities on the date such interest or principal is otherwise payable
has occurred and is continuing, then a holder of Preferred Securities may
directly institute a proceeding for enforcement of payment to such holder
directly of the principal of or interest on the Securities having a principal
amount equal to the aggregate liquidation amount of the Preferred Securities or
such holder on or after the respective due date specified in the Securities.
The holders of Preferred Securities will not be able to exercise directly any
other remedy available to the holders of the Securities under this Indenture
unless the Institutional Trustee fails to do so.
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Trustee shall be
as provided by the Trust Indenture Act. Notwithstanding the
foregoing, no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it. Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of
or affording protection to the Trustee shall be subject to the
provisions of this Section.
(b) All indemnifications and releases from liability granted
herein to the Trustee shall extend to the directors, officers,
employees and agents of the Trustee.
SECTION 602. Notice of Defaults.
The Trustee shall give the Holders notice of any default hereunder which is
made known to the officer of the Trustee having primary responsibility for
administering this Indenture, confirmed in writing, and as and to the extent
provided by the Trust Indenture Act; provided, however, that except in the case
of a default in the payment of the principal of or interest on any Security,
the Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interests of the Holders of Securities;
provided, further, that in the case of any default of the character specified
in Section 501(3), no such notice to Holders shall be given until at least 30
days after the occurrence thereof. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default. For purposes of this Section, the Trustee
shall not be deemed to have knowledge of a default unless the officer of the
Trustee having responsibility for administering this Indenture has actual
knowledge of such default or has received written notice of such default in the
manner contemplated by Section 105.
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SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company
Order and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(d) the Trustee may consult with counsel of its choice
and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
(e) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders pursuant to this Indenture,
unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the
use or application by the Company of Securities or the proceeds thereof.
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SECTION 605. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar, or any other agent of
the Company, in its individual or any other capacity, may become the owner or
pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal
with the Company with the same rights it would have if it were not Trustee,
Paying Agent, Security Registrar, or such other agent. Money held by the
Trustee in trust hereunder shall not be invested by the Trustee pending
distribution thereof to the holders of the Securities.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under
no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Company.
SECTION 607. Compensation; Reimbursement; and Indemnity.
The Company agrees
(1) to pay to the Trustee from time to time such
reasonable compensation as the Company and the Trustee shall from time
to time agree in writing for all services rendered by it hereunder
(which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee promptly upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee
in accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify each of the Trustee and any predecessor
Trustee for, and to hold it harmless against, any and all loss,
damage, claim, liability or expense, including taxes (other than taxes
based on the income of the Trustee) incurred without negligence or bad
faith on its part, arising out of or in connection with the acceptance
or administration of this trust or the trusts hereunder, including the
costs and expenses of defending itself against any claim or liability
in connection with the exercise or performance of any of its powers or
duties hereunder.
The obligations of the Company under this Section to compensate the Trustee,
to pay or reimburse the Trustee for expenses, disbursements and advances and to
indemnify and hold harmless the Trustee shall constitute additional
indebtedness hereunder and shall survive the satisfaction and discharge of this
Indenture. As security for the performance of such obligations of the Company,
the Trustee shall have a claim prior to the Securities upon all property and
funds held or collected by the Trustee as such, except funds held in trust for
the payment of principal of (and premium, if any, on) or interest on particular
Securities.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
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There shall at all times be a Trustee hereunder which shall be a Person that
is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $50,000,000 and has its Corporate
Trust Office in New York, New York or Los Angeles, California. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Person shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If an instrument of acceptance by a successor Trustee shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608
after written request therefor by the Company or by any Holder who
has been a bona fide Holder of a Security for at least six months,
or
(2) the Trustee shall cease to be eligible under Section
609 and shall fail to resign after written request therefor by the
Company or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall
be adjudged a bankrupt or insolvent or a receiver of the Trustee or
of its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of
the Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf
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of himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders in
the manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; provided that, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all
the rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of such
acceptance such successor Trustee shall be qualified and eligible under this
Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or any
other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor).
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not later than February 15 and August
15 in each year, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders to the extent the
Company has knowledge thereof as of a date not more than 15 days prior
to the delivery thereof, and
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(b) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than
15 days prior to the time such list is furnished;
provided that the Company shall not be required to furnish any such list so
long as the Trustee is acting as Security Registrar or the Securities are
represented by one or more Global Securities.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 supplied to the
Trustee by the Depository at the Trustee's request, and the names and addresses
of Holders received by the Trustee in its capacity as Security Registrar. The
Trustee may destroy any list furnished to it as provided in Section 701 upon
receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason of
any disclosure of information as to names and addresses of Holders made
pursuant to the Trust Indenture Act.
SECTION 703. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when the Securities are listed on any stock exchange.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and transmit to
Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant to such Act; provided that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be
filed with the Trustee within 15 days after the same is so required to be filed
with the Commission. In addition, the Company shall promptly notify the
Trustee in the event that the Preferred Securities are delisted.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety, the
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successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor Person had been
named as the Company herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under
this Indenture and the Securities. Such successor Person shall promptly
provide notice in writing to the Trustee of such event.
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company herein and in the Securities; or
(2) to add to the covenants of the Company for the
benefit of the Holders, or to surrender any right or power herein
conferred upon the Company; or
(3) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent
with the provisions of this Indenture, provided that such action
pursuant to this clause (3) shall not adversely affect the interests
of the Holders of the Securities or, so long as any of the Preferred
Securities shall remain outstanding, the holders of the Preferred
Securities; or
(4) to comply with the requirements of the Commission in
order to effect or maintain the qualification of this Indenture under
the Trust Indenture Act.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution,
and the Trustee may enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders under this Indenture; provided, however, that
no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Security (or, if the Securities are held by the Trust, the holders
of each of the Preferred Securities) affected thereby,
(1) except to the extent permitted and subject to the
conditions set forth in Section 301 with respect to the extension of
the Stated Maturity of the Securities, change the Stated Maturity of,
the principal of, or any installment of interest (including any
Additional Interest) on, any Security, or reduce the principal amount
thereof or the rate of interest thereon, or change the place of
payment where, or the coin or currency in which, any Security or
interest thereon is payable, or impair the right to institute suit for
the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption
Date), or modify the provisions of this Indenture with respect to the
subordination of the Securities in a manner adverse to the Holders,
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(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section
513 or Section 1010, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot be
modified or waived without the consent of the Holder of each
Outstanding Security affected thereby;
provided, that, so long as any of the Preferred Securities remains outstanding,
no such amendment shall be made that adversely affects the holders of the
Preferred Securities, and no termination of this Indenture shall occur, and no
waiver of any Event of Default or compliance with any covenant under this
Indenture shall be effective, without the prior consent of the holders of at
least a majority of the aggregate liquidation preference of the outstanding
Preferred Securities unless and until the principal of and any premium on the
Securities and all accrued and unpaid interest (including any Additional
Interest) thereon have been paid in full, provided further, that any amendment
or modification of the terms of this Indenture shall require the prior approval
of the California Insurance Commissioner.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 601) shall be fully protected and shall incur
no liability which may result from relying upon, an Opinion of Counsel stating
that the execution of such supplemental indenture is authorized or permitted by
this Indenture. The Trustee may, but shall not be obligated to, enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall conform
to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Company, to any such
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supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
ARTICLE TEN
Covenants; Representations and Warranties
SECTION 1001. Payment of Principal and Interest.
The Company will duly and punctually pay the principal of and interest on
the Securities in accordance with the terms of the Securities and this
Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York an office or agency where
Securities may be presented or surrendered for payment, where Securities may be
surrendered for registration of transfer or exchange, and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company will give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands. In the event that the Securities go out of book entry form, the
Company will provide an office for authentication in The City of New York.
The Company may also from time to time designate one or more other offices
or agencies (in the United States) where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency in the United States for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on or
at the option of the Company on or before each due date of the principal of or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act. In such case the Company shall not invest
the amount so segregated and held in trust pending the distribution thereof.
Whenever the Company shall have one or more Paying Agents, it will, on or
prior to each due date of the principal of or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be
held as provided by the Trust Indenture Act, and (unless such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of its action or
failure so to act; provided, however, that any such deposit on a due date shall
be initiated prior to 1:00 p.m. (New York time) in same-day funds.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will (i) comply with the provisions of the Trust Indenture Act applicable
to it as a Paying Agent and (ii) during the continuance of any default by the
Company (or any other obligor upon the Securities) in the making of any payment
in respect of the Securities, upon the
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written request of the Trustee, forthwith pay to the Trustee all sums held in
trust by such Paying Agent as such.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of or interest on any
Security and remaining unclaimed for two years after such principal or interest
has become due and payable shall be paid to the Company on Company Request, or
(if then held by the Company) shall be discharged from such trust; and the
Holder of such Security shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease.
SECTION 1004. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers
thereof the Company is in default in the performance and observance of any of
the material terms, provisions and conditions of this Indenture (without regard
to any period of grace or requirement of notice provided hereunder) and, if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge.
SECTION 1005. Existence.
Subject to Article Eight, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(charter and statutory) and franchises; provided, however, that the Company
shall not be required to preserve any such right or franchise if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Holders and, while any Preferred
Securities are outstanding, the holders of the Preferred Securities.
SECTION 1006. Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any of such properties if such discontinuance is,
in the judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Holders.
SECTION 1007. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon the Company or
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any Subsidiary or upon the income, profits or property of the Company or any
Subsidiary, and (2) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any
Subsidiary that comprise more than 10% of the assets of the Company and its
Subsidiaries taken as a whole; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 1008. Additional Interest.
In the event that (i) Fremont Financing is the Holder of all of the
Outstanding Securities, (ii) a Tax Event shall have occurred and be continuing
and (iii) the Company shall have elected to pay Additional Interest (as defined
below) and shall not have revoked any such election, the Company shall pay to
Fremont Financing (and its permitted successors or assigns under the
Declaration) for so long as Fremont Financing (or its permitted successor or
assignee) is the registered holder of any Securities such additional amounts as
may be necessary in order that the amount of distributions (including any
Additional Amounts) then due and payable by Fremont Financing on the Preferred
Securities that at any time remain outstanding in accordance with the terms
thereof shall not be reduced as a result of any Additional Taxes (the
"Additional Interest"). Whenever in this Indenture there is a reference in any
context to the payment of principal of or interest on the Securities, such
mention shall be deemed to include mention of the payment of the Additional
Interest provided for in this paragraph to the extent that, in such context,
Additional Interest is, was or would be payable in respect thereof pursuant to
the provisions of this paragraph and express mention of the payment of
Additional Interest (if applicable) in any provisions hereof shall not be
construed as excluding Additional Interest in those provisions hereof where
such express mention is not made.
SECTION 1009. Additional Covenants.
The Company covenants and agrees that it shall not, and shall not permit any
Subsidiary of the Company (other than its wholly owned Subsidiaries) to, (a)
declare or pay any dividends on or make a distribution with respect to, or
redeem, purchase or acquire, or make a liquidation payment with respect to, any
of its capital stock (other than (i) repurchases or acquisitions of shares of
the Common Stock of the Company as contemplated by any employment arrangement,
benefit plan or other similar contract with or for the benefit of employees,
officers or directors entered into in the ordinary course of business, (ii) as
a result of an exchange or conversion of any class or series of the Company's
capital stock for the Company's Common Stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted or
exchanged, or (iv) the payment of any stock dividend by the Company payable in
the Company's Common Stock or the same stock as that on which the dividend is
being paid) or make any guarantee payments with respect to the foregoing and
(b) make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Company that rank pari
passu with or junior to the Securities except as (i) required in accordance
with the terms thereof (including, in the case of junior debt, the
subordination provisions thereof), (ii) in connection with a contemporaneous
refinancing of such debt securities with the proceeds of a new issuance of debt
securities which have terms and provisions no more favorable to the holder than
those of the debt securities repurchased or refinanced (iii) in connection with
the contemporaneous conversion or exchange of such debt securities for Common
Stock of the Company; provided, however, that in no event shall the amount to
be paid by the Company or any of its Subsidiaries under (a) or (b)(ii) or (iii)
above exceed in the aggregate $500,000 per year if at such time (i) there shall
have occurred and be continuing any event that (a) with the giving of notice or
the lapse of time or both, would constitute an Event of Default hereunder and
(b) in respect of which the Company shall not have taken reasonable steps to
cure, (ii) the Company shall be in default with respect to its payment of any
obligations under the Parent Guarantees, or (iii) the
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Company shall have given notice of its election of an Extension Period as
provided herein and such period, or any extension thereof, shall be continuing.
The Company also covenants (i) to maintain 100% ownership of the Common
Securities of Fremont Financing; provided, however, that any permitted
successor of the Company hereunder may succeed to the Company's ownership of
such Common Securities, (ii) not to cause or permit the dissolution, winding-up
or termination of Fremont Financing, except in connection with a distribution
of the Securities to the holders of Preferred Securities in liquidation of
Fremont Financing or in connection with certain mergers, consolidations or
amalgamations permitted by the Declaration and (iii) to use its reasonable
efforts, consistent with the terms and provisions of the Trust Agreement, to
cause Fremont Financing to remain a business trust and to be classified as a
grantor trust and not to be classified as an association taxable as a
corporation for United States federal income tax purposes, except in connection
with a distribution of the Securities to the holders of Preferred Securities in
liquidation of Fremont Financing.
SECTION 1010. Waiver of Certain Covenants.
Except as otherwise specified as contemplated by Section 301 for Securities,
the Company may, with respect to the Securities, omit in any particular
instance to comply with any term, provision or condition set forth in any
covenant provided pursuant to Section 901(2) for the benefit of the Holders if
before the time for such compliance the Holders of at least a majority in
principal amount of the Outstanding Securities shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance
with such term, provision or condition, but no such waiver shall extend to or
affect such term, provision or condition except to the extent so expressly
waived, and, until such waiver shall become effective, the obligations of the
Company and the duties of the Trustee in respect of any such term, provision or
condition shall remain in full force and effect.
ARTICLE ELEVEN
Subordination of Securities
SECTION 1101. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by such
Holder's acceptance thereof, likewise covenants and agrees, that, (i) to the
extent and in the manner hereinafter set forth in this Article (subject to
Article Four), the payment of the principal of and interest (including any
Additional Interest) on each and all of the Securities are hereby expressly
made subordinate and subject in right of payment to the prior payment in full
in cash of all Senior Indebtedness; and (ii) the obligations of the Company
under the Securities rank pari passu with the Company's obligations with
respect to the Company's $373,750,000 aggregate principal amount at maturity of
Liquid Yield(TM) Option Notes Due 2013. All references in this Article Eleven
to "payment in full" of Senior Indebtedness shall be construed to mean such
payment in full in cash.
This Article Eleven shall constitute a continuing offer to all Persons who
become holders of, or continue to hold, Senior Indebtedness, and such
provisions are made for the benefit of the holders of Senior Indebtedness and
such holders are made obligees hereunder and any one or more of them may
enforce such provisions. Holders of Senior Indebtedness need not prove
reliance on the subordination provisions hereof.
SECTION 1102. Default on Senior Indebtedness.
In the event and during the continuation of any default in the payment of
principal, premium, interest or any other payment due on any Senior
Indebtedness (and any applicable grace period with respect to such default has
ended and such default has not been cured or waived) or in the event that the
maturity of
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any Senior Indebtedness has been accelerated because of a default, then, in
either case, no payment shall be made by the Company with respect to the
principal (including redemption payments) of, or interest on, the Securities.
In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee or any Holder when such payment is prohibited by the
preceding paragraph of this Section 1102, such payment shall be held in trust
for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Senior Indebtedness
may have been issued, as their respective interests may appear, but only to the
extent that the holders of the Senior Indebtedness (or their representative or
representatives or a trustee) notify the Trustee within 90 days of such payment
of the amounts then due and owing on the Senior Indebtedness and only the
amounts specified in such notice to the Trustee shall be paid to the holders of
Senior Indebtedness.
SECTION 1103. Liquidation; Dissolution; Bankruptcy.
Upon any payment by the Company, or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, to creditors
upon any dissolution or winding-up or liquidation or reorganization of the
Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all principal of, and premium, if any, and
interest due or to become due upon all Senior Indebtedness shall first be paid
in full, or payment thereof provided for in money in accordance with its terms,
before any payment is made on account of the principal or interest on the
Securities; and upon any such dissolution or winding-up or liquidation or
reorganization any payment by the Company, or distribution of substantially all
of the assets of the Company of any kind or character, whether in cash,
property or securities, to which the Holders of the Security or the Trustee
would be entitled, except for the provisions of this Article Eleven, shall be
paid by the Company or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making such payment or distribution, or by the
Holders of the Securities or by the Trustee under this Indenture if received by
them or it, directly to the holders of Senior Indebtedness (pro rata to such
holders on the basis of the respective amounts of Senior Indebtedness held by
such holders, as calculated by the Company) or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Indebtedness may have been issued,
as their respective interests may appear, to the extent necessary to pay all
Senior Indebtedness in full or to provide for such payment in money in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any payment
or distribution is made to the Holders of Securities or to the Trustee.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, prohibited by the foregoing, shall be received by
the Trustee or the Holders of the Securities before all Senior Indebtedness is
paid in full, or provision is made for such payment in money in accordance with
its terms, such payment or distribution shall be held in trust for the benefit
of and shall be paid over or delivered to the holders of Senior Indebtedness or
their representative or representatives, or to the trustee or trustees under
any indenture pursuant to which any instruments evidencing any Senior
Indebtedness may have been issued, as their respective interests may appear, as
calculated by the Company, for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in money in accordance with its terms, after giving effect
to any concurrent payment or distribution to or for the holders of such Senior
Indebtedness.
Any holder of Senior Indebtedness may file any proof of claim or similar
instrument on behalf of the Trustee and the Holders if such instrument has not
been filed by the date which is 30 days prior to the last date specified for
filing thereof.
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For purposes of this Article Eleven, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this
Article Eleven with respect to the Securities to the payment of all Senior
Indebtedness that may at the time be outstanding, provided, however, that (i)
the Senior Indebtedness is assumed by the new corporation, if any, resulting
from any such reorganization or readjustment, and (ii) the rights of the
holders of the Senior Indebtedness are not, without the consent of such
holders, altered by such reorganization or readjustment. The consolidation of
the Company with, or the merger of the Company into, another corporation or the
liquidation or dissolution of the Company following the conveyance or transfer
of its property as an entirety, or substantially as an entirety, to another
corporation upon the terms and conditions provided for in Article Eight hereof
shall not be deemed a dissolution, winding-up, liquidation or reorganization
for the purposes of this Section 1103 if such other corporation shall, as a
part of such consolidation, merger, conveyance or transfer, comply with the
conditions stated in Article Eight hereof. Notwithstanding anything herein to
the contrary, nothing in Section 1102 or in this Section 1103 shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 607.
SECTION 1104. Subrogation.
Subject to the payment in full of all Senior Indebtedness, the rights of the
Holders of the Securities shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until the
principal of (and premium, if any) and interest on the Securities shall be paid
in full; and, for the purposes of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness of any cash, property
or securities to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article Eleven, and no payment over
pursuant to the provisions of this Article Eleven, to or for the benefit of the
holders of Senior Indebtedness by Holders of the Securities or the Trustee,
shall, as between the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of the Securities, be deemed to be a payment by
the Company to or on account of the Senior Indebtedness. It is understood that
the provisions of this Article Eleven are and are intended solely for the
purposes of defining the relative rights of the Holders of the Securities, on
the one hand, and the holders of the Senior Indebtedness on the other hand.
Nothing contained in this Article Eleven or elsewhere in this Indenture or
in the Securities is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of (and premium, if any)
and interest on the Securities as and when the same shall become due and
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the Holders of the Securities and creditors of the Company
other than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or the Holder of any Security from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article Eleven of the
holders of Senior Indebtedness in respect of cash, property or securities of
the Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to in
this Article Eleven, the Trustee, subject to the provisions of Section 601, and
the Holders of the Securities, shall be entitled to rely upon (and shall incur
no liability whatsoever in relying upon), any order or decree made by any court
of competent jurisdiction in which such dissolution, winding-up, liquidation or
reorganization proceedings are pending, or a certificate of the receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, delivered to the Trustee or to the Holders of the
Securities, for the purposes of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
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amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article Eleven.
SECTION 1105. Trustee to Effectuate Subordination.
Each Holder of a Security by acceptance thereof authorizes and directs the
Trustee on such Holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article Eleven and
appoints the Trustee such Holder's attorney-in- fact for any and all such
purposes.
SECTION 1106. Notice by the Company.
The Company shall give prompt written notice to a Responsible Officer of the
Trustee of any fact known to the Company that would prohibit the making of any
payment of monies to or by the Trustee in respect of the Securities pursuant to
the provisions of this Article Eleven. Notwithstanding the provisions of this
Article Eleven or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts that would prohibit the
making of any payment of monies to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article Eleven, unless and until
a Responsible Officer of the Trustee shall have received written notice thereof
at the Corporate Trust Office of the Trustee from the Company or a holder or
holders of Senior Indebtedness or from any trustee therefor; and before the
receipt of any such written notice, the Trustee, subject to the provisions of
Section 601, shall be entitled in all respects to assume that no such facts
exist; provided, however, that if the Trustee shall not have received the
notice provided for in this Section 1106 at least five Business Days prior to
the date upon which by the terms hereof any money may become payable for any
purpose (including, without limitation, the payment of the principal of (or
premium, if any) or interest on any Security), then, anything herein contained
to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such money and to apply the same to the purposes for which
they were received, and shall not be affected by any notice to the contrary
that may be received by it within five Business Days prior to such date.
The Trustee, subject to the provisions of Section 601, shall be entitled to
rely on (and shall incur no liability whatsoever in relying upon), the delivery
to it of a written notice by a Person representing himself to be a holder of
Senior Indebtedness (or a trustee on behalf of such holder) to establish that
such notice has been given by a holder of Senior Indebtedness or a trustee on
behalf of any such holder or holders. In the event that the Trustee determines
in good faith that further evidence is required with respect to the right of
any Person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article Eleven, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article Eleven, and if
such evidence is not furnished the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 1107. Rights of the Trustee; Holders of Senior Indebtedness.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article Eleven in respect of any Senior Indebtedness at any
time held by it, to the same extent as any other holder of Senior Indebtedness,
and nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article Eleven, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this
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Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Section 601, the Trustee shall not be liable to any holder of
Senior Indebtedness if it shall pay over or deliver to holders of Securities,
the Company or any other Person money or assets to which any holder of Senior
Indebtedness shall be entitled by virtue of this Article Eleven or otherwise.
SECTION 1108. Subordination May Not be Impaired.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof that any such holder may have or
otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness or otherwise amend or supplement in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
ARTICLE TWELVE
Redemption of Securities
SECTION 1201. Optional Redemption; Conditions to Optional Redemption.
At any time on or after March 31, 2001, the Company shall have the right,
subject to the last paragraph of this Section 1201, to redeem the Securities,
in whole or in part, from time to time, at a Redemption Price equal to 100% of
the principal amount of Securities to be redeemed plus any accrued but unpaid
interest, including Additional Interest, if any, to the Redemption Date.
If a Tax Event shall occur and be continuing, the Company shall have the
right, subject to the last paragraph of this Section 1201, either (i) to redeem
the Securities in whole but not in part, at a Redemption Price equal to 100% of
the principal amount of Securities then outstanding plus accrued but unpaid
interest, including Additional Interest, if any, to the Redemption Date or (ii)
to direct the trustees of Fremont Financing to dissolve Fremont Financing and
distribute the Securities to the holders of the Preferred Securities and Common
Securities.
For so long as Fremont Financing is the Holder of all Securities
Outstanding, the proceeds of any redemption described in this Section 1201
shall be used by Fremont Financing to redeem Preferred Securities in accordance
with their terms. The Company shall not redeem the Securities in part unless
all accrued and unpaid interest (including any Additional Interest) has been
paid in full on all Securities Outstanding for all quarterly interest periods
terminating on or prior to the Redemption Date.
SECTION 1202. Applicability of Article.
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Redemption of Securities at the election of the Company, as permitted by
Section 1201, shall be made in accordance with such provision and this Article.
SECTION 1203. Election to Redeem; Notice to Trustee.
The election of the Company to redeem Securities pursuant to Section 1201
shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 30 days and no more than
60 days prior to the Redemption Date fixed by the Company, notify the Trustee
of such Redemption Date and of the principal amount of Securities to be
redeemed and provide a copy of the notice of redemption given to Holders of
Securities to be redeemed pursuant to Section 1204. In the event the
Securities are at any time hereafter held by more than one Holder, the minimum
30 day notice stated above shall be increased to 45 days.
SECTION 1204. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed (unless such redemption
affects only a single Security), the particular Securities to be redeemed shall
be selected on a pro rata basis (or such other method of selection as the
Trustee may customarily employ) not more than 60 days prior to the Redemption
Date by the Trustee, from the Outstanding Securities not previously called for
redemption.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption as aforesaid and, in case of any Securities selected
for partial redemption as aforesaid, the principal amount thereof to be
redeemed.
The provisions of the two preceding paragraphs shall not apply with respect
to any redemption affecting only a single Security, whether such Security is to
be redeemed in whole or in part. If a partial redemption of the Preferred
Securities resulting from a partial redemption of the Securities would result
in the delisting of the Preferred Securities, the Company may only redeem
Securities in whole.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1205. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at his address appearing in the
Security Register.
All notices of redemption shall identify the Securities to be redeemed
(including CUSIP number) and shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed and that
interest thereon will cease to accrue on and after said date,
(4) the place or places where such Securities are to be
surrendered for payment of the Redemption Price, and
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(5) whether, in the case of a partial redemption, such
partial redemption would result in a delisting of Preferred Securities
remaining outstanding.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1206. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Securities
which are to be redeemed on that date; provided, however, that any such deposit
on a Redemption Date shall be initiated prior to 1:00 p.m. (New York time) in
same-day funds.
SECTION 1207. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to be
redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security
shall be paid by the Company at the Redemption Price, together with accrued
interest to the Redemption Date; provided, however, that installments of
interest whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal shall, until paid, bear interest from the
Redemption Date at the rate borne by the Security.
SECTION 1208. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at a
place of payment therefor (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Security so
surrendered.
ARTICLE THIRTEEN
Expenses
SECTION 1301. Payment of Expenses.
In connection with the offering, sale and issuance of the Securities to the
Institutional Trustee and in connection with the sale of the Trust Securities
by Fremont Financing, the Company, in its capacity as borrower with respect to
the Securities, shall:
1. pay all costs and expenses relating to the offering, sale and
issuance of the Securities, includ ing commissions to the underwriters payable
pursuant to the Purchase Agree-
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ment and the Pricing Agree ment and compensation of the Trustee under the
Indenture in accordance with the provisions of Section 607 of the Indenture;
2. pay all costs and expenses of Fremont Financing (including, but
not limited to, costs and expenses relating to the organization of Fremont
Financing, the offering, sale and issuance of the Trust Securities (including
commissions to the underwriters in connection therewith), the fees and expenses
of the Institutional Trustee and the Delaware Trustee, the costs and expenses
relating to the operation of Fremont Financing, including without limitation,
costs and expenses of accountants, attorneys, statistical or bookkeeping
services, expenses for printing and engraving and computing or accounting
equipment, paying agent(s), registrar(s), transfer agent(s), duplicating,
travel and telephone and other telecommu nications expenses and costs and
expenses incurred in connection with the acquisition, financing, and
disposition of Fremont Financing assets);
3. be primarily liable for any indemnification obligations arising
with respect to the Declaration; and
4. pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and
expenses with respect to such taxes of the Trust.
SECTION 1302. Payment Upon Resignation or Removal.
Upon termination of this Indenture or the removal or resignation of the
Trustee pursuant to Section 610, the Company shall pay to the Trustee all
amounts accrued to the date of such termination, removal or resignation. Upon
termination of the Declaration or the removal or resignation of the Delaware
Trustee or the Institutional Trustee, as the case may be, pursuant to Section
5.7 of the Declaration, the Company shall pay to the Delaware Trustee or the
Institutional Trustee, as the case may be, all amounts accrued to the date of
such termination, removal or resignation.
_______________________
This instrument may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed, all as of the day and year first above written.
FREMONT GENERAL CORPORATION
By: /s/ Louis J. Rampino
----------------------------------------
Name: Louis J. Rampino
Title: Presidential and Chief Operating
Officer
Attest:
/s/ Alan W. Faigin
- ---------------------------------------
Name: Alan W. Faigin
Title: General Counsel and Secretary
FIRST INTERSTATE BANK OF CALIFORNIA
By: /s/ Vicki L. Herrick
----------------------------------------
Name: Vicki L. Herrick
Title: Assistant Vice President
51
<PAGE> 1
EXHIBIT 4.4
========================================
DECLARATION OF TRUST
FREMONT GENERAL FUNDING I
DATED AS OF DECEMBER 1, 1995
========================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.2 Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.3 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.5 Title to Property of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.6 Powers of the Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.7 Filing of Certificate of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.8 Duration of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.9 Responsibilities of the Sponsor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.1 Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.2 Regular Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.3 Delaware Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.4 Property Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV LIMITATION OF LIABILITY OF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.1 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.2 Fiduciary Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.4 Outside Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V AMENDMENTS, TERMINATION, MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5.2 Termination of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.6 Partial Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE> 3
DECLARATION OF TRUST
OF
FREMONT GENERAL FINANCING I
1995
DECLARATION OF TRUST ("Declaration") dated and effective as of
December 1, 1995 by the Trustees (as defined herein), the Sponsor (as defined
herein), and by the holders, from time to time, of undivided beneficial
interests in the Trust to be issued pursuant to this Declaration;
WHEREAS, the Trustees and the Sponsor desire to establish a
trust (the "Trust") pursuant to the Delaware Business Trust Act for the sole
purpose of issuing and selling certain securities representing undivided
beneficial interests in the assets of the Trust and investing the proceeds
thereof in certain Debentures of the Debenture Issuer; and
NOW, THEREFORE, it being the intention of the parties hereto
that the Trust constitute a business trust under the Business Trust Act and
that this Declaration constitute the governing instrument of such business
trust, the Trustees declare that all assets contributed to the Trust will be
held in trust for the benefit of the holders, from time to time, of the
securities representing undivided beneficial interests in the assets of the
Trust issued hereunder, subject to the provisions of this Declaration.
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in
the preamble above have the respective meanings assigned to
them in this Section 1.1;
(b) a term defined anywhere in this Declaration has the same
meaning throughout;
(c) all references to "the Declaration" or "this Declaration" are
to this Declaration of Trust as modified, supplemented or
amended from time to time;
<PAGE> 4
(d) all references in this Declaration to Articles and Sections
are to Articles and Sections of this Declaration unless
otherwise specified; and
(e) a reference to the singular includes the plural and vice
versa.
"Affiliate," has the same meaning as given to that term in
Rule 405 of the Securities Act or any successor rule thereunder.
"Business Day" means any day other than a day on which banking
institutions in New York, New York are authorized or required by law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code Section 3801 et seq., as it may be amended from
time to time, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Security" means a security representing an undivided
beneficial interest in the assets of the Trust with such terms as may be set
out in any amendment to this Declaration.
"Company Indemnified Person" means (a) any Regular Trustee;
(b) any Affiliate of any Regular Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Regular Trustee; or (d) any employee or agent of the Trust or its Affiliates.
"Covered Person" means (a) any officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates and (b) any holder of Securities.
"Debenture Issuer" means the Parent in its capacity as the
issuer of the Debentures under the Indenture.
"Debentures" means the series of Debentures to be issued by
the Debenture Issuer and acquired by the Trust.
"Debenture Trustee" means First Interstate Bank of California,
as trustee under the Indenture until a successor is appointed thereunder, and
thereafter means such successor trustee.
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<PAGE> 5
"Delaware Trustee" has the meaning set forth in Section 3.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time or any successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in
Section 4.3(b).
"Indemnified Person" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"Indenture" means the indenture to be entered into between the
Parent and the Debenture Trustee and any indenture supplemental thereto
pursuant to which the Debentures are to be issued.
"Parent" means Fremont General Corporation, a Nevada
corporation or any successor entity in a merger.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Preferred Security" means a security representing an
undivided beneficial interest in the assets of the Trust with such terms as may
be set out in any amendment to this Declaration.
"Regular Trustee" means any Trustee other than the Delaware
Trustee and the Institutional Trustee (as hereinafter defined).
"Securities" means the Common Securities and the Preferred
Securities.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, or any successor legislation.
"Sponsor" means the Parent in its capacity as sponsor of the
Trust.
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and
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<PAGE> 6
all other Persons who may from time to time be duly appointed, qualified and
serving as Trustees in accordance with the provisions hereof, and references
herein to a Trustee or the Trustees shall refer to such Person or Persons
solely in their capacity as trustees hereunder.
ARTICLE II
ORGANIZATION
SECTION 2.1 Name.
The Trust created by this Declaration is named "Fremont
General Financing I." The Trust's activities may be conducted under the name
of the Trust or any other name deemed advisable by the Regular Trustees.
SECTION 2.2 Office.
The address of the principal office of the Trust is c/o Fremont
General Corporation, 2020 Santa Monica Boulevard, Suite 600, Santa Monica,
California 90404. At any time, the Regular Trustees may designate another
principal office.
SECTION 2.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to
issue and sell Securities and use the proceeds from such sale to acquire the
Debentures, and (b) except as otherwise limited herein, to engage in only those
other activities necessary, or incidental thereto. The Trust shall not borrow
money, issue debt or reinvest proceeds derived from investments, pledge any of
its assets, or otherwise undertake (or permit to be undertaken) any activity
that would cause the Trust not to be classified for United States federal
income tax purposes as a grantor trust.
SECTION 2.4 Authority.
Subject to the limitations provided in this Declaration, the
Regular Trustees shall have exclusive and complete authority to carry out the
purposes of the Trust. An action taken by the Regular Trustees in accordance
with their powers shall constitute the act of and serve to bind the Trust. In
dealing with the Regular Trustees acting on behalf of the Trust, no person
shall be required to inquire into the authority of the Regular Trustees to bind
the Trust. Persons dealing with the Trust are entitled to rely conclusively on
the power and
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<PAGE> 7
authority of the Regular Trustees as set forth in this Declaration.
SECTION 2.5 Title to Property of the Trust.
Legal title to all assets of the Trust shall be vested in the
Trust.
SECTION 2.6 Powers of the Trustees.
The Regular Trustees shall have the exclusive power and
authority to cause the Trust to engage in the following activities:
(a) to issue and sell the Preferred Securities and the
Common Securities in accordance with this Declaration; provided,
however, that the Trust may issue no more than one series of Preferred
Securities and no more than one series of Common Securities, and,
provided further, that there shall be no interests in the Trust other
than the Securities and the issuance of the Securities shall be
limited to a onetime, simultaneous issuance of both Preferred
Securities and Common Securities;
(b) in connection with the issue and sale of the
Preferred Securities, at the direction of the Sponsor, to:
(i) execute and file with the Commission a
registration statement on Form S-3 prepared by the Sponsor,
including any amendments thereto in relation to the Preferred
Securities;
(ii) execute and file any documents prepared by
the Sponsor, or take any acts as determined by the Sponsor to
be necessary in order to qualify or register all or part of
the Preferred Securities in any State in which the Sponsor has
determined to qualify or register such Preferred Securities
for sale;
(iii) execute and file an application, prepared
by the Sponsor, to the New York Stock Exchange or any other
national stock exchange or the Nasdaq Stock Market's National
Market for listing upon notice of issuance of any Preferred
Securities;
(iv) execute and file with the Commission a
registration statement on Form 8A, including any amendments
thereto, prepared by the Sponsor relating to
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<PAGE> 8
the registration of the Preferred Securities under Section
12(b) of the Exchange Act; and
(v) execute and enter into an underwriting
agreement and pricing agreement providing for the sale of the
Preferred Securities;
(c) to employ or otherwise engage employees and agents
(who may be designated as officers with titles) and managers,
contractors, advisors, and consultants and provide for reasonable
compensation for such services;
(d) to incur expenses which are necessary or incidental
to carry out any of the purposes of this Declaration; and
(e) to execute all documents or instruments, perform all
duties and powers, and do all things for and on behalf of the Trust in
all matters necessary or incidental to the foregoing.
SECTION 2.7 Filing of Certificate of Trust.
On or after the date of execution of this Declaration, the
Trustees shall cause the filing of the Certificate of Trust for the Trust in
the form attached hereto as Exhibit A with the Secretary of State of the State
of Delaware.
SECTION 2.8 Duration of Trust.
The Trust, absent termination pursuant to the provisions of
Section 5.2, shall have existence for fifty-five (55) years from the date
hereof.
SECTION 2.9 Responsibilities of the Sponsor.
In connection with the issue and sale of the Preferred
Securities, the Sponsor shall have the exclusive right and responsibility to
engage in the following activities:
(a) to prepare for filing by the Trust with the
Commission a registration statement on Form S-3 in relation to the
Preferred Securities, including any amendments thereto;
(b) to determine the States in which to take appropriate
action to qualify or register for sale all or part of the Preferred
Securities and to do any and all such
6
<PAGE> 9
acts, other than actions which must be taken by the Trust, and advise
the Trust of actions it must take, and prepare for execution and
filing any documents to be executed and filed by the Trust, as the
Sponsor deems necessary or advisable in order to comply with the
applicable laws of any such States;
(c) to prepare for filing by the Trust an application to
the New York Stock Exchange or any other national stock exchange or
the Nasdaq National Market for listing upon notice of issuance of any
Preferred Securities;
(d) to prepare for filing by the Trust with the
Commission a registration statement on Form 8A relating to the
registration of the class of Preferred Securities under Section 12(b)
of the Exchange Act, including any amendments thereto; and
(e) to negotiate the terms of an underwriting agreement
and pricing agreement providing for the sale of the Preferred
Securities.
Section 2.10 Declaration Binding on Securities Holders.
Every Person by virtue of having become a holder of a Security
or any interest therein in accordance with the terms of this Declaration, shall
be deemed to have expressly assented and agreed to the terms of, and shall be
bound by, this Declaration.
ARTICLE III
TRUSTEES
SECTION 3.1 Trustees.
The number of Trustees initially shall be three (3), and
thereafter the number of Trustees shall be such number as shall be fixed from
time to time by a written instrument signed by the Sponsor. The Sponsor is
entitled to appoint or remove without cause any Trustee at any time; provided,
however, that the number of Trustees shall in no event be less than two (2);
provided further that one Trustee, in the case of a natural person, shall be a
person who is a resident of the State of Delaware or that, if not a natural
person, is an entity which maintains a principal place of business in the State
of Delaware (the "Delaware Trustee"); provided further that there shall be at
least one trustee who is an employee or officer of, or is affiliated with the
Parent (a "Regular Trustee").
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<PAGE> 10
SECTION 3.2 Regular Trustees.
The initial Regular Trustees shall be:
Louis J. Rampino
Wayne R. Bailey
(a) Except as expressly set forth in this Declaration,
any power of the Regular Trustees may be exercised by, or with the
consent of, any one such Regular Trustee.
(b) Unless otherwise determined by the Regular Trustees,
and except as otherwise required by the Business Trust Act, any
Regular Trustee is authorized to execute on behalf of the Trust any
documents which the Regular Trustees have the power and authority to
cause the Trust to execute pursuant to Section 2.6 provided, that, the
registration statement referred to in Section 2.6(b)(i), including any
amendments thereto, shall be signed by a majority of the Regular
Trustees; and
(c) a Regular Trustee may, by power of attorney
consistent with applicable law, delegate to any other natural person
over the age of 21 his or her power for the purposes of signing any
documents which the Regular Trustees have power and authority to cause
the Trust to execute pursuant to Section 2.6.
SECTION 3.3 Delaware Trustee.
The initial Delaware Trustee shall be:
The Chase Manhattan Bank (USA)
Notwithstanding any other provision of this Declaration, the
Delaware Trustee shall not be entitled to exercise any of the powers, nor shall
the Delaware Trustee have any of the duties and responsibilities of the Regular
Trustees described in this Declaration. The Delaware Trustee shall be a
Trustee for the sole and limited purpose of fulfilling the requirements of
Section 3807 of the Business Trust Act. Notwithstanding anything herein to
the contrary, the Delaware Trustee shall not be liable for the acts or
omissions to act of the Trust or of the Regular Trustees except such acts as
the Delaware Trustee is expressly obligated or authorized to undertake under
this Declaration and except for the gross negligence or willful misconduct of
the Delaware Trustee.
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<PAGE> 11
SECTION 3.4 Property Trustee.
Prior to the issuance of the Preferred Securities and Common
Securities, the Sponsor shall appoint another trustee (the "Institutional
Trustee") meeting the requirements of an eligible trustee of the Trust
Indenture Act of 1939, as amended, by the execution of an amendment to this
Declaration executed by the Regular Trustees, the Sponsor, the Institutional
Trustee and the Delaware Trustee.
Section 3.5 Not Responsible for Recitals or Sufficiency of Declaration.
The recitals contained in this Declaration shall be taken as
the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as
to the value or condition of the property of the Trust or any part thereof.
The Trustees make no representations as to the validity or sufficiency of this
Declaration.
ARTICLE IV
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 4.1 Exculpation.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person
for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith
on behalf of the Trust and in a manner such Indemnified Person
reasonably believed to be within the scope of the authority conferred
on such Indemnified Person by this Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's gross negligence
or willful misconduct with respect to such acts or omissions; and
(b) an Indemnified Person shall be fully protected in
relying in good faith upon the records of the Trust and upon such
information, opinions, reports or statements presented to the Trust by
any Person as to matters the Indemnified Person reasonably believes
are within such other Person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the
Trust, including
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<PAGE> 12
information, opinions, reports or statements as to the value and
amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which
distributions to holders of Securities might properly be paid.
SECTION 4.2 Fiduciary Duty.
(a) To the extent that, at law or in equity, an
Indemnified Person has duties (including fiduciary duties) and
liabilities relating thereto to the Trust or to any other Covered
Person, an Indemnified Person acting under this Declaration shall not
be liable to the Trust or to any other Covered Person for its good
faith reliance on the provisions of this Declaration. The provisions
of this Declaration, to the extent that they restrict the duties and
liabilities of an Indemnified Person otherwise existing at law or in
equity, are agreed by the parties hereto to replace such other duties
and liabilities of such Indemnified Person;
(b) unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or
arises between Covered Persons; or
(ii) whenever this Declaration or any other
agreement contemplated herein or therein provides that an
Indemnified Person shall act in a manner that is, or provides
terms that are, fair and reasonable to the Trust or any holder
of Securities,
the Indemnified Person shall resolve such conflict of interest, take such
action or provide such terms, considering in each case the relative interest of
each party (including its own interest) to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the Indemnified Person, the resolution, action or term so made, taken
or provided by the Indemnified Person shall not constitute a breach of this
Declaration or any other agreement contemplated herein or of any duty or
obligation of the Indemnified Person at law or in equity or otherwise; and
(c) whenever in this Declaration an Indemnified Person is
permitted or required to make a decision:
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<PAGE> 13
(i) in its "discretion" or under a grant of
similar authority, the Indemnified Person shall be entitled to
consider such interests and factors as it desires, including
its own interests, and shall have no duty or obligation to
give any consideration to any interest of or factors affecting
the Trust or any other Person; or
(ii) in its "good faith" or under another
express standard, the Indemnified Person shall act under such
express standard and shall not be subject to any other or
different standard imposed by this Declaration or by
applicable law.
SECTION 4.3 Indemnification.
(a) (i) The Debenture Issuer shall indemnify, to
the full extent permitted by law, any Company Indemnified Person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action
by or in the right of the Trust) by reason of the fact that he is or
was a Company Indemnified Person against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests
of the Trust, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the
Company Indemnified Person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was
unlawful.
(ii) The Debenture Issuer shall indemnify, to
the full extent permitted by law, any Company Indemnified
Person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit
by or in the right of the Trust to procure a judgment in its
favor by reason of the fact that he is or was a Company
Indemnified Person against expenses (including
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<PAGE> 14
attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Trust and except that no such indemnification shall be made in
respect of any claim, issue or matter as to which such Company
Indemnified Person shall have been adjudged to be liable to
the Trust unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit
was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such Court of Chancery or
such other court shall deem proper.
(iii) To the extent that a Company Indemnified
Person shall be successful on the merits or otherwise
(including dismissal of an action without prejudice or the
settlement of an action without admission of liability) in
defense of any action, suit or proceeding referred to in
paragraphs (i) and (ii) of this Section 4.3(a), or in defense
of any claim, issue or matter therein, he shall be
indemnified, to the full extent permitted by law, against
expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i)
and (ii) of this Section 4.3(a) (unless ordered by a court)
shall be made by the Debenture Issuer only as authorized in
the specific case upon a determination that indemnification of
the Company Indemnified Person is proper in the circumstances
because he has met the applicable standard of conduct set
forth in paragraphs (i) and (ii). Such determination shall be
made (1) by the Regular Trustees by a majority vote of a
quorum consisting of such Regular Trustees who were not
parties to such action, suit or proceeding, (2) if such a
quorum is not obtainable, or, even if obtainable, if a quorum
of disinterested Regular Trustees so directs, by independent
legal counsel in a written opinion, or (3) by the Common
Security Holder of the Trust.
(v) Expenses (including attorneys, fees)
incurred by a Company Indemnified Person in defending a civil,
criminal, administrative or investigative
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<PAGE> 15
action, suit or proceeding referred to in paragraphs (i) and
(ii) of this Section 4.3(a) shall be paid by the Debenture
Issuer in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on
behalf of such Company Indemnified Person to repay such amount
if it shall ultimately be determined that he is not entitled
to be indemnified by the Debenture Issuer as authorized in
this Section 4.3(a). Notwithstanding the foregoing, no advance
shall be made by the Debenture Issuer if a determination is
reasonably and promptly made (i) by the Regular Trustees by a
majority vote of a quorum of disinterested Regular Trustees,
(ii) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Regular Trustees so
directs, by independent legal counsel in a written opinion or
(iii) the Common Security Holder of the Trust, that, based
upon the facts known to the Regular Trustees, counsel or the
Common Security Holder at the time such determination is made,
such Company Indemnified Person acted in bad faith or in a
manner that such person did not believe to be in or not
opposed to the best interests of the Trust, or, with respect
to any criminal proceeding, that such Company Indemnified
Person believed or had reasonable cause to believe his conduct
was unlawful. In no event shall any advance be made in
instances where the Regular Trustees, independent legal
counsel or Common Security Holder reasonably determine that
such person deliberately breached his duty to the Trust or its
Common or Preferred Security Holders.
(vi) The indemnification and advancement of
expenses provided by, or granted pursuant to, the other
paragraphs of this Section 4.3(a) shall not be deemed
exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled
under any agreement, vote of stockholders or disinterested
directors of the Debenture Issuer or Preferred Security
Holders of the Trust or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office. All rights to indemnification under this
Section 4.3(a) shall be deemed to be provided by a contract
between the Debenture Issuer and each Company Indemnified
Person who serves in such capacity at any time while this
Section 4.3(a) is in effect. Any repeal or
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<PAGE> 16
modification of this Section 4.3(a) shall not affect any
rights or obligations then existing.
(vii) The Debenture Issuer or the Trust may
purchase and maintain insurance on behalf of any person who is
or was a Company Indemnified Person against any liability
asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the
Debenture Issuer would have the power to indemnify him against
such liability under the provisions of this Section 4.3(a).
(viii) For purposes of this Section 4.3(a),
references to "the Trust" shall include, in addition to the
resulting or surviving entity, any constituent entity
(including any constituent of a constituent) absorbed in a
consolidation or merger, so that any person who is or was a
director, trustee, officer or employee of such constituent
entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee
or agent of another entity, shall stand in the same position
under the provisions of this Section 4.3(a) with respect to
the resulting or surviving entity as he would have with
respect to such constituent entity if its separate existence
had continued.
(ix) The indemnification and advancement of
expenses provided by, or granted pursuant to, this Section
4.3(a) shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a
Company Indemnified Person and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(b) The Debenture Issuer agrees to indemnify the (i) the
Delaware Trustee, (ii) any Affiliate of the Delaware Trustee, and
(iii) any officers, directors, shareholders, members, partners,
employees, representatives, nominees, custodians or agents of the
Delaware Trustee (each of the Persons in (i) through (iii) being
referred to as a "Fiduciary Indemnified Person") for, and to hold each
Fiduciary Indemnified Person harmless against, any loss, liability or
expense incurred without gross negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses
(including reasonable legal fees and expenses) of defending itself
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<PAGE> 17
against, or investigating, any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder.
The obligation to indemnify as set forth in this Section 4.3(b) shall
survive the termination of this Declaration.
SECTION 4.4 Outside Businesses.
Any Covered Person, the Sponsor and the Delaware Trustee may
engage in or possess an interest in other business ventures of any nature or
description, independently or with others, similar or dissimilar to the
business of the Trust, and the Trust and the holders of Securities shall have
no rights by virtue of this Declaration in and to such independent ventures or
the income or profits derived therefrom and the pursuit of any such venture,
even if competitive with the business of the Trust, shall not be deemed
wrongful or improper. No Covered Person, the Sponsor or the Delaware Trustee
shall be obligated to present any particular investment or other opportunity to
the Trust even if such opportunity is of a character that, if presented to the
Trust, could be taken by the Trust, and any Covered Person, the Sponsor and the
Delaware Trustee shall have the right to take for its own account (individually
or as a partner or fiduciary) or to recommend to others any such particular
investment or other opportunity. Any Covered Person and the Delaware Trustee
may engage or be interested in any financial or other transaction with the
Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee
or agent for or may act on any committee or body of holders of, securities or
other obligations of the Sponsor or its Affiliates.
ARTICLE V
AMENDMENTS, TERMINATION, MISCELLANEOUS
SECTION 5.1 Amendments.
At any time before the issue of any Securities, this
Declaration may be amended by, and only by, a written instrument executed by
all of the Trustees and the Sponsor.
SECTION 5.2 Termination of Trust.
(a) The Trust shall terminate and be of no further force
or effect:
(i) upon the bankruptcy of the Sponsor;
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<PAGE> 18
(ii) upon the filing of a certificate of
dissolution or its equivalent with respect to the Sponsor or
the revocation of the Sponsor's charter or of the Trust's
certificate of trust;
(iii) upon the entry of a decree of judicial
dissolution of the Sponsor, or the Trust; and
(iv) before the issue of any Securities, with
the consent of all of the Regular Trustees and the Sponsor; and
(b) as soon as is practicable after the occurrence of an
event referred to in Section 5.2(a), the Trustees shall file a
certificate of cancellation with the Secretary of State of the State
of Delaware.
SECTION 5.3 Governing Law.
This Declaration and the rights of the parties hereunder shall
be governed by and interpreted in accordance with the laws of the State of
Delaware and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
SECTION 5.4 Headings.
Headings contained in this Declaration are inserted for
convenience of reference only and do not affect the interpretation of this
Declaration or any provision hereof.
SECTION 5.5 Successors and Assigns.
Whenever in this Declaration any of the parties hereto is
named or referred to, the successors and assigns of such party shall be deemed
to be included, and all covenants and agreements in this Declaration by the
Sponsor and the Trustees shall bind and inure to the benefit of their
respective successors and assigns, whether so expressed.
SECTION 5.6 Partial Enforceability.
If any provision of this Declaration, or the application of
such provision to any Person or circumstance, shall be held invalid, the
remainder of this Declaration, or the application of such provision to persons
or circumstances other
16
<PAGE> 19
than those to which it is held invalid, shall not be affected thereby.
SECTION 5.7 Counterparts.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
17
<PAGE> 20
IN WITNESS WHEREOF, the undersigned has caused these
presents to be executed as of the day and year first above written.
/s/ Louis J. Rampino
-----------------------------------
Name: Louis J. Rampino
Title: Regular Trustee
/s/ Wayne R. Bailey
-----------------------------------
Name: Wayne R. Bailey
Title: Regular Trustee
The Chase Manhattan Bank (USA), as
Delaware Trustee
By: /s/ John W. Mack
--------------------------------
Name: John W. Mack
Title: Second Vice President
FREMONT GENERAL CORPORATION,
as Sponsor
By: /s/ Wayne R. Bailey
-------------------------------
Name: Wayne R. Bailey,
Title: Executive Vice-
President and Chief
Financial Officer
18
<PAGE> 1
EXHIBIT 4.5
=============================================================================
AMENDED AND RESTATED DECLARATION OF TRUST
FREMONT GENERAL FINANCING I
DATED AS OF MARCH 6, 1996
=============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - INTERPRETATION AND DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - TRUST INDENTURE ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.1 Trust Indenture Act; Application . . . . . . . . . . . . . . . . . . . . 7
Section 2.2 Lists of Holders of Securities . . . . . . . . . . . . . . . . . . . . . 8
Section 2.3 Reports by the Institutional Trustee . . . . . . . . . . . . . . . . . . 8
Section 2.4 Periodic Reports to Institutional Trustee . . . . . . . . . . . . . . . . 8
Section 2.5 Evidence of Compliance with Conditions Precedent . . . . . . . . . . . . 9
Section 2.6 Events of Default; Waiver . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.7 Event of Default; Notice . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III - ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.2 Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.3 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.5 Title to Property of the Trust . . . . . . . . . . . . . . . . . . . . . 12
Section 3.6 Powers and Duties of the Regular Trustees . . . . . . . . . . . . . . . . 12
Section 3.7 Prohibition of Actions by the Trust and the Trustees . . . . . . . . . . 15
Section 3.8 Powers and Duties of the Institutional Trustee . . . . . . . . . . . . . 15
Section 3.9 Certain Duties and Responsibilities of the Institutional Trustee . . . . 17
Section 3.10 Certain Rights of Institutional Trustee . . . . . . . . . . . . . . . . . 19
Section 3.11 Delaware Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.12 Execution of Documents . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.13 Not Responsible for Recitals or Issuance of Securities . . . . . . . . . 21
Section 3.14 Duration of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.15 Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.16 Filing of Amendments to Certificate of Trust . . . . . . . . . . . . . . 23
ARTICLE IV - SPONSOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.1 Sponsor's Purchase of Common Securities . . . . . . . . . . . . . . . . . 23
Section 4.2 Responsibilities of the Sponsor . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE V - TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.1 Number of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.2 Delaware Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.3 Institutional Trustee; Eligibility . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.4 Certain Qualifications of Regular Trustees and Delaware Trustee Generally . . . . 26
Section 5.5 Regular Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.6 Delaware Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.7 Appointment, Removal and Resignation of Trustees . . . . . . . . . . . . . . . . 26
Section 5.8 Vacancies Among Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.9 Effect of Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.10 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.11 Delegation of Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.12 Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . 29
ARTICLE VI - DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.1 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VII - ISSUANCE OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.1 General Provisions Regarding Securities . . . . . . . . . . . . . . . . . . . . . 30
Section 7.2 Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VIII - TERMINATION OF TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.1 Termination of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE IX - TRANSFER OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.1 Transfer of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.2 Transfer of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.3 Deemed Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.4 Book Entry Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.5 Notices to Clearing Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.6 Appointment of Successor Clearing Agency . . . . . . . . . . . . . . . . . . . . 34
Section 9.7 Definitive Preferred Security Certificates . . . . . . . . . . . . . . . . . . . 34
Section 9.8 Mutilated, Destroyed, Lost or Stolen Certificates . . . . . . . . . . . . . . . . 34
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE X - LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS . . . . . . . 35
Section 10.1 Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.2 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.3 Fiduciary Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 10.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 10.5 Outside Businesses . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XI - ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 11.1 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 11.2 Certain Accounting Matters . . . . . . . . . . . . . . . . . . . . . 40
Section 11.3 Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 11.4 Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XII - AMENDMENTS AND MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 12.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 12.2 Meeting of the Holders of Securities; Action by Written Consent . . 43
ARTICLE XIII - REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE . . . . . . . . . 44
Section 13.1 Representations and Warranties of Institutional Trustee . . . . . . 44
Section 13.2 Representations and Warranties of Delaware Trustee . . . . . . . . . 45
ARTICLE XIV - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 14.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 14.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 14.3 Intention of the Parties . . . . . . . . . . . . . . . . . . . . . . 47
Section 14.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 14.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 47
Section 14.6 Partial Enforceability . . . . . . . . . . . . . . . . . . . . . . . 47
Section 14.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ANNEX I TERMS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
EXHIBIT A-1 FORM OF PREFERRED SECURITY CERTIFICATE . . . . . . . . . . . . . . . . . A1-1
EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE . . . . . . . . . . . . . . . . . . A2-1
EXHIBIT B SPECIMEN OF DEBENTURE . . . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C UNDERWRITING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . C-1
</TABLE>
-iv-
<PAGE> 6
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
SECTION OF TRUST INDENTURE ACT SECTION OF
OF 1939, AS AMENDED DECLARATION
------------------------------ -------------
<S> <C>
310(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3(a)
310(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
311(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(a)
312(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
313 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
314(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
314(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(b)
315(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(a)
315(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(a)
316(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex I
316(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6(e)
</TABLE>
* This Cross-Reference Table does not constitute part of the Declaration
and shall not affect the interpretation of any of its terms or
provisions.
-v-
<PAGE> 7
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
FREMONT GENERAL FINANCING I
As of March 6, 1996
This AMENDED AND RESTATED DECLARATION OF TRUST (this "Declaration")
dated and effective as of March 6, 1996, is made by the Trustees (as defined
herein), the Sponsor (as defined herein) and the holders, from time to time, of
undivided beneficial interests in the Trust to be issued pursuant to this
Declaration;
WHEREAS, the Trustees and the Sponsor established Fremont General
Financing I (the "Trust"), a statutory business trust under the Business Trust
Act (as defined herein) pursuant to a Declaration of Trust dated as of
December 1, 1995 (the "Original Declaration") (as defined herein) and a
Certificate of Trust filed with the Secretary of State of the State of Delaware
on December 4, 1995 (the "Certificate of Trust"), for the sole purpose of
issuing and selling certain securities representing undivided beneficial
interests in the assets of the Trust and investing the proceeds thereof in
certain Debentures of the Debenture Issuer (as such terms are defined below);
WHEREAS, as of the date hereof, no interests in the Trust have been
issued;
WHEREAS, all of the Trustees and the Sponsor, by this Declaration,
amend and restate each and every term and provision of the Original
Declaration; and
NOW, THEREFORE, it being the intention of the parties hereto that the
Trust continue as a statutory business trust under the Business Trust Act (as
defined below) and that this Declaration constitute the governing instrument of
such statutory business trust, the Trustees hereby declare that all assets
contributed to the Trust will be held in trust for the benefit of the holders,
from time to time, of the securities representing undivided beneficial
interests in the assets of the Trust issued or to be issued hereunder, subject
to the provisions of this Declaration.
ARTICLE I
INTERPRETATION AND DEFINITIONS
Section 1.1 Definitions.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not
defined in the preamble above have the respective meanings assigned to them in
this Section 1.1;
(b) a term defined anywhere in this Declaration has the
same meaning throughout;
<PAGE> 8
(c) all references to "the Declaration" or "this
Declaration" are to this Declaration as modified, supplemented or amended from
time to time in accordance with the terms hereof;
(d) all references in this Declaration to Articles and
Sections and Annexes and Exhibits are to Articles and Sections of and Annexes
and Exhibits to this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the
same meaning when used in this Declaration unless otherwise defined in this
Declaration or unless the context otherwise requires; and
(f) a reference to the singular includes the plural and
vice versa.
"Affiliate" has the same meaning as given to that term in Rule
405 of the Securities Act or any successor rule thereunder.
"Authorized Officer" of a Person means any Person that is
authorized to bind such Person.
"Book Entry Interest" means a beneficial interest in a Global
Certificate, ownership and transfers of which shall be maintained and made
through book entries by a Clearing Agency as described in Section 9.4.
"Business Day" means any day other than a day on which banking
institutions in New York, New York are authorized or required by law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C Section 3801 et. seq., as it may be amended from time
to time, or any successor legislation.
"Certificate" means a Common Security Certificate or a
Preferred Security Certificate.
"Clearing Agency" means an organization registered as a
"Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as
depositary for the Preferred Securities and in whose name or in the name of a
nominee of that organization shall be registered a Global Certificate and which
shall undertake to effect book entry transfers and pledges of the Preferred
Securities.
"Clearing Agency Participant" means a broker, dealer, bank,
other financial institution or other Person for whom from time to time the
Clearing Agency effects book entry transfers and pledges of securities
deposited with the Clearing Agency.
"Closing Date" means the Closing Time and each subsequent
"Date of Delivery" under the Purchase Agreement.
"Closing Time" means 7:00 a.m. on March 6, 1996.
-2-
<PAGE> 9
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Securities Guarantee" means the guarantee agreement
dated or to be dated as of March 6, 1996 by the Sponsor in respect of the
obligations of the Trust under the Common Securities.
"Common Security" has the meaning specified in Section 7.1.
"Common Security Certificate" means a definitive certificate
in fully registered form representing a Common Security substantially in the
form of Exhibit A-2.
"Company Indemnified Person" means (a) any Regular Trustee;
(b) any Affiliate of any Regular Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Regular Trustee; or (d) any officer, employee or agent of the Trust or its
Affiliates.
"Corporate Trust Office" means the office of the Institutional
Trustee at which the corporate trust business of the Institutional Trustee
shall, at any particular time, be principally administered, which office at
the date of execution of this Declaration is located at The Chase Manhattan
Bank, N.A., 4 Chase MetroTech Center, Brooklyn, N.Y. 11245, Attention:
Institutional Trust Group, Telecopy: (718) 242-5885.
"Covered Person" means: (a) any officer, director,
shareholder, partner, member, representative, employee or agent of (i) the
Trust or (ii) the Trust's Affiliates; and (b) any Holder of Securities.
"Debenture Issuer" means Fremont General Corporation, a Nevada
corporation, in its capacity as issuer of the Debentures under the Indenture.
"Debenture Trustee" means First Interstate Bank of California,
a California banking corporation, as trustee under the Indenture until a
successor is appointed thereunder, and thereafter means such successor trustee.
"Debentures" means the series of debentures to be issued by
the Debenture Issuer under the Indenture to be held by the Institutional
Trustee, each in substantially the form of the specimen certificate attached
hereto as Exhibit B.
"Delaware Trustee" has the meaning set forth in Section 5.2.
"Definitive Preferred Security Certificates" has the meaning
set forth in Section 9.4.
"Distribution" means a distribution of any kind payable to
Holders of Securities in accordance with Section 6.1.
-3-
<PAGE> 10
"DTC" means The Depository Trust Company, which is acting as
the initial Clearing Agency.
"Event of Default" in respect of the Securities means any
Event of Default (as defined in the Indenture) in respect of the Debentures
that has occurred and is continuing.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in
Section 10.4(b).
"Global Certificate" has the meaning set forth in Section 9.4.
"Holder" means a Person in whose name a Certificate
representing a Security is registered, such Person being a beneficial owner
within the meaning of the Business Trust Act.
"Indemnified Person" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"Indenture" means the Indenture dated as of March 6, 1996, by
and between the Debenture Issuer and the Debenture Trustee pursuant to which
the Debentures are to be issued, as such indenture may be amended or
supplemented from time to time in accordance with the terms thereof.
"Institutional Trustee" means the Trustee meeting the
eligibility requirements set forth in Section 5.3.
"Institutional Trustee Account" has the meaning set forth in
Section 3.8(c).
"Investment Company" means an investment company as defined in
the Investment Company Act.
"Investment Company Act" means the Investment Company Act of
1940, as amended from time to time, or any successor legislation.
"Legal Action" has the meaning set forth in Section 3.6(g).
"Majority in Liquidation Amount of the Common Securities"
means, except as otherwise provided in the Trust Indenture Act, Holder(s) of
outstanding Common Securities who are the record owners of more than 50% of the
aggregate liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all outstanding
Common Securities.
-4-
<PAGE> 11
"Majority in Liquidation Amount of the Preferred Securities"
means, except as otherwise provided in the terms of the Preferred Securities or
by the Trust Indenture Act, Holder(s) of outstanding Preferred Securities who
are the record owners of more than 50% of the aggregate liquidation amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) of all outstanding Preferred Securities.
"Majority in Liquidation Amount of the Securities" means,
except as otherwise provided in the terms of the Preferred Securities or by the
Trust Indenture Act, Holder(s) of outstanding Securities, voting together as a
single class, who are the record owners of more than 50% of the aggregate
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all outstanding
Securities.
"Ministerial Action" has the meaning set forth in the terms of
the Securities as set forth in Annex I.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Declaration shall include:
(a) a statement that each officer signing the Certificate has read
the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the Certificate;
(c) a statement that each such officer has made such examination
or investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Paying Agent" has the meaning specified in Section 7.2.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, business trust, unincorporated
association, or government or any agency or political subdivision thereof, or
any other entity of whatever nature.
"Preferred Securities Guarantee" means the guarantee agreement
dated or to be dated as of March 6, 1996, by the Sponsor in respect of the
obligations of the Trust under the Preferred Securities.
-5-
<PAGE> 12
"Preferred Security" has the meaning specified in Section 7.1.
"Preferred Security Beneficial Owner" means, with respect to a
Book Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of
a Person maintaining an account with such Clearing Agency (directly as a
Clearing Agency Participant or as an indirect participant, in each case in
accordance with the rules of such Clearing Agency).
"Preferred Security Certificate" means a certificate in fully
registered form representing a Preferred Security substantially in the form of
Exhibit A-1.
"Pricing Agreement" means the pricing agreement entered into
pursuant to the Purchase Agreement between the Trust, the Debenture Issuer, and
the underwriters designated by the Regular Trustees governing the terms of the
offer and sale of the Preferred Securities.
"Purchase Agreement" means the Purchase Agreement for the
offering and sale of Preferred Securities in substantially the form of Exhibit
C.
"Quorum" means a majority of the Regular Trustees or, if there
are only two Regular Trustees, both of them.
"Regular Trustee" has the meaning set forth in Section 5.1.
"Related Party" means, with respect to the Sponsor, any direct
or indirect wholly owned subsidiary of the Sponsor or any other Person that
owns, directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"Responsible Officer" means, with respect to the Institutional
Trustee, any officer within the Corporate Trust Office of the Institutional
Trustee, including any vice-president, any assistant vice-president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer or
other officer of the Corporate Trust Office of the Institutional Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of that
officer's knowledge of and familiarity with the particular subject.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act.
"Securities" means the Common Securities and the Preferred
Securities.
"Securities Act" means the Securities Act of 1933, as amended
from time to time or any successor legislation.
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"Sponsor" means Fremont General Corporation, a Nevada
corporation, or any successor entity in a merger, consolidation or
amalgamation, in its capacity as sponsor of the Trust.
"Successor Delaware Trustee" has the meaning specified in
Section 5.7(c).
"Successor Institutional Trustee" has the meaning specified
in Section 5.7(b).
"Tax Event" has the meaning set forth in Annex I hereto.
"10% in Liquidation Amount of the Securities" means, except as
otherwise provided in the terms of the Preferred Securities or by the Trust
Indenture Act, Holder(s) of outstanding Securities voting together as a single
class, or, as the context may require, Holder(s) of outstanding Preferred
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of 10% or more of the aggregate liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date
upon which the voting percentages are determined) of all outstanding Securities
of the relevant class, or classes.
"Treasury Regulations" means the income tax regulations,
including temporary and proposed regulations, promulgated under the Code by the
United States Treasury, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with
the provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended from time to time, or any successor legislation.
ARTICLE II
TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration and shall, to
the extent applicable, be governed by such provisions.
(b) The Institutional Trustee shall be the only Trustee which is a
"Trustee" for the purposes of the Trust Indenture Act.
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(c) If and to the extent that any provision of this Declaration
limits, qualifies or conflicts with the duties imposed by Sections 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
(d) The application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
Section 2.2 Lists of Holders of Securities.
(a) Each of the Sponsor and the Regular Trustees on behalf of the
Trust shall provide the Institutional Trustee (i) within 14 days after each
record date for payment of Distributions, a list, in such form as the
Institutional Trustee may reasonably require, of the names and addresses of the
Holders of the Securities ("List of Holders") as of such record date, and (ii)
at any other time, within 30 days of receipt by the Trust of a written request
for a List of Holders as of a date no more than 14 days before such List of
Holders is given to the Institutional Trustee; provided that neither the
Sponsor nor the Regular Trustees on behalf of the Trust shall be obligated to
provide such List of Holders if at any time (A) the Securities are represented
by one or more Global Certificates, or (B) the List of Holders does not differ
from the most recent List of Holders given to the Institutional Trustee by the
Sponsor and the Regular Trustees on behalf of the Trust. The Institutional
Trustee shall preserve, in as current a form as is reasonably practicable, all
information contained in Lists of Holders given to it or which it receives in
the capacity as Paying Agent (if acting in such capacity); provided that the
Institutional Trustee may destroy any List of Holders previously given to it on
receipt of a new List of Holders.
(b) The Institutional Trustee shall comply with its obligations
under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
Section 2.3 Reports by the Institutional Trustee.
Within 60 days after May 1 of each year, the Institutional Trustee
shall provide to the Holders of the Preferred Securities such reports as are
required by Section 313 of the Trust Indenture Act, if any, in the form and in
the manner provided by Section 313 of the Trust Indenture Act. The
Institutional Trustee shall also comply with the requirements of Section
313(d) of the Trust Indenture Act.
Section 2.4 Periodic Reports to Institutional Trustee.
Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Institutional Trustee such documents, reports and
information as required by Section 314 (if any) and the compliance certificate
required by Section 314 of the Trust Indenture Act in the form, in the manner
and at the times required by Section 314 of the Trust Indenture Act.
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Section 2.5 Evidence of Compliance with Conditions Precedent.
Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Institutional Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act.
Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) may be given in the form of an Officers' Certificate.
Section 2.6 Events of Default; Waiver.
(a) The Holders of a Majority in Liquidation Amount of the
Preferred Securities may, by vote, on behalf of the Holders of all of the
Preferred Securities, waive any past Event of Default in respect of the
Preferred Securities and its consequences (which waiver may be retroactive to
the date on which such Event of Default occurred); provided that, if the
underlying Event of Default under the Indenture is not waivable under the
Indenture, the consequent Event of Default under this Declaration shall also
not be waivable.
The foregoing provisions of this Section 2.6(a) shall be in lieu of
Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B)
of the Trust Indenture Act is hereby expressly excluded from this Declaration
and the Securities, as permitted by the Trust Indenture Act. Upon such waiver,
any such default shall cease to exist, and any Event of Default with respect to
the Preferred Securities arising therefrom shall be deemed to have been cured,
for every purpose of this Declaration from the stated effective date of such
waiver, but no such waiver shall extend to any subsequent or other default or
Event of Default with respect to the Preferred Securities or impair any right
or remedy of the Holders of the Preferred Securities consequent thereon. Any
waiver by the Holders of the Preferred Securities of an Event of Default with
respect to the Preferred Securities shall also be deemed to constitute a waiver
by the Holders of the Common Securities of any such Event of Default with
respect to the Common Securities for all purposes of this Declaration from the
stated effective date of such waiver without any further act, vote, or consent
of the Holders of the Common Securities.
(b) The Holders of a Majority in Liquidation Amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences; provided that, if the underlying Event of
Default under the Indenture is not waivable under the Indenture, except where
the Holders of the Common Securities are deemed to have waived such Event of
Default under this Declaration as provided above in Section 2.6(a) or below in
this Section 2.6(b), the Event of Default under this Declaration shall also not
be waivable; provided, further, that each Holder of Common Securities will be
deemed to have waived all Events of Default and all consequences thereof with
respect to the Common Securities until all Events of Default with respect to
the Preferred Securities have been cured, waived or otherwise eliminated, and
until such Events of Default with respect to the Preferred Securities have been
so cured, waived or other wise eliminated, the Institutional Trustee will be
deemed to be acting solely on behalf of the Holders of the Preferred Securities
and only the Holders of the Preferred Securities will have the right to direct
the Institutional Trustee in accordance with the terms of the Securities. The
foregoing provisions of this
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Section 2.6(b) shall be in lieu of Sections 316(a)(1)(A) and 316(a)(1)(B) of the
Trust Indenture Act and such Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust
Indenture Act are hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act. Subject to the foregoing
provisions of this Section 2.6(b), upon any waiver by the Holders of the
Majority Liquidation Amount of the Preferred Securities or by the Holders of the
Majority Liquidation Amount of the Common Securities, any such default shall
cease to exist and any Event of Default with respect to the Common Securities
arising therefrom shall be deemed to have been cured for every purpose of this
Declaration from the stated effective date of such waiver, but no such waiver
shall extend to any subsequent or other default or Event of Default with respect
to the Common Securities or impair any right or remedy of the Holders of the
Common Securities consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Institutional Trustee at the direction of the Holders of the Preferred
Securities constitutes a waiver of the corresponding Event of Default under
this Declaration. The foregoing provisions of this Section 2.6(c) shall be in
lieu of Section 316(a)(1)(B) of the Trust Indenture Act and such Section
316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this
Declaration and the Securities, as permitted by the Trust Indenture Act.
Section 2.7 Event of Default; Notice.
(a) The Institutional Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Securities, notices of all defaults with respect
to the Securities actually known to a Responsible Officer of the Institutional
Trustee, unless such defaults have been cured before the giving of such notice
(the term "defaults" for the purposes of this Section 2.7(a) being hereby
defined to be an Event of Default as defined in the Indenture, not including
any periods of grace provided for therein and irrespective of the giving of any
notice provided therein); provided that, except for a default in the payment of
principal of (or premium, if any) or interest on any of the Debentures or in
the payment of any sinking fund installment established for the Debentures, the
Institutional Trustee shall be protected in withholding such notice if and so
long as a Responsible Officer of the Institutional Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Securities.
(b) The Institutional Trustee shall not be deemed to have
knowledge of any default except:
(i) a default under Sections 501(1) and 501(2) of the
Indenture; or
(ii) any default as to which the Institutional Trustee
shall have received written notice or of which a Responsible Officer of the
Institutional Trustee charged with the administration of this Declaration shall
have actual knowledge.
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ARTICLE III
ORGANIZATION
Section 3.1 Name.
The Trust continued by this Declaration is named "Fremont General
Financing I," as such name may be modified from time to time by the Regular
Trustees following written notice to the Holders of Securities. The Trust's
activities may be conducted under the name of the Trust or any other name
deemed advisable by the Regular Trustees.
Section 3.2 Office.
The address of the principal office of the Trust is c/o Fremont
General Corporation, 2020 Santa Monica Boulevard, Suite 600, Santa Monica,
California 90404. On ten Business Days' prior written notice to the Holders of
Securities, the Regular Trustees may designate another principal office.
Section 3.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to issue and
sell Securities and use the proceeds from such sale to acquire the Debentures,
(b) to enter into such agreements and arrangements as may be necessary in
connection with the sale of the Securities (including the Purchase Agreement
and the Pricing Agreement) and to take all action, and exercise such
discretion, as may be necessary or desirable in connection therewith and to
file such registration statements or make such other filings under the
Securities Act, the Exchange Act or state securities or "Blue Sky" laws as may
be necessary or desirable in connection therewith, and (c) except as otherwise
limited herein, to engage in only those other activities necessary to effect
the foregoing, or incidental thereto. The Trust shall not borrow money, issue
debt or reinvest proceeds derived from investments, pledge any of its assets,
or otherwise undertake (or permit to be undertaken) any activity that would
cause the Trust not to be classified for United States federal income tax
purposes as a grantor trust.
Section 3.4 Authority.
Subject to the limitations provided in this Declaration and to the
specific duties of the Institutional Trustee, the Regular Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. An
action taken by the Regular Trustees in accordance with their powers shall
constitute the act of, and serve to bind, the Trust and an action taken by the
Institutional Trustee on behalf of the Trust in accordance with its powers
shall constitute the act of, and serve to bind, the Trust. In dealing with the
Trustees acting on behalf of the Trust, no Person shall be required to inquire
into the authority of the Trustees to bind the Trust. Persons dealing with the
Trust are entitled to rely conclusively on the power and authority of the
Trustees as set forth in this Declaration.
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Section 3.5 Title to Property of the Trust.
Except as provided in Section 3.8 with respect to the Debentures and
the Institutional Trustee Account or as otherwise provided in this Declaration,
legal title to all assets of the Trust shall be vested in the Trust. The
Holders shall not have legal title to any part of the assets of the Trust, but
shall each have an undivided beneficial interest in the assets of the Trust.
Section 3.6 Powers and Duties of the Regular Trustees.
The Regular Trustees shall have the exclusive power, duty and
authority to cause the Trust, and shall cause the Trust, to engage in the
following activities:
(a) to issue and sell the Preferred Securities and the Common
Securities in accordance with this Declaration; provided, however, that the
Trust may issue no more than one series of Preferred Securities and no more
than one series of Common Securities, and, provided, further, that there shall
be no interests in the Trust other than the Securities, and the issuance of
Securities shall be limited to a simultaneous issuance of both Preferred
Securities and Common Securities on each Closing Date;
(b) in connection with the issue and sale of the Preferred
Securities, at the direction of the Sponsor:
(i) to execute and file with the Commission the
registration statement on Form S-3 prepared by the Sponsor and the Trust,
including any amendments thereto, pertaining to the Preferred Securities;
(ii) to execute and file any documents prepared by the
Sponsor, or take any acts as determined by the Sponsor on behalf of the Trust
to be necessary in order to qualify or register all or part of the Preferred
Securities in any State in which the Sponsor has determined to qualify or
register such Preferred Securities for sale;
(iii) to execute and file an application, prepared by the
Sponsor, to the New York Stock Exchange, Inc. or any other national stock
exchange or the Nasdaq Stock Market's National Market for listing upon notice
of issuance of any Preferred Securities and all other applications, statements,
certificates, agreements and other instruments as shall be necessary or
desirable to effect such listing;
(iv) to execute and file with the Commission a
registration statement on Form 8-A, including any amendments thereto, prepared
by the Sponsor, relating to the registration of the Preferred Securities under
Section 12(b) of the Exchange Act; and
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(v) to execute and enter into, on behalf of the Trust,
the Purchase Agreement and Pricing Agreement providing for the sale of the
Preferred Securities, and from time to time to execute and enter into, on
behalf of the Trust, such other agreements and arrangements as may be necessary
or desirable in connection with the sale of the Securities to the initial
purchasers thereof and the consummation thereof, and to take all action, and
exercise all discretion, as may be necessary or desirable in connection with
the consummation thereof;
(c) to acquire as Trust assets the Debentures with the proceeds of
the sale of the Preferred Securities and the Common Securities; provided,
however, that the Regular Trustees shall cause legal title to the Debentures to
be vested in and held of record in the name of, the Institutional Trustee for
the benefit of the Holders of the Preferred Securities and the Holders of
Common Securities, as their respective interests appear;
(d) to give the Sponsor and the Institutional Trustee prompt
written notice of the occurrence of a Tax Event; provided that the Regular
Trustees shall consult with the Sponsor and the Institutional Trustee before
taking or refraining from taking any Ministerial Action in relation to a Tax
Event;
(e) to establish a record date with respect to all actions to be
taken hereunder that require a record date be established, including and with
respect to, for the purposes of Section 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Preferred Securities and Holders of Common Securities
as to such actions and applicable record dates;
(f) to take all actions and perform such duties as may be required
of the Regular Trustees pursuant to the terms of the Securities;
(g) to bring or defend, pay, collect, compromise, arbitrate,
resort to legal action, or otherwise adjust claims or demands of or against the
Trust ("Legal Action"), unless pursuant to Section 3.8(e), the Institutional
Trustee has the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and pay reasonable compensation for such services;
(i) to cause the Trust to comply with the Trust's obligations
under the Trust Indenture Act;
(j) to give the certificate required by Section 314(a)(4) of the
Trust Indenture Act to the Institutional Trustee, which certificate may be
executed by any Regular Trustee;
(k) to incur reasonable expenses that are necessary or incidental
to carry out any of the purposes of the Trust;
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(l) to act as, or appoint another Person to act as, registrar and
transfer agent for the Securities;
(m) to give prompt written notice to the Holders of the Securities
of any notice received from the Debenture Issuer of its election to defer
payments of interest on the Debentures by extending the interest payment period
under the Indenture;
(n) to execute all documents or instruments, perform all duties
and powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing;
(o) to take all action that may be necessary or appropriate for
the preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Preferred
Securities or to enable the Trust to effect the purposes for which the Trust
was created;
(p) to take any action, not inconsistent with this Declaration or
with applicable law, that the Regular Trustees determine in their discretion to
be necessary or desirable in carrying out the activities of the Trust as set
out in this Section 3.6, including, but not limited to:
(i) causing the Trust not to be deemed to be an
Investment Company required to be registered under the Investment Company Act;
(ii) causing the Trust to be classified for United States
federal income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure that
the Debentures will be treated as indebtedness of the Debenture Issuer for
United States federal income tax purposes;
provided that such action does not adversely affect the interests of
Holders; and
(q) to take all action necessary to cause all applicable tax
returns and tax information reports that are required to be filed with respect
to the Trust to be duly prepared and filed by the Regular Trustees, on behalf
of the Trust.
The Regular Trustees must exercise the powers set forth in this
Section 3.6 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Regular Trustees shall not take any
action that is inconsistent with the purposes and functions of the Trust set
forth in Section 3.3.
Except as otherwise specifically set forth in this Section 3.6, the
Regular Trustees shall have none of the powers or the authority of the
Institutional Trustee set forth in Section 3.8.
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Any expenses incurred by the Regular Trustees pursuant to this Section
3.6 shall be reimbursed by the Debenture Issuer.
Section 3.7 Prohibition of Actions by the Trust and the Trustees.
(a) The Trust shall not, and the Trustees (including the
Institutional Trustee) shall not permit the Trust to, engage in any activity
other than as required or authorized by this Declaration. In particular, the
Trust shall not and the Trustees (including the Institutional Trustee) shall
not cause the Trust to:
(i) invest any proceeds received by the Trust from
holding the Debentures, but shall distribute all such proceeds to Holders of
Securities pursuant to the terms of this Declaration and of the Securities;
(ii) acquire any assets other than as expressly provided
herein;
(iii) possess Trust property for other than a permitted
Trust purpose;
(iv) make any loans or incur any indebtedness other than
loans represented by the purchase of the Debentures;
(v) exercise any power or otherwise act in such a way as
to vary the Trust assets or the terms of the Securities in any way whatsoever;
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the Securities;
or
(vii) other than as provided in this Declaration or Annex
I, (A) direct the time, method and place of exercising any trust or power
conferred upon the Debenture Trustee with respect to the Debentures, (B) waive
any past default that is waivable under the Indenture, (C) exercise any right
to rescind or annul any declaration that the principal of all the Debentures
shall be due and payable, or (D) consent to any amendment, supplement,
modification or termination of the Indenture or the Debentures where such
consent shall be required unless the Regular Trustees shall have received an
opinion of counsel to the effect that any such amendment, supplement,
modification or termination will not cause more than an insubstantial risk that
for United States federal income tax purposes the Trust will not be classified
as a grantor trust.
Section 3.8 Powers and Duties of the Institutional Trustee.
(a) The legal title to the Debentures shall be owned by and held
of record in the name of the Institutional Trustee in trust for the benefit of
the Holders of the Securities. The right, title and interest of the
Institutional Trustee to the Debentures shall vest automatically in each Person
who may hereafter be appointed as Institutional Trustee in accordance with
Section 5.7. Such vesting and cessation of title
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shall be effective whether or not conveyancing documents with regard to the
Debentures have been executed and delivered.
(b) The Institutional Trustee shall not transfer its right, title
and interest in the Debentures to the Regular Trustees or to the Delaware
Trustee (if the Institutional Trustee does not also act as Delaware Trustee).
(c) The Institutional Trustee shall:
(i) establish and maintain a segregated non-interest
bearing trust account (the "Institutional Trustee Account") in the name of and
under the exclusive control of the Institutional Trustee on behalf of the
Holders of the Securities and, upon the receipt of payments of funds made in
respect of the Debentures held by the Institutional Trustee, deposit such funds
into the Institutional Trustee Account and make payments to the Holders of the
Preferred Securities and Holders of the Common Securities from the
Institutional Trustee Account in accordance with Section 6.1. Funds in the
Institutional Trustee Account shall be held uninvested until disbursed in
accordance with this Declaration. The Institutional Trustee Account shall be an
account that is maintained with a banking institution the rating on whose
long-term unsecured indebtedness is at least equal to the highest rating
assigned to the Preferred Securities by a "nationally recognized statistical
rating organization," as that term is defined for purposes of Rule 436(g)(2)
under the Securities Act;
(ii) engage in such ministerial activities as shall be
necessary or appropriate to effect the redemption of the Preferred Securities
and the Common Securities to the extent the Debentures are redeemed or mature;
and
(iii) upon written notice of distribution issued by the
Regular Trustees in accordance with the terms of the Securities, engage in such
ministerial activities as shall be necessary or appropriate to effect the
distribution of the Debentures to Holders of Securities upon the occurrence of
certain special events (as may be defined in the terms of the Securities)
arising from a change in law or a change in legal interpretation or other
specified circumstances pursuant to the terms of the Securities.
(d) The Institutional Trustee shall take all actions and perform
such duties as may be specifically required of the Institutional Trustee
pursuant to the terms of the Securities.
(e) The Institutional Trustee shall take any Legal Action which
arises out of or in connection with an Event of Default of which a Responsible
Officer of the Institutional Trustee has actual knowledge or the Institutional
Trustee's duties and obligations under this Declaration, the Business Trust Act
or the Trust Indenture Act.
(f) The Institutional Trustee shall not resign as a Trustee unless
either:
(i) the Trust has been completely liquidated and the
proceeds of the liquidation distributed to the Holders of Securities pursuant
to the terms of the Securities; or
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(ii) a Successor Institutional Trustee has been appointed
and has accepted that appointment in accordance with Section 5.7.
(g) The Institutional Trustee shall have the legal power to
exercise all of the rights, powers and privileges of a holder of Debentures
under the Indenture and, if an Event of Default actually known to a Responsible
Officer of the Institutional Trustee occurs and is continuing, the
Institutional Trustee shall, for the benefit of Holders of the Securities,
enforce its rights as holder of the Debentures subject to the rights of the
Holders pursuant to the terms of such Securities.
(h) Except as otherwise specifically set forth in this Section
3.8, the Institutional Trustee shall have none of the duties, liabilities,
powers or the authority of the Regular Trustees set forth in Section 3.6.
The Institutional Trustee must exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Institutional Trustee shall not take
any action that is inconsistent with the purposes and functions of the Trust
set out in Section 3.3.
Section 3.9 Certain Duties and Responsibilities of the Institutional
Trustee.
(a) The Institutional Trustee, before the occurrence of any Event
of Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Declaration and no implied covenants shall be read into this
Declaration against the Institutional Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.6) of which a
Responsible Officer of the Institutional Trustee has actual knowledge, the
Institutional Trustee shall exercise such of the rights and powers vested in it
by this Declaration, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve
the Institutional Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and
after the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the
Institutional Trustee shall be determined solely by the express provisions of
this Declaration and the Institutional Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set forth in
this Declaration, and no implied covenants or obligations shall be read into
this Declaration against the Institutional Trustee; and
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(B) in the absence of bad faith on the part of
the Institutional Trustee, the Institutional Trustee may conclusively rely, as
to the truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Institutional
Trustee and conforming to the requirements of this Declaration; but in the case
of any such certificates or opinions that by any provision hereof are
specifically required to be furnished to the Institutional Trustee, the
Institutional Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Declaration;
(ii) the Institutional Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of the
Institutional Trustee, unless it shall be proved that the Institutional Trustee
was negligent in ascertaining the pertinent facts;
(iii) the Institutional Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a Majority in
Liquidation Amount of the Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Institutional
Trustee, or exercising any trust or power conferred upon the Institutional
Trustee under this Declaration;
(iv) no provision of this Declaration shall require the
Institutional Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if it shall have reasonable grounds
for believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Declaration or indemnity satisfactory to
the Institutional Trustee against such risk or liability is not reasonably
assured to it;
(v) the Institutional Trustee's sole duty with respect to
the custody, safe keeping and physical preservation of the Debentures and the
Institutional Trustee Account shall be to deal with such property in a similar
manner as the Institutional Trustee deals with similar property for its own
account, subject to the protections and limitations on liability afforded to
the Institutional Trustee under this Declaration and the Trust Indenture Act;
(vi) the Institutional Trustee shall have no duty or
liability for or with respect to the value, genuineness, existence or
sufficiency of the Debentures or the payment of any taxes or assessments levied
thereon or in connection therewith;
(vii) the Institutional Trustee shall not be liable for any
interest on any money received by it except as it may otherwise agree with the
Sponsor. Money held by the Institutional Trustee need not be segregated from
other funds held by it except in relation to the Institutional Trustee Account
maintained by the Institutional Trustee pursuant to Section 3.8(c)(i) and
except to the extent otherwise required by law; and
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(viii) the Institutional Trustee shall not be responsible
for monitoring the compliance by the Regular Trustees or the Sponsor with their
respective duties under this Declaration, nor shall the Institutional Trustee
be liable for any default or misconduct of the Regular Trustees or the Sponsor.
Section 3.10 Certain Rights of Institutional Trustee.
(a) Subject to the provisions of Section 3.9:
(i) the Institutional Trustee may conclusively rely and
shall be fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Sponsor or the Regular
Trustees contemplated by this Declaration shall be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever in the administration of this Declaration,
the Institutional Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder, the
Institutional Trustee (unless other evidence is herein specifically prescribed)
may, in the absence of bad faith on its part, request and conclusively rely
upon an Officers' Certificate which, upon receipt of such request, shall be
promptly delivered by the Sponsor or the Regular Trustees;
(iv) the Institutional Trustee shall have no duty to see
to any recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or securities laws)
or any rerecording, refiling or registration thereof;
(v) the Institutional Trustee may consult with counsel or
other experts and the advice or opinion of such counsel and experts with
respect to legal matters or advice within the scope of such experts' area of
expertise shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion, such counsel may be counsel to the
Sponsor or any of its Affiliates, and may include any of its employees. The
Institutional Trustee shall have the right at any time to seek instructions
concerning the administration of this Declaration from any court of competent
jurisdiction;
(vi) the Institutional Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Declaration at the request or direction of any Holder, unless such Holder shall
have provided to the Institutional Trustee security and indemnity, satisfactory
to the Institutional Trustee, against the costs, expenses (including attorneys'
fees and expenses and the expenses of the Institutional Trustee's agents,
nominees or custodians) and liabilities that might be incurred by it in
complying with such request or direction, including such reasonable advances as
may be requested by the Institutional Trustee; provided, that, nothing
contained in this Section 3.10(a)(vi) shall be taken to relieve
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the Institutional Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this Declaration;
(vii) the Institutional Trustee shall not be bound to make
any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document furnished to it, but the Institutional
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit;
(viii) the Institutional Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly or
by or through agents, custodians, nominees or attorneys, and the Institutional
Trustee shall not be responsible for any misconduct or negligence on the part
of any agent or attorney appointed with due care by it hereunder;
(ix) any action taken by the Institutional Trustee or its
agents hereunder shall bind the Trust and the Holders of the Securities, and
the signature of the Institutional Trustee or its agents alone shall be
sufficient and effective to perform any such action and no third party shall be
required to inquire as to the authority of the Institutional Trustee to so act
or as to its compliance with any of the terms and provisions of this
Declaration, both of which shall be conclusively evidenced by the Institutional
Trustee's or its agent's taking such action;
(x) whenever in the administration of this Declaration
the Institutional Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action hereunder,
the Institutional Trustee (i) may request instructions from the Holders of the
Securities which instructions may only be given by the Holders of the same
proportion in liquidation amount of the Securities as would be entitled to
direct the Institutional Trustee under the terms of the Securities in respect
of such remedy, right or action, (ii) may refrain from enforcing such remedy or
right or taking such other action until such instructions are received, and
(iii) shall be protected in conclusively relying on or acting in or accordance
with such instructions; and
(xi) except as otherwise expressly provided by this
Declaration, the Institutional Trustee shall not be under any obligation to
take any action that is discretionary under the provisions of this Declaration.
(b) No provision of this Declaration shall be deemed to impose any
duty or obligation on the Institutional Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in
any jurisdiction in which it shall be illegal, or in which the Institutional
Trustee shall be unqualified or incompetent in accordance with applicable law,
to perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Institutional
Trustee shall be construed to be a duty.
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Section 3.11 Delaware Trustee.
Notwithstanding any other provision of this Declaration other than
Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers,
nor shall the Delaware Trustee have any of the duties and responsibilities of
the Regular Trustees or the Institutional Trustee described in this
Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be
a Trustee for the sole and limited purpose of fulfilling the requirements of
Section 3807 of the Business Trust Act.
Section 3.12 Execution of Documents.
Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act, (i) any Regular Trustee is
authorized to execute on behalf of the Trust any documents that the Regular
Trustees have the power and authority to execute pursuant to this Declaration
with the consent of a majority of the Regular Trustees if there are then more
than two, or, (ii) if there are only two, any Regular Trustee is authorized to
execute such documents on behalf of the Trust, or (iii) if there is only one,
such Regular Trustee is authorized to execute any such documents on behalf of
the Trust; provided that, the registration statement referred to in Section
3.6(b)(i), including any amendments thereto, shall be signed by all of the
Regular Trustees.
Section 3.13 Not Responsible for Recitals or Issuance of Securities.
The recitals contained in this Declaration and the Securities shall be
taken as the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as
to the value or condition of the property of the Trust or any part thereof.
The Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.
Section 3.14 Duration of Trust.
The Trust, unless terminated pursuant to the provisions of Article
VIII hereof, shall have existence for fifty-five (55) years from the initial
Closing Date.
Section 3.15 Mergers.
(a) The Trust may not consolidate, amalgamate, merge with or into,
or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except as
described in Section 3.15(b) and (c).
(b) The Trust may, with the consent of the Regular Trustees or, if
there are more than two, a majority of the Regular Trustees and without the
consent of the Holders of the Securities, the Delaware Trustee or the
Institutional Trustee, consolidate, amalgamate, merge with or into, or be
replaced by a trust organized as such under the laws of any State; provided
that:
(i) such successor entity (the "Successor Entity")
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either:
(A) expressly assumes all of the obligations of
the Trust under the Securities; or
(B) substitutes for the Preferred Securities
other securities having substantially the same terms as the Preferred
Securities (the "Successor Securities") so long as the Successor Securities
enjoy the same preferences and priority as the Preferred Securities with
respect to Distributions and payments upon liquidation, redemption and
otherwise;
(ii) the Debenture Issuer expressly acknowledges a trustee
of the Successor Entity that possesses the same powers and duties as the
Institutional Trustee as the holder of the Debentures;
(iii) the Preferred Securities or any Successor Securities
are listed, or any Successor Securities will be listed upon notification of
issuance, on any national securities exchange or with another organization on
which the Preferred Securities are then listed or quoted;
(iv) such merger, consolidation, amalgamation or
replacement does not cause the rating of the Preferred Securities (or any
Successor Securities) to be downgraded by any nationally recognized statistical
rating organization;
(v) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and privileges of
the Holders of the Securities (or any Successor Securities) in any material
respect (other than with respect to any dilution of such Holders' interests in
the Preferred Securities as a result of such merger, consolidation,
amalgamation or replacement);
(vi) such Successor Entity has a purpose identical to that
of the Trust;
(vii) prior to such merger, consolidation, amalgamation or
replacement, the Sponsor has received an opinion of a nationally recognized
independent counsel to the Trust experienced in such matters to the effect
that:
(A) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and privileges of
the Holders of the Securities (or any Successor Securities) in any material
respect (other than with respect to any dilution of the Holders, interest in
the new entity);
(B) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor the Successor Entity will be
required to register as an Investment Company; and
(C) following such merger, consolidation,
amalgamation or replacement, the Trust (or the Successor Entity) will continue
to be classified as a grantor trust for United States federal income tax
purposes; and
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(viii) the Sponsor guarantees the obligations of such
Successor Entity under the Successor Securities at least to the extent provided
by the Preferred Securities Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except
with the consent of Holders of 100% in liquidation amount of the Securities,
consolidate, amalgamate, merge with or into, or be replaced by any other entity
or permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger or replacement would
cause the Trust or Successor Entity to be classified as other than a grantor
trust for United States federal income tax purposes.
Section 3.16 Filing of Amendments to Certificate of Trust.
The Certificate of Trust as filed with the Secretary of State of the
State of Delaware on December 4, 1995 is attached hereto as Exhibit D. On or
after the date of execution of this Declaration, the Trustees shall cause the
filing with the Secretary of State of the State of Delaware of such amendments
to the Certificate of Trust as the Trustees deem necessary or desirable to
reflect this Declaration.
ARTICLE IV
SPONSOR
Section 4.1 Sponsor's Purchase of Common Securities.
At the Closing Time, the Sponsor will purchase the Common Securities
issued by the Trust, in an aggregate amount at least equal to 3% of the capital
of the Trust, at the same time as the Preferred Securities are sold.
Section 4.2 Responsibilities of the Sponsor.
In connection with the issue and sale of the Preferred Securities, the
Sponsor shall have the exclusive right and responsibility to engage in the
following activities:
(a) to prepare for filing by the Trust with the
Commission a registration statement on Form S-3 in relation to the Preferred
Securities, including any amendments thereto;
(b) to determine the States in which to take appropriate
action to qualify or register for sale all or part of the Preferred Securities
and to do any and all such acts, other than actions which must be taken by the
Trust, and advise the Trust of actions it must take, and prepare for execution
and filing any documents to be executed and filed by the Trust, as the Sponsor
deems necessary or advisable in order to comply with the applicable laws of any
such States;
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(c) to prepare for filing by the Trust an application to the New
York Stock Exchange or any other national stock exchange or the Nasdaq National
Market for listing upon notice of issuance of any Preferred Securities;
(d) to prepare for filing by the Trust with the Commission a
registration statement on Form 8-A relating to the registration of the
Preferred Securities under Section 12(b) of the Exchange Act, including any
amendments thereto; and
(e) to negotiate the terms of the Purchase Agreement and Pricing
Agreement providing for the sale of the Preferred Securities.
ARTICLE V
TRUSTEES
Section 5.1 Number of Trustees.
The number of Trustees initially shall be three (3), and:
(a) at any time before the issuance of any Securities, the Sponsor
may, by written instrument, increase or decrease the number of, and appoint,
remove and replace, the Trustees; and
(b) after the issuance of any Securities, the number of Trustees
may be increased or decreased solely by, and Trustees may be appointed, removed
or replaced solely by, vote of the Holders of a Majority in Liquidation Amount
of the Common Securities voting as a class at a meeting of the Holders of the
Common Securities; provided, however, that, the number of Trustees shall in no
event be less than two (2); provided further that (1) one Trustee, in the case
of a natural person, shall be a person who is a resident of the State of
Delaware or that, if not a natural person, is an entity which has its principal
place of business in the State of Delaware; (2) there shall be at least one
Trustee who is an employee or officer of, or is affiliated with the Sponsor (a
"Regular Trustee"); and (3) one Trustee shall be the Institutional Trustee for
so long as this Declaration is required to qualify as an indenture under the
Trust Indenture Act, and such Trustee may also serve as Delaware Trustee if it
meets the applicable requirements.
Section 5.2 Delaware Trustee.
If required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity which has its principal
place of business in the State of Delaware, and otherwise meets the
requirements of applicable law;
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provided that, if the Institutional Trustee has its principal place of business
in the State of Delaware and otherwise meets the requirements of applicable
law, then the Institutional Trustee shall also be the Delaware Trustee and
Section 3.11 shall have no application.
Section 5.3 Institutional Trustee; Eligibility.
(a) There shall at all times be one Trustee which shall act as
Institutional Trustee which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation or banking or trust association
organized and doing business under the laws of the United States of America or
any State or territory thereof or of the District of Columbia, or a corporation
or Person permitted by the Commission to act as an institutional trustee under
the Trust Indenture Act, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least 50 million U.S.
dollars ($50,000,000), and subject to supervision or examination by Federal,
State, territorial or District of Columbia authority. If such Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of the supervising or examining authority referred to above, then for the
purposes of this Section 5.3(a)(ii), the combined capital and surplus of such
Person shall be deemed to be its combined capital and surplus as set forth in
its most recent report of condition so published.
(b) If at any time the Institutional Trustee shall cease to be
eligible to so act under Section 5.3(a), the Institutional Trustee shall
immediately resign in the manner and with the effect set forth in Section
5.7(c).
(c) If the Institutional Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Institutional Trustee and the Holders of the Common
Securities (as if it were the obligor referred to in Section 310(b) of the
Trust Indenture Act) shall in all respects comply with the provisions of
Section 310(b) of the Trust Indenture Act.
(d) The Preferred Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
(e) The initial Institutional Trustee shall be:
The Chase Manhattan Bank, N.A.
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Section 5.4 Certain Qualifications of Regular Trustees and Delaware
Trustee Generally.
Each Regular Trustee and the Delaware Trustee (unless the
Institutional Trustee also acts as Delaware Trustee) shall be either a natural
person who is at least 21 years of age or a legal entity that shall act through
one or more Authorized Officers.
Section 5.5 Regular Trustees.
The initial Regular Trustees shall be:
Louis J. Rampino
Wayne R. Bailey
(a) Except as expressly set forth in this Declaration and except
if a meeting of the Regular Trustees is called with respect to any matter over
which the Regular Trustees have power to act, any power of the Regular Trustees
may be exercised by, or with the consent of, any one such Regular Trustee.
(b) Unless otherwise determined by the Regular Trustees, and
except as otherwise required by the Business Trust Act or applicable law, any
Regular Trustee is authorized to execute on behalf of the Trust any documents
which the Regular Trustees have the power and authority to cause the Trust to
execute pursuant to this Declaration; provided, that, the registration
statement referred to in Section 3.6, including any amendments thereto, shall
be signed by a majority of the Regular Trustees (except as otherwise provided
in Section 3.12); and
(c) A Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purposes of signing any documents which the Regular Trustees
have power and authority to cause the Trust to execute pursuant to this
Declaration.
Section 5.6 Delaware Trustee.
The initial Delaware Trustee shall be:
The Chase Manhattan Bank (USA).
Section 5.7 Appointment, Removal and Resignation of Trustees.
(a) Subject to subsection (b) of this Section 5.7, Trustees may be
appointed or removed without cause at any time:
(i) until the issuance of any Securities, by written
instrument executed by the Sponsor; and
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(ii) after the issuance of any Securities, by vote of the
Holders of a Majority in Liquidation Amount of the Common Securities voting as
a class at a meeting of the Holders of the Common Securities.
(b) (i) The Trustee that acts as Institutional Trustee shall
not be removed in accordance with Section 5.7(a) until a Successor
Institutional Trustee (the "Successor Institutional Trustee") has been
appointed and has accepted such appointment by written instrument executed by
such Successor Institutional Trustee and delivered to the Regular Trustees and
the Sponsor; and
(ii) the Trustee that acts as Delaware Trustee shall not
be removed in accordance with Section 5.7(a) until a successor Trustee
possessing the qualifications to act as Delaware Trustee under Sections 5.2 and
5.4 (a "Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware Trustee
and delivered to the Regular Trustees and the Sponsor.
(c) A Trustee appointed to office shall hold office until its
successor shall have been appointed or until his death, removal or resignation.
Any Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing signed by the Trustee and delivered to
the Sponsor and the Trust, which resignation shall take effect upon such
delivery or upon such later date as is specified therein; provided, however,
that:
(i) No such resignation of the Trustee that acts as the
Institutional Trustee shall be effective:
(A) until a Successor Institutional Trustee has
been appointed and has accepted such appointment by instrument executed by such
Successor Institutional Trustee and delivered to the Trust, the Sponsor and the
resigning Institutional Trustee; or
(B) until the assets of the Trust have been
completely liquidated and the proceeds thereof distributed to the Holders of
the Securities in accordance with the terms hereof; and
(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a Successor Delaware Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Delaware Trustee and delivered to the Trust, the Sponsor and the
resigning Delaware Trustee.
(d) The Holders of the Common Securities shall use their best
efforts to promptly appoint a Successor Delaware Trustee or Successor
Institutional Trustee, as the case may be, if the Institutional Trustee or the
Delaware Trustee delivers an instrument of resignation in accordance with this
Section 5.7.
(e) If no Successor Institutional Trustee or Successor Delaware
Trustee shall have been appointed and accepted appointment as provided in this
Section 5.7 within 60 days after delivery to the Sponsor and the Trust of an
instrument of resignation, the resigning Institutional Trustee or Delaware
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Trustee, as applicable, may petition any court of competent jurisdiction for
appointment of a Successor Institutional Trustee or Successor Delaware Trustee.
Such court may thereupon, after prescribing such notice, if any, as it may deem
proper and prescribe, appoint a Successor Institutional Trustee or Successor
Delaware Trustee, as the case may be.
(f) No Institutional Trustee or Delaware Trustee shall be liable
for the acts or omissions to act of any Successor Institutional Trustee or
Successor Delaware Trustee, as the case may be.
Section 5.8 Vacancies Among Trustees.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees
is increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees shall be conclusive
evidence of the existence of such vacancy. The vacancy shall be filled with a
Trustee appointed in accordance with Section 5.7.
Section 5.9 Effect of Vacancies.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee
shall not operate to annul the Trust. Whenever a vacancy in the number of
Regular Trustees shall occur, until such vacancy is filled by the appointment
of a Regular Trustee in accordance with Section 5.7, the Regular Trustees in
office, regardless of their number, shall have all the powers granted to the
Regular Trustees and shall discharge all the duties imposed upon the Regular
Trustees by this Declaration.
Section 5.10 Meetings.
If there is more than one Regular Trustee, meetings of the Regular
Trustees shall be held from time to time upon the call of any Regular Trustee.
Regular meetings of the Regular Trustees may be held at a time and place fixed
by resolution of the Regular Trustees. Notice of any in-person meetings of the
Regular Trustees shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than
48 hours before such meeting. Notice of any telephonic meetings of the Regular
Trustees or any committee thereof shall be hand delivered or otherwise
delivered in writing (including by facsimile, with a hard copy by overnight
courier) not less than 24 hours before a meeting. Notices shall contain a
brief statement of the time, place and anticipated purposes of the meeting.
The presence (whether in person or by telephone) of a Regular Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Regular Trustee attends a meeting for the express purpose of objecting to the
transaction of any activity on the ground that the meeting has not been
lawfully called or convened. Unless provided otherwise in this Declaration,
any action of the Regular Trustees may be taken at a meeting by vote of a
majority of the Regular Trustees present (whether in person or by telephone)
and eligible to vote with respect to such matter, provided that a Quorum is
present, or without a meeting by the unanimous written consent of the Regular
Trustees. In
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the event there is only one Regular Trustee, any and all action of such Regular
Trustee shall be evidenced by a written consent of such Regular Trustee.
Section 5.11 Delegation of Power.
(a) Any Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in this
Declaration, including any registration statement or amendment thereto filed
with the Commission, or making any other governmental filing; and
(b) the Regular Trustees shall have power to delegate from time to
time to such of their number or to officers of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Regular Trustees or otherwise as the Regular Trustees may deem
expedient, to the extent such delegation is not prohibited by applicable law or
contrary to the provisions of the Trust, as set forth herein.
Section 5.12 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Institutional Trustee or the Delaware
Trustee, as the case may be, may be merged or converted or with which either
may be consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Institutional Trustee or the Delaware Trustee, as
the case may be, shall be a party, or any Person succeeding to all or
substantially all the corporate trust business of the Institutional Trustee or
the Delaware Trustee, as the case may be, shall be the successor of the
Institutional Trustee or the Delaware Trustee, as the case may be, hereunder,
provided such Person shall be otherwise qualified and eligible under this
Article V, without the execution or filing of any paper or any further act on
the part of any of the parties hereto.
ARTICLE VI
DISTRIBUTIONS
Section 6.1 Distributions.
Holders shall receive Distributions in accordance with the applicable
terms of their respective Securities. Distributions shall be made on the
Preferred Securities and the Common Securities in accordance with the
preferences set forth in their respective terms. If and to the extent that the
Debenture Issuer makes a payment of interest (including Compounded Interest (as
defined in the Indenture) or Additional Interest (as defined in the
Indenture)), premium and/or principal on the Debentures held by the
Institutional Trustee (the amount of any such payment being a "Payment
Amount"), the Institutional Trustee shall and is directed, to the extent funds
are available for that purpose, to make a Distribution of the Payment Amount to
Holders.
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ARTICLE VII
ISSUANCE OF SECURITIES
Section 7.1 General Provisions Regarding Securities.
(a) The Regular Trustees shall cause the Trust to issue one class
of preferred securities representing undivided beneficial interests in the
assets of the Trust having such terms as are set forth in Annex I (the
"Preferred Securities") and one class of common securities representing
undivided beneficial interests in the assets of the Trust having such terms as
are set forth in Annex I (the "Common Securities"). The Trust shall have and
issue no securities or other interests in the assets of the Trust other than
the Preferred Securities and the Common Securities.
(b) The Certificates shall be signed on behalf of the Trust by a
Regular Trustee. Such signature shall be the manual signature of any present
or any future Regular Trustee. Typographical and other minor defects or errors
in any such reproduction of any such signature shall not affect the validity of
any Certificate. In case any Regular Trustee of the Trust who shall have
signed any of the Certificates shall cease to be such Regular Trustee before
the Certificates so signed shall be delivered by the Trust, such Certificate
nevertheless may be delivered as though the person who signed such Certificate
had not ceased to be such Regular Trustee; and any Certificate may be signed on
behalf of the Trust by such Persons who, at the actual date of execution of
such Certificate, shall be the Regular Trustees of the Trust, although at the
date of the execution and delivery of this Declaration any such Person was not
such a Regular Trustee. Certificates shall be printed, lithographed or
engraved or may be produced in any other manner as is reasonably acceptable to
the Regular Trustees, as evidenced by their execution thereof, and may have
such letters, numbers or other marks of identification or designation and such
legends or endorsements as the Regular Trustees may deem appropriate, or as may
be required to comply with any law or with any rule or regulation of any stock
exchange on which Securities may be listed, or to conform to usage.
(c) The consideration received by the Trust for the issuance of
the Securities shall constitute a contribution to the capital of the Trust and
shall not constitute a loan to the Trust.
(d) Upon issuance of the Securities as provided in this
Declaration, the Securities so issued shall be deemed to be validly issued,
fully paid and non-assessable.
(e) Every Person, by virtue of having become a Holder or a
Preferred Security Beneficial Owner in accordance with the terms of this
Declaration, shall be deemed to have expressly assented and agreed to the terms
of, and shall be bound by, this Declaration.
Section 7.2 Paying Agent.
In the event that the Preferred Securities are not in book-entry only
form, the Trust shall maintain in the City of New York, State of New York, an
office or agency where the Preferred Securities may be presented for payment
("Paying Agent"). The Trust may appoint the Paying Agent and may appoint one
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or more additional paying agents in such other locations as it shall determine.
The term "Paying Agent" includes any additional paying agent. The Trust may
change any Paying Agent without prior notice to any Holder. The Trust shall
notify the Institutional Trustee of the name and address of any Paying Agent
not a party to this Declaration. If the Trust fails to appoint or maintain
another entity as Paying Agent, the Institutional Trustee shall act as such.
The Trust or any of its Affiliates may act as Paying Agent. The Institutional
Trustee shall initially act as Paying Agent for the Preferred Securities and
the Common Securities.
ARTICLE VIII
TERMINATION OF TRUST
Section 8.1 Termination of Trust.
(a) The Trust shall terminate upon the occurrence of any of the
following events:
(i) Upon the expiration of the term of the Trust as set
forth in Section 3.14;
(ii) upon the bankruptcy of the Holder of the Common
Securities or the Sponsor;
(iii) upon the filing of a certificate of dissolution or
its equivalent with respect to the Holder of the Common Securities or the
Sponsor; the filing of a certificate of cancellation with respect to the Trust
or the revocation of the Holder of the Common Securities or the Sponsor's
charter and the expiration of 90 days after the date of revocation without a
reinstatement thereof;
(iv) upon the entry of a decree of judicial dissolution of
the Holder of the Common Securities, the Sponsor or the Trust;
(v) when all of the Securities shall have been called for
redemption and the amounts necessary for redemption thereof shall have been
paid to the Holders in accordance with the terms of the Securities or deposited
in the Institutional Trustee Account for payment to the Holders;
(vi) upon the occurrence and continuation of a Tax Event
pursuant to which the Trust shall have been dissolved in accordance with the
terms of the Securities and all of the Debentures shall have been distributed
to the Holders of Securities in exchange for all of the Securities; or
(vii) before the issuance of any Securities, with the
consent of all of the Regular Trustees and the Sponsor.
(b) As soon as is practicable after the occurrence of an event
referred to in Section 8.1(a), the Trustees shall file a certificate of
cancellation with the Secretary of State of the State of Delaware.
(c) The provisions of Section 3.9 and Article X shall survive the
termination of the Trust.
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ARTICLE IX
TRANSFER OF INTERESTS
Section 9.1 Transfer of Securities.
(a) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. Any transfer or purported transfer of any
Security not made in accordance with this Declaration shall be null and void.
(b) Subject to this Article IX, Preferred Securities shall be
freely transferable.
(c) Subject to this Article IX, the Sponsor and any Related Party
may only transfer Common Securities to the Sponsor or a Related Party of the
Sponsor; provided that, any such transfer is subject to the condition precedent
that the transferor obtain the written opinion of nationally recognized
independent counsel experienced in such matters that such transfer would not
cause more than an insubstantial risk that:
(i) the Trust would not be classified for United States
federal income tax purposes as a grantor trust; and
(ii) the Trust would be an Investment Company or the
transferee would become an Investment Company.
Section 9.2 Transfer of Certificates.
The Regular Trustees shall provide for the registration of
Certificates and of transfers of Certificates, which will be effected without
charge but only upon payment (with such indemnity as the Regular Trustees may
require) in respect of any tax or other government charges that may be imposed
in relation to it. Upon surrender for registration of transfer of any
Certificate, the Regular Trustees shall cause one or more new Certificates to
be issued in the name of the designated transferee or transferees. Every
Certificate surrendered for registration of transfer shall be accompanied by a
written instrument of transfer in form satisfactory to the Regular Trustees
duly executed by the Holder or such Holder's attorney-in-fact duly authorized
in writing. Each Certificate surrendered for registration of transfer shall be
canceled by the Regular Trustees. A transferee of a Certificate shall be
entitled to the rights and subject to the obligations of a Holder hereunder
upon the receipt by such transferee of a Certificate. By acceptance of a
Certificate, each transferee shall be deemed to have agreed to be bound by this
Declaration.
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Section 9.3 Deemed Security Holders.
The Trustees may treat the Person in whose name any Certificate shall
be registered on the books and records of the Trust as the sole Holder of such
Certificate and of the Securities represented by such Certificate for purposes
of receiving Distributions and for all other purposes whatsoever and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such Certificate or in the Securities represented by such
Certificate on the part of any Person, whether or not the Trust shall have
actual or other notice thereof.
Section 9.4 Book Entry Interests.
Unless otherwise specified in the terms of the Preferred Securities,
the Preferred Securities Certificates, on original issuance, will be issued in
the form of one or more, fully registered, global Preferred Security
Certificates (each a "Global Certificate"), to be delivered to DTC, the initial
Clearing Agency, by, or on behalf of, the Trust. Such Global Certificates
shall initially be registered on the books and records of the Trust in the name
of Cede & Co., the nominee of DTC, and no Preferred Security Beneficial Owner
will receive a definitive Preferred Security Certificate representing such
Preferred Security Beneficial Owner's interests in such Global Certificates,
except as provided in Section 9.7. Unless and until definitive, fully
registered Preferred Security Certificates (the "Definitive Preferred Security
Certificates") have been issued to the Preferred Security Beneficial Owners
pursuant to Section 9.7:
(a) the provisions of this Section 9.4 shall be in full force and
effect;
(b) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the payment of
Distributions on the Global Certificates and receiving approvals, votes or
consents hereunder) as the Holder of the Preferred Securities and the sole
holder of the Global Certificates and shall have no obligation to the Preferred
Security Beneficial Owners;
(c) to the extent that the provisions of this Section 9.4 conflict
with any other provisions of this Declaration, the provisions of this Section
9.4 shall control; and
(d) the rights of the Preferred Security Beneficial Owners shall
be exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Preferred Security Beneficial
Owners and the Clearing Agency and/or the Clearing Agency Participants. DTC
will make book entry transfers among the Clearing Agency Participants and
receive and transmit payments of Distributions on the Global Certificates to
such Clearing Agency Participants.
Section 9.5 Notices to Clearing Agency.
Whenever a notice or other communication to the Preferred Security
Holders is required under this Declaration, unless and until Definitive
Preferred Security Certificates shall have been issued to the Preferred
Security Beneficial Owners pursuant to Section 9.7, the Regular Trustees shall
give all such
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notices and communications specified herein to be given to the Preferred
Security Holders to the Clearing Agency, and shall have no notice obligations
to the Preferred Security Beneficial Owners.
Section 9.6 Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as
securities depositary with respect to the Preferred Securities, the Regular
Trustees may, in their sole discretion, appoint a successor Clearing Agency
with respect to such Preferred Securities.
Section 9.7 Definitive Preferred Security Certificates.
If:
(a) a Clearing Agency elects to discontinue its services as
securities depositary with respect to the Preferred Securities and a successor
Clearing Agency is not appointed within 90 days after such discontinuance
pursuant to Section 9.6; or
(b) the Regular Trustees elect after consultation with the Sponsor
to terminate the book entry system through the Clearing Agency with respect to
the Preferred Securities,
then:
(c) Definitive Preferred Security Certificates shall be prepared
by the Regular Trustees on behalf of the Trust to evidence to such Preferred
Securities; and
(d) upon surrender of the Global Certificates by the Clearing
Agency, accompanied by registration instructions, the Regular Trustees shall
cause Definitive Certificates to be delivered to Preferred Security Beneficial
Owners in accordance with the instructions of the Clearing Agency. Neither the
Trustees nor the Trust shall be liable for any delay in delivery of such
instructions and each of them may conclusively rely on and shall be protected
in relying on, said instructions of the Clearing Agency. The Definitive
Preferred Security Certificates shall be printed, lithographed or engraved or
may be produced in any other manner as is reasonably acceptable to the Regular
Trustees, as evidenced by their execution thereof, and may have such letters,
numbers or other marks of identification or designation and such legends or
endorsements as the Regular Trustees may deem appropriate, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which Preferred
Securities may be listed, or to conform to usage.
Section 9.8 Mutilated, Destroyed, Lost or Stolen Certificates.
If:
(a) any mutilated Certificates should be surrendered to the
Regular Trustees, or if the Regular Trustees shall receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate; and
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(b) there shall be delivered to the Regular Trustees such security
or indemnity as may be required by them to keep each of them harmless,
then, in the absence of notice that such Certificate shall have been acquired
by a bona fide purchaser, any Regular Trustee on behalf of the Trust shall
execute and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like denomination.
In connection with the issuance of any new Certificate under this Section 9.8,
the Regular Trustees may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Any duplicate Certificate issued pursuant to this Section shall constitute
conclusive evidence of an ownership interest in the relevant Securities, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
Section 10.1 Liability.
(a) Except as expressly set forth in this Declaration, the
Securities Guarantees and the terms of the Securities, the Sponsor shall not
be:
(i) personally liable for the return of any portion of
the capital contributions (or any return thereon) of the Holders of the
Securities which shall be made solely from assets of the Trust; and
(ii) be required to pay to the Trust or to any Holder of
Securities any deficit upon dissolution of the Trust or otherwise.
(b) The Holder of the Common Securities shall be liable for all of
the debts and obligations of the Trust (other than with respect to the
Securities) to the extent not satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the
Holders of the Preferred Securities, in their capacities as Holders, shall be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware.
Section 10.2 Exculpation.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in
a manner such Indemnified Person reasonably believed to be within the scope of
the authority conferred on such Indemnified Person by this Declaration or by
law, except that an Indemnified Person shall be
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liable for any such loss, damage or claim incurred by reason of such
Indemnified Person's gross negligence or willful misconduct with respect to
such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Securities might properly be paid.
Section 10.3 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions
of this Declaration, to the extent that they restrict the duties and
liabilities of an Indemnified Person otherwise existing at law or in equity
(other than the duties imposed on the Institutional Trustee under the Trust
Indenture Act), are agreed by the parties hereto to replace such other duties
and liabilities of such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises
between an Indemnified Person and any Covered Persons; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person shall act in
a manner that is, or provides terms that are, fair and reasonable to the Trust
or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such
action or provide such terms, considering in each case the relative interest of
each party (including its own interest) to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the Indemnified Person, the resolution, action or term so made, taken
or provided by the Indemnified Person shall not constitute a breach of this
Declaration or any other agreement contemplated herein or of any duty or
obligation of the Indemnified Person at law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is
permitted or required to make a decision:
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(i) in its "discretion" or under a grant of similar
authority, the Indemnified Person shall be entitled to consider such interests
and factors as it desires, including its own interests, and shall have no duty
or obligation to give any consideration to any interest of or factors affecting
the Trust or any other Person; or
(ii) in its "good faith" or under another express
standard, the Indemnified Person shall act under such express standard and
shall not be subject to any other or different standard imposed by this
Declaration or by applicable law.
Section 10.4 Indemnification.
(a) (i) The Sponsor shall indemnify, to the fullest extent
permitted by law, any Company Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Company Indemnified Person against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Trust, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the Company
Indemnified Person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Trust,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(ii) The Sponsor shall indemnify, to the fullest extent
permitted by law, any Company Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Trust to procure a judgment in its favor by
reason of the fact that he is or was a Company Indemnified Person against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Trust and except that no such indemnification shall
be made in respect of any claim, issue or matter as to which such Company
Indemnified Person shall have been adjudged to be liable to the Trust unless
and only to the extent that the Court of Chancery of Delaware or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such Person is fairly and reasonably entitled to indemnity for such
expenses which such Court of Chancery or such other court shall deem proper.
(iii) To the extent that a Company Indemnified Person shall
be successful on the merits or otherwise (including dismissal of an action
without prejudice or the settlement of an action without admission of
liability) in defense of any action, suit or proceeding referred to in
paragraphs (i) or (ii) of this Section 10.4(a), or in defense of any claim,
issue or matter therein, he shall be indemnified, to the full
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extent permitted by law, against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of
this Section 10.4(a) (unless ordered by a court) shall be made by the Debenture
Issuer only as authorized in the specific case upon a determination that
indemnification of the Company Indemnified Person is proper in the
circumstances because he has met the applicable standard of conduct set forth
in paragraphs (i) or (ii). Such determination shall be made (1) by the Regular
Trustees by a majority vote of a quorum consisting of such Regular Trustees who
were not parties to such action, suit or proceeding, (2) if such a quorum is
not obtainable, or, even if obtainable, if a quorum of disinterested Regular
Trustees so directs, by independent legal counsel in a written opinion, or (3)
by the Common Security Holder of the Trust.
(v) Expenses (including attorneys' fees) incurred by a
Company Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (i) and (ii)
of this Section 10.4(a) shall be paid by the Debenture Issuer in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Company Indemnified Person to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Debenture Issuer as authorized in this Section 10.4(a).
Notwithstanding the foregoing, no advance shall be made by the Debenture Issuer
if a determination is reasonably and promptly made (i) by the Regular Trustees
by a majority vote of a quorum of disinterested Regular Trustees, (ii) if such
a quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested Regular Trustees so directs, by independent legal counsel in a
written opinion or (iii) the Common Security Holder of the Trust, that, based
upon the facts known to the Regular Trustees, counsel or the Common Security
Holder at the time such determination is made, such Company Indemnified Person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the Trust, or, with respect to any
criminal proceeding, that such Company Indemnified Person believed or had
reasonable cause to believe his conduct was unlawful. In no event shall any
advance be made in instances where the Regular Trustees, independent legal
counsel or Common Security Holder reasonably determine that such Person
deliberately breached his duty to the Trust or its Common or Preferred Security
Holders.
(vi) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other paragraphs of this Section
10.4(a) shall not be deemed exclusive of any other rights to which those
seeking indemnification and advancement of expenses may be entitled under any
agreement, vote of stockholders or disinterested directors of the Debenture
Issuer or Preferred Security Holders of the Trust or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office. All rights to indemnification under this Section 10.4(a)
shall be deemed to be provided by a contract between the Debenture Issuer and
each Company Indemnified Person who serves in such capacity at any time while
this Section 10.4(a) is in effect. Any repeal or modification of this Section
10.4(a) shall not affect any rights or obligations then existing.
(vii) The Sponsor or the Trust may purchase and maintain
insurance on behalf of any person who is or was a Company Indemnified Person
against any liability asserted against him and
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incurred by him in any such capacity, or arising out of his status as such,
whether or not the Debenture Issuer would have the power to indemnify him
against such liability under the provisions of this Section 10.4(a).
(viii) For purposes of this Section 10.4(a), references to
"the Trust" shall include, in addition to the resulting or surviving entity,
any constituent entity (including any constituent of a constituent) absorbed in
a consolidation or merger, so that any person who is or was a director,
trustee, officer or employee of such constituent entity, or is or was serving
at the request of such constituent entity as a director, trustee, officer,
employee or agent of another entity, shall stand in the same position under the
provisions of this Section 10.4(a) with respect to the resulting or surviving
entity as he would have with respect to such constituent entity if its separate
existence had continued.
(ix) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 10.4(a) shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a Company Indemnified Person and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(b) The Sponsor agrees to indemnify the (i) Institutional Trustee,
(ii) the Delaware Trustee, (iii) any Affiliate of the Institutional Trustee and
the Delaware Trustee, and (iv) any officers, directors, shareholders, members,
partners, employees, representatives, custodians, nominees or agents of the
Institutional Trustee and the Delaware Trustee (each of the Persons in (i)
through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to
hold each Fiduciary Indemnified Person harmless against, any loss, liability or
expense incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration or the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees
and expenses) of defending itself against or investigating any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder. The obligation to indemnify as set forth in this Section
10.4(b) shall survive the satisfaction and discharge of this Declaration.
Section 10.5 Outside Businesses.
Any Covered Person, the Sponsor, the Delaware Trustee and the
Institutional Trustee may engage in or possess an interest in other business
ventures of any nature or description, independently or with others, similar or
dissimilar to the business of the Trust, and the Trust and the Holders of
Securities shall have no rights by virtue of this Declaration in and to such
independent ventures or the income or profits derived therefrom, and the
pursuit of any such venture, even if competitive with the business of the
Trust, shall not be deemed wrongful or improper. No Covered Person, the
Sponsor, the Delaware Trustee, or the Institutional Trustee shall be obligated
to present any particular investment or other opportunity to the Trust even if
such opportunity is of a character that, if presented to the Trust, could be
taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee
and the Institutional Trustee shall have the right to take for its own account
(individually, as a partner or fiduciary, or on behalf of another Person in
which the first Person holds an interest) or to recommend to others any such
particular investment or other opportunity. Any Covered Person, the Delaware
Trustee and the Institutional
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Trustee may engage or be interested in any financial or other transaction with
the Sponsor or any Affiliate of the Sponsor, or may act as depositary for,
trustee or agent for, or act on any committee or body of holders of, securities
or other obligations of the Sponsor or its Affiliates.
ARTICLE XI
ACCOUNTING
Section 11.1 Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year, or such other year as is required by the Code, or, if there is no
applicable requirement, selected by the Regular Trustees from time to time
following written notice to the Institutional Trustee.
Section 11.2 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the Regular
Trustees shall keep, or cause to be kept, full books of account, records and
supporting documents, which shall reflect in reasonable detail, each
transaction of the Trust. The books of account shall be maintained on the
accrual method of accounting, in accordance with generally accepted accounting
principles, consistently applied. The Trust shall use the accrual method of
accounting for United States federal income tax purposes. The books of account
and the records of the Trust shall be examined by and reported upon as of the
end of each Fiscal Year of the Trust by a firm of independent certified public
accountants selected by the Regular Trustees.
(b) The Regular Trustees shall cause to be prepared and delivered
to each of the Holders of Securities, within 90 days after the end of each
Fiscal Year of the Trust, annual financial statements of the Trust, including a
balance sheet of the Trust as of the end of such Fiscal Year, and the related
statements of income or loss;
(c) The Regular Trustees shall cause to be duly prepared and
delivered to each of the Holders of Securities, any annual United States
federal income tax information statement, required by the Code, containing such
information with regard to the Securities held by each Holder as is required by
the Code and the Treasury Regulations. Notwithstanding any right under the
Code to deliver any such statement at a later date, the Regular Trustees shall
endeavor to deliver all such statements within 30 days after the end of each
Fiscal Year of the Trust.
(d) The Regular Trustees shall cause to be duly prepared and filed
with the appropriate taxing authority, an annual United States federal income
tax return, on a Form 1041 or such other form required by United States federal
income tax law, and any other annual income tax returns required to be filed by
the Regular Trustees on behalf of the Trust with any state or local taxing
authority.
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Section 11.3 Banking.
The Trustees shall maintain one or more bank accounts in the name and
for the sole benefit of the Trust; provided, however, that all payments of
funds in respect of the Debentures held by the Institutional Trustee shall be
made directly to the Institutional Trustee Account and no other funds of the
Trust shall be deposited in the Institutional Trustee Account. The sole
signatories for such accounts shall be designated by the Regular Trustees;
provided, however, that the Institutional Trustee shall designate the
signatories for the Institutional Trustee Account.
Section 11.4 Withholding.
The Trust and the Regular Trustees shall comply with all withholding
requirements under United States federal, state and local law. The Trust shall
request, and the Holders shall provide to the Trust, such forms or certificates
as are necessary to establish an exemption from withholding with respect to
each Holder, and any representations and forms as shall reasonably be requested
by the Trust to assist it in determining the extent of, and in fulfilling, its
withholding obligations. The Regular Trustees shall file required forms with
applicable jurisdictions and, unless an exemption from withholding is properly
established by a Holder, shall remit amounts withheld with respect to the
Holder to applicable jurisdictions. To the extent that the Trust is required
to withhold and pay over any amounts to any authority with respect to
distributions or allocations to any Holder, the amount withheld shall be deemed
to be a distribution in the amount of the withholding to the Holder. In the
event of any claimed over withholding, Holders shall be limited to an action
against the applicable jurisdiction. If the amount required to be withheld was
not withheld from actual Distributions made, the Trust may reduce subsequent
Distributions by the amount of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
Section 12.1 Amendments.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may only be amended by a
written instrument approved and executed by:
(i) the Regular Trustees (or, if there are more than two
Regular Trustees a majority of the Regular Trustees);
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Institutional Trustee, the Institutional
Trustee; provided, that the Institutional Trustee shall have no obligation to
execute any amendment which affects it adversely; and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware Trustee;
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(b) no amendment shall be made, and any such purported amendment
shall be void and ineffective:
(i) unless, in the case of any proposed amendment, the
Institutional Trustee shall have first received an Officers' Certificate from
each of the Trust and the Sponsor that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the terms of the
Securities);
(ii) unless, in the case of any proposed amendment which
affects the rights, powers, duties, obligations or immunities of the
Institutional Trustee, the Institutional Trustee shall have first received:
(A) an Officers' Certificate from each of the
Trust and the Sponsor that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the Securities); and
(B) an opinion of counsel (who may be counsel to,
and may be an employee of, the Sponsor or the Trust) that such amendment is
permitted by, and conforms to, the terms of this Declaration (including the
terms of the Securities); and
(iii) if the result of such amendment would be to:
(A) cause the Trust to fail to continue to be
classified for purposes of United States federal income taxation as a grantor
trust;
(B) reduce or otherwise adversely affect the
powers of the Institutional Trustee in contravention of the Trust Indenture
Act; or
(C) cause the Trust to be deemed to be an
Investment Company required to be registered under the Investment Company Act;
(c) at such time after the Trust has issued any Securities that
remain outstanding, any amendment that would adversely affect the rights,
privileges or preferences of any Holder of Securities may be effected only with
such additional requirements as may be set forth in the terms of such
Securities;
(d) Section 9.1(c) and this Section 12.1 shall not be amended
without the consent of all of the Holders of the Securities;
(e) Article IV shall not be amended without the consent of the
Holders of a Majority in Liquidation Amount of the Common Securities and;
(f) the rights of the Holders of the Common Securities under
Article V to increase or decrease the number of, and appoint and remove
Trustees shall not be amended without the consent of the Holders of a Majority
in Liquidation Amount of the Common Securities; and
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(g) notwithstanding Section 12.1(c), this Declaration may be
amended without the consent of the Holders of the Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in this
Declaration that may be defective or inconsistent with any other provision of
this Declaration;
(iii) add to the covenants, restrictions or obligations of
the Sponsor;
(iv) to conform to any change in Rule 3a-5 or written
change in interpretation or application of Rule 3a-5 by any legislative body,
court, government agency or regulatory authority which amendment does not have
a material adverse effect on the right, preferences or privileges of the
Holders; and
(v) to modify, eliminate and add to any provision of this
Declaration to such extent as may be necessary to comply with applicable law or
otherwise.
Section 12.2 Meeting of the Holders of Securities; Action by Written
Consent.
(a) Meetings of the Holders of any class of Securities may be
called at any time by the Regular Trustees (or as provided in the terms of the
Securities) to consider and act on any matter on which Holders of such class of
Securities are entitled to act under the terms of this Declaration, the terms
of the Securities or the rules of any stock exchange on which the Preferred
Securities are listed or admitted for trading. The Regular Trustees shall call
a meeting of the Holders of such class if directed to do so by the Holders of
at least 10% in liquidation amount of such class of Securities. Such direction
shall be given by delivering to the Regular Trustees one or more calls in a
writing stating that the signing Holders of Securities wish to call a meeting
and indicating the general or specific purpose for which the meeting is to be
called. Any Holders of Securities calling a meeting shall specify in writing
the Security Certificates held by the Holders of Securities exercising the
right to call a meeting and only those Securities specified shall be counted
for purposes of determining whether the required percentage set forth in the
second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all the
Holders of Securities having a right to vote thereat at least 7 days and not
more than 60 days before the date of such meeting. When ever a vote, consent
or approval of the Holders of Securities is permitted or required under this
Declaration or the rules of any stock exchange on which the Preferred
Securities are listed or admitted for trading, such vote, consent or approval
may be given at a meeting of the Holders of Securities. Any action that may be
taken at a meeting of the Holders of Securities may be taken without a meeting
if a consent in writing setting forth the action so taken is signed by the
Holders of Securities owning not less
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than the minimum amount of Securities in liquidation amount that would be
necessary to authorize or take such action at a meeting at which all Holders of
Securities having a right to vote thereon were present and voting. Prompt
notice of the taking of action without a meeting shall be given to the Holders
of Securities entitled to vote who have not consented in writing. The Regular
Trustees may specify that any written ballot submitted to the Security Holder
for the purpose of taking any action without a meeting shall be returned to the
Trust within the time specified by the Regular Trustees;
(ii) each Holder of a Security may authorize any Person to
act for it by proxy on all matters in which a Holder of Securities is entitled
to participate, including waiving notice of any meeting, or voting or
participating at a meeting. No proxy shall be valid after the expiration of 11
months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the Holder of Securities executing
it. Except as otherwise provided herein, all matters relating to the giving,
voting or validity of proxies shall be governed by the General Corporation Law
of the State of Delaware relating to proxies, and judicial interpretations
thereunder, as if the Trust were a Delaware corporation and the Holders of the
Securities were stockholders of a Delaware corporation;
(iii) each meeting of the Holders of the Securities shall
be conducted by the Regular Trustees or by such other Person that the Regular
Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the
terms of the Securities, the Trust Indenture Act or the listing rules of any
stock exchange on which the Preferred Securities are then listed or trading,
otherwise provides, the Regular Trustees, in their sole discretion, shall
establish all other provisions relating to meetings of Holders of Securities,
including notice of the time, place or purpose of any meeting at which any
matter is to be voted on by any Holders of Securities, waiver of any such
notice, action by consent without a meeting, the establishment of a record
date, quorum requirements, voting in person or by proxy or any other matter
with respect to the exercise of any such right to vote.
ARTICLE XIII
REPRESENTATIONS OF INSTITUTIONAL TRUSTEE
AND DELAWARE TRUSTEE
Section 13.1 Representations and Warranties of Institutional Trustee.
The Trustee that acts as initial Institutional Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Institutional Trustee represents and warrants to the Trust and
the Sponsor at the time of the Successor Institutional Trustee's acceptance of
its appointment as Institutional Trustee that:
(a) the Institutional Trustee is a national banking association
maintaining corporate trust powers, duly organized, validly existing and in
good standing under the laws of the United States, with power and authority to
execute and deliver, and to carry out and perform its obligations under the
terms
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<PAGE> 51
of, this Declaration and all other documents, agreements and instruments, the
execution, delivery and performance of which by the Institutional Trustee is
contemplated by this Declaration;
(b) the execution, delivery and performance by the Institutional
Trustee of this Declaration has been duly authorized by all necessary corporate
action on the part of the Institutional Trustee, and this Declaration has been
duly executed and delivered by the Institutional Trustee;
(c) the execution, delivery and performance of this Declaration by
the Institutional Trustee does not conflict with or constitute a breach of the
Articles of Association, By-laws or other organizational or charter documents
of the Institutional Trustee; and
(d) no consent, approval or authorization of, or registration with
or notice to, any State or Federal banking authority is required for the
execution, delivery or performance by the Institutional Trustee, of this
Declaration or any other documents, agreements or instruments, the execution
delivery and performance of which by the Institutional Trustee is contemplated
by this Declaration.
Section 13.2 Representations and Warranties of Delaware Trustee.
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee that:
(a) The Delaware Trustee has been duly authorized to perform its
obligations under the Certificate of Trust and this Declaration. This
Declaration under Delaware law has been duly executed and delivered by the
Delaware Trustee;
(b) No consent, approval or authorization of, or registration with
or notice to, any State or Federal banking authority is required for the
execution, delivery or performance by the Delaware Trustee of this Declaration;
and
(c) The Delaware Trustee is either a natural person who is a
resident of the State of Delaware or, if not a natural person, a Delaware
banking corporation which maintains its principal place of business in the
State of Delaware, with trust powers and duly organized, validly existing and
in good standing under the laws of the State of Delaware, with trust power and
authority to execute and deliver, and to carry out and perform its obligations
under the terms of, this Declaration and all other documents, agreements and
instruments, the execution, delivery and performance of which by the Delaware
Trustee is contemplated by this Declaration.
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ARTICLE XIV
MISCELLANEOUS
Section 14.1 Notices.
All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by registered or certified mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the
Trust's mailing address set forth below (or such other address as the Trust may
provide to the Holders of the Securities):
Fremont General Financing I
2020 Santa Monica Boulevard
Suite 600
Santa Monica, California 90404
Attention:
(b) if given to the Delaware Trustee, at the mailing address set
forth below (or such other address as Delaware Trustee may provide to the
Holders of the Securities and the Sponsor in writing):
The Chase Manhattan Bank (USA)
802 Delaware Avenue, 13th Floor
Wilmington, DE 19801
Attention: Trust Department
(c) if given to the Institutional Trustee, at its Corporate Trust
Office, to the attention of (or such other address as the Institutional Trustee
may provide to the Holders of the Securities and the Sponsor in writing);
(d) if given to the Holder of the Common Securities, at the
mailing address of the Sponsor set forth below (or such other address as the
Holder of the Common Securities may provide to the Trust in writing):
Fremont General Corporation
2020 Santa Monica Boulevard
Suite 600
Santa Monica, California 90404
Attention:
(e) if given to any other Holder, at the address set forth on the
books and records of the Trust.
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<PAGE> 53
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
Section 14.2 Governing Law.
This Declaration and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of
Delaware and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
Section 14.3 Intention of the Parties.
It is the intention of the parties hereto that the Trust be classified
for United States federal income tax purposes as a grantor trust. The
provisions of this Declaration shall be interpreted to further this intention
of the parties.
Section 14.4 Headings.
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.
Section 14.5 Successors and Assigns
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether or not so expressed.
Section 14.6 Partial Enforceability.
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder
of this Declaration, or the application of such provision to persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
Section 14.7 Counterparts.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
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<PAGE> 54
IN WITNESS WHEREOF, each of the undersigned has caused these presents
to be executed as of the day and year first above written.
/s/ Louis J. Rampino
-------------------------------------
Louis J. Rampino
as Regular Trustee
/s/ Wayne R. Bailey
-------------------------------------
Wayne R. Bailey
as Regular Trustee
THE CHASE MANHATTAN BANK (USA)
as Delaware Trustee
By: /s/ John W. Mack
------------------------------
Name: John W. Mack
Title: Second Vice President
THE CHASE MANHATTAN BANK, N.A.
as Institutional Trustee
By: /s/ Timothy E. Burke
------------------------------
Name: Timothy E. Burke
Title: Second Vice President
FREMONT GENERAL CORPORATION
as Sponsor
By: /s/ Wayne R. Bailey
------------------------------
Wayne R. Bailey
Executive Vice President
and Chief Financial Officer
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<PAGE> 55
I
TERMS OF
9% TRUST ORIGINATED PREFERRED SECURITIES
9% TRUST ORIGINATED COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated Declaration of
Trust, dated as of March 6, 1996 (as amended from time to time, the
"Declaration"), the designation, rights, privileges, restrictions, preferences
and other terms and provisions of the Preferred Securities and the Common
Securities are set out below (each capitalized term used but not defined herein
has the meaning set forth in the Declaration or, if not defined in such
Declaration, as defined in the Prospectus referred to below):
1. Designation and Number.
(a) Preferred Securities. Four million (4,000,000)
Preferred Securities of the Trust with an aggregate liquidation amount with
respect to the assets of the Trust of one hundred million dollars
($100,000,000) and a liquidation amount with respect to the assets of the Trust
of $25 per preferred security, are hereby designated for the purposes of
identification only as "9% Trust Originated Preferred Securities(sm)
('TOPrS'(sm))" (the "Preferred Securities"). The Preferred Security
Certificates evidencing the Preferred Securities shall each be substantially
in the form of Exhibit A-1 to the Declaration, appropriately completed and
with such changes and additions thereto or deletions therefrom as may be
required by ordinary usage, custom or practice or to conform to the rules of
any stock exchange on which the Preferred Securities are listed.
(b) Common Securities. One hundred twenty thousand
(123,711) Common Securities of the Trust with an aggregate liquidation amount
with respect to the assets of the Trust of three million ninety-two thousand
seven hundred and eighty-four dollars ($3,092,784.00) and a liquidation amount
with respect to the assets of the Trust of $25 per common security, are hereby
designated for the purposes of identification only as "9% Trust Originated
Common Securities" (the "Common Securities"). The Common Security Certificates
evidencing the Common Securities shall be each substantially in the form of
Exhibit A-2 to the Declaration, appropriately completed and with such changes
and additions thereto or deletions therefrom as may be required by ordinary
usage, custom or practice.
2. Distributions.
(a) Distributions payable on each Security will be fixed
at a rate per annum of 9% (the "Coupon Rate") of the stated liquidation amount
of $25 per Security, such rate being the rate of interest payable on the
Debentures to be held by the Institutional Trustee. Distributions in arrears
for more than one quarter will bear interest thereon compounded quarterly at
the Coupon Rate (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and any such
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interest payable unless otherwise stated. A Distribution is payable only to
the extent that payments are made in respect of the Debentures held by the
Institutional Trustee and to the extent the Institutional Trustee has funds
available therefor. The amount of Distributions payable for any period will be
compu ted for any full quarterly Distribution period on the basis of a 360-day
year of twelve 30-day months, and for any period shorter than a full quarterly
Distribution period for which Distributions are computed, Distributions will be
computed on the basis of the actual number of days elapsed per 90-day quarter.
(b) Distributions on the Securities will be cumulative,
will accrue from March 6, 1996, and will be payable quarterly in arrears, on
March 31, June 30, September 30 and December 31 of each year, commencing on
March 31, 1996, except as otherwise described below. The Debenture Issuer has
the right under the Indenture to defer payments of interest by extending the
interest payment period from time to time on the Debentures for a period not
exceeding 20 consecutive quarters (each an "Extension Period"), during which
Extension Period no interest shall be due and payable on the Debentures;
provided that no Extension Period shall extend beyond the date of maturity of
the Debentures. As a consequence of such deferral, Distributions will also be
deferred. Despite such deferral, quarterly Distributions will continue to
accrue with interest thereon (to the extent permitted by applicable law) at the
Coupon Rate compounded quarterly during any such Extension Period. Prior to
the termination of any such Extension Period, the Debenture Issuer may further
extend such Extension Period; provided that such Extension Period together with
all such previous and further extensions thereof may not exceed 20 consecutive
quarters or extend beyond the date of maturity of the Debentures. Payments of
accrued Distributions will be payable to Holders as they appear on the books
and records of the Trust on the first record date after the end of the
Extension Period. Upon the termination of any Extension Period and the payment
of all amounts then due, the Debenture Issuer may commence a new Extension
Period, subject to the above requirements. The Debenture Issuer will notify
the Debenture Trustee of its election of any Extension Period, whereupon the
Debenture Trustee will promptly notify the Trustee thereof. The Trustee will
in turn notify the holders within five Business Days following its receipt of
notice from the Debenture Trustee.
(c) Distributions on the Securities will be payable to
the Holders thereof as they appear on the books and records of the Trust on the
relevant record dates. While the Preferred Securities remain in book-entry
only form, the relevant record dates shall be one Business Day prior to the
relevant payment dates which payment dates correspond to the interest payment
dates on the Debentures. Subject to any applicable laws and regulations and
the provisions of the Declaration, each such payment in respect of the
Preferred Securities will be made as described under the heading "Description
of the Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company" in the Prospectus dated March 1, 1996 (the "Prospectus") of the Trust
included in the Registration Statement on Form S-3 Reg. No. 33-64771 of the
Sponsor and the Trust, as amended. The relevant record dates for the Common
Securities shall be the same as the corresponding record dates for the
Preferred Securities. If the Preferred Securities shall not continue to remain
in book-entry only form, the relevant record dates for the Preferred
Securities, shall conform to the rules of any securities exchange on which the
securities are listed and, if none, shall be selected by the Regular Trustees,
which dates shall be at least one Business Day but less than 60 Business Days
before the relevant payment dates, which payment dates correspond to the
interest payment dates on the Debentures. Distributions payable on any
Securities that are not
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punctually paid on any Distribution payment date, as a result of the Debenture
Issuer having failed to make a payment under the Debentures, will cease to be
payable to the Person in whose name such Securities are registered on the
relevant record date, and such defaulted Distribution will instead be payable
to the Person in whose name such Securities are registered on the special
record date or other specified date determined in accordance with the
Indenture. If any date on which Distributions are payable on the Securities is
not a Business Day, then payment of the Distribution payable on such date will
be made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay) except that, if such
Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date.
(d) In the event that there is any money or other
property held by or for the Trust that is not accounted for hereunder, such
property shall be distributed Pro Rata (as defined in Section 8 of this Annex
I) among the Holders of the Securities.
3. Liquidation Distribution Upon Dissolution.
In the event of any voluntary or involuntary dissolution, winding-up
or termination of the Trust, the Holders of the Securities on the date of the
dissolution, winding-up or termination, as the case may be, will be entitled to
receive out of the assets of the Trust available for distribution to Holders of
Securities after satisfaction of liabilities of creditors an amount equal to
the aggregate of the stated liquidation amount of $25 per Security plus accrued
and unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"), unless, in connection with such dissolution,
winding-up or termination, Debentures in an aggregate principal amount equal to
the aggregate stated liquidation amount of such Securities, with an interest
rate equal to the Coupon Rate of, and bearing accrued and unpaid interest in an
amount equal to the accrued and unpaid Distributions on, such Securities, shall
be distributed on a Pro Rata basis to the Holders of each class of Securities
in exchange for such Securities.
If, upon any such dissolution, the Liquidation Distribution can be
paid only in part because the Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Trust on each class of Securities shall be paid on a Pro Rata basis.
4. Redemption and Distribution.
(a) Upon the repayment of the Debentures in whole or in
part, whether at maturity or upon redemption (either at the option of the
Debenture Issuer or pursuant to a Tax Event as described below), the proceeds
from such repayment or payment shall be simultaneously applied to redeem
Securities having an aggregate liquidation amount equal to the aggregate
principal amount of the Debentures so repaid or redeemed at a redemption price
of $25 per Security plus an amount equal to accrued and unpaid Distributions
thereon at the date of the redemption, payable in cash (the "Redemption
Price"). Holders will be given not less than 30 nor more than 60 days notice
of such redemption.
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(b) If fewer than all the outstanding Securities are to
be so redeemed, the Common Securities and the Preferred Securities will be
redeemed Pro Rata and the Preferred Securities to be redeemed will be as
described in Section 4(f)(ii) below.
(c) If a Tax Event shall occur and be continuing the
Regular Trustees shall, except in certain limited circumstances in relation to
a Tax Event described in this Section 4(c), dissolve the Trust and, after
satisfaction of creditors, cause Debentures held by the Institutional Trustee,
having an aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the Coupon Rate of, and accrued
and unpaid interest equal to accrued and unpaid Distributions on, and having
the same record date for payment as the Securities, to be distributed to the
Holders of the Securities in liquidation of such Holders' interests in the
Trust on a Pro Rata basis, within 90 days following the occurrence of such Tax
Event (the "90 Day Period"); provided, however, that, as a condition of such
dissolution and distribution, the Regular Trustees shall have received an
opinion of a nationally recognized independent tax counsel experienced in such
matters (a "No Recognition Opinion"), which opinion may rely on published
revenue rulings of the Internal Revenue Service, to the effect that the Holders
of the Securities will not recognize any gain or loss for United States federal
income tax purposes as a result of the dissolution of the Trust and the
distribution of Debentures, and provided, further, that, if at the time there
is available to the Trust the opportunity to eliminate, within the 90 Day
Period, the Tax Event by taking some ministerial action, such as filing a form
or making an election, or pursuing some other similar reasonable measure that
has no adverse effect on the Trust, the Debenture Issuer, the Sponsor or the
Holders of the Securities ("Ministerial Action"), the Trust will pursue such
Ministerial Action in lieu of dissolution.
If (i) in the event of a Tax Event, after receipt of a Tax Event
Opinion (as defined hereinafter) by the Regular Trustees, the Debenture Issuer
has received an opinion (a "Redemption Tax Opinion") of a nationally recognized
independent tax counsel experienced in such matters that, as a result of a Tax
Event, there is more than an insubstantial risk that the Debenture Issuer would
be precluded from deducting the interest on the Debentures for United States
federal income tax purposes, even if the Debentures were distributed to the
Holders of Securities in liquidation of such Holders' interests in the Trust as
described in this Section 4(c), or (ii) in the event of any Tax Event, after
receipt of a Tax Event Opinion the Regular Trustees shall have been informed by
such tax counsel that a No Recognition Opinion cannot be delivered to the
Trust, the Debenture Issuer shall have the right at any time, upon not less
than 30 nor more than 60 days notice, to redeem the Debentures in whole or in
part for cash within 90 days following the occurrence of such Tax Event, and,
following such redemption, Securities with an aggregate liquidation amount
equal to the aggregate principal amount of the Debentures so redeemed shall be
redeemed by the Trust at the Redemption Price on a Pro Rata basis; provided,
however, that, if at the time there is available to the Trust the opportunity
to eliminate, within such 90 day period, the Tax Event by taking some
Ministerial Action, the Trust or the Debenture Issuer will pursue such
Ministerial Action in lieu of redemption.
"Tax Event" means that the Regular Trustees shall have received an
opinion of a nationally recognized independent tax counsel experienced in such
matters (a "Tax Event Opinion") to the effect that on or after the date of the
Prospectus, as a result of (a) any amendment to, or change (including any
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announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority therefor or
therein, or (b) any amendment to, or change in, an interpretation or
application of any such laws or regulations by any legislative body, court,
governmental agency or regulatory authority, which amendment or change is
enacted, promulgated, issued or announced or which interpretation or
pronouncement is issued or announced or which action is taken, in each case on
or after the date of the Prospectus, there is more than an insubstantial risk
that (i) the Trust is, or will within 90 days of the date thereof become,
subject to United States federal income tax with respect to interest accrued or
received on the Debentures, (ii) the Trust is, or will be within 90 days of the
date thereof, subject to more than a de minimis amount of taxes, duties or
other governmental charges, or (iii) interest payable by the Debenture Issuer
to the Trust on the Debentures is not, or within 90 days of the date thereof
will not be, deductible, in whole or in part, by the Debenture Issuer for
United States federal income tax purposes.
On and from the date fixed by the Regular Trustees for any
distribution of Debentures and upon dissolution of the Trust: (i) the
Securities will no longer be deemed to be outstanding, (ii) the Depository
Trust Company (the "Depository") or its nominee (or any successor Clearing
Agency or its nominee), as the record Holder of the Preferred Securities, will
receive a registered global certificate or certificates representing the
Debentures to be delivered upon such distribution and any certificates
representing Securities, except for certificates representing Preferred
Securities held by the Depository or its nominee (or any successor Clearing
Agency or its nominee), will be deemed to represent beneficial interests in the
Debentures having an aggregate principal amount equal to the aggregate stated
liquidation amount of, with an interest rate identical to the Coupon Rate of,
and accrued and unpaid interest equal to accrued and unpaid Distributions on
such Securities until such certificates are presented to the Debenture Issuer
or its agent for transfer or reissue.
(d) The Trust may not redeem fewer than all the
outstanding Securities unless all accrued and unpaid Distributions have been
paid on all Securities for all quarterly Distribution periods terminating on or
before the date of redemption.
(e) If the Debentures are distributed to Holders of the
Securities, pursuant to the terms of the Indenture, the Debenture Issuer will
use its best efforts to have the Debentures listed on the New York Stock
Exchange or on such other exchange as the Preferred Securities were listed
immediately prior to the distribution of the Debentures.
(f) Redemption or Distribution Procedures.
(i) Notice of any redemption of, or notice of
distribution of Debentures in exchange for the Securities (a
"Redemption/Distribution Notice") will be given by the Trust
by mail to each Holder of Securities to be redeemed or
exchanged not fewer than 30 nor more than 60 days before the
date fixed for redemption or exchange thereof which, in the
case of a redemption, will be the date fixed for redemption of
the Debentures. For purposes of the calculation of the date
of redemption or exchange and the dates on which notices are
given pursuant to this Section 4(f)(i), a Redemption/
Distribution Notice shall
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be deemed to be given on the day such notice is first mailed
by first-class mail, postage prepaid, to Holders of
Securities. Each Redemption/Distribution Notice shall be
addressed to the Holders of Securities at the address of each
such Holder appearing in the books and records of the Trust.
No defect in the Redemption/Distribution Notice or in the
mailing of either thereof with respect to any Holder shall
affect the validity of the redemption or exchange proceedings
with respect to any other Holder.
(ii) In the event that fewer than all the
outstanding Preferred Securities are to be redeemed, the
Preferred Securities to be redeemed shall be redeemed Pro Rata
from each Holder of Preferred Securities, it being understood
that, in respect of Preferred Securities registered in the
name of and held of record by the Depository or its nominee
(or any successor Clearing Agency or its nominee) or any other
nominee, the distribution of the proceeds of such redemption
will be made to each Clearing Agency Participant (or Person on
whose behalf such nominee holds such securities) in accordance
with the procedures applied by such agency or nominee.
(iii) If Securities are to be redeemed and the
Trust gives a Redemption/Distribution Notice, which notice may
only be issued if the Debentures are redeemed as set out in
this Section 4 (which notice will be irrevocable), then (A)
while the Preferred Securities are in book-entry only form,
with respect to the Preferred Securities, by 12:00 noon, New
York City time, on the redemption date, provided that the
Debenture Issuer has paid the Institutional Trustee a
sufficient amount of cash in connection with the related
redemption or maturity of the Debentures, the Institutional
Trustee will deposit irrevocably with the Depository or its
nominee (or successor Clearing Agency or its nominee) funds
sufficient to pay the applicable Redemption Price with respect
to the Preferred Securities and will give the Depository
irrevocable instructions and authority to pay the Redemption
Price to the Holders of the Preferred Securities and (B) with
respect to Preferred Securities issued in definitive form and
Common Securities, provided that the Debenture Issuer has paid
the Institutional Trustee a sufficient amount of cash in
connection with the related redemption or maturity of the
Debentures, the Institutional Trustee will pay the relevant
Redemption Price to the Holders of such Securities by check
mailed to the address of the relevant Holder appearing on the
books and records of the Trust on the redemption date. If a
Redemption/Distribution Notice shall have been given and funds
deposited as required, if applicable, then immediately prior
to the close of business on the date of such deposit, or on
the redemption date, as applicable, Distributions will cease
to accrue on the Securities so called for redemption and all
rights of Holders of such Securities so called for redemption
will cease, except the right of the Holders of such Securities
to receive the Redemption Price, but without interest on such
Redemption Price. Neither the Regular Trustees nor the Trust
shall be required to register or cause to be registered the
transfer of any Securities that have been so called for
redemption. If any date fixed for redemption of Securities is
not a Business Day, then payment of the Redemption Price
payable on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other
payment in respect of
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any such delay) except that, if such Business Day falls in the
next calendar year, such payment will be made on the
immediately preceding Business Day, in each case with the same
force and effect as if made on such date fixed for redemption.
If payment of the Redemption Price in respect of any
Securities is improperly withheld or refused and not paid
either by the Institutional Trustee or by the Sponsor as
guarantor pursuant to the relevant Securities Guarantee,
Distributions on such Securities will continue to accrue from
the original redemption date to the actual date of payment, in
which case the actual payment date will be considered the date
fixed for redemption for purposes of calculating the
Redemption Price.
(iv) Redemption/Distribution Notices shall be sent
by the Regular Trustees on behalf of the Trust to (A) in
respect of the Preferred Securities, the Depository or its
nominee (or any successor Clearing Agency or its nominee) if
the Global Certificates have been issued or, if Definitive
Preferred Security Certificates have been issued, to the
Holder thereof, and (B) in respect of the Common Securities,
the Holder thereof.
(v) Subject to the foregoing and applicable law
(including, without limitation, United States federal
securities laws), provided the acquiror is not the Holder of
the Common Securities or the obligor under the Indenture, the
Sponsor or any of its subsidiaries may at any time and from
time to time purchase outstanding Preferred Securities by
tender, in the open market or by private agreement.
5. Voting Rights - Preferred Securities.
(a) Except as provided under Sections 5(b) and 7 of this
Annex I and as otherwise required by law and the Declaration, the Holders of
the Preferred Securities will have no voting rights.
(b) Subject to the requirements set forth in this
paragraph, the Holders of a Majority in Liquidation Amount of the Preferred
Securities, voting separately as a class, may direct the time, method, and
place of conducting any proceeding for any remedy available to the
Institutional Trustee, or exercising any trust or power conferred upon the
Institutional Trustee under the Declaration, including (i) directing the time,
method, place of conducting any proceeding for any remedy available to the
Deben ture Trustee, or exercising any trust or power conferred on the Debenture
Trustee with respect to the Debentures, (ii) waive any past default and its
consequences that is waivable under Section 513 of the Indenture, or (iii)
exercise any right to rescind or annul a declaration that the principal of all
the Debentures shall be due and payable. The Institutional Trustee shall not
revoke any action previously authorized or approved by a vote of the Holders of
the Preferred Securities. Other than with respect to directing the time,
method and place of conducting any remedy available to the Institutional
Trustee or the Debenture Trustee as set forth above, the Institutional Trustee
shall not take any action in accordance with the directions of the Holders of
the Preferred Securities under this paragraph unless the Institutional Trustee
has obtained an opinion of tax counsel to the effect that for the purposes of
United States federal income tax the Trust will not be classified as other than
a grantor trust on account of such action. If the Institutional Trustee fails
to enforce its rights under the Declaration, to the fullest extent permitted by
I-7
<PAGE> 62
law, any Holder of Preferred Securities may institute a legal proceeding
directly against any Person to enforce the Institutional Trustee's rights under
the Declaration without first instituting a legal proceeding against the
Institutional Trustee or any other Person.
Any approval or direction of Holders of Preferred Securities may be
given at a separate meeting of Holders of Preferred Securities convened for
such purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Regular Trustees will cause a notice of any
meeting at which Holders of Preferred Securities are entitled to vote, or of
any matter upon which action by written consent of such Holders is to be taken,
to be mailed to each Holder of record of Preferred Securities. Each such
notice will include a statement setting forth (i) the date of such meeting or
the date by which such action is to be taken, (ii) a description of any
resolution proposed for adoption at such meeting on which such Holders are
entitled to vote or of such matter upon which written consent is sought and
(iii) instructions for the delivery of proxies or consents.
No vote or consent of the Holders of the Preferred Securities will be
required for the Trust to redeem and cancel Preferred Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
Notwithstanding that Holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Sponsor or any Affiliate of the
Sponsor shall not be entitled to vote or consent and shall, for purposes of
such vote or consent, be treated as if they were not outstanding.
6. Voting Rights -- Common Securities.
(a) Except as provided under Sections 6(b) and (c) and 7
of this Annex I, as otherwise required by law and this Declaration, the Holders
of the Common Securities will have no voting rights.
(b) The Holders of the Common Securities are entitled, in
accordance with Article V of the Declaration, to vote to appoint, remove or
replace any Trustee or to increase or decrease the number of Trustees.
(c) Subject to Section 2.6 of the Declaration and only
after the Event of Default with respect to the Preferred Securities has been
cured, waived, or otherwise eliminated and subject to the requirements of the
second to last sentence of this paragraph, the Holders of a Majority in
Liquidation Amount of the Common Securities, voting separately as a class, may
direct the time, method, and place of conducting any proceeding for any remedy
available to the Institutional Trustee, or exercising any trust or power
conferred upon the Institutional Trustee under the Declaration, including (i)
directing the time, method, place of conducting any proceeding for any remedy
available to the Debenture Trustee, or exercising any trust or power conferred
on the Debenture Trustee with respect to the Debentures, (ii) waive any past
default and its consequences that is waivable under Section 513 of the
Indenture, or (iii) exercise any right to rescind or annul a declaration that
the principal of all the Debentures shall be due and payable. Pursuant to this
Section 6(c), the Institutional Trustee shall not revoke any action
I-8
<PAGE> 63
previously authorized or approved by a vote of the Holders of the Preferred
Securities. Other than with respect to directing the time, method and place of
conducting any remedy available to the Institutional Trustee or the Debenture
Trustee as set forth above, the Institutional Trustee shall not take any action
in accordance with the directions of the Holders of the Common Securities under
this paragraph unless the Institutional Trustee has obtained an opinion of tax
counsel to the effect that for the purposes of United States federal income tax
the Trust will not be classified as other than a grantor trust on account of
such action. If the Institutional Trustee fails to enforce its rights under
the Declaration, to the fullest extent permitted by law, any Holder of Common
Securities may institute a legal proceeding directly against any Person to
enforce the Institutional Trustee's rights under the Declaration, without first
instituting a legal proceeding against the Institutional Trustee or any other
Person.
Any approval or direction of Holders of Common Securities may be given
at a separate meeting of Holders of Common Securities convened for such
purpose, at a meeting of all of the Holders of Securities of the Trust or
pursuant to written consent. The Regular Trustees will cause a notice of any
meeting at which Holders of Common Securities are entitled to vote, or of any
matter upon which action by written consent of such Holders is to be taken, to
be mailed to each Holder of record of Common Securities. Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such Holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the Holders of the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to distribute
the Debentures in accordance with the Declaration and the terms of the
Securities.
7. Amendments to Declaration and Indenture.
(a) In addition to any requirements under Section 12.1
of the Declaration, if any proposed amendment to the Declaration provides for,
or the Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Securities,
whether by way of amendment to the Declaration or otherwise, or (ii) the
dissolution, winding-up or termination of the Trust, other than as described in
Section 8.1 of the Declaration, then the Holders of outstanding Securities as a
class, will be entitled to vote on such amendment or proposal (but not on any
other amendment or proposal) and such amendment or proposal shall not be
effective except with the approval of the Holders of at least a Majority in
Liquidation Amount of the Securities, voting together as a single class;
provided, however, if any amendment or proposal referred to in clause (i) above
would adversely affect only the Preferred Securities or only the Common
Securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a Majority in Liquidation Amount of the Preferred
Securities, or, as the case might be, the Majority in Liquidation Amount of the
Common Securities.
I-9
<PAGE> 64
(b) In the event the consent of the Institutional Trustee
as the holder of the Debentures is required under the Indenture with respect to
any amendment, modification or termination of the Indenture of the Debentures,
the Institutional Trustee shall request the written direction of the Holders of
the Securities with respect to such amendment, modification or termination and
shall vote with respect to such amendment, modification or termination as
directed by a Majority in Liquidation Amount of the Securities voting together
as a single class; provided, however, that the Institutional Trustee shall not
take any action in accordance with the directions of the Holders of the
Securities under this Section 7(b) unless the Institutional Trustee has
obtained an opinion of tax counsel to the effect that for the purposes of
United States federal income tax the Trust will not be classified as other than
a grantor trust on account of such action.
8. Pro Rata.
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each
Holder of Securities according to the aggregate liquidation amount of the
Securities held by the relevant Holder in relation to the aggregate liquidation
amount of all Securities outstanding unless, in relation to a payment, an Event
of Default under the Declaration has occurred and is continuing, in which case
any funds available to make such payment shall be paid first to each Holder of
the Preferred Securities pro rata according to the aggregate liquidation amount
of Preferred Securities held by the relevant Holder relative to the aggregate
liquidation amount of all Preferred Securities outstanding, and only after
satisfaction of all amounts owed to the Holders of the Preferred Securities, to
each Holder of Common Securities pro rata according to the aggregate
liquidation amount of Common Securities held by the relevant Holder relative to
the aggregate liquidation amount of all Common Securities outstanding.
9. Ranking.
The Preferred Securities rank pari passu with, and payment thereon
shall be made Pro Rata with, the Common Securities except that, so long as an
Event of Default occurs and is continuing under the Indenture in respect of the
Debentures held by the Institutional Trustee, the rights of Holders of the
Common Securities to payment in respect of Distributions and payments upon
liquidation, redemption and otherwise are subordinated to the rights to payment
of the Holders of the Preferred Securities until the obligations of the Trust
to the Holders of Preferred Securities have been satisfied in full; provided,
that the Holders of Common Securities may receive securities in respect thereof
which are likewise subordinated to the Preferred Securities on terms no less
favorable to the Holders of the Preferred Securities than the terms of the
Common Securities.
10. Listing.
The Regular Trustees shall use their best efforts to cause the
Preferred Securities to be listed for quotation on the New York Stock Exchange,
Inc.
I-10
<PAGE> 65
11. Acceptance of Securities Guarantee and Indenture.
Each Holder of Preferred Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Preferred Securities
Guarantee and the Common Securities Guarantee, respectively, including the
subordination provisions therein, and to the provisions of the Indenture.
12. No Preemptive Rights.
The Holders of the Securities shall have no preemptive or other
similar rights to subscribe for any additional Securities.
13. Miscellaneous.
These terms constitute a part of the Declaration.
The Sponsor will provide a copy of the Declaration, the Preferred
Securities Guarantee or the Common Securities Guarantee (as may be
appropriate), and the Indenture to a Holder without charge on written request
to the Sponsor at its principal place of business.
I-11
<PAGE> 66
EXHIBIT A-1
FORM OF PREFERRED SECURITY CERTIFICATE
[This Preferred Security is a Global Certificate within the meaning of
the Declaration hereinafter referred to and is registered in the name of The
Depository Trust Company (the "Depositary") or a nominee of the Depositary.
This Preferred Security is exchangeable for Preferred Securities registered in
the name of a person other than the Depositary or its nominee only in the
limited circumstances described in the Declaration and no transfer of this
Preferred Security (other than a transfer of this Preferred Security as a whole
by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary) may be
registered except in limited circumstances.]
[Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust
or its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other
name as is requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]
Certificate Number of Preferred Securities
CUSIP NO. [356905208]
Certificate Evidencing Preferred Securities
of
FREMONT GENERAL FINANCING I
9% Trust Originated Preferred Securities(sm) ("TOPrS"(sm))
(liquidation amount $25 per Preferred Security)
FREMONT GENERAL FINANCING I, a statutory business trust formed under
the laws of the State of Delaware (the "Trust"), hereby certifies that
______________ (the "Holder") is the registered owner of
______________________________________ preferred securities of the Trust
representing undivided beneficial interests in the assets of the Trust
designated the 9% Trust Originated Preferred Securities(sm) (liquidation amount
$25 per Preferred Security) (the "Preferred Securities"). The Preferred
Securities are transferable on the books and records of the Trust, in person or
by a duly authorized attorney, upon surrender of this certificate duly endorsed
and in proper form for transfer. The
A1-1
<PAGE> 67
designation, rights, privileges, restrictions, preferences and other terms and
provisions of the Preferred Securities represented hereby are issued and shall
in all respects be subject to the provisions of the Amended and Restated
Declaration of Trust of the Trust dated as of March 6, 1996, as the same may be
amended from time to time (the "Declaration"), including the designation of the
terms of the Preferred Securities as set forth in Annex I to the Declaration.
Capitalized terms used herein but not defined shall have the meaning given them
in the Declaration. The Holder is entitled to the benefits of the Preferred
Securities Guarantee to the extent provided therein. The Sponsor will provide
a copy of the Declaration, the Preferred Securities Guarantee and the Indenture
to a Holder without charge upon written request to the Sponsor at its principal
place of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Preferred
Securities as evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this ___
day of ________, 1996.
FREMONT GENERAL FINANCING I
By:
------------------------------------
Name: Louis J. Rampino
Title: Regular Trustee
A1-2
<PAGE> 68
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Preferred Security will be fixed at a
rate per annum of 9% (the "Coupon Rate") of the stated liquidation amount of
$25 per Preferred Security, such rate being the rate of interest payable on the
Debentures to be held by the Institutional Trustee. Distributions in arrears
for more than one quarter will bear interest thereon compounded quarterly at
the Coupon Rate (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and any such
interest payable unless otherwise stated. A Distribution is payable only to
the extent that payments are made in respect of the Debentures held by the
Institutional Trustee and to the extent the Institutional Trustee has funds
available therefor. The amount of Distributions payable for any period will be
computed for any full quarterly Distribution period on the basis of a 360-day
year of twelve 30-day months, and for any period shorter than a full quarterly
Distribution period for which Distributions are computed, Distributions will be
computed on the basis of the actual number of days elapsed per 90-day quarter.
Except as otherwise described below, distributions on the Preferred
Securities will be cumulative, will accrue from the date of original issuance
and will, subject to deferral as provided below, be payable quarterly in
arrears, on March 31, June 30, September 30 and December 31 of each year,
commencing on March 31, 1996, [to Holders of record as of the preceding
Business Day] [to Holders of record fifteen (15) days prior to such payment
dates, which payment dates shall correspond to the interest payment dates on
the Debentures]. The Debenture Issuer has the right under the Indenture to
defer payments of interest by extending the interest payment period from time
to time on the Debentures for a period not exceeding 20 consecutive quarters
(each an "Extension Period"), during which Extension Period no interest shall
be due and payable on the Debentures; provided that no Extension Period shall
extend beyond the date of maturity of the Debentures. As a consequence of such
deferral, Distributions will also be deferred. Despite such deferral,
quarterly Distributions will continue to accrue with interest thereon (to the
extent permitted by applicable law) at the Coupon Rate compounded quarterly
during any such Extension Period. Prior to the termination of any such
Extension Period, the Debenture Issuer may further extend such Extension
Period; provided that such Extension Period together with all such previous and
further extensions thereof may not exceed 20 consecutive quarters or extend
beyond the maturity of the Debentures. Payments of accrued Distributions will
be payable to Holders as they appear on the books and records of the Trust on
the first record date after the end of the Extension Period. Upon the
termination of any Extension Period and the payment of all amounts then due,
the Debenture Issuer may commence a new Extension Period, subject to the above
requirements.
The Preferred Securities shall be redeemable as provided in the
Declaration.
A1-3
<PAGE> 69
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security Certificate to:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
agent to transfer this Preferred Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date:
--------------------------------
Signature:
----------------------------------------------------
(Sign exactly as your name appears on the other side of this Preferred Security
Certificate)
A1-4
<PAGE> 70
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
Certificate Number Number of Common Securities
Certificate Evidencing Common Securities
of
FREMONT GENERAL FINANCING I
9% Trust Originated Common Securities
(liquidation amount $25 per Common Security)
FREMONT GENERAL FINANCING I, a statutory business trust formed under
the laws of the State of Delaware (the "Trust"), hereby certifies that
_____________________ (the "Holder") is the registered owner of common
securities of the Trust representing undivided beneficial interests in the
assets of the Trust designated the 9% Trust Originated Common Securities
(liquidation amount $25 per Common Security) (the "Common Securities"). The
Common Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate
duly endorsed and in proper form for transfer. The designation, rights,
privileges, restrictions, preferences and other terms and provisions of the
Common Securities represented hereby are issued and shall in all respects be
subject to the provisions of the Amended and Restated Declaration of Trust of
the Trust dated as of March 6, 1996, as the same may be amended from time to
time (the "Declaration"), including the designation of the terms of the Common
Securities as set forth in Annex I to the Declaration. Capitalized terms used
herein but not defined shall have the meaning given them in the Declaration.
The Holder is entitled to the benefits of the Common Securities Guarantee to
the extent provided therein. The Sponsor will provide a copy of the
Declaration, the Common Securities Guarantee and the Indenture to a Holder
without charge upon written request to the Sponsor at its principal place of
business.
Upon receipt of this certificate, the Sponsor is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Common Securities
as evidence of indirect beneficial ownership in the Debentures.
A2-1
<PAGE> 71
IN WITNESS WHEREOF, the Trust has executed this certificate this ___
day of __________, 1996.
FREMONT GENERAL FINANCING I
By:
----------------------------------
Name: Louis J. Rampino
Title: Regular Trustee
A2-2
<PAGE> 72
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a rate
per annum of 9% (the "Coupon Rate") of the stated liquidation amount of $25 per
Common Security, such rate being the rate of interest payable on the Debentures
to be held by the Institutional Trustee. Distributions in arrears for more
than one quarter will bear interest thereon compounded quarterly at the Coupon
Rate (to the extent permitted by applicable law). The term "Distributions" as
used herein includes such cash distributions and any such interest payable
unless otherwise stated. A Distribution is payable only to the extent that
payments are made in respect of the Debentures held by the Institutional
Trustee and to the extent the Institutional Trustee has funds available
therefor. The amount of Distributions payable for any period will be computed
for any full quarterly Distribution period on the basis of a 360-day year of
twelve 30-day months, and for any period shorter than a full quarterly
Distribution period for which Distributions are computed, Distributions will be
computed on the basis of the actual number of days elapsed per 90-day quarter.
Except as otherwise described below, distributions on the Common
Securities will be cumulative, will accrue from the date of original issuance
and will be payable quarterly in arrears, on March 31, June 30, September 30
and December 31 of each year, commencing on March 31, 1996, [to Holders of
record as of the preceding Business Day][to Holders of record fifteen (15)
days prior to such payment dates, which payment dates shall correspond to the
interest payment dates on the Debentures]. The Debenture Issuer has the right
under the Indenture to defer payments of interest by extending the interest
payment period from time to time on the Debentures for a period not exceeding
20 consecutive quarters (each an "Extension Period") during which Extension
Period no interest shall be due and payable on the Debentures; provided, that
no Extension Period shall extend beyond the date of maturity of the Debentures.
As a consequence of such deferral, Distributions will also be deferred.
Despite such deferral, quarterly Distributions will continue to accrue with
interest thereon (to the extent permitted by applicable law) at the Coupon Rate
compounded quarterly during any such Extension Period. Prior to the
termination of any such Extension Period, the Debenture Issuer may further
extend such Extension Period; provided that such Extension Period together with
all such previous and further extensions thereof may not exceed 20 consecutive
quarters or extend beyond the date of maturity of the Debentures. Payments of
accrued Distributions will be payable to Holders as they appear on the books
and records of the Trust on the first record date after the end of the
Extension Period. Upon the termination of any Extension Period and the payment
of all amounts then due, the Debenture Issuer may commence a new Extension
Period, subject to the above requirements.
The Common Securities shall be redeemable as provided in the
Declaration.
A2-3
<PAGE> 73
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
agent to transfer this Common Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date:
---------------------------
Signature:
-----------------------------------------
(Sign exactly as your name appears on the other side of this Common Security
Certificate)
A2-4
<PAGE> 74
EXHIBIT B
SPECIMEN OF DEBENTURE
B-1
<PAGE> 75
EXHIBIT C
PURCHASE AGREEMENT
C-1
<PAGE> 1
EXHIBIT 4.6
====================================
PREFERRED SECURITIES GUARANTEE AGREEMENT
Fremont General Financing I
Dated as of March 6, 1996
====================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application . . . . . . . . . . . . . . . . . . . 4
SECTION 2.2 Lists of Holders of Securities . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.3 Reports by the Preferred Guarantee Trustee . . . . . . . . . . . . . . 4
SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee . . . . . . . . . . . 4
SECTION 2.5 Evidence of Compliance with Conditions Precedent . . . . . . . . . . . 5
SECTION 2.6 Events of Default; Waiver . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.7 Event of Default; Notice . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.8 Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Preferred Guarantee Trustee . . . . . . . . . 5
SECTION 3.2 Certain Rights of Preferred Guarantee Trustee . . . . . . . . . . . . 7
SECTION 3.3. Not Responsible for Recitals or Issuance of Guarantee . . . . . . . . 8
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 Preferred Guarantee Trustee; Eligibility . . . . . . . . . . . . . . . 8
SECTION 4.2 Appointment, Removal and Resignation of Preferred
Guarantee Trustees . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 5.2 Waiver of Notice and Demand . . . . . . . . . . . . . . . . . . . . . 10
SECTION 5.3 Obligations Not Affected . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 5.4 Rights of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.5 Guarantee of Payment . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.6 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.7 Independent Obligations . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 6.1 Limitation of Transactions . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 6.2 Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VII
TERMINATION
SECTION 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 9.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 9.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 9.4 Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 9.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
ii
<PAGE> 4
PREFERRED SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Preferred Securities Guarantee"), dated
as of March 6, 1996, is executed and delivered by Fremont General Corporation,
a Nevada corporation (the "Guarantor"), in favor of The Chase Manhattan Bank,
N.A., as trustee (the "Preferred Guarantee Trustee"), for the benefit of the
Holders (as defined herein) from time to time of the Preferred Securities (as
defined herein) of Fremont General Financing I, a Delaware statutory business
trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"), dated as of March 6, 1996, among the trustees of the Issuer
named therein, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer is
issuing on the date hereof 4,000,000 preferred securities, having an aggregate
liquidation amount of $100,000,000 (plus up to an additional 600,000 preferred
securities, having an aggregate liquidation amount of $15,000,000, to cover
over-allotments), designated the 9% Trust Originated Preferred Securities(sm)
(the "Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to guarantee the
obligations of the Issuer to the Holders of the Preferred Securities on the
terms and conditions set forth herein.
WHEREAS, the Guarantor is also executing and delivering a guarantee
agreement (the "Common Securities Guarantee") in substantially identical terms
to this Preferred Securities Guarantee for the benefit of the holders of the
Common Securities (as defined herein), except that if an Event of Default (as
defined in the Indenture), has occurred and is continuing, the rights of
holders of the Common Securities to receive Guarantee Payments under the Common
Securities Guarantee shall be subordinated to the rights of Holders of
Preferred Securities to receive Guarantee Payments under this Preferred
Securities Guarantee.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation
In this Preferred Securities Guarantee, unless the context otherwise
requires:
(a) Capitalized terms used in this Preferred Securities Guarantee but not
defined in the preamble above have the respective meanings assigned to
them in this Section 1.1;
(b) a term defined anywhere in this Preferred Securities Guarantee has the
same meaning throughout;
(c) all references to "the Preferred Securities Guarantee" or "this
Preferred Securities Guarantee" are to this Preferred Securities
Guarantee as modified, supplemented or amended from time to time;
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(d) all references in this Preferred Securities Guarantee to Articles and
Sections are to Articles and Sections of this Preferred Securities
Guarantee, unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Preferred Securities Guarantee, unless otherwise defined
in this Preferred Securities Guarantee or unless the context otherwise
requires;
(f) a reference to the singular includes the plural and vice versa;
(g) a reference to any Person shall include its successors and assigns;
(h) a reference to any agreement or instrument shall mean such agreement
or instrument or instrument as supplemented, modified, amended or
amended and restated and in effect from time to time; and
(i) a reference to any statute, law, rule or regulation, shall include any
amendments thereto applicable to the relevant Person, and any
successor statute, law, rule or regulation.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a day on which banking institutions
in the City of New York, New York are authorized or required by any applicable
law to close.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer.
"Corporate Trust Office" means the office of the Preferred Guarantee Trustee
at which the corporate trust business of the Preferred Guarantee Trustee shall,
at any particular time, be principally administered, which office at the date
of execution of this Agreement is located at 4 Chase MetroTech Center,
Brooklyn, New York 11245, Attention: Institutional Trust Group.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debentures" means the 9% Junior Subordinated Deferrable Interest Debentures
due March 31, 2026 of the Issuer held by the Institutional Trustee (as defined
in the Declaration).
"Event of Default" means a default by the Guarantor on any of its payment or
other obligations under this Preferred Securities Guarantee.
"Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Preferred Securities, to the extent not paid
or made by the Issuer: (i) any accrued and unpaid Distributions (as defined in
the Declaration) that are required to be paid on such Preferred Securities to
the extent the Issuer shall have funds available therefor, (ii) the redemption
price, including all accrued and unpaid Distributions to the date of redemption
(the "Redemption Price") to the extent the Issuer has funds available therefor,
with respect to any Preferred Securities called for redemption by the Issuer,
and (iii) upon a voluntary or involuntary dissolution, winding-up or
termination of the Issuer (other than in connection with the distribution of
Debentures to the Holders in exchange for Preferred Securities as provided in
the Declaration), the lesser of (a) the aggregate of the liquidation amount and
all
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accrued and unpaid Distributions on the Preferred Securities to the date of
payment, to the extent the Issuer shall have funds available therefor, and (b)
the amount of assets of the Issuer remaining available for distribution to
Holders in liquidation of the Issuer (in either case, the "Liquidation
Distribution"). If an event of default under the Indenture has occurred and is
continuing, the rights of holders of the Common Securities to receive payments
under the Common Securities Guarantee Agreement are subordinated to the rights
of Holders of Preferred Securities to receive Guarantee Payments.
"Holder" shall mean any holder, as registered on the books and records of
the Issuer of any Preferred Securities; provided, however, that, in determining
whether the holders of the requisite percentage of Preferred Securities have
given any request, notice, consent or waiver hereunder, "Holder" shall not
include the Guarantor or any Affiliate of the Guarantor.
"Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of
the Preferred Guarantee Trustee, or any officers, directors, shareholders,
members, partners, employees, representatives, nominees, custodians or agents
of the Preferred Guarantee Trustee.
"Indenture" means the Indenture dated as of March 6, 1996, among the
Guarantor (the "Debenture Issuer") and First Interstate Bank of California, a
California banking corporation, as trustee, pursuant to which the Debentures
are to be issued to the Property Trustee of the Issuer.
"Indenture Trustee" means the Person acting as trustee under the Indenture,
initially First Interstate Bank of California.
"Majority in liquidation amount of the Securities" means, except as provided
by the Trust Indenture Act, a vote by Holder(s) of Preferred Securities, voting
separately as a class, of more than 50% of the liquidation amount (including
the stated amount that would be paid on redemption, liquidation or otherwise,
plus accrued and unpaid Distributions to the date upon which the voting
percentages are determined) of all Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two Authorized Officers of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
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"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever
nature.
"Preferred Guarantee Trustee" means The Chase Manhattan Bank, N.A., until a
Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer within the Corporate Trust Office of the Preferred
Guarantee Trustee, including any vice-president, any assistant vice-president,
any assistant secretary, the treasurer, any assistant treasurer or other
officer of the Corporate Trust Office of the Preferred Guarantee Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of that
officer's knowledge of and familiarity with the particular subject.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application
(a) This Preferred Securities Guarantee is subject to the provisions of
the Trust Indenture Act that are required to be part of this Preferred
Securities Guarantee and shall, to the extent applicable, be governed by such
provisions; and
(b) If and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.
SECTION 2.2 Lists of Holders of Securities
(a) The Guarantor shall provide the Preferred Guarantee Trustee with a
list, in such form as the Preferred Guarantee Trustee may reasonably require,
of the names and addresses of the Holders of the Preferred Securities ("List of
Holders") as of such date, (i) within one Business Day after January 1 and June
30 of each year, and (ii) at any other time within 30 days of receipt by the
Guarantor of a written request for a List of Holders as of a date no more than
14 days before such List of Holders is given to the Preferred Guarantee Trustee
provided, that the Guarantor shall not be obligated to provide such List of
Holders at any time the List of Holders does not differ from the most recent
List of Holders given to the Preferred Guarantee Trustee by the Guarantor or
the Preferred Securities are represented by one or more Global Securities (as
defined in the Indenture). The Preferred Guarantee Trustee may destroy any
List of Holders previously given to it on receipt of a new List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations
under Section 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
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SECTION 2.3 Reports by the Preferred Guarantee Trustee
Within 60 days after May 15 of each year, the Preferred Guarantee Trustee
shall provide to the Holders of the Preferred Securities such reports as are
required by Section 313 of the Trust Indenture Act, if any, in the form and in
the manner provided by Section 313 of the Trust Indenture Act. The Preferred
Guarantee Trustee shall also comply with the requirements of Section 313(d) of
the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee
The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information as required by Section 314 (if any) and the
compliance certificate required by Section 314 of the Trust Indenture Act in
the form, in the manner and at the times required by Section 314 of the Trust
Indenture Act.
SECTION 2.5 Evidence of Compliance with Conditions Precedent
The Guarantor shall provide to the Preferred Guarantee Trustee such evidence
of compliance with any conditions precedent, if any, provided for in this
Preferred Securities Guarantee that relate to any of the matters set forth in
Section 314(c) of the Trust Indenture Act. Any certificate or opinion required
to be given by an officer pursuant to Section 314(c)(1) may be given in the
form of an Officers' Certificate.
SECTION 2.6 Events of Default; Waiver
The Holders of a Majority in liquidation amount of Preferred Securities may,
by vote, on behalf of the Holders of all of the Preferred Securities, waive any
past Event of Default and its consequences. Upon such waiver, any such Event
of Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured, for every purpose of this Preferred
Securities Guarantee, but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 2.7 Event of Default; Notice
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events of
Default actually known to a Responsible Officer of the Preferred Guarantee
Trustee, unless such defaults have been cured before the giving of such notice,
provided, that, the Preferred Guarantee Trustee shall be protected in
withholding such notice if and so long as a Responsible Officer of the
Preferred Guarantee Trustee in good faith determines that the withholding of
such notice is in the interests of the Holders of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Preferred Guarantee Trustee shall
have received written notice, or of which a Responsible Officer of the
Preferred Guarantee Trustee charged with the administration of the Declaration
shall have obtained actual knowledge.
SECTION 2.8 Conflicting Interests
The Declaration shall be deemed to be specifically described in this
Preferred Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.
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ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Preferred Guarantee Trustee
(a) This Preferred Securities Guarantee shall be held by the Preferred
Guarantee Trustee for the benefit of the Holders of the Preferred Securities,
and the Preferred Guarantee Trustee shall not transfer this Preferred
Securities Guarantee to any Person except a Holder of Preferred Securities
exercising his or her rights pursuant to Section 5.4(b) or to a Successor
Preferred Guarantee Trustee on acceptance by such Successor Preferred Guarantee
Trustee of its appointment to act as Successor Preferred Guarantee Trustee.
The right, title and interest of the Preferred Guarantee Trustee shall
automatically vest in any Successor Preferred Guarantee Trustee, and such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered pursuant to the appointment of such
Successor Preferred Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer of
the Preferred Guarantee Trustee has occurred and is continuing, the Preferred
Guarantee Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any Event
of Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Preferred Securities Guarantee, and no implied covenants shall be
read into this Preferred Securities Guarantee against the Preferred Guarantee
Trustee. In case an Event of Default has occurred (that has not been cured or
waived pursuant to Section 2.6) and is actually known to a Responsible Officer
of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall
exercise such of the rights and powers vested in it by this Preferred
Securities Guarantee, and use the same degree of care and skill in its exercise
thereof, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.
(d) No provision of this Preferred Securities Guarantee shall be
construed to relieve the Preferred Guarantee Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Preferred Guarantee Trustee shall
be determined solely by the express provisions of this Preferred Securities
Guarantee, and the Preferred Guarantee Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set forth in
this Preferred Securities Guarantee, and no implied covenants or obligations
shall be read into this Preferred Securities Guarantee against the Preferred
Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Preferred Guarantee
Trustee, the Preferred Guarantee Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Preferred Guarantee Trustee
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and conforming to the requirements of this Preferred Securities Guarantee; but
in the case of any such certificates or opinions that by any provision hereof
are specifically required to be furnished to the Preferred Guarantee Trustee,
the Preferred Guarantee Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this Preferred
Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer of the Preferred
Guarantee Trustee, unless it shall be proved that the Preferred Guarantee
Trustee was negligent in ascertaining the pertinent facts upon which such
judgment was made;
(iii) the Preferred Guarantee Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in liquidation amount
of the Preferred Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Preferred Guarantee
Trustee, or exercising any trust or power conferred upon the Preferred
Guarantee Trustee under this Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee shall require
the Preferred Guarantee Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its duties or
in the exercise of any of its rights or powers, if the Preferred Guarantee
Trustee shall have reasonable grounds for believing that the repayment of such
funds or liability is not reasonably assured to it under the terms of this
Preferred Securities Guarantee or indemnity, reasonably satisfactory to the
Preferred Guarantee Trustee, against such risk or liability is not reasonably
assured to it.
SECTION 3.2 Certain Rights of Preferred Guarantee Trustee
(a) Subject to the provisions of Section 3.1:
(i) The Preferred Guarantee Trustee may conclusively rely, and shall be
fully protected in acting or refraining from acting upon, any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by this
Preferred Securities Guarantee shall be sufficiently evidenced by a Direction
or an Officers' Certificate.
(iii) Whenever, in the administration of this Preferred Securities
Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a
matter be proved or established before taking, suffering or omitting any action
hereunder, the Preferred Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part, request
and conclusively rely upon an Officers' Certificate which, upon receipt of such
request, shall be promptly delivered by the Guarantor.
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(iv) The Preferred Guarantee Trustee shall have no duty to see to any
recording, filing or registration of any instrument (or any rerecording,
refiling or registration thereof).
(v) The Preferred Guarantee Trustee may consult with counsel, and the
written advice or opinion of such counsel with respect to legal matters shall
be full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in accordance with
such advice or opinion. Such counsel may be counsel to the Guarantor or any of
its Affiliates and may include any of its employees. The Preferred Guarantee
Trustee shall have the right at any time to seek instructions concerning the
administration of this Preferred Securities Guarantee from any court of
competent jurisdiction.
(vi) The Preferred Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Preferred Securities
Guarantee at the request or direction of any Holder, unless such Holder shall
have provided to the Preferred Guarantee Trustee such security and indemnity,
reasonably satisfactory to the Preferred Guarantee Trustee, against the costs,
expenses (including attorneys' fees and expenses and the expenses of the
Preferred Guarantee Trustee's agents, nominees or custodians) and liabilities
that might be incurred by it in complying with such request or direction,
including such reasonable advances as may be requested by the Preferred
Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(vi)
shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence
of an Event of Default, of its obligation to exercise the rights and powers
vested in it by this Preferred Securities Guarantee.
(vii) The Preferred Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Preferred Guarantee Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit.
(viii) The Preferred Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents, nominees, custodians or attorneys, and the Preferred Guarantee
Trustee shall not be responsible for any misconduct or negligence on the part
of any agent or attorney appointed with due care by it hereunder.
(ix) Any action taken by the Preferred Guarantee Trustee or its agents
hereunder shall bind the Holders of the Preferred Securities, and the signature
of the Preferred Guarantee Trustee or its agents alone shall be sufficient and
effective to perform any such action. No third party shall be required to
inquire as to the authority of the Preferred Guarantee Trustee to so act or as
to its compliance with any of the terms and provisions of this Preferred
Securities Guarantee, both of which shall be conclusively evidenced by the
Preferred Guarantee Trustee's or its agent's taking such action.
(x) Whenever in the administration of this Preferred Securities
Guarantee the Preferred Guarantee Trustee shall deem it desirable to receive
instructions with respect to enforcing any remedy or right or taking any other
action hereunder, the Preferred Guarantee Trustee (i) may request instructions
from the
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Holders of a Majority in liquidation amount of the Preferred Securities, (ii)
may refrain from enforcing such remedy or right or taking such other action
until such instructions are received, and (iii) shall be protected in
conclusively relying on or acting in accordance with such instructions.
(b) No provision of this Preferred Securities Guarantee shall be deemed
to impose any duty or obligation on the Preferred Guarantee Trustee to perform
any act or acts or exercise any right, power, duty or obligation conferred or
imposed on it in any jurisdiction in which it shall be illegal, or in which the
Preferred Guarantee Trustee shall be unqualified or incompetent in accordance
with applicable law, to perform any such act or acts or to exercise any such
right, power, duty or obligation. No permissive power or authority available
to the Preferred Guarantee Trustee shall be construed to be a duty.
SECTION 3.3. Not Responsible for Recitals or Issuance of Guarantee
The recitals contained in this Guarantee shall be taken as the statements of
the Guarantor, and the Preferred Guarantee Trustee does not assume any
responsibility for their correctness. The Preferred Guarantee Trustee makes no
representation as to the validity or sufficiency of this Preferred Securities
Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 Preferred Guarantee Trustee; Eligibility
(a) There shall at all times be a Preferred Guarantee Trustee which
shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws of the
United States of America or any State or Territory thereof or of the District
of Columbia, or a corporation or Person permitted by the Securities and
Exchange Commission to act as an institutional trustee under the Trust
Indenture Act, authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least 50 million U.S. dollars
($50,000,000), and subject to supervision or examination by Federal, State,
Territorial or District of Columbia authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the supervising or examining authority referred to above, then, for the
purposes of this Section 4.1(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
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Section 4.2 Appointment, Removal and Resignation of Preferred Guarantee
Trustees
(a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee shall not be removed in accordance
with Section 4.2(a) until a Successor Preferred Guarantee Trustee has been
appointed and has accepted such appointment by written instrument executed by
such Successor Preferred Guarantee Trustee and delivered to the Guarantor.
(c) The Preferred Guarantee Trustee appointed to office shall hold
office until a Successor Preferred Guarantee Trustee shall have been appointed
or until its removal or resignation. The Preferred Guarantee Trustee may
resign from office (without need for prior or subsequent accounting) by an
instrument in writing executed by the Preferred Guarantee Trustee and delivered
to the Guarantor, which resignation shall not take effect until a Successor
Preferred Guarantee Trustee has been appointed and has accepted such
appointment by instrument in writing executed by such Successor Preferred
Guarantee Trustee and delivered to the Guarantor and the resigning Preferred
Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.2 within 60
days after delivery to the Guarantor of an instrument of resignation, the
resigning Preferred Guarantee Trustee may petition any court of competent
jurisdiction for appointment of a Successor Preferred Guarantee Trustee. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Preferred Securities Guarantee or removal
or resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2,
the Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued
to the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
Section 5.1 Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by the Issuer), as and when due, regardless of any defense, right of set-off or
counterclaim that the Issuer may have or assert. The Guarantor's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Issuer to pay such
amounts to the Holders.
Section 5.2 Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first
against the Issuer or any other Person before proceeding against the Guarantor,
protest, notice of nonpayment, notice of dishonor, notice of redemption and all
other notices and demands.
Section 5.3 Obligations Not Affected
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The obligations, covenants, agreements and duties of the Guarantor under this
Preferred Securities Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be
performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or any
other sums payable under the terms of the Preferred Securities or the extension
of time for the performance of any other obligation under, arising out of, or
in connection with, the Preferred Securities (other than an extension of time
for payment of Distributions, Redemption Price, Liquidation Distribution or
other sum payable that results from the extension of any interest payment
period on the Debentures or any extension of the maturity date of the
Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Preferred
Securities, or any action on the part of the Issuer granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;
(e) any invalidity of, or defect or deficiency in, the Preferred
Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the
foregoing.
Section 5.4 Rights of Holders
(a) The Holders of a Majority in liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting of
any proceeding for any remedy available to the Preferred Guarantee Trustee in
respect of this Preferred Securities Guarantee or exercising any trust or power
conferred upon the Preferred Guarantee Trustee under this Preferred Securities
Guarantee.
(b) If the Preferred Guarantee Trustee fails to enforce this Preferred
Securities Guarantee, any Holder of Preferred Securities may institute a legal
proceeding directly against the Guarantor to enforce its rights under this
Preferred Securities Guarantee, without first instituting a legal proceeding
against the Issuer, the Preferred Guarantee Trustee or any other Person.
(c) If an Event of Default with respect to the Debentures (an
"Indenture Event of Default"),
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constituting the failure to pay interest or principal on the Debentures on the
date such interest or principal is otherwise payable has occurred and is
continuing, then a holder of Preferred Securities may at any time directly
institute a proceeding for enforcement of payment to such holder directly of
the principal of or interest on the Debentures having a principal amount equal
to the aggregate liquidation amount of the Preferred Securities of such holder
on or after the respective due date specified in the Debentures. The holders of
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Debentures unless the Institutional Trustee
fails to do so.
SECTION 5.5 Guarantee of Payment
This Preferred Securities Guarantee creates a guarantee of payment and not
of collection.
SECTION 5.6 Subrogation
The Guarantor shall be subrogated to all (if any) rights of the Holders of
Preferred Securities against the Issuer in respect of any amounts paid to such
Holders by the Guarantor under this Preferred Securities Guarantee; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any right that
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Preferred Securities
Guarantee, if, at the time of any such payment, any amounts are due and unpaid
under this Preferred Securities Guarantee. If any amount shall be paid to the
Guarantor in violation of the preceding sentence, the Guarantor agrees to hold
such amount in trust for the Holders and to pay over such amount to the
Holders.
SECTION 5.7 Independent Obligations
The Guarantor acknowledges that its obligations hereunder are independent of
the obligations of the Issuer with respect to the Preferred Securities, and
that the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions
So long as any Preferred Securities remain outstanding, if there shall have
occurred an Event of Default or an event of default under the Declaration, then
(a) the Guarantor shall not and shall not allow any of its subsidiaries (other
than its wholly owned subsidiaries) to, declare or pay dividends on, or make a
distribution with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
repurchases or acquisitions of shares of the common stock of the Guarantor as
contemplated by any employment arrangement, benefit plan or other similar
contract with or for the benefit of employees, officers or directors entered
into in the ordinary course of business), (ii) as a result of an exchange or
conversion of any class or series of the Guarantor's capital stock for the
Guarantor's common stock, (iii) the purchase of fractional interests in shares
of the Guarantor's capital stock pursuant to the conversion or exchange
provisions of such Guarantor capital stock or the security being converted or
exchanged, or (iv) the payment of any stock dividend by the Guarantor payable
in the Guarantor's common stock) or make any guarantee payments with respect to
the foregoing and (b) the
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Guarantor shall not, and shall not allow any of its subsidiaries to, make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Guarantor that rank pari passu with or
junior to the Junior Subordinated Debentures except as (i) required in
accordance with the terms thereof (including, in the case of junior debt, the
subordination provisions thereof, (ii) in connection with a contemporaneous
refinancing of such debt securities with the proceeds of a new issuance of debt
securities repurchased or refinanced (iii) in connection with the
contemporaneous conversion or exchange of such debt securities for common stock
of the Guarantor; provided, however, that in no event shall the amount to be
paid by the Guarantor or any of its subsidiaries under (a) or (b) (ii) or (iii)
above exceed in the aggregate $500,000 per year.
SECTION 6.2 Ranking
(a) This Preferred Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right
of payment to all other liabilities of the Guarantor, (ii) pari passu with the
most senior preferred or preference stock now or hereafter issued by the
Guarantor and with any guarantee now or hereafter entered into by the Guarantor
in respect of any preferred or preference stock of any Affiliate of the
Guarantor, and (iii) senior to the Guarantor's common stock.
(b) The holders of any obligations of the Guarantor which are senior in
priority to the obligations under this Preferred Securities Guarantee will be
entitled to all of the rights inuring to the holders of "Senior Indebtedness"
under Article 11 of the Indenture, and the Holders of the Preferred Securities
will be subject to all of the terms and conditions of such Article 11 with
respect to any claims or rights hereunder with the same effect as though fully
set forth herein.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination
This Preferred Securities Guarantee shall terminate upon (i) full payment of
the Redemption Price of all Preferred Securities, (ii) upon the distribution of
the Debentures to the Holders of all of the Preferred Securities or (iii) upon
full payment of the amounts payable in accordance with the Declaration upon
liquidation of the Issuer. Notwithstanding the foregoing, this Preferred
Securities Guarantee will continue to be effective or will be reinstated, as
the case may be, if at any time any Holder of Preferred Securities must restore
payment of any sums paid under the Preferred Securities or under this Preferred
Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation
(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Guarantor or any Covered Person for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Indemnified Person in good faith in accordance with this Preferred
Securities Guarantee and in a manner that such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this Preferred Securities Guarantee or by law, except that an
Indemnified Person shall be liable for any such loss, damage or claim incurred
by reason of such Indemnified Person's negligence or willful misconduct with
respect to such acts or
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<PAGE> 17
omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters
the Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Guarantor, including information, opinions, reports
or statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
SECTION 8.2 Indemnification
The Guarantor agrees to indemnify each Indemnified Person for, and to hold
each Indemnified Person harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees
and expenses) of defending itself against, or investigating, any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder. The obligation to indemnify as set forth in this Section
8.2 shall survive the termination of this Preferred Securities Guarantee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns
All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding.
SECTION 9.2 Amendments
Except with respect to any changes that do not adversely affect the rights
of Holders (in which case no consent of Holders will be required), this
Preferred Securities Guarantee may only be amended with the prior approval of
the Holders of at least a Majority in liquidation amount (including the stated
amount that would be paid on redemption, liquidation or otherwise, plus accrued
and unpaid Distributions to the date upon which the voting percentages are
determined) of all the outstanding Preferred Securities. The provisions of
Section 12.2 of the Declaration with respect to meetings of Holders of the
Securities apply to the giving of such approval.
SECTION 9.3 Notices
All notices provided for in this Preferred Securities Guarantee shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by registered or certified mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below (or such other address as
the Preferred Guarantee Trustee may give notice of to the Holders of the
Preferred Securities):
The Chase Manhattan Bank, N.A.
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<PAGE> 18
4 Chase MetroTech Center
Brooklyn, New York 11245
Attention: Institutional Trust Group
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Preferred Securities):
Fremont General Corporation
2020 Santa Monica Boulevard
Suite 600
Santa Monica, California 90404
Attention: Louis J. Rampino,
President and Chief Operating Officer
(c) If given to any Holder of Preferred Securities, at the address set
forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when received in person,
telecopied with receipt confirmed, or mailed by first class mail, postage
prepaid except that if a notice or other document is refused delivery or cannot
be delivered because of a changed address of which no notice was given, such
notice or other document shall be deemed to have been delivered on the date of
such refusal or inability to deliver.
SECTION 9.4 Benefit
This Preferred Securities Guarantee is solely for the benefit of the Holders
of the Preferred Securities and, subject to Section 3.1(a), is not separately
transferable from the Preferred Securities.
SECTION 9.5 Governing Law
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
15
<PAGE> 19
THIS PREFERRED SECURITIES GUARANTEE is executed as of the day and year first
above written.
FREMONT GENERAL CORPORATION, as Guarantor
By: /s/ Louis J. Rampino
--------------------------------------------------
Name: Louis J. Rampino
Title: President and Chief Operating Officer
The Chase Manhattan Bank, N.A., as Preferred Guarantee Trustee
By: /s/ Timothy E. Burke
--------------------------------------------------
Name: Timothy E. Burke
Title: Second Vice President
16
<PAGE> 1
EXHIBIT 4.7
=====================================
COMMON SECURITIES GUARANTEE AGREEMENT
Fremont General Financing I
Dated as of March 6, 1996
=====================================
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. Definitions Interpretation . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
GUARANTEE
SECTION 2.1. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.2. Waiver of Notice and Demand . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.3. Obligations Not Affected . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.4. Rights of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.5. Guarantee of Payment . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.6. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.7. Independent Obligations . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 3.1. Limitation of Transactions . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3.2. Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV
TERMINATION
SECTION 4.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 5.2. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 5.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 5.4. Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 5.5. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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COMMON SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Common Securities Guarantee"), dated as of
March 6, 1996, is executed and delivered by Fremont General Corporation, a
Nevada corporation (the "Guarantor"), for the benefit of the Holders (as
defined herein) from time to time of the Common Securities (as defined herein)
of Fremont General Financing I, a Delaware business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"), dated as of March 6, 1996, among the Trustees of the Issuer
named therein, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer is
issuing on the date hereof 123,711 common securities, having an aggregate
stated liquidation amount of $3,092,784 (plus up to an additional 18,557 common
securities, having an aggregate liquidation amount of $463,925, to meet the
capital requirements of the Trust in the event of an issuance of Additional
Preferred Securities (as such term is defined in the Declaration)), designated
the 9% Trust Originated Common Securities (the "Common Securities");
WHEREAS, as incentive for the Holders to purchase the Common Securities, the
Guarantor desires to irrevocably and unconditionally agree, to the extent set
forth in this Common Securities Guarantee, to pay to the Holders of the Common
Securities the Guarantee Payments (as defined herein) and to make certain other
payments on the terms and conditions set forth herein; and
WHEREAS, the Guarantor is also executing and delivering a guarantee
agreement (the "Preferred Securities Guarantee") in substantially identical
terms to this Common Securities Guarantee for the benefit of the holders of the
Preferred Securities (as defined herein), except that if an Event of Default
(as defined in the Indenture), has occurred and is continuing, the rights of
Holders of the Common Securities to receive Guarantee Payments under this
Common Securities Guarantee are subordinated to the rights of holders of
Preferred Securities to receive Guarantee Payments under the Preferred
Securities Guarantee.
NOW, THEREFORE, in consideration of the purchase by each Holder of Common
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Common Securities Guarantee
for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. Definitions Interpretation
In this Common Securities Guarantee, unless the context otherwise requires:
(a) Capitalized terms used in this Common Securities
Guarantee but not defined in the preamble above have the respective
meanings assigned to them in this Section 1.1;
(b) Terms defined in the Declaration as at the date of
execution of this Common Securities Guarantee have the same meaning
when used in this Common Securities Guarantee unless otherwise defined
in this Common Securities Guarantee;
(c) a term defined anywhere in this Common Securities
Guarantee has the same meaning throughout;
(d) all references to "the Common Securities Guarantee"
or "this Common Securities Guarantee" are to this Common Securities
Guarantees modified, supplemented or amended from time to time;
<PAGE> 4
(e) all references in this Common Securities Guarantee to
Articles and Sections are to Articles and Sections of this Common
Securities Guarantee unless otherwise specified; and
(f) a reference to the singular includes the plural and
vice versa.
"Guarantee Payments" shall mean the following payments or distributions,
without duplication, with respect to the Common Securities, to the extent not
paid or made by the Issuer: (i) any accrued and unpaid Distributions which are
required to be paid on such Common Securities to the extent the Issuer shall
have funds available therefor, (ii) the redemption price, including all accrued
and unpaid Distributions to the date of redemption (the "Redemption Price") to
the extent the Issuer has funds available therefor, with respect to any Common
Securities called for redemption by the Issuer, and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Issuer (other than in
connection with the distribution of Debentures to the Holders in exchange for
Common Securities as provided in the Declaration), the lesser of (a) the
aggregate of the liquidation amount and all accrued and unpaid Distributions on
the Common Securities to the date of payment, to the extent the Issuer has
funds available therefor, and (b) the amount of assets of the Issuer remaining
available for distribution to Holders in liquidation of the Issuer (in either
case, the "Liquidation Distribution"). If an Event of Default (as defined in
the Indenture), has occurred and is continuing, the rights of Holders of the
Common Securities to receive Guarantee Payments under this Common Securities
Guarantee are subordinated to the rights of holder of Preferred Securities to
receive Guarantee Payments.
"Holder" shall mean any holder, as registered on the books and records of
the Issuer, of any Common Securities.
"Preferred Securities" mean the securities representing preferred undivided
beneficial interests in the assets of the Issuer.
ARTICLE II
GUARANTEE
SECTION 2.1. Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by the Issuer), as and when due, regardless of any defense, right of set-off or
counterclaim which the Issuer may have or assert. The Guarantor's obligation
to make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Issuer to pay such
amounts to the Holders.
SECTION 2.2. Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this Common Securities
Guarantee and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the Issuer
or any other Person before proceeding against the Guarantor, protest, notice of
nonpayment, notice of dishonor, notice of redemption and all other notices and
demands.
SECTION 2.3. Obligations Not Affected
The obligations, covenants, agreements and duties of the Guarantor under
this Common Securities Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
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<PAGE> 5
(a) the release or waiver, by operation of law or otherwise,
of the performance or observance by the Issuer of any express or
implied agreement, covenant, term or condition relating to the Common
Securities to be performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer
of all or any portion of the Distributions, Redemption Price,
Liquidation Distribution or any other sums payable under the terms of
the Common Securities or the extension of time for the performance of
any other obligation under, arising out of, or in connection with, the
Common Securities (other than an extension of time for payment of
Distributions, Redemption Price, Liquidation Distribution or other sum
payable that results from the extension of any interest payment period
on the Debentures or any extension of the maturity date of the
Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on
the part of the Holders to enforce, assert or exercise any right,
privilege, power or remedy conferred on the Holders pursuant to the
terms of the Common Securities, or any action on the part of the
Issuer granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation,
dissolution, sale of any collateral, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of debt of, or other similar
proceedings affecting, the Issuer or any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency in, the
Common Securities;
(f) the settlement or compromise of any obligation
guaranteed hereby or hereby incurred; or
(g) any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a
guarantor, it being the intent of this Section 2.3 that the
obligations of the Guarantor hereunder shall be absolute and
unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 2.4. Rights of Holders
The Guarantor expressly acknowledges that any Holder of Common Securities
may institute a legal proceeding directly against the Guarantor to enforce its
rights under this Common Securities Guarantee, without first instituting a
legal proceeding against the Issuer or any other Person.
SECTION 2.5. Guarantee of Payment
This Common Securities Guarantee creates a guarantee of payment and not of
collection.
SECTION 2.6. Subrogation
The Guarantor shall be subrogated to all (if any) rights of the Holders of
Common Securities against the Issuer in respect of any amounts paid to such
Holders by the Guarantor under this Common Securities Guarantee; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any rights
which it may acquire by way of subrogation or any indemnity, reimbursement or
other agreement, in all cases as a result of payment under this Common
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<PAGE> 6
Securities Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Common Securities Guarantee. If any amount shall be paid
to the Guarantor in violation of the preceding sentence, the Guarantor agrees
to hold such amount in trust for the Holders and to pay over such amount to the
Holders.
SECTION 2.7. Independent Obligations
The Guarantor acknowledges that its obligations hereunder are independent of
the obligations of the Issuer with respect to the Common Securities and that
the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Common Securities Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 2.3 hereof.
ARTICLE III
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 3.1. Limitation of Transactions
So long as any Common Securities remain outstanding, if (i) the Guarantor
shall be in default with respect to its Guarantee Payments or other obligations
hereunder, or (ii) there shall have occurred any Event of Default under the
Indenture, then (a) the Guarantor shall not, and shall not allow any of its
subsidiaries (other than its wholly owned subsidiaries) to, declare or pay
dividends on, or make a distribution with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital
stock (other than (i) repurchases or acquisitions of shares of the common stock
of the Guarantor as contemplated by any employment arrangement, benefit plan or
other similar contract with or for the benefit of employees, officers or
directors entered into in the ordinary course of business), (ii) as a result of
an exchange or conversion of any class or series of the Guarantor's capital
stock for the Guarantor's common stock, (iii) the purchase of fractional
interests in shares of the Guarantor's capital stock pursuant to the conversion
or exchange provisions of such Guarantor capital stock or the security being
converted or exchanged, or (iv) the payment of any stock dividend by the
Guarantor payable in the Guarantor's common stock) or make any guarantee
payments with respect to the foregoing and (b) the Guarantor shall not, and
shall not allow any of its subsidiaries to, make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by the Guarantor that rank pari passu with or junior to the
Junior Subordinated Debentures except as (i) required in accordance with the
terms thereof (including, in the case of junior debt, the subordination
provisions thereof), (ii) in connection with a contemporaneous refinancing of
such debt securities with the proceeds of a new issuance of debt securities
which have terms and provisions no more favorable to the holder than those of
the debt securities repurchased or refinanced (iii) in connection with the
contemporaneous conversion or exchange of such debt securities for common stock
of the Guarantor; provided, however, that in no event shall the amount to be
paid by the Guarantor or any of its subsidiaries under (a) or (b) (ii) or (iii)
above exceed in the aggregate $500,000 per year.
SECTION 3.2. Ranking
(a) This Common Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right
of payment to all other liabilities of the Guarantor, (ii) pari passu with the
most senior preferred or preference stock now or hereafter issued by the
Guarantor and with any guarantee now or hereafter entered into by the Guarantor
in respect of any preferred or preference stock of any Affiliate of the
Guarantor, and (iii) senior to the Guarantor's common stock.
(b) The holders of any obligations of the Guarantor which are
senior in priority to the obligations under this Common Securities Guarantee
will be entitled to all of the rights inuring to the holders of "Senior
Indebtedness" under Article 11 of the Indenture, and the Holders of the Common
Securities will be
4
<PAGE> 7
subject to all of the terms and conditions of such Article 11 with respect to
any claims or rights hereunder with the same effect as though fully set forth
herein.
ARTICLE IV
TERMINATION
SECTION 4.1. Termination
This Common Securities Guarantee shall terminate upon full payment of the
Redemption Price of all Common Securities, upon the distribution of the
Debentures to the Holders of all of the Common Securities or upon full payment
of the amounts payable in accordance with the Declaration upon liquidation of
the Issuer. Notwithstanding the foregoing, this Common Securities Guarantee
will continue to be effective or will be reinstated, as the case may be, if at
any time any Holder of Common Securities must restore payment of any sums paid
under the Common Securities or under this Common Securities Guarantee.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Successors and Assigns
All guarantees and agreements contained in this Common Securities Guarantee
shall bind the successors, assigns, receivers, trustees and representatives of
the Guarantor and shall inure to the benefit of the Holders of the Common
Securities then outstanding.
SECTION 5.2. Amendments
Except with respect to any changes which do not adversely affect the rights
of Holders (in which case no consent of Holders will be required), this Common
Securities Guarantee may only be amended with the prior approval of the Holders
of at least a majority in liquidation amount of all the outstanding Common
Securities. The provisions of Section 12.2 of the Declaration with respect to
meetings of Holders of the Securities apply to the giving of such approval.
SECTION 5.3. Notices
All notices provided for in this Common Securities Guarantee shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by registered or certified mail, as follows:
(a) if given to the Issuer, in care of the Regular
Trustee at the Issuer's mailing address set forth below (or such other
address as the Issuer may give notice of to the Holders of the Common
Securities):
Fremont General Financing I
2020 Santa Monica Boulevard Suite 600
Santa Monica, California 90404
Attention: Louis J. Rampino, President
(b) if given to the Guarantor, at the Guarantor's mailing
address set forth below (or such other address as the Guarantor may
give notice of to the Holders of the Common Securities):
Fremont General Corporation
2020 Santa Monica Boulevard Suite 600
Santa Monica, California 90404
5
<PAGE> 8
Attention: Louis J. Rampino, President
(c) if given to any Holder of Common Securities, at the
address set forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when received in person,
telecopied with receipt confirmed, or mailed by first class mail, postage
prepaid except that if a notice or other document is refused delivery or cannot
be delivered because of a changed address of which no notice was given, such
notice or other document shall be deemed to have been delivered on the date of
such refusal or inability to deliver.
SECTION 5.4. Benefit
This Common Securities Guarantee is solely for the benefit of the Holders of
the Common Securities and is not separately transferable from the Common
Securities.
SECTION 5.5. Governing Law
THIS COMMON SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
6
<PAGE> 9
THIS COMMON SECURITIES GUARANTEE is executed as of the day and year first
above written.
FREMONT GENERAL CORPORATION
By: /s/ Louis J. Rampino
------------------------------------------
Name: Louis J. Rampino
Title: President and Chief Operating Officer
7
<PAGE> 1
EXHIBIT 10.1
FREMONT GENERAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
RESTATEMENT EFFECTIVE JANUARY 1, 1994
WILSON, SONSINI, GOODRICH & ROSATI
650 PAGE MILL ROAD
PALO ALTO, CA 94304-1050
(415) 493-9300
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SECTION I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Affiliated Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Break in Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10 Employer: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.11 Employer Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.12 Employment Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.13 Entry Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.14 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.15 Hour of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.16 Normal Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.17 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.18 Participating Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.19 Permanent and Total Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.20 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.21 Plan Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.22 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.23 Section 415 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.24 Special Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.25 Special Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.26 Suspense Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.27 Trust, Trust Fund or Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.28 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.29 Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.30 Year of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION II - PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Eligibility Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Reemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Change in Employment Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.4 Election Not to Participate in the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION III - CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1 Employer Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Limitations on Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3 No Right or Duty of Inquiry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 Non-Reversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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SECTION IV - ACCOUNTS AND ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Allocation of Employer Stock Released from Encumbrance, Employer Contributions and Forfeitures . . . . 13
4.3 Allocation of Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Dividends on Employer Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.5 Annual Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6 Benefit Limitations: Multiple Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.7 Correction of Error . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.8 Trust as Single Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION V - VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.1 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2 Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION VI - BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Normal Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Disability Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Commencement of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.6 Form of Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.7 Location of Former Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.8 Benefits to Minors and Incompetents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.9 Diversification of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.10 Period of Payment/Certain Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.11 Direct Rollovers; Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION VII - ACQUISITION AND DISTRIBUTION OF EMPLOYER STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.1 Loans Used to Acquire Employer Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.2 Put Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.3 Fair Market Value of Employer Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.4 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.5 Basis of Employer Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION VIII - ADMINISTRATION BY THE COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.1 Appointment of the Plan Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.2 Powers of the Plan Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.3 Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 Meetings and Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6 Domestic Relations Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION IX - DUTIES AND POWERS OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.2 Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.3 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.4 Power of Trustee to Carry Out the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.5 Plan Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION X - AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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10.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.3 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION XI - CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.1 Right to File Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.2 Denial of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.3 Claims Review Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION XII - ADOPTION OF PLAN BY AFFILIATED COMPANIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.1 Adoption of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.2 Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION XIII - TOP HEAVY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.1 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.3 Minimum Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13.4 Vesting Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION XIV - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.1 Receipt of Rollovers and Trustee to Trustee Transfers . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.3 Exclusive Benefit Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
14.4 No Right to the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
14.5 Rights of Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
14.6 Non-Alienation of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
14.7 Construction and Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
14.8 Delegation of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
14.9 Request for Tax Ruling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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FREMONT GENERAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
BACKGROUND
The Fremont General Corporation Employee Stock Ownership Plan was
originally adopted effective December 1, 1988. Fremont General Corporation
deems it appropriate to restate the Plan in its entirety. The Plan and the
related trust are intended to qualify under Sections 401(a) and 501(a) of the
Internal Revenue Code of 1986 and are created and maintained for the exclusive
benefit of eligible employees of Participating Employers, and their
beneficiaries, to enable them to acquire shares of stock in the Employer, to
provide retirement funds, and to provide benefits in the event of disability.
The Plan and trust are also intended to be an "employee stock ownership plan"
within the meaning of Section 4975(e)(7) of the Internal Revenue Code, and are
designed to invest primarily in Employer stock.
<PAGE> 6
SECTION I
DEFINITIONS
Where indicated by initial capital letters, the following terms shall
have the following meanings:
1.1 ACCOUNT: An account maintained for the benefit of a
Participant pursuant to Section 4.1.
1.2 AFFILIATED COMPANY: Any corporation which is a member of a
controlled group of corporations (as defined under Section 414(b) of the Code
as modified by Section 415(h) of the Code) which includes the Employer; any
trade or business (whether or not incorporated) which is under common control
(as defined under Section 414(c) of the Code as modified by Section 415(h) of
the Code) with the Employer; any organization (whether or not incorporated)
which is a member of an affiliated service group (as defined under Section
414(m) of the Code) which includes the Employer; and any other organization or
entity which is required to be aggregated with the Employer pursuant to Section
414(o) of the Code.
1.3 BENEFICIARY: The person or entity who is to receive any
benefits payable from the Plan on account of a Participant's death. If the
Participant is married, the Beneficiary is the Participant's spouse and no
written designation is required. If the Participant is not married, the
Beneficiary is the person designated to receive such benefits. A married
Participant may designate a Beneficiary other than the Participant's spouse
provided (i) the Participant's spouse consents in writing (on a form provided
by the Plan Committee) to such designation and to the form thereof; (ii) such
Beneficiary designation may not be changed without spousal consent (or the
consent of the spouse expressly permits designations by the Participant without
any further consent by the spouse); and (iii) the spouse's consent acknowledges
the effect of such Beneficiary designation and is witnessed by a plan
representative or a notary public. Such spousal consent shall not be required
if it is established to the satisfaction of the Plan Committee that the consent
required under the preceding sentence cannot be obtained because there is no
spouse, because the spouse cannot be located, or because of such other
circumstances as the Secretary of the Treasury or the Secretary's delegate may
by regulations prescribe. If at the time of his or her death, the Participant
has no spouse or designated Beneficiary, the Beneficiary is the personal
representative of the Participant's estate. A Participant may designate a
person or entity to be his or her Beneficiary by filing a properly completed
and executed form provided by the Plan Committee. A Participant's Beneficiary
is bound by the terms of the Plan.
1.4 BOARD OF DIRECTORS: The Board of Directors of Fremont General
Corporation.
1.5 BREAK IN SERVICE: For purposes of vesting, a Plan Year during
which the Employee does not perform more than 500 Hours of Service. Reference
is also made to Section 1.30 which provides that an Employee must complete at
least 1,000 Hours of Service in order to have a Year of Service for vesting
purposes. Employees who perform or complete more than 500 Hours of Service,
but less than 1,000 Hours of Service in a Plan Year have neither a Break in
Service nor a Year of Service.
1.6 CODE: The Internal Revenue Code of 1986, as amended.
1.7 COMPENSATION:
(a) Compensation means all of an Employee's Code Section
3401(a) [W-2] wages. Wages as defined in Section 3401(a) of the Code for the
purposes of income tax withholding at the source but determined without regard
to any rules that limit the remuneration included in wages based on the nature
or location of the employment or the services performed (such as the exception
for agricultural labor in Section 3401(a)(2) of the Code).
(b) Compensation shall include only that compensation
which is actually paid to the Employee during the Plan Year. Notwithstanding
the foregoing, Compensation shall include any amount which is contributed by
the Employer pursuant to a salary reduction agreement and which is not
includable in the gross income of the Employee under Sections 125, 402(a)(8),
402(h) or 403(b) of the Code.
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(c) For Plan Years beginning after December 31, 1988, the
annual Compensation of each Employee taken into account for determining all
benefits provided under the Plan for any determination period shall not exceed
$200,000 (as adjusted by the Adjustment Factor). If Compensation is to be
determined on a period of time that contains fewer than 12 calendar months, the
annual Compensation limit is an amount equal to the annual Compensation limit
for the calendar year in which the Compensation period begins, multiplied by
the ratio obtained by dividing the number of full months in the period by 12.
In determining the Compensation of a Participant for purposes of the foregoing
$200,000 limitation, the rules of Section 414(q)(6) of the Code shall apply,
except in applying such rules, the term "family" shall include only the spouse
of the Participant and any lineal descendants of the Participant who have not
attained age 19 before the close of the year. If, as a result of the
application of such rules the adjusted $200,000 limitation is exceeded, then
the limitation shall be prorated among the affected individuals in proportion
to each such individual's Compensation as determined under this section prior
to the application of this limitation. If Compensation for any prior
determination period is taken into account in determining a Participant's
allocations or benefits for the current determination period, the Compensation
for such prior year is subject to the applicable annual Compensation limit in
effect for that prior year. For this purpose, for years beginning before
January 1, 1990, the applicable annual Compensation limit is $200,000.
(d) For limitation years beginning after December 31,
1991, for purposes of applying the limitations of this Section, Compensation
for a limitation year is the Compensation actually paid or made available
during such limitation year.
(e) For plan years beginning on or after January 1, 1994,
the annual compensation of each Employee taken into account under the plan
shall not exceed the annual compensation limit under the Omnibus Budget
Reconciliation Act of 1993 ("OBRA '93"). The OBRA '93 annual compensation
limit is $150,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with section 401(a)(17)(B) of the Internal Revenue Code.
The cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA '93 annual compensation limit
will be multiplied by a fraction, the numerator of which is in the number of
months in the determination period, and the denominator of which 12. For plan
years beginning on or after January 1, 1994, any reference in this plan to the
limitation under section 401(a)(17) of the Code shall mean the OBRA '93 annual
compensation limit set forth in this provision. If compensation for any prior
determination period is taken into account in determining an employee's
benefits accruing in the current plan year, the compensation for that prior
determination period is subject to the OBRA '93 annual compensation limit in
effect for that prior determination period. For this purpose, for
determination periods beginning before the first day of the first plan year
beginning on or after January 1, 1994, the OBRA '93 annual compensation limit
is $150,000.
1.8 EFFECTIVE DATE: The Effective Date of the Plan is December 1,
1988. Except as otherwise expressly provided herein, the Effective Date of
this Restatement is January 1, 1994; provided, however, that any provision of
this Plan required as result of the Tax Reform Act of 1986 or any subsequent
legislation shall be effective as of the earliest date required by such
legislation. The Effective Date for an Affiliated Company is the date as of
which the Plan is adopted by the Affiliated Company.
1.9 EMPLOYEE: Any person employed by the Employer, other than as
an independent contractor. The term Employee shall include leased employees
within the meaning of Code Section 414(n)(2) ("Leased Employees").
Notwithstanding the foregoing, if such Leased Employees constitute less than
20% of the Employer's non-highly compensated work force within the meaning of
Section 414(n)(1)(C)(ii) of the Code, the term Employee shall not include those
Leased Employees covered by a plan described in Section 414(n)(5) of the Code
unless otherwise provided by the terms of this Plan.
1.10 EMPLOYER: Fremont General Corporation and any Affiliated
Company.
1.11 EMPLOYER STOCK: Common or preferred stock of Fremont General
Corporation, or any successor by merger consolidation or otherwise, that meets
the requirements of "qualifying employer security" under ERISA Section
407(d)(5) and "employer securities" under Code Section 409(1).
1.12 EMPLOYMENT COMMENCEMENT DATE: The date on which an Employee
first performs an Hour of Service for the Employer, within the meaning of 29
CFR Section 2530.200b-2(a).
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1.13 ENTRY DATES: June 30 and December 31 of each Plan Year.
1.14 ERISA: The Employee Retirement Income Security Act of 1974,
as amended.
1.15 HOUR OF SERVICE: An Employee shall be credited with one Hour
of Service for:
(a) Each hour for which the Employee is directly or
indirectly paid, or entitled to payment, by the Employer or an Affiliated
Company for the performance of duties. These hours shall be credited to the
Employee for the computation period in which the duties are performed.
(b) Each hour for which the Employee is paid or entitled
to payment by the Employer or an Affiliated Company for a period of time during
which no duties are performed (irrespective of whether the employment
relationship has terminated) because of vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military duty or authorized leave of
absence. These hours shall be credited to the Employee for the computation
period in which the duties would have been performed. Hours under this
subparagraph shall be calculated and credited pursuant to Section 2530.200b-2
of the Department of Labor Regulations, which are incorporated in the Plan by
this reference.
(c) Each hour for which back pay, irrespective of
mitigation of damages, has been either awarded or agreed to by the Employer or
an Affiliated Company. The same Hours of Service shall not be credited both
under subparagraphs (a), (b) or (d), as the case may be, and under this
subparagraph (c). These hours shall be credited to the Employee for the
computation period to which the award or agreement pertains, rather than the
computation period in which the award, agreement or payment is made.
(d) For purposes of determining whether an Employee has a
Break in Service, each hour (up to a maximum of 501 hours in a single
continuous period) for which the Employee is absent because of (i) the
pregnancy of the Employee, (ii) the birth of a child of the Employee, (iii) the
placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) the Employee's caring for a child immediately
after the birth or placement of the child. These hours shall be credited to
the Employee for the computation period in which the leave of absence begins
only if the Participant would otherwise incur a Break in Service in that
computation period. In all other cases, these hours shall be credited to the
next following computation period.
1.16 NORMAL RETIREMENT DATE: A Participant's 65th birthday.
1.17 PARTICIPANT: An Employee who meets the requirements of
Section II.
1.18 PARTICIPATING EMPLOYER: The Affiliated Companies listed on
Exhibit A, which have, from time to time, adopted the Plan.
1.19 PERMANENT AND TOTAL DISABILITY: The inability to engage in
any substantial, gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than
twelve (12) months, or such other standard as expressed in Section 22(e)(3) of
the Code or any successor provision. The permanence and degree of such
impairment shall be supported by medical evidence.
1.20 PLAN: The Fremont General Corporation Employee Stock
Ownership Plan, as set forth herein and as amended from time to time.
1.21 PLAN COMMITTEE: The committee established pursuant to Section
8.1 to be responsible for the general administration of the Plan and
supervision of the Trust Fund, and to be responsible pursuant to Section 9.5
for advising the Trustee regarding the management, disposition and investment
of Trust assets (including the power to direct the Trustee with
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respect to the voting of Employer Stock, subject to the right of Participants
to direct the Trustee with regard to allocated shares pursuant to the Trust
Agreement).
1.22 PLAN YEAR: The 12 consecutive month period beginning on
January 1 and ending on December 31 of each year.
1.23 SECTION 415 COMPENSATION: For purposes of Section 415 of the
Code,
(a) The term "Section 415 Compensation" includes:
(1) The Participant's wages, salaries, fees for
professional service and other amounts received for personal services actually
rendered in the course of employment with an Employer maintaining the Plan
(including, but not limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses).
(2) For purposes of subdivision (1) of this
subparagraph, earned income from sources outside the United States (as defined
in Section 911(b)), whether or not excludable from gross income under Section
911 or deductible under Section 913 of the Code.
(3) Amounts described in Sections 104(a)(3),
105(a) and 105(h), but only to the extent that these amounts are includable in
the gross income of the Employee.
(4) Amounts paid or reimbursed by the Employer
for moving expenses incurred by an Employee, but only to the extent that these
amounts are not deductible by the Employee under Section 217 of the Code.
(5) The value of a nonqualified stock option
granted to an Employee by the Employer, but only to the extent that the value
of the option is includable in the gross income of the Employee for the taxable
year in which granted.
(6) The amount includable in the gross income of
an Employee upon making the election described in Section 83(b) of the Code.
(b) The term "Section 415 Compensation" does not include
items such as:
(1) Contributions made by the Employer to a plan
of deferred compensation to the extent that, before the application of Code
Section 415 limitations to that plan, the contributions are not includable in
the gross income of the Employee for the taxable year in which contributed. In
addition, Employer contributions made on behalf of an Employee to a simplified
employee pension plan described in Code Section 408(k) are not considered as
compensation for the taxable year in which contributed to the extent such
contributions are deductible by the Employee under Section 219(b)(1) of the
Code. Additionally, any distributions from a plan of deferred compensation are
not considered as compensation for Section 415 purposes, regardless of whether
such amounts are includable in the gross income of the Employee when
distributed. However, any amounts received by an Employee pursuant to an
unfunded nonqualified plan may be considered as compensation for Code Section
415 purposes in the year such amounts are includable in the gross income of the
Employee.
(2) Amounts realized from the exercise of a
nonqualified stock option, or when restricted stock (or property) held by an
Employee either becomes freely transferable or is no longer subject to a
substantial risk of forfeiture (under Section 83 of the Code).
(3) Amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified stock option.
(4) Other amounts which receive special tax
benefits, such as premiums for group term life insurance (but only to the
extent that the premiums are not includable in the gross income of the
Employee), or contributions made
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by an Employer (whether or not under a salary deferral agreement) towards the
purchase of an annuity contract described in Section 403(b) of the Code
(whether or not the contributions are excludable from the gross income of the
Employee).
1.24 SPECIAL ALLOCATION: The amount to be allocated to the Account
of a Special Participant. Such amount shall be an amount which, when added to
the value of the Employer Stock released from a Suspense Account pursuant to
Section 4.1, and after the application of Sections 4.5 and 4.6, allocated to
such Participant's Account, equals (as a percentage of Compensation) the value
of Employer Stock so released and allocated to other non-Highly Compensated
Employees who are not Special Participants, subject to the limitations of
Sections 4.5 and 4.6.
1.25 SPECIAL PARTICIPANT: Any Participant who, as of the time of a
particular allocation of Employer Stock released from a Suspense Account
pursuant to Section 4.1, (a) is not a Highly Compensated Employee, and (b) as a
result of the limitations of Sections 4.5 and 4.6, would be allocated
proportionately less value in the form of Employer Stock released from a
Suspense Account pursuant to Section 4.1 (as a percentage of Compensation) than
any other Participant who is not a Highly Compensated Employee.
1.26 SUSPENSE ACCOUNT: The account established to hold Employer
Stock that has been pledged as security for a loan, as described in Section
4.1(b).
1.27 TRUST, TRUST FUND OR FUND: The trust implementing the Plan
and the Plan assets held in the trust.
1.28 TRUSTEE: Effective as of August 1, 1994, Merrill Lynch Trust
Company of California, and any successor trustee(s) appointed by the Employer
and accepting the Trust.
1.29 VALUATION DATE: Each December 31. The Plan Committee may
establish more frequent Valuation Dates, if the Plan Committee deems it
appropriate.
1.30 YEAR OF SERVICE:
(a) For purposes of determining eligibility, a Year of
Service is a twelve consecutive month period during which an Employee is
credited with 1,000 Hours of Service. The initial computation period is the
12-consecutive month period beginning on the Employee's Employment Commencement
Date. Succeeding 12-consecutive month periods (if necessary) commence on the
anniversary of the Employee's Employment Commencement Date.
(b) For purposes of vesting, a Year of Service is a Plan
Year during which an Employee is credited with 1,000 Hours of Service.
(c) The Administrator will credit each Employee with
Hours of Service on the basis of months of employment. Each Employee will be
credited with 190 Hours of Service for each month in which he or she performs
at least one Hour of Service.
(d) Each Year of Service completed by a Participant in
this Plan while he or she was an employee of Beaver Insurance Company, Pacific
Compensation Insurance Company, or Investors Bancor shall be deemed a Year of
Service for all purposes under this Plan.
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SECTION II
PARTICIPATION
2.1 ELIGIBILITY REQUIREMENTS:
(a) Each Employee, except Employees employed by an
Affiliated Company which is not a Participating Employer, Leased Employees,
Part-Time Employees, Temporary Employees, and Union Employees may commence
participation in the Plan on the Entry Date following his or her completion of
one (1) Year of Service.
(b) For purposes of this Section, the following
definitions shall apply:
(i) Part-time Employees - Employees scheduled to
work less than 25 hours per week.
(ii) Temporary Employees - Employees hired on a
temporary or seasonal basis who are classified as such in the records of the
Employer.
(iii) Union Employees - Employees included in a
unit of Employees covered by a collective bargaining agreement between the
Employer and Employee representatives, if retirement benefits were the subject
of good faith bargaining and if two percent or less of the Employees who are
covered pursuant to that agreement are professionals as defined in Treasury
Regulations Section 1.410(b)-9. For this purpose, the term "Employee
representatives" does not include any organization more than half of whose
members are Employees who are owners, officers or executives of the Employer.
2.2 REEMPLOYMENT: If an eligible Employee who has satisfied the
service requirement in Section 2.1 terminates employment with the Employer, is
thereafter reemployed by the Employer, and is again an eligible Employee, the
Employee will be eligible to participate in the Plan as of his or her
Reemployment Commencement Date. An Employee who terminates employment prior to
satisfying the service requirement specified in Section 2.1, and who is
thereafter reemployed by the Employer, will become eligible to participate in
the Plan in accordance with the provisions of Section 2.1.
2.3 CHANGE IN EMPLOYMENT STATUS: In the event a Participant
becomes an Employee excluded from participation in the Plan under Section 2.1
and therefore becomes ineligible to participate, such Employee will participate
immediately upon returning to an eligible class of Employees. In the event an
Employee who is not a member of an eligible class of Employees becomes a member
of an eligible class, such Employee will participate immediately if such
Employee has satisfied the service requirement in Section 2.1.
2.4 ELECTION NOT TO PARTICIPATE IN THE PLAN: An Employee who has
met the requirements for participation pursuant to Section 2.1 and who meets
one of the following requirements may elect not to participate in the Plan for
one or more Plan Years:
(a) The Participant has sold Employer Stock to the Trust
and has elected, pursuant to Code Section 1042, not to recognize gain on the
sale of the Employer Stock;
(b) The Participant is a member of the family of a
Participant described in subsection (a) (as determined pursuant to Code Section
409(n)); or
(c) The Participant owns more than 25% in value of any
class of outstanding Employer Stock (as determined pursuant to Code Section
409(n)).
The Employee may elect not to participate in the Plan by
filing a written election with the Plan Committee. An election not to
participate in the Plan shall be effective for the first Plan Year ending after
the date of the election and for
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subsequent Plan Years, until the election is revoked. An Employee may revoke
his or her election for Plan Years ending after the date of the revocation by
filing a written revocation with the Plan Committee. The Plan Committee may
establish rules relating to when and how elections and revocations of elections
must be made.
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SECTION III
CONTRIBUTIONS
3.1 EMPLOYER CONTRIBUTIONS:
(a) For each Plan Year, the Employer shall contribute to
the Trust such amount as the Board of Directors may deem appropriate and
reasonable considering the condition of the business and the interests of the
Plan Participants. The Employer contribution for each Plan Year shall be at
least equal to the amount of the current installments of principal and interest
that are due on any loan secured by Employer Stock held in the Trust Fund.
(b) The Employer's contribution may be made in cash or in
Employer Stock; provided that the Employer shall contribute annually an amount
of cash that is at least equal to the current installments of principal and
interest on any loan secured by Employer Stock held in the Trust Fund. The
contribution of the Employer for any Plan Year may be made in one or more
payments at any time; provided that the total amount of the contribution for
any Plan Year shall be paid to the Trustee not later than the date on which the
Employer's income tax return is required to be filed, including any extensions
for filing obtained.
(c) The Employer's cash contribution, earnings on that
contribution, and earnings attributable to Employer Stock that is used as
collateral for a loan shall be used to pay the current installments of
principal and interest on any outstanding loan that is secured by Employer
Stock held in the Trust Fund. To the extent that the Employer contribution is
not used to pay the current installments of principal and interest on such a
loan, the Employer contribution shall be allocated to Participants' Accounts as
described in Section 4.2.
(d) Notwithstanding the foregoing, if at any time the
Employer contributes an amount to repay all or a portion of an outstanding loan
secured by Employer Stock held in the Trust Fund, and the amount of loan
principal repaid is less than the value of Employer Stock released from a
Suspense Account pursuant to Section 4.1, the Employer will contribute in cash
or shares an amount sufficient to allocate to the Accounts of all Special
Participants (if any) value that is equal to the Special Allocation applicable
to all such Participants.
3.2 LIMITATIONS ON CONTRIBUTION: Notwithstanding the foregoing,
the Employer's contribution for any Plan Year shall not exceed, (a) the amount
that may be allowed as a deduction from the gross income of the Employer under
Code Section 404, or (b) any limitation imposed by Section 4.5 or 4.6.
3.3 NO RIGHT OR DUTY OF INQUIRY: Neither the Trustee, the Plan
Committee, nor any Participant shall have any right or duty to inquire into the
amount of the Employer's annual contribution or the method used in determining
the amount of the Employer's contribution. The Trustee shall be accountable
only for funds actually received by the Trustee.
3.4 NON-REVERSION: It shall be impossible, at any time before
satisfaction of all liabilities with respect to Participants and their
Beneficiaries, for any part of the principal or income of the Trust Fund to be
used for, or diverted to, purposes other than for the exclusive benefit of such
Participants and their Beneficiaries, provided, however, that:
(a) If a contribution is made by the Employer under a
mistake of fact (including a contribution that exceeds the limitation imposed
by Section 4.5 or 4.6), this Section shall not prohibit the return of the
contribution to the Employer within one year after the payment of such
contribution;
(b) If a contribution is conditioned on the initial
qualification of the Plan under Code Section 401, this condition is not
satisfied, the Plan was submitted to the Internal Revenue Service for
qualification by the time prescribed by law for filing the Employer's return
for the taxable year in which the Plan was adopted, or such later date as the
Secretary of the Treasury may prescribe, and the amount is returned to the
Employer within one year after the date on which initial qualification is
denied; or
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(c) If a contribution is conditioned upon the
deductibility of the contribution, then, to the extent the deduction is
disallowed, this Section shall not prohibit the return of the contribution (to
the extent disallowed) to the Employer within one year after the disallowance
of the deduction.
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SECTION IV
ACCOUNTS AND ALLOCATIONS
4.1 ACCOUNTS:
(a) An Account shall be maintained for each Participant,
to which Employer contributions and earnings shall be credited. The following
subaccounts shall be established for each Participant:
(i) An "Employer Stock Account", to which shall
be credited all Employer Stock that is allocated to the Participant's Account,
and
(ii) An "Other Investments Account", to which
shall be credited all investments other than Employer Stock that are allocated
to the Participant's Account.
(b) If Employer Stock has been pledged as collateral for
a loan, the encumbered Employer Stock will be held in a Suspense Account
pending repayment of the loan. As the loan is repaid, the Employer Stock that
was originally pledged as collateral for the portion of the loan that is repaid
shall be released from encumbrance. The number of shares of Employer Stock
released from encumbrance for each Plan Year during the duration of the loan
shall equal the number of encumbered shares of Employer Stock held by the Plan
immediately before the release, multiplied by the following fraction (which
shall not exceed one):
(i) The numerator is the amount of principal and
interest paid for the Plan Year, and
(ii) The denominator is the sum of the numerator
plus the principal and interest to be paid for all future Plan Years
(determined without taking into account any possible extension or renewal
periods).
(c) Notwithstanding paragraph (b) above of this Section
4.1, if (aa) the loan provides for annual payments of principal and interest at
a cumulative rate which is not less rapid at any time than level annual
payments of such amounts for 10 years, (bb) the interest included in any
payment is disregarded only to the extent that it would be determined to be
interest under standard loan amortization tables, and (cc) by reason of a
renewal, extension or refinancing, the sum of the expired duration of the
original loan, any renewal period, any extension period and the duration of any
new loan does not exceed 10 years, the Plan Committee, in its discretion, may
direct that Shares of Employer Stock released from encumbrance for each Plan
Year during the duration of the loan shall equal the number of encumbered
shares of Employer Stock held by the Plan immediately before the release,
multiplied by the following fraction (which shall not exceed one):
(i) The numerator is the amount of principal paid
for the Plan Year, and
(ii) The denominator is the sum of the numerator
plus the principal to be paid for all future Plan Years.
(d) In determining the number of Shares of Employer Stock
to be released for any Plan Year under either paragraphs (b) or (c) above;
(i) The number of future years under the loan
must be definitely ascertainable and must be determined without taking into
account any possible extensions or renewal periods;
(ii) If the loan provides for a variable interest
rate, the interest to be paid for all future Plan Years must be computed by
using the interest rate applicable as of the end of the Plan Year for which the
determination is made; and
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(iii) If the Employer Stock allocated to the
Suspense Account includes more than one class of shares, to be withdrawn from
the number of shares of such class Suspense Account for a Plan Year must be
determined by applying the applicable fraction (determined pursuant to (b) or
(c) above) to each such class.
(e) Allocations of Employer Stock shall be separately
made for each class of such stock, and the Plan Committee shall maintain
adequate records of the aggregate cost basis of Employer Stock allocated to
each Participant's Employer Stock Account.
(f) Shares of Employer Stock released from encumbrance
for each Plan Year shall be allocated to Participants' Accounts in the manner
described in Section 4.2.
4.2 ALLOCATION OF EMPLOYER STOCK RELEASED FROM ENCUMBRANCE,
EMPLOYER CONTRIBUTIONS AND FORFEITURES:
(a) As of the last day of each Plan Year, the Plan
Committee shall allocate to Participants' Accounts any Employer Stock released
from encumbrance for the Plan Year, any part of the Employer contribution for
the Plan Year that is not required and/or used to pay the current installments
of principal and interest on a loan secured by Employer Stock, and any
forfeitures.
(b) Notwithstanding the preceding sentence, the Plan
Committee may direct the Trustee to allocate to the Participants' Employer
Stock Accounts shares of Employer Stock released from a Suspense Account
pursuant to Section 4.1 which have become available for allocation in lieu of
the cash dividends with respect to Employer Stock released from a Suspense
Account pursuant to Section 4.1 which have been allocated to their Employer
Stock Accounts and which cash dividends were used by the Trustee to satisfy
current obligations as provided in Section 4.4.
(c) The allocation shall be made among the Accounts of
the Participants who complete 1,000 Hours of Service during the Plan Year, and
who are employed by the Employer on the last day of the Plan Year, in the
proportion that each such Participant's Compensation for the Plan Year bears to
the total Compensation of all Participants for the Plan Year; provided that,
effective as of January 1, 1993, if an allocation is made of Employer Stock
released from a Suspense Account, such stock and other cash or stock
contributions shall be allocated (1) first, to the Accounts of Special
Participants in an amount equal to the Special Allocation, and (2) next, to the
Accounts of all Participants in the same manner described in this Section as if
there was no allocation made pursuant to a release of Employer Stock from a
Suspense Account. For purposes of this Section, an Employee whose employment
with the Employer terminates during the Plan Year because the Employee (i)
retires on or after reaching his or her Normal Retirement Date, (ii) incurs a
Permanent and Total Disability, or (iii) dies, shall be deemed to have
completed 1,000 Hours of Service during the Plan Year and to have been employed
by the Employer on the last day of the Plan Year.
4.3 ALLOCATION OF EARNINGS:
(a) Subject to Sections 7.3 and 8.2(ix), as of each
Valuation Date, the Trustee shall determine the current fair market value of
the assets of the Trust Fund. Before crediting the contributions allocated
under Section 4.2, the Plan Committee shall adjust proportionately each
Participant's Account and the Suspense Account so as to reflect any increase or
decrease in value of the Trust Fund since the last Valuation Date as it relates
to the assets actually invested.
(b) As of each Valuation Date, before the allocations
under Section 4.2 are made, the Plan Committee shall allocate net income or
losses generated on any investments other than Employer Stock since the last
Valuation Date among Participant's Accounts on the basis of the balance in each
Participant's Other Investments Account as of the preceding Valuation Date.
(c) Cash dividends on Employer Stock held in
Participants' Accounts are paid to the Trust, and the dividends shall be
allocated to Participants' Accounts and the Suspense Account on the basis of
the number of shares of Employer Stock held in each Participant's Account and
the Suspense Account as of the record date for the dividend.
(d) All Employer Stock received by the Trustee as a
result of a stock split or stock dividend or as a result of a reorganization or
other recapitalization of the Employer shall be allocated among Participants'
Accounts and the Suspense
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Account by applying the applicable stock split or stock dividend factor to the
number of shares in each Participant's Account and the Suspense Account on the
record date for the stock split, stock dividend, or recapitalization.
4.4 DIVIDENDS ON EMPLOYER STOCK: Cash dividends paid to the Trust
on Employer Stock acquired by a loan described in Section 7.1 shall first be
used to satisfy current obligations of the Trust; provided, however, that the
Trustee may hold in cash such portion of such dividends as is consistent with
its obligations as Trustee. Any excess of cash dividends paid to the Trust on
Employer Stock may be used to acquire Employer Stock, or, at the direction of
the Plan Committee, may be distributed directly to Participants.
4.5 ANNUAL ADDITIONS:
(a) Notwithstanding the foregoing, the total amount of
the Annual Addition (defined below) that may be allocated to the accounts of
any Participant for any Limitation Year (defined below) shall not exceed the
lesser of (i) $30,000, or (ii) 25% of the Participant's Section 415
Compensation. The amount referred to in (i) of this Section shall be adjusted
from time to time to correspond to the amount prescribed by law under Code
Section 415(c)(1)(A) or by the Secretary of the Treasury pursuant to Code
Section 415(d), determined as of the last day of the year to which the
limitation applies.
(b) For purposes of this Section, the "Limitation Year"
is the Plan Year and the term "Employer" includes Affiliated Companies. Except
to the extent modified by subsection (c), "Annual Addition" means the total of
the Employer's contribution and forfeitures credited to the Participant's
Accounts under all defined contribution plans of the Employer for a Plan Year.
(c) If not more than one-third of the Employer
Contributions for a Plan Year are allocated to the group of Participants
consisting of highly compensated employees as defined in Code Section 414(q),
then the foregoing rules shall be modified to provide that Annual Additions
will not include Employer contributions that are applied to the payment of
interest on a loan secured by Employer Stock or forfeitures of Employer Stock
acquired with the proceeds of such a loan, provided that the amount of Employer
contributions and forfeitures allocated to a Participant's Accounts in excess
of the regular dollar limitation is in the form of Employer Stock or cash used
to purchase Employer Stock within 30 days of the due date for filing the
Employer's federal income tax return for that year, including extensions.
(d) Notwithstanding any of the foregoing to the contrary,
any amounts attributable to postretirement medical benefits allocated to the
account of a key Employee under any welfare benefits plan, as defined in
Section 419A of the Code, shall be treated as an Annual Addition for purposes
of the dollar limitation under (a) above. A restored forfeiture, a transfer
from another qualified plan and a rollover contribution shall not be counted as
an Annual Addition.
(e) If the Annual Additions to a Participant's Account in
any Limitation Year exceed the limitation of this Section, then the amounts
that would have been credited to the Participant's Account but for this Section
in excess of the limitation shall be administered as follows:
(i) Any excess amount shall be deemed to be a
forfeiture as of the end of the Plan Year to which the limitation applies and
shall be reallocated among the Accounts of the Participants (other than
Participants to whom the limitation applies) as a forfeiture in such manner
that no allocation to an Account exceeds the limitation imposed by this
Section; and
(ii) If the allocation or reallocation of the
excess amount causes the limitation imposed by this Section to be exceeded with
respect to each Participant, then the excess amount as finally determined shall
be held unallocated in a separate Suspense Account. The amount held in a
Suspense Account shall be used to reduce Employer contributions for the next
Plan Year (and succeeding Plan Years, as necessary). A Suspense Account shall
not be subject to adjustment for investment gains or losses. Upon termination
of the Plan, the assets of any Suspense Account then in existence shall be
returned to the Employer.
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(f) If the Employer and Related Companies maintain more
than one defined contribution plan qualified under Code Section 401, then this
Section shall be applied in such a way that the total Annual Additions under
all such plans shall not exceed the amount specified in subsection (a). For
purposes of this Section and Section 4.6, the term "Employer" includes
Affiliated Companies.
4.6 BENEFIT LIMITATIONS: MULTIPLE PLANS. If an Employee is a
Participant in one or more defined benefit plans and one or more defined
contribution plans maintained by the Employer, then the sum of the Employee's
"defined benefit plan fraction" and "defined contribution plan fraction" for
any Limitation Year as applied to the plans shall not exceed 1.0. Either the
benefits provided under the defined benefit plans or the contributions made to
the defined contribution plans shall be reduced to the extent necessary to
comply with this limitation. For purposes of this Section:
(a) The "defined benefit plan fraction" for any
Limitation Year is a fraction, the numerator of which is the Participant's
projected annual benefit under all defined benefit plans of the Employer
(determined as of the close of the Limitation Year), and the denominator of
which is the lesser of:
(i) The product of 1.25 multiplied by the dollar
limitation in effect pursuant to Code Section 415(b)(1)(A); or
(ii) The product of 1.4 multiplied by 100% of the
Participant's average Compensation from the Employer for the three consecutive
years that will produce the highest average.
(b) The "defined contribution plan fraction" for any
Limitation Year is a fraction, the numerator of which is the sum of the Annual
Additions to the Participant's Accounts as of the close of the Limitation Year
under all defined contribution plans of the Employer and the denominator of
which is the sum of the lesser of the following amounts determined for the
Limitation Year and for each previous year of service with the Employer:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Code Section 415(c)(1)(A);
(ii) The product of 1.4 multiplied by 25% of the
Participant's Compensation for the year.
(c) As an alternative to the foregoing, in determining
the limits of this Section, the Plan Committee may use any method permissible
under Code Section 415.
4.7 CORRECTION OF ERROR: If, due to forfeitures, reasonable error
in estimating compensation, or other limited facts and circumstances as
determined by the Commissioner, the Account balances or the Annual Additions to
a Participant's Accounts would exceed the limitation described in Section 4.5
above, the aggregate of the Annual Additions to this Plan and the Annual
Additions to any other plan described in Section 4.5(f) shall be reduced until
the applicable limitation is satisfied. The reduction shall be treated the
same as forfeitures and shall be allocated in accordance with Section 4.2 of
the Plan to the Accounts of Participants who are not affected by this
limitation. If any amount cannot be reallocated under the foregoing provision,
such amount shall be deposited in a suspense account and allocated to the
maximum extent possible in succeeding years, provided that (i) no Employer
Contributions are made until Section 415 of the Code will permit their
allocation, (ii) no investment gains or losses are allocated to such suspense
account, and (iii) the amounts in such suspense account are allocated at the
earliest possible date.
4.8 TRUST AS SINGLE FUND: The creation of separate Accounts for
accounting and bookkeeping purposes shall not restrict the Trustee in operating
the Trust as a single Fund. Allocations to the Accounts of Participants in
accordance with this Section IV shall not vest any right or title to any part
of the assets of the Fund in such Participants, except as provided in Section
V.
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SECTION V
VESTING
5.1 VESTING:
(a) A Participant shall become vested in his or her
Account according to the following schedule:
<TABLE>
<CAPTION>
Years of Service Vested Percentage
------------------ -----------------
<S> <C>
less than 1 year 0%
1 but less than 2 10%
2 but less than 3 20%
3 but less than 4 30%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 years or more 100%
</TABLE>
(b) Notwithstanding the foregoing, a Participant's
Account shall become fully vested on the first to occur of the following
events, if he or she is then an Employee:
(i) The Participant's Normal Retirement Date;
(ii) The Participant's death; or
(iii) The Participant's Permanent and Total
Disability.
(c) In the case of an Employee who has five consecutive
one-year Breaks in Service, all Years of Service after such Breaks in Service
will be disregarded for the purpose of the vesting schedule in paragraph (a)
above with respect to the Participant's Account balance that accrued before
such Breaks in Service, but both pre-break and post-break service will count
for the purposes of vesting the Account balance accruing after such Breaks in
Service. In the case of an Employee who does not have five consecutive
one-year Breaks in Service, both the pre-break and post-break service will
count in vesting both the pre-break and post-break Account balance.
(d) If the vesting schedule in paragraph (a) above is
amended to provide less rapid vesting than that shown in paragraph (a) above,
if the Plan is amended in any way that directly or indirectly affects the
computation of the Participant's nonforfeitable percentage, or if the Plan is
deemed amended by an automatic change to a Top-Heavy vesting schedule, each
Participant (i) who has completed three Years of Service with the Employer and
(ii) whose Account would have vested more rapidly prior to the amendment, may
irrevocably elect during the election period to have the nonforfeitable
percentage of his or her Account calculated without regard to such amendment.
For purposes of this Section, the election period shall begin the date the
amendment is adopted, and shall end on the date 60 days after the later of (i)
the date the amendment is adopted, (ii) the date the amendment becomes
effective, or (iii) the date the Participant is issued written notice of the
amendment by the Employer or the Plan Committee.
5.2 FORFEITURES:
(a) If an Employee's employment terminates for any reason
other than death, Permanent and Total Disability or attainment of Normal
Retirement Age, and the value of the Employee's vested Account balance is not
greater than $3,500 (and the Employee's vested Account balance at the time of
any prior distribution was not greater than $3,500), the Employee will receive
a distribution of the value of the entire vested portion of such Account
balance and the nonvested portion
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<PAGE> 20
will be treated as a forfeiture. For purposes of this Section, if the value of
an Employee's vested Account balance is zero, the Employee shall be deemed to
have received a distribution of such vested Account balance.
(b) If an Employee's employment terminates for any reason
other than death, Permanent and Total Disability or attainment of Normal
Retirement Age, and the Employee elects, in accordance with the requirements of
Sections 6.5 and 6.6, to receive the value of the Employee's vested Account
balance, the nonvested portion will be treated as a forfeiture.
(c) If an Employee receives a distribution pursuant to
this Section and the Employee resumes employment covered under this Plan, the
Employee's Account balance will be restored to the amount on the date of
distribution if the Employee repays to the Plan the full amount of the
distribution attributable to Employer contributions before the earlier of 5
years after the date the Employee resumes employment covered under this Plan,
or the date the Participant incurs 5 consecutive Breaks in Service following
the date of the distribution. If an Employee is deemed to receive a
distribution pursuant to this Section, and the Employee resumes employment
covered under this Plan before the date the Participant incurs 5 consecutive
Breaks in Service, upon the date the Employee resumes employment covered under
this Plan, the Account balance of the Employee will be restored to the amount
on the date of such deemed distribution.
(d) If an Employee's employment terminates for any reason
other than death, Permanent and Total Disability or attainment of Normal
Retirement Age, the value of the Employee's vested Account balance is greater
than $3,500 (or at the time of a prior distribution the value of the Employee's
vested Account balance was greater than $3,500), and the Employee does not
elect, in accordance with the requirements of Sections 6.5 and 6.6, to receive
the value of the Employee's vested Account balance, the nonvested portion of
the Employee's Account will be treated as a forfeiture as of the last day of
the Plan Year in which the Employee incurs five consecutive Breaks in Service.
(e) Any amounts forfeited pursuant to this Section not
used to restore the Accounts of Participants repaying partially vested
distributions in accordance with paragraph (c) above shall be allocated as
additional Employer contributions in accordance with Section 4.2.
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<PAGE> 21
SECTION VI
BENEFITS
6.1 NORMAL RETIREMENT: A Participant may retire as of his or her
Normal Retirement Date or as of any day thereafter. The Participant's Account
shall be valued as of the Valuation Date coinciding with or next following the
date on which the Participant retires and shall be distributed in accordance
with Sections 6.5 and 6.6.
6.2 DISABILITY RETIREMENT: If a Participant incurs a Permanent
and Total Disability while employed by the Employer, the Participant's
retirement shall be effective as of the date on which the Plan Committee
determines that the Participant is Permanently and Totally Disabled. The
Participant's Account shall be valued as of the Valuation Date coinciding with
or next following the date on which the Participant retires and shall be
distributed in accordance with Sections 6.5 and 6.6.
6.3 TERMINATION OF EMPLOYMENT: A Participant who terminates
employment for any reason other than retirement on or after his or her Normal
Retirement Date, death or Permanent and Total Disability shall be entitled to
receive distribution of his or her vested interest in his or her Account,
determined under Section V, in accordance with Sections 6.5 and 6.6 below.
6.4 DEATH BENEFITS: If a Participant or former Participant dies
before the Participant's vested interest in his or her Account has been
distributed, the Participant's vested interest remaining in his or her Account
will be paid to the Participant's Beneficiary in a form selected pursuant to
Section 6.6. The deceased Participant's Account will be valued as of the
Valuation Date coinciding with or next following the date of the Participant's
death. The Plan Committee may authorize advance payments to be made to the
Beneficiary after the Participant's death and before benefit payments begin.
6.5 COMMENCEMENT OF DISTRIBUTION:
(a) Subject to subsections (b) (c), and (d) a retired,
disabled or deceased Participant's vested Account balance shall be distributed
(or shall begin to be distributed) at a date designated by the Plan Committee,
which shall not be later than the 60th day following the close of the Plan Year
during which the Participant retires, incurs a Permanent and Total Disability
or dies.
Subject to subsections (b) (c) and (d) of this section, a
terminated Participant's Account balance shall be distributed (or begin to be
distributed) as follows:
(i) In the case of a Participant whose Account
balances do not exceed $3,500, the vested portion of such Participant's Account
shall be paid to the terminated Participant in accordance with Section 6.3 not
later than 60 days after the end of the Plan Year in which he or she has a
Break in Service.
(ii) In the case of a Participant whose Account
balance exceeds $3,500, distribution of his Plan benefit will normally be made
not later than 60 days after the end of the Plan Year in which such Participant
terminates employment, dies, suffers a Permanent and Total Disability, or
attains his or her Normal Retirement Date.
(iii) Notwithstanding any of the forgoing to the
contrary, in the case of Employer Stock acquired after December 31, 1986,
distribution of the portion of a Participant's vested Account balance shall
begin not later than one year after the end of the fifth plan year following
the plan year in which such Participant's employment terminated; provided,
however, the Participant must consent in writing to such distribution before it
will be made. If the Participant does not consent in writing to such
distribution, the Participant's vested interest in his or her Account shall be
distributed in accordance with paragraph (ii) above. Further if such
Participant is employed by the Employer as of the last day of the fifth Plan
Year following the Plan Year in which his or her employment terminated,
distribution of his or her vested Account balance shall be in accordance with
(ii) above.
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<PAGE> 22
(b) Each Participant's vested Account balance must be
distributed (or must begin to be distributed) not later than the April 1
following the calendar year in which the Participant reaches age 70-1/2.
(c) Notwithstanding the foregoing, distributions to
former Participants must commence no later than 60 days following the close of
the Plan Year in which occurs the latest of:
(i) The date the Participant attains age 65,
(ii) The 10th anniversary of the date on which the
Participant first commenced participation in the Plan, or
(iii) The Participant's date of termination of
employment.
(d) Notwithstanding anything in this Section 6.5 to the
contrary, if the value of the Participant's Account balance cannot be
ascertained within 60 days following the close of the Plan Year in which such
Account is otherwise required to be distributed, distribution shall commence no
later than the 60th day following the date such value can be ascertained.
(e) Notwithstanding any contrary provision of this
instrument, Employer Stock acquired with the proceeds of a loan described in
Section 404(a)(9) of the Code shall not be distributed sooner than the close of
the Plan Year in which such loan is paid in full.
6.6 FORM OF BENEFIT:
(a) Benefits from the Plan will be paid in whole shares
of Employer Stock, cash, or a combination of both, as determined by the Plan
Committee; provided, however, that a Participant shall have the right to demand
distribution of his or her entire vested Account balance entirely in shares of
Employer Stock (with the value of any fractional shares paid in cash). In the
event that a Participant demands distribution entirely in Employer Stock, any
balance in the Participant's other investment accounts shall be liquidated and
shall be applied to provide whole shares of Employer Stock at the then fair
market value of the Participant's other investment accounts. All purchases,
sales and distributions of Employer Stock shall be valued as of the date of
distribution. In the event that the Employer Stock ceases to be readily
tradeable on an established securities market, each Participant shall be given
a "put option" right to require the Employer to repurchase the Employer Stock
distributed to the Employee as provided in Section 7.2.
(b) Benefits shall be paid to the Participant or his or
her Beneficiary in a lump sum payment;
(c) The following rules apply to payments after a
Participant's death:
(i) If a Participant dies after payments have
begun, then his or her remaining vested Account balance, if any, must be
distributed to the Participant's Beneficiary at least as rapidly as under the
method of distribution elected by the Participant; and
(ii) If a Participant dies before his or her
vested Account balance has begun to be distributed, then the Participant's
remaining vested Account balance, if any, must be distributed within five years
after the Participant's death.
6.7 LOCATION OF FORMER PARTICIPANTS: If a former Participant who
is entitled to a distribution cannot be located and the Plan Committee has made
reasonable efforts to locate the former Participant, then the former
Participant's vested interest shall be forfeited. The Plan Committee will be
deemed to have made reasonable efforts to locate the Participant if the Plan
Committee is unable to locate the former Participant (or, in the case of a
deceased former Participant, his or her Beneficiary) after having made two
successive certified or similar mailings to the last address on file with the
Plan Committee. The former Participant's Account shall be forfeited as of the
last day of the Plan Year in which occurs the close of the 12 consecutive
calendar month period following the last of the two successive mailings. If
the former Participant or Beneficiary makes a written claim for the vested
interest after it has been forfeited, the Employer shall cause the vested
interest to be reinstated.
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<PAGE> 23
6.8 BENEFITS TO MINORS AND INCOMPETENTS:
(a) If any person entitled to receive payment under the
Plan is a minor, the Plan Committee, in its discretion, may dispose of such
amount in any one or more of the following ways:
(i) By payment of the amount directly to the
minor;
(ii) By application of the amount for the benefit
of the minor;
(iii) By payment of the amount to a parent of the
minor or to any adult person with whom the minor is living at the time or to
any person who is legally qualified and is acting as guardian of the minor or
of the property of the minor, provided that the parent or adult person to whom
any amount is to be paid has advised the Plan Committee in writing that he or
she will hold or use the amount for the benefit of the minor.
(iv) By payment of the amount to a custodian
selected by the Trustee under the appropriate Uniform Gifts to Minors Act.
(b) If a person who is entitled to receive payment under
the Plan is physically or mentally incapable of personally receiving and giving
a valid receipt for any payment due (unless a previous claim has been made by a
duly qualified committee or other legal representative), the payment may be
made to the person's spouse, son, daughter, parent, brother, sister or other
person deemed by the Plan Committee to have incurred expense for the person
otherwise entitled to payment.
(c) The selection of a method of distribution under this
Section shall be in the discretion of the Plan Committee, and the Plan
Committee may not be compelled to select any method that it does not deem to be
in the best interest of the distributee.
6.9 DIVERSIFICATION OF INVESTMENTS:
(a) Each Qualified Participant shall be permitted to
direct the Plan as to the investment of 25% of the value of the Participant's
Account balance attributable to Employer Stock within 90 days after the last
day of each Plan Year during the Participant's Qualified Election Period.
Within 90 days after the close of the last Plan Year in the Participant's
Qualified Election Period, a Qualified Participant may direct the Plan as to
the investment of 50% of the value of such Account balance. For these
purposes, a "Qualified Participant" shall mean a Participant who has attained
age 55 and who has completed at least 10 years of Participation, and a
"Qualified Election Period" shall mean the six (6) Plan Year period beginning
with the Plan Year in which the Participant first becomes a Qualified
Participant.
(b) The Participant's direction shall be provided to the
Plan Committee in writing; shall be effective no later than 180 days after the
close of the Plan Year to which the direction applies; and shall specify which,
if any, of the options set forth in Section 6.9(c) the Participant selects.
(c) The Plan Committee shall offer at least three
investment options (determined in accordance with any applicable regulations)
to each Participant who makes a direction under this Section. If no such
investment options are offered:
(i) At the election of the Qualified Participant,
the Plan shall distribute (notwithstanding Section 409(d) of the Code) the
portion of the Participant's account that is covered by the election within 90
days after the last day of the period during which the election can be made.
Such distribution shall be subject to such requirements of the Plan concerning
put options as would otherwise apply to a distribution of Employer Stock from
the Plan. This Section 6.9(c)(i) shall apply notwithstanding any other
provision of the Plan other than such provisions as require the consent of the
Participant to a distribution with a present value in excess of $3,500. If the
Participant does not consent, such amount shall be retained in this Plan.
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<PAGE> 24
(ii) In lieu of distribution under Section
6.9(c)(i), the Qualified Participant who has the right to receive a cash
distribution under Section 6.9(c)(i) may direct the Plan to transfer the
portion of the Participant's account that is covered by the election to another
qualified plan of the Employer which accepts such transfers, provided that such
a plan then exists, that such plan permits employee-directed investment and
that such plan does not invest in Employer securities to a substantial degree.
Such transfer shall be made no later than ninety days after the last day of the
period during which the election can be made.
6.10 PERIOD OF PAYMENT/CERTAIN ACCOUNTS: Notwithstanding any
contrary provision herein, if the fair market value of a Participant's account
attributable to Employer Stock is in excess of $500,000 (multiplied by the
adjustment factor as prescribed by the Secretary of the Treasury) as of the
date distribution is required to begin under Section 6.5, distributions
required under Section 6.5 shall be made in substantially equal annual payments
over a period not longer than five years plus an additional one year (up to an
additional five years) for each $100,000 increment, or fraction of such
increment, by which the value of the Participant's account exceeds $500,000,
unless the Participant otherwise elects under the provisions of the Plan other
than this Section. In no event shall such distribution period exceed the
period permitted under Section 401(a)(9) of the Code.
6.11 DIRECT ROLLOVERS; WITHHOLDING:
(a) Effective Date: The provisions of this Section shall
apply to all distributions from the Plan made on or after January 1, 1993.
(b) General Rule: If the Distributee of any Eligible
Rollover Distribution elects to have the Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan, and specifies the Eligible Retirement
Plan to which the Eligible Rollover Distribution is to be paid, then the
Eligible Rollover Distribution will be paid to that Eligible Retirement Plan in
a Direct Rollover.
(c) Waiver of 30 Day Notice Requirement: If a
distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Regulations is given, provided
that: (1) the Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option); and (2) the Participant,
after receiving the notice, affirmatively elects a distribution.
(d) Definitions: For purposes of this Section, the
following definitions shall apply:
(i) Direct Rollover: An Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan for the benefit of a
Distributee.
(ii) Distributee: An Employee, surviving spouse
of a deceased employee, or a spouse entitled to payment under a Qualified
Domestic Relations Order.
(iii) Eligible Retirement Plan:
(A) With respect to any
Distributee, an individual retirement account described in Section 408(a) of
the Code.
(B) With respect to a Distributee
who is an Employee or a spouse or former spouse of an Employee who is an
Alternate Payee under a Qualified Domestic Relations Order as defined in
Section 7.2 below, an Eligible Retirement Plan shall also mean an individual
retirement annuity (other than an endowment contract) described in Section
408(b) of the Code, a qualified trust described in Section 401(a) of the Code
or an annuity plan described in Section 403(a) of the Code.
(iv) Eligible Rollover Distribution: An Eligible
Rollover Distribution is any distribution of all or any portion of the balance
to the credit of the Distributee, except that an Eligible Rollover Distribution
does not include: any
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distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the Distributee or the joint lives (or joint life expectancies) of the
Distributee and the Distributee's designated Beneficiary, or for a specified
period of ten years or more; any distribution to the extent such distribution
is required under section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect to Employer
securities).
(e) If a Participant does not elect to have an Eligible
Rollover Distribution transferred directly to an Eligible Retirement Plan, or
in the case of any distribution which is not an Eligible Rollover Distribution,
the Plan Committee shall direct the Trustee as to any required withholding.
Under no circumstances shall Company Stock be sold to satisfy any such
withholding requirement.
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SECTION VII
ACQUISITION AND DISTRIBUTION OF EMPLOYER STOCK
7.1 LOANS USED TO ACQUIRE EMPLOYER STOCK:
(a) The Plan Committee may direct the Trustee to incur
Plan loans from time to time to carry out the purposes of the Trust, provided
that if the loan is for the purposes of acquiring Employer Stock, the terms of
the loan shall comply with the following requirements: Any such loan shall be
for a specified term, shall bear a reasonable rate of interest, may not exceed
fifteen (15) years in duration, and may only be secured by a collateral pledge
of the Employer Stock so acquired. Any such loan shall be primarily for the
benefit of Plan Participants and their Beneficiaries. No other Trust assets
may be pledged as collateral by the Trustee, and no lender shall have recourse
against Trust assets other than any shares of Employer Stock remaining subject
to pledge. Any pledge of Employer Stock must provide for the release of shares
so pledged pursuant to either the "General Rule" or the "Special Rule" set
forth in Section 4.1. Repayments of principal and interest on any such loan
shall be made by the Trustee as directed by the Plan Committee only from
Employer contributions in cash to the Trust, from any cash dividends received
by the Trust on such Employer Stock or from earnings attributable to the
investment of Employer contributions made to the Trust in cash to meet its
obligations under the loan. The proceeds of such a loan may be used only to
acquire Employer Stock, to repay such loan or to repay a prior such loan. The
protections and rights described in Section VII are nonterminable. Should this
Plan cease to be an Employee Stock Ownership Plan, or should said loan be
repaid, all Employer Stock will continue to be subject to the provisions of
this Section VII.
(b) In the event of default upon a loan used to acquire
Employer Stock, the value of Plan assets transferred in satisfaction of the
loan must not exceed the amount of default. If the lender is a disqualified
person (within the meaning of Section 4975 of the Code) a loan must provide for
a transfer of Plan assets upon default only upon and to the extent of the
failure of the Plan to meet the payment schedule of the loan. For purposes of
this paragraph, the making of a guarantee does not make a person a lender.
7.2 PUT OPTION:
(a) If Employer Stock is distributed from the Plan at a
time when the Employer Stock is not readily tradable on an established
securities market, then the Participant or Beneficiary receiving the Employer
Stock shall have the right to require that the Employer repurchase the Employer
Stock. The Participant or Beneficiary may exercise this put option for a
period of 60 days following the date on which the Employer Stock is distributed
and, if the Participant or Beneficiary does not exercise the put option at that
time, for an additional period of 60 days during the next following Plan Year.
The period during which the put option is exercisable shall not include any
period during which the Participant or Beneficiary is unable to exercise the
put option because the Employer is prohibited from honoring it by federal or
state law. In order to exercise the put option, the Participant or Beneficiary
must notify the Employer in writing, during the exercise period, that the put
option is being exercised.
(b) If a Participant or Beneficiary exercises a put
option, the Employer (or, if the Trustee deems it appropriate and the Employer
consents, the Trustee) shall purchase the Employer Stock that was distributed
to the Participant or Beneficiary at a purchase price equal to the fair market
value of the Employer Stock as of the most recent Valuation Date; provided
that, if the Participant or Beneficiary exercising the put option is a
"disqualified person", as defined in Code Section 4975, the purchase price
shall equal the fair market value of the Employer Stock as of the date of the
purchase. The purchase price shall be paid in one or more installments over a
period determined by the Employer or Trustee, but not to exceed five (5)
substantially equal annual payments. The first installment shall be paid not
later than 30 days after the Participant exercises the put option. Interest
shall be payable at a reasonable interest rate and with adequate security on
amounts not paid after 30 days. The Employer or Trustee shall determine what
constitutes a reasonable interest rate and adequate security, based on interest
terms in effect in the community at the time of the purchase.
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<PAGE> 27
(c) Notwithstanding any of the foregoing to the contrary,
if the distribution does not constitute a "Total Distribution" within the
meaning of the Code, the Plan shall pay the Participant an amount equal to the
fair market value of the Employer Stock repurchased no later than 30 days after
the Participant exercises the put option.
7.3 FAIR MARKET VALUE OF EMPLOYER STOCK: The Plan Committee shall
determine the fair market value of Employer Stock, and the Plan Committee's
determination shall be binding on all persons, including the Trustee, for all
purposes of this Plan. The Plan Committee may rely on an appraisal made by a
disinterested qualified appraiser in determining fair market value.
Notwithstanding any of the foregoing to the contrary, all valuations of
Employer Stock which are not readily tradable on an established securities
market with respect to activities carried on by the Plan shall be made by an
independent appraiser meeting requirements similar to those contained in
Treasury regulations under Section 170(a)(1) of the Code.
7.4 LEGENDS: The Plan Committee shall direct the Trustee to cause
shares of Employer Stock that are distributed to bear a legend setting forth
such representations as the Plan Committee deems appropriate, which may
include, without being limited to, representations that (i) the shares have not
been registered under federal or state securities law, or (ii) under the law,
the transferability of the shares is restricted. In addition, the Plan
Committee may require the recipient of a distribution of Employer Stock to sign
a letter agreeing that the Employer Stock received shall not be transferred
except in compliance with federal and state securities law and making such
other agreements and representations as the Plan Committee deems appropriate.
Except as otherwise provided in this Section VII, no security acquired with the
proceeds of a loan described in Section 7.1 above may be subject to a put,
call, buy-sell or similar arrangement while held by or when distributed from
the Plan.
7.5 BASIS OF EMPLOYER STOCK: The basis of Employer Stock held in
the Trust Fund shall be determined as follows:
(a) The basis of Employer Stock purchased by the Trustee
shall be the actual cost of the Employer Stock to the Trustee. The basis of
all other Employer Stock acquired by the Trustee (including Employer Stock
contributed by the Employer to the Trust Fund) shall be the fair market value
of the Employer Stock on the date of the acquisition.
(b) Any shares of Employer Stock that are held
unallocated in a Suspense Account pursuant to Section 4.1 or 4.5 shall retain
their original basis, without regard to when the shares are released and
allocated to Participants' Accounts.
(c) As of each allocation date, the basis of all Employer
Stock that is made available for allocation shall be calculated as of that
date, as determined pursuant to subsections (a) and (b) above.
(d) The basis of all Employer Stock allocated to a
Participant's Account for a Plan Year shall be averaged with the basis of all
Employer Stock previously allocated to the Participant's Account, and the
resulting average, as adjusted annually, shall be the Participant's basis with
respect to distributions of Employer Stock from the Participant's Account.
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SECTION VIII
ADMINISTRATION BY THE COMMITTEE
8.1 APPOINTMENT OF THE PLAN COMMITTEE: The members of the Plan
Committee shall consist of one or more persons appointed from time to time by
the Employer to serve until their death, resignation or removal by the
Employer. A person shall not be ineligible to be a member of the Plan
Committee because he or she is or may be a Participant in the Plan. The
Employer from time to time may increase or decrease the number of members of
the Plan Committee. The Plan Committee and each of its members shall be named
fiduciaries with respect to the Plan, and shall be indemnified by the Employer
against any and all liabilities incurred by reason of any action taken in good
faith pursuant to the provisions of the Plan.
8.2 POWERS OF THE PLAN COMMITTEE:
(a) The Plan Committee shall be responsible for the
general administration and interpretation of the Plan and for carrying out its
provisions and shall have such powers as may be necessary to discharge its
duties hereunder, including, but not by way of limitation, the following powers
and duties:
(i) To construe and interpret the Plan, to decide
all questions of eligibility and to determine the amount, manner and time of
payment of any benefits hereunder;
(ii) To prescribe procedures to be followed by
Employees in filing applications for benefits;
(iii) To make a determination as to the right of
any person to a benefit and to afford any person dissatisfied with such
determination the right to a hearing;
(iv) To request and receive from the Employer and
from Employees such information as shall be necessary for the proper
administration of the Plan, including but not limited to, such information as
the Plan Committee may reasonably require to determine each Participant's
eligibility to participate in the Plan and the benefits payable to each
Participant upon his or her death, retirement or termination of employment;
(v) To prepare and distribute, in such manner as
it determines to be appropriate, information explaining the Plan;
(vi) To furnish the Employer, upon request, with
such annual reports with respect to the administration of the Plan as are
reasonable and appropriate;
(vii) To direct the Trustee as to the method in
which and persons to whom Plan assets will be distributed;
(viii) To receive and review reports on the
financial condition of the Trust Fund and statements of the receipts and
disbursements of the Trust Fund from the Trustee;
(ix) To value Employer Stock; and
(x) Such other duties and powers as are set forth
in Section 9.5.
(b) The Plan Committee shall not have the power to add
to, subtract from or modify any of the terms of the Plan, nor to change or add
to any benefits provided by the Plan, nor to waive or fail to apply any
requirement for eligibility for the receipt of benefits under the Plan.
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(c) The Plan Committee may adopt such rules, regulations
and bylaws and may make such decisions as it deems necessary or desirable for
the proper administration of the Plan, and all rules and decisions of the Plan
Committee shall be uniformly and consistently applied to all Participants in
similar circumstances. Any rule or decision that is not inconsistent with the
provisions of the Plan shall be conclusive and binding upon all persons
affected by it, and there shall be no appeal from any ruling by the Plan
Committee that is within its authority, except as otherwise provided herein.
When making a determination or calculation, the Plan Committee shall be
entitled to rely upon information furnished by an Employer or anyone acting on
behalf of an Employer.
8.3 OPERATION: The members of the Plan Committee shall elect a
Chairman. They shall also elect a Secretary who may, but need not, be a member
of the Plan Committee. The Plan Committee shall have the power to: (a)
appoint from its membership such subcommittees with such powers as the Plan
Committee shall determine, (b) authorize one or more of its members or any
agent to execute or deliver any instrument or to make any payment on behalf of
the Plan Committee, and (c) employ counsel and agents and such clerical and
other services as the Plan Committee shall deem requisite or desirable in
carrying out the provisions of the Plan. The Plan Committee shall be fully
protected in relying on data, information or statistics furnished it by persons
performing ministerial and limited discretionary functions as long as the Plan
Committee has had no reason to doubt the competence, integrity or
responsibility of any such person.
8.4 MEETINGS AND QUORUM: The Plan Committee shall hold meetings
upon such notice, at such places, and at such intervals as it may from time to
time determine. A majority of the members of the Plan Committee at the time in
office shall constitute a quorum for the transaction of business. All
resolutions or other actions taken by the Plan Committee at any meeting shall
be by the vote of a majority of those present at any such meeting. Action may
be taken by the Plan Committee without a meeting by a written consent signed by
a majority of the members of the Plan Committee.
8.5 COMPENSATION: The members of the Plan Committee shall not be
entitled to any compensation for their services with respect to the Plan, but
the Plan Committee members shall be entitled to reimbursement for any and all
necessary expenses that each member may incur. The expenses shall be paid by
the Employer or from the Trust Fund. Any such payments from the Trust Fund
shall be deemed to be for the exclusive benefit of Participants.
8.6 DOMESTIC RELATIONS ORDERS:
(a) If the Trustee or the Plan Committee receives a
domestic relations order that purports to require the payment of a
Participant's benefits to a person other than the Participant, the Plan
Committee shall take the following steps:
(i) If benefits are in pay status, the Plan
Committee shall direct the Trustee to segregate and hold in a Determination
Period Account (defined below) the amounts that will be payable to the
Alternate Payees (defined below) with respect to the Determination Period
(defined below) if the order is a Qualified Domestic Relations Order (defined
below).
(ii) The Plan Committee shall promptly notify the
named Participant and any Alternate Payees of the receipt of the domestic
relations order and of the Plan Committee's procedures for determining if the
order is a Qualified Domestic Relations Order.
(iii) The Plan Committee shall determine whether
the order is a Qualified Domestic Relations Order under the provisions of Code
Section 414(p).
(iv) The Plan Committee shall notify the named
Participant and any Alternate Payees of its determination as to whether the
order meets the requirements of a Qualified Domestic Relations Order.
(b) If, within 18 months of receipt of the domestic
relations order, the order is determined to be a Qualified Domestic Relations
Order, the Plan Committee shall direct the Trustee to pay the Determination
Period Account to the persons entitled to receive the Account pursuant to the
order.
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(c) If, within 18 months of receipt of the domestic
relations order, (i) the order is determined not to be a Qualified Domestic
Relations Order or (ii) the issue as to whether the order is a Qualified
Domestic Relations Order has not been resolved, the Plan Committee shall direct
the Trustee to pay the amounts held in the Determination Period Account to the
Participant or other person who would have been entitled to such amounts if
there had been no order.
(d) If an order is determined to be a Qualified Domestic
Relations Order after the end of the 18-month period, the determination shall
be applied prospectively only.
(e) For the purposes of this Section, the following terms
shall have the following definitions:
Alternate Payee - Any spouse, former spouse, child or
other dependent of a Participant who is recognized by a domestic relations
order as having a right to all or a portion of the benefits payable under the
Plan to the Participant.
Determination Period - The period of up to 18 months
during which the Plan Committee shall determine the qualified status of a
domestic relations order.
Determination Period Account - A segregated account
established by the Trustee at the direction of the Plan Committee, in which
amounts which may be payable to an Alternate Payee shall be held. A
Determination Period Account shall be held in an interest-bearing account and
credited with earnings of that account.
Qualified Domestic Relations Order - Any domestic
relations order or judgment that meets the requirements set forth in Code
Section 414(p).
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SECTION IX
DUTIES AND POWERS OF THE TRUSTEE
9.1 GENERAL: Subject to Section 9.5, the Trustee shall receive,
hold, manage, convert, sell, exchange, invest, disburse and otherwise deal with
such contributions as may from time to time be made to the Trust Fund and the
income and profits therefrom, in the manner and for the uses and purposes of
the Plan as provided in the Plan and in the trust agreement described in
Section 9.2.
9.2 TRUST AGREEMENT: The Employer has entered into a trust
agreement with the Trustee under which the Trustee will receive, invest and
administer the Trust Fund in accordance with the terms thereof. The trust
agreement is incorporated by reference as a part of the Plan, and the rights of
all persons under the Plan are subject to the terms of the trust agreement.
The trust agreement provides for the investment and reinvestment of the Trust
Fund, the management of the Trust Fund, the responsibilities and immunities of
the Trustee, the removal of the Trustee and appointment of a successor, the
accounting by the Trustee and the disbursement of the Trust Fund.
9.3 LIMITATION OF LIABILITY: The Trustee shall hold in trust and
administer the Trust Fund subject to all the terms and conditions of this Plan
and of the trust agreement described in Section 9.2. The Trustee shall not be
responsible for the administration of the Plan unless employed by the Employer
to serve in such capacity. The Trustee's responsibility shall be limited to
holding, investing and reinvesting the assets of the Trust Fund from time to
time in its possession or under its control as Trustee, as directed by the Plan
Committee, and to disbursing funds as directed by the Plan Committee. The
Trustee shall not be responsible for the correctness of any payment or
disbursement or action if made in accordance with the instructions of the Plan
Committee.
9.4 POWER OF TRUSTEE TO CARRY OUT THE PLAN: If, at any time, the
Employer or the Plan Committee shall be incapable, for any reason, of giving
directions, instructions or authorizations to the Trustee, as herein provided,
the Trustee may act, without such directions, instructions or authorizations,
as it, in its discretion, shall deem appropriate and advisable under the
circumstances for carrying out the provisions of the Plan; provided, however,
that the Trustee shall not vote Employer Stock without written instructions
from the Plan Committee.
9.5 PLAN COMMITTEE:
(a) The Plan Committee shall be responsible for directing
the Trustee regarding the management, disposition and investment of Trust
assets (including the power to direct the Trustee with respect to the voting
and valuation of Employer Stock), as described in the trust agreement. The
Plan Committee shall have the power to consult with and employ competent
advisors, agents and other persons to assist the Plan Committee in discharging
its responsibilities with respect to the voting, valuation, management,
disposition and investment of Employer Stock.
(b) Except as otherwise required by the Trust Agreement,
The Plan Committee may, but is not required to, poll the Participants to
determine how Employer Stock should be voted or whether Employer Stock should
be sold. If the Plan Committee requests and receives instructions by the
Participants regarding the voting or sale of Employer Stock, the Plan Committee
shall follow the Participants' instructions in directing the Trustee regarding
the voting or sale of Employer Stock.
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SECTION X
AMENDMENT AND TERMINATION
10.1 AMENDMENT: This Plan shall be irrevocable and binding as to
all contributions made by an Employer to the Trust, but this Plan may be
amended from time to time by the Employer. No amendment shall be made to the
Plan that (a) would have the effect of diverting any of the Trust from
Participants or their Beneficiaries as provided in the Plan, (b) would prevent
the allowance as a deduction for federal income tax purposes, and particularly
under Code Section 404, of any contribution made by an Employer to the Trust,
(c) would take the Plan and Trust out of the scope of Code Sections 401, 402
and 501(a), (d) would increase the duties of the Trustee without its consent,
or (e) would decrease a Participant's vested interest in his or her Account in
the Trust Fund.
Subject to the foregoing to the contrary, the Employer
reserves the right to amend the vesting schedule at any time; provided,
however, the Employer shall not amend the vesting schedule (and no amendment
shall be effective) to reduce a Participant's vested Account derived from
Employee Contributions (determined as of the later of the date the amendment is
adopted or the date the amendment becomes effective).
If the Employer makes a permissible amendment to the vesting
schedule, each Participant having at least three 3 Years of Service may elect
to have the percentage of his or her vested Account computed under the Plan
without regard to the amendment. The Participant must file an election with
the Plan Committee within sixty (60) days of the latest of (a) adoption of the
amendment; (b) the effective date of the amendment; or (c) the Participant's
receipt of a copy of the amendment. The Plan Committee, as soon as
practicable, shall forward a true copy of any amendment to the vesting schedule
to each affected Participant, together with an explanation of the effect of the
amendment, the appropriate form upon which the Participant may make an election
to remain under the vesting schedule provided under the Plan prior to the
amendment and notice of the time within which the Participant must make an
election to remain under the prior vesting schedule. For purposes of this
Section, an amendment to the vesting schedule includes any Plan amendment which
directly or indirectly affects the computation of the vested percentage of an
Employee's rights to his or her Employer derived Account.
10.2 TERMINATION: This Plan may be terminated at any time by the
Employer. If the Plan is terminated, or if a partial termination occurs
(through a complete discontinuance of contributions or otherwise), each
affected Participant shall have a 100% vested interest in his or her Account,
and his or her Account shall be paid to the Participant (or to the
Participant's Beneficiary, in the event of the Participant's death) in a lump
sum as soon as is practicable after the termination. An Affiliated Company
that has adopted the Plan may terminate its participation in the Plan at any
time. In the event of such termination, the Affiliated Company may adopt a
successor plan providing substantially similar benefits and the interests of
each Participant who is an Employee of the Affiliated Company shall be
transferred to the trustee or other funding agent for such successor plan. If
the Affiliated Company does not establish a successor plan within six months of
its notice of termination of participation in the Plan (or gives sooner notice
that no successor plan will be established) then the Plan will be deemed to be
terminated with respect to the Affiliated Company. Notwithstanding anything in
this instrument to the contrary, if this Plan ceases to be an ESOP, qualifying
employer securities acquired with the proceeds of an exempt loan will continue,
after the loan is paid, to be subject to Regulation 54.4975-7(b)(4), (10),
(11), and (12) relating to put, call or other options and to buy - sell or
similar arrangements.
10.3 MERGER: In the event of merger or consolidation with, or
transfer of assets or liabilities to, any other plan, each Participant shall be
entitled to a benefit under such other plan immediately after the merger,
consolidation, or transfer that is equal to or greater than the Participant's
Account balance determined under this Plan immediately before the merger,
consolidation or transfer.
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SECTION XI
CLAIMS PROCEDURE
11.1 RIGHT TO FILE CLAIM: Every Participant, former Participant,
retired Participant, or Beneficiary of a Participant or former Participant
shall be entitled to file with the Plan Committee a claim for benefits under
the Plan. The claim must be in writing.
11.2 DENIAL OF CLAIM: If the claim is denied by the Plan
Committee, in whole or in part, the claimant shall be furnished within 90 days
after the Plan Committee's receipt of the claim (or within 180 days after such
receipt if special circumstances require an extension of time) a written notice
of denial of the claim containing the following:
(a) Specific reason or reasons for denial,
(b) Specific reference to pertinent Plan provisions on
which the denial is based,
(c) A description of any additional material or
information necessary for the claimant to perfect the claim, and an explanation
of why the material or information is necessary, and
(d) An explanation of the claims review procedure.
11.3 CLAIMS REVIEW PROCEDURE:
(a) Review may be requested at any time within 90 days
following the date the claimant received written notice of the denial of his or
her claim. For purposes of this Section, any action required or authorized to
be taken by the claimant may be taken by a representative authorized in writing
by the claimant to represent him or her. The Plan Committee shall afford the
claimant a full and fair review of the decision denying the claim and, if so
requested, shall:
(i) permit the claimant to review any documents
that are pertinent to the claim;
(ii) permit the claimant to submit to the Plan
Committee issues and comments in writing; and
(iii) afford the claimant an opportunity to meet
with a quorum of the Plan Committee as a part of the review procedure.
(b) The decision on review by the Plan Committee shall be
in writing and shall be issued within 60 days following receipt of the request
for review. The period for decision may be extended to a date not later than
120 days after such receipt if the Plan Committee determines that special
circumstances require extension. The decision on review shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision of the Plan Committee is based.
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SECTION XII
ADOPTION OF PLAN BY AFFILIATED COMPANIES
12.1 ADOPTION OF THE PLAN: An Affiliated Company may become a
Participating Employer with the approval of the Employer by adopting the Plan
for its Employees. An Affiliated Company that becomes a Participating Employer
shall promptly deliver to the Trustee a certified copy of the resolutions or
other documents evidencing its adoption of the Plan. Notwithstanding anything
in the Plan to the contrary, an Affiliated Company adopting the Plan may
determine whether and to what extent periods of employment with the Affiliated
Company before the Affiliated Company adopted the Plan shall be included as
Service under the Plan.
12.2 WITHDRAWAL: An Affiliated Company may cease to be a
Participating Employer at any time by giving advance notice in writing of its
intention to the Employer and to the Plan Committee. Upon the receipt of
notice of any such withdrawal, the Plan Committee shall certify to the Trustee
the equitable share of the withdrawing Affiliated Company in the Trust Fund,
and the Trustee shall thereupon set aside from the Trust Fund such securities
and other property as it shall, in its sole discretion, deem to be equal in
value to the Affiliated Company's equitable share. If the Plan is to be
terminated with respect to the Affiliated Company, the amount set aside shall
be administered according to Section 9.2. If the Plan is not to be terminated
with respect to the Affiliated Company, the Trustee shall turn over the
Affiliated Company's equitable share to a trustee designated by the Affiliated
Company, and the securities and other property shall thereafter be held and
invested as a separate trust of the Affiliated Company and shall be used and
applied according to the terms of a new trust agreement between the Affiliated
Company and the trustee so designated. Neither the segregation of the Trust
Fund assets upon the withdrawal of an Affiliated Company, nor the execution of
a new trust agreement shall operate to permit any part of the corpus or income
of the Trust Fund to be used for or diverted to purposes other than for the
exclusive benefit of Participants, former Participants and Beneficiaries.
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SECTION XIII
TOP HEAVY
13.1 PURPOSE: This Article is intended to insure that the Plan
complies with Section 416 of the Code. If the Plan is or becomes Top-Heavy in
any Plan Year beginning after December 31, 1983, the provisions of this Section
will supersede any conflicting provision in the Plan.
13.2 DEFINITIONS: For purposes of this Article, the following
definitions shall apply:
(a) Determination Date: For any Plan year subsequent to
the first Plan Year, the last day of the preceding Plan Year. For the first
Plan Year of the Plan, the last day of that Year.
(b) Key Employee: Any Employee or former Employee (and
the beneficiaries of such Employee) who at any time during the determination
period was (i) an officer of the Employer if such individual's annual
compensation exceeds 50% of the dollar limitation in effect under Section
415(b)(1)(A) of the Code, (ii) an owner (or considered an owner under Section
318 of the Code) of one of the ten largest interests in the Employer if such
individual's compensation exceeds 100% of the dollar limitation in effect under
Section 415(c)(1)(A) of the Code, (iii) a 5% owner of the Employer, or (iv) a
1% owner of the Employer who has an annual compensation of more than $150,000.
Annual compensation means compensation as defined in Section 415(c)(3) of the
Code, but including amounts contributed by the Employer pursuant to a salary
reduction agreement which are excludible from the Employee's gross income under
Section 125, Section 402(a)(8), Section 402(h) or Section 403(b) of the Code.
The determination period is the Plan Year containing the Determination Date and
the four preceding Plan Years. Determination of who is a Key Employee will be
made in accordance with Section 416(i)(1) of the Code and the regulations
thereunder.
(c) Non-Key Employee: Any Employee who is not a Key
Employee, including Employees who are former Key Employees.
(d) Permissive Aggregation Group: The Required
Aggregation Group of plans plus any other plan or plans of the Employer which,
when considered as a group with the Required Aggregation Group, would continue
to satisfy the requirements of Sections 401(a)(4) and 410 of the Code.
(e) Required Aggregation Group: (1) Each qualified plan
of the Employer in which at least one Key Employee participates or participated
at any time during the determination period (regardless of whether the plan has
terminated), and (2) any other qualified plan of the Employer which enables a
plan described in (1) to meet the requirements of Sections 401(a)(4) or 410 of
the Code.
(f) Top-Heavy Plan: This Plan is Top-Heavy if for any
Plan Year any of the following conditions exists:
(i) If the Top-Heavy Ratio for this Plan exceeds
60% and this Plan is not part of any Required Aggregation Group or Permissive
Aggregation Group of plans.
(ii) If this Plan is a part of a Required
Aggregation Group of plans but not part of a Permissive Aggregation Group and
the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60%.
(iii) If this Plan is a part of a Required
Aggregation Group and part of a Permissive Aggregation Group of plans and the
Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60%.
(g) Top-Heavy Ratio:
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<PAGE> 36
(i) If the Employer maintains one or more defined
contribution plans (including any simplified employee pension plan) and the
Employer has not maintained any defined benefit plan which during the 5-year
period ending on the Determination Date(s) has or has had accrued benefits, the
Top-Heavy Ratio for this Plan alone or for the Required or Permissive
Aggregation Group as appropriate is a fraction, the numerator of which is the
sum of the Account balances of all Key Employees as of the Determination
Date(s) (including any part of any Account balance distributed in the 5-year
period ending on the Determination Date(s)), and the denominator of which is
the sum of Account balances (including any part of any Account balance
distributed in the 5-year period ending on the Determination Date(s)), both
computed in accordance with Section 416 of the Code and the regulations
thereunder. Both the numerator and denominator of the Top-Heavy Ratio are
increased to reflect any contribution not actually made as of the Determination
Date, but which is required to be taken into account on that date under Section
416 of the Code and the regulations thereunder.
(ii) If the Employer maintains one or more defined
contribution plans (including any simplified employee pension plan) and the
Employer maintains or has maintained one or more defined benefit plans which
during the 5-year period ending on the Determination Date(s) has or has had any
accrued benefits, the Top-Heavy Ratio for any Required or Permissive
Aggregation Group as appropriate is a fraction, the numerator of which is the
sum of Account balances under the aggregated defined contribution plan or plans
for all Key Employees, determined in accordance with (i) above, and the present
value of accrued benefits under the aggregated defined benefit plan or plans
for all Key Employees as of the Determination Date(s), and the denominator of
which is the sum of Account balances under the aggregated defined contribution
plan or plans for all participants, determined in accordance with (i) above,
and the present value of accrued benefits under the defined benefit plan or
plans for all participants as of the Determination Date(s), all determined in
accordance with Section 416 of the Code and the regulations thereunder. The
accrued benefits under a defined benefit plan in both the numerator and
denominator of the Top-Heavy Ratio are increased for any distribution of an
accrued benefit made in the five-year period ending on the Determination Date.
(iii) For purposes of (i) and (ii) above the value
of Account balances and the present value of accrued benefits will be
determined as of the most recent Valuation Date that falls within or ends with
the 12-month period ending on the Determination Date, except as provided in
Section 416 of the Code and the regulations thereunder for the first and second
plan years of a defined benefit plan. The Account balances and accrued
benefits of a participant (1) who is not a Key Employee but who was a Key
Employee in a prior year, or (2) who has not been credited with at least one
Hour of Service with any Employer maintaining the Plan at any time during the
five-year period ending on the Determination Date will be disregarded. The
calculation of the Top-Heavy Ratio, and the extent to which distributions,
rollovers, and transfers are taken into account will be made in accordance with
Section 416 of the Code and the regulations thereunder. Deductible employee
contributions will not be taken into account for purposes of computing the
Top-Heavy Ratio. When aggregating plans the value of Account balances and
accrued benefits will be calculated with reference to the Determination Dates
that fall within the same calendar year.
The accrued benefit of a Participant other
than a Key Employee shall be determined under (1) the method, if any, that
uniformly applies for accrual purposes under all defined benefit plans
maintained by the Employer, or (2) if there is no such method, as if such
benefit accrued not more rapidly than the slowest accrual rate permitted under
the fractional rule of Section 411(b)(1)(C) of the Code.
(h) Valuation Date: The Plan Year-End as of which
Account balances or accrued benefits are valued for purposes of calculating the
Top-Heavy Ratio.
13.3 MINIMUM ALLOCATION:
(a) Except as otherwise provided in paragraphs (c) and
(d) below, in any Plan Year in which this Plan is Top-Heavy, Employer
contributions allocated to the Account of each Participant who is a Non-Key
Employee, shall be not less than the lesser of (i) 3% of the Non-Key Employee's
Compensation, or (ii) in the case where the Employer has no defined benefit
plan which designates this Plan to satisfy Section 401 of the Code, the largest
percentage of Employer contributions (if applicable), as a percentage of the
first $200,000 of Compensation, allocated on behalf of any Key Employee for
that Plan Year. The minimum allocation shall be determined without regard to
any Social Security contribution. This minimum contribution shall be made even
though, under other provisions of this Plan, the Participant would not
otherwise be entitled to receive an allocation
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<PAGE> 37
or would have received a lesser allocation for the Plan Year because of (i) the
Participant's failure to complete 1,000 Hours of Service, (ii) the
Participant's failure to make mandatory Employee contributions to the Plan, or
(iii) Compensation less than a stated amount.
(b) For purposes of computing the minimum allocation,
Compensation shall mean Compensation as defined in Section 1.8 of the Plan.
(c) The provisions in paragraph (a) above shall not apply
to any Participant who was not employed by the Employer on the last day of the
Plan Year.
(d) The minimum allocation required (to the extent
required to be nonforfeitable under Section 416(b)) may not be forfeited under
Section 411(a)(3)(B) or 411(a)(3)(D) of the Code.
(e) Any minimum Top Heavy allocations will be made from
this Plan.
13.4 VESTING SCHEDULE:
(a) For any Plan Year in which the Plan is Top-Heavy, the
following vesting schedule shall apply to any Employer contributions made for
that Plan Year:
<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C>
1 year 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 years or more 100%
</TABLE>
The Top-Heavy vesting schedule shall also apply to any
subsequent Plan Years unless the Employer amends the Plan to provide for a
vesting schedule which is more rapid than the one in this Section.
(b) The minimum vesting schedule applies to all benefits
within the meaning of Section 411(a)(7) of the Code except those attributable
to Employee contributions, including benefits accrued before the effective date
of Section 416 of the Code and benefits before the Plan became Top-Heavy.
Further, no decrease in a Participant's nonforfeitable percentage may occur in
the event the Plan's status as Top-Heavy changes for any Plan Year. However,
this Section does not apply to the Account balances of any Employee who does
not have an Hour of Service after the Plan has initially become Top-Heavy and
such Employee's Account balance attributable to Employer Contributions and
forfeitures will be determined without regard to this Section.
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SECTION XIV
MISCELLANEOUS
14.1 RECEIPT OF ROLLOVERS AND TRUSTEE TO TRUSTEE TRANSFERS:
(a) The Trustee may (but shall not be required to)
receive, with the consent of the Plan Committee, the transfer of assets
previously held under another qualified plan for the benefit of a person who is
a Participant in this Plan, provided that the assets have not at any time been
held in any defined benefit plan or a defined contribution plan that is subject
to the funding standards of Code Section 412 (unless the transfer is of an
"eligible rollover distribution" within the meaning of Section 6.13). The
assets may be received directly from the trustee of a qualified plan or as a
rollover contribution from a qualified plan or from an individual retirement
account. Any plan from which assets are received must be a plan qualified
under Code Section 401 at the time of the transfer, any rollover individual
retirement account must be an individual retirement account within the meaning
of Code Section 408 at the time of the rollover, and the assets of any
individual retirement account must be derived from distributions qualifying for
the treatment described in this Section.
(b) Notwithstanding the foregoing, effective January 1,
1993, the Trustee may receive, with the consent of the Administrator, a
transfer of assets previously held under a qualified plan for the benefit of an
Employee in the form of a Direct Rollover (as defined in Section 6.11).
(c) An eligible Employee may, with the consent of the
Plan Committee and prior to satisfying the Plan's eligibility condition(s),
make a rollover contribution to the Trust to the same extent and in the same
manner as a Participant. If an Employee makes a rollover contribution to the
Trust prior to satisfying the Plan's eligibility condition(s), the Plan
Committee and Trustee shall treat the Employee as a Participant for all
purposes of the Plan except the Employee may not share in Employer
contributions under Section III until the Employee actually becomes a
Participant in the Plan. If the Employee terminates employment prior to
becoming a Participant, the Trustee shall distribute the Participant's rollover
contribution Account to the Participant as if it were an Employer contribution
account.
(d) The Trustee shall invest the transferred assets as a
part of the Trust Fund. The transferred assets, and the earnings and losses
attributable to them, shall be held in a separate account on the books of the
Trust for the benefit of the Participant. The account shall share in
allocations and adjustments pursuant to Section 4.3. The interest of a
Participant in his or her account attributable to transferred assets shall be
fully vested at all times. Payment of the account shall be made on the same
basis as payment of the Participant's Employer contributions Account.
(e) The Plan Committee and the Trustee shall be fully
protected in relying on data, representations, or other information provided by
the trustee or custodian of a qualified plan or individual retirement account
for the purpose of determining that the requirements of Section 14.1(a) have
been satisfied.
14.2 INDEMNIFICATION: The Employer shall indemnify each Plan
Committee member and each other Employee who is involved in the administration
of the Plan against all costs, expenses and liabilities, including attorney's
fees, incurred in connection with any action, suit or proceeding instituted
against any of them alleging any act of omission or commission performed while
acting in good faith in discharging their duties with respect to the Plan.
Promptly after receipt by an indemnified party of notice of the commencement of
any action, the indemnified party shall notify the Employer of the action. The
Employer shall be entitled to participate at its own expense in the defense or
to assume the defense of any action brought against any indemnified party. If
the Employer elects to assume the defense of any such suit, the defense shall
be conducted by counsel chosen by the Employer, and the indemnified party shall
bear the fees and expenses of any additional counsel retained by him or her.
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<PAGE> 39
14.3 EXCLUSIVE BENEFIT RULE: This Plan shall be administered for
the exclusive benefit of the Employees of the Employer and for the payment to
Participants out of the income and principal of the Trust Fund of the benefits
provided under the Plan. No part of the income or principal of the Trust Fund
shall be used for or diverted to purposes other than the exclusive benefit of
the Participants or their Beneficiaries, as provided in the Plan.
14.4 NO RIGHT TO THE FUND: No person shall have any interest in,
or right to, any part of the assets of the Trust Fund or any rights under the
Plan, except as to the extent expressly provided in the Plan.
14.5 RIGHTS OF EMPLOYER: The establishment of this Plan shall not
be construed as conferring any legal or other rights upon any Employee or any
other person for continuation of employment, nor shall it interfere with the
right of the Employer to discharge any Employee or to deal with him or her
without regard to the effect thereof under the Plan.
14.6 NON-ALIENATION OF BENEFITS: No amount payable to or held
under the Plan for the account of any Participant, former Participant, retired
Participant, or Beneficiary of a Participant or former Participant shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, or charge, and any attempt so to anticipate, alienate,
sell, transfer, assign, pledge, encumber or charge the same shall be void. No
amount payable to or held under the Plan for the account of any Participant,
former Participant, retired Participant, or Beneficiary may be in any manner
liable for his or her debts, contracts, liabilities, engagements or torts, or
be subject to any legal process, levy or attachment. The provisions of this
Section shall not preclude distributions made by the Trustee in accordance with
a Qualified Domestic Relations Order.
14.7 CONSTRUCTION AND SEVERABILITY: Except as otherwise provided
by federal law, the provisions of this Plan shall be construed and enforced
according to California laws, and all of the provisions of the Plan shall be
administered in accordance with the laws of the State of California. For
simplicity of expression, pronouns and other terms are sometimes expressed in a
particular number and gender; however, where appropriate to the context, such
terms shall be deemed to include each of the other numbers and the other
gender. Each provision of this Plan shall be considered to be severable from
all other provisions so that if any provision or any part of a provision shall
be declared void, then the remaining provisions of the Plan that are not
declared void shall continue to be effective.
14.8 DELEGATION OF AUTHORITY: Whenever the Employer, under the
terms of this Plan, is permitted or required to do or perform any act, the act
may be done or performed by any officer of the Employer, and such officer shall
be presumed to be duly authorized by the Board of Directors of the Employer.
14.9 REQUEST FOR TAX RULING: This Plan is based upon the condition
precedent that it shall meet the requirements of the Code with respect to
qualified employees' trusts so as to permit the Employer to deduct for federal
income tax purposes the amounts of its contributions and so that its
contributions will not be taxable to the Participants as income in the year in
which the contributions are made. The Employer shall apply for a determination
by the Internal Revenue Service that this Plan is so qualified. If the
Internal Revenue Service rules that this Plan is not so qualified, then the
then current value of all contributions made by the Employer before the initial
determination as to qualification shall be returned to the Employer, and this
Plan shall be of no further force or effect.
-35-
<PAGE> 40
* * * * *
IN WITNESS WHEREOF, the Employer has caused this Plan to be executed on
November 21, 1994.
FREMONT GENERAL CORPORATION
By: /s/ Raymond G. Meyers
-----------------------------------
Raymond G. Meyers
Senior Vice President
-36-
<PAGE> 41
EXHIBIT A
1. Fremont General Corporation
2. Fremont Financial Corporation
3. Fremont Indemnity Company
a. Physicians and Surgeons Underwriters Corporation
b. Comstock Insurance Company
4. Fremont Premium Finance Corporation
5. Fremont Life Insurance Company
6. Fremont Investment and Loan
7. Fremont Compensation Insurance Company
a. Fremont Health Company
<PAGE> 1
EXHIBIT 10.2
FREMONT
EMPLOYEE STOCK OWNERSHIP PLAN
TRUST AGREEMENT
RESTATED EFFECTIVE AUGUST 1, 1994
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - ESTABLISHMENT OF TRUST............................ 2
ARTICLE 2 - ACCEPTANCE OF TRUST............................... 3
ARTICLE 3 - CONTRIBUTIONS TO THE TURST FUND................... 4
ARTICLE 4 - PAYMENTS FROM THE TRUST FUND...................... 5
ARTICLE 5 - INVESTMENT OF THE TRUST FUND...................... 6
ARTICLE 6 - POWERS AND DUTIES OF THE TRUSTEE WITH RESPECT
TO THE TRUST FUND............................... 8
ARTICLE 7 - LOANS............................................. 11
ARTICLE 8 - ACCOUNTS OF THE TRUSTEE AND VALUATION OF
THE TRUST FUND.................................. 12
ARTICLE 9 - ADMINISTRATIVE PROVISIONS......................... 13
ARTICLE 10 - RESIGNATION OR REMOVAL OF TRUSTEE................. 16
ARTICLE 11 - AMENDMENT AND TERMINATION OF THE TRUST............ 17
ARTICLE 12 - MISCELLANEOUS..................................... 18
</TABLE>
-i-
<PAGE> 3
FREMONT GENERAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
TRUST AGREEMENT
This Trust Agreement, effective as of August 1, 1994, between Fremont
General Corporation (the "Employer"), and Merrill Lynch Trust Company of
California, as trustee (the "Trustee").
The Employer maintains the Fremont General Corporation Employee Stock
Ownership Plan (the "Plan") for the benefit of its eligible employees. Merrill
Lynch Trust Company of California has assumed the duties of Trustee of the
Plan, and the Employer now desires to restate the trust agreement implementing
the Plan to, among other things, incorporate the change of trustee.
NOW, THEREFORE, the Employer and the Trustee, on behalf of themselves
and their respective successors and assigns, hereby agree as follows:
<PAGE> 4
ARTICLE 1
ESTABLISHMENT OF TRUST
SECTION 1.1:
(a) This Trust shall be known as the Fremont General
Corporation Employee Stock Ownership Plan Trust Agreement (the "Trust") and
shall be a funding medium for the Fremont General Corporation Employee Stock
Ownership Plan (the "Plan"). The Plan and the Trust implementing the Plan are
intended to be an employee stock ownership plan and trust qualified under
Sections 401(a) and 4975(e)(7) of the Internal Revenue Code (the "Code"). The
Plan and Trust are designed to be invested primarily in Employer Stock. The
terms used in this agreement that are defined in the Plan shall have the same
meanings as in the Plan, unless the context indicates otherwise. A copy of the
Plan and of each amendment shall be furnished to the Trustee for convenience of
reference.
(b) This is a directed Trust. Except as otherwise
provided in the Plan or in this Trust, and subject to any contrary provision or
requirement of the Employee Retirement Income Security Act of 1974, as amended
(ERISA), the Plan Committee under the Plan shall be responsible for directing
the Trustee regarding the management, disposition and investment of the Trust
Fund (including the power to direct the Trustee with respect to the voting and
valuation of Employer Stock).
SECTION 1.2: All contributions received by the Trustee and all
proceeds, investments, reinvestments and income in the Trustee's possession,
may be commingled and shall be held, invested and accounted for by the Trustee
as provided in the Plan and in this trust agreement. The assets held by the
Trustee shall be referred to as the "Trust Fund".
SECTION 1.3: The Employer may adopt or establish one or more other
trusts for the purpose of implementing the Plan. Upon doing so, the Employer
shall notify the Trustee in writing of the establishment of such other trusts
and shall certify to the Trustee in writing that such other trusts are
qualified under Code Section 401(a), whereupon the Trustee:
(a) Shall transfer and pay over to the trustee of the
other trust such cash, Employer Stock and other property as the Employer shall
from time to time direct in writing;
(b) Shall receive and hold as a part of the Trust Fund
such cash, Employer Stock and other property as may from time to time be
delivered to it by the trustee of the other trust; and
(c) May, in determining its investments, take into
consideration the nature and value of the assets held by the other trust to the
extent reported to it by the trustee or by the Employer.
For purposes of this Section, an insurance or annuity contract
issued to the Employer for the purpose of funding benefits under the Plan shall
be considered to be a trust established for the purpose of implementing the
Plan.
<PAGE> 5
ARTICLE 2
ACCEPTANCE OF TRUST
The Trustee hereby accepts the Trust subject to the terms and
conditions of this agreement, and agrees to hold and administer the assets of
the Trust and to execute the Trust in accordance with its provisions.
<PAGE> 6
ARTICLE 3
CONTRIBUTIONS TO THE TRUST FUND
SECTION 3.1: The Trustee shall receive from time to time the
contributions of the Employer in cash, Employer Stock or other property
acceptable to the Trustee. The Trustee shall be under no obligation to collect
any contributions required under the Plan. The determination of the amount,
timing and types of payments made to the Trustee and the establishment of a
funding policy consistent with the objectives of the Plan shall be the
responsibility of the Plan Committee established under the Plan for the
administration of the Plan.
SECTION 3.2: It shall be impossible, at any time before satisfaction
of all liabilities with respect to Participants and their Beneficiaries, for
any part of the Trust Fund to be used for, or diverted to, purposes other than
the exclusive benefit of the Participants and their Beneficiaries. However, if
a contribution is made by the Employer through a mistake of fact, this Section
shall not prohibit the return of the contribution to the Employer within one
year after payment of the contribution to the Trustee. If a contribution is
conditioned upon the deductibility of the contribution under Code Section 404,
then, to the extent the deduction is disallowed, this Section shall not
prohibit the return of the contribution (to the extent disallowed) to the
Employer within one year after disallowance of the deduction. If a
contribution is conditioned upon the initial qualification of the Plan under
Code Section 401, this condition is not satisfied, the Plan was submitted to
the internal Revenue Service for qualification by the time prescribed by law
for filing the Employer's return for the taxable year in which the plan was
adopted, or for such later date as the Secretary of the Treasury may prescribe,
this Section shall not prohibit the return of the contribution to the Employer
within one year after the date of denial of qualification. Payments made by the
Trustee in accordance with Article 4 of this agreement shall, in every
instance, be deemed to comply with the provisions of this Section.
<PAGE> 7
ARTICLE 4
PAYMENTS FROM THE TRUST FUND
SECTION 4.1: Payments shall be made from the Trust Fund by the
Trustee to or for the account of such persons, in such manner, at such times,
and in such amounts as the Plan Committee may from time to time direct in
writing. The Trustee shall be fully protected in making payments from the
Trust Fund in accordance with such directions and shall have no responsibility
to see to the application of such payments or to ascertain whether such
directions comply with the terms of the Plan. The Trustee shall not be liable
for its acts with respect to payments from the Trust Fund when following such
directions, or for its failure to act in the absence of such directions. The
Trustee shall not be liable or responsible for any payment made by it in good
faith and in the exercise of reasonable care without knowledge of the changed
conditions or status of the payee.
SECTION 4.2: Except to the extent that such amounts are promptly paid
by the Employer, the Trustee shall also pay out of the Trust Fund: (a) all
brokerage fees, transfer tax expenses and other expenses incurred in connection
with the sale or purchase of investments, (b) all real and personal property
taxes, income taxes and other taxes at any time levied or assessed upon, or
with respect to, the Trust Fund or any property included in the Trust Fund, (c)
all applicable federal or state income taxes required to be withheld on
distributions to a Participant or Beneficiary of a Participant, and (d) the
Trustee's compensation and all other expenses of administering the Trust.
SECTION 4.3: The Trustee may withhold all or part of any payment
required to be made hereunder as it may deem necessary and proper to protect
the Trustee or the Trust Fund against any liability or claim on account of any
estate, inheritance, income or other tax, and the Trustee may discharge any
such liability with part or all of the payment so withheld, provided that at
least ten days before discharging a liability with any amount so withheld, the
Trustee shall notify the Plan Committee in writing of its intent to do so.
SECTION 4.4: If any check for a payment made from the Trust Fund that
has been mailed by regular United States mail to the last address of the payee
is returned to the Trustee unclaimed, the Trustee shall notify the Plan
Committee and shall not make any further payments to the payee until it
receives further instructions from the Plan Committee.
<PAGE> 8
ARTICLE 5
INVESTMENT OF THE TRUST FUND
SECTION 5.1: The Plan Committee shall have all power over and
responsibility for the management, disposition and investment of the trust
assets, and the Trustee shall comply with proper written directions of the Plan
Committee respecting such assets. The Plan Committee shall not issue
directions in violation of the terms of the Plan and Trust or prohibited by the
fiduciary responsibility rules of ERISA. Except to the extent otherwise
required by ERISA, the Trustee shall have no duty or responsibility to review,
initiate action, or make recommendations regarding trust assets and shall
retain such assets until directed in writing by the Plan Committee to dispose
of them.
Notwithstanding the foregoing, the Plan Committee may appoint
one or more Investment Managers (as defined in Section 3(38) of ERISA) to
direct, control or manage the investment of all or part of the Trust assets
other than Employer Stock. The Plan Committee shall notify the Trustee in
writing of the appointment of an Investment Manager and cause such Investment
Manager to acknowledge to the Trustee in writing that such Investment Manager
is a fiduciary with respect to the Plan. If the foregoing conditions are met,
such Investment Manager shall have the power to manage, acquire or dispose of
any Trust assets, and the Trustee shall not be liable for acts or omissions of
such Investment Manager, or be under an obligation to invest or otherwise
manage any asset of the Trust which is subject to the management of such
Investment Manager. No Investment Manager shall issue directions in violation
of the Plan and Trust or prohibited by the fiduciary responsibility rules of
ERISA.
SECTION 5.2: As directed in writing by the Plan Committee, and
subject to Section 5.1 above,
(a) The Trustee shall invest the Trust Fund primarily in
Employer Stock. Up to 100% of the Trust Fund may be invested in Employer
Stock. The Trustee shall invest all Employer contributions and earnings that
it receives in Employer Stock; provided that the Trustee may retain in cash or
in other investments such amounts as the Trustee or the Plan Committee
anticipates will be needed in the reasonably foreseeable future to pay Plan
expenses and distributions, and such other amounts as the Plan Committee or the
Trustee deems appropriate for any reason. The Plan Committee shall have the
responsibility for establishing and carrying out a funding policy and method as
defined in Section 402(a)(1) of ERISA consistent with the objectives of the
Plan and the requirements of ERISA, taking into consideration the Plan's
short-term and long-term financial needs. It is further understood that the
Plan Committee, rather than the Trustee, shall be responsible for said funding
policy and for overall compliance of the Trust Fund with statutory limitations
on the amount of investment in Employer Stock or other property of the Employer
or its affiliated companies.
The Plan Committee shall not direct the investment of
assets of the Trust Fund unless it is satisfied that the securities are exempt
from registration under the Federal Securities Act of 1933 and are exempt from
qualification under the California Corporate Securities Law of 1968 and of any
other applicable blue sky law, or in the alternative, that the securities have
been so registered and/or qualified. The Plan Committee shall also specify to
the Trustee what restrictive legend on transfer, if any, is required to be set
forth on the certificates for the securities and the procedure to be followed
by the Trustee to effectuate a resale of such securities.
(b) If directed by the Plan Committee, to the extent that
the Trustee deems it appropriate and consistent with the foregoing investment
policy, the Trustee may invest, reinvest and hold the assets of the Trust Fund
in cash or in any other forms of investment that the Trustee deems appropriate.
In making or holding such investments, the Trustee shall not be restricted to
those investments that are authorized by the laws of any state for the
investment of trust funds. The Trustee may hold any part of the Trust Fund
uninvested or in cash without liability for interest for a reasonable period of
time pending the investment of assets or the payment of costs, expenses or
benefits payable under the Plan. The Trustee may invest the Trust Fund in
participations in a common trust fund maintained by the Trustee for plans
qualified under Code Section 401(a) or in time or demand deposits of the
Trustee as long as any such time deposits shall bear a reasonable rate of
interest. The Trustee may invest cash of the Trust Fund in short-term
interest-bearing obligations, either directly or by investment collectively in
any common trust fund maintained by the Trustee. During any period of time
that an investment through the medium of a common trust fund shall
<PAGE> 9
exist, the trust agreement of the common trust fund shall, to the extent of the
participation of the Trust Fund, constitute a part of this agreement.
It is understood that the Trustee may, from time to
time, have on hand funds which are received as contributions or transfers to
the Trust which are awaiting investment or funds from the sale of Trust assets
which are awaiting reinvestment. Absent receipt by the Trustee of a direction
from the proper person for the investment or reinvestment of such funds or
otherwise prior to the application of funds in implementation of such a
direction, the Trustee shall in accordance with the Trustee's normal procedures
in this regard cause such funds to be invested in shares of the money market
fund acceptable to the Trustee as the Employer or Investment Manager may in
writing to the Trustee specify for this purpose from time to time. Any such
fund may be sponsored, managed or distributed by an affiliate of the Trustee.
The Employer or the Investment Manager, as the case may be, hereby acknowledges
that prior to any such specification it has read or will have read the then
current prospectus for the specified fund.
SECTION 5.3: In the exercise and performance of its powers and
duties, the Trustee shall act at all times with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent man acting in
a like capacity and familiar with such matters would use in the conduct of an
enterprise of like character and with like aims.
<PAGE> 10
ARTICLE 6
POWERS AND DUTIES OF THE TRUSTEE
WITH RESPECT TO THE TRUST FUND
SECTION 6.1: In addition to the powers and discretion conferred upon
the Trustee by any other provision of this agreement, but subject to the
requirements of applicable law and Articles 4, 5 and 7, the Trustee shall have
all the usual powers conferred by law on trustees and shall also have the
following express powers with respect to the Trust Fund:
(a) To retain, to exchange for any other property, to
sell in any manner and at any time; provided that the Trustee shall only sell
Employer Stock upon the direction of the Plan Committee.
(b) To vote Employer Stock as described in Section 6.2.
(c) As directed by the Plan Committee, to vote stock
other than Employer Stock held in the Trust Fund personally or by proxy and to
delegate the Trustee's powers and discretions with respect to stock to a proxy.
(d) To exercise subscription, conversion and other rights
and options and to make payments from the Trust Fund in connection therewith.
(e) To take any action and to abstain from taking any
action with respect to any reorganization, consolidation, merger, dissolution,
recapitalization, refinancing and any other change affecting any property held
as part of the Trust Fund, and in connection therewith to delegate its
discretionary powers and to pay assessments, subscriptions and other charges
from the Trust Fund.
(f) In any manner, and to any extent, to waive, modify,
reduce, compromise, release, settle and extend the time of payment of any claim
of any nature in favor of or against the Trustee or all or any part of the
Trust Fund.
(g) To make executory contracts, and to make such
contracts binding on the Trust Fund and enforceable against any property of the
Trust Fund.
(h) To employ agents, experts and counsel, to delegate
discretionary powers to, and reasonably rely upon information and advice
furnished by, agents, experts and counsel, and to compensate such agents,
experts and counsel out of the Trust Fund.
(i) From time to time to register any property in the
name of its nominee or in its own name or to hold it unregistered or in such
form that title shall pass by delivery, provided that the records of the
Trustee shall at all times indicate the true ownership of such securities.
(j) To purchase insurance contracts from any insurance
company qualified to do business in any state.
(k) To borrow funds to acquire Employer Stock, as
described in Article 7.
SECTION 6.2: The Trustee shall vote Employer Stock according to the
following instructions:
(a) With respect to Employer Stock allocated to each
Participant's Account which are a part of a registration type class of
securities (as defined in Section 409(e)(4) of the Code), each Participant
shall have the right to instruct the Trustee how to vote such shares of
Employer Stock.
(b) With respect to Employer Stock allocated to each
Participant's Account which are not a part of a registration type class of
securities (as defined in Section 409(e)(4) of the Code), each Participant
shall have the right to instruct the Trustee how to vote such shares of
Employer Stock concerning any corporate matter which involves the voting of
such shares
<PAGE> 11
regarding the approval or disapproval of any corporate merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business, or such similar transaction as
may be prescribed by the Code or the regulations thereunder.
(c) The Participant must give the Trustee written
instructions for the voting of Employer Stock in time for the Trustee to act
with respect to the instructions. The Employer shall ensure that all notices,
forms, and other information that are distributed to shareholders regarding the
exercise of voting rights are furnished to the Trustee, Participants, and the
Plan Committee within a reasonable time before voting rights are to be
exercised. The Employer and others may solicit and exercise voting rights
pursuant to this Section under proxy rules that apply to all holders of
Employer Stock. Subject to ERISA, the Trustee shall not vote shares of
Employer Stock that have been allocated to Participants' Accounts and for which
no instructions from Participants are received with respect to corporate
matters that involve the voting of shares with respect to the approval or
disapproval of any corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all assets
of a trade or business, or such similar transaction as may be prescribed by the
Code or regulations thereunder.
(d) The Plan Committee shall instruct the Trustee, in
writing, how to vote all Employer Stock that has been allocated to
Participants' Accounts with respect to corporate matters with respect to which
Participants do not have a right to instruct the Trustee under subparagraph (b)
immediately above. The Trustee may rely on the Plan Committee's advice
regarding what corporate matters are subject to said subparagraph (b).
(e) The Plan Committee shall instruct the Trustee, in
writing, how to vote Employer Stock that has not been allocated to
Participants' Accounts (such as Employer Stock held in a suspense account) with
respect to all corporate matters.
SECTION 6.3: In the event of a tender offer for shares of Employer
Stock, the Trustee shall sell, convey or transfer Employer Stock only in
accordance with the written instructions of the Participant. The Plan
Committee shall, to the extent possible, allocate all unallocated shares of
Employer Stock (including shares of Employer Stock held in a suspense account)
to the Accounts of Participants as if the Plan Year had ended on the date the
tender offer was filed with the Securities and Exchange Commission and on the
basis of Compensation paid through the last pay period ending before such date;
provided, however, that the sole purpose of such interim allocation shall be to
allocate all unallocated shares of Employer Stock for purposes of acting in
response to the tender offer. The Trustee shall deliver to each Participant
(a) a copy of the description of the terms and conditions of the tender offer
filed with the Securities and Exchange Commission on Schedule 14D-1, (b) if
requested by the Employer, a copy of the statement from Employer management
setting forth its position with respect to the tender offer filed with the
Securities and Exchange Commission on Schedule 14D-9, (c) an instruction form
to be used by any Participant who wishes to instruct the Trustee to tender
Employer Stock in response to the tender offer which states that Employer Stock
allocated to the Participant will not be tendered if no instruction form is
returned to the Trustee by the indicated deadline, and (d) such other materials
or information as the Trustee may deem necessary or appropriate. The Trustee
shall sell, convey, or transfer shares of Employer Stock pursuant to the terms
of the tender offer as directed by the Participants on the instruction forms.
Subject to ERISA, the Trustee or designee shall sell, convey or transfer
unallocated shares of Employer Stock in the same proportion as shares of
Employer Stock allocated to Participants' Accounts are so sold, conveyed, or
transferred. The Trustee shall not express any opinion or recommendation to
any Participant concerning the tender offer.
SECTION 6.4: The Trustee shall have no duties whatsoever except as
are specifically set forth as such in this agreement, and no implied covenant
or obligation will be read into this agreement against the Trustee.
<PAGE> 12
ARTICLE 7
LOANS
The Trustee is authorized to borrow funds to acquire Employer Stock
upon the following terms:
(a) The loan must meet the requirements of Code Section
4975 and the regulations thereunder. The loan may be made by a "disqualified
person" (as defined in Code Section 4975(e)(2)) to the Plan, or it may be
guaranteed by a disqualified person. A loan includes a direct loan of cash, a
purchase-money obligation, or an assumption of the Plan's obligation. A
guarantee includes an unsecured guarantee or the use of assets of a
disqualified person as collateral for a loan.
(b) The terms of the loan must, at the time the loan is
made, be at least as favorable to the Plan as the terms of a comparable loan
resulting from arm's length negotiations between independent parties. The
interest rate under the loan must not exceed a reasonable rate of interest and
the loan must be for a specific term. The proceeds of the loan must be used to
purchase Employer Stock, to repay the loan, or to repay a prior loan.
(c) Any collateral pledged to the lender by the Trustee
shall consist only of the Employer Stock purchased with the borrowed funds or
Employer Stock that was used as collateral with respect to a prior loan that is
repaid with the proceeds of the current loan. The Employer Stock so pledged
shall be placed in a Suspense Account and shall be released as the loan is
repaid, as described in the Plan. As additional collateral, the Employer or
another party may guarantee repayment of the loan.
(d) No person entitled to payment under a loan shall have
recourse against Trust assets other than the collateral, Employer contributions
that are available under the Plan to meet obligations under the loan, and
earnings attributable to such collateral and the investment of such Employer
contributions. All Employer contributions that are available under the Plan to
meet obligations under the loan and that are paid during the Plan Year in which
a loan is made (whether before or after the proceeds of the loan are received),
all such Employer contributions paid thereafter until the loan has been repaid
in full, and all earnings from investment of such Employer contributions,
without regard to whether the Employer contributions and earnings have been
allocated to Participants' Other Investments Accounts, shall be available to
meet obligations under the loan, unless otherwise provided by the Employer at
the time the Employer contribution is made.
(e) Payments of principal and interest on a loan during a
Plan Year shall be made by the Trustee (as directed by the Plan Committee) only
from (i) Employer contributions, and earnings on such Employer contributions,
that are available under the Plan to meet the Plan's obligation under a loan,
(ii) earnings attributable to Employer Stock given as collateral for a loan,
(iii) the proceeds of a subsequent loan made to repay a prior loan, and (iv)
the proceeds of the sale of any Employer Stock held as collateral for a loan.
(f) The loan must provide that, in the event of default,
the value of Plan assets transferred in satisfaction of the loan shall not
exceed the amount of default. If the lender is a disqualified person, the loan
must provide that a transfer of Plan assets upon default will be made only
upon, and to the extent of, the failure of the Plan to meet the payment
schedule of the loan.
<PAGE> 13
ARTICLE 8
ACCOUNTS OF THE TRUSTEE AND
VALUATION OF THE TRUST FUND
SECTION 8.1: The Trustee shall keep accurate and detailed accounts of
all investments, receipts, disbursements, distributions and other transactions.
The Trustee's accounts shall be open to inspection and audit by the Employer,
the Plan Committee or any authorized representative of them at all reasonable
times during business hours.
SECTION 8.2: Within 90 days after the last day of each Plan Year, the
Trustee shall deliver an account to the Employer listing the investments of the
Trust Fund and any uninvested cash balance and setting forth all receipts,
disbursements, distributions and other transactions respecting the Trust Fund
not included in a previous account. When approved by the Employer, the
Trustee's account shall be binding on the Employer, and the Trustee will be
released and discharged from any liability or accountability to the Employer
with respect to all matters set forth therein. Failure by the Employer to
object in writing to any specific items in an account within 180 days after its
delivery to the Employer will constitute approval of the account by the
Employer. The Trustee shall not be required to file, and no Participant or his
or her Beneficiary shall have any right to compel, any accounting, judicial or
otherwise, by the Trustee.
SECTION 8.3: As of each Valuation Date, and at such other times as
the Plan Committee may reasonably require, the Trustee shall determine the fair
market value of the Trust Fund and shall notify the Plan Committee in writing
of the fair market value as so determined within 90 days of the date of
valuation. The fair market value of the Trust Fund shall be the fair market
value of all securities and other assets then held in the Trust Fund, including
all income received since the last Valuation Date and income accrued and unpaid
at the close of the Valuation Date. In determining fair market value, the
Trustee shall be entitled to rely conclusively upon information that it
believes to be reliable, and the Trustee's determination with respect to fair
market value shall be final and conclusive upon all persons. Notwithstanding
anything to the contrary herein, the Trustee shall have no responsibility for
valuing Employer Stock. Employer Stock shall be valued by such appraiser or
appraisers as the Plan Committee shall appoint for that purpose. Such values
shall be provided the Trustee as soon as approved by the Plan Committee and in
sufficient time to enable the Trustee to perform its duties hereunder.
<PAGE> 14
ARTICLE 9
ADMINISTRATIVE PROVISIONS
SECTION 9.1: Except as otherwise specifically provided in the Plan or
this agreement, any action required or permitted to be taken by the Employer
may be taken by the Plan Committee.
SECTION 9.2: The Employer shall provide the Trustee with a written
certification stating the names of the members of the Plan Committee. The
Trustee shall be entitled to rely upon such a certification as to the identity
of the duly appointed and currently acting members of the Plan Committee, until
the Trustee is notified by the Employer otherwise. The Trustee shall be fully
protected in acting upon:
(a) Any notice, direction, certification, approval or
other writing of the Employer, if evidenced by an instrument signed in the name
of the Employer by any duly authorized person.
(b) Any notice, direction, certification or approval or
other writing of the Plan Committee if evidenced by an instrument signed in the
name of the Plan Committee by one or more of its members.
SECTION 9.3: The Trustee shall be entitled to such reasonable
compensation for its services as may be agreed upon from time to time by the
Employer and the Trustee, if the Trustee is not an Employee of the Employer.
The Trustee shall be entitled to reimbursement for all expenses reasonably
incurred by the Trustee in the administration of the Trust Fund. The Trustee's
compensation and expenses shall be paid by the Employer or from the Trust Fund.
Any such payments from the Trust Fund shall be deemed to be for the exclusive
benefit of Participants.
SECTION 9.4: No person dealing with the Trustee shall be obliged to
see to the application of any property paid or delivered to the Trustee or to
inquire into the expediency or propriety of any transaction or the Trustee's
authority to consummate the same.
SECTION 9.5: Ownership of the assets comprising the Trust Fund shall
be in the Trustee. The rights or interests of any Participant or the
Participant's Beneficiaries to any benefits under the Plan or this agreement
shall not be subject to attachment or garnishment or other legal process by any
creditor of the Participant or Beneficiary, nor shall any Participant or
Beneficiary have any right to alienate, anticipate, commute, pledge, encumber
or assign any of the benefits that he or she may expect to receive,
contingently or otherwise, under the Plan or this agreement. The provisions of
this Section shall not preclude distributions made by the Trustee in accordance
with a Qualified Domestic Relations Order.
SECTION 9.6: Communications to the Trustee shall be deemed
sufficiently made if sent by mail addressed to the Trustee at its principal
place of business. Communications to the Employer and the Plan Committee shall
be deemed sufficiently made if sent by mail to the Employer's principal place
of business.
SECTION 9.7: In case of any court proceedings involving the Trustee
or the Trust Fund, only the Trustee and the Employer shall be necessary
parties, and no one participating in the Plan shall be entitled to any notice
or process, except as may be required by applicable law.
SECTION 9.8: The Trustee shall have no duty to inquire whether
directions by the Employer, the Plan Committee, or any other person conform to
the Plan, and the Trustee shall be fully protected in relying on any such
direction communicated in accordance with procedures acceptable to the Trustee
from any person who the Trustee reasonably believes is a proper person to give
the direction. The Trustee shall have no liability to any Participant, any
Beneficiary, or any other person for payments made, any failure to make
payments, or any discontinuance of payments, on direction of the Plan Committee
or any designee, or for any failure to make payments in the absence of
directions from the Plan Committee or any person responsible for or purporting
to be responsible for directing the investment of Trust assets. The Trustee
shall have no obligation to request proper directions from any person. The
Trustee may request instructions from the Plan Committee and shall have no duty
to act or liability for failure to act if such instructions are not
forthcoming. The Trustee shall have no responsibility to determine whether the
Trust
<PAGE> 15
Fund is sufficient to meet the liabilities under the Plan, and shall not be
liable for payments or Plan liabilities in excess of the Trust Fund.
SECTION 9.9: The Employer hereby indemnifies the Trustee against, and
shall hold the Trustee harmless from, any and all loss, claims, liability, and
expense, including reasonable attorneys fees, imposed upon the Trustee or
incurred by the Trustee as a result of any acts taken, or any failure to act,
in accordance with the directions from the Plan Committee, Investment Manager,
or any other person specified herein, or any designee of any such person, or by
reason of the Trustee's good faith execution of its duties with respect to the
Trust, including, but not limited to, its holding of assets of the Trust as
provided for in Article 2, the Employer's obligations in the foregoing regard
to be satisfied promptly on request by the Trustee, provided that in the event
that the loss, claim, liability or expense involved is determined by a no
longer appealable final judgment entered in a lawsuit or proceeding to have
resulted from the gross negligence or willful misconduct of the trustee, the
Trustee shall promptly thereafter return to the Employer any amount previously
received by the Trustee under this Section with respect to such loss, claim,
liability or expense.
SECTION 9.10:
o Arbitration is final and binding on the parties.
o The parties waive their right to seek remedies in
court, including the right to jury trial.
o Pre-arbitration discovery is generally more limited
than and different from court proceedings.
o The arbitrator's award is not required to include
factual findings or level reasoning and any party's right to appeal or seek
modification of rulings by the arbitrators is strictly limited.
o The panel of arbitrators will typically include a
minority of arbitrators who were or are affiliated with the securities
industry.
The Employer agrees that all controversies which may arise
between the Employer and either or both the Trustee and its affiliate Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") in connection with the
Trust, including, but not limited to, those involving any transactions, or the
construction, performance, or breach of this or any other agreement between the
Employer and either or both the Trustee and MLPF&S, whether entered into prior,
on, or subsequent to the date hereof, shall be determined by arbitration. Any
arbitration under this agreement shall be conducted only before the New York
Stock Exchange, Inc., the American Stock Exchange, Inc., or arbitration
facility provided by any other exchange of which MLPF&S is a member, the
National Association of Securities Dealers, Inc., or the Municipal Securities
Rulemaking Board, and in accordance with its arbitration rules then in force.
The Employer may elect in the first instance whether arbitration shall be
conducted before the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., other exchange of which MLPF&S is a member, the National
Association of Securities Dealers, Inc., or The Municipal Securities Rulemaking
Board, but if the Employer fails to make such election, by registered letter or
telegram addressed to Merrill Lynch Trust Companies, Employee Benefit Trust
Operations, P.O. Box 30532, New Brunswick, New Jersey 08989-0532, before the
expiration of five days after receipt of a written request from MLPF&S and/or
the Trustee to make such election, then MLPF&S and/or the Trustee may make such
election. Judgment upon the award of arbitrators may be entered in any court,
state or federal, having jurisdiction. No person shall bring a putative or
certified class action to arbitration, nor seek to enforce any pre-dispute
arbitration agreement against any person who has initiated in court a putative
class action; who is a member of putative class who has not opted out of the
class with respect to any claims encompassed by the putative class action
until:
(i) the class certification is denied;
(ii) the class is decertified; or
(iii) the customer is excluded from the class by the
court. Such forbearance to enforce an agreement to arbitrate shall not
constitute a waiver of any rights under this agreement except to the extent
stated herein.
<PAGE> 16
SECTION 9.11: Except as required by ERISA, the Trustee shall follow
all directions of the Plan committee, a Participant or Beneficiary, as provided
in this instrument, and shall have no duty to exercise voting or other rights
relating to any such security or other asset.
<PAGE> 17
ARTICLE 10
RESIGNATION OR REMOVAL OF TRUSTEE
SECTION 10.1: Any Trustee, and any successor Trustee, may be removed
by the Employer at any time by giving written notice to the Trustee then
acting. The removal shall be effective on the date specified in the written
notice.
SECTION 10.2: Any Trustee, and any successor Trustee, may resign as
Trustee by filing with the Employer a written resignation, which shall take
effect 30 days after the date of the filing, unless before that time a
successor Trustee shall have been appointed by the Employer.
SECTION 10.3: The Employer may appoint a successor Trustee by
delivering to the removed or resigning Trustee and to the successor Trustee an
instrument in writing, executed by the Employer, appointing the successor
Trustee.
SECTION 10.4: All of the provisions of this agreement with respect to
the Trustee shall apply to each successor Trustee with the same force and
effect as if the successor Trustee were the original Trustee.
SECTION 10.5: Upon the appointment of a successor Trustee, the
removed or resigning Trustee shall transfer and deliver those assets of the
Trust Fund in its possession or under its control to the successor Trustee,
together with all such instruments of transfer, conveyance, assignment and
further assurance as the successor Trustee may reasonably require. The removed
or resigning Trustee shall file with the Employer a final account of its
actions as Trustee, to which the provisions of Article 8 regarding accounts
shall apply. The receipt of the successor Trustee and the approval by the
Employer of the final account of the removed or resigning Trustee shall be a
full and complete acquittal and discharge of the removed or resigning Trustee,
and the successor Trustee shall have no liability whatsoever for the acts or
omissions of any prior Trustee in which it did not participate. If the
Employer shall fail to express in writing its objections to an account
delivered by a removed or resigning Trustee within 180 days from the date of
receipt by the Employer of the account, the account shall be considered as
approved by the Employer.
<PAGE> 18
ARTICLE 11
AMENDMENT AND TERMINATION OF THE TRUST
SECTION 11.1: This agreement may be amended at any time and from time
to time by the Employer, provided that no amendment shall increase the duties
or obligations of the Trustee without the Trustee's consent.
SECTION 11.2: This Trust may be terminated at any time by the
Employer by written instrument delivered to the Trustee. Upon such a
termination, the Trust Fund shall be paid out by the Trustee as directed by the
Plan Committee in writing and in accordance with the terms of the Plan and
applicable law. The Trustee shall be fully protected in making payments from
the Trust Fund in accordance with written directions of the Plan Committee.
<PAGE> 19
ARTICLE 12
MISCELLANEOUS
SECTION 12.1: Nothing contained in this agreement shall be deemed to
constitute a contract between the Employer and any Employee.
SECTION 12.2: This agreement shall be interpreted according to the
law promulgated by or under ERISA, and, to the extent not inconsistent with
such law, according to the law of the State of California.
SECTION 12.3: This agreement may be executed in any number of
counterparts, each of which shall be deemed to be the original, and all of such
counterparts shall together constitute one document.
SECTION 12.4: Except when otherwise indicated by the context, any
masculine terminology shall also include the feminine and the definition of any
term in the singular may also include the plural. The headings of Articles of
this agreement are for convenience of reference only and shall have no
substantive effect on the provisions of this agreement.
SECTION 12.5: Any notice required hereunder may be waived by the
person entitled to receive notice.
SECTION 12.6: This agreement shall be effective as of August 1, 1994.
* * * * * * *
IN WITNESS WHEREOF, the Employer and the Trustee have caused this
agreement to be executed August 1, 1994.
FREMONT GENERAL CORPORATION
By: /s/ James A. McIntyre
---------------------------------------
TRUSTEE
MERRILL LYNCH TRUST COMPANY OF CALIFORNIA
By: /s/ Chris Rosin
---------------------------------------
<PAGE> 20
AMENDMENT TO THE
FREMONT GENERAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
Effective as of February 1, 1994, Section 6.2 of the Trust Agreement
between Fremont General Corporation and Merrill Lynch Trust Company of
California, Trustee, is amended in its entirety, to read as follows:
"SECTION 6.2: The Trustee shall vote Employer Stock according to the
following instructions:
(a) With respect to Employer Stock allocated to each Participant's
Account, each Participant shall have the right to instruct the Trustee how to
vote such shares of Employer Stock.
(b) The Participant must give the Trustee written instructions for
the voting of Employer Stock in time for the Trustee to act with respect to the
instructions. The Employer shall ensure that all notices, forms, and other
information distributed to shareholders regarding the exercise of voting rights
are furnished to the Trustee, Participants, and the Plan Committee within a
reasonable time before voting rights are to be exercised. The Employer and
others may solicit and exercise voting rights pursuant to this Section under
proxy rules that apply to all holders of Employer Stock.
(c) The Plan Committee may instruct the Trustee, in writing, how
to vote Employer Stock that has not been allocated to Participants' Accounts
(such as Employer Stock held in a suspense account).
(d) The Trustee shall vote all shares of Employer Stock, allocated or
unallocated, and for which no instructions have been received from either a
Participant or the Plan Committee, in direct proportion to the instructions to
vote received from Participants pursuant to subparagraph (a) above. Except as
required by ERISA, the Trustee shall follow all directions above-referred to in
this Section, and shall have no duty to exercise voting or other rights
relating to any such security or other asset."
Dated: November 28, 1994 FREMONT GENERAL CORPORATION
By: /s/ Raymond G. Meyers
---------------------------------------
Raymond G. Meyers, Vice President
Dated: November 30, 1994 MERRILL LYNCH TRUST COMPANY
By: /s/ Chris Rosin
---------------------------------------
Chris Rosin, Trust Officer
<PAGE> 1
EXHIBIT 10.3
FREMONT GENERAL CORPORATION
AND AFFILIATED COMPANIES
INVESTMENT INCENTIVE PLAN
RESTATED EFFECTIVE JANUARY 1, 1994
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
(415) 493-9300
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
I INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Account or Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Adjustment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Administrator or Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Affiliated Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Beaver Plan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.8 Break in Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.9 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.11 Contribution Percentage Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.13 Controlled Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.14 Disability or Permanent and Total Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.15 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.16 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.17 Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.18 Employer Discretionary Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.19 Employer Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.20 Employer Matching Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.21 Employment Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.22 Entry Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.23 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.24 Family Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.25 Highly Compensated Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.26 Hour of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.27 Non-Highly Compensated Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.28 Normal Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.29 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.30 Participating Employers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.31 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.32 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.33 Qualified Matching Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.34 Qualified Nonelective Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.35 Reemployment Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.36 Rollover Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.37 Salary Reduction Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.38 Section 415 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.39 Severance from Service or Severance from Service Date . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.40 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.41 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.42 Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.43 Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.44 Year of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.45 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
III ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C> <C>
3.1 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Reemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Change in Employment Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
IV CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Salary Reduction Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Employer Matching Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Discretionary and Qualified Nonelective Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Limitations on Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Time and Manner of Payment of Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.6 Receipt of Assets from Plan of Former Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
V ACCOUNTS AND ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.1 Participant's Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Allocation of Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Allocation of Earnings or Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 Section 415 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Discrimination Testing of Salary Reduction Contributions . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.6 Distribution of Excess Salary Deferral Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.7 Discrimination Testing of Employer Matching Contributions . . . . . . . . . . . . . . . . . . . . . . . . 23
5.8 Corrective Procedure when Discriminatory Matching Contributions are Made . . . . . . . . . . . . . . . . . 25
VI VESTING AND DISTRIBUTION OF ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 Vested Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Employer Matching Contributions and Employer Discretionary Contributions Forfeitures . . . . . . . . . . . 29
6.3 Normal Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.4 Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.5 Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.6 Commencement of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.7 Direct Rollovers and Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.8 Form of Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.9 Transitional Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.10 Distribution Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.11 Distribution or Transfer of Accounts On Plan Termination and Other Events . . . . . . . . . . . . . . . . 40
6.12 Distribution to Minor or Incompetent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.13 Location of Participant or Beneficiary Unknown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.14 Hardship Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.15 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.16 Withdrawals at Age 59 1/2: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.17 Withdrawals From Rollover Account: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
VII ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.1 Powers of the Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.2 Domestic Relations Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
VIII LEAVES OF ABSENCE AND TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.1 Military Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.2 Other Leaves of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.3 Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
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<S> <C> <C>
IX TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
X FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
XI NECESSITY OF QUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
XII AMENDMENT, TERMINATION OR MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.1 Amendment or Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.2 Termination of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.3 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
XIII CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.1 Right to File Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.2 Denial of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.3 Claims Review Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
XIV TOP-HEAVY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.1 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.3 Minimum Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.4 Vesting Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
XV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.1 Legal or Equitable Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.3 No Enlargement of Plan Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.4 No Enlargement of Employment Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.5 Written Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.6 No Release from Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.7 Discretionary Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.9 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.10 Non-Alienation of Benefits: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.11 No Reversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
15.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
15.13 Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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<PAGE> 5
I INTRODUCTION
Fremont General Corporation has established this Plan, consisting of
the following provisions, for the exclusive benefit of its Employees and their
Beneficiaries. The Plan is intended to be a profit sharing plan qualified
under Section 401(a) of the Internal Revenue Code and is intended to include a
qualified cash or deferred arrangement under Section 401(k) of the Internal
Revenue Code.
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<PAGE> 6
II DEFINITIONS
For purposes of this Plan, the following definitions shall apply:
2.1 ACCOUNT OR ACCOUNTS: A Participant's interest in the Trust
Fund, consisting of the Participant's Salary Reduction Contributions Account,
Employer Matching Contributions Account, Qualified Matching Contributions
Account, Employer Discretionary Contributions Account, Qualified Nonelective
Contributions Account, Rollover Contributions Account, and such other
Account(s) as the Administrator shall determine.
2.2 ACT: The Employee Retirement Income Security Act of 1974, as
amended.
2.3 ADJUSTMENT FACTOR: The cost of living adjustment factor
prescribed by the Secretary of the Treasury under Section 415(d) of the Code as
applied to such items and in such manner as the Secretary shall provide.
2.4 ADMINISTRATOR OR PLAN ADMINISTRATOR: The Employer.
2.5 AFFILIATED COMPANY: Any corporation which is a member of
a controlled group of corporations (as defined under Section 414(b) of the Code
as modified by Section 415(h) of the Code) which includes the Employer; any
trade or business (whether or not incorporated) which is under common control
(as defined under Section 414(c) of the Code as modified by Section 415(h) of
the Code) with the Employer; any organization (whether or not incorporated)
which is a member of an affiliated service group (as defined under Section
414(m) of the Code) which includes the Employer; and any other organization or
entity which is required to be aggregated with the Employer pursuant to Section
414(o) of the Code.
2.6 BEAVER PLAN ACCOUNT: The Account maintained for a Participant
to record his or her share of the contributions of the Employer to the Beaver
Insurance Company 401(k) Employees' Savings Plan and Trust.
2.7 BENEFICIARY: The person or entity who is to receive any
benefits payable from the Plan on account of a Participant's death. If the
Participant is married, the Beneficiary is the Participant's surviving spouse
and no written designation is required. A Participant may designate a
Beneficiary other than the Participant's spouse provided (i) the Participant's
spouse consents in writing (on a form provided by the Administrator) to such
designation and to the form thereof; (ii) such Beneficiary designation may not
be changed without spousal consent (or the consent of the spouse expressly
permits designations by the Participant without any requirement of further
consent by the spouse); and (iii) the spouse's consent acknowledges the effect
of such Beneficiary designation and is witnessed by a Plan representative or a
notary public. Such spousal consent shall not be required if it is established
to the satisfaction of the Administrator that the consent required under the
preceding sentence cannot be obtained because there is no spouse, because the
spouse cannot be located, or because of such other circumstances as the
Secretary of the Treasury or the Secretary's delegate may by regulations
prescribe. If at the time of his or her death, the Participant has no
surviving spouse or designated Beneficiary, the Beneficiary is the personal
representative of the Participant's estate. A Participant's Beneficiary is
bound by the terms of the Plan.
2.8 BREAK IN SERVICE:
(a) A Plan Year during which an Employee does not
complete more than 500 Hours of Service. Solely for purposes of determining
whether a Break in Service for participation and vesting purposes has occurred
in a computation period, an individual who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of Service which would
otherwise have been credited to such individual but for such absence, or in any
case in which such hours cannot be determined, eight (8) Hours of Service per
day of such absence.
(b) For purposes of paragraph (a) above, maternity or
paternity leave means a period during which an Employee is absent because of
(i) the pregnancy of the Employee, (ii) the birth of a child of the Employee,
(iii) the placement of a child with the Employee in connection with the
Employee's adoption of the child, or (iv) the Employee's caring for a child
immediately after the birth or placement of the child.
2.9 CODE: The Internal Revenue Code of 1986, as amended.
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<PAGE> 7
2.10 COMPENSATION:
(a) Compensation means all of an Employee's Code Section
3401(a) [W-2] wages. Wages as defined in Section 3401(a) of the Code for the
purposes of income tax withholding at the source but determined without regard
to any rules that limit the remuneration included in wages based on the nature
or location of the employment or the services performed (such as the exception
for agricultural labor in Section 3401(a)(2) of the Code).
(b) Compensation shall include only that compensation
which is actually paid to the Employee during the Plan Year. Notwithstanding
the foregoing, Compensation shall include any amount which is contributed by
the Employer pursuant to a salary reduction agreement and which is not
includable in the gross income of the Employee under Sections 125, 402(a)(8),
402(h) or 403(b) of the Code.
(c) For Plan Years beginning after December 31, 1988, the
annual Compensation of each Employee taken into account for determining all
benefits provided under the Plan for any determination period shall not exceed
$200,000 (as adjusted by the Adjustment Factor). If Compensation is to be
determined on a period of time that contains fewer than 12 calendar months, the
annual Compensation limit is an amount equal to the annual Compensation limit
for the calendar year in which the Compensation period begins, multiplied by
the ratio obtained by dividing the number of full months in the period by 12.
In determining the Compensation of a Participant for purposes of the foregoing
$200,000 limitation, the rules of Section 414(q)(6) of the Code shall apply,
except in applying such rules, the term "family" shall include only the spouse
of the Participant and any lineal descendants of the Participant who have not
attained age 19 before the close of the year. If, as a result of the
application of such rules the adjusted $200,000 limitation is exceeded, then
the limitation shall be prorated among the affected individuals in proportion
to each such individual's Compensation as determined under this section prior
to the application of this limitation. If Compensation for any prior
determination period is taken into account in determining a Participant's
allocations or benefits for the current determination period, the Compensation
for such prior year is subject to the applicable annual Compensation limit in
effect for that prior year. For this purpose, for years beginning before
January 1, 1990, the applicable annual Compensation limit is $200,000.
(d) For limitation years beginning after December 31,
1991, for purposes of applying the limitations of this Section, Compensation
for a limitation year is the Compensation actually paid or made available
during such limitation year.
(e) For plan years beginning on or after January 1, 1994,
the annual compensation of each Employee taken into account under the plan
shall not exceed the annual compensation limit under the Omnibus Budget
Reconciliation Act of 1993 ("OBRA '93"). The OBRA '93 annual compensation
limit is $150,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with section 401(a)(17)(B) of the Internal Revenue Code.
The cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA '93 annual compensation limit
will be multiplied by a fraction, the numerator of which is in the number of
months in the determination period, and the denominator of which 12. For plan
years beginning on or after January 1, 1994, any reference in this plan to the
limitation under section 401(a)(17) of the Code shall mean the OBRA '93 annual
compensation limit set forth in this provision. If compensation for any prior
determination period is taken into account in determining an employee's
benefits accruing in the current plan year, the compensation for that prior
determination period is subject to the OBRA '93 annual compensation limit in
effect for that prior determination period. For this purpose, for
determination periods beginning before the first day of the first plan year
beginning on or after January 1, 1994, the OBRA '93 annual compensation limit
is $150,000.
2.11 CONTRIBUTION PERCENTAGE AMOUNTS: The sum of Employer Matching
Contributions and Qualified Matching Contributions (to the extent not taken
into account for purposes of the test in Section 5.5(a) of the Plan) made under
the Plan on behalf of the Participant for the Plan Year. Such Contribution
Percentage Amounts shall not include Employer Matching Contributions that are
forfeited either to correct Excess Matching Contributions or because the
Contributions to which they relate are Excess Salary Reduction Contributions,
Excess 401(k) Contributions or Excess Matching Contributions. The Employer may
include Qualified Nonelective Contributions in the Contribution Percentage
Amounts. The Employer may also elect to use Salary Reduction Contributions in
the Contribution Percentage Amounts so long as the test in Section 5.5(a) of
the Plan is met before the Salary Reduction Contributions are used in the test
in Section 5.7(a) of the Plan and continues to be met following the exclusion
of those Salary Reduction Contributions that are used to meet the test in
Section 5.7(a) of the Plan.
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<PAGE> 8
2.12 CONTRIBUTIONS: Salary Reduction Contributions, Employer
Matching Contributions and Qualified Matching Contributions, Employer
Discretionary Contributions, and Qualified Nonelective Contributions.
2.13 CONTROLLED GROUP: The Employer and any entity required to be
aggregated with the Employer under Sections 414(b), (c) or (m) of the Code.
2.14 DISABILITY OR PERMANENT AND TOTAL DISABILITY: The inability
to engage in any substantial, gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months, or such other standard as expressed in
Section 22(e)(3) of the Code or any successor provision. The permanence and
degree of such impairment shall be supported by medical evidence.
2.15 EFFECTIVE DATE: The Effective Date of the Plan was February
1, 1986. The effective date of this restatement shall be January 1, 1994;
provided, however, that any provision of this Plan required as a result of the
Tax Reform Act of 1986 or any subsequent legislation shall be effective as of
the earliest date required by such legislation.
2.16 EMPLOYEE: Any person employed by the Employer other than as
an independent contractor. The term Employee shall include any person (other
than an Employee of the Employer) who, pursuant to an agreement between the
Employer and any other person ("Leasing Organization"), has performed services
for the Employer (or for the Employer and related persons determined in
accordance with Section 414(n)(6) of the Code) on a substantially full-time
basis for a period of at least one year, and such services are of a type
historically performed by employees in the business field of the Employer
("Leased Employee"). A Leased Employee shall not be considered an Employee of
the Employer if both of the following conditions are met:
(a) such employee is covered by a money purchase pension
plan providing:
(i) a non-integrated employer contribution rate
of at least 10% of compensation, as defined in Section 415(c)(3) of the Code,
but including amounts contributed pursuant to a salary reduction agreement
which are excludable from the employee's gross income under Section 125,
Section 402(a)(8), Section 402(h) or Section 403(b) of the Code;
(ii) immediate participation; and
(iii) full and immediate vesting.
(b) Leased Employees do not constitute more than 20% of
the Employer's non-highly-compensated work force.
Contributions or benefits provided a Leased Employee by the Leasing
Organization which are attributable to services performed for the recipient
employer shall be treated as provided by the recipient employer.
2.17 EMPLOYER: Fremont General Corporation and any Affiliated
Company.
2.18 EMPLOYER DISCRETIONARY CONTRIBUTIONS: Employer contributions
to the Trust other than Employer Matching Contributions and other than Employer
contributions made pursuant to Participants' salary reduction elections.
2.19 EMPLOYER STOCK: The voting common stock of Fremont General
Corporation and any other security, debenture or other property convertible
into Employer Stock. The term Employer Stock shall also include warrants or
rights to purchase Employer Stock which are received by the Trustee as a result
of its holding Employer Stock.
2.20 EMPLOYER MATCHING CONTRIBUTIONS: Employer contributions to
the Trust made on account of Salary Reduction Contributions, but not including
any contribution and/or allocation made to satisfy the minimum allocation
requirements of Section 14.3.
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<PAGE> 9
2.21 EMPLOYMENT COMMENCEMENT DATE: The date on which an Employee
first performs an Hour of Service for the Employer, within the meaning of 29
CFR Section 2530.200b-2(a).
2.22 ENTRY DATES: The first day of each quarter of each Plan Year:
January 1, April 1, July 1 and October 1. Effective April 1, 1994, Entry Dates
shall be the first day of the first full pay period in each month.
2.23 ERISA: The Employee Retirement Income Security Act of 1974,
as amended.
2.24 FAMILY MEMBER: With respect to an Employee, any individual
who is a spouse, lineal ascendent or descendant, or a spouse of a lineal
ascendant or descendant of the Employee.
2.25 HIGHLY COMPENSATED EMPLOYEE:
(a) Any Employee who at any time in the look-back year or
the determination year was a 5% owner of the Employer (as defined in Section
416(i)(1)(B)(i) of the Code);
(b) Any Employee who, in the look-back year:
(i) Received Compensation of more than $75,000
(as adjusted by the Adjustment Factor);
(ii) Was an officer and received Compensation of
more than 50% of the dollar limit in effect for that Plan Year under Section
415(b)(1)(A) of the Code; or
(iii) Received Compensation of more than $50,000
(as adjusted by the Adjustment Factor) and was in the top-paid group;
(c) Any Employee not described in paragraph (b) above but
who, in the determination year, (i) is described in clause (i), (ii) or (iii)
of paragraph (b), and (ii) is among the 100 Employees who received the most
Compensation from the Employer during the determination year; and
(d) Any former Employee who has separated from Service
but who was a Highly Compensated Employee as described in paragraph (a), (b) or
(c) above when he or she separated from Service or at any time after he or she
attained age 55.
(e) For purposes of this Section:
(i) the determination year is the Plan Year for
which the determination of Highly Compensated Employees is being made;
(ii) the look-back year is the twelve month period
preceding the determination year.
(iii) the determination of who is a Highly
Compensated Employee, including the determinations of the number and identity
of Employees in the top-paid group, the top 100 Employees, the number of
Employees treated as officers and the Compensation that is considered, will be
made in accordance with Section 414(q) of the Code and the regulations
thereunder.
(iv) employers aggregated under Sections 414(b),
(c), (m) or (o) of the Code are treated as a single employer.
(v) if an employee is, during a determination
year or look-back year, a Family Member of either a 5% owner who is an active
or former Employee or a Highly Compensated Employee who is one of the ten most
highly compensated Employees ranked on the basis of Compensation paid by the
Employer during such year, then the Family Member and the 5% owner or top-ten
Highly Compensated Employee shall be aggregated. In such case, the Family
Member and 5% owner or top-ten Highly Compensated Employee shall be treated as
a single Employee receiving Compensation and
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<PAGE> 10
Plan Contributions or benefits equal to the sum of such Compensation and
Contributions or benefits of the Family Member and 5% owner or top-ten Highly
Compensated Employee.
2.26 HOUR OF SERVICE:
(a) Each hour for which an Employee is directly or
indirectly paid, or entitled to payment, by the Employer for the performance of
duties and for reasons other than the performance of duties; provided that
(i) no more than 501 Hours of Service shall be
credited on account of a single continuous period during which no duties are
performed, and
(ii) no Hours of Service shall be credited if
payment was made or due
(1) under a plan maintained solely for
the purpose of complying with applicable workmen's compensation, unemployment
compensation or disability insurance laws; or
(2) solely as reimbursement for medical
or medically related expenses incurred by the Employee. Hours of Service shall
be calculated in accordance with Department of Labor Regulation Section
2530.200b-2(b) and (c);
(b) For an Employee on a leave of absence pursuant to
Section 8.1 or 8.2, credit for such leave shall be given for the number of
regularly scheduled working hours included in the period of such leave;
(c) An Employee's Hours of Service include each hour for
which back pay, irrespective of mitigation of damages, has been either awarded
or agreed to by the Employer. Such Hours of Service shall be credited for the
periods to which the award or agreement pertains rather than the periods in
which the award, agreement, or payment is made, and no Hours of Service shall
be credited under this paragraph which would duplicate any hours credited
above.
(d) Hours of Service will be credited for employment with
other members of an affiliated service group (under Section 414(m) of the
Code), a controlled group of corporations (under Section 414(b) of the Code),
or a group of trades or business under common control (under Section 414(c) of
the Code) of which the Employer is a member, and any other entity required to
be aggregated with the Employer pursuant to Section 414(o) of the Code. Hours
of Service will also be credited for any individual considered an Employee for
purposes of this Plan under Sections 414(n) or 414(o) of the Code.
2.27 NON-HIGHLY COMPENSATED EMPLOYEE: An Employee who is neither a
Highly Compensated Employee nor a Family Member with respect to a Highly
Compensated Employee.
2.28 NORMAL RETIREMENT DATE: The date an Employee attains age 65.
2.29 PARTICIPANT: An Employee or former Employee for whom an
Account is maintained under the Plan.
2.30 PARTICIPATING EMPLOYERS: The Affiliated Companies which have,
from time to time, adopted the Plan, as set forth on Exhibit A attached hereto.
2.31 PLAN: The Fremont General Corporation and Affiliated
Companies Investment Incentive Plan, as amended (formerly known as the Fremont
General Corporation and Affiliated Companies Investment Incentive Program).
2.32 PLAN YEAR: The twelve consecutive month period beginning each
January 1 and ending each December 31.
2.33 QUALIFIED MATCHING CONTRIBUTIONS: Employer Matching
Contributions under this Plan or any other plan of the Employer, as provided by
regulations under the Code, treated as Salary Reduction Contributions for
purposes of the tests of Section 5.5(a) of the Plan. The amount of Qualified
Matching Contributions made under this Plan and taken into account as Salary
Reduction Contributions for purposes of calculating the tests of Section 5.5(a)
of the Plan, subject to
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<PAGE> 11
such other requirements as may be prescribed by the Secretary of the Treasury,
shall be such Qualified Matching Contributions as are needed to meet the Actual
Deferral Percentage test of Section 5.5(a) of the Plan.
2.34 QUALIFIED NONELECTIVE CONTRIBUTIONS: Employer Discretionary
Contributions under this Plan or any other plan of the Employer, as provided by
regulations under the Code, treated as Salary Reduction Contributions for
purposes of the test of Section 5.5(a) of the Plan, or as Matching
Contributions for purposes of the test of Section 5.7(a) of the Plan.
(a) The amount of Qualified Nonelective Contributions
made under this Plan and taken into account as Salary Reduction Contributions
for purposes of calculating the tests of Section 5.5(a) of the Plan, subject to
such other requirements as may be prescribed by the Secretary of the Treasury,
shall be such Qualified Nonelective Contributions as are needed to meet the
Actual Deferral Percentage test of Section 5.5(a) of the Plan.
(b) The amount of Qualified Nonelective Contributions
made under this Plan and taken into account as Contribution Percentage Amounts
for purposes of calculating the tests of Section 5.7(a), subject to such other
requirements as may be prescribed by the Secretary of the Treasury, shall be
such Qualified Nonelective Contributions as are needed to meet the Average
Actual Contribution Percentage test of Section 5.7(a) of the Plan.
Notwithstanding the foregoing, Qualified Nonelective Contributions used in
calculating the Actual Deferral Percentage test of Section 5.5(a) of the Plan
may not be used in calculating the Average Actual Contribution Percentage test
of Section 5.7(a) of the Plan.
2.35 REEMPLOYMENT COMMENCEMENT DATE: The first date, following a
Severance from Service, on which an Employee again performs an Hour of Service
for the Employer.
2.36 ROLLOVER CONTRIBUTION: A qualified Rollover Contribution as
described in Section 4.6 hereof.
2.37 SALARY REDUCTION CONTRIBUTIONS: Employer contributions to the
Trust on behalf of Participants who have elected to make such contributions as
described in Section 4.1 hereof. For purposes of the test under Section 5.7(a)
of the Plan, the Employer may take into account and include as Contribution
Percentage Amounts, Salary Reduction Contributions under this Plan or any other
plan of the Employer, as provided by regulations. The amount of Salary
Reduction Contributions made under the Plan and taken into account as
Contribution Percentage Amounts for purposes of calculating the Average Actual
Contribution Percentage, subject to such other requirements as may be
prescribed by the Secretary of the Treasury, shall be such Salary Reduction
Contributions as are needed to meet the Average Actual Contribution Percentage
test of Section 5.7(a) of the Plan; provided, however, that Salary Reduction
Contributions used in calculating the Actual Deferral Percentage test of
Section 5.5(a) of the Plan may not be used in calculating the Average Actual
Contribution Percentage test of Section 5.7(a) of the Plan.
2.38 SECTION 415 COMPENSATION: Wages, salaries, and fees for
professional services and other amounts received (without regard to whether or
not an amount is paid in cash) for personal services actually rendered in the
course of employment with the Employer maintaining the Plan to the extent that
the amounts are includable in gross income (including, but not limited to,
commissions paid salespersons, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips bonuses, fringe
benefits, reimbursements, and reimbursements or other expense allowances under
a nonaccountable plan (as described in Regulations Section 1.62-2(c)), and
excluding the following:
(A) Employer contributions to a
plan of deferred compensation which are not includable in the Employee's gross
income for the taxable year in which contributed, or Employer contributions
under a simplified employee pension plan to the extent such contributions are
deductible by the Employee, or any distributions from a plan of deferred
compensation;
(B) Amounts realized from the
exercise of a non-qualified stock option, or when restricted stock (or
property) held by the Employee either becomes freely transferable or is no
longer subject to a substantial risk of forfeiture;
(C) Amounts realized from the sale,
exchange or other disposition of stock acquired under a qualified stock option;
and
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<PAGE> 12
(D) Other amounts which received
special tax benefits, or contributions made by the Employer (whether or not
under a salary reduction agreement) towards the purchase of an annuity contract
described in Section 403(b) of the Code (whether or not the contributions are
actually excludable from the gross income of the Employee).
2.39 SEVERANCE FROM SERVICE OR SEVERANCE FROM SERVICE DATE: The
first to occur of the date on which an Employee terminates employment with the
Employer because he or she quits, is discharged, incurs a Permanent and Total
Disability, dies or retires.
2.40 TRUST: The Trust established under Article IX of the Plan.
2.41 TRUSTEE: Merrill Lynch Trust Company of California, and any
successor or successors thereto, designated to act as Trustee of the Trust and
to hold the Trust assets in accordance with Article IX hereof.
2.42 TRUST FUND: The assets held by the Trustee under the Trust.
The Trustee is specifically authorized to hold Employer common stock as an
asset of the Trust, in any amount, up to 100% of Trust assets.
2.43 VALUATION DATE: The last day of each Plan Year and such other
date(s) as the Administrator may designate.
2.44 YEAR OF SERVICE:
(a) A Plan Year during which an Employee is credited with
1,000 Hours of Service.
(b) The Administrator will credit each Employee with
Hours of Service on the basis of months of employment. Each Employee will be
credited with 190 Hours of Service for each month in which he or she performs
at least one Hour of Service.
(c) Each Year of Service completed by a Participant in
this Plan while he or she was an employee of Beaver Insurance Company, Pacific
Compensation Insurance Company, or Investors Bancor shall be deemed a Year of
Service under this Plan.
2.45 OTHER DEFINITIONS: In addition to the definitions contained
in this Section, the following terms are defined in the Section listed:
<TABLE>
<CAPTION>
Section Term
------- ----
<S> <C>
3.1 Part-Time Employees
Temporary Employees
Union Employees
5.4 Annual Additions
Defined Benefit Fraction
Defined Contribution Dollar Limitation
Defined Contribution Fraction
Excess Amount
Highest Average Compensation
Limitation Year
Maximum Permissible Amount
Projected Annual Benefit
5.5 Actual Deferral Percentage
Average Actual Deferral Percentage
Eligible Employee
</TABLE>
-8-
<PAGE> 13
<TABLE>
<S> <C>
Excess 401(k) Contributions
Maximum Deferral Percentage
5.6 Salary Deferrals
Excess Salary Deferrals
5.7 Aggregate Limit
Average Actual Contribution Percentage
Contribution Percentage
Contribution Percentage Amounts
Eligible Participant
Employee Contribution
Excess Matching Contributions
Maximum Matching Contribution Percentage
6.8 Annuity Starting Date
Election Period
Qualified Election
Qualified Joint and Survivor Annuity
Qualified Preretirement Survivor Annuity
Spouse or Surviving Spouse
Straight Life Annuity
6.11 Applicable Life Expectancy
Designated Beneficiary
Distribution Calendar Year
Life Expectancy
Participant's Benefit
Required Beginning Date
6.15 Hardship
7.2 Alternate Payee
Determination Period
Determination Period Account
Qualified Domestic Relations Order
14.2 Determination Date
Key Employee
Non-Key Employee
Permissive Aggregation Group
Required Aggregation Group
Top-Heavy Plan
Top-Heavy Ratio
Valuation Date
</TABLE>
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<PAGE> 14
III ELIGIBILITY
3.1 PARTICIPATION:
(a) Each Employee, except Employees employed by an
Affiliated Company which is not a Participating Employer, Leased Employees,
Part-Time Employees, Temporary Employees, and Union Employees may commence
participation in the Plan on the Entry Date following his or her date of hire.
(b) For purposes of this Section, the following
definitions shall apply:
(i) Part-time Employees - Employees scheduled to
work less than 25 hours per week.
(ii) Temporary Employees - Employees hired on a
temporary or seasonal basis who is classified as such in the records of the
Employer.
(iii) Union Employees - Employees included in a
unit of Employees covered by a collective bargaining agreement between the
Employer and Employee representatives, if retirement benefits were the subject
of good faith bargaining and if two percent or less of the Employees who are
covered pursuant to that agreement are professionals as defined in Treasury
Regulations Section 1.410(b)-9. For this purpose, the term "Employee
representatives" does not include any organization more than half of whose
members are Employees who are owners, officers or executives of the Employer.
3.2 REEMPLOYMENT: If an eligible Employee terminates employment
with the Employer and is thereafter reemployed by the Employer, the Employee
will be eligible to participate in the Plan as of his or her Reemployment
Commencement Date.
3.3 CHANGE IN EMPLOYMENT STATUS: In the event a Participant
becomes an Employee excluded from participation in the Plan under Section 3.1
above and therefore becomes ineligible to participate, such Employee will
participate immediately upon returning to an eligible class of Employees. In
the event an Employee who is not a member of an eligible class of Employees
becomes a member of an eligible class, such Employee will participate
immediately.
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<PAGE> 15
IV CONTRIBUTIONS
4.1 SALARY REDUCTION CONTRIBUTIONS:
(a) An eligible Employee may elect, in writing on a form
prescribed by the Administrator, to have between 2% and 15% of Compensation
from each payroll period contributed to his or her Salary Reduction
Contributions Account; provided, however, in no event shall the dollar amount
for any taxable year exceed $7,000, as adjusted annually by the Adjustment
Factor. A Participant may elect to increase, discontinue or decrease Salary
Reduction Contributions by making a new election with the Administrator in such
a manner as the Administrator shall specify during such reasonable period of
time as the Administrator shall specify, but in no event less frequently than
once each calendar year.
(b) For purposes of the Plan, and with respect to Salary
Reduction Contributions on behalf of any Participant, such Salary Reduction
Contributions must be allocated to the Participant's Salary Reduction
Contributions Account as of a date within the Plan Year and must relate to
Compensation that either (i) would have been received by the Participant in the
Plan Year but for the Participant's election to defer it, or (ii) is
attributable to services performed by the Participant in the Plan Year and, but
for the Participant's election to defer, would have been received by the
Participant within 2 1/2 months after the close of the Plan Year.
4.2 EMPLOYER MATCHING CONTRIBUTIONS:
(a) The Employer may, in its discretion, make Employer
Matching Contributions. Employer Matching Contributions which would otherwise
be made on behalf of a Participant may be reduced to the extent necessary to
comply with the limitations of Sections 5.4, 5.5 and 5.7 of the Plan. Any
amount that cannot be contributed to the Trust because of these limitations
shall be retained by the Employer, and the Employer shall have no obligation to
contribute such amount to the Trust.
(b) In the Employer's discretion, Employer Matching
Contributions may be in the form of cash or Employer Stock.
(c) The Administrator may, in its discretion, elect to
treat all or a portion of Employer Matching Contributions for a Plan Year as
Qualified Matching Contributions for purposes of the tests of Section 5.5(a) of
the Plan.
(d) For all purposes of the Plan, Employer Matching or
Qualified Matching Contributions shall be subject to the distribution
limitations of Article VI. Amounts allocated to a Participant's Employer
Matching or Qualified Matching Contributions Account shall not be eligible for
hardship distribution under Section 6.15 of the Plan.
4.3 DISCRETIONARY AND QUALIFIED NONELECTIVE CONTRIBUTIONS:
(a) The Employer may, in its discretion, make Employer
Discretionary Contributions in such amount and at such times as it shall
determine.
(b) In the Employer's discretion, Employer Discretionary
Contributions may be in the form of cash or Employer Stock.
(c) The Administrator may, in its discretion, elect to
treat all or a portion of Employer Discretionary Contributions for a Plan Year
as Qualified Nonelective Contributions for purposes of the tests of Section
5.5(a) and 5.7(a) of the Plan.
(d) Neither the Trustee nor any Participant shall have
any right or duty to inquire into the amount of the Employer's Discretionary or
Qualified Nonelective Contributions or the method used in determining the
amount of the Employer's Discretionary or Qualified Nonelective Contributions.
The Trustee shall be accountable only for funds actually received by the
Trustee.
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<PAGE> 16
(e) For all purposes of the Plan, Employer Discretionary
or Qualified Nonelective Contributions shall be subject to the distribution
limitations of Article VI. Amounts allocated to a Participant's Discretionary
or Qualified Nonelective Contributions Account shall not be eligible for
hardship distribution under Section 6.15 of the Plan.
4.4 LIMITATIONS ON CONTRIBUTIONS: During a Plan Year,
Contributions may not, in the aggregate, exceed 15% of the total Section 415
Compensation paid to, or accrued by the Employer for, Participants for that
Plan Year.
4.5 TIME AND MANNER OF PAYMENT OF CONTRIBUTIONS: Contributions
shall be paid to the Trustee on a regular basis determined by the
Administrator; provided that, unless Treasury Regulations otherwise permit, all
Salary Reduction Contributions, Qualified Nonelective Contributions and
Qualified Matching Contributions for a Plan Year must be paid to the Trustee no
later than the end of the 12-month period immediately following the Plan Year
to which such contributions relate.
4.6 RECEIPT OF ASSETS FROM PLAN OF FORMER EMPLOYER:
(a) The Trustee may receive, with the consent of the
Administrator, a transfer of assets previously held under a qualified plan for
the benefit of an Employee; provided, however, that the Trustee may not receive
a direct transfer of assets from a plan to which Section 401(a)(11) of the Code
applies. Subject to the preceding sentence, the assets may be received
directly from the trustee of a plan qualified under Section 401(a) of the Code,
or they may be received from the Employee in accordance with Sections 402(a)(5)
or 408(d)(3) of the Code. Notwithstanding the foregoing, effective January 1,
1993, the Trustee may receive, with the consent of the Administrator, a
transfer of assets previously held under a qualified plan for the benefit of an
Employee in the form of a Direct Rollover (as defined in Section 6.7 below).
(b) The Administrator and the Trustee shall be fully
protected in relying on data, representations, or other information provided by
the Employee or by the trustee or custodian of a qualified plan or individual
retirement account that transfers assets to it for the purpose of determining
that the requirements of subsection (a) above have been satisfied.
(c) Amounts attributable to elective contributions (as
defined in Treasury Regulations Section 1.401(k)-1(g)(4), including amounts
treated as elective contributions which are transferred from another qualified
plan in a plan-to-plan transfer, shall be subject to the distribution
limitations provided for in Treasury Regulations Section 1.401(k)-1(d).
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<PAGE> 17
V ACCOUNTS AND ALLOCATIONS
5.1 PARTICIPANT'S ACCOUNTS: For each Participant, a separate
Account shall be maintained for each of the following, and for the income,
expenses, gains and losses attributable thereto:
(a) Salary Reduction Contributions. A Participant's
Salary Reduction Contributions Account shall be credited with amounts
attributable to Salary Reduction Contributions pursuant to Section 4.1.
(b) Employer Matching Contributions. A Participant's
Employer Matching Contributions Account shall be credited with all amounts, if
any, attributable to Employer Matching Contributions pursuant to Section 4.2.
(c) Qualified Matching Contributions. A Participant's
Qualified Matching Contributions Account shall be credited with all amounts, if
any, attributable to Qualified Matching Contributions.
(d) Employer Discretionary Contributions. A
Participant's Employer Discretionary Contributions Account shall be credited
with all amounts, if any, attributable to Employer Discretionary Contributions
pursuant to Section 4.3. Employer Discretionary Contributions shall be
allocated among the Employer Discretionary Contributions Accounts of all
Participants and former Participants who were employed by the Employer during
the Plan Year. Employer Discretionary Contributions (and any forfeitures
allocated to the Accounts of Participants) shall be allocated to Participants
entitled to share in the allocation of Employer Discretionary Contributions for
a Plan Year in proportion to their Compensation for such Plan Year.
(e) Qualified Nonelective Contributions. A Participant's
Qualified Nonelective Contributions Account shall be credited with all amounts,
if any, attributable to Qualified Nonelective Contributions. The Employer may,
with respect to a Plan Year, allocate Qualified Nonelective Contributions to
such Participants and in such a manner as it deems necessary or appropriate to
satisfy the tests of Section 5.5(a) and 5.7(a).
(f) Rollover Contributions. A Participant's Rollover
Contributions Account shall be credited with all amounts transferred to the
Plan pursuant to Section 4.6.
(g) Such other Account or Accounts as the Administrator
shall deem necessary or appropriate.
5.2 ALLOCATION OF CONTRIBUTIONS: As of each Valuation Date, the
Administrator shall allocate to the Accounts of each Participant the
contributions made for his or her benefit since the preceding Valuation Date.
5.3 ALLOCATION OF EARNINGS OR LOSSES: As of each Valuation Date,
the Accounts of each Participant shall be adjusted to reflect income, gains,
losses or expenses. Adjustments shall be made in such manner as the
Administrator determines is fair and reasonable, provided that each Account
shall generally share in the income, gains, losses or expenses associated with
an asset of that Account in the proportion which the Account's investment in
the asset bears to the total amount of the Trust Fund invested in such asset;
provided, however, unless the Administrator elects otherwise, as of each
Valuation Date, the net earnings or losses of the Trust Fund, including capital
gains and losses whether or not realized, since the preceding Valuation Date
shall be allocated to the Accounts of all Participants in accordance with the
ratio which each Account of each Participant bears to the aggregate of all such
Accounts. For purposes of this allocation, the Account balances of each
Participant shall consist of the balances of all the investments of each of the
Participant's Accounts as of the preceding Valuation Date adjusted by adding
thereto one-half of the Contributions made to each such Account since such date
and excluding therefrom all withdrawals since such date. Notwithstanding any
of the foregoing, the allocation of earnings and losses, as herein provided,
need not be made if the method used to account for the respective interest of
each Participant is such that, in an equitable manner, it includes a
revaluation at current market values of each such interest as of each Valuation
Date, including, but not limited to, the Unit Method of accounting.
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<PAGE> 18
5.4 SECTION 415 LIMITATIONS:
(a) (i) If the Participant does not participate in,
and has never participated in another qualified plan maintained by the
Employer, or a welfare benefit fund, as defined in Section 419(e) of the Code
maintained by the Employer, or an individual medical account, as defined in
Section 415(l)(2) of the Code, maintained by the Employer, which provides an
Annual Addition as defined below, the amount of Annual Additions which may be
credited to the Participant's Account for any Limitation Year will not exceed
the lesser of the Maximum Permissible Amount or any other limitation contained
in this Plan. If the Contributions that would otherwise be contributed or
allocated to the Participant's Account would cause the Annual Additions for the
Limitation Year to exceed the Maximum Permissible Amount, the amount
contributed or allocated will be reduced so that the Annual Additions for the
Limitation Year will equal the Maximum Permissible Amount.
(ii) Prior to determining the Participant's actual
Section 415 Compensation for the Limitation Year, the Employer may determine
the Maximum Permissible Amount for a Participant on the basis of a reasonable
estimation of the Participant's Section 415 Compensation for the Limitation
Year, uniformly determined for all Participants similarly situated.
(iii) As soon as is administratively feasible after
the end of the Limitation Year, the Maximum Permissible Amount for the
Limitation Year will be determined on the basis of the Participant's actual
Section 415 Compensation for the Limitation Year.
(iv) If, pursuant to paragraph (iii) above, or as
a result of (1) a reasonable error in determining the amount of Salary
Reduction Contributions that may be made with respect to any Participant under
the limits of this Section, (2) an allocation of forfeitures, or (3) other
facts and circumstances to which Regulations Section 1.415-6(b)(6) shall be
applicable, there is an Excess Amount, such portion of the Excess Amount which
consists of Salary Reduction Contributions and the earnings thereon will be
distributed to the affected Participant. If, after such distribution of Salary
Reduction Contributions and the earnings thereon to the Participant, an Excess
Amount remains, the Excess Amount will be disposed of as follows:
(A) If the Participant is covered
by the Plan at the end of the Limitation Year, the Excess Amount in the
Participant's Account will be used to reduce Employer contributions (including
any allocation of forfeitures) for such Participant in the next Limitation
Year, and each succeeding Limitation Year if necessary.
(B) If the Participant is not
covered by the Plan at the end of a Limitation Year, the Excess Amount will be
held unallocated in a suspense account. The suspense account will be applied
to reduce Employer contributions for all remaining Participants in the next
Limitation Year, and each succeeding Limitation Year if necessary.
(C) If a suspense account is in
existence at any time during a Limitation Year pursuant to this Section, it
will not participate in the allocation of the Trust's investment gains and
losses. If a suspense account is in existence at any time during a particular
Limitation Year, all amounts in the suspense account must be allocated and
reallocated to Participant's Accounts before any Contributions may be made to
the Plan for that Limitation Year. Excess Amounts (other than Excess Amounts
which consist of Salary Reduction Contributions and the earnings thereon) may
not be distributed to Participants or former Participants. In the event of
termination of the Plan, the suspense account shall revert to the Employer to
the extent it may not then be allocated to any Participant's Account.
(b) (i) This Section applies if, in addition to this
Plan, the Participant is covered under another defined contribution plan
maintained by the Employer, a welfare benefit fund, as defined in Section
419(e) of the Code maintained by the Employer, or an individual medical
account, as defined in Section 415(l)(2) of the Code, maintained by the
Employer, which provides an Annual Addition, during any Limitation Year. The
Annual Additions which may be credited to a Participant's Account under this
Plan for any such Limitation Year will not exceed the Maximum Permissible
Amount reduced by the Annual Additions credited to a participant's account
under the other plans and welfare benefit funds for the same Limitation Year.
If the Annual Additions with respect to the participant under other defined
contribution plans and welfare benefit funds maintained by the Employer are
less than the Maximum Permissible Amount and the Employer contribution that
would otherwise be contributed or allocated to the Participant's Account under
this Plan would cause the
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<PAGE> 19
Annual Additions for the Limitation Year to exceed this limitation, the amount
contributed or allocated will be reduced so that the Annual Additions under all
such plans and funds for the Limitation Year will equal the Maximum Permissible
Amount. If the Annual Additions with respect to the Participant under such
other defined contribution plans and welfare benefit funds in the aggregate are
equal to or greater than the Maximum Permissible Amount, no amount will be
contributed or allocated to the Participant's Account under this Plan for the
Limitation Year.
(ii) Prior to determining the Participant's actual
Compensation for the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant in the manner described in paragraph (a)
of this Section.
(iii) As soon as is administratively feasible after
the end of the Limitation Year, the Maximum Permissible Amount for the
Limitation Year will be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
(iv) If, pursuant to paragraph (iii) above or as a
result of the allocation of forfeitures, a Participant's Annual Additions under
this Plan and such other plans would result in an Excess Amount for a
Limitation Year, the Excess Amount will be deemed to consist of the Annual
Additions last allocated, except that Annual Additions attributable to a
welfare benefit fund or individual medical account will be deemed to have been
allocated first regardless of the actual allocation date.
(v) If an Excess Amount was allocated to a
Participant on an allocation date of this Plan which coincides with an
allocation date of another plan, the Excess Amount attributed to this Plan will
be the product of,
(A) the total Excess Amount
allocated as of such date, times
(B) the ratio of (i) the Annual
Additions allocated to the Participant for the Limitation Year as of such date
under this Plan to (ii) the total Annual Additions allocated to the Participant
for the Limitation Year as of such date under this and all other defined
contribution plans.
(vi) Any Excess Amount attributed to this Plan
will be disposed in the manner described in paragraph (a) (iv) above.
(c) If the Employer maintains, or at any time maintained,
a qualified defined benefit plan covering any Participant in this Plan, the sum
of the Participant's defined benefit plan fraction and defined contribution
plan fraction will not exceed 1.0 in any Limitation Year. The Annual Additions
which may be credited to the Participant's Account under this Plan for any
Limitation Year will be limited in accordance with the provisions of paragraph
(b) of this Section.
(d) Definitions.
(i) Annual Additions: The sum of the following
amounts credited to a Participant's Account for the Limitation Year are treated
as Annual Additions:
(A) Employer contributions;
(B) Employee contributions;
(C) forfeitures;
(D) amounts allocated, after March
31, 1984, to an individual medical account, as defined in Section 415(l)(2) of
the Code, which is part of a pension or annuity plan maintained by the
Employer;
(E) amounts derived from
contributions paid or accrued after December 31, 1985, in taxable years ending
after such date, which are attributable to post-retirement medical benefits,
allocated to the separate account of a Key Employee, as defined in Section
419A(d)(3) of the Code, under a welfare benefit fund, as defined in Section
419(e) of the Code, maintained by the Employer;
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<PAGE> 20
(F) any Excess Amount applied under
Sections (a)(iv) or (b)(vi) in the Limitation Year to reduce Employer
contributions.
(ii) Defined Benefit Fraction: A fraction, the
numerator of which is the sum of the Participant's Projected Annual Benefits
under all the defined benefit plans (whether or not terminated) maintained by
the Employer, and the denominator of which is the lesser of 125 percent of the
dollar limitation determined for the Limitation Year under Sections 415(b) and
(d) of the Code or 140 percent of the Highest Average Compensation, including
any adjustments under Section 415(b) of the Code.
Notwithstanding the above, if the Participant was a
participant as of the first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined benefit plans maintained by the
Employer which were in existence on May 6, 1986, the denominator of this
fraction will not be less than 125 percent of the sum of the annual benefits
under such plans which the Participant had accrued as of the close of the last
Limitation Year beginning before January 1, 1987, disregarding any changes in
the terms and conditions of the plan after May 5, 1986. The preceding sentence
applies only if the defined benefit plans individually and in the aggregate
satisfied the requirements of Section 415 for all Limitation Years beginning
before January 1, 1987.
(iii) Defined Contribution Dollar Limitation:
$30,000 or if greater, one-fourth of the defined benefit dollar limitation set
forth in Section 415(b)(1) of the Code as in effect for the Limitation Year.
(iv) Defined Contribution Fraction: A fraction,
the numerator of which is the sum of the Annual Additions to the Participant's
account under all the defined contribution plans (whether or not terminated)
maintained by the Employer for the current and all prior Limitation Years
(including the Annual Additions attributable to the Participant's nondeductible
Employee contributions to all defined benefit plans, whether or not terminated,
maintained by the Employer, and the Annual Additions attributable to all
welfare benefit funds, as defined in Section 419(e) of the Code, and individual
medical accounts, as defined in Section 415(1)(2) of the Code, maintained by
the Employer), and the denominator of which is the sum of the maximum aggregate
amounts for the current and all prior Limitation Years of Service with the
Employer (regardless of whether a defined contribution plan was maintained by
the Employer). The maximum aggregate amount in any Limitation Year is the
lesser of 125 percent of the dollar limitation determined under Sections 415(b)
and (d) of the Code in effect under Section 415(c)(1)(A) of the Code or 35
percent of the Participant's Section 415 Compensation for such year.
If the Employee was a Participant as of the end of
the first day of the first Limitation Year beginning after December 31, 1986,
in one or more defined contribution plans maintained by the Employer which were
in existence on May 6, 1986, the numerator of this fraction will be adjusted if
the sum of this fraction and the Defined Benefit Fraction would otherwise
exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal
to the product of (1) the excess of the sum of the fractions over 1.0, times
(2) the denominator of this fraction, will be permanently subtracted from the
numerator of this fraction. The adjustment is calculated using the fractions
as they would be computed as of the end of the last Limitation Year beginning
before January 1, 1987, and disregarding any changes in the terms and
conditions of the plan made after May 5, 1986, but using the Section 415
limitation applicable to the first Limitation Year beginning on or after
January 1, 1987.
The Annual Addition for any Limitation Year beginning
before January 1, 1987, shall not be recomputed to treat all Employee
contributions as Annual Additions.
(v) Excess Amount: The amount of Annual
Additions which, if credited to a Participant's Account for a Limitation Year,
would exceed the Maximum Permissible Amount.
(vi) Highest Average Compensation: The average
Section 415 Compensation for the three consecutive Years of Service with the
Employer that produces the highest average.
(vii) Limitation Year: The Plan Year. All
qualified plans maintained by the Employer must use the same Limitation Year.
If the Limitation Year is amended to a different 12-consecutive month period,
the new Limitation Year must begin on a date within the Limitation Year in
which the amendment is made.
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<PAGE> 21
(viii) Maximum Permissible Amount: The maximum
Annual Addition that may be contributed or allocated to a Participant's Account
under the Plan for any Limitation Year shall not exceed the lesser of:
(A) the Defined Contribution Dollar
Limitation, or
(B) 25 percent of the Participant's
Section 415 Compensation for the Limitation Year. The Section 415 Compensation
limitation shall not apply to any contribution for medical benefits (within the
meaning of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise
treated as an Annual Addition under Section 415(1)(1) or 419A(d)(2) of the
Code.
If a short Limitation Year is created because of an
amendment changing the Limitation Year to a different 12-consecutive month
period, the Maximum Permissible Amount will not exceed the Defined Contribution
Dollar Limitation multiplied by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
(ix) Projected Annual Benefit: The annual
retirement benefit (adjusted to an actuarially equivalent straight life annuity
if such benefit is expressed in a form other than a straight life annuity or
qualified joint and survivor annuity) to which the Participant would be
entitled under the terms of a plan assuming:
(A) the Participant will continue
employment until normal retirement age under the plan (or current age, if
later), and
(B) the Participant's Section 415
Compensation for the current Limitation Year and all other relevant factors
used to determine benefits under the plan will remain constant for all future
Limitation Years.
5.5 DISCRIMINATION TESTING OF SALARY REDUCTION CONTRIBUTIONS:
(a) Actual Deferral Percentage. The anti-discrimination
requirements of Section 401(k)(3) of the Code provide that in each Plan Year
one of the following tests must be met:
(i) The Average Actual Deferral Percentage for
Eligible Employees who are Highly Compensated Employees for the Plan Year shall
not exceed the Average Actual Deferral Percentage for Eligible Employees who
are Non-Highly Compensated Employees for the Plan Year multiplied by 1.25; or
(ii) The Average Actual Deferral Percentage for
Eligible Employees who are Highly Compensated Employees for the Plan Year shall
not exceed the Average Actual Deferral Percentage for Eligible Employees who
are Non-Highly Compensated Employees for the Plan Year multiplied by two (2),
provided that the Average Actual Deferral Percentage for Eligible Employees who
are Highly Compensated Employees does not exceed the Average Actual Deferral
Percentage for Eligible Employees who are Non-Highly Compensated Employees by
more than two (2) percentage points or such lesser amount as the Secretary of
the Treasury shall prescribe to prevent the multiple use of this alternative
limitation with respect to any Highly Compensated Employee.
(b) Corrective Procedure.
(i) Correction of Excess 401(k) Contributions.
The Administrator shall have the responsibility for monitoring the Plan's
compliance with the limitations of Section (a) above throughout the Plan Year.
The Administrator shall maintain such records as are necessary to demonstrate
compliance with this Section. The Administrator shall have the discretionary
power to take any and all steps it deems necessary or appropriate to ensure
compliance with those limitations, including, without limitation:
(A) Restricting the amount of
Salary Reduction Contributions by Highly Compensated Employees and their Family
Members;
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<PAGE> 22
(B) Pursuant to subsection (iv)
below, distributing Excess 401(k) Contributions to the Highly Compensated
Employees and Family Members who made such contributions; and
(C) Treating Employer Matching or
Discretionary Contributions, as the case may be, as Qualified Matching or
Qualified Nonelective Contributions, respectively.
(ii) Leveling Method. The amount of Excess
401(k) Contributions for a Highly Compensated Employee for a Plan Year is to be
determined by the following leveling method, under which the Actual Deferral
Percentage of the Highly Compensated Employee with the highest Actual Deferral
Percentage is reduced to the extent required to enable the Plan to satisfy the
anti-discrimination test of Section 5.5(a) or to cause such Highly Compensated
Employee's Actual Deferral Percentage to equal the Actual Deferral Percentage
of the Highly Compensated Employee with the next highest Actual Deferral
Percentage. The procedure requires that contributions be reduced exclusively
with respect to those Highly Compensated Employees who, together with their
Family Members, received allocations of Employer Matching, Qualified Matching,
Discretionary or Qualified Nonelective Contributions, or who made Salary
Reduction Contributions, all of which when expressed as a percentage of their
respective Compensation for the Plan Year, were in excess of the Maximum
Deferral Percentage.
(A) The Excess 401(k) Contributions
of the Highly Compensated Employee (and Family Members(s)) with the highest
Actual Deferral Percentage shall be reduced; such reduction shall continue, as
necessary, until such Employee's (Employees') Actual Deferral Percentage
equal(s) those of the Highly Compensated Employee(s) with the second highest
Actual Deferral Percentage(s).
(B) Following the application of
the preceding paragraph (A), if it is still necessary to reduce Highly
Compensated Employees' (and their Family Members') Excess 401(k) Contributions,
the contributions of (or allocations on behalf of, if applicable) Highly
Compensated Employees (and Family Member(s)) with the highest and second
highest Actual Deferral Percentages shall be reduced and the amounts shall be
distributed, as necessary, until such Employees' Actual Deferral Percentage
equal those of the Highly Compensated Employee(s) with the third highest Actual
Deferral Percentage.
(C) Following the application of
paragraph (B), if it is still necessary to reduce Highly Compensated Employees'
(and their Family Members') Excess 401(k) Contributions, the procedure, the
beginning of which is described in paragraphs (A) and (B), shall continue until
no further reductions are necessary.
(D) The determination and
correction of Excess 401(k) Contributions of a Highly Compensated Employee
whose Actual Deferral Percentage is determined by aggregating contributions
with Family Members in accordance with subsection (c)(i) shall be made under
subsection (c)(ii) below.
(iii) Character of Excess 401(k) Contributions.
The Excess 401(k) Contributions of a Highly Compensated Employee or Family
Member shall be deemed to consist of contributions and allocations as
determined according to the following order of primacy:
(A) First, the Employee's Excess
401(k) Contributions shall be deemed to consist of any Salary Reduction
Contributions which exceed the highest rate or amount at which Salary Reduction
Contributions are matched; provided, such contributions shall be offset by any
Excess Salary Deferrals distributable to the Employee pursuant to Section 5.6
below.
(B) Second, the Employee's Excess
401(k) Contributions shall be deemed to consist of (1) any Salary Reduction
Contributions and (2) any Employer Matching and Qualified Matching
Contributions, each in proportion to the Employee's total Salary Reduction
Contributions and total Employer Matching and Qualified Matching Contributions
for the Plan Year; provided, any Salary Reduction Contributions characterized
as Excess 401(k) Contributions by this paragraph (B) shall be offset by any
Excess Salary Deferrals distributable to the Employee pursuant to Section 5.6
below and not taken into account under paragraph (b)(iii)(A) above.
(C) Third, the Employee's Excess
401(k) Contributions shall be deemed to consist of any allocations of Employer
Discretionary and Qualified Nonelective Contributions.
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<PAGE> 23
(iv) Distribution of Excess 401(k) Contributions.
If, pursuant to paragraph (b)(i)(B) above, the Administrator elects to
distribute Excess 401(k) Contributions (increased by attributable income and
decreased by attributable losses) to Highly Compensated Employees (and their
Family Members), the Administrator shall make such distributions:
(A) On or before the date which
falls 2-1/2 months after the last day of the Plan Year for which such Excess
401(k) Contributions were made, to avoid liability for the federal excise tax
(equal to 10% of the undistributed Excess 401(k) Contributions), which will be
imposed on Excess 401(k) Contributions distributed after such date;
(B) In the event of a complete
termination of the Plan during the Plan Year in which there are Excess 401(k)
Contributions, such distributions shall be made after the date of termination
of the Plan and as soon as administratively feasible, but in no event later
than the close of the twelve-month period immediately following such
termination; and
(C) In any case, before the last
day of the Plan Year next following the Plan Year for which such Excess 401(k)
Contributions were made.
(D) Excess 401(k) Contributions
(including amounts recharacterized) shall be treated as Annual Additions under
the Plan.
(v) Adjustment for Income/Loss. After the
Administrator has determined the aggregate amount and character of Excess
401(k) Contributions to be distributed to a given Highly Compensated Employee
(and his or her Family Member(s)), the amount to be distributed shall be
increased to reflect any attributable income, or decreased to reflect any
attributable losses. Excess 401(k) Contributions shall be adjusted for any
income or loss up to the end of the Plan Year for which such Excess 401(k)
Contributions were made. The income or loss allocable to Excess 401(k)
Contributions shall be calculated by the Plan Administrator using any
reasonable method for computing the income or loss allocable to Excess 401(k)
Contributions, provided that the method does not violate Section 401(a)(4) of
the Code, is used consistently for all Participants and for all corrective
distributions under the plan for the Plan Year, and is used by the Plan
Administrator for allocating income to Participants' Accounts.
(vi) Uniform Procedures. All actions taken by the
Administrator under this Section shall be pursuant to consistently applied
procedures that do not arbitrarily discriminate in favor of those Highly
Compensated Employees (and their Family Members) whose Actual Deferral
Percentages are nearest to the Maximum Deferral Percentage.
(c) Special Rules.
(i) Aggregation of Family Members. For purposes
of determining the Actual Deferral Percentage of a Participant who is
five-percent owner or one of the ten most highly-paid Highly Compensated
Employees, the Actual Deferral Percentage and Section 415 Compensation of such
Participant shall include the Salary Deferral Contributions and Section 415
Compensation for the Plan Year of Family Members (as defined in Section
414(q)(6) of the Code). Family Members, with respect to Highly Compensated
Employees, shall be disregarded as separate Employees in determining the Actual
Deferral Percentage both for Participants who are Non-Highly Compensated
Employees and for Participants who are Highly Compensated Employees.
(ii) Corrective Procedure and Family Aggregation.
The determination and correction of Excess 401(k) Contributions of a Highly
Compensated Employee whose Actual Deferral Percentage is determined by
aggregating contributions with Family Members shall be made as follows: the
Actual Deferral Percentage shall be reduced as required under subsection
(b)(ii) above, and the Excess 401(k) Contributions for the aggregated group of
Family Members shall be allocated among the Family Members in proportion to the
Salary Deferral Contributions and Qualified Matching Contributions used
pursuant to paragraph (b)(i)(C) above of each Family Member that are combined
to determine the Actual Deferral Percentage.
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<PAGE> 24
(iii) Computation of Compensation. For purposes of
this Section, a Participant's Compensation for the entire Plan Year shall be
included, whether or not he or she made Salary Reduction Contributions for the
entire Plan Year.
(iv) Coordination with Distribution of Excess
Deferrals. After calculation of an amount to be distributed to a Participant
pursuant to the procedures discussed in subsection (b)(iii) and (iv), if the
Participant in question has also made Excess Salary Deferrals during the
calendar year ended within or coincident with the Plan Year, the amount
actually distributed to the Participant shall be adjusted to take into account
such Excess Salary Deferrals pursuant to Section 5.6 below and any relevant
regulations issued by the Secretary of the Treasury.
(v) Aggregation of Plans. For purposes of
determining whether a plan satisfies the Actual Deferral Percentage test in
paragraph (a) of this Section 5.5, all elective contributions that are made
under two or more plans that are aggregated for purposes of Sections 401(a)(4)
or 410(b) of the Code (other than Section 410(b)(2)(A)(ii) of the Code) are to
be treated as made under a single plan. If two or more plans are permissively
aggregated for purposes of Section 401(k) of the Code, the aggregate plans must
also satisfy Sections 401(a)(4) and 410(b) of the Code as though they were a
single plan. For Plan Years beginning after December 31, 1989 two or more
plans may be aggregated in order to satisfy Section 401(k) of the Code only if
they have the same Plan Year.
(d) The Employer shall maintain records sufficient to
demonstrate satisfaction of the test in Section 5.5(a) above and the amount, if
any, of Qualified Nonelective Contributions or Qualified Matching
Contributions, or both, used in such test.
(e) Definitions. For purposes of this Article, the
following definitions shall apply:
(i) Actual Deferral Percentage:
(A) With respect to each Eligible
Employee, a percentage, calculated as the sum of the amount of (A) Salary
Reduction Contributions, (B) Qualified Matching Contributions, and (C)
Qualified Nonelective Contributions, made on behalf of such Eligible Employee
for the Plan Year, divided by such Employee's Section 415 Compensation for the
Plan Year.
(B) The Actual Deferral Percentage
for any Participant who is a Highly Compensated Employee for the Plan Year and
who is eligible to have Salary Reduction Contributions (and Qualified
Nonelective or Qualified Matching Contributions, or both, if treated as Salary
Reduction Contributions for purposes of the test under this Section 5.5,
allocated to his or her Accounts under two or more arrangements described in
Section 401(k) of the Code, that are maintained by the Employer, shall be
determined as if such Salary Reduction Contributions (and, if applicable, such
Qualified Nonelective Contributions or Qualified Matching Contributions, or
both) were made under a single arrangement. If a Highly Compensated Employee
participates in two or more cash or deferred arrangements that have different
Plan Years, all cash or deferred arrangements ending with or within the same
calendar year shall be treated as a single arrangement. Notwithstanding the
foregoing, certain plans shall be treated as separate if mandatorily
disaggregated under regulations under Section 401(k) of the Code.
(C) For purposes of computing
Actual Deferral Percentages, an Employee who would be a Participant but for the
failure to make Salary Reduction Contributions shall be treated as a
Participant on whose behalf no Salary Reduction Contributions are made.
(ii) Average Actual Deferral Percentage. The
average (expressed as a percentage) of the Actual Deferral Percentages for all
Eligible Employees in the relevant group.
(iii) Eligible Employee: Any Employee of the
Employer who is otherwise authorized under the terms of the Plan to have
Contributions allocated to the Employee's Account for the Plan Year.
(iv) Excess 401(k) Contributions: With respect to
any Plan Year, the excess of:
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<PAGE> 25
(A) The aggregate amount of
Employer Contributions actually taken into account in computing the Actual
Deferral Percentage of Highly Compensated Employees for such Plan Year, over
(B) The maximum amount of such
Contributions permitted by the test in Section 5.5(a) of the Plan (determined
by reducing Contributions made on behalf of Highly Compensated Employees in
order of the Actual Deferral Percentages, beginning with the highest of such
percentages).
(v) Maximum Deferral Percentage: The highest
permissible Actual Deferral Percentage for the Highly Compensated Employees who
wish to ensure that they will make the highest possible amount of Salary
Reduction Contributions. The Maximum Deferral Percentage shall be a percentage
which shall not cause the Average Actual Deferral Percentage for Highly
Compensated Employees to exceed the limitations described in Section 5.5(a)
above. (To the extent required under Section 5.5(b), the Maximum Deferral
Percentage shall be determined by reducing allocations made on behalf of and
contributions made by Highly Compensated Employees in accordance with
subsection (b)(ii) above.
5.6 DISTRIBUTION OF EXCESS SALARY DEFERRAL CONTRIBUTIONS:
(a) A Participant may assign to this Plan any Excess
Salary Deferrals made during a taxable year of the Participant by notifying the
Plan Administrator in writing of the amount of the Excess Salary Deferrals to
be assigned to the Plan on or before March 15 of the year following the
Participant's taxable year in which the Excess Salary Deferrals were made.
"Salary Deferrals" shall mean any Employer
contributions made to the Plan at the election of the Participant, in lieu of
cash compensation, and shall include contributions made pursuant to a salary
reduction agreement or other deferral mechanism. With respect to any taxable
year, a Participant's Salary Deferral is the sum of all Employer contributions
made on behalf of such Participant pursuant to an election to defer under any
qualified cash or deferred arrangement as described in Section 401(k) of the
Code, any simplified employee pension cash or deferred arrangement as described
in Section 402(h)(1)(B) of the Code, any eligible deferred compensation plan
under Section 457 of the Code, any plan as described under Section 501(c)(18),
and any Employer contributions made on the behalf of a Participant for the
purchase of an annuity contract under Section 403(b) of the Code pursuant to a
salary reduction agreement. Elective deferrals shall not include any deferrals
properly distributed as excess annual additions.
"Excess Salary Deferrals" shall mean those Salary
Deferrals that are includable in a Participant's gross income under Section
402(g) of the Code to the extent such Participant's Salary Deferrals for a
taxable year exceed the dollar limitation under such Section of the Code. For
purposes of Section 5.4, Excess Salary Deferrals shall be treated as Annual
Additions under the Plan. A Participant is deemed to notify the Plan
Administrator of any Excess Salary Deferral Contributions that arise by taking
into account only those Salary Deferral Contributions made to this Plan and any
other plans of the Employer.
Notwithstanding any other provision of the Plan,
Excess Salary Deferrals, plus any income and minus any loss allocable thereto,
shall be distributed no later than April 15 to any Participant to whose account
Excess Salary Deferrals were assigned for the preceding taxable year and who
claims Excess Salary Deferrals for such taxable year.
(b) Determination of income or loss: Excess Salary
Deferrals shall be adjusted for any income or loss up to the end of the Plan
Year for which such Excess Salary Deferrals were made. The income or loss
allocable to Excess Salary Deferrals shall be calculated by the Plan
Administrator using any reasonable method for computing the income or loss
allocable to Excess Salary Deferrals, provided that the method does not violate
Section 401(a)(4) of the Code, is used consistently for all Participants and
for all corrective distributions under the plan for the Plan Year, and is used
by the Plan Administrator for allocating income to Participants' Accounts.
5.7 DISCRIMINATION TESTING OF EMPLOYER MATCHING CONTRIBUTIONS:
(a) Except as provided in subsection (b) below, for each
Plan Year, Participant's allocations of Employer Matching Contributions for
each Plan Year must satisfy one of the following tests:
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<PAGE> 26
(i) The Average Actual Contribution Percentage
for Eligible Employees who are Highly Compensated Employees shall not exceed
the Average Actual Contribution Percentage for Eligible Employees who are
Non-Highly Compensated Employees multiplied by 1.25; or
(ii) The Average Actual Contribution Percentage
for Eligible Employees who are Highly Compensated Employees shall not be more
than the lesser of (A) twice the Average Actual Contribution Percentage for
Eligible Employees who are Non-Highly Compensated Employees or (B) the Average
Actual Contribution Percentage for Eligible Employees who are Non-Highly
Compensated Employees plus 2 percentage points.
(b) Special Rules.
(i) Multiple Use: If one or more Highly
Compensated Employees participate in both a cash or deferred arrangement and a
plan subject to the Actual Contribution Percentage test maintained by the
Employer and the sum of the Actual Deferral Percentage and Actual Contribution
Percentage of those Highly Compensated Employees subject to either or both
tests exceeds the Aggregate Limit, then the Actual Contribution Percentage of
those Highly Compensated Employees who also participate in a cash or deferred
arrangement will be reduced (beginning with such Highly Compensated Employee
whose Actual Contribution Percentage is the highest) so that the limit is not
exceeded. The amount by which each Highly Compensated Employee's Contribution
Percentage Amounts is reduced shall be treated as an Excess Matching
Contribution. The Actual Deferral Percentage and Actual Contribution
Percentage of the Highly Compensated Employees are determined after any
corrections required to meet the Actual Deferral Percentage and Actual
Contribution Percentage tests. Multiple use does not occur if either the
Actual Deferral Percentage or Actual Contribution Percentage of the Highly
Compensated Employees does not exceed 1.25 multiplied by the Actual Deferral
Percentage and Actual Contribution Percentage of the Non-Highly Compensated
Employees.
(ii) For purposes of this Section, the
Contribution Percentage for any Participant who is eligible to have
Contribution Percentage Amounts allocated to his or her account under two or
more plans described in Section 401(a) of the Code, or arrangements described
in Section 401(k) of the Code that are maintained by the Employer, shall be
determined as if the total of such Contribution Percentage Amounts was made
under each plan. If a Highly Compensated Employee participates in two or more
cash or deferred arrangements that have different plan years, all cash or
deferred arrangements ending with or within the same calendar year shall be
treated as a single arrangement. Notwithstanding the foregoing, certain plans
shall be treated as separate if mandatorily disaggregated under regulations
under Section 401(m) of the Code.
(iii) In the event that this Plan satisfies the
requirements of Sections 401(m), 401(a)(4) or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more other plans satisfy
the requirements of such Sections of the Code only if aggregated with this
Plan, then this Section shall be applied by determining the Contribution
Percentage of Employees as if all such plans were a single plan. Plans may be
aggregated in order to satisfy Section 401(m) of the Code only if they have the
same Plan Year.
(iv) For purposes of determining the Contribution
percentage of a Participant who is five-percent owner or one of the ten most
highly-paid Highly Compensated Employees, the Contribution Percentage Amounts
and Section 415 Compensation of such Participant shall include the Contribution
Percentage Amounts and Section 415 Compensation for the Plan Year of Family
Members (as defined in Section 414(q)(6) of the Code). Family Members, with
respect to Highly Compensated Employees, shall be disregarded as separate
Employees in determining the Contribution Percentage both for Participants who
are Non-Highly Compensated Employees and for Participants who are Highly
Compensated Employees.
(v) For purposes of determining the Contribution
Percentage test, Employee Contributions are considered to have been made in the
Plan Year in which contributed to the trust. Employer Matching Contributions
and Qualified Non-elective Contributions will be considered made for a Plan
Year if made no later than the end of the twelve-month period beginning on the
day after the close of the Plan Year.
(vi) The Employer shall maintain records
sufficient to demonstrate satisfaction of the Actual Contribution Percentage
test and the amount of Qualified Non-elective Contributions or Qualified
Matching Contributions, or both, used in such test.
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<PAGE> 27
(vii) The determination and treatment of the
Contribution Percentage of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of the Treasury.
(c) Definitions. For purposes of this Article, the
following definitions shall apply:
(i) Aggregate Limit: The sum of (A) 125 percent
of the greater of the Actual Deferral Percentage of the Non-Highly Compensated
Employees for the Plan Year or the Actual Contribution Percentage of Non-Highly
Compensated Employees under the Plan subject to Section 401(m) of the Code for
the Plan Year of the cash or deferred arrangement and (B) the lesser of 200% or
two plus the lesser of such Actual Deferral Percentage or Actual Contribution
Percentage. "Lesser" is substituted for "greater" in "(A)", above, and
"greater" is substituted for "lesser" after "two plus the" in "(B)" if it would
result in a larger Aggregate Limit.
(ii) Average Actual Contribution Percentage: The
average of the Contribution Percentages of the Eligible Participants in a
group.
(iii) Contribution Percentage: The ratio
(expressed as a percentage) of the Participant's Contribution Percentage
Amounts to the Participant's Section 415 Compensation for the Plan Year.
(iv) Contribution Percentage Amounts: The sum of
the Employee Contributions, Employer Matching Contributions, and Qualified
Matching Contributions (to the extent not taken into account for purposes of
the Actual Deferral Percentage test) made under the Plan on behalf of the
Participant for the Plan Year. Such Contribution Percentage Amounts shall not
include Employer Matching Contributions that are forfeited either to correct
Excess Matching Contributions or because the contributions to which they relate
are Excess Salary Reduction Contributions, Excess 401(k) Contributions, or
Excess Matching Contributions. The Employer may include Qualified Non-elective
Contributions in the Contribution Percentage amounts. The Employer also may
elect to use Salary Reduction Contributions in the Contribution Percentage
Amounts so long as the Actual Deferral Percentage test is met before the Salary
Reduction Contributions are used in the Actual Contribution Percentage test and
continues to be met following the exclusion of those Salary Reduction
Contributions that are used to meet the Actual Contribution Percentage test.
(v) Eligible Participant: Any Employee who is
eligible to make an Employee Contribution, or any Elective Deferral (if the
Employer takes such contributions into account in the calculation of the
Contribution Percentage), or to receive Employer Matching Contributions
(including forfeitures) or Qualified Matching Contributions. If an Employee
Contribution is required as a condition of participation in the Plan, any
Employee who would be a Participant in the Plan if such Employee made such a
contribution shall be treated as an eligible Participant on behalf of whom no
Employee Contributions are made.
(vi) Employee Contribution: Any contribution made
to the Plan by or on behalf of a Participant that is included in the
Participant's gross income in the year in which made and that is maintained
under a separate account to which earnings and losses are allocated.
(vii) Excess Matching Contributions: The portion
of a Highly Compensated Employee's allocations of Employer Matching
Contributions which causes the Employee's Actual Contribution Percentage to
exceed the Maximum Matching Contribution Percentage.
(viii) Maximum Matching Contribution Percentage:
The highest permissible Actual Contribution Percentage for the Highly
Compensated Employees who wish to ensure that the highest possible aggregate
allocation of Employer Matching Contributions are made to their respective
Accounts. The Maximum Matching Contribution Percentage shall be a percentage
which will not cause the Average Actual Contribution Percentage for Highly
Compensated Employees to exceed the applicable limitations discussed in Section
5.7(a) above. To the extent required pursuant to the provisions of Section 5.8
below, the Maximum Matching Contribution Percentage shall be determined by
reducing allocations made on behalf of and contributions made by, Highly
Compensated Employees in order of their respective Actual Contribution
Percentages beginning with the highest such percentage.
5.8 CORRECTIVE PROCEDURE WHEN DISCRIMINATORY MATCHING
CONTRIBUTIONS ARE MADE:
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<PAGE> 28
(a) The Administrator shall have responsibility of
monitoring the Plan's compliance with the limitations of the preceding Section
throughout the Plan Year. The Administrator shall have the discretionary power
to take any and all steps it deems necessary or appropriate to ensure
compliance with those limitations, including, without limitation:
(i) pursuant to subsection (c) below,
distributing vested Excess Matching Contributions to the Eligible Employees who
are Highly Compensated Employees and Family Members who received such
allocations;
(ii) treating as amounts to be reallocated
pursuant to subsection (d) below, the portion of Excess Matching Contributions
which consists of unvested allocations of Employer Matching Contributions to
the Employer Matching Contribution Accounts of Eligible Employees who are
Highly Compensated Employees and their Family Members; and
(iii) limiting the amount of Employer Matching
Contributions allocated to the Employer Matching Contribution Accounts of
Eligible Employees who are Highly Compensated Employees and their Family
Members.
(b) Notwithstanding any other provisions in this Plan,
if, pursuant to subsection (a)(i) or (ii) above, the Administrator elects to
distribute or reallocate Excess Matching Contributions (increased by
attributable income and decreased by attributable losses), the Administrator
shall take such action(s) (i) on or before the date which falls 2-1/2 months
after the last day of the Plan Year for which such Excess Matching
Contributions were made, if the Employer wishes to avoid liability for the
federal excise tax (equal to 10% of undistributed and unreallocated Excess
Matching Contributions), which will be imposed on Excess Matching Contributions
distributed or reallocated after such date, and (ii) in any case, before the
last day of the Plan Year next following the Plan Year for which such
contributions were made.
(c) Distributions and/or reallocations of Excess Matching
Contributions shall be made according to the procedure discussed below. The
procedure requires that allocations and contributions be reduced (and amounts
be distributed or reallocated) exclusively with respect to those Employees who
are Highly Compensated Employees who, together with their Family Members,
received allocations of Employer Matching Contributions which, when expressed
as a percentage of their respective Section 415 Compensations for the Plan
Year, were in excess of the Maximum Matching Contribution Percentage.
(i) The allocations of Employer Matching
Contributions of the Highly Compensated Employee(s) (and Family Member(s)) with
the highest percentage contribution(s) shall be reduced first; such reduction
shall continue, as necessary, until such individual's (individuals')
contribution percentage(s) equal(s) those of the individual(s) with the second
highest percentage contribution percentage(s).
(ii) Following the application of paragraph (i),
if it is still necessary to reduce Highly Compensated Employees' (and their
Family Members') allocations of Employer Matching Contributions, the
contributions of Highly Compensated Employees with the highest and second
highest contribution percentages shall be reduced, as necessary, until such
individuals' contribution percentages equal those of the individual(s) with the
third highest contribution percentage.
(iii) Following the application of paragraph (ii),
if it is still necessary to reduce Highly Compensated Employees' (and their
Family Members') allocations of Employer Matching Contributions, the procedure,
the beginning of which is outlined in paragraphs (i) and (ii), shall continue
until such time as no further reductions are necessary.
(iv) The determination and correction of Excess
Matching Contributions of a Highly Compensated Employee whose Actual
Contribution Percentage is determined by aggregating contributions with Family
Members shall be made as follows: the Actual Contribution Percentage shall be
reduced as required under subsections (i)-(iii) above, and the Excess Matching
Contributions for the aggregated group of Family Members shall be allocated
among the Family Members in proportion to the Employer Matching Contributions
and Qualified Nonelective Contributions used pursuant to Section 5.7(b) of each
Family Member that are combined to determine the Actual Contribution
Percentage.
(v) The Excess Matching Contributions of a Highly
Compensated Employee or Family Member shall be deemed to consist of allocations
and contributions as determined according to the following order:
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<PAGE> 29
(A) First, the Employee's Excess
Matching Contributions shall be deemed to consist of any Excess Salary
Deferrals which both are distributable to the Employee pursuant to Section 5.6
above and were used to satisfy the Section 5.7(a) nondiscrimination tests
pursuant to Section 5.7(b) above.
(B) Second, the Employee's Excess
Matching Contributions shall be deemed to consist of any Employer Matching
Contributions used to satisfy the Section 5.7(a) tests in proportion to the
Employee's Employer Matching Contributions used to satisfy the Section 5.7(a)
test for the Plan Year.
(C) Third, the Employee's Excess
Matching Contributions shall be deemed to consist of any allocations of
Employer Discretionary Contributions which were characterized as Qualified
Nonelective Contributions and used to satisfy the Section 5.7(a)
nondiscrimination tests pursuant to Section 5.7(d) above.
(vi) After the Administrator has determined the
aggregate amount, and character, of Excess Matching Contributions to be
distributed to, or in the case of nonvested Employer Matching Contributions,
reallocated from, the Account of a given Highly Compensated Employee or Family
Member, the amount to be distributed or reallocated shall be increased to
reflect any attributable income, or decreased to reflect any attributable
losses. The attributable income or loss to be distributed or reallocated shall
be calculated by the Plan Administrator using any reasonable method for
computing the income or loss allocable to Excess Matching Contributions,
provided that the method does not violate Section 401(a)(4) of the Code, is
used consistently for all Participants and for all corrective distributions
under the plan for the Plan Year, and is used by the Plan Administrator for
allocating income to Participants' Accounts.
(vii) After calculation of an amount to be
distributed and/or reallocated to an Employee pursuant to the procedure
discussed in paragraphs (i) through (vi), if the Employee in question has also
made Excess Salary Deferrals during the calendar year ended within or
coincident with the Plan Year, any Salary Reduction Contributions scheduled to
be distributed to the Employee shall be adjusted to take into account any
Excess Salary Deferrals deemed to be Excess Matching Contributions pursuant to
paragraph (v) above and any relevant regulations issued by the Secretary of the
Treasury.
(d) After the procedure outlined in subsection (c) is
completed, all amounts of Excess Matching Contributions other than unvested
allocations of Employer Matching Contributions shall be distributed to the
respective Highly Compensated Employees and Family Members to whose Accounts
the Excess Matching Contributions were made. Unvested allocations of Employer
Matching Contributions which comprise Excess Matching Contributions shall be
applied to reduce the Employer's obligation to make Employer Matching
Contributions for the Plan Year next following the Plan Year to which the
Excess Matching Contributions relate.
(e) All actions taken by the Administrator under this
Section shall be pursuant to consistently applied procedures which do not
arbitrarily discriminate in favor of those Highly Compensated Employees whose
contribution percentages are nearest to the Maximum Matching Contribution
Percentage.
(f) Any amount distributed to a Highly Compensated
Employee or Family Member pursuant to this Section shall not be subject to any
of the consent rules for Participants and spouses contained in Article VI
below. Similarly, any such distribution will not make the Employee liable for
the federal taxes applicable to early withdrawals (Section 72(t) of the Code)
and excess distributions (Section 4981A of the Code).
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<PAGE> 30
VI VESTING AND DISTRIBUTION OF ACCOUNTS
6.1 VESTED INTEREST:
(a) A Participant's interest in his or her Salary
Reduction Contributions Account, Qualified Matching Contributions Account,
Qualified Nonelective Contributions Account and Rollover Contributions Account
under this Plan shall be at all times fully vested and nonforfeitable. A
Participant's interest in his or her Employer Matching Contributions Account
and Employer Discretionary Contributions Account shall be fully vested and
nonforfeitable at the Participant's Normal Retirement Date, on the
Participant's death or Permanent and Total Disability, upon termination of the
Plan, and otherwise only to the following extent:
(i) If a Participant's hire date with a
Participating Employer (including Beaver Insurance Company) is prior to
February 1, 1986, the Participant is 100% vested at all times.
(ii) If a Participant's hire date with a
Participating Employer (including Beaver Insurance Company) is after January
31, 1986 and before December 1, 1988, the Participant is vested in accordance
with the following schedule:
<TABLE>
<CAPTION>
Years of Service Percent Vested
---------------- --------------
<S> <C>
Less than 1 year 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 years or more 100%
</TABLE>
(iii) If a Participant's hire date with a
Participating Employer (including Beaver Insurance Company) is after November
30, 1988, the Participant is vested in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Service Percent Vested
---------------- --------------
<S> <C>
Less than 1 year 0%
1 but less than 2 10%
2 but less than 3 20%
3 but less than 4 30%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 years or more 100%
</TABLE>
(iv) Notwithstanding the foregoing, a Participant
who was hired before January 1, 1990 by Investors Bancor shall be vested in
accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Service Percent Vested
---------------- --------------
<S> <C>
Less than 2 years 0%
2 but less than 3 25%
3 but less than 4 50%
4 but less than 5 75%
5 years or more 100%
</TABLE>
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<PAGE> 31
(b) In the case of an Employee who has five consecutive
one-year Breaks in Service, all Years of Service after such Breaks in Service
will be disregarded for the purpose of the vesting schedules in paragraph (a)
above with respect to the Participant's Employer- derived Account balance that
accrued before such Breaks in Service, but both pre-break and post-break
service will count for the purposes of vesting the Employer-derived Account
balance accruing after such Breaks in Service. In the case of an Employee who
does not have five consecutive one-year Breaks in Service, both the pre-break
and post-break service will count in vesting both the pre-break and post-break
Employer derived Account balance.
(c) If any vesting schedule in paragraph (a) above is
amended to provide less rapid vesting than that shown in paragraph (a) above,
if the Plan is amended in any way that directly or indirectly affects the
computation of the Participant's nonforfeitable percentage, or if the Plan is
deemed amended by an automatic change to a Top-Heavy vesting schedule, each
Participant (i) who has completed three Years of Service with the Employer and
(ii) whose Account(s) would have vested more rapidly prior to the amendment,
may irrevocably elect during the election period to have the nonforfeitable
percentage of his or her Accounts calculated without regard to such amendment.
For purposes of this Section, the election period shall begin the date the
amendment is adopted, and shall end on the date 60 days after the later of (i)
the date the amendment is adopted, (ii) the date the amendment becomes
effective, or (iii) the date the Participant is issued written notice of the
amendment by the Employer or the Administrator.
6.2 EMPLOYER MATCHING CONTRIBUTIONS AND EMPLOYER DISCRETIONARY
CONTRIBUTIONS FORFEITURES:
(a) If an Employee incurs a Severance from Service, and
the value of the Employee's vested Account balance derived from Employer and
Employee contributions is not greater than $3,500, the Employee will receive a
distribution of the value of the entire vested portion of such Account balance
and the nonvested portion will be treated as a forfeiture. For purposes of
this Section, if the value of an Employee's vested Account balance is zero, the
Employee shall be deemed to have received a distribution of such vested Account
balance. A Participant's vested Account balance shall not include accumulated
deductible Employee contributions within the meaning of Section 72(o)(5)(B) of
the Code for Plan Years beginning prior to January 1, 1989.
(b) If an Employee incurs a Severance from Service, and
elects, in accordance with the requirements of Sections 6.6 - 6.8, to receive
the value of the Employee's vested Account balance, the nonvested portion will
be treated as a forfeiture.
(c) If an Employee receives a distribution pursuant to
this Section and the Employee resumes employment covered under this Plan, the
Employee's Employer-derived Account balance will be restored to the amount on
the date of distribution if the Employee repays to the Plan the full amount of
the distribution attributable to Employer contributions before the earlier of 5
years after the Participant's Reemployment Commencement Date, or the date the
Participant incurs 5 consecutive Breaks in Service following the date of the
distribution. If an Employee is deemed to receive a distribution pursuant to
this Section, and the Employee resumes employment covered under this Plan
before the date the Participant incurs 5 consecutive Breaks in Service, upon
the Employee's Reemployment Commencement Date, the Employer-derived Account
balance of the Employee will be restored to the amount on the date of such
deemed distribution.
(d) If an Employee incurs a Severance from Service, the
value of the Employee's vested Account Balance derived from Employer and
Employee contributions is greater than $3,500, and the Employee does not elect,
in accordance with the requirements of Sections 6.7 and 6.8, to receive the
value of the Employee's vested Account balance, the nonvested portion of the
Employee's Account will be treated as a forfeiture as of the last day of the
Plan Year in which the Employee incurs five consecutive Breaks in Service.
(e) Any amounts forfeited pursuant to this Section, or
pursuant to Section 5.8 shall be used to reduce the Employer's obligation to
make Employer Matching Contributions for the Plan Year in which the forfeiture
occurs.
6.3 NORMAL RETIREMENT: A Participant may retire as of the first
day of any month coinciding with or following his or her Normal Retirement
Date. The Participant's Accounts shall be distributed in accordance with
Sections 6.7 and 6.8 below.
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<PAGE> 32
6.4 DEATH BENEFITS: If a Participant or former Participant dies
before the entire vested balance of his or her Accounts has been distributed,
the vested balance in his or her Accounts will be paid to the Participant's
Beneficiary in accordance with Sections 6.7 and 6.8 below.
6.5 TERMINATION OF EMPLOYMENT: Following a Participant's
Severance from Service, the Participant's Accounts shall be valued as soon as
practicable in accordance with the Administrator's customary procedures, and
distributed in accordance with Sections 6.7 and 6.8 of the Plan.
6.6 COMMENCEMENT OF DISTRIBUTION:
(a) Subject to Sections (b) and (c) and Section 6.7
below, the Accounts of a Participant who incurs a Severance from Service shall
be distributed at a date designated by the Administrator, which designation
(except as provided below) shall be made in a uniform and nondiscriminatory
manner and shall be as soon as practicable following the next Valuation Date
after the Participant's Severance from Service Date. If, at the date of
distribution, the Participant's Accounts exceed (or at the time of any prior
distribution exceeded) $3,500, the Participant (or, where the Participant is
deceased, the Participant's Spouse) and the Participant's Spouse (if the
Account being distributed is a Beaver Plan Account) must consent in writing
within the 90 day period ending on the annuity starting date to the
distribution before it may be made. If the Participant, or his or her Spouse
where applicable, consents to the distribution, such distribution shall include
all of the Participant's vested Account balances. If the Participant or, where
applicable, the Participant's Spouse does not consent in writing to the
distribution, the Participant's Accounts will be held in the Trust Fund until
the earlier of (i) the Participant's death, or (ii) the Participant's Normal
Retirement Date. If a Participant's consent to a distribution is required
hereunder, then at least 30 days and not more than 90 days prior to the Annuity
Starting Date the Administrator shall provide the Participant (or, if
applicable, the Participant's Spouse) with a notice of the right to elect
immediate distribution or the right to defer distribution until the
Participant's Normal Retirement Date. A retired, disabled, deceased or
terminated Participant's Accounts shall be increased by any Contributions that
are allocated to the Participant's Accounts after the Valuation Date.
(b) Unless the Participant elects otherwise,
distributions to a Participant must commence no later than 60 days following
the close of the Plan Year in which occurs the latest of:
(i) The date the Participant attains the earlier
of (A) the Participant's Normal Retirement Date, or (B) age 65;
(ii) The 10th anniversary of the date on which the
Participant first commences participation in the Plan; or
(iii) The date on which the Participant incurs a
Severance from Service.
Notwithstanding the foregoing, the failure of a Participant (and,
where applicable, the Participant's Spouse) to consent to a distribution while
a benefit is immediately distributable within the meaning of this Section,
shall be deemed to be an election to defer commencement of payment of any
benefit sufficient to satisfy this Section.
(c) Notwithstanding the foregoing, only the Participant
need consent to the commencement of a distribution of a Beaver Plan Account in
the form of a Qualified Joint and Survivor Annuity while the Beaver Plan
Account balance is immediately distributable. (Furthermore, if payment in the
form of a Qualified Joint and Survivor Annuity is not required with respect to
the Participant pursuant to Section 6.8 of the Plan, only the Participant need
consent to the distribution of an Account balance that is immediately
distributable.) Neither the consent of the Participant nor the Participant's
Spouse shall be required to the extent that a distribution is required to
satisfy Section 401(a)(9) or Section 415 of the Code. In addition, upon
termination of this Plan, if the Plan does not offer an annuity option
(purchased from a commercial provider) and if the Employer or any entity within
the same controlled group as the Employer does not maintain another defined
contribution plan (other than an employee stock ownership plan as defined in
Section 4975(e)(7) of the Code), the Participant's Account balance will,
without the Participant's consent, be distributed to the Participant. However,
if any entity within the same controlled group as the Employer maintains
another defined contribution plan (other than an employee stock ownership plan
as defined in Section 4975(e)(7) of the Code) then the Participant's Account
balance will be transferred, without the Participant's consent, to the other
plan if the Participant does not consent to an immediate distribution.
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<PAGE> 33
(d) Notwithstanding anything to the contrary herein, the
balance in each Participant's Accounts must begin to be distributed not later
than the April 1 following the calendar year in which the Participant reaches
age 70 1/2.
6.7 DIRECT ROLLOVERS AND WITHHOLDING:
(a) Effective Date: The provisions of this Section shall
apply to all distributions from the Plan made on or after January 1, 1993.
(b) General Rule: If the Distributee of any Eligible
Rollover Distribution elects to have the Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan, and specifies the Eligible Retirement
Plan to which the Eligible Rollover Distribution is to be paid, then the
Eligible Rollover Distribution will be paid to that Eligible Retirement Plan in
a Direct Rollover.
(c) Waiver of 30 Day Notice Requirement: If a
distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Regulations is given, provided
that: (1) the Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option); and (2) the Participant,
after receiving the notice, affirmatively elects a distribution.
(d) Definitions: For purposes of this Section, the
following definitions shall apply:
(i) Direct Rollover: An Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan for the benefit of a
Distributee.
(ii) Distributee: An Employee, surviving spouse
of a deceased employee, or a spouse entitled to payment under a Qualified
Domestic Relations Order.
(iii) Eligible Retirement Plan:
(A) With respect to any
Distributee, an individual retirement account described in Section 408(a) of
the Code.
(B) With respect to a Distributee
who is an Employee or a spouse or former spouse of an Employee who is an
Alternate Payee under a Qualified Domestic Relations Order as defined in
Section 7.2 below, an Eligible Retirement Plan shall also mean an individual
retirement annuity (other than an endowment contract) described in Section
408(b) of the Code, a qualified trust described in Section 401(a) of the Code
or an annuity plan described in Section 403(a) of the Code.
(iv) Eligible Rollover Distribution: An Eligible
Rollover Distribution is any distribution of all or any portion of the balance
to the credit of the Distributee, except that an Eligible Rollover Distribution
does not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the Distributee or the joint lives (or joint life
expectancies) of the Distributee and the Distributee's designated Beneficiary,
or for a specified period of ten years or more; any distribution to the extent
such distribution is required under section 401(a)(9) of the Code; and the
portion of any distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with respect to
Employer securities).
(e) If a Participant does not elect to have an Eligible
Rollover Distribution transferred directly to an Eligible Retirement Plan, or
in the case of any distribution which is not an Eligible Rollover Distribution,
the Plan Committee shall direct the Trustee as to any required withholding.
6.8 FORM OF BENEFIT:
(a) Distribution of all Accounts, other than Beaver Plan
Accounts, shall be in the form of a lump sum.
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<PAGE> 34
(b) Distribution of all Beaver Plan Accounts shall be as
follows:
(i) Unless an optional form of benefit is
selected by the Participant or his or her Beneficiary pursuant to a Qualified
Election within the 90-day period ending on the Annuity Starting Date, an
unmarried Participant's vested Account balances will be paid in the form of a
Straight Life Annuity, and a married Participant's vested Account balances will
be paid in the form of a Qualified Joint and Survivor Annuity. Unless an
optional form of benefit has been selected within the Election Period pursuant
to a Qualified Election, if a married Participant dies before his or her
Annuity Starting Date, the Participant's vested Account balances shall be
applied toward the purchase of a Qualified Preretirement Survivor Annuity for
the life of the Participant's Surviving Spouse. A Participant will be deemed
to be a "married" Participant if the Participant is married on his or her
Severance from Service Date.
(A) In the case of a Qualified Joint and
Survivor Annuity as described in this Section, the Administrator shall provide
each Participant no less than 30 days and no more than 90 days prior to the
Annuity Starting Date a written explanation of: (I) the terms and conditions of
a Qualified Joint and Survivor Annuity; (II) the Participant's right to make
and the effect of an election to waive the Qualified Joint and Survivor Annuity
form of benefit; (III) the rights of a Participant's Spouse; and (IV) the right
to make, and the effect of a revocation of a previous election to waive the
Qualified Joint and Survivor Annuity.
(B) In the case of a Qualified
Preretirement Survivor Annuity as described in this Section, the Administrator
shall provide each Participant within the applicable period, a written
explanation of the Qualified Preretirement Survivor Annuity in such terms and
in such manner as would be comparable to the explanation provided for meeting
the requirements of paragraph (A) of this Section 6.8(b)(i) applicable to a
Qualified Joint and Survivor Annuity.
(1) The applicable period for a
Participant is whichever of the following periods ends last: (aa) the period
beginning on the first day of the Plan Year in which the Participant attains
age thirty-two (32) and ending with the close of the Plan Year in which the
Participant attains age thirty-five (35); (bb) a reasonable period ending after
the individual becomes a Participant; (cc) a reasonable period ending after
this Section first applies to the Participant. Notwithstanding the foregoing,
notice must be provided within a reasonable period ending after the
Participant's Severance from Service in the case of a Participant whose
Severance from Service occurs before the Participant attains age 35.
(2) For purposes of applying the
preceding paragraph, a reasonable period ending after the enumerated events
described in (bb) and (cc) is the end of the two-year period beginning one year
prior to the date the applicable event occurs, and ending one year after that
date. In the case of a Participant whose Severance from Service occurs prior
to the Plan Year in which the Participant attains age 35, notice shall be
provided within the two-year period beginning one year prior to the
Participant's Severance from Service and ending one year after the
Participant's Severance from Service. If such Participant thereafter returns
to employment with the Employer, the applicable period for such Participant
shall be redetermined.
(ii) The Participant, or if applicable, his or her
Spouse, may select by means of a Qualified Election, one of the following
distribution alternatives in lieu of the Qualified Joint and Survivor Annuity
described in (i) above:
(A) A life annuity, payable no less
frequently than annually, with a term certain guaranteed. The term certain
cannot exceed the Participant's life expectancy, or the joint life and last
survivor expectancy of the Participant and the Participant's designated
Beneficiary. If a Participant dies before the Trustee has made the guaranteed
number of payments, the Trustee shall continue the balance of the payments to
the Participant's designated Beneficiary;
(B) A lump sum payment; or
(C) Equal, or nearly equal, at least
annual installments over a term certain extending not beyond the normal life
expectancies of the Participant and his or her Beneficiary.
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<PAGE> 35
(iii) If the Participant or his or her Beneficiary chooses the
installment method of distribution, the following shall apply:
(A) If the Participant dies before the completion of
installment payments, any balance in the Participant's Accounts shall be paid to
his or her Beneficiary as provided in Section 6.4. If a Beneficiary who is
receiving payments dies, any remaining balance of the Account shall be paid to
the personal representative of the Beneficiary's estate. When establishing the
terms of installment payments, at the time payments begin, the present value of
the payments projected to be paid to the Participant, based on his or her life
expectancy, must be more than 50% of the present value of the payments projected
to be paid to the Participant and his or her Beneficiary, based on their life
expectancies.
(B) As of any subsequent Valuation Date, the
Administrator, with the consent of the Participant, may cause the amount then
credited to the Accounts of the Participant to be paid in a lump sum.
(C) The following rules apply to payments after a
Participant's death:
(1) Distribution Beginning Before Death. If a
Participant dies after payments have begun, then his or her remaining vested
Account balances, if any, must be distributed to his or her Beneficiary at least
as rapidly as under the method of distribution elected by the Participant;
(2) Distribution Beginning After Death.
(I) If the Participant dies before
distribution of his or her interest begins, distribution of the Participant's
entire interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death except to the extent
that an election is made to receive distributions in accordance with a) or b)
below:
a) if any portion of the
Participant's interest is payable to a designated Beneficiary, distributions may
be made over the life or over a period certain not greater than the life
expectancy of the designated Beneficiary commencing on or before December 31 of
the calendar year immediately following the calendar year in which the
Participant died;
b) if the designated Beneficiary is
the Participant's Surviving Spouse, the date distributions are required to begin
in accordance with a) above shall not be earlier than the later of (1) December
31 of the calendar year immediately following the calendar year in which the
Participant died and (2) December 31 of the calendar year in which the
Participant would have attained age 70 1/2.
If the Participant has not made an election pursuant to this paragraph (I) by
the time of his or her death, the Participant's designated Beneficiary must
elect the method of distribution no later than the earlier of (1) December 31
of the calendar year in which distributions would be required to begin under
this Section, or (2) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the Participant. If the Participant has no
designated Beneficiary, or if the designated Beneficiary does not elect a
method of distribution, distribution of the Participant's entire interest must
be completed by December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
(II) For purposes of paragraph (I) above,
if the Surviving Spouse dies after the Participant, but before payments to such
Spouse begin, the provisions of paragraph (I), with the exception of paragraph
(bb) therein, shall be applied as if the Surviving Spouse were the Participant.
(III) For the purposes of this Section,
distribution of a Participant's interest is considered to begin on the
Participant's required beginning date (or, if paragraph (II) above is
applicable, the date distribution is required to begin to the Surviving Spouse
pursuant to paragraph (I) above). If distribution in the form of an annuity
irrevocably commences to the Participant before the required beginning date, the
date distribution is considered to begin is the date distribution actually
commences.
(c) For purposes of this Article VI the following
definitions shall apply:
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<PAGE> 36
(i) Annuity Starting Date: The first day of the
first period for which an amount is paid in an annuity or any other form.
(ii) Election Period: The period which begins on
the first day of the Plan Year in which the Participant attains age thirty-five
(35) and ends on the date of the Participant's death. If a Participant incurs
a Severance from Service prior to the first day of the Plan Year in which age
thirty-five (35) is attained, with respect to the Participant's Account
balances as of the Severance from Service Date, the election period shall begin
on the Severance from Service Date.
Pre-age 35 Waiver: A Participant who will not yet
attain age thirty-five (35) as of the end of any current Plan Year may make a
special qualified election to waive the Qualified Preretirement Survivor
Annuity for the period beginning on the date of such Election and ending on the
first day of the Plan Year in which the Participant will attain age thirty-five
(35). Such Election shall not be valid unless the Participant receives a
written explanation of the Qualified Preretirement Survivor Annuity in such
terms as are comparable to the explanation required under paragraph (b) (i)
above. Qualified Preretirement Survivor Annuity coverage will be automatically
reinstated as of the first day of the Plan Year in which the Participant
attains age thirty-five (35). Any new waiver on or after such date shall be
subject to the full requirements of this Article VI.
(iii) Qualified Election: A waiver of a Qualified
Joint and Survivor Annuity or a Qualified Preretirement Survivor Annuity. The
waiver must be in writing and must be consented to by the Participant's Spouse.
The Spouse's consent to a waiver must be witnessed by a Plan representative or
notary public. Notwithstanding this consent requirement, if the Participant
establishes to the satisfaction of a Plan representative that such written
consent may not be obtained because there is no Spouse or the Spouse cannot be
located, a waiver will be deemed a Qualified Election. Any consent necessary
under this provision will be valid only with respect to the Spouse who signs
the consent, or in the event of a deemed Qualified Election, the designated
Spouse. Additionally, a revocation of a prior waiver may be made by a
Participant without the consent of the Spouse at any time before the
commencement of benefits. The number of revocations shall not be limited.
(iv) Qualified Joint and Survivor Annuity: An
annuity for the life of the Participant with a survivor annuity for the life of
the Spouse which is not less than 50 percent and not more than 100 percent of
the amount of the annuity which is payable during the joint lives of the
Participant and the Spouse, and which is the amount of benefit which can be
purchased with the Participant's Account balances. The Participant may elect
to have such annuity distributed upon attainment of the earliest retirement age
under the Plan.
(v) Qualified Preretirement Survivor Annuity: An
annuity for the life of the Surviving Spouse of a Participant who dies prior to
the commencement of benefits without selecting an optional form of benefit.
This annuity shall be the amount of benefit which can be purchased with the
deceased Participant's Account balances. The Surviving Spouse may elect to
have such annuity distributed within a reasonable period after the
Participant's death.
(vi) Spouse or Surviving Spouse: The spouse or
surviving spouse of the Participant, provided that a former spouse will be
treated as the Spouse or Surviving Spouse to the extent provided under a
Qualified Domestic Relations Order as described in Section 414(p) of the Code.
(vii) Straight Life Annuity: An annuity for the
life of an unmarried Participant which shall be the amount of benefit which can
be purchased with the Participant's Account balances.
6.9 TRANSITIONAL RULES:
(a) Any living Participant not receiving benefits on
August 23, 1984, who would otherwise not receive the benefits prescribed by the
previous Sections of this Article must be given the opportunity to elect to
have the prior Sections of this Article apply if such Participant is credited
with at least one Hour of Service under this Plan or a predecessor Plan in a
Plan Year beginning on or after January 1, 1976, and such Participant had at
least 10 Years of Service on his or her Severance from Service Date.
(b) Any living Participant not receiving benefits on
August 23, 1984, who was credited with at least one Hour of Service under this
Plan or a predecessor Plan on or after September 2, 1974, and who is not
otherwise credited
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<PAGE> 37
with any service in a Plan Year beginning on or after January 1, 1976, must be
given the opportunity to have his or her benefits paid in accordance with
paragraph (d) of this Section.
(c) The respective opportunities to elect (as described
in paragraphs (a) and (b) above) must be afforded to the appropriate
Participants during the period commencing on August 23, 1984, and ending on the
date benefits would otherwise commence to said Participants.
(d) Any Participant who has elected pursuant to paragraph
(b) of this Section and any Participant who does not elect under paragraph (a)
of this Section or who meets the requirements of paragraph (a) of this Section
except that such Participant does not have at least 10 Years of Service on his
or her Severance from Service Date, shall have his or her benefits distributed
in accordance with all of the following requirements if benefits would have
been payable in the form of a life annuity:
(i) Automatic Joint and Survivor Annuity. If
benefits in the form of a life annuity become payable to a married Participant
who:
(A) begins to receive payments
under the Plan on or after his or her Normal Retirement Date; or
(B) dies on or after his or her
Normal Retirement Date while still working for the Employer; or
(C) begins to receive payments on
or after the qualified early retirement age; or
(D) separates from service on or
after his or her Normal Retirement Date (or the qualified early retirement age)
and after satisfying the eligibility requirements for the payment of benefits
under the Plan and thereafter dies before beginning to receive such benefits;
then such benefits will be received under this Plan
in the form of a Qualified Joint and Survivor Annuity, unless the Participant
has elected otherwise during the Election Period. The Election Period must
begin at least 6 months before the Participant attains qualified early
retirement age and end not more than 90 days before the commencement of
benefits. Any election hereunder will be in writing and may be changed by the
Participant at any time.
(ii) Election of early survivor annuity. A
Participant who is employed after attaining the qualified early retirement age
will be given the opportunity to elect, during the Election Period, to have a
survivor annuity payable on death. If the Participant elects the survivor
annuity, payments under such annuity must not be less than the payments which
would have been made to the Spouse under the Qualified Joint and Survivor
Annuity if the Participant had retired on the day before his or her death. Any
election under this provision will be in writing and may be changed by the
Participant at any time. The election period begins on the later of (1) the
90th day before the Participant attains the qualified early retirement age, or
(2) the date on which participation begins, and ends on the date the
Participant terminates employment.
(iii) For purposes of this Section 6.10:
(A) Qualified early retirement age is
the latest of:
(I) the earliest date, under the
Plan, on which the Participant may elect to receive retirement benefits,
(II) the first day of the 120th
month beginning before the Participant reaches normal retirement age, or
(III) the date the Participant begins
participation.
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<PAGE> 38
(B) Qualified Joint and Survivor
Annuity is an annuity for the life of the Participant with a survivor annuity
for the life of the Spouse as described in Section 6.8.
6.10 DISTRIBUTION REQUIREMENTS:
(a) General Rules.
(i) Subject to Section 6.8, the requirements of
this Section shall apply to any distribution of a Participant's interest and
will take precedence over any inconsistent provisions of this Plan. Unless
otherwise specified, the provisions of this article apply to calendar years
beginning after December 31, 1984.
(ii) All distributions required under this Section
shall be determined and made in accordance with the proposed regulations under
Section 401(a)(9) of the Code, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the proposed regulations.
(b) Required Beginning Date. The entire interest of a
Participant must be distributed or begin to be distributed no later than the
Participant's required beginning date.
(c) Limits on Distribution Periods. As of the first
distribution calendar year, distributions, if not made in a single-sum, may
only be made over one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and a designated
Beneficiary,
(iii) a period certain not extending beyond the
life expectancy of the Participant, or
(iv) a period certain not extending beyond the
joint and last survivor expectancy of the Participant and a designated
Beneficiary.
(d) Determination of Amount to be Distributed Each Year.
If the Participant's interest is to be distributed in other than a single sum,
the following minimum distribution rules shall apply on or after the required
beginning date:
(i) Individual Account.
(A) If a Participant's benefit is
to be distributed over (1) a period not extending beyond the life expectancy of
the Participant or the joint life and last survivor expectancy of the
Participant and the Participant's designated Beneficiary or (2) a period not
extending beyond the life expectancy of the designated Beneficiary, the amount
required to be distributed for each calendar year, beginning with distributions
for the first distribution calendar year, must at least equal the quotient
obtained by dividing the Participant's benefit by the applicable life
expectancy.
(B) For calendar years beginning
before January 1, 1989, if the Participant's Spouse is not the designated
Beneficiary, the method of distribution selected must assure that at least 50%
of the present value of the amount available for distribution is paid within
the life expectancy of the Participant.
(C) For calendar years beginning
after December 31, 1988, the amount to be distributed each year, beginning with
distributions for the first distribution calendar year shall not be less than
the quotient obtained by dividing the Participant's benefit by the lesser of
(1) the applicable life expectancy or (2) if the Participant's Spouse is not
the designated Beneficiary, the applicable divisor determined from the table
set forth in Q&A-4 of Section 1.401(a)(9)-2 of the Proposed Regulations.
Distributions after the death of the Participant shall be distributed using the
applicable life expectancy in paragraph (A) above as the relevant divisor
without regard to proposed regulations Section 1.401(a)(9)-2.
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(D) The minimum distribution
required for the Participant's first distribution calendar year must be made on
or before the Participant's required beginning date. The minimum distribution
for other calendar years, including the minimum distribution for the
distribution calendar year in which the Employee's required beginning date
occurs, must be made on or before December 31 of that distribution calendar
year.
(ii) Other Forms. If the Participant's benefit is
distributed in the form of an annuity purchased from an insurance company,
distributions thereunder shall be made in accordance with the requirements of
Section 401(a)(9) of the Code and the proposed regulations thereunder. Any
annuity contract distributed from this Plan must be nontransferable.
(e) Definitions: For purposes of this Section, the
following definitions shall apply:
(i) Applicable Life Expectancy. The life
expectancy (or joint and last survivor expectancy) calculated using the
attained age of the Participant (or designated Beneficiary) as of the
Participant's (or designated Beneficiary's) birthday in the applicable calendar
year reduced by one for each calendar year which has elapsed since the date
life expectancy was first calculated. If life expectancy is being
recalculated, the applicable life expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall be the first distribution
calendar year, and if life expectancy is being recalculated such succeeding
calendar year.
(ii) Designated Beneficiary. The individual who
is designated as the Beneficiary under the Plan in accordance with Section
401(a)(9) of the Code and the proposed regulations thereunder.
(iii) Distribution Calendar Year. A calendar year
for which a minimum distribution is required. For distributions beginning
before the Participant's death, the first distribution calendar year is the
calendar year immediately preceding the calendar year which contains the
Participant's required beginning date. For distributions beginning after the
Participant's death, the first distribution calendar year is the calendar year
in which distributions are required to begin pursuant to Section 401(a)(9) of
the Code.
(iv) Life Expectancy. Life expectancy and joint
and last survivor expectancy are computed by use of the expected return
multiples in Tables V and VI of Section 1.72-9 of the income tax regulations.
Unless otherwise elected by the Participant (or Spouse in the case of
distributions which begin following the Participant's death and in which the
Spouse is named as the designated Beneficiary) by the time distributions are
required to begin, life expectancies shall be recalculated annually. Such
election shall be irrevocable as to the Participant (or Spouse) and shall apply
to all subsequent years. The life expectancy of a nonspouse Beneficiary may
not be recalculated.
(v) Participant's Benefit.
(A) The Account balance as of the
last Valuation Date in the calendar year immediately preceding the distribution
calendar year (valuation calendar year) increased by the amount of any
contributions or forfeitures allocated to the Account balance as of dates in
the valuation calendar year after the Valuation Date and decreased by
distributions made in the valuation calendar year after the Valuation Date.
(B) Exception for second
distribution calendar year. For purposes of paragraph (A) above, if any
portion of the minimum distribution for the first distribution calendar year is
made in the second distribution calendar year on or before the required
beginning date, the amount of the minimum distribution made in the second
distribution calendar year shall be treated as if it had been made in the
immediately preceding distribution calendar year.
(vi) Required Beginning Date.
(A) General Rule. The required
beginning date of a Participant is the first day of April of the calendar year
following the calendar year in which the Participant attains age 70 1/2.
(B) Transitional Rules. The
required beginning date of a Participant who attains age 70 1/2 before January
1, 1988, shall be determined in accordance with (I) or (II) below:
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(1) Non-5-percent Owners. The required beginning date of a
Participant who is not a 5-percent owner is the first day of April of the
calendar year following the calendar year in which the later of retirement or
attainment of age 70 1/2 occurs.
(2) 5-percent Owners. The required beginning date of a
Participant who is a 5-percent owner during any year beginning after December
31, 1979, is the first day of April following the later of:
(I) the calendar year in which the Participant
attains age 70 1/2, or
(II) the earlier of the calendar year with or within
which ends the Plan Year in which the Participant becomes a 5-percent owner, or
the calendar year in which the Participant retires.
The required beginning date of a Participant who
is not a 5-percent owner who attains age 70 1/2 during 1988 and who has not
retired as of January 1, 1989, is April 1, 1990.
(C) 5-percent Owner. A Participant is treated
as a 5-percent owner for purposes of this Section if such Participant is a
5-percent owner as defined in Section 416(i) of the Code (determined in
accordance with Section 416 of the Code but without regard to whether the Plan
is Top-Heavy) at any time during the Plan Year ending with or within the
calendar year in which such owner attains age 66 1/2 or any subsequent Plan
Year.
(D) Once distributions have begun to a
5-percent owner under this Section, they must continue to be distributed, even
if the Participant ceases to be a 5-percent owner in a subsequent year.
(f) Transitional Rule
(i) Notwithstanding the other requirements of
this article and subject to the requirements of Sections 6.7 and 6.8,
distribution on behalf of any Employee, including a 5-percent owner, may be
made in accordance with all of the following requirements (regardless of when
such distribution commences):
(A) The distribution by the Trust is one which
would not have disqualified such Trust under Section 401(a)(9) of the Code as in
effect prior to amendment by the Deficit Reduction Act of 1984.
(B) The distribution is in accordance with a
method of distribution designated by the Employee whose interest in the Trust is
being distributed or, if the Employee is deceased, by a Beneficiary of such
Employee.
(C) Such designation was in writing, was
signed by the Employee or the Beneficiary, and was made before January 1, 1984.
(D) The Employee had accrued a benefit under
the Plan as of December 31, 1983.
(E) The method of distribution designated by
the Employee or the Beneficiary specifies the time at which distribution will
commence, the period over which distribution will be made, and in the case of
any distribution upon the Employee's death, the Beneficiaries of the Employee
listed in order of priority.
(ii) A distribution upon death will not be covered
by this transitional rule unless the information in the designation contains
the required information described above with respect to the distributions to
be made upon the death of the Employee.
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(iii) For any distribution which commences before
January 1, 1984, but continues after December 31, 1983, the Employee, or the
Beneficiary, to whom such distribution is being made, will be presumed to have
designated the method of distribution under which the distribution is being
made if the method of distribution was specified in writing and the
distribution satisfied the requirements in paragraphs (f) (i) (A) and (E) of
this Section.
(iv) If a designation is revoked any subsequent
distribution must satisfy the requirements of Section 401(a)(9) of the Code and
the proposed regulations thereunder. If a designation is revoked subsequent to
the date distributions are required to begin, the trust must distribute by the
end of the calendar year following the calendar year in which the revocation
occurs the total amount not yet distributed which would have been required to
have been distributed to satisfy Section 401(a)(9) of the Code and the proposed
regulations thereunder, but for the Section 242(b)(2) election. For calendar
years beginning after December 31, 1988, such distributions must meet the
minimum distribution incidental benefit requirements in Section 1.401(a)(9)-2
of the proposed regulations. Any changes in the designation will be considered
to be a revocation of the designation. However, the mere substitution or
addition of another Beneficiary (one not named in the designation) under the
designation will not be considered to be a revocation of the designation, so
long as such substitution or addition does not alter the period over which
distributions are to be made under the designation, directly or indirectly (for
example, by altering the relevant measuring life). In the case in which an
amount is transferred or rolled over from one Plan to another Plan, the rules
in Q&A J-2 and Q&A J-3 shall apply.
6.11 DISTRIBUTION OR TRANSFER OF ACCOUNTS ON PLAN TERMINATION AND
OTHER EVENTS:
(a) Subject to Section 6.7 for any distributions or
transfers on or after January 1, 1993, Participant's Accounts shall be
distributed to the Participant, the Participant's Beneficiary, or as described
in paragraph (d) below, to the Trustee or Custodian of an eligible retirement
plan (as defined in Section 402(a)(5)(E)(iv) of the Code, as soon as
administratively feasible following:
(i) The termination of the Plan without the
establishment of another defined contribution plan, other than an employee
stock ownership plan (as defined in Section 4975(e) or Section 409 of the Code)
or a simplified employee pension plan (as defined in Section 408(k) of the
Code.)
(ii) The disposition by the Employer to an
unrelated corporation of substantially all of the assets (within the meaning of
Section 409(d)(2) of the Code) used in the trade or business of the Employer if
the Employer continues to maintain this Plan after the disposition, but only
with respect to employees who continue employment with the corporation
acquiring such assets.
(iii) The disposition by the Employer to an
unrelated entity of the Employer's interest in a subsidiary (within the meaning
of Section 409(d)(3) of the Code), if the Employer continues to maintain this
Plan, but only with respect to employees who continue employment with such
subsidiary.
(iv) Receipt of written instructions to transfer
Accounts from the Participant, the Participant's Beneficiary or the Employer,
as the case may be.
(b) All distributions that may be made pursuant to one or
more of the distributable events in (i) through (iii) in paragraph (a) above,
or the provisions of Sections 6.15 or 6.17 of this Plan, are subject to the
Spousal and Participant consent requirements (if applicable) contained in
Sections 411(a)(11) and 417 of the Code. In addition, distributions after
March 31, 1988 that are triggered by items (i) through (iii) in paragraph (a)
above must be made in a lump sum.
6.12 DISTRIBUTION TO MINOR OR INCOMPETENT:
(a) In the event a distribution is to be made to a minor,
the Administrator may direct that such distribution be paid to the legal
guardian, or if none, to a parent of such Beneficiary or a responsible adult
with whom the Beneficiary resides, or to a custodian for such Beneficiary under
the Uniform Transfer to Minors Act, if permitted by the laws of the state in
which the Beneficiary resides. Payment to the legal guardian, parent or
custodian of a minor Beneficiary shall fully discharge the Trustee,
Administrator and Plan from further liability on account thereof.
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(b) If a person who is entitled to receive
payment under the Plan is physically or mentally incapable of personally
receiving and giving a valid receipt for any payment due (unless a previous
claim has been made by a duly qualified conservator or other legal
representative), the payment may be made to the person's Spouse, son, daughter,
parent, brother, sister or other person determined by the Administrator to have
incurred expense for the person otherwise entitled to payment. Distribution
under this Section shall be in the discretion of the Administrator, and the
Administrator shall not be compelled to make any distribution under this
Section.
6.13 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN: If a
Participant who is entitled to a distribution cannot be located and the
Administrator has made reasonable efforts to locate the Participant, the
Participant's interest shall be forfeited and treated as Employer Matching
Contributions or Employer Discretionary Contributions for the Plan Year during
which the forfeiture occurs. The Administrator will be deemed to have made
reasonable efforts to locate the Participant if the Administrator is unable to
locate the Participant (or, in the case of a deceased Participant, his or her
Beneficiary) after having made two successive certified or similar mailings to
the last address on file with the Administrator. The Participant's Account(s)
shall be forfeited as of the last day of the Plan Year in which occurs the
close of the 12 consecutive calendar month period following the last of the two
successive mailings. If the Participant or Beneficiary makes a written claim
for the Account(s) subsequent to the forfeiture, the Employer shall cause the
Account(s) to be reinstated.
6.14 HARDSHIP DISTRIBUTION:
(a) Subject to the limitations of subsection (d) below,
the Trustee shall, upon the direction of the Administrator, make a distribution
from a Participant's Salary Reduction Contributions Account upon hardship of
the Participant. A Participant shall be entitled to a hardship distribution
only if the distribution is both (i) made on account of an immediate and heavy
financial need of the Participant, and (ii) is necessary to satisfy such
financial need, determined in accordance with objective, nondiscretionary
standards established by the Administrator.
(b) An immediate and heavy financial need shall be deemed
to include, the following:
(i) Expenses incurred or necessary for medical
care described in Section 213(d) of the Code for the Participant, his or her
Spouse, or any dependents of the Participant (as defined in Section 152 of the
Code);
(ii) Cost (excluding mortgage payments) relating
to the purchase of a principal residence for the Participant;
(iii) Payment of tuition and related educational
fees for the next twelve months of post-secondary education for the
Participant, his or her Spouse, children, or dependents; or
(iv) The need to prevent the eviction of the
Participant from his or her principal residence or foreclosure on the mortgage
of the Participant's principal residence.
(c) A distribution will be considered as necessary to
satisfy an immediate and heavy financial need if the Administrator relies on
the Participant's representation that the need cannot be relieved:
(i) Through reimbursement or compensation by
insurance or otherwise;
(ii) By reasonable liquidation of the
Participant's assets, to the extent such liquidation would not itself increase
the amount of the need;
(iii) By cessation of Salary Reduction
Contributions under the Plan; or
(iv) By other distributions or loans from the Plan
or any other qualified retirement plan, or by borrowing from commercial sources
on reasonable commercial terms, to the extent such amounts would not themselves
increase the amount of the need.
(d) Aggregate hardship distributions to a Participant
pursuant to this Section shall not exceed aggregate Salary Reduction
Contributions allocated to the Participant's Salary Reduction Contributions
Account; however,
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in the discretion of the Administrator, on a non-discriminatory basis,
aggregate hardship distributions may include earnings accrued prior to the end
of the last Plan Year ending before July 1, 1989 in the Participant's Salary
Reduction Contributions Account.
(e) A participant must obtain the consent of his or her
Spouse, if any, to the hardship withdrawal. Spousal consent shall be obtained
no earlier than the beginning of the 90-day period that ends on the date on
which the hardship withdrawal is to be made. The consent must be in writing
and must acknowledge the effect of the withdrawal, and must be witnessed by a
Plan representative or notary public.
6.15 LOANS:
(a) The Administrator may authorize a loan or loans to
currently employed Participants, or parties in interest (as defined in ERISA)
of the Plan who are Participants or Beneficiaries, provided that such loans:
(i) are available to all such Participants and
Beneficiaries on a reasonably equivalent basis;
(ii) are not made available to Highly Compensated
Employees, officers or shareholders in an amount greater than the amount made
available to other Employees;
(iii) bear a reasonable rate of interest;
(iv) are adequately secured; and
(v) no loan shall exceed the present value of the
Participant's or Beneficiary's vested accrued benefit.
(b) In the event of default, foreclosure on the note and
attachment of security will not occur until a distributable event occurs in the
Plan.
(c) All such loans shall be available to Participants and
Beneficiaries without regard to any individual's race, color, religion, sex,
age or national origin. All such loans shall further be subject to ERISA, the
Code, the regulations and rulings thereunder, and to such terms and conditions
not inconsistent therewith (and subject to this Section) as the Administrator
shall determine pursuant to uniform policies and guidelines adopted by the
Administrator. Such policies and guidelines shall be in writing and (i) may be
amended by the Administrator from time to time (ii) shall be communicated to
all affected Participants and Beneficiaries, and (iii) shall be deemed a part
of this Plan.
6.16 WITHDRAWALS AT AGE 59 1/2: A Participant may withdraw all or
a part of the Participant's Salary Reduction Contributions Account, Qualified
Matching Contributions Account, Qualified Nonelective Contributions Account,
Rollover Account, and the vested portion of his or her Employer Matching
Contributions Account and Employer Discretionary Contributions Account, at any
time subsequent to attainment of age 59 1/2.
6.17 WITHDRAWALS FROM ROLLOVER ACCOUNT: A Participant may withdraw
all or a part of the Participant's Rollover Account; provided, however, that
except as permitted by Regulations (including Section 1.411(d)-4 of the
Regulations), amounts attributable to elective contributions (as defined in
Section 1.401(k)-1(g)(3) of the Regulations), including amounts treated as
elective contributions, which are transferred from another qualified plan in a
plan-to-plan transfer shall be subject to the distribution limitations provided
for in Section 1.401(k)-1(d) of the Regulations.
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VII ADMINISTRATION
7.1 POWERS OF THE ADMINISTRATOR:
(a) The Administrator shall file all reports and
distribute to Participants and Beneficiaries reports and other information
required under ERISA.
(b) The Administrator shall be responsible for the
general administration and interpretation of the Plan and for carrying out its
provisions and shall have such powers as may be necessary to discharge its
duties hereunder, including, but not by way of limitation, the following powers
and duties:
(i) Discretionary authority to construe and
interpret the terms of the Plan, and to determine eligibility and the amount,
manner and time of payment of any benefits hereunder;
(ii) To prescribe procedures to be followed by
Employees in filing applications for benefits;
(iii) To make a determination as to the right of
any person to a benefit and to afford any person dissatisfied with such
determination the right to a hearing;
(iv) To request and receive from Employees such
information as necessary for the proper administration of the Plan, including
but not limited to, such information as the Administrator may reasonably
require to determine each Participant's eligibility to participate in the Plan
and the benefits payable to each Participant upon his or her death, retirement
or termination of employment;
(v) To prepare and distribute, in such manner as
it determines to be appropriate, information explaining the Plan;
(vi) To direct the Trustee as to the method in
which and persons to whom Plan assets will be distributed.
(c) The Administrator may adopt such rules, regulations
and bylaws and may make such decisions as it deems necessary or desirable for
the proper administration of the Plan, and all rules and decisions of the
Administrator shall be uniformly and consistently applied to all Participants
in similar circumstances. Any rule or decision that is not inconsistent with
the provisions of the Plan shall be conclusive and binding upon all persons
affected by it, and there shall be no appeal from any ruling by the
Administrator that is within its authority, except as otherwise provided
herein. When making a determination or calculation, the Administrator shall be
entitled to rely upon information furnished by the Employer or anyone acting on
behalf of the Employer.
(d) The Administrator shall have the power to (i)
establish a funding policy; (ii) select alternative investment funds; (iv)
receive and review reports on the financial condition of the Trust Fund and
statements of the receipts and disbursements of the Trust Fund from the
Trustee; and (v) appoint or employ one or more Investment Managers (as defined
in Section 3(38) of the Act) to manage any part or all of the assets of the
Plan for which the Administrator has investment discretion.
(e) The Administrator may appoint one or more persons to
act as a Plan committee to discharge the duties of the Administrator under the
Plan. A person shall not be ineligible to be a member of the committee because
he or she is or may be a Participant in the Plan. The Employer from time to
time may increase or decrease the number of members of the committee. The
committee and each of its members shall be named fiduciaries with respect to
the Plan, and shall be indemnified by the Employer against any and all
liabilities incurred by reason of any action taken in good faith pursuant to
the provisions of the Plan.
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7.2 DOMESTIC RELATIONS ORDERS:
(a) If the Trustee or the Administrator receives a
domestic relations order that purports to require the payment of a
Participant's benefits to a person other than the Participant, the
Administrator shall take the following steps:
(i) If benefits are in pay status, the
Administrator shall direct the Trustee to segregate and hold in a Determination
Period Account the amounts that will be payable to the Alternate Payees with
respect to the Determination Period if the order is a Qualified Domestic
Relations Order.
(ii) The Administrator shall promptly notify the
named Participant and any Alternate Payees of the receipt of the domestic
relations order and of the Administrator's procedures for determining if the
order is a Qualified Domestic Relations Order.
(iii) The Administrator shall determine whether the
order is a Qualified Domestic Relations Order under the provisions of Section
414(p) of the Code.
(iv) The Administrator shall notify the named
Participant and any Alternate Payees of its determination as to whether the
order meets the requirements of a Qualified Domestic Relations Order.
(b) If, within 18 months of receipt of the domestic
relations order, the order is determined to be a Qualified Domestic Relations
Order, the Administrator shall direct the Trustee to pay the Determination
Period Account to the persons entitled to receive the Account pursuant to the
order.
(c) If, within 18 months of receipt of the domestic
relations order, (i) the order is determined not to be a Qualified Domestic
Relations Order or (ii) the issue as to whether the order is a Qualified
Domestic Relations Order has not been resolved, the Administrator shall direct
the Trustee to pay the amounts held in the Determination Period Account to the
Participant or other person who would have been entitled to such amounts if
there had been no order.
(d) If an order is determined to be a Qualified Domestic
Relations Order after the end of the 18-month period, the determination shall
be applied prospectively only.
(e) For purposes of this Section, the following
definitions shall apply:
(i) Alternate Payee: Any spouse, former spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to all or a portion of the benefits payable
under the Plan to the Participant.
(ii) Determination Period: The period of up to 18
months during which the Administrator shall determine the qualified status of a
domestic relations order.
(iii) Determination Period Account: A segregated
account established by the Trustee at the direction of the Administrator, in
which amounts which may be payable to an Alternate Payee shall be held. A
Determination Period Account shall be held in an interest-bearing account and
credited with earnings of that account.
(iv) Qualified Domestic Relations Order: Any
domestic relations order or judgment that meets the requirements set forth in
Section 414(p) of the Code.
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VIII LEAVES OF ABSENCE AND TRANSFERS
8.1 MILITARY LEAVE OF ABSENCE: So long as the Uniformed Services
Employment and Reemployment Rights Act of 1994, or any similar law, shall
remain in force, providing for re-employment rights for all persons in military
service, as therein defined, an Employee who leaves the employment of the
Employer for military service in the Armed Forces of the United States, as
defined in such Act from time to time in force, shall, for all purposes of this
Plan, be considered as having been in the employment of the Employer, with the
time of the Participant's service in the military credited to his or her
service under the Plan; provided that upon such Employee being discharged from
the military service of the United States the Employee applies for reemployment
with the Employer and takes all other necessary action to be entitled to, and
to be otherwise eligible for, re-employment rights, as provided by the
Uniformed Services Employment and Reemployment Rights Act of 1994, or any
similar law from time to time in force.
8.2 OTHER LEAVES OF ABSENCE: For all purposes of this Plan, an
Employee on an Employer-approved leave of absence not described in Section 8.1
above shall be considered as having continued in the employment of the Employer
for the period of such leave, provided that the Employee returns to the active
employment of the Employer before or at the expiration of such leave. Such
approved leaves of absence shall be given on a uniform, non-discriminatory
basis in similar fact situations.
8.3 TRANSFERS:
(a) In the event that:
(i) a Participant is transferred to employment
with a member of the Controlled Group which has not adopted the Plan or to
employment with the Employer in a status other than as an Employee; or
(ii) a person is transferred from employment with
a member of the Controlled Group which has not adopted the Plan or from other
employment with the Employer in a status other than Employee to employment with
the Employer under circumstances making such person an Employee; or
(iii) a person was employed by a member of the
Controlled Group which has not adopted the Plan, terminated his or her
employment and was subsequently employed by the Employer as an Employee;
(b) then the following provisions shall apply:
(i) transfer to employment (A) with a member of
the Controlled Group which has not adopted the Plan or (B) with the Employer
not as an Employee, shall not be considered termination of employment with the
Employer, and such transferred person shall continue to be entitled to the
benefits provided in the Plan, as modified by this Section;
(ii) any employment with a member of the
Controlled Group which has not adopted the Plan or with the Employer not as an
Employee will be deemed to be employment by the Employer;
(iii) no amounts earned from a member of the
Controlled Group at a time when it has not adopted the Plan or from the
Employer not as an Employee shall constitute Compensation hereunder;
(iv) termination of employment with a member of
the Controlled Group which has not adopted the Plan by a person entitled to
benefits under this Plan (other than to transfer to employment with the Company
or another member of the Controlled Group) shall be considered as termination
of employment with the Employer;
(v) all other terms and provisions of this Plan
shall fully apply to such person and to any benefits to which he or she may be
entitled hereunder.
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IX TRUST
Contributions made to the Plan and all other Plan assets shall be held
in trust under a Trust Agreement entered into between the Employer and the
Trustee. Such Trust Agreement shall be incorporated herein by reference and
shall be considered a part of the Plan.
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X FEES AND EXPENSES
All reasonable fees and expenses of the Administrator or the Trustee
incurred in the performance of their duties hereunder or under the Trust may be
paid by the Employer; provided, however, that to the extent not so paid by the
Employer, such fees and expenses shall be deemed to be an expense of the Trust,
and the Trustee is authorized to charge the same to the Accounts of the
Participants, and unless allocable to the Accounts of specific Participants,
they shall be charged against the respective accounts of all or a reasonable
group of Participants in such reasonable manner as the Trustee shall determine.
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XI NECESSITY OF QUALIFICATION
This Plan is established with the intent that it shall qualify under
Section 401(a) of the Code as that Section exists at the time the Plan is
established. If the Plan as adopted by the Employer fails to attain or retain
such qualification, the Employer shall promptly either amend the Plan under
Section 401(b) of the Code so that it does qualify, or direct the Trustee to
terminate the Trust, and distribute all the assets of the Trust, and the Plan
and Trust shall be considered to be rescinded and of no force and effect.
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XII AMENDMENT, TERMINATION OR MERGER
12.1 AMENDMENT OR TERMINATION: The Employer may at any time, and
from time to time amend this Plan or suspend or terminate this Plan by giving
written notice to the Trustee, but the Trust may not thereby be diverted from
the exclusive benefit of the Participants, their Beneficiaries, survivors or
estates, or the administrative expenses of the Plan, nor revert to the
Employer, nor may an allocation or contribution theretofore made be changed
thereby, nor may any amendment directly or indirectly deprive a Participant of
such Participant's rights to benefits. No amendment to the Plan shall be
effective to the extent that it would have the effect of decreasing any
Participant's Accounts or would otherwise violate Section 411(d)(6) of the
Code.
12.2 TERMINATION OF PLAN: Upon termination or partial termination
of the Plan or complete discontinuance of Employer Contributions under it, the
Accounts of each affected Participant will be nonforfeitable. The
Administrator shall distribute each Participant's Accounts to the Participant
pursuant to Sections 6.7 and 6.8 as soon as is practicable after the
termination.
12.3 MERGER: Nothing contained herein shall prevent the merger or
consolidation of the Plan with, or transfer of assets or liabilities of the
Plan to, another plan meeting the requirements of Section 401(a) of the Code or
the transfer to the Plan of assets or liabilities of another such plan so
qualified under the Code. Any such merger, consolidation or transfer shall be
accompanied by the transfer of such existing records and information as may be
necessary to properly allocate such assets among Participants, including any
tax or other information necessary for the Participants or persons
administering the plan which is receiving the assets. The terms of such
merger, consolidation or transfer must be such that (if this Plan had then
terminated), the requirements of Section 12.1 hereof would be satisfied and
each Participant would receive a benefit immediately after the merger,
consolidation or transfer equal to or greater than the benefit he or she would
have received if the Plan had terminated immediately before the merger,
consolidation or transfer.
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XIII CLAIMS PROCEDURE
13.1 RIGHT TO FILE CLAIM: Every Participant or Beneficiary of a
Participant shall be entitled to file with the Administrator a claim for
benefits under the Plan. The claim must be in writing.
13.2 DENIAL OF CLAIM: If the claim is denied by the Administrator,
in whole or in part, the claimant shall be furnished within 90 days after the
Administrator's receipt of the claim (or within 180 days after such receipt if
special circumstances require an extension of time) a written notice of denial
of claim containing the following:
(a) Specific reason or reasons for denial;
(b) Specific reference to pertinent Plan provisions on
which the denial is based;
(c) A description of any additional material or
information necessary for the claimant to perfect the claim, and an explanation
of why the material or information is necessary; and
(d) An explanation of the claims review procedure.
13.3 CLAIMS REVIEW PROCEDURE:
(a) Review may be requested at any time within 90 days
following the date the claimant received written notice of the denial of his or
her claim. For purposes of this Section, any action required or authorized to
be taken by the claimant may be taken by a representative authorized in writing
by the claimant to represent him or her. The Administrator shall afford the
claimant a full and fair review of the decision denying the claim and, if so
requested, shall:
(i) Permit the claimant to review any documents
that are pertinent to the claim;
(ii) Permit the claimant to submit to the
Administrator issues and comments in writing; and
(iii) Afford the claimant an opportunity to meet
with a representative of the Administrator as a part of the review procedure.
(b) The decision on review by the Administrator shall be
in writing and shall be issued within 60 days following receipt of the request
for review. The period for decision may be extended to a date not later than
120 days after such receipt if the Administrator determines that special
circumstances require extension. The decision on review shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision of the Administrator is based.
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XIV TOP-HEAVY PROVISIONS
14.1 PURPOSE: This Article is intended to insure that the Plan
complies with Section 416 of the Code. If the Plan is or becomes Top-Heavy in
any Plan Year beginning after December 31, 1983, the provisions of this Section
will supersede any conflicting provision in the Plan.
14.2 DEFINITIONS: For purposes of this Article, the following
definitions shall apply:
(a) Determination Date: For any Plan year subsequent to
the first Plan Year, the last day of the preceding Plan Year. For the first
Plan Year of the Plan, the last day of that Year.
(b) Key Employee: Any Employee or former Employee (and
the beneficiaries of such Employee) who at any time during the determination
period was (i) an officer of the Employer if such individual's annual Section
415 Compensation exceeds 50% of the dollar limitation in effect under Section
415(b)(1)(A) of the Code, (ii) an owner (or considered an owner under Section
318 of the Code) of one of the ten largest interests in the Employer if such
individual's Section 415 Compensation exceeds 100% of the dollar limitation in
effect under Section 415(c)(1)(A) of the Code, (iii) a 5% owner of the
Employer, or (iv) a 1% owner of the Employer who has an annual Section 415
Compensation of more than $150,000. For purposes of this Section, the
determination of Section 415 Compensation shall be based only on Section 415
Compensation which is actually paid and shall be made by including amounts
contributed by the Employer pursuant to a salary reduction agreement which are
excludable from the Employee's gross income under Section 125, Section
402(a)(8), Section 402(h) or Section 403(b) of the Code. The determination
period is the Plan Year containing the Determination Date and the four
preceding Plan Years. Determination of who is a Key Employee will be made in
accordance with Section 416(i)(1) of the Code and the regulations thereunder.
(c) Non-Key Employee: Any Employee who is not a Key
Employee, including Employees who are former Key Employees.
(d) Permissive Aggregation Group: The Required
Aggregation Group of plans plus any other plan or plans of the Employer which,
when considered as a group with the Required Aggregation Group, would continue
to satisfy the requirements of Sections 401(a)(4) and 410 of the Code.
(e) Required Aggregation Group: (1) Each qualified plan
of the Employer in which at least one Key Employee participates or participated
at any time during the determination period (regardless of whether the plan has
terminated), and (2) any other qualified plan of the Employer which enables a
plan described in (1) to meet the requirements of Sections 401(a)(4) or 410 of
the Code.
(f) Top-Heavy Plan: This Plan is Top-Heavy if for any
Plan Year any of the following conditions exists:
(i) If the Top-Heavy Ratio for this Plan exceeds
60% and this Plan is not part of any Required Aggregation Group or Permissive
Aggregation Group of plans.
(ii) If this Plan is a part of a Required
Aggregation Group of plans but not part of a Permissive Aggregation Group and
the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60%.
(iii) If this Plan is a part of a Required
Aggregation Group and part of a Permissive Aggregation Group of plans and the
Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60%.
(g) Top-Heavy Ratio:
(i) If the Employer maintains one or more defined
contribution plans (including any simplified employee pension plan) and the
Employer has not maintained any defined benefit plan which during the 5-year
period ending on the Determination Date(s) has or has had accrued benefits, the
Top-Heavy Ratio for this Plan alone or for the Required or Permissive
Aggregation Group as appropriate is a fraction, the numerator of which is the
sum of the Account
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<PAGE> 53
balances of all Key Employees as of the Determination Date(s) (including any
part of any Account balance distributed in the 5-year period ending on the
Determination Date(s)), and the denominator of which is the sum of Account
balances (including any part of any Account balance distributed in the 5-year
period ending on the Determination Date(s)), both computed in accordance with
Section 416 of the Code and the regulations thereunder. Both the numerator and
denominator of the Top-Heavy Ratio are increased to reflect any contribution
not actually made as of the Determination Date, but which is required to be
taken into account on that date under Section 416 of the Code and the
regulations thereunder.
(ii) If the Employer maintains one or more defined
contribution plans (including any simplified employee pension plan) and the
Employer maintains or has maintained one or more defined benefit plans which
during the 5-year period ending on the Determination Date(s) has or has had any
accrued benefits, the Top-Heavy Ratio for any Required or Permissive
Aggregation Group as appropriate is a fraction, the numerator of which is the
sum of Account balances under the aggregated defined contribution plan or plans
for all Key Employees, determined in accordance with (i) above, and the present
value of accrued benefits under the aggregated defined benefit plan or plans
for all Key Employees as of the Determination Date(s), and the denominator of
which is the sum of Account balances under the aggregated defined contribution
plan or plans for all participants, determined in accordance with (i) above,
and the present value of accrued benefits under the defined benefit plan or
plans for all participants as of the Determination Date(s), all determined in
accordance with Section 416 of the Code and the regulations thereunder. The
accrued benefits under a defined benefit plan in both the numerator and
denominator of the Top-Heavy Ratio are increased for any distribution of an
accrued benefit made in the five-year period ending on the Determination Date.
(iii) For purposes of (i) and (ii) above the value
of Account balances and the present value of accrued benefits will be
determined as of the most recent Valuation Date that falls within or ends with
the 12-month period ending on the Determination Date, except as provided in
Section 416 of the Code and the regulations thereunder for the first and second
plan years of a defined benefit plan. The Account balances and accrued
benefits of a participant (1) who is not a Key Employee but who was a Key
Employee in a prior year, or (2) who has not been credited with at least one
Hour of Service with any Employer maintaining the Plan at any time during the
5-year period ending on the Determination Date will be disregarded. The
calculation of the Top-Heavy Ratio, and the extent to which distributions,
rollovers, and transfers are taken into account will be made in accordance with
Section 416 of the Code and the regulations thereunder. Deductible employee
contributions will not be taken into account for purposes of computing the
Top-Heavy Ratio. When aggregating plans the value of Account balances and
accrued benefits will be calculated with reference to the Determination Dates
that fall within the same calendar year.
The accrued benefit of a Participant other
than a Key Employee shall be determined under (1) the method, if any, that
uniformly applies for accrual purposes under all defined benefit plans
maintained by the Employer, or (2) if there is no such method, as if such
benefit accrued not more rapidly than the slowest accrual rate permitted under
the fractional rule of Section 411(b)(1)(C) of the Code.
(h) Valuation Date: The Plan Year-end as of which
Account balances or accrued benefits are valued for purposes of calculating the
Top-Heavy Ratio.
14.3 MINIMUM ALLOCATION:
(a) Except as otherwise provided in paragraphs (b) and
(c) below, in any Plan Year in which this Plan is Top-Heavy, Employer
Discretionary Contributions allocated to the Accounts of each Participant who
is a Non-Key Employee, shall be not less than the lesser of (i) 3% of the
Non-Key Employee's Section 415 Compensation, or (ii) in the case where the
Employer has no defined benefit plan which designates this Plan to satisfy
Section 401 of the Code, the largest percentage of Employer Discretionary
Contributions and forfeitures (if applicable), as a percentage of the first
$200,000 of Section 415 Compensation, allocated on behalf of any Key Employee
for that Plan Year. The minimum allocation shall be determined without regard
to any Social Security contribution. This minimum contribution shall be made
even though, under other provisions of this Plan, the Participant would not
otherwise be entitled to receive an allocation or would have received a lesser
allocation for the Plan Year because of (i) the Participant's failure to
complete 1,000 Hours of Service (or any equivalent provided in the Plan), (ii)
the Participant's failure to make mandatory Employee contributions to the Plan,
or (iii) Compensation less than a stated amount.
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<PAGE> 54
(b) The provisions in paragraph (a) above shall not apply
to any Participant who was not employed by the Employer on the last day of the
Plan Year.
(c) The provisions in paragraph (a) above shall not apply
to any Participant to the extent the Participant is covered under any other
plan or plans of the Employer.
(d) The minimum allocation required (to the extent
required to be nonforfeitable under Section 416(b)) may not be forfeited under
Section 411(a)(3)(B) or 411(a)(3)(D) of the Code.
(e) Any minimum Top Heavy allocation will be made from
the Fremont General Corporation Employee Stock Ownership Plan.
14.4 VESTING SCHEDULE:
(a) If the vesting schedule for Matching and
Discretionary Contributions in Section 6.1 results in vesting which is slower,
in any respect, than the vesting schedule set forth below, then for any Plan
Year in which the Plan is Top-Heavy, the following vesting schedule shall apply
to any such Matching and/or Discretionary Contributions made for that Plan
Year:
<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C>
Less than 2 years 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 years or more 100%
</TABLE>
The Top-Heavy vesting schedule shall also apply to any subsequent Plan Years
unless the Employer amends the Plan to provide for a vesting schedule which is
more rapid than the one in this Section.
(b) The minimum vesting schedule applies to all benefits
accrued within the meaning of Section 411(a)(7) of the Code except those
attributable to Employee contributions, including benefits accrued before the
effective date of Section 416 of the Code and benefits before the Plan became
Top-Heavy. Further, no decrease in a Participant's nonforfeitable percentage
may occur in the event the Plan's status as Top-Heavy changes for any Plan
Year. However, this Section does not apply to the Account balances of any
Employee who does not have an Hour of Service after the Plan has initially
become Top-Heavy and such Employee's Account balance attributable to Employer
Contributions and forfeitures will be determined without regard to this
Section.
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XV MISCELLANEOUS
15.1 LEGAL OR EQUITABLE ACTION: If any legal or equitable action
with respect to the Plan is brought by or maintained against any person, and
the results of such action are adverse to that person, attorney's fees and all
other costs to the Employer, the Administrator or the Trust of defending or
bringing such action shall be charged against the interest, if any, of such
person under the Plan.
15.2 INDEMNIFICATION: The Employer indemnifies and holds harmless
the Plan Administrator, all members of the Plan committee, if any, and the
Trustee from and against any and all liabilities, demands, claims, losses,
taxes, expenses, including reasonable attorney's fees, both direct and
indirect, arising by reason of any act or omission to act (except willful
misconduct or negligence) in their official capacities in the administration of
this Plan or Trust or both, including all expenses reasonably incurred in their
defense, if the Employer fails to provide such defense. The indemnification
provisions of this Section 15.2 shall not relieve the Plan Administrator, any
member of the Plan committee or any Trustee from any liability such person may
have under the Act for breach of a fiduciary duty.
15.3 NO ENLARGEMENT OF PLAN RIGHTS: It is a condition of the Plan,
and each Participant by participating herein expressly agrees, that he or she
shall look solely to the assets of the Trust for the payment of any benefit
under the Plan.
15.4 NO ENLARGEMENT OF EMPLOYMENT RIGHTS: Nothing appearing in or
done pursuant to the Plan shall be construed (a) to give any person a legal or
equitable right or interest in the assets of the Trust or distribution
therefrom, nor against the Employer, except as expressly provided herein or (b)
to create or modify any contract of employment between the Employer and any
Employee or to obligate the Employer to continue the services of any Employee.
15.5 WRITTEN ORDERS: In taking or omitting to take any action
under this Plan, the Trustee may conclusively rely upon and shall be protected
in acting upon any written orders from or determinations by the Employer or the
Administrator as appropriate, or upon any other notices, requests, consents,
certificates or other instruments or papers believed by it to be genuine and to
have been properly executed, and so long as it acts in good faith, in taking or
omitting to take any other action.
15.6 NO RELEASE FROM LIABILITY: Nothing in the Plan shall relieve
any person from liability for any responsibility under Part 4 of Title I of the
Act. Subject thereto, neither the Trustee or the Administrator nor any other
person shall have any liability under the Plan, except as a result of
negligence or wilful misconduct, and in any event the Employer shall fully
indemnify and save harmless all persons from any liability except that
resulting from their negligence or wilful misconduct.
15.7 DISCRETIONARY ACTIONS: Any discretionary action, including
the granting of a loan pursuant to Section 6.16 hereof, to be taken by the
Administrator under this Plan shall be non-discriminatory in nature and all
Employees similarly situated shall be treated in a uniform manner.
15.8 HEADINGS: Headings herein are primarily for convenience of
reference, and if they conflict with the text, the text shall control.
15.9 APPLICABLE LAW: This Plan shall, to the extent state law is
applicable, be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the state of California.
15.10 NON-ALIENATION OF BENEFITS: No amount payable to or held
under the Plan for the account of any Participant or Beneficiary of a
Participant shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, and any attempt to so
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the
same shall be void. No amount payable to or held under the Plan for the
account of any Participant or Beneficiary may be in any manner liable for the
Participant's or Beneficiary's debts, contracts, liabilities, engagements or
torts, or be subject to any legal process, levy or attachment. The provisions
of this Section shall not preclude distributions made by the Trustee in
accordance with a Qualified Domestic Relations Order.
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<PAGE> 56
15.11 NO REVERSION: Notwithstanding any other contrary provision of
the Plan, no part of the assets in the Trust shall revert to the Employer, and
no part of such assets, other than that amount required to pay taxes or
administrative expenses, shall be used for any purpose other than exclusive
benefit of Employees or their Beneficiaries. However, the Employer may request
a return, and this Section shall not prohibit return, of an amount to the
Employer under any of the following circumstances:
(a) If the amount was all or part of an Employer
Contribution which was made as a result of a mistake of fact and the amount
contributed is returned to the Employer within one year after the date on which
the mistaken payment of the contribution was made; or
(b) If the amount was all or part of an Employer
Contribution which was conditioned on deductibility under Section 404 of the
Code and this condition is not satisfied, and the amount is returned to the
Employer within one year after the date on which the deduction is disallowed;
or
(c) If the amount was all or part of an Employer
Contribution which was conditioned on the initial qualification of the Plan
under Section 401(a) of the Code, this condition is not satisfied, the Plan was
submitted to the Internal Revenue Service for qualification by the time
prescribed by law for filing the Employer's return for the taxable year in
which the Plan was adopted, or such later date as the Secretary of the Treasury
may prescribe, and the amount is returned to the Employer within one year after
the date on which initial qualification is denied.
For purposes of this Section, all Employer Contributions are
conditioned on initial qualification of the Plan under Section 401(a) of the
Code and deductibility under Section 404 of the Code.
15.12 NOTICES: The Employer will provide the notice to other
interested parties contemplated under Section 7476 of the Code before
requesting a determination by the Secretary of the Treasury or his or her
delegate with respect to the qualification of the Plan.
15.13 CONFLICT: In the event of any conflict between the provisions
of this Plan and the terms of any contract or agreement issued thereunder or
with respect thereto, the provisions of the Plan shall control.
Dated: November 21, 1994 FREMONT GENERAL CORPORATION
By: /s/ Raymond G. Meyers
--------------------------------------
Raymond G. Meyers
Senior Vice President
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<PAGE> 57
EXHIBIT A
PARTICIPATING EMPLOYERS
1. Fremont General Corporation
2. Fremont Financial Corporation
3. Fremont Indemnity Company
a. Physicians and Surgeons Underwriters Corporation
b. Comstock Insurance Company
c. Fremont Reinsurance Company
4. Fremont Premium Finance Corporation
5. Fremont Life Insurance Company
6. Fremont Investment and Loan
7. Fremont Compensation Insurance Company
a. Fremont Health Company
<PAGE> 1
EXHIBIT 10.4(b)
AMENDMENT TO THE
FREMONT GENERAL CORPORATION
INVESTMENT INCENTIVE PROGRAM TRUST
Effective as of February 1, 1994, Section 5.03 of the Trust Agreement
between Fremont General Corporation and Merrill Lynch Trust Company of
California, Trustee, is amended in its entirety, to read as follows:
"5.03 DIRECTION OF VOTING AND OTHER RIGHTS. The Trustee shall vote
any employer security with respect to the Plan within the meaning of Section
407(d)(1) of ERISA ("Employer Securities") as follows:
(a) With respect to Employer Securities allocated to each
Participant's Account, each Participant shall have the right to instruct the
Trustee how to vote such shares of Employer Securities.
(b) The Participant must give the Trustee written instructions for
the voting of Employer Securities in time for the Trustee to act with respect
to the instructions. The Employer shall ensure that all notices, forms, and
other information distributed to shareholders regarding the exercise of voting
rights are furnished to the Trustee, Participants, and the Plan Committee
within a reasonable time before voting rights are to be exercised. The Employer
and others may solicit and exercise voting rights pursuant to this Section
under proxy rules that apply to all holders of Employer Securities.
(c) The Plan Committee may instruct the Trustee, in writing, how
to vote Employer Securities that has not been allocated to Participants'
Accounts (such as Employer Securities held in a suspense account).
(d) The Trustee shall vote all shares of Employer Securities,
allocated or unallocated, and for which no instructions have been received from
either a Participant or the Plan Committee, in direct proportion to the
instructions to vote received from Participants pursuant to subparagraph (a)
above. Except as required by ERISA, the Trustee shall follow all directions
above-referred to in this Section, and shall have no duty to exercise voting or
other rights relating to any such security or other asset."
Dated: November 28, 1994 FREMONT GENERAL CORPORATION
By: /s/ Raymond G. Meyers
-----------------------------------
Raymond G. Meyers, Vice President
Dated: November 30, 1994 MERRILL LYNCH TRUST COMPANY
By: /s/ Chris Rosin
-----------------------------------
Chris Rosin, Trust Officer
<PAGE> 1
EXHIBIT 10.5(b)
Amendment to Fremont General Corporation
Supplemental Retirement Plan
Fremont General Corporation, a Nevada corporation, adds the following paragraph
to the Fremont General Corporation Supplemental Retirement Plan (the "Plan"),
effective May 1, 1994, as follows:
4.6 Voting of Employer Stock. A Participant may direct
the Trustee as to the manner in which Employer Stock allocated to his Account
shall be voted. Before each meeting of the Employer's shareholders, the
Trustee shall deliver to each Participant a copy of any proxy solicitation
materials together with a form by which the Participant may instruct the
Trustee how to vote the Employer Stock allocated to the Participant's Account.
The Trustee shall vote Employer Stock through proxy in accordance with
instructions received from the Participants. The Trustee shall vote Employer
Stock which has not been allocated to a Participant or which is held in a
suspense account in accordance with the direction of the Committee, or, in the
absence of a direction of the Committee, in direct proportion to the
instructions to vote received from the Participants. The Trustee shall vote
allocated Employer Stock for which instructions are not received from the
Participants in direct proportion to the instructions to vote received from
Participants.
Dated: May 11, 1994
Fremont General Corporation, a
Nevada corporation
By: /s/ Raymond G. Meyers
----------------------------------
Raymond G. Meyers
Senior Vice President
<PAGE> 1
EXHIBIT 10.6
THE MERRILL LYNCH NON-QUALIFIED DEFERRED
COMPENSATION PLAN TRUST AGREEMENT
TRUST UNDER: _________________________ DEFERRED COMPENSATION PLAN(1)
This Agreement made this first day of February, 1994, by and between
Fremont General Corporation (Company) and Merrill Lynch Trust Company, a
_________ corporation ("Trustee");
WHEREAS, Company has adopted the Non-Qualified Deferred Compensation
Plan identified above and such other Plan(s) as are listed in Appendix
A;
WHEREAS, Company has incurred or expects to incur liability under the
terms of such Plan(s) with respect to the individuals participating in
such Plan(s);
WHEREAS, Company wishes to establish a trust (the "Trust") and to
contribute to the Trust assets that shall be held therein, subject to
the claims of Company's creditors in the event of the Company's
insolvency, as herein defined, until paid to Plan participants and
their beneficiaries in such manner and at such times as specified in
the Plan(s);
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of
the Plan(s) as an unfunded plan maintained for the purpose of
providing deferred compensation for a select group of management or
highly compensated employees for purpose of Title 1 of the Employee
Retirement Income Security Act of 1974;
WHEREAS, it is the intention of Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the
meeting of its liabilities under the Plan(s);
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST.
(a) Company hereby deposits with Trustee in trust and such cash
and/or marketable securities, if any, listed in Appendix B, which shall become
the principal of the Trust to be held, administered and disposed of by Trustee
as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
____________________
1 This trust is intended to comply with the model grantor trust requirement of
Revenue Procedure 92-64 While Merrill Lynch believes that this Trust
Agreement complies with the Revenue Procedure, it provides no assurance that
modifications to the additional terms contained herein would not be required
by the Internal Revenue Service during the review process in the event the
Company were to apply for a ruling as to the tax consequences of its plan
and this trust. If the Company desires to obtain such a ruling from the
Internal Revenue Service, a copy of this Trust Agreement with all
substituted or additional language underlined as required by the Revenue
Procedure is available through your Merrill Lynch Financial Consultant.
<PAGE> 2
(c) The Trust is intended to be a grantor trust, of which Company
is the grantor, within the meaning of subpart E, part 1, subchapter 1, chapter
1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be
held separate and apart from other funds of Company and shall be used
exclusively for the uses and purposes of Plan participants and general
creditors as herein set forth. Plan participants and their beneficiaries shall
have no preferred claim on, or any beneficial ownership interest in, any assets
of the Trust. Any rights created under the Plan(s) and this Trust Agreement
shall be mere unsecured contractual rights of Plan participants and their
beneficiaries against Company. Any assets held by the Trust will be subject to
the claims of Company's general creditors under federal and state law in the
event of insolvency, as defined in Section 3(a) herein.
(e) Company, in its sole discretion, may at any time, or from time
to time, make additional deposits of cash or other property in trust with
Trustee to augment the principal to the held, administered and disposed of by
Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan
participant or beneficiary shall have any right to compel such additional
deposits.
(f) Trustee shall not be obligated to receive such cash and/or
property unless prior thereto Trustee has agreed that such cash and/or property
is acceptable to Trustee and Trustee has received such reconciliation,
allocation, investment or other information concerning, or representation with
respect to, the cash and/or property as Trustee may require. Trustee shall
have no duty or authority to (a) require any deposits to be made under the Plan
or to Trustee; (b) compute any amount to be deposited under the Plan to
Trustee; or (c) determine whether amounts received by Trustee comply with the
Plan. Assets of the Trust may, in Trustee's discretion, be held in an account
with an affiliate of Trustee.
SECTION 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.
(a) With respect to each Plan participant, Company shall deliver
to Trustee a schedule (the "Payment Schedule") that indicates the amounts
payable in respect of the participant (and his or her beneficiaries), that
provides a formula or other instructions acceptable to Trustee for determining
the amounts so payable, the form in which such amount is to be paid (as
provided for or available under the Plan(s), and the time of commencement for
payment of such amounts. The Payment Schedule shall be delivered to Trustee
not more than thirty (30) business days, nor fewer than fifteen (15) business
days prior to the first date on which a payment is to be made to the Plan
participant. Any changes to a Payment Schedule shall be delivered to Trustee
not more than thirty (30) days nor fewer than fifteen (15) days prior to the
date on which the first payment is to be made in accordance with the changed
Payment Schedule. Except as otherwise provided herein, Trustee shall make
payments to Plan participants and their beneficiaries in accordance with such
Payment Schedule. The Trustee shall make provisions for the reporting and
withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payment of benefits pursuant to the terms of the
Plan(s) and shall pay amounts withheld to the appropriate taxing authorities or
determine that such amounts have been reported, withheld and paid by the
Company, it being understood among the parties hereto that (1) Company shall on
a timely basis provide Trustee specific information as to the amount of taxes
to be withheld and (2) Company shall be obligated to receive such withheld
taxes from Trustee and properly pay and report such amounts to the appropriate
taxing authorities.
(b) The entitlement of a Plan participant or his or her
beneficiaries to benefits under the Plan(s) shall be determined by Company or
such party as it shall designate under the Plan(s), and any claim for such
benefits shall be considered and reviewed under the procedures set out in the
Plan(s).
2
<PAGE> 3
(c) Company may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under the terms of the
Plan(s). Company shall notify Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to participants or
their beneficiaries. In addition, if the principal of the Trust, and any
earnings thereon, are not sufficient to make payments of benefits in accordance
with the terms of the Plan(s), Company shall make the balance of each payment
as it falls due. Trustee shall notify Company where principal and earnings are
not sufficient.
(d) Trustee shall have no responsibility to determine whether the
Trust is sufficient to meet the liabilities under the Plan(s), and shall not be
liable for payments or Plan(s) liabilities in excess of the value of the
Trust's assets.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
BENEFICIARY WHEN COMPANY IS INSOLVENT.
(a) Trustee shall cease payment of benefits to Plan participants
and their beneficiaries if the Company is insolvent. Company shall be
considered "insolvent" for purposes of this Trust Agreement if (i) Company is
unable to pay its debts as they become due, or (ii) Company is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the principal and income of the Trust shall be subject
to claims of general creditors of Company under federal and state law as set
forth below.
(1) The Board of Directors and the Chief Executive
Officer of Company (or, if there is no Chief Executive Officer, the highest
ranking officer) shall have the duty to inform Trustee in writing of Company's
insolvency. If a person claiming to be a creditor of Company alleges in
writing to Trustee that Company has become insolvent, Trustee shall determine
whether Company is insolvent and, pending such determination, Trustee shall
discontinue payment of benefits to Plan participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of Company's
insolvency, or has received notice from Company or a person claiming to be a
creditor alleging that Company is insolvent, Trustee shall have no duty to
inquire whether Company is insolvent. Trustee may in all events rely on such
evidence concerning Company's solvency as may be furnished to Trustee and that
provides Trustee with a reasonable basis for making a determination concerning
Company's solvency.
(3) If at any time Trustee has determined that Company is
insolvent, Trustee shall discontinue payments to Plan participants or their
beneficiaries and shall hold the assets of the Trust for the benefit of
Company's general creditors. Nothing in this Trust Agreement shall in any way
diminish any rights of Plan participants or their beneficiaries to pursue their
rights as general creditors of Company with respect to benefits due under the
Plan(s) or otherwise.
(4) Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this Trust
Agreement only after Trustee has determined that Company is not insolvent (ir
is no longer insolvent).
(c) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan(s) for the
period of such discontinuance, less the aggregate amount of any payments made
to
3
<PAGE> 4
Plan participants provided for hereunder during any such period of
discontinuance; provided that Company has given Trustee the information with
respect to such payments made during the period of discontinuance prior to
resumption of payments by Trustee.
SECTION 4. PAYMENTS TO COMPANY. Except as provided in Section 3
hereof, since the Trust is irrevocable in accordance with Section 1(b) hereof,
Company shall have no right or power to direct Trustee to return to Company or
to divert to others any of the Trust assets before all payments of benefits
have been made to Plan participants and their beneficiaries pursuant to the
terms of the Plan(s).
SECTION 5. INVESTMENT AUTHORITY.
(a) Trustee may invest in securities (including stock or rights to
acquire stock) or obligations issued by Company. All rights associated with
assets of the Trust shall be exercised by Trustee or the person designated by
Trustee, and shall in no event be exercised by or rest with Plan participants,
except that voting rights with respect to Trust assets will be exercised by
Company unless an investment adviser has been appointed pursuant to Section
5(c) and voting authority has been delegated to such investment adviser.
(b) Company shall have the right at any time, and from time to
time in its sole discretion, to substitute assets of equal fair market value
for any asset held by the Trust. This right is exercised by Company in a
nonfiduciary capacity without the approval or consent of any person in a
fiduciary capacity.
(c) Trustee may appoint one or more investment advisers who are
registered as investment advisers under the Investment Advisers Act of 1940,
who may be affiliates of Trustee, to provide investment advice on a
discretionary or nondiscretionary basis with respect to all or a specified
portion of the assets of the Trust.
(d) Trustee, or Trustee's designee, is authorized and empowered:
(1) To invest and reinvest Trust assets, together with
the income therefrom, in common stock, preferred stock, convertible preferred
stock, bonds, debentures, convertible debentures and bonds, mortgages, notes,
commercial paper and other evidences of indebtedness (including those issued by
Trustee), shares of mutual funds (which funds may be sponsored, managed or
offered by an affiliate of Trustee), guaranteed investment contracts, bank
investment contracts, other securities, policies of life insurance, annuity
contracts, options, options to buy or sell securities or other assets, and all
other property of any type (personal, real or mixed, and tangible or
intangible);
(2) To deposit or invest all or any part of the assets of
the Trust in savings accounts or certificates of deposit or other deposits in a
bank or savings and loan association or other depository institution, including
Trustee or any of its affiliates, provided with respect to such deposits with
Trustee or an affiliate the deposits bear a reasonable interest rate;
(3) To hold, manage, improve, repair and control all
property, real or personal, forming part of the Trust; to sell, convey,
transfer, exchange, partition, lease for any term, even extending beyond the
duration of this Trust, and otherwise dispose of the same from time to time;
(4) To hold in cash, without liability for interest, such
portion of the Trust as is pending investments, or payment of expenses, or the
distribution of benefits;
(5) To take such actions as may be necessary or desirable
to protect the Trust from loss due to the default on mortgages held in the
Trust, including the appointment of agents or trustees in such other
jurisdictions
4
<PAGE> 5
as may seem desirable, to transfer property to such agents or trustees, to
grant to such agents such powers as are necessary or desirable to protect the
Trust, to direct such agent or trustee, or to delegate such power to direct,
and to remove such agent or trustee;
(6) To settle, compromise or abandon all claims and
demands in favor of or against the Trust;
(7) To exercise all of the further rights, powers,
options and privileges granted, provided for, or vested in trustees generally
under the laws of the state in which Trustee is incorporated as set forth
above, so that the powers conferred upon Trustee herein shall not be in
limitation of any authority conferred by law, but shall be in addition thereto;
(8) To borrow money from any source and to execute
promissory notes, mortgages or other obligations and to pledge or mortgage any
trust assets as security; and
(9) To maintain accounts at, execute transactions
through, and lend on an adequately secured basis stocks, bonds or other
securities to, any brokerage or other firm, including any firm which is an
affiliate of Trustee.
SECTION 6. ADDITIONAL POWERS OF TRUSTEE. To the extent necessary or
which it deems appropriate to implement its powers under Section 5 or otherwise
to fulfill any of its duties and responsibilities as Trustee of the Trust,
Trustee shall have the following additional powers and authority:
(a) To register securities, or any other property, in its name or
in the name of any nominee, including the name of any affiliate or the nominee
name designated by any affiliate, with or without indication of the capacity in
which property shall be held, or to hold securities in bearer form and to
deposit any securities or other property in a depository or clearing
corporation;
(b) To designate and engage the services of, and to delegate
powers and responsibilities to, such agents, representatives, advisers, counsel
and accountants as Trustee considers necessary or appropriate, any of whom may
be an affiliate of Trustee or a person who renders services to such an
affiliate, and, as a part of its expenses under this Trust Agreement, to pay
their reasonable expenses and compensation;
(c) To make, execute and deliver, as Trustee, any and all deeds,
leases, mortgages, conveyances, waivers, releases or other instruments in
writing necessary or appropriate for the accomplishment of any of the powers
listed in this Trust Agreement; and
(d) Generally to do all other acts which Trustee deems necessary
or appropriate for the protection of the Trust.
SECTION 7. DISPOSITION OF INCOME. During the term of this Trust, all
income received by the Trust, net of expenses and taxes, shall be accumulated
and reinvested.
SECTION 8. ACCOUNTING BY TRUSTEE. Trustee shall keep accurate and
detailed records of all investments, receipts, disbursements, and all other
transactions required to be made, including such specific records as shall be
agreed upon in writing between Company and Trustee. Within ninety (90) days
following the close of each calendar year and within ninety (90) days after
removal or resignation of Trustee, Trustee shall deliver to Company a written
account of its administration of the Trust during such year or during the
period from the close of the last preceding
5
<PAGE> 6
year to the date of such removal or resignation, setting forth all investments,
receipts, disbursements, and other transactions effected by it, including a
description of all securities and investments purchased and sold with the cost
or net proceeds of such purchases or sales (accrued interest paid or receivable
being shown separately), and showing all cash, securities and other property
held in the Trust at the end of such year or as of the date of such removal or
resignation, as the case may be. Trustee may satisfy its obligation under this
Section 8 by rendering to Company monthly statements setting forth the
information required by this Section separately for the month covered by the
statement.
SECTION 9. RESPONSIBILITY AND INDEMNITY OF TRUSTEE.
(a) Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by Company which is contemplated by, and
in conformity with, the terms of the Plan(s) and this Trust and is given in
writing by Company. Trustee shall also incur no liability to any person for
any failure to act in the absence of direction, request or approval from
Company which is contemplated by, and in conformity with, the terms of this
Trust. In the event of a dispute between Company and a party, Trustee may
apply to a court of competent jurisdiction to resolve the dispute.
(b) Company hereby indemnifies Trustee and each of its affiliates
(collectively, the "Indemnified Parties") against, and shall hold them harmless
from, any and all loss, claims, liability, and expense, including reasonable
attorneys' fees, imposed upon or incurred by any Indemnified Party as a result
of any acts taken, or any failure to act, in accordance with the directions
from Company or any designee of Company, or by reason of the Indemnified
Party's good faith execution of its duties with respect to the Trust,
including, but not limited to, its holding of assets of the Trust. Company's
obligations in the foregoing regard to be satisfied promptly by Company,
provided that in the event the loss, claim, liability or expense involved is
determined by a no longer appealable final judgment entered in a lawsuit or
proceedings to have resulted from the gross negligence or willful misconduct of
Trustee. Trustee shall promptly on request thereafter return to Company any
amount previously received by Trustee under this Section with respect to such
loss, claim, liability or expense. If Company does not pay such costs,
expenses and liabilities in a reasonably timely manner, Trustee may obtain
payment from the Trust without direction from Company.
(c) Trustee may consult with legal counsel (who may also be
counsel for Company generally) with respect to any of its duties or obligations
hereunder.
(d) Trustee may hire agents, accountants, actuaries, investment
advisers, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers conferred on
Trustee by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the
Trust, Trustee shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from conversion of the policy
to a different form) other than to a successor Trustee, or to loan to any
person the proceeds of any borrowing against such policy.
(f) However, notwithstanding the provisions of Section 9(e) above,
Trustee may loan to Company the proceeds of any borrowing against an insurance
policy held as an asset of the Trust.
6
<PAGE> 7
(g) Notwithstanding any powers to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could
give this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
SECTION 10. COMPENSATION AND EXPENSES OF TRUSTEE. Trustee is
authorized, unless otherwise agreed by Trustee, to withdraw from the Trust
without direction from Company the amount of its fees in accordance with the
fee schedule agreed to by Company and Trustee. Company shall pay all
administrative expenses, but if not so paid, the expenses shall be paid from
the Trust.
SECTION 11. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) Trustee may resign at any time by written notice to Company,
which shall be effective thirty (30) days after receipt of such notice unless
Company and Trustee agree otherwise.
(b) Trustee may be removed by Company on thirty (30) days notice
or upon shorter notice accepted by Trustee.
(c) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within sixty (60) days
after receipt of notice of resignation, removal or transfer, unless Company
extends the time limit, provided that Trustee is provided assurance by Company
satisfactory to Trustee that all fees and expenses reasonably anticipated will
be paid.
(d) If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 12 hereof, by the effective date of
resignation or removal under paragraph(s) (a) or (b) of this section. If no
such appointment has been made, Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses
of Trustee in connection with the proceeding shall be allowed as administrative
expenses of the Trust.
(e) Upon settlement of the account and transfer of the Trust
assets to the successor Trustee, all rights and privileges under this Trust
Agreement shall vest in the successor Trustee and all responsibility and
liability of Trustee with respect to the Trust and assets thereof shall
terminate subject only to the requirement that Trustee execute all necessary
documents to transfer the Trust assets to the successor Trustee.
SECTION 12. APPOINTMENT OF SUCCESSOR.
(a) If Trustee resigns or is removed in accordance with Section
11(a) or (b) hereof, Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace Trustee upon resignation or removal. The
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by Company or the successor
Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing Trust assets, subject
to Sections 7 and 8 hereof. The Successor Trustee shall not be responsible for
and Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any
7
<PAGE> 8
action or inaction of any prior Trustee or from any other past event, or any
condition existing at the time it becomes successor Trustee.
SECTION 13. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument
executed by Trustee and Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan(s) or shall make the Trust
revocable since the Trust is irrevocable in accordance with Section 1(b)
hereof.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits
pursuant to the terms of the Plan(s). Upon termination of the Trust, any
assets remaining in the Trust shall be returned to Company.
(c) Upon written approval of participants or beneficiaries
entitled to payment of benefits pursuant to the terms of the Plan(s), Company
may terminate this Trust prior to the time all benefit payments under the
Plan(s) have been made. All assets in the Trust at termination shall be
returned to Company.
SECTION 14. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries
under this Trust Agreement may not be anticipated, assigned (either at law or
in equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the state in which Trustee is incorporated as set
forth above.
(d) The provisions of Sections 2(d), 3(b)(3), 9(b) and 15 of this
Agreement shall survive termination of this Agreement.
(e) The rights, duties, responsibilities, obligations and
liabilities of Trustee are as set forth in this Trust Agreement, and no
provision of the Plan(s) or any other documents shall affect such rights,
responsibilities, obligations and liabilities. If there is a conflict between
provisions of the Plan(s) and this Trust Agreement with respect to any subject
involving Trustee, including, but not limited to, the responsibility, authority
or powers of Trustee, the provisions of this Trust Agreement shall be
controlling.
(f) For purposes of this Trust, "Change of Control" shall mean:
The purchase or other acquisition by any person, entity or group of persons,
within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of
1934 ("Act"), or any comparable successor provisions, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Act) of 30 percent or
more of either the outstanding shares of common stock or the combined voting
power of Company's then outstanding voting securities entitled to vote
generally, or the approval by the stockholders of Company of a reorganization,
merger or consolidation, in each case, with respect to which persons who were
stockholders of Company immediately prior to such reorganization, merger or
consolidation do not immediately thereafter own more than 50 percent of the
combined voting power entitled to vote generally in the election of directors
of the reorganized, merged or consolidated Company's then outstanding
securities, or a liquidation or dissolution of Company or of the sale of all or
substantially all of Company's assets.
8
<PAGE> 9
SECTION 15. ARBITRATION.
o Arbitration is final and binding on the parties.
o The parties waive their right to seek remedies in court,
including the right to jury trial.
o Pre-arbitration discovery is generally more limited than and
different from court proceedings.
o The arbitrators' award is not required to include factual
findings or level reasoning and any party's right to appeal or
seek modification of rulings by the arbitrators is strictly
limited.
o The panel of arbitrators will typically include a minority of
arbitrators who were or are affiliated with the securities
industry.
Company agrees that all controversies which may arise between Company
and either or both the Trustee and its affiliate Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S") in connection with the Trust, including, but
not limited to, those involving any transactions, or the construction,
performance, or breach of this or any other agreement between Company and
either or both the Trustee and MLPF&S, whether entered into prior, on, or
subsequent to the date hereof, shall be determined by arbitration. Any
arbitration under this agreement shall be conducted only before the New York
Stock Exchange, Inc., the American Stock Exchange, Inc., or arbitration
facility provided by any other exchange of which MLPF&S is a member, the
National Association of Securities Dealers, Inc., or the Municipal Securities
Rulemaking Board, and in accordance with its arbitration rules then in force.
Company may elect in the first instance whether arbitration shall be conducted
before the New York Stock Exchange, Inc., the American Stock Exchange, Inc.,
other exchange of which MLPF&S is a member, the National Association of
Securities Dealers, Inc., or the Municipal Securities Rulemaking Board, but if
Company fails to make such election, by registered letter or telegram addressed
to Merrill Lynch Trust Companies, Employee Benefit Trust Operations, P.O. Box
30532, New Brunswick, New Jersey 08989-0532, before the expiration of five (5)
days after receipt of a written request from MLPF&S and/or the Trustee to make
such election, then MLPF&S and/or the Trustee may make such election. Judgment
upon the award of arbitrators may be entered in any court, state or federal,
having juris diction. No person shall bring a putative or certified class
action to arbitration, nor seek to enforce any pre-dispute arbitration
agreement against any person who has initiated in court a putative class
action; who is a member of putative class who has not opted out of the class
with respect to any claims encompassed by the putative class action until:
(i) the class certification is denied;
(ii) the class is decertified; or
(iii) the customer is excluded from the class by the court.
Such forbearance to enforce an agreement to arbitrate shall not
constitute a waiver of any rights under this agreement, except to the
extent stated herein.
SECTION 16. EFFECTIVE DATE. The effective date of this Trust
Agreement shall be ___________ , 19__.
IN WITNESS WHEREOF, Company and Trustee have executed this Trust
Agreement each by action of a duly authorized person.
9
<PAGE> 10
By signing this Agreement, the undersigned Company acknowledges (1)
that, in accordance with Section 15 of this Agreement, Company is agreeing in
advance to arbitrate any controversies which may arise with either or both the
Trustee or MLPF&S and (2) receipt of a copy of this Agreement.
FREMONT GENERAL CORPORATION
By: /s/ Raymond G. Meyers
---------------------------------
Raymond G. Meyers
Senior Vice President
TRUSTEE
By: /s/ Chris Rosin
---------------------------------
Chris Rosin
10
<PAGE> 11
APPENDIX A
NAME OF NON-QUALIFIED DEFERRED COMPENSATION PLAN(S): Fremont General
Corporation Supplemental Retirement Plan and Fremont General Corporation Senior
Supplemental Retirement Plan.
APPENDIX B
DEPOSIT OF CASH AND/OR MARKETABLE SECURITIES TO THE TRUST:
CASH: $2,735,883.17
MARKETABLE SECURITIES: Fremont General Corporation Common Stock - 113,333
shares
11
<PAGE> 12
Amendment for
Fremont's
SRP and SSRP
AMENDMENT TO THE MERRILL LYNCH NON-QUALIFIED DEFERRED
COMPENSATION PLAN TRUST AGREEMENT
between
MERRILL LYNCH TRUST COMPANY OF CALIFORNIA
and
FREMONT GENERAL CORPORATION
AMENDMENT to the Merrill Lynch Non-Qualified Deferred Compensation
Plan Trust Agreement entered into as of February 1, 1994 by and between Merrill
Lynch Trust Company of California (the "Trustees") and Fremont General
Corporation (the "Employer") in respect of a trust forming part of the Fremont
General Supplemental Retirement Plan and Senior Supplemental Retirement Plan.
WHEREAS, the Trustee and the Employer wish to amend the Agreement as
hereinafter set forth;
NOW, THEREFORE, the Trustee and the Employer agree that said Agreement
shall be amended as follows:
1. Section 5(a) is hereby amended so as to delete the second
sentence thereof and insert in lieu thereof the following: "All rights
associated with assets of the Trust shall be exercised by Trustee or the person
designated by Trustee, and shall in no event be exercised by or rest with Plan
participants, except that voting rights shall be exercised as set forth below.
Notwithstanding the foregoing sentence, the voting and other rights in
securities or other assets held in the Trust shall be exercised by Trustee as
directed by Company, provided that such voting and other rights in any
"employer security" within the meaning of Section 407(d)(1) of the Employee
Retirement Income Security Act of 1974, as amended from time to time ("Employer
Securities") which is held by the Trust shall be exercised by Trustee taking
into account, to the extent it deems advisable, instructions from participants
or beneficiaries having interests in such shares of Employer Securities. In
the event Company or participant or beneficiary, as applicable, does not
communicate any decision or instruction on the matter to Trustee or Trustee's
designee by the time prescribed by Trustee for that purpose, Trustee may, at
the cost of Company, obtain advice from a bank, insurance company, investment
adviser or other investment professional (including an affiliate of Trustee) or
retain an investment adviser pursuant to Section 5(c) with full discretion to
make the decision."
<PAGE> 13
2. Section 14(f) is hereby amended so as to delete Section 14(f)
and insert a new Section 14(f) as follows:
(f) For purposes of this Trust, a "Change in Control"
shall mean:
(i) With respect to Company, a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "1934 Act") or any successor thereto; provided that,
without limitation, such a change in control shall be deemed to have occurred
if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
1934 Act), other than a trustee or other fiduciary holding securities under an
employee benefit plan of Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of Voting
Securities of Company representing 50% or more of the combined voting owner of
Company's then outstanding Voting Securities; or (B) the stockholders of
Company approve a merger or consolidation of Company with any other
corporation, other than a merger or consolidation which would result in the
Voting Securities of Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 50% of the total voting power
represented by the Voting Securities of Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of Company approve a plan of complete liquidation of Company or an agreement
for the sale or disposition by Company (in one transaction or a series of
transactions) of all or substantially all of Company's assets.
(ii) With respect to Company, a Change in Control shall
mean:
(A) any acquisition or more than 50% of the
outstanding capital stock of Company, but excludes a public stock
offering of Company's stock; or
(B) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
of Directors of Company, together with any new directors whose
election or nomination for election was approved by a vote of at least
two-thirds of the directors then still in office who were either
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority of the Board of Directors of
Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
as a result of any event described in Sections 14(f)(i)(A), 14(f)(i)(C), or
14(f)(ii)(A), if directors who were a majority of the members of the Board
prior to such event determine that the event shall not constitute a Change in
Control within one year after the transaction and furnish written notice to
Trustee of such determination.
<PAGE> 14
(2) For purposes of this Trust Agreement, a Change in Control shall be
deemed to have occurred when Trustee makes a determination to that effect on
its own initiative or upon receipt by Trustee of written notice to that effect
from Company. The Chief Executive Officer of Company or the Board shall
furnish written notice to the Trustee when a Change in Control occurs under
Section 14(f).
(3) "Voting Securities" shall mean any securities of Company which vote
generally in the election of directors."
3. This Amendment shall be effective as of August 1, 1994.
4. Except as provided herein, the Agreement shall remain in full
force and effect as specifically amended hereby.
IN WITNESS WHEREOF, the Trustee and the Employer have caused this
Amendment to be executed on the date set forth below.
<TABLE>
<S> <C>
MERRILL LYNCH TRUST COMPANY FREMONT GENERAL
OF CALIFORNIA CORPORATION
By: /s/ Chris Rosin By: /s/ Raymond G. Meyers
-------------------------------- -----------------------
Name/Title: Chris Rosin Trust Officer Name/Title: Vice President
Date: February 9, 1994 Date: January 27, 1994
</TABLE>
<PAGE> 1
EXHIBIT 10.7
EXHIBIT A
FREMONT GENERAL CORPORATION
SENIOR SUPPLEMENTAL RETIREMENT PLAN
<PAGE> 2
FREMONT GENERAL CORPORATION
SENIOR SUPPLEMENTAL RETIREMENT PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. ESTABLISHMENT AND PURPOSE .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Establishment of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purpose of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Application of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Administrative Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(C) Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(e) Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(f) Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(9) Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(h) Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(i) Investment Incentive Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(i) Management Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(k) Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(l) Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(M) Retire and Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Gender And Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3. ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Salary Deferral Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 4. BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Maintenance Of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.3 Vesting And Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.4 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.5 Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 5. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Administrative Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Uniform Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.3 Notice Of Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.4 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 6. AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Amendment And Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Reorganization Of Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Protected Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 7. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.1 Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.2 Employment Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.3 Illegality Of Particular Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.4 Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
(ii)
<PAGE> 4
FREMONT GENERAL CORPORATION
SENIOR SUPPLEMENTAL RETIREMENT PLAN
ARTICLE 1.
ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT OF PLAN. FREMONT GENERAL CORPORATION (the
"Company") hereby adopts the FREMONT GENERAL CORPORATION SENIOR SUPPLEMENTAL
RETIREMENT PLAN (the "Plan"), effective September 30, 1990, for eligible
employees of the Company and selected subsidiaries. The Plan is intended to be
exempt from the participation, vesting, funding, and fiduciary requirements of
Title 1 of the Employee Retirement Income Security Act of 1974, as amended, and
is intended to be maintained "primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees".
1.2 PURPOSE OF PLAN. It is the purpose of this Plan to permit
eligible employees to receive benefits that will compensate them for the
maximums imposed by Sections 401(a)(17), 401(k)(3), 401(m)(2) and 402(g) of the
Code upon salary deferral contributions and matching contributions to qualified
plans.
1.3 APPLICATION OF PLAN. The terms of this Plan are applicable to
eligible employees employed by the Company on or after September 30, 1990, with
respect to their Compensation and service on and after that date.
<PAGE> 5
ARTICLE 2.
DEFINITIONS
2.1 DEFINITIONS. whenever used in the Plan, the following terms
shall have the respective meanings set forth below, unless a different meaning
is required by the context in which the word is used, and when the defined
meaning is intended, the term is capitalized:
(a) "ACCOUNT" shall mean the Account or Accounts that the
Committee shall maintain for a Participant under this Plan.
(b) "ADMINISTRATIVE COMMITTEE" shall mean the committee
with authority to administer the Plan as provided under Paragraph 5.1.
(C) "AFFILIATE" shall mean any corporation which is
controlled by or under common control with the Company.
(d) "BENEFICIARY" shall mean the beneficiary designated
under the Investment Incentive Program by the Participant to receive
benefits in the event of the Participant's death.
(e) "BOARD OF DIRECTORS" shall mean the Board of
Directors of the Company.
(f) "CODE" shall mean the Internal Revenue Code
of 1986, as amended, and the Treasury Regulations promulgated thereunder.
(g) "COMPENSATION" shall mean a Participant's
earned income, wages, salaries, and fees for professional services, and
other amounts received for personal services actually rendered in the
course of employment with the Employer (including, but not limited to,
commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips and
bonuses), plus salary deferral contributions made under the Investment
Incentive Program, this Plan, or a plan maintained by the Employer under
Section 125 of the Code.
(h) "EMPLOYER" shall mean the Company and any Affiliate
which is designated by the Board of Directors and which approves adoption
of this Plan by appropriate corporate action.
(i) "INVESTMENT INCENTIVE PROGRAM" shall mean the FREMONT
GENERAL CORPORATION INVESTMENT INCENTIVE PROGRAM, a profit sharing plan
qualified under Sections 401(a) and 401(k) of the Code.
-2-
<PAGE> 6
(j) "MANAGEMENT EMPLOYEE" shall mean employee of an Employer
who is classified in pay grade 17 or higher and who is either (i) an
officer of the Employer, or (ii) a designated senior management employee
of an Employer.
(k) "PARTICIPANT" shall mean any Management Employee who
meets the requirements set forth in Article 3 to participate in the Plan.
(1) "PLAN YEAR" shall mean the calendar year; provided,
however, that the first Plan Year shall be the period commencing October
1, 1990 and ending December 31, 1990.
(m) "RETIRE" and "RETIREMENT" shall mean a Participant's
termination of employment after becoming eligible for "Retirement" as
defined in the Investment Incentive Program.
2.2 GENDER AND NAME. Except when otherwise indicated by the
context, any masculine terminology used herein shall also include the feminine,
and the use of any term herein in the singular may also include the plural.
-3-
<PAGE> 7
ARTICLE 3.
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. Any Management Employee who is eligible to
participate in the Investment Incentive Program and who, for a given plan year
of the Investment Incentive Program,
(a) is a highly compensated employee (within the meaning
of Section 414(q) of the Code) of the Employer for such plan year; and
(b) would be ineligible
(i) to make the maximum salary deferral contribution to the
Investment Incentive Program due (A) to the dollar limitations under
Sections 401(a)(17) and 402(g) of the Code, or (B) to the limitation
on average deferral percentages under section 401(k)(3) of the Code;
or
(ii) to receive the maximum matching contribution to the
Investment Incentive Program due to the limitation on average
contribution percentages under Section 401(m)(2) of the Code;
shall become a Participant in this Plan effective on the first day of such Plan
Year.
3.2 SALARY DEFERRAL ELECTION. Each Management Employee who
satisfies the eligibility requirements of Paragraph 3.1 shall elect prior to
the first day of each Plan Year on a form provided by the Administrative
Committee the level of salary deferral contributions which he desires to make
to this Plan. Such election shall be in whole percentages not to exceed 15%
and shall be irrevocable for such Plan Year once made; provided, however, that
such election shall cease to be in effect upon (a) termination of his
employment with the Employer, (b) his death, or (c) a determination by the
Administrative Committee (in its absolute discretion) that he has suffered a
significant hardship to justify permitting the revocation of his election for
that Plan Year.
-4-
<PAGE> 8
ARTICLE 4.
BENEFITS
4.1 CONTRIBUTIONS. The Committee of the Investment Incentive
Program shall determine, as of the first day of each plan year of the
Investment Incentive Program, the maximum interim salary deferral contribution
percentage (the "Interim Contribution") that each highly-compensated employee
(within the meaning of section 414(q) of the Code) participating in the
Investment Incentive Program will be permitted to make to the Investment
Incentive Program for that plan year. The excess of each Participant's salary
deferral contributions under Paragraph 3.2 over the lesser of (a) the Interim
Contribution, or (b) the dollar limitation for that plan year under Section
402(g) of the Code, together with the Matching Contribution directly
attributable to such excess salary deferral contributions, shall be contributed
by the Employer on a periodic basis in accordance with the Employer's payroll
practices to a grantor trust or similar arrangement to fund benefits hereunder.
As of the end of each plan year of the Investment Incentive Program, the
Committee of the Investment Incentive Program shall determine the maximum
salary deferral contributions and matching contribution available for each
Participant under the Investment Incentive Program and shall notify the
Administrative Committee of such additional salary deferral contributions, if
any, and such additional matching contribution, if any, which can be made to
the Investment Incentive Program for each Participant in this Plan. Within 10
days of such notification, the Administrative Committee shall direct the
trustee of the grantor trust or the custodian of any similar arrangement
funding benefits hereunder to transfer such contribution amounts (but not the
earnings attributable to such amounts) to the trustee of the Investment
Incentive Program.
4.2 MAINTENANCE AND INVESTMENT OF ACCOUNTS.
(a) The Employer shall establish and maintain, in the
name of each Participant, an individual Account which shall consist of all
amounts contributed to the Plan on behalf of each Participant. Such
contributed amounts shall be invested by the Trustee in such investment
funds as the Administrative Committee shall determine are available from
time to time under this Plan and in such percentages as elected by the
Participant.
(b) The individual Account of each Participant shall
represent a liability, payable when due under this Plan, out of the
general assets of the Employer, or from the assets of any trust, custodial
account or escrow arrangement which the Employer may establish for the
purpose of assuring availability of funds sufficient to pay benefits under
this Plan. The money and other assets in any such trust or Account shall
at all times remain the property of the Employer,
-5-
<PAGE> 9
and neither this Plan or any Participant shall have any beneficial
ownership interest in the assets thereof. No property or assets of the
Employer shall be pledged, encumbered, or otherwise subjected to a lien or
security interest for payment of benefits hereunder. Accounting for this
Plan shall be based on generally accepted accounting principles.
4.3 VESTING AND FORFEITURE. All benefits under this Plan shall be
contingent and forfeitable, and each Participant shall have a vested interest
in any benefit under this Plan in accordance with the vesting provisions set
forth in Paragraphs 6.1 and 6.2 of the Investment Incentive Program. A person
who terminates employment with the Employer for any reason prior to becoming
vested hereunder shall not receive a benefit.
4.4 PAYMENT. Every Participant who Retires or terminates
employment shall, if vested, have his Account distributed to him within the
calendar quarter following the calendar quarter in which he terminates his
employment in a single-sum payment, and the benefit distribution amount shall
not accrue earnings or losses during the calendar quarter in which distribution
is to occur.
4.5 DEATH. The Account of a Participant who dies while employed
by an Employer shall be paid in a single-sum to the Participant's Beneficiary
within the calendar quarter following the calendar quarter in which his death
occurs. If a Participant dies after Retirement or termination of employment,
then his surviving Beneficiary shall be paid the amount in the Participant's
Account in a single-sum within the calendar quarter following the calendar
quarter in which his death occurs, and the benefit distribution amount shall
not accrue earnings or losses during the calendar quarter in which distribution
is to occur.
-6-
<PAGE> 10
ARTICLE 5.
ADMINISTRATION
5.1 ADMINISTRATIVE COMMITTEE. This Plan shall be administered by
the Administrative Committee, whose members shall be the same persons who are
the Plan Committee of the Investment Incentive Program from time-to-time. The
interpretation and construction by the Administrative Committee of any
provisions of this Plan shall be final unless otherwise determined by the Board
Of Directors. Subject to the Board of Directors, the Administrative Committee
is authorized to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to it, and to make all other determinations necessary for
its administration. Without limiting the generality of the foregoing, the
Administrative Committee shall have the authority to calculate amounts
allocable to Participants, and to maintain and adjust accounts. The
Administrative Committee shall have authority to delegate responsibility for
performance of ministerial functions necessary for administration of the Plan
to such officers of the Employer, including Participants, as the Administrative
Committee shall in its discretion deem appropriate.
5.2 UNIFORM RULES. In administering the Plan, the Administrative
Committee will apply uniform rules to all Participants similarly situated.
5.3 NOTICE OF ADDRESS. Any payment to a Participant or
Beneficiary, at the last known post office address submitted to the Employer,
shall constitute a complete acquittance and discharge of the Employer and any
director or officer with respect thereto. Neither the Employer nor any
director or officer shall have any duty or obligation to search for or
ascertain the whereabouts of any Participant or his Beneficiary.
5.4 RECORDS. The records of the Administrative Committee with
respect to the Plan shall be conclusive on all Participants, all Beneficiaries,
and all other persons whomsoever.
-7-
<PAGE> 11
ARTICLE 6.
AMENDMENT AND TERMINATION
6.1 AMENDMENT AND TERMINATION. The Company expects the Plan to be
permanent, but since future conditions affecting the Company cannot be
anticipated or foreseen, the Company must necessarily and does hereby reserve
the right to amend, modify, or terminate the Plan at any time by action of its
Board Of Directors, except that no amendment shall reduce the dollar amount
credited to a Participant's Account and any such termination or amendment shall
apply uniformly to all Participants. The Administrative Committee in its
discretion may amend the Plan if it finds that such amendment does not
significantly increase or decrease benefits or costs.
6.2 REORGANIZATION OF EMPLOYER. In the event of a merger or
consolidation of the Employer, or the transfer of substantially all of the
assets of the Employer to another corporation, such continuing, resulting or
transferee corporation shall have the right to continue and carry on the Plan
and to assume all liabilities of the Employer hereunder without obtaining the
consent of any Participant or Beneficiary. If such successor shall assume the
liabilities of the Employer hereunder, then the Employer shall be relieved of
all such liability, and no Participant or Beneficiary shall have the right to
assert any claim against the Employer for benefits under or in connection with
this Plan.
6.3 PROTECTED BENEFITS. If the Plan is terminated or amended so
as to prevent further earnings adjustments, or if liabilities accrued hereunder
up to the date of an event specified in Paragraph 6.2 are not assumed by the
successor to the Employer, then the dollar amount credited to the Account of
each Participant, or Beneficiary (whether or not vested) shall be paid in cash
to such Participant or Beneficiary in a single-sum on the last day of the
second month following the month in which the amendment or termination occurs.
-8-
<PAGE> 12
ARTICLE 7.
GENERAL PROVISIONS
7.1 NONASSIGNABILITY. Benefits under the Plan are not in any way
subject to the debts or other obligations of the persons entitled thereto and
may not voluntarily or involuntarily be sold, transferred, or assigned. Any
voluntary attempt to sell, anticipate, assign, or encumber benefits under this
Plan shall operate to cancel the benefit or the balance of a Participant's
account as of the date of such attempt and to relieve the Employer from any
future liability to pay or distribute any benefit with respect to such canceled
amount.
7.2 EMPLOYMENT RIGHTS. The establishment of the Plan shall not be
construed as conferring any legal rights upon any Participant or any other
person for a continuation of employment, nor shall it interfere with the rights
of the Employer to discharge any person or treat him without regard to the
effect which such treatment might have upon him under this Plan.
7.3 ILLEGALITY OF PARTICULAR PROVISION. If any particular
provision of this Plan shall be found to be illegal or unenforceable, such
provision shall not affect any other provision, but the Plan shall be construed
in all respects as if such invalid provision were omitted.
7.4 APPLICABLE LAWS. The Plan shall be governed by and construed
according to the laws of the State of California.
IN WITNESS WHEREOF, Fremont General Corporation has caused this instrument to
be executed by its duly authorized officers on September 5, 1990, but effective
as of September 30, 1990.
FREMONT GENERAL CORPORATION, a
Nevada corporation
By: JAMES MCINTYRE
-----------------------
JAMES MCINTYRE
APPROVED AS TO FORM
STEVEN L.GUISE
- ---------------------
STEVE L.GUISE
Attorney for Employer
-9-
<PAGE> 13
AMENDMENT TO
FREMONT GENERAL CORPORATION SENIOR SUPPLEMENTAL RETIREMENT PLAN
Fremont General Corporation, a Nevada corporation, amends the Fremont
General Corporation Senior Supplemental Retirement Plan (the "Plan"), effective
January 1, 1993, in the following respects:
Paragraph 3.2 of the Plan is amended to read as follows:
3.2 SALARY DEFERRAL ELECTION. Each Management Employee
who satisfies the eligibility requirements of Paragraph 3.1 shall elect
prior to the first day of each Plan Year on a form provided by the
Administrative Committee the level of salary deferral contributions which
he desires to make to this Plan. For calendar years commencing prior to
January 1, 1993, such election shall be in whole percentages not to exceed
15%, and for calendar years commencing after December 31, 1992, such
election may be made in an unlimited amount. An election made with
respect to a calendar year shall be irrevocable for such Plan Year once
made; provided, however, that such election shall cease to be in effect
upon (a) termination of his employment with the Employer, (b) his death,
or (c) a determination by the Administrative Committee (in its absolute
discretion) that he has suffered a significant hardship to justify
permitting the revocation of his election for that Plan Year.
Dated: December 9, 1992
FREMONT GENERAL CORPORATION, a
Nevada corporation
By: RAYMOND G. MEYERS
-----------------
RAYMOND G. MEYERS
Vice President
<PAGE> 14
Amendment to Fremont General Corporation
Senior Supplemental Retirement Plan
Fremont General Corporation, a Nevada corporation, adds the following paragraph
to the Fremont General Corporation Senior Supplemental Retirement Plan (the
"Plan"), effective May 1, 1994, as follows:
4.6 VOTING OF EMPLOYER STOCK. A Participant may direct the Trustee
as to the manner in which Employer Stock allocated to his Account shall be
voted. Before each meeting of the Employer's shareholders, the Trustee shall
deliver to each Participant a copy of any proxy solicitation materials together
with a form by which the Participant may instruct the Trustee how to vote the
Employer Stock allocated to the Participant's Account. The Trustee shall vote
Employer Stock through proxy in accordance with instructions received from the
Participants. The Trustee shall vote Employer Stock which has not been
allocated to a Participant or which is held in a suspense account in accordance
with the direction of the Committee, or, in the absence of a direction of the
Committee, in direct proportion to the instructions to vote received from the
Participants. The Trustee shall vote allocated Employer Stock for which
instructions are not received from the Participants in direct proportion to the
instructions to vote received from Participants.
Dated: May 11, 1994
Fremont General Corporation,
a Nevada corporation
By: RAYMOND G. MEYERS
---------------------------
Raymond G. Meyers
Senior Vice President
<PAGE> 1
EXHIBIT 10.8(b)
Amendment to Fremont General Corporation
Excess Benefit Plan
Fremont General Corporation, a Nevada corporation, adds the following paragraph
to the Fremont General Corporation Excess Benefit Plan (the "Plan"), effective
May 1, 1994, as follows:
4.7 Voting of Employer Stock. A Participant may direct
the Trustee as to the manner in which Employer Stock allocated to his Account
shall be voted. Before each meeting of the Employer's shareholders, the
Trustee shall deliver to each Participant a copy of any proxy solicitation
materials together with a form by which the Participant may instruct the
Trustee how to vote the Employer Stock allocated to the Participant's Account.
The Trustee shall vote Employer Stock through proxy in accordance with
instructions received from the Participants. The Trustee shall vote Employer
Stock which has not been allocated to a Participant or which is held in a
suspense account in accordance with the direction of the Committee, or, in the
absence of a direction of the Committee, in direct proportion to the
instructions to vote received from the Participants. The Trustee shall vote
allocated Employer Stock for which instructions are not received from the
Participants in direct proportion to the instructions to vote received from
Participants.
Dated: May 11, 1994
Fremont General Corporation, a
Nevada corporation
By: /s/ Raymond G. Meyers
----------------------------------
Raymond G. Meyers
Senior Vice President
<PAGE> 1
EXHIBIT 10.8(c)
TRUST UNDER:
DEFERRED COMPENSATION PLAN(1)
This Agreement made this day of August 1, 1994, by and between Fremont
General Corporation (Company) and Merrill Lynch Trust Company corporation
(Trustee):
WHEREAS, Company has adopted the Non-Qualified Deferred Compensation
Plan identified above and such other Plan(s) as are listed in Appendix A.
WHEREAS, Company has incurred or expects to incur liability under the
terms of such Plan(s) with respect to the individuals participating in such
Plan(s).
WHEREAS, Company wishes to establish a trust (the "Trust") and to
contribute to the Trust assets that shall be held therein, subject to the
claims of Company's creditors in the event of the Company's insolvency, as
herein defined, until paid to Plan participants and their beneficiaries in such
manner and at such times as specified in the Plan(s);
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Plan(s) as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purpose of Title I of the Employee Retirement Income Security Act of 1974.
WHEREAS, it is the intention of Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plan(s);
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST.
(a) Company hereby deposits with Trustee in trust such cash and/or
marketable securities, if any, listed in Appendix B, which shall become the
principal of the Trust to be held, administered and disposed of by Trustee as
provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
____________________
(1) This trust is intended to comply with the model grantor
trust requirement of Revenue Procedure 9264. While Merrill Lynch
believes that this Trust Agreement complies with the Revenue
Procedure, it provides no assurance that modifications to the
additional terms contained herein would not be required by the
Internal Revenue Service during the review process in the event the
Company were to apply for a ruling as to the tax consequences of its
plan and this trust. If the Company desires to obtain such a ruling
from the Internal Revenue Service, a copy of this Trust Agreement
with all substituted or additional language underlined as required by
the Revenue Procedure is available through your Merrill Lynch
Financial Consultant.
<PAGE> 2
(c) The Trust is intended to be a grantor trust, of which Company
is the grantor, within the meaning of subpart E, part 1, subchapter J, chapter
1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be
held separate and apart from other funds of Company and shall be used
exclusively for the uses and purposes of Plan participants and general
creditors as herein set forth. Plan participants and their beneficiaries shall
have no preferred claim on, or any beneficial ownership interest in, any assets
of the Trust. Any rights created under the Plan(s) and this Trust Agreement
shall be mere unsecured contractual rights of Plan participants and their bene
ficiaries against Company. Any assets held by the Trust will be subject to the
claims of Company's general creditors under federal and state law in the event
of insolvency, as defined in Section 3(a) herein.
(e) Company, in its sole discretion, may at any time, or from time
to time, make additional deposits of cash or other property in trust with
Trustee to augment the principal to be held, administered and disposed of by
Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan
participant or beneficiary shad have any right to compel such additional
deposits.
(f) Trustee shall not be obligated to receive such cash and/or
property unless prior thereto Trustee has agreed that such cash and/or property
is acceptable to Trustee and Trustee has received such reconciliation,
allocation, investment or other information concerning, or representation with
respect to, the cash and/or property as Trustee may require. Trustee shall
have no duty or authority to (a) require any deposits to be made under the Plan
or to Trustee, (b) compute any amount to be deposited under the Plan to
Trustee: or (c) determine whether amounts received by Trustee comply with the
Plan. Assets of the Trust may, in Trustee's discretion, be held in an account
with an affiliate of Trustee.
SECTION 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.
(a) With respect to each Plan participant, Company shall deliver
to Trustee a schedule (the "Payment Schedule") that indicates the amounts
payable in respect of the participant (and his or her beneficiaries), that
provides a formula or other instructions acceptable to Trustee for determining
the amounts so payable, the form in which such amount is to be paid (as
provided for or available under the Plan(s)), and the time of commencement for
payment of such amounts. The Payment Schedule shall be delivered to Trustee
not more than [30] business days nor fewer than [15] business days prior to the
first date on which a payment is to be made to the Plan participant. Any
change to a Payment Schedule shall be delivered to Trustee not more than [30]
days nor fewer than [15] days prior to the date on which the first payment is
to be made in accordance with the changed Payment Schedule. Except as
otherwise provided herein. Trustee shall make payments to Plan participants
and their beneficiaries in accordance with such Payment Schedule. The Trustee
shall make provisions for the reporting and withholding of any federal state or
local taxes that may be required to be withheld with respect to the payment of
benefits pursuant to the terms of the Plan(s) and shall pay amounts withheld to
the appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by Company, it being understood among the parties
hereto that (1) Company shall on a timely basis provide Trustee specific
information
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<PAGE> 3
as to the amount of taxes to be withheld and (2) Company shall be obligated to
receive such withheld taxes from Trustee and property pay and report such
amounts to the appropriate taxing authorities.
(b) The entitlement of a Plan participant or his or her
beneficiaries to benefits under the Plan(s) shall be determined by Company or
such party as it shall designate under the Plan(s), and any claim for such
benefits shall be considered and reviewed under the procedures set out in the
Plan(s).
(c) Company may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under the terms of the
Plan(s). Company shall notify Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to participants or
their beneficiaries. In addition, if the principal of the Trust, and any
earnings thereon, are not sufficient to make payments of benefits in accordance
with the terms of the Plan(s), Company shall make the balance of each payment
as it falls due. Trustee shall notify Company where principal and earnings are
not sufficient.
(d) Trustee shall have no responsibility to determine whether the
Trust is sufficient to meet the liabilities under the Plan(s), and shall not be
liable for payments or Plan(s) liabilities in excess of the value of the
Trust's.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN
COMPANY IS INSOLVENT.
(a) Trustee shall cease payment of benefits to Plan participants
and their beneficiaries if the Company is insolvent, Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i) Company is
unable to pay its debts as they become due, or (ii) Company is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section l(d) hereof, the principal and income of the Trust shall be subject
to claim of general creditors of Company under federal and state law as set
forth below.
(1) The Board of Directors and the Chief Executive
Officer of Company (or, if there is no Chief Executive Officer, the highest
ranking officer) shall have the duty to inform Trustee in writing of Company's
insolvency. If a person claiming to be a creditor of Company alleges in
writing to Trustee that Company has become insolvent, Trustee shall determine
whether Company is insolvent and, pending such determination. Trustee shall
discontinue payment of benefits to Plan participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of Company's
insolvency, or has received notice from Company or a person claiming to be a
creditor alleging that Company is insolvent. Trustee shall have no duty to
inquire whether Company is insolvent. Trustee may in all events rely on such
evidence concerning Company's solvency as may be furnished to Trustee and that
provides Trustee with a reasonable basis for making a determination concerning
Company's solvency.
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<PAGE> 4
(3) If at any time Trustee has determined that Company is
insolvent, Trustee shall discontinue payments to Plan participants or their
beneficiaries and shall hold the assets of the Trust for the benefit of
Company's general creditors. Nothing in this Trust Agreement shall in any way
diminish any rights of Plan participants or their beneficiaries to pursue their
rights as general creditors of Company with respect to benefits due under the
Plan(s) or otherwise.
(4) Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this Trust
Agreement only after Trustee has determined that Company is not insolvent (or
is no longer insolvent).
(c) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan(s) for the
period of such discontinuance, less the aggregate amount of any payments made
to Plan participants provided for hereunder during any such period of
discontinuance; provided that Company has given Trustee the information with
respect to such payments made during the period of discontinuance prior to
resumption of payments by Trustee.
SECTION 4. PAYMENTS TO COMPANY.
Except as provided in Section 3 hereof, since the Trust is irrevocable
in accordance with Section l(b) hereof, Company shall have no right or power to
direct Trustee to return to Company or to divert to others any of the Trust
assets before all payment of benefits have been made to Plan participants and
their beneficiaries pursuant to the terms of the Plan(s).
SECTION 5. INVESTMENT AUTHORITY.
(a) Trustee may invest in securities (including stock or rights to
acquire stock) or obligations issued by Company. All rights associated with
assets of the Trust shall be exercised by Trustee or the person designated by
Trustee, and shall in no event be exercised by or rest with Plan participants,
except that voting rights with respect to Trust assets will be exercised by
Company unless an investment adviser has been appointed pursuant to Section
5(c) and voting authority has been delegated to such investment adviser.
(b) Company shall have the right at any time, and from time to
time in its sole discretion, to substitute assets of equal fair market value
for any asset held by the Trust. This right is exercised by Company in a
nonfiduciary capacity without the approval or consent of any person in a
fiduciary capacity.
(c) Trustee may appoint one or more investment advisers who are
registered as investment advisers under the investment Advisers Act of 1940,
who may be affiliates of Trustee, to provide investment advice on a
discretionary or nondiscretionary basis with respect to all or a specified
portion of the assets of the Trust.
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<PAGE> 5
(d) Trustee, or Trustee's designee, is authorized and empowered:
(1) To invest and reinvest Trust assets, together with
the income therefrom, in common stock, preferred stock, convertible preferred
stock, bonds, debentures, convertible debentures and bonds, mortgages, notes,
commercial paper and other evidences of indebtedness (including those issued by
Trustee), shares of mutual funds (which funds may be sponsored, managed or
offered by an affiliate of Trustee), guaranteed investment contracts, bank
investment contracts, other securities, policies of life insurance, annuity
contracts, options, options to buy or sell securities or other assets, and all
other property of any type (personal, real or mixed, and tangible or
intangible);
(2) To deposit or invest all or any part of the assets of
the Trust in savings accounts or certificates of deposit or other deposits in a
bank or savings and loan association or other depository institution, including
Trustee or any of its affiliates, provided with respect to such deposits with
Trustee or an affiliate the deposits bear a reasonable interest rate:
(3) To hold, manage, improve, repair and control all
property, real or personal, forming part of the Trust; to sell, convey,
transfer, exchange, partition, lease for any term, even extending beyond the
duration of this Trust, and otherwise dispose of the same from time to time;
(4) To hold in cash, without liability for interest, such
portion of the Trust as is pending investments, or payment of expenses, or the
distribution of benefits:
(5) To take such actions as may be necessary or desirable
to protect the Trust from loss due to the default on mortgages held in the
Trust including the appointment of agents or trustees in such other
jurisdictions as may seem desirable, to transfer property to such agents or
trustees, to grant to such agents such powers as are necessary or desirable to
protect the Trust, to direct such agent or trustee, or to delegate such power
to direct, and to remove such agent or trustee;
(6) To settle, compromise or abandon all claims and
demands in favor of or against the Trust;
(7) To exercise all of the further rights, powers,
options and privileges granted, provided for, or vested in trustees generally
under the laws of the state in which Trustee is incorporated as set forth
above, so that the powers conferred upon Trustee herein shall not be in
limitation of any authority conferred by law, but shall be in addition thereto;
(8) To borrow money from any source and to execute
promissory notes, mortgages or other obligations and to pledge or mortgage any
trust assets as security; and
(9) To maintain accounts at, execute transactions
through, and lend on an adequately secured basis stocks, bonds or other
securities to any brokerage or other firm, including any firm which is an
affiliate of Trustee.
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<PAGE> 6
SECTION 6. ADDITIONAL POWERS OF TRUSTEE.
To the extent necessary or which it deems appropriate to implement its
powers under Section 5 or otherwise to fulfill any of its duties and
responsibilities as Trustee of the Trust, Trustee shall have the following
additional powers and authority:
(a) To register securities, or any other property, in its name or
in the name of any nominee, including the name of any affiliate or the nominee
name designated by any affiliate, with or without indication of the capacity in
which property shall be held, or to hold securities in bearer form and to
deposit any securities or other property in a depository or clearing
corporation;
(b) To designate and engage the services of, and to delegate
powers and responsibilities to, such agents, representatives, advisers, counsel
and accountants as Trustee considers necessary or appropriate, any of whom may
be an affiliate of Trustee or a person who renders services to such an
affiliate, and, as a part of its expenses under this Trust Agreement, to pay
their reasonable expenses and compensation;
(c) To make, execute and deliver, as Trustee, any and all deeds,
leases, mortgages, conveyances, waivers, releases or other instruments in
writing necessary or appropriate for the accomplishment of any of the powers
listed in this Trust Agreement; and
(d) Generally to do all other acts which Trustee deems necessary
or appropriate for the protection of the Trust.
SECTION 7. DISPOSITION OF INCOME.
(a) During the term of this Trust, all income received by the
Trust, net of expenses and taxes, shall be accumulated and reinvested.
SECTION 8. ACCOUNTING BY TRUSTEE.
(a) Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
made, including such specific records as shall be agreed upon in writing
between Company and Trustee. Within 90 days following the close of each
calendar year and within 90 days after removal or resignation of Trustee.
Trustee shall deliver to Company a written account of its administration of the
Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued interest paid
or receivable being shown separately), and showing all cash, securities and
other property held in the Trust at the end of such year or as of the date of
such removal or resignation, as the case may be. Trustee may satisfy its
obligation under this Section 8 by rendering to Company monthly statements
setting forth the information required by this Section separately for the month
covered by the statement.
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<PAGE> 7
SECTION 9. RESPONSIBILITY AND INDEMNITY OF TRUSTEE.
(a) Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by Company which is contemplated by, and
in conformity with, the terms of the Plan(s) and this Trust and is given in
writing by Company. Trustee shall also incur no liability to any person for
any failure to act in the absence of direction, request or approval from
Company which is contemplated by, and in conformity with, the terms of this
Trust. In the event of a dispute between Company and a party, Trustee may
apply to a court of competent jurisdiction to resolve the dispute.
(b) Company hereby indemnifies Trustee and each of its affiliates
(collectively, the "Indemnified Parties") against, and shall hold them harmless
from, any and all loss, claims, liability, and expense, including reasonable
attorneys' fees, imposed upon or incurred by any Indemnified Party as a result
of any acts taken, or any failure to act, in accordance with the directions
from Company or any designee of Company, or by reason of the Indemnified
Party's good faith execution of its duties with respect to the Trust,
including, but not limited to, its holding of assets of the Trust. Company's
obligations in the foregoing regard to be satisfied promptly by Company,
provided that in the event the loss, claim, liability or expense involved is
determined by a no longer appealable final judgment entered in a lawsuit or
proceeding to have resulted from the gross negligence or willful misconduct of
Trustee, Trustee shall promptly on request thereafter return to Company any
amount previously received by Trustee under this Section with respect to such
loss, claim, liability or expense. If Company does not pay such costs,
expenses and liabilities in a reasonably timely manner, Trustee may obtain
payment from the Trust without direction from Company.
(c) Trustee may consult with legal counsel (who may also be
counsel for Company generally) with respect to any of its duties or obligations
hereunder.
(d) Trustee may hire agents, accountants, actuaries, investment
advisers, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers conferred on
Trustee by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the
Trust. Trustee shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from conversion of the policy
to a different form) other than to a successor Trustee, or to loan to any
person the proceeds of any borrowing against such policy.
(f) However, notwithstanding the provisions of Section 9(e) above,
Trustee may loan to Company the proceeds of any borrowing against an insurance
policy held as an asset of the Trust.
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<PAGE> 8
(g) Notwithstanding any powers to Trustee pursuant to this Trust
Agreement or to applicable law. Trustee shall not have any power that could
give this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of Section.301-7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
SECTION 10. COMPENSATION AND EXPENSES OF TRUSTEE.
Trustee is authorized, unless otherwise agreed by Trustee, to withdraw
from the Trust without direction from Company the amount of its fees in
accordance with the fee schedule agreed to by Company and Trustee. Company
shall pay all administrative expenses, but if not so paid, the expenses shall
be paid from the Trust.
SECTION 11. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) Trustee may resign at any time by written notice to Company,
which shall be effective 30 days after receipt of such notice unless Company
and Trustee agree otherwise.
(b) Trustee may be removed by Company on 30 days notice or upon
shorter notice accepted by Trustee.
(c) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 60 days after
receipt of notice of resignation, removal or transfer, unless Company extends
the time limit, provided that Trustee is provided assurance by Company
satisfactory to Trustee that all fees and reasonably anticipated will be paid.
(d) If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 12 hereof, by the effective date of
resignation or removal under paragraph(s) (a) or (b) of this section. If no
such appointment has been made. Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses
of Trustee in connection with the proceeding shall be allowed as administrative
expenses of the Trust.
(e) Upon settlement of the account and transfer of the Trust
assets to the successor Trustee, all rights and privileges under this Trust
Agreement shall vest in the successor Trustee and all responsibility and
liability of Trustee with respect to the Trust and assets thereof shall
terminate subject only to the requirement that Trustee execute all necessary
documents to transfer the Trust assets to the successor Trustee.
SECTION 12. APPOINTMENT OF SUCCESSOR.
(a) If Trustee resigns or is removed in accordance with Section
11(a) or (b) hereof, Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace Trustee upon resignation or removal. The
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<PAGE> 9
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by Company or the successor
Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing Trust assets, subject
to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for
and Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from
any other past event, or any condition existing at the time it becomes
successor Trustee.
SECTION 13. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument
executed by Trustee and Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan(s) or shall make the Trust
revocable since the Trust is irrevocable in accordance with Section 1(b)
hereof.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits
pursuant to the terms of the Plan(s). Upon termination of the Trust any assets
remaining in the Trust shall be returned to Company.
(c) Upon written approval of participants or beneficiaries
entitled to payment of benefits pursuant to the terms of the Plan(s), Company
may terminate this Trust prior to the time all benefit payments under the
Plan(s) have been made. All assets in the Trust at termination shall be
returned to Company.
SECTION 14. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries
under this Trust Agreement may not be anticipated, assigned (either at law or
in equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the state in which Trustee is incorporated as set
forth above.
(d) The provisions of Sections 2(d), 3(b)(3), 9(b) and 15 of this
Agreement shall survive termination of this Agreement.
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<PAGE> 10
(e) The rights, duties, responsibilities, obligations and
liabilities of Trustee are as set forth in this Trust Agreement, and no
provision of the Plan(s) or any other documents shall affect such rights,
responsibilities, obligations and liabilities. If there is a conflict between
provisions of the Plan(s) and this Trust Agreement with respect to any subject
involving Trustee, including but not limited to the responsibility, authority
or powers of Trustee, the provisions of this Trust Agreement shall be
controlling.
(f) For purposes of this Trust, Change of Control shall mean: The
purchase or other acquisition by any person, entity or group of persons, within
the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934
("Act"), or any comparable successor provisions, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Act) of 30 percent or
more of either the outstanding shares of common stock or the combined voting
power of Company's then outstanding voting securities entitled to vote
generally, or the approval by the stockholders of Company of a reorganization,
merger, or consolidation, in each case, with respect to which persons who were
stockholders of Company immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter own more than 50 percent of the
combined voting power entitled to vote generally in the election of directors
of the reorganized, merged or consolidated Company's then outstanding
securities, or a liquidation or dissolution of Company or of the sale of all or
substantially all of Company's assets.
SECTION 15. ARBITRATION.
Arbitration Is final and binding on the parties.
o The parties waive their right to seek remedies in court,
including the right to jury trial.
o Pre-arbitration discovery if generally more limited than and
different from court proceedings.
o The arbitrators award is not required to include factual
findings or level reasoning and any party's right to appeal or
seek modification of rulings by the arbitrators is strictly
limited.
o The panel of arbitrators will typically include a minority of
arbitrators who were or are affiliated with the securities
industry.
Company agrees that all controversies which may arise between
Company and either or both the Trustee and its affiliate Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S") in connection with the Trust, including
but not limited to, those involving any transactions, or the construction,
performance, or breach of this or any other agreement between Company and
either or both the Trustee and MLPF&S, whether entered into prior, on, or
subsequent to the date hereof, shall be determined by arbitration. Any
arbitration under this agreement may be conducted only before the New York
Stock Exchange, Inc., the American Stock Exchange, Inc., or arbitration
facility provided by any other of which MLPF&S is a member, the National
Association of Securities Dealers, Inc., or the Municipal Securities Rulemaking
Board, and in accordance with its arbitration rules then in force. Company may
elect in the
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<PAGE> 11
first instance whether arbitration shall be conducted before the New York Stock
Exchange Inc., the American Stock Exchange, Inc., other exchange of which MLPF&S
is a member, the National of Securities Dealers, Inc., or the Municipal
Securities Rulemaking Board, but if Company fails to make such election, by
registered letter or telegram addressed to Merrill Lynch Trust Companies &
Employee Benefit Trust Operations, P.O. Box 30532, New Brunswick, New Jersey
08989-0532, before the expiration of five (5) days after receipt of a written
request from MLPF&S and/or the Trustee to make such election, then MLPF&S and/or
the Trustee may make such election. Judgment upon the award of arbitrators may
be entered in any court, state or federal having jurisdiction. No person shall
bring a putative or certified class action to arbitration, nor seek to enforce
any pre-dispute arbitration agreement against any person who has initiated in
court a putative class action; who is a member of putative class who has not
opted out of the class with respect to any claims encompassed by the putative
class action until:
(i) the class certification is denied;
(ii) the class is decertified; or
(iii) the customer is excluded from the class by the court. Such
forbearance to enforce an agreement to arbitrate shall not constitute a waiver
of any rights under this agreement except to the extent stated herein.
SECTION 16. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be August 1, 1994.
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<PAGE> 12
IN WITNESS WHEREOF, Company and the Trustee have executed this Trust
Agreement each by action of a duly authorized person.
By signing this Agreement the undersigned Company acknowledges (1)
that, in accordance with Section 15 of this Agreement, Company is agreeing in
advance to arbitrate any controversies which may arise with either or both the
Trustee or MLPF&S and (2) receipt of a copy of this Agreement.
Fremont General Corporation
By: /s/ James A. McIntyre
----------------------------------
Name/Title: James A. McIntyre,
President, FGC and
Chairman of the Board
Trustee
By: /s/ Chris Rosin
----------------------------------
Name/Title: Trust Officer
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<PAGE> 13
APPENDIX A
Name of Non-Qualified Deferred Compensation Plan(s):
Fremont General Corporation Excess Benefit Plan
<PAGE> 14
APPENDIX B
Deposit of cash and/or marketable securities to the Trust:
As of 3/31/94 (approx.):
Cash: $15,479.09
Marketable Securities: Fremont General Corporate Common
Stock - 61,121 Shares
<PAGE> 15
Amendment for
Fremont's
Excess Benefit Plan
AMENDMENT TO THE MERRILL LYNCH NON-QUALIFIED DEFERRED
COMPENSATION PLAN TRUST AGREEMENT
between
MERRILL LYNCH TRUST COMPANY OF CALIFORNIA
and
FREMONT GENERAL CORPORATION
AMENDMENT to the Merrill Lynch Non-Qualified Deferred Compensation
Plan Trust Agreement entered into as of August 1, 1994 by and between Merrill
Lynch Trust Company of California (the "Trustees") and Fremont General
Corporation (the "Employer") in respect of a trust forming part of the Fremont
General Excess Benefit Plan.
WHEREAS, the Trustee and the Employer wish to amend the Agreement as
hereinafter set forth;
NOW, THEREFORE, the Trustee and the Employer agree that said Agreement
shall be amended as follows:
1. Section 5(a) is hereby amended so as to delete the second
sentence thereof and insert in lieu thereof the following: "All rights
associated with assets of the Trust shall be exercised by Trustee or the
person designated by Trustee or the person designated by Trustee, and shall in
no event be exercised by or rest with Plan participants, except that voting
rights shall be exercised as set forth below. Notwithstanding the foregoing
sentence, the voting and other rights in securities or other assets held in the
Trust shall be exercised by Trustee as directed by Company, provided that such
voting and other rights in any "employer security" within the meaning of
Section 407(d)(1) of the Employee Retirement Income Security Act of 1974, as
amended from time to time ("Employer Securities") which is held by the Trust
shall be exercised by Trustee taking into account, to the extent it deems
advisable, instructions from participants or beneficiaries having interests in
such shares of Employer Securities. In the event Company or participant or
beneficiary, as applicable, does not communicate any decision or instruction on
the matter to Trustee or Trustee's designee by the time prescribed by Trustee
for that purpose, Trustee may, at the cost of Company, obtain advice from a
bank, insurance company, investment adviser or other investment professional
(including an affiliate of Trustee) or retain an investment adviser pursuant to
Section 5(c) with full discretion to make the decision."
<PAGE> 16
2. Section 14(f) is hereby amended so as to delete Section 14(f)
and insert a new Section 14(f) as follows:
(f) For purposes of this Trust, a "Change in Control"
shall mean:
(i) With respect to Company, a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "1934 Act") or any successor thereto; provided that,
without limitation, such a change in control shall be deemed to have occurred
if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
1934 Act), other than a trustee or other fiduciary holding securities under an
employee benefit plan of Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of Voting
Securities of Company representing 50% or more of the combined voting owner of
Company's then outstanding Voting Securities; or (B) the stockholders of
Company approve a merger or consolidation of Company with any other
corporation, other than a merger or consolidation which would result in the
Voting Securities of Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 50% of the total voting power
represented by the Voting Securities of Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of Company approve a plan of complete liquidation of Company or an agreement
for the sale or disposition by Company (in one transaction or a series of
transactions) of all or substantially all of Company's assets.
(ii) With respect to Company, a Change in Control shall
mean:
(A) any acquisition or more than 50% of the
outstanding capital stock of Company, but excludes a public stock
offering of Company's stock; or
(B) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
of Directors of Company, together with any new directors whose
election or nomination for election was approved by a vote of at least
two-thirds of the directors then still in office who were either
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority of the Board of Directors of
Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
as a result of any event described in Sections 14(f)(i)(A), 14(f)(i)(C), or
14(f)(ii)(A), if directors who were a majority of the members of the Board
prior to such event determine that the event shall not constitute a Change in
Control within one year after the transaction and furnish written notice to
Trustee of such determination.
<PAGE> 17
(2) For purposes of this Trust Agreement, a Change in Control shall be
deemed to have occurred when Trustee makes a determination to that effect on its
own initiative or upon receipt by Trustee of written notice to that effect from
Company. The Chief Executive Officer of Company or the Board shall furnish
written notice to the Trustee when a Change in Control occurs under Section
14(f).
(3) "Voting Securities" shall mean any securities of Company which vote
generally in the election of directors."
3. This Amendment shall be effective as of August 1, 1994.
4. Except as provided herein, the Agreement shall remain in full
force and effect as specifically amended hereby.
IN WITNESS WHEREOF, the Trustee and the Employer have caused this
Amendment to be executed on the date set forth below.
<TABLE>
<S> <C>
MERRILL LYNCH TRUST COMPANY FREMONT GENERAL
OF CALIFORNIA CORPORATION
By: /s/ Chris Rosin By: /s/ James A. McIntyre
-------------------------------- -----------------------------
Name/Title: Chris Rosin Trust Officer Name/Title: Chairman of the Board and President, FGC
Date: August 3, 1994 Date: August 1, 1994
</TABLE>
<PAGE> 1
EXHIBIT 10.9
AMENDED NON-QUALIFIED STOCK OPTION PLAN OF 1989
AS OF JANUARY 8, 1996
FREMONT GENERAL CORPORATION (the "Company"), a corporation organized
under the laws of the State of Nevada, hereby adopts this AMENDED NON-QUALIFIED
STOCK OPTION PLAN OF 1989 (the "Plan") which amends the Non-Qualified Stock
Option Plan of 1989 to reserve an additional 893,750 (reflecting a share
adjustment pursuant to Section 2.3 of the Plan as a result of the 3-for-2 stock
split distributed on February 7, 1996) shares for future grants.
The purposes of this Plan are as follows:
(1) To further the growth, development and financial success of
the Company by providing additional incentives to certain of the key employees
of the Company and its Subsidiaries who have been or will be given
responsibility for the management or administration of the Company's business
affairs, by assisting them to become owners of Common Stock of the Company and
thus to benefit directly from its growth, development and financial success;
(2) To enable the Company to obtain and retain the services of the
type of professional, technical and managerial persons considered essential to
the long-range success of the Company by providing and offering them an
opportunity to become owners of Common Stock of the Company; and
(3) To attract, motivate and retain experienced and knowledgeable
outside directors through the benefits provided in Article III.
ARTICLE I
DEFINITIONS
SECTION 1.1 - General
Whenever the following terms are used in this Plan, they shall have
the meaning specified below unless the context clearly indicates to the
contrary.
SECTION 1.2 - Board
"Board" shall mean the Board of Directors of the Company.
SECTION 1.3 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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SECTION 1.4 - Committee
"Committee" shall mean the Stock Option Committee of the Board,
appointed as provided in Section 5.1.
SECTION 1.5 - Company
"Company" shall mean Fremont General Corporation.
SECTION 1.6 - Director
"Director" shall mean a member of the Board of Directors of Fremont
General Corporation.
SECTION 1.7 - Employee
"Employee" shall mean any employee (including any officer) of the
Company, or of any corporation which is then a subsidiary, whether such
employee is so employed at the time this Plan is adopted or becomes so employed
subsequent to the adoption of this Plan.
SECTION 1.8 - Employee Participant
"Employee Participant" shall mean any Employee who has been granted an
Option under the provisions of Article IV.
SECTION 1.9 - Fair Market Value
"Fair Market Value" shall mean: (i) the closing price of a share of
the Company's stock on the principal exchange on which shares of the Company's
stock are then trading (or the last sale price if the shares are traded on the
National Market System), if any, on such date, or, if shares were not traded on
such date, then on the next preceding day during which a sale occurred; or (ii)
if such stock is not traded on an exchange but quoted on NASDAQ or a successor
quotation system, the mean between the closing representative bid and asked
prices for the stock on such date as reported by NASDAQ or such successor
quotation system; or (iii) if such stock is not publicly traded on an exchange
and not quoted on NASDAQ or a successor quotation system, the mean between the
closing bid and asked prices for the stock on such date; or (iv) if the
Company's stock is not publicly traded, the fair market value as established by
the Committee acting in good faith at such time for the purposes of this Plan.
SECTION 1.10 - Non-Employee Director
"Non-Employee Director" shall mean a member of the Board who is not an
officer or employee of the Company or any Subsidiary.
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SECTION 1.11 - Non-Employee Director Participant
"Non-Employee Director Participant" shall mean a Non-Employee Director
who has been granted an Option under the provisions of Article III.
SECTION 1.12 - Option
"Option" shall mean an option to purchase Common Stock of the Company
granted under the Plan.
SECTION 1.13 - Plan
The "Plan" shall mean this AMENDED NON-QUALIFIED STOCK OPTION PLAN OF
1989.
SECTION 1.14 - Pronouns
The masculine pronoun shall include the feminine and neuter and the
singular shall include the plural, where the context so indicates.
SECTION 1.15 - Secretary
"Secretary" shall mean the Secretary of the Company.
SECTION 1.16 - Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns the stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
SECTION 1.17 - Termination of Employment
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Employee Participant and the Company
or a Subsidiary is terminated for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death or retirement, but
excluding terminations where there is a simultaneous reemployment by the
Company or a Subsidiary. For purposes of this Section 1.17, an Employee
Participant who is employed by a Subsidiary will be deemed to have terminated
employment at such time as the Employee Participant's employer ceases to be a
Subsidiary. The Committee, in its absolute discretion, shall determine the
effect of all other matters and questions relating to Termination of
Employment, including, but not by way of limitation, the question of whether a
Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Termination of
Employment.
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ARTICLE II
SHARES SUBJECT TO PLAN
SECTION 2.1 - Shares Subject to Plan
The shares of stock subject to Options shall be shares of the
Company's Common Stock. The aggregate number of such shares which may be
delivered upon exercise of Options shall not exceed 2,681,250, (adjusted to
reflect (i) the 3-for-2 stock split distributed on June 17, 1993; (ii) the ten
percent (10%) stock dividend paid on June 15, 1995 and (iii) the 3-for-2 stock
split distributed on February 7, 1996) subject to adjustments required by this
Plan and as may be required by Rule 16b-3. Shares subject to outstanding
options shall be reserved for issuance under the Plan.
SECTION 2.2 - Unexercised Options
If any Option expires, terminates, is surrendered or cancelled without
having been fully exercised, the number of shares subject to such Option but as
to which such Option was not exercised prior to its expiration or cancellation
will not be charged against the maximum number of shares set forth in Section
2.1 above and may again be optioned hereunder.
SECTION 2.3 - Changes in Company's Shares
In the event that the outstanding shares of Common Stock of the
Company are hereafter changed into or exchanged for a different number or kind
of shares or other securities of the Company, or of another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split, stock dividend or combination of shares, the
Committee shall make an appropriate proportionate and equitable adjustment in
the number and kind of securities for the purchase of which Options may be
granted, including adjustments of the limitations in Sections 2.1, 3.2 and 4.9
on the maximum and specific number and kind of securities which may be issued
on exercise of Options.
ARTICLE III
NON-EMPLOYEE DIRECTOR OPTIONS
SECTION 3.1 - Participation
Grants of Options under this Article III shall be made only to
Non-Employee Directors. Each such Option shall provide that the Option shall
not be treated as an incentive stock option within the meaning of Section 422
of the Code.
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SECTION 3.2 - Annual Option Grants
(a) Time of Initial Award. Upon approval of this First
Restatement of the Plan by the shareholders of the Company, there shall be
granted automatically (without any action by the Board or Committee) to each
director who is not then an officer or employee of the Company an Option (the
date of grant of which shall be the date of such approval) to purchase 2,500
shares of Common Stock.
(b) Subsequent Annual Awards. On the date of the annual
shareholders' meeting of the Company in 1993, 1994, and 1995, there shall be
granted automatically (without any action by the Committee or the Board) an
Option (the date of grant of which shall be such shareholders' meeting date) to
each Non-Employee Director then in office to purchase 2,500 in 1993 and 3,750
in 1994 and 1995 (adjusted as applicable, to reflect the 3-for-2 stock split
distributed on June 17, 1993) shares of Common Stock.
SECTION 3.3 - Option Price
The exercise price per share of the Common Stock covered by each
Option granted pursuant to Section 3.2 hereof shall be one hundred percent
(100%) of the Fair Market Value of the Common Stock on the date such Option is
granted. Upon the fifth (5th) anniversary of the date of such grant, however,
and on each successive anniversary thereafter until the Option is either
exercised or expires, the exercise price of each unexercised Option shall be
automatically reduced by one-sixth (1/6th) of the original option exercise
price. Upon exercise of an Option, the Optionee shall pay to the Company the
then applicable option exercise price.
SECTION 3.4 - Option Period
Each Option granted under this Article III and all rights or
obligations thereunder shall expire ten (10) years after the date such Option
is granted and shall be subject to earlier termination as provided below.
SECTION 3.5 - Exercise of Options
Each Option granted under this Article III shall become exercisable in
four equal installments at the rate of twenty-five percent (25%) per year
beginning on the first anniversary of the grant date.
The exercise price of each Option granted under this Article III shall
be paid in full at the time of exercise in cash or by check or in shares of
Common Stock valued at their Fair Market Value on the date of exercise of the
Option, or partly in such shares and partly in cash, provided that any such
shares used in payment of such exercise price shall have been owned by the
Non-Employee Director Participant at least six (6) months prior to the date of
exercise. An exercisable Option may be exercised solely by delivery to the
Secretary or his or her office of a notice in writing signed by the
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Non-Employee Director Participant (or other person then entitled to exercise
the Option or portion thereof pursuant to Section 6.3, subject to Section 6.8).
SECTION 3.6 - Termination of Directorship
If a Non-Employee Director Participant's services as a member of the
Board of Directors terminate, an Option granted pursuant to this Article held
by such Non-Employee Director Participant shall remain exercisable to the
extent it was then exercisable until the first to occur of the following
events:
(i) The expiration of ten (10) years after the date the
Option was granted: or
(ii) Except in the case of any Non-Employee Director
Participant who is disabled (within the meaning of Section 105(d)(4) of the
Code), or dies, the expiration of three (3) months after the date of the
Non-Employee Director Participant's termination from service; or
(iii) In the case of any Non-Employee Director Participant
who is disabled (within the meaning of Section 105(d)(4) of the Code), or dies,
the expiration of twelve (12) months after the date of the Non-Employee
Director Participant's termination from service.
SECTION 3.7 - Acceleration Upon a Change in Control Event
(a) Upon the occurrence of a Change in Control Event (as defined
below), each Option granted under Section 3.2 shall become immediately
exercisable in full; provided, however, that none of such Options shall be
accelerated to a date less than six (6) months after the initial date of grant
of such Option.
(b) For purposes of this Section 3.7, a "Change in Control Event"
shall mean
(i) Approval by the shareholders of the Company of the
dissolution or liquidation of the Company;
(ii) Approval by the shareholders of the Company of an
agreement to merge or consolidate, or otherwise reorganize, with or into one or
more entities that are not Subsidiaries, as a result of which less than fifty
percent (50%) of the outstanding voting securities of the surviving or
resulting entity immediately after the reorganization are, or will be, owned by
shareholders of the Company immediately before such reorganization (assuming
for purposes of such determination that there is no change in the record
ownership of the Company's securities from the record date of such shareholder
action until such reorganization and that such record owners hold no securities
of the other parties to such reorganization);
(iii) Approval by the shareholders of the Company of the
sale of substantially all of the Company's business and/or assets to a person
or entity which is not a Subsidiary;
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(iv) Any "person" (as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of securities of the Company representing more than
eighty percent (80%) of the combined voting power of the Company's then
outstanding securities entitled to then vote generally in the election of
directors of the Company; or
(v) During any period not longer than two (2) consecutive
years, individuals who at the beginning of such period constituted the Board
cease to constitute at least a majority thereof, unless the election, or the
nomination for election by the Company's shareholders, of at least a majority
of the new Board members during such period was approved by a vote of at least
two-thirds (2/3rds) of the Board members then still in office who were Board
members at the beginning of such period.
SECTION 3.8 - Adjustments and Termination
Options granted under this Article III shall be subject to adjustment
as provided in Sections 2.3 and 6.2, but only to the extent that (a) such
adjustment and the Committee's action in respect thereof satisfy applicable
criteria for disinterested administration under Rule 16b-3, (b) such adjustment
in the case of a Change in Control Event is effected pursuant to the terms of a
reorganization agreement approved by shareholders of the Company, and (c) such
adjustment is consistent with the adjustments to Options held by persons other
than executive officers or directors of the Company. To the extent that any
Option granted under this Article III is not exercised prior to (x) a
dissolution of the Company, or a merger or other corporate reorganization that
the Company does not survive, and (y) no provision is (or consistent with the
provisions of the preceding sentence can be) made for the assumption,
conversion, substitution or exchange of the Option, the Option shall terminate
upon the occurrence of such event.
SECTION 3.9 - Limitation on Amendments
The provisions of this Article III shall not be amended more than once
every six (6) months (other than as may be necessary to conform to any
applicable changes in the Code or the rules thereunder), unless such amendment
would be consistent with the provisions of Rule 16b-3(c) (2) (ii) (or any
successor provision).
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ARTICLE IV
EMPLOYEE OPTIONS
SECTION 4.1 - Eligibility
Any key Employee of the Company or a Subsidiary who is selected by the
Committee shall be eligible to be granted Options under this Article.
SECTION 4.2
(a) The Committee shall from time to time, in its absolute
discretion:
(i) Determine which Employees are key Employees and
select from among the key Employees (including those to whom Options have been
previously granted under the Plan) such of them as in its opinion should be
granted Options; and
(ii) Determine the number of shares to be subject to such
Options granted to such selected key Employees; and
(iii) Determine the terms and conditions of such Options,
consistent with the Plan.
(b) Upon the selection of a key Employee to be granted an Option,
the Committee shall instruct the Secretary to issue such Option and may impose
such conditions on the grant of such Option as deemed appropriate. Each such
Option shall provide that the Option shall not be treated as an incentive stock
option within the meaning of Section 422A of the Code.
SECTION 4.3 - Option Price
The exercise price per share of the Common Stock covered by each
Option granted pursuant to Section 3.2 hereof shall be one hundred percent
(100%) of the Fair Market Value of the Common Stock on the date such Option is
granted. Upon the fifth (5th) anniversary of the date of such grant, however,
and on each successive anniversary thereafter until the Option is either
exercised or expires, the exercise price of each unexercised Option shall be
automatically reduced by one-sixth (1/6th) of the original option exercise
price. Upon exercise of an Option, the Optionee shall pay to the Company the
then applicable option exercise price.
SECTION 4.4 - Commencement of Exercisability
(a) No Option granted under this Article IV may be exercised in
whole or in part during the first year after such option is granted or, if the
exercise price of an option is reduced by amendment other than as described
above in Section 4.3, during the first year after such amendment.
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(b) Subject to the provisions of Section 4.4(a), 4.4(c) and 6.3,
such Options are, subject to the discretion of the Committee to otherwise
provide, exercisable at a rate of twenty-five percent (25%) per year beginning
on the first anniversary of the grant date; provided, however, that by a
resolution adopted after an Option is granted the Committee may, on such terms
and conditions as it may determine to be appropriate and subject to Sections
4.4(a), 4.4(c), 4.5 and 6.3, accelerate or extend the time at which such Option
or any portion thereof may be exercised.
(c) Unless the Committee otherwise provides, no portion of an
Option which is unexercisable at Termination of Employment shall thereafter
become exercisable.
SECTION 4.5 - Expiration of Options
(a) No Option may be exercised to any extent by anyone after the
first to occur of the following events (unless, as to clauses (ii) through (iv)
below, the Committee otherwise provides):
(i) The expiration of ten (10) years after the date the
Option was granted; or
(ii) Except in the case of any Employee Participant who is
disabled (within the meaning of Section 105(d) (4) of the Code), the expiration
of three (3) months after the date of the Employee Participant's Termination of
Employment for any reason other than such Employee Participant's death unless
the Employee Participant dies within said three (3) months period; or
(iii) In the case of an Employee Participant who is
disabled (within the meaning of Section 105(d)(4) of the Code), the expiration
of twelve (12) months from the date of the Employee Participant's Termination
of Employment for any reason other than such Employee Participant's death
unless the Employee Participant dies within said twelve (12) month period; or
(iv) The expiration of one (1) year after the date of the
Employee Participant's death.
(b) Subject to the provisions of Section 4.5(a), the Committee
shall provide, in the terms of each individual Option granted to an Employee
Participant, when such Option expires and becomes unexercisable; and (without
limiting the generality of the foregoing) the Committee may provide in the
terms of individual Options that said Options expire immediately upon a
Termination of Employment for any one or more reasons.
SECTION 4.6 - Consideration
In consideration of the granting of the Option, the Employee
Participant shall agree, in the written Stock Option Agreement, to remain in
the employ of the Company or a Subsidiary for a period of at least one (1) year
after the Option is granted. Nothing in this Plan or in any Stock Option
Agreement hereunder shall confer upon an Employee Participant any right to
continue in the employ of the Company or any Subsidiary. The granting of the
Option shall not interfere with or restrict in any way the rights of
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the Company and Subsidiaries, which are hereby expressly reserved, to discharge
any Employee Participant at any time for any reason whatsoever, with or without
good cause.
SECTION 4.7 - Merger, Consolidation, Exchange, Acquisition, Liquidation or
Dissolution
In its absolute discretion, and on such terms and conditions as it
deems appropriate, the Committee may provide by the terms of any Option granted
to an Employee Participant that such Option cannot be exercised after the
merger or consolidation of the Company into another corporation, the exchange
of all or substantially all of the assets of the Company for the securities of
another corporation, the acquisition by another corporation of eighty percent
(80%) or more of the Company's then outstanding voting stock or the liquidation
or dissolution of the Company; and if the Committee so provides, it may, in its
absolute discretion and on such terms and conditions as it deems appropriate,
also provide either by the terms of such Option or by a resolution adopted
prior to the occurrence of such merger, consolidation, exchange, acquisition,
liquidation or dissolution, that, for some period of time prior to such event,
such Options or some of them shall be exercisable as to all shares covered
thereby, notwithstanding anything to the contrary in Section 4.4(a), Section
4.4(b) and/or in any installment provisions of such Option.
SECTION 4.8 - Manner of Exercise
An exercisable Option granted to an Employee Participant, or any
exercisable portion thereof, may be exercised solely by delivery to the
Secretary or his or her office of all of the following prior to the time when
such Option or such portion becomes unexercisable under Section 4.5 or Section
4.7:
(a) Notice in writing signed by the Employee Participant or other
person then entitled to exercise such Option or portion, stating that such
Option or portion is exercised, such notice complying with all applicable rules
established by the Committee; and
(b) (i) Full payment (in cash or by check payable to the
Company) for the shares with respect to which such Option or portion is thereby
exercised; or
(ii) Subject to such conditions and rules as the Committee
may establish, shares of any class of the Company's stock owned by the Employee
Participant duly endorsed for transfer to the Company with a Fair Market Value
on the date of delivery equal to the aggregate Option price of the shares with
respect to which such Option or portion in thereby exercised; or
(iii) At the option and in the sole discretion of the
Committee, promissory note or notes of the Employee Participant, to be secured
by a security interest in the shares issued upon exercise and such other
security, if any, as the Committee may require. Any such promissory notes
shall bear a rate of interest not less than a rate, if any, as it may change
from time to time required under federal tax law to prevent any imputation of
interest, unless such rate exceeds the maximum rate permissible under Nevada
law, in which case the rate shall not exceed the maximum permitted under Nevada
law. All other terms of such note shall be determined, subject to compliance
with applicable laws (including federal
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margin requirements if applicable), solely by the Committee. All terms and
conditions, including whether the note shall become due upon Termination of
Employment, shall be expressly set forth in the promissory note or notes
executed by the Employee Participant. The Committee shall furnish the Employee
Participant with a Truth-in-Lending statement if required showing the terms of
the loan, including the amount financed, total payments of interest, total
payments of principal and annual percentage rate; or
(iv) Any combination of the consideration permitted by the
foregoing subsections.
(c) Such representation and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and any other
federal or state laws or regulations. The Committee may, in its absolute
discretion, also take whatever additional actions it deems appropriate to
effect such compliance including, without limitation, placing legends on share
certificates and issuing stop-transfer orders to agents and registrars.
(d) In the event the Option or portion shall be exercised pursuant
to Section 6.3 by any person or persons other than the Employee Participant,
appropriate proof of the right of such person or persons to exercise the Option
or portion.
SECTION 4.9 - Performance-Based Compensation Limitation
The following limitations shall apply to grants of Options under the
Plan:
(i) No Employee shall be granted, in any fiscal year of
the Company, Options under the Plan to purchase more than 165,000 (adjusted to
reflect the ten percent (10%) stock dividend paid on June 15, 1995 and the
3-for-2 stock split distributed on February 7, 1996) shares of Common Stock,
provided that the Company may make an additional one-time grant of up to 33,000
(adjusted to reflect the ten percent (10%) stock dividend paid on June 15, 1995
and the 3-for-2 stock split distributed on February 7, 1996) shares of Common
Stock to newly-hired Employees.
(ii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 6.2.
(iii) If an Option is canceled (other than in connection
with a transaction described in Section 4.7 or Section 6.2), the canceled
Option will be counted against the limit set forth in Section 4.9(i). For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.
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ARTICLE V
ADMINISTRATION
SECTION 5.1 - Stock Option Committee
(a) The Stock Option Committee shall be composed of no fewer than
three (3) members (or, as of September 1, 1992, two (2) members) of the Board,
designated by and holding office at the pleasure of the Board. Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee shall be filled by the Board.
(b) No options shall be granted to any member of the Committee
during the term of his or her membership on the Committee except as provided in
Article III. No person shall be eligible to serve or continue to serve on the
Committee unless he or she is the "disinterested" person for purposes of Rule
16b-3, as amended from time to time.
SECTION 5.2 - Duties and Powers of Committee
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to interpret the Plan and the Options and to adopt such
rules for the administration, interpretation and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules. Any
such interpretations and rules shall be consistent with the basic purposes of
the Plan. Notwithstanding the foregoing, the provisions of Article III
relating to Non-Employee Director Options shall be non-discretionary, automatic
and, to the maximum extent possible, self-effectuating.
SECTION 5.3 - Action by the Committee
The Committee shall act by a majority of its members in office by vote
at a meeting or by unanimous written consent of all members of the Committee.
SECTION 5.4 - Compensation; Professional Assistance; Good Faith Actions
Members of the Committee shall not receive compensation for their
service as members but all expenses and liabilities they incur in connection
with the administration of the Plan shall be borne by the Company. The
Committee may, with the approval of the Board, employ attorneys, consultants,
accountants, appraisers, brokers or other persons. The Committee, the Company
and its officers and Directors shall be entitled to rely upon the advice,
opinions or valuations and determinations made by the Committee in good faith
and the same shall be final and binding upon all Employee Participants and
Non-Employee Director Participants, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith
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with respect to the Plan or the Options and all members of the Committee shall
be fully protected by the Company in respect to any such action, determination
or interpretation.
ARTICLE VI
OTHER PROVISIONS
SECTION 6.1 - Option Agreement
Each Option granted under Article IV shall be evidenced by a written
Stock Option Agreement, which shall be executed by the Employee Participant and
an authorized officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with the Plan. Each
Option granted under Article III shall be evidenced by a written Stock Option
Agreement in the form heretofore approved by the Board and shall be signed by
the President or a Senior Vice President of the Company. The terms upon which,
the times at which and the exercise price of all Options granted under the Plan
shall be established by resolution of the Committee providing for the grant of
Option and shall be set forth in or incorporated by reference in the Stock
Option Agreement.
SECTION 6.2 - Adjustments in Outstanding Options
In the event that the outstanding shares of stock subject to Options
are changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend or combination of shares, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares as to which all
outstanding Options, or portions then unexercised, shall be exercisable, to the
end that after such event the Employee Participant or Non-Employee Director
Participant's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in an outstanding Option shall be
made without change in the total price applicable to the Option or the
unexercised portion of the Option (except for any change in the aggregate price
resulting from rounding-off of share quantities or prices) and with any
necessary corresponding adjustment in the option price per share.
SECTION 6.3 - Person Eligible to Exercise
Except as permitted by Section 6.8, during the lifetime of the
Employee Participant or Non-Employee Director Participant, his or her Option,
or any portion, shall be exercisable only by him or her or by his or her
guardian or legal representative. After the death of the Employee Participant
or Non-Employee Director Participant, any exercisable portion of an Option may,
prior to the time when such portion becomes unexercisable under Section 3.6,
4.5 or 4.7, be exercised by his or her personal representative or by any person
empowered to do so under the deceased Employee Participant or Non-Employee
Director Participant's will or under the then applicable laws of the descent
and distribution.
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SECTION 6.4 - Partial Exercise
At any time and from time to time prior to the time when any
exercisable Option or exercisable portion becomes unexercisable under Section
3.6, 4.5 or 4.7, such Option or portion thereof may be exercised in whole or in
part; provided, however, that the Company shall not be required to issue
fractional shares and the Committee may, by the terms of an Option granted
under Article IV, require any partial exercise to be with respect to a
specified minimum number of shares.
SECTION 6.5 - Conditions to Issuance of Stock Certificates
The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but
unissued shares or issued shares which have then been reacquired by the
Company. The Company shall not be required to issue or deliver any certificate
or certificates for shares of stock purchased upon the exercise of any Option
or portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges, if any, on which such class of stock is then listed; and
(b) The completion of any registration or other qualification of
such shares under any state or federal law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body, which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may establish from time to time for
reasons of administrative convenience; and
(e) The satisfaction of all other applicable legal requirements
incident to such action.
SECTION 6.6 - Rights as Shareholders
The holders of Options shall not be, nor have any of the rights or
privileges of, shareholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by the Company to such holders.
SECTION 6.7 - Transfer Restrictions After Exercise
The Committee, in its absolute discretion, may impose such
restrictions on the transferability of the shares purchasable upon the exercise
of an Option as it deems appropriate and any such restriction shall be set
forth in the respective Stock Option Agreement and may be referred to on the
certificates
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evidencing such shares, but in respect of any option granted under Article III,
such restrictions shall be limited to those required by applicable law.
Section 6.8 Options Not Transferable
No Option or interest or right therein or part thereof shall be liable
for the debts, contracts or engagements of the Employee Participant or
Non-Employee Director Participant or his or her successors in interest or shall
be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition is
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy)
and any attempted disposition thereof shall be null and void and of no effect;
provided, however, that nothing in this Section 6.8 shall prevent transfers by
will or by the applicable laws of descent and distribution or, effective
September 1, 1992 pursuant to a "qualified domestic relations order" as defined
by the Code or Title 1 of the Employee Retirement Income Security Act of 1974.
The designation by an Employee Participant or Non-Employee Director Participant
of persons or trust entitled upon such participant's death, by will or the laws
of descent and distribution, to receive the Employee Participant or
Non-Employee Director Participant Options in the event of the death of such
option holder shall not constitute a transfer.
Section 6.9 Amendment, Suspension or Termination of the Plan; Amendment of
Options
Subject to Section 3.8, the Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Board. However, without approval of the Company's shareholders given
within twelve (12) months before or after the action by the Board or the
Committee, no action of the Committee or Board may, except as contemplated by
Section 2.3 and 6.2, materially increase the number of shares which may be
issued on exercise of Options, or materially increase the benefit accruing to
Employee Participants or Non-Employee Director Participants under the Plan or
materially modify the requirements as to eligibility for participation in the
Plan. Neither the amendment, suspension nor termination of the Plan shall,
without the consent of the holder of the Option, alter or impair any rights or
obligations of the holder, and neither the suspension nor termination of the
Plan shall impair the authority of the Committee in respect of outstanding
options during any period of suspension. In no event may any Option be granted
under this Plan after February 1, 1999.
The Committee by resolution may waive conditions of or limitations on
rights under Options granted to any or all Employee Participants that the
Committee in the prior exercise of its discretion has imposed, or make other
changes to the terms of such Options consistent with the express provisions
hereof that do not adversely affect such Participants. No change of or
affecting an outstanding Option shall, however, without the written consent of
the Participant, adversely affect the Participant's rights or benefits under
any Option then outstanding. Changes contemplated by Sections 2.3, 3.8, 4.6 or
6.2 shall not be deemed to constitute changes for purposes of this Section.
-15-
<PAGE> 16
SECTION 6.10 - Approval of Plan by Stockholders
This Plan was originally adopted by the Stockholders in May, 1989.
Subsequent amendments were adopted by the Shareholders in 1992, 1994 and 1995.
SECTION 6.11 - Effect of Plan Upon Other Options and Compensation Plans
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Subsidiary. Nothing in this
Plan shall be construed to limit the right of the Company or any Subsidiary (a)
to terminate employees of the Company or any Subsidiary or (b) to grant or
assume options otherwise than under this Plan in connection with any proper
corporate purpose, including, but not by way of limitation, the grant or
assumption of options in connection with the acquisition by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, firm or association.
SECTION 6.12 - Tax Withholding
Upon the exercise of an option by an Employee Participant or other
person, the Company shall have the right to require such person to pay, by cash
or check payable to the Company, the amount of any taxes which the Company may
be required to withhold with respect to such exercise. Notwithstanding the
foregoing, in any case where a tax is required to be withheld in connection
with the issuance or transfer of Company stock under this Plan, an Employee
Participant or other person entitled to exercise an Option (other than an
Option granted under Article III), may elect, pursuant to such rules as the
Committee may establish, to have the Company reduce the number of such shares
issued or transferred by the appropriate number of shares to accomplish such
withholding; provided the Committee may impose such conditions on the payment
of any withholding obligation as may be required to satisfy any applicable
regulatory requirements.
SECTION 6.13 - Governing Law
(a) The Plan and the Option Agreements and all other related
documents shall be governed by the laws of the State of California, except to
the extent such laws may be supplanted by the supreme laws of the United States
of America, or by Nevada law as the law of the State of incorporation of the
Company. If any provision shall be held invalid and unenforceable by a court
of competent jurisdiction, the remaining provisions shall continue to be fully
effective.
(b) It is the intent of the Company that this Plan and Options
granted hereunder satisfy and be interpreted in a manner that in the case of
Participants who are or may be subject to Section 16 of the Exchange Act
satisfies the applicable requirements of Rule 16b-3 so that such persons will
be entitled to the benefits of Rule 16b-3 or other exemptive rules under
Section 16 of the Securities Exchange Act of 1934 and will not be subjected to
avoidable liability thereunder. If any provision of this Plan or of any Option
would otherwise frustrate or conflict with the intent expressed above, that
provision to the extent possible shall be interpreted and deemed amended so as
to avoid such conflict, but to the extent of any
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<PAGE> 17
remaining irreconcilable conflict with such intent as to such persons in the
circumstances, such provision shall be deemed void.
SECTION 6.14 - Titles
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of the Plan.
-17-
<PAGE> 1
EXHIBIT 10.10
LONG-TERM INCENTIVE COMPENSATION PLAN OF 1993
FREMONT GENERAL CORPORATION
AND
AFFILIATED COMPANIES
FREMONT GENERAL OFFICER PARTICIPATION
___________________________
PURPOSE
The purpose of the Fremont General Corporation Long-Term Incentive
Compensation Plan of 1993 (the "LTICP" or Plan") is to attract, retain and
motivate high caliber executive talent and to reward their success in achieving
the financial goals of materially enhancing stockholder value. To this end,
the Plan is intended to link the compensation of covered employees to the
long-range growth and increased value of the Company.
To accomplish this, the LTICP pays cash or stock awards upon the
successful achievement, over the three (3) year period ending December 31, 1995
(the "Performance Period"), of a pretax earnings Target of $191,000,000.
The Plan is a non-funded bonus compensation plan which is contingent
upon specific performance as set forth above and is neither subject to the
Employee Retirement Income Security Act of 1974 ("ERISA"), nor qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended.
ADMINISTRATION
The Plan is administered by the Compensation Committee of the
Company's Board of Directors (the "Committee"). The Committee retains full and
final discretion and authority to interpret and administer the Plan, to
determine and approve the participants, assign award opportunities, and
determine the conditions as to the grant of awards subject to the terms set
forth herein.
PARTICIPATION
Officers and other key management employees ("Participants") of the
Company or any participating Fremont company listed in Exhibit A attached
hereto, as designated by the Committee, shall participate in the LTICP. No
person is automatically entitled to participate in the Plan. Personnel will
maintain the roster of designated Participants and will issue notices of
participation to those designated at the beginning of the Performance Period.
New Participants may be added by the Committee from time to time during the
Performance Period pursuant to the following schedule:
o Participants designated at the inception of the LTICP
are eligible for full participation.
<PAGE> 2
o New Participants entering the LTICP after inception
but prior to 12/31/93 are eligible for full
participation.
o New Participants entering the LTICP on or after
1/1/94 but prior to 12/31/94 are eligible for
prorated participation as follows:
o entrants between 1/1/94 and 6/30/94 are
eligible for a maximum of two-thirds of
any appropriate bonus award;
o entrants between 7/1/94 and 12/31/94 are
eligible for a maximum of one-half of any
appropriate bonus award.
o No new Participant may enter the LTICP after
12/31/94.
PERFORMANCE OBJECTIVE
The Company's three-year goal is the achievement of a cumulative
pre-tax earnings target of $191,000,000 (the "Target"). Minimum performance is
80% of the Target. Participants are not entitled to any award for the
Performance Period if minimum performance is not achieved.
INDIVIDUAL BONUS AWARDS
Certain bonus features of this Plan for the designated officers of the
Company vary from those provided for all other Participants. Each designated
officer may elect to receive any bonus earned in the form of shares of the
Company's common stock. This election is made at the inception of the Plan
and, as of December 31, 1993, is irrevocable.
TARGET AWARD OPPORTUNITY
Cash Bonus. For each Participant, other than Participants who elect
to receive any bonus earned in the form of the Company's common stock, the
Committee determines the dollar amount of the bonus between 50% and 100% of
eligible compensation (defined below). The actual bonus will depend on the
pre-tax earnings result pursuant to the following schedule:
<TABLE>
<CAPTION>
Pre-Tax Result Bonus -- % of Eligible Compensation
-------------- -----------------------------------
<S> <C>
80% but less than 85% 50%
85% but less than 90% 60%
90% but less than 95% 70%
95% but less than 100% 85%
100% plus 100%
</TABLE>
-2-
<PAGE> 3
"ELIGIBLE COMPENSATION" means, for the purpose of the Cash Bonus, the
average of the salary grade midpoint values of the Participant's job in each of
the three (3) years during the Performance Period, or of the Participant's
actual annualized base salary in each of the three (3) years during the
Performance Period, whichever is greater.
Stock Bonus. If the designated officer elects to take any bonus
earned in the Company's common stock, the Committee determines the number of
shares to be paid between 50% and 100% of those allocated (defined below) on
the designated officer's behalf at the inception of the Plan. The actual award
will depend on the pretax earnings result pursuant to the following schedule:
<TABLE>
<CAPTION>
Pre-Tax Result Bonus -- % of Allocated Shares
-------------- -------------------------------
<S> <C>
80% but less than 85% 50%
85% but less than 90% 60%
90% but less than 95% 70%
95% but less than 100% 85%
100% plus 100%
</TABLE>
"ALLOCATED SHARES " means the maximum number of shares of the
Company's common the officer may earn under the Plan. To estimate the total
number of Allocated Shares, the Company calculated the average salary grade
midpoint value for the designated officer's job for each of the three (3) years
during the Performance Period, estimating 4.5% compounded increases in
midpoints for 1994 and 1995 values. At the same time, the Company calculated
the average annualized base salary of the designated officer over the three (3)
years during the Performance Period, estimating 5% compounded increases in base
salary for 1994 and 1995. The greater of the average estimated midpoint or
base salary value was then divided by the closing price of the stock on January
1, 1993, at the inception of the Plan ($22.50).
As of the Plan Maturity Date (defined below), final calculations of
actual annual midpoint and base salary rates will be used to adjust the actual
number of Allocated Shares at $22.50 per share for each designated officer.
Any adjustment award will be in shares or cash.
QUALIFICATIONS
In addition to the achievement of the Target of the Plan, the
following qualifications shall apply:
1. Participants must be admitted to the Plan as described above under
"Participation" and must be actively employed in a participating
Fremont company on the Plan Maturity Date. If such qualifications are
not met, all rights to any awards under the Plan shall be forfeited,
unless the Committee determines, in its discretion, that all or a
portion of the award shall be paid; provided, however, that a
Participant who becomes totally disabled during the Performance
Period, or who, on or after age 65 elects to retire, may receive an
award based on the time of
-3-
<PAGE> 4
employment as a percentage of the Performance Period. There is no
"vesting" accrual during the Performance Period.
2. Participants must maintain no less than a "satisfactory" individual
performance appraisal rating in each of the three (3) years during the
Performance Period, as determined by the Committee in its discretion.
Appraisals of less than "satisfactory" in this period will result in
partial or full disqualification of the individual from bonus
eligibility notwithstanding the actual Company results.
PLAN FUNDING AND LIMITATION OF BENEFITS
The aggregate amount of the awards payable under the Plan will equal
the sum of the required payments. Under the Plan, no Participant may receive
an award in excess of $1,000,000, in the case of a cash award, or 50,000 shares
of the Company's common stock, in the case of a stock award. In addition, the
total number of shares of the Company's common stock that may be issued under
the Plan is 150,000.
CHANGE IN CONTROL
Upon the occurrence of a Change in Control Event (as defined below),
Participants shall become entitled to an award which is the greater of (i)
actual performance to the date of the change in control; or (ii) their target
award opportunity. In such event, awards shall be paid in cash promptly
following the change in control.
A "Change in Control Event" shall mean
(1) Approval by the stockholders of the Company of the dissolution
or liquidation of the Company;
(2) Approval by the stockholders of the Company of an agreement to
merge or consolidate, or otherwise reorganize, with or into
one or more entities that are not Subsidiaries, as a result of
which less than 50 percent of the outstanding voting
securities of the surviving or resulting entity immediately
after the reorganization are, or will be, owned by
stockholders of the Company immediately before such
reorganization (assuming for purposes of such determination
that there is no change in the record ownership of the
Company's securities from the record date of such stockholder
action until such reorganization and that such record owners
hold no securities of the other parties to such
reorganization);
(3) Approval by the stockholders of the Company of the sale of
substantially all of the Company's business and/or assets to a
person or entity which is not a subsidiary of the Company;
-4-
<PAGE> 5
(4) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934) becomes the
"beneficial owner" (as defined in rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of
securities of the Company representing more than 80 percent of
the combined voting power of the Company's then outstanding
securities entitled to then vote generally in the election of
directors of the Company; or
(5) During any period not longer than two consecutive years,
individuals who at the beginning of such period constituted
the Board cease to constitute at least a majority thereof,
unless the election, or the nomination for election by the
Company's shareholders, of at least a majority of the new
Board members during such period was approved by a vote of at
least two-thirds of the Board members then still in office who
were Board members at the beginning of such period.
OTHER TERMS
The rights of a Participant under the Plan are non-assignable and are
not subject in any manner to the debts or other obligations of any Participant
or any other person.
Until shares of the Company's common stock are received pursuant to
the Plan a Participant does not have any right to vote or receive dividends or
exercise any rights of a stockholder with respect to such shares.
AMENDMENT AND TERMINATION OF THE PLAN
The Committee may terminate, suspend or amend the Plan, in whole or in
part, from time to time, including to adopt amendments deemed necessary or
desirable to correct any defect, supply any omission, or reconcile any
inconsistency in the Plan or in any award granted under the Plan. No
amendment, termination, or modification may adversely affect outstanding awards
under the Plan, in any manner, without the consent of the affected
Participants. The Plan shall remain in effect until December 31, 1995 (the
"Plan Maturity Date"), unless sooner terminated by the Committee as described
above.
INCEPTION DATE
The LTICP is effective as of January 1, 1993.
PAYMENT
Unless deferred into a deferred compensation trust pursuant to the
terms thereof and in compliance with applicable tax law, the stock or cash
earned under this Plan will be distributed to Participants after the Plan
Maturity Date subject to all tax withholding and reporting requirements then in
effect.
-5-
<PAGE> 6
DISCLAIMER
The LTICP is a non-funded bonus compensation plan which is contingent
upon specific performance as set forth above and is not subject to ERISA
requirements. There is no provision for accrual of any non-forfeitable vesting
rights.
NOTICE
The Board of Directors has approved this Plan subject to stockholder
approval, as required or advisable, with respect to the issuance of stock in
payment of compensation. In the event stockholder approval is not granted for
the use of stock in this manner, any bonus earned pursuant to the terms of the
stock award provisions of this Plan will be paid in cash equal to the market
value of the stock (i.e. - closing trading price, NYSE) on the Plan Maturity
Date for the number of shares that would have been granted with stockholder
approval.
-6-
<PAGE> 7
LONG-TERM INCENTIVE COMPENSATION PLAN OF 1993
FREMONT GENERAL CORPORATION
AND
AFFILIATED COMPANIES
List of Participating Companies
Exhibit A
-7-
<PAGE> 1
EXHIBIT 10.11
FREMONT GENERAL CORPORATION
1995 RESTRICTED STOCK AWARD PLAN
1. PURPOSE OF THE PLAN.
The purpose of the Plan is to provide for the award by the Company of
Common Stock to Participant's to increase shareholder value and to promote the
success of the Company's business by (a) motivating Participants to perform to
the best of their abilities, and (b) increasing the desire of such Participants
to continue their employment with the Company. The Plan's goals are to be
achieved by providing such Participants with awards of Restricted Stock.
2. DEFINITIONS.
As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or its Committee, as
provided in Section 4 of the Plan.
(b) "Applicable Laws" shall mean all applicable laws, including
without limitation Nevada corporate law, the Internal Revenue Code of 1986, as
amended, and applicable federal and state securities laws.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Committee" shall mean a Committee appointed by the Board as
specified in Section 4(a) of the Plan.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Common Stock" shall mean the Common Stock of the Company.
(g) "Company" shall mean Fremont General Corporation, a Nevada
corporation, or any successor to the Company.
(h) "Employee" shall mean any person, including officers, employed
by the Company or any Parent or Subsidiary.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(j) "Parent" shall mean a "parent corporation," whether now or
hereafter existing.
(k) "Participant" shall mean an employee who is awarded Shares
under the Plan.
<PAGE> 2
(l) "Plan" shall mean this 1995 Restricted Stock Award Plan.
(m) "Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 9 of the Plan.
(n) "Stock Award Agreement" shall mean an agreement in the form
approved by the Board pursuant to which a Participant may acquire Common Stock
of the Company under the Plan.
(o) "Stock Award" shall mean an award of Shares pursuant to the
Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation," whether
now or hereafter existing.
3. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 9 of the Plan, the maximum
aggregate number of Shares which may be sold under the Plan is 800,000 Shares.
The Shares shall be reacquired Common Stock.
If Shares are forfeited to the Company pursuant to a Stock Award
Agreement, such Shares, unless the Plan shall have been terminated, shall
become available for reissuance under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Procedure. The Plan shall be administered by the Board or by
a committee designated by the Board. Once appointed, such Committee shall
serve in its designated capacity until otherwise directed by the Board. The
Board may increase the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to select Employees to whom Stock Awards may be
granted hereunder;
(ii) to determine whether and to what extent Stock Awards
are granted hereunder;
(iii) to determine the number of shares of Common Stock to
be covered by each Stock Award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to construe and interpret the terms of the Plan;
-2-
<PAGE> 3
(vi) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(vii) to modify or amend each Stock Award Agreement
(subject to Section 10 of the Plan);
(viii) to authorize any person to execute on behalf of the
Company any instrument required to effect the award of a Stock Award previously
granted by the Administrator;
(ix) to determine the terms, conditions and restrictions,
not inconsistent with the terms of the Plan, applicable to Stock Awards and the
Shares relating thereto; and
(x) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on Participants.
5. ELIGIBILITY
Stock Awards may be made to Employees, as designated by the
Administrator, who hold executive and key management positions with the
Company. Neither the Plan nor any Stock Award shall confer upon a Participant
any right upon any Participant with respect to continuing such Participant's
employment with the Company, nor shall the Plan or any Stock Award hereunder
interfere in any way with Participant's right or the Company's right to
terminate such employment at any time, with or without cause. In addition, the
Administrator may, in its sole discretion, authorize the issuance of Shares
under the Plan to a trust, or trusts, maintained by the Company in connection
with its compensation and benefit plans.
6. AWARD OF STOCK
Stock Awards shall be made under the Plan at the discretion of the
Administrator. The Shares underlying Stock Awards shall be evidenced by a
Notice of Grant that together with the Stock Award, attached to the Notice of
Grant as Exhibit A-1, shall specify the applicable vesting restrictions, the
amount of Restricted Stock awarded, and such other conditions as the
Administrator, in its sole discretion, shall determine. The awarded Shares
shall be held in escrow pursuant to the Joint Escrow Instructions, attached to
the Notice of Grant as Exhibit A-3, until such time as they are released from
the Company's reacquisition option.
-3-
<PAGE> 4
7. TERM OF PLAN
The Plan shall become effective upon adoption by the Board. The Plan
shall continue in effect for a term of 10 years from such date of Board
adoption unless sooner terminated under Section 10 of the Plan.
8. COMPANY'S RIGHT OF REACQUISITION
The Company shall have such right of reacquisition as shall be set
forth in the Stock Award Agreement.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The number of shares of Common Stock which have been authorized for
issuance under the Plan shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to the Plan.
10. AMENDMENT AND TERMINATION OF THE PLAN
(a) Amendment and Termination. The Board may amend, suspend, or
terminate the Plan from time to time in such respects as the Board may deem
advisable.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Shares already subject to Stock Award
Agreements, except as provided in said Stock Award Agreements.
11. COMPLIANCE WITH LAWS AND REGULATIONS
Shares shall not be issued under this Plan unless the issuance and
delivery of such Shares shall comply with Applicable Laws, as well as the
requirements of any stock exchange or market system upon which Shares may then
be listed or designated.
-4-
<PAGE> 5
12. RESERVATION OF SHARES
The Company, during the term of the Plan, shall at all times reserve
and keep available, such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
13. GOVERNING LAW.
The Plan shall be governed by the laws of the State of California.
-5-
<PAGE> 6
1995 RESTRICTED STOCK AWARD PLAN
NOTICE OF GRANT OF STOCK AWARD
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.
[Participant Name and Address]
[Social Security Number]
You have been granted this Stock Award of Common Stock of the Company,
subject to the Company's Reacquisition Option, and your continuing status as an
Employee (as described in the Plan and the attached Stock Award Agreement), as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date
(if different from the Date of Grant) _________________________
Total Number of Shares Subject
to This Stock Award _________________________
By your signature and the signature of the Company's representative
below, you and the Company agree that this Stock Award is granted under and
governed by the terms and conditions of the Restricted Stock Award Plan and the
Stock Award Agreement, attached hereto as Exhibit A-1, both of which are made
a part of this document. You further agree to execute the attached Stock Award
Agreement, Assignment Separate From Certificate, Joint Escrow Instructions and
Consent of Spouse, as a condition to receiving any shares under this Stock
Award.
PARTICIPANT: FREMONT GENERAL CORPORATION
By:
- -------------------------------- ----------------------------------
Signature
Title:
- -------------------------------- -------------------------------
Print Name
<PAGE> 7
EXHIBIT A-1
1995 RESTRICTED STOCK AWARD PLAN
STOCK AWARD AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Stock Award Agreement.
WHEREAS the Participant named in the Notice of Grant is an Employee of
the Company, and the Participant's continued participation is considered by the
Company to be important for the Company's continued growth; and
WHEREAS in order to give the Participant an opportunity to acquire an
equity interest in the Company and as an incentive for the Participant to
participate in the affairs of the Company, the Admin istrator has granted to
the Participant a Stock Award subject to the terms and conditions of the Plan
and the Notice of Grant, which are incorporated herein by reference, and this
Stock Award Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Transfer of Stock. The Company hereby agrees to award to the
Participant and the Participant hereby agrees to accept shares of the Company's
Common Stock (the "Shares").
2. Reacquisition Option.
(a) In the event the Participant's status as an Employee
terminates for any or no reason (including death or disability) before all of
the Shares are released from the Company's Reacquisition Option (see Section
3), the Company shall, upon the date of such termination (as reasonably fixed
and determined by the Company) have an irrevocable, exclusive option (the
"Reacquisition Option") for a period of sixty (60) days from such date to
reacquire, without the payment or further consideration, up to that number of
shares which constitute the Unreleased Shares (as defined in Section 3). The
Reacquisition Option shall be exercised by the Company by delivering written
notice to the Participant or the Participant's executor (with a copy to the
Escrow Holder). Upon delivery of such notice, the Company shall become the
legal and beneficial owner of the Shares /being reacquired and all rights and
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being reacquired by
the Company.
(b) Whenever the Company shall have the right to
reacquire Shares hereunder, the Company may designate and assign one or more
employees, officers, directors or stockholders of the Company or other persons
or organizations (including, without limitation, any trust or trusts maintained
by the Company in connection with its non-qualified deferred compensation
plans) to exercise all or a portion of the Company's acquisition rights under
this Agreement and acquire all or a portion of such Shares.
-1-
<PAGE> 8
3. Release of Shares From Reacquisition Option.
(a) Ten percent (10%) of the Shares shall be released
from the Company's Reacquisition Option on each of the first ten (10)
anniversaries of the vesting commencement date, provided that the Participant's
status as an Employee has not terminated prior to the date of any such release.
(b) Any of the Shares that have not yet been released
from the Reacquisition Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the
Reacquisition Option shall be delivered to the Participant at the Participant's
request (see Section 5).
4. Restriction on Transfer. Except for the escrow described in
Section 5 or the transfer of the Shares to the Company or its assignees
contemplated by this Agreement upon exercise of the Reacquisition Option, none
of the Shares or any beneficial interest therein shall be transferred,
encumbered or otherwise disposed of in any way until such Shares are released
from the Company's Reacquisition Option in accordance with the provisions of
this Agreement, other than by will or the laws of descent and distribution.
5. Escrow of Shares.
(a) To ensure the availability for delivery of the
Participant's Unreleased Shares upon reacquisition by the Company or its
assignees pursuant to the Reacquisition Option, the Participant shall, upon
execution of this Agreement, deliver and deposit with an escrow holder
designated by the Company (the "Escrow Holder") the share certificates
representing the Unreleased Shares, together with the stock assignment duly
endorsed in blank, attached hereto as Exhibit A-2. The Unreleased Shares and
stock assignment shall be held by the Escrow Holder, pursuant to the Joint
Escrow Instructions of the Company and Participant attached hereto as Exhibit
A-3, until such time as the Company's Reacquisition Option expires. As a
further condition to the Company's obligations under this Agreement, the
Company may require the spouse of Participant, if any, to execute and deliver
to the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it
may do or omit to do with respect to holding the Unreleased Shares in escrow
while acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the
Reacquisition Option hereunder, the Escrow Holder, upon receipt of written
notice of such exercise from the proposed transferee, shall take all steps
necessary to accomplish such transfer.
(d) When the Reacquisition Option has been exercised or
expires unexercised or a portion of the Shares has been released from the
Reacquisition Option, upon request the Escrow Holder
-2-
<PAGE> 9
shall promptly cause a new certificate to be issued for the released Shares and
shall deliver the certificate to the Company or the Participant, as the case
may be.
(e) Subject to the terms hereof, the Participant shall
have all the rights of a stockholder with respect to the Shares while they are
held in escrow, including without limitation, the right to vote the Shares and
to receive any cash or stock dividends declared thereon. In the event the
Company declares and pays a stock dividend, the Shares acquired by Participant
upon payment of such dividend shall not be subject to the terms of the Plan,
the Notice of Grant, this Stock Award Agreement or the Joint Escrow
Instructions. If, from time to time during the term of the Reacquisition
Option, there is any stock split or other change in the Shares, any and all new
or additional securities to which the Participant is entitled by reason of the
Participant's ownership of the Shares shall be immediately subject to this
escrow, deposited with the Escrow Holder and included thereafter as "Shares"
for purposes of this Agreement and the Reacquisition Option.
6. Legends. The share certificate evidencing the Shares issued
hereunder shall be endorsed with the following legend (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REACQUISITION AS SET FORTH IN
AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON
FILE WITH THE SECRETARY OF THE COMPANY.
7. Adjustment for Stock Split. All references to the number of
Shares in this Agreement shall be appropriately adjusted to reflect any stock
split, stock dividend (subject to Section 5(e)) or other change in the Shares
which may be made by the Company after the date of this Agreement.
8. Changes of Control.
(1) Definition of "Change in Control". For purposes of
this Section 8, a "Change in Control" means the happening of any of the
following:
(i) When any "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than the Company, a Parent,
a Subsidiary or a Company employee benefit plan, including any trustee of such
plan acting as trustee) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities entitled to vote generally
in the election of directors; or
(ii) The shareholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such
-3-
<PAGE> 10
surviving entity outstanding immediately after such merger or consolidation, or
the shareholders of the Company approve an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets; or
(iii) A change in the composition of the Board of
Directors of the Company, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean directors
who either (A) are directors of the Company as of the date the Plan is approved
by the shareholders, or (B) are elected, or nominated for election, to the
Board of Directors of the Company with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company).
(2) Effect of a Change of Control. In the event of a
Change of Control of the Company, then, upon the occurrence of such Change of
Control, 100% of the Shares shall be released from the Company's Reacquisition
Option.
9. Tax Consequences. The Participant has reviewed with the
Participant's own tax advisors the federal, state, local and foreign tax
consequences of this investment and the transactions contemplated by this
Agreement. The Participant is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents. The
Participant understands that the Participant (and not the Company) shall be
responsible for the Participant's own tax liability that may arise as a result
of the transactions contemplated by this Agreement. The Participant
understands that Section 83 of the Internal Revenue Code of 1986, as amended
(the "Code"), taxes as ordinary income the difference between the purchase
price, if any, of the Shares at the date of grant and the fair market value of
the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" includes the right of the Company to reacquire the
Shares pursuant to the Reacquisition Option. The Participant understands that
the Participant may elect to be taxed at the time the Shares are acquired
rather than when and as the Reacquisition Option expires by filing an election
under Section 83(b) of the Code with the IRS within 30 days from the date of
acquisition. The form for making this election is attached as Exhibit A-5
hereto.
THE PARTICIPANT ACKNOWLEDGES THAT IT IS THE PARTICIPANT'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO
MAKE THIS FILING ON THE PARTICIPANT'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the laws of the
State of California. This Agreement, subject to the terms and conditions of
the Plan and the Notice of Grant, represents the entire agreement between the
parties with respect to the award of the Shares to the Participant. Subject to
Section 10 of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the
-4-
<PAGE> 11
terms and conditions of this Agreement, the terms and conditions of the Plan
shall prevail. Unless otherwise defined herein, the terms defined in the Plan
shall have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted
to be given by either the Company or the Participant pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the address of the party set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall
be transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the
Participant under this Agreement may only be assigned with the prior written
consent of the Company.
(d) Either party's failure to enforce any provision of
this Agreement shall not in any way be construed as a waiver of any such
provision, nor prevent that party from thereafter enforcing any other provision
of this Agreement. The rights granted both parties hereunder are cumulative
and shall not constitute a waiver of either party's right to assert any other
legal remedy available to it.
(e) The Participant agrees upon request to execute any
further documents or instruments necessary or desirable to carry out the
purposes or intent of this Agreement.
(f) PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING
OF SHARES PURSUANT TO SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS
AN EMPLOYEE AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED
OR ACQUIRING SHARES HEREUNDER). PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES
THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING
SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF
CONTINUED ENGAGEMENT AS AN EMPLOYEE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR
AT ALL, AND SHALL NOT INTERFERE WITH PARTICIPANT'S RIGHT OR THE COMPANY'S RIGHT
TO TERMI NATE PARTICIPANT'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME,
WITH OR WITHOUT CAUSE.
By Participant's signature below, Participant represents that he or
she is familiar with the terms and provisions of the Plan, and hereby accepts
this Agreement subject to all of the terms and provisions thereof. Participant
has reviewed the Plan and this Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Agreement
and fully understands all provisions of this Agreement. Participant agrees to
accept as binding, conclusive and final all decisions or
-5-
<PAGE> 12
interpretations of the Administrator upon any questions arising under the Plan
or this Agreement. Participant further agrees to notify the Company upon any
change in the residence indicated in the Notice of Grant.
DATED:
--------------------------
PARTICIPANT: FREMONT GENERAL CORPORATION
By:
- -------------------------------- ----------------------------------
Signature
Title:
- -------------------------------- -------------------------------
Print Name
- --------------------------------
- --------------------------------
Address
- --------------------------------
Social Security Number
-6-
<PAGE> 13
EXHIBIT A-2
1995 RESTRICTED STOCK AWARD PLAN
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto ____________________________________________________________
_______________________________________________ (__________) shares of the
Common Stock of Fremont General Corporation standing in my name on the books of
said corporation represented by Certificate No. _______________ herewith and do
hereby irrevocably constitute and appoint _____________________________________
___________________________________ to transfer the said stock on the books of
the within named corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Stock
Award Agreement (the "Agreement") between ____________________________ and the
undersigned dated ______________, 19__.
Dated: _______________, 19______
Signature:_______________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Reacquisition Option, as set forth in the Agreement, without requiring
additional signatures on the part of the Participant.
<PAGE> 14
EXHIBIT A-3
1995 RESTRICTED STOCK AWARD PLAN
JOINT ESCROW INSTRUCTIONS
_________________________, 19_____
Corporate Secretary
Fremont General Corporation
2020 Santa Monica Blvd.
Santa Monica, CA 90404
Dear ______________:
As Escrow Agent for both Fremont General Corporation, a Nevada
corporation (the "Company"), and the undersigned Participant (the
"Participant"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Stock Award Agreement
(the "Agreement") between the Company and the undersigned, in accordance with
the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively as the "Company") exercises the Company's
Reacquisition Option set forth in the Agreement, the Company shall give to
Participant and you a written notice specifying the number of shares of stock
to be reacquired, and the time for a closing hereunder at the principal office
of the Company. Participant and the Company hereby irrevocably authorize and
direct you to close the transaction contemplated by such notice in accordance
with the terms of said notice.
2. At the closing, you are directed (a) to date the stock
assignments necessary for the transfer in question, (b) to fill in the number
of shares being transferred, and (c) to deliver same, together with the
certificate evidencing the shares of stock to be transferred, to the Company or
its assignee, for the number of shares of stock being acquired pursuant to the
exercise of the Company's Reacquisition Option.
3. Participant irrevocably authorizes the Company to deposit with
you any certificates evidencing shares of stock to be held by you hereunder and
any additions and substitutions to said shares as defined in the Agreement.
Participant does hereby irrevocably constitute and appoint you as Participant's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated.
Subject to the terms hereof, the Participant shall have all
the rights of a stockholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash or stock dividends declared thereon. In the event the Company
declares and pays a stock dividend, the Shares acquired by Participant upon
payment of such dividend shall not be subject to the terms of these Joint
Escrow Instructions. If, from time to time during the term of the
<PAGE> 15
Reacquisition Option, there is any stock split or other change in the Shares,
any and all new or additional securities to which the Participant is entitled
by reason of the Participant's ownership of the Shares shall be immediately
subject to this escrow, deposited with the Escrow Holder and included
thereafter as "Shares" for purposes of this Agreement and the Reacquisition
Option.
4. Upon written request of the Participant, unless the Company's
Reacquisition Option has been exercised, you shall deliver to Participant a
certificate or certificates representing so many shares of stock as are not
then subject to the Company's Reacquisition Option. Within 90 days after
cessation of Participant's employment by the Company, or any parent or
subsidiary of the Company, you shall deliver to Participant a certificate or
certificates representing the aggregate number of shares held or issued
pursuant to the Agreement and not reacquired by the Company or its assignees
pursuant to exercise of the Company's Reacquisition Option.
5. If at the time of termination of this escrow you should have
in your possession any documents, securities, or other property belonging to
Participant, you shall deliver all of the same to Participant and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties
as are specifically set forth herein and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed by you
to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to
do hereunder as Escrow Agent or as attorney-in-fact for Participant while
acting in good faith, and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of
any court. In case you obey or comply with any such order, judgment or decree,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under
the statute of limitations with respect to these Joint Escrow Instructions or
any documents deposited with you.
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<PAGE> 16
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with
your obligations hereunder, may rely upon the advice of such counsel, and may
pay such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall
terminate if you shall cease to be an officer or agent of the Company or if you
shall resign by written notice to each party. In the event of any such
termination, the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or
defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
COMPANY: Corporate Secretary
Fremont General Corporation
2020 Santa Monica Blvd.
Santa Monica, California 90404
PARTICIPANT:
----------------------------------
----------------------------------
----------------------------------
ESCROW AGENT: Corporate Secretary
Fremont General Corporation
2020 Santa Monica Blvd.
Santa Monica, California 90404
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<PAGE> 17
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not
become a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit
of the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and
construed and enforced in accordance with, the laws of the State of California.
Very truly yours,
FREMONT GENERAL CORPORATION
By:
----------------------------------
Title:
-------------------------------
PARTICIPANT:
-------------------------------------
(Signature)
-------------------------------------
(Typed or Printed Name)
ESCROW AGENT:
- ----------------------------
Corporate Secretary
-4-
<PAGE> 18
EXHIBIT A-4
1995 RESTRICTED STOCK AWARD PLAN
CONSENT OF SPOUSE
I, ______________________________________________________, spouse of
_____________________________, have read and approve the foregoing Stock Award
Agreement (the "Agreement"). In consideration of the Company's grant to my
spouse of shares of the Common Stock of Fremont General Corporation, as set
forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in
respect to the exercise of any rights under the Agreement and agree to be bound
by the provisions of the Agreement insofar as I may have any rights in said
Agreement or any shares issued pursuant thereto under the community property
laws or similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: ____________________, 19______
- --------------------------------------
Signature of Spouse
- --------------------------------------
Print Full Name
<PAGE> 19
EXHIBIT A-5
1995 RESTRICTED STOCK AWARD PLAN
ELECTION UNDER SECTION 83(B)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross
income for the current taxable year the amount of any compensation taxable to
taxpayer in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: ______________________ shares (the "Shares") of the Common
Stock of Fremont General Corporation (the "Company").
3. The date on which the property was transferred is: ______________,
19__.
4. The property is subject to the following restrictions:
The Shares may be reacquired by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the
Shares based on the continued performance of services by the taxpayer
over time.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms
will never lapse, of such property is: $_______________.
6. The amount (if any) paid for such property is:
$ 0.00
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ___________________, 19____ ________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ ________________________________
Spouse of Taxpayer
<PAGE> 1
EXHIBIT 10.12
FREMONT GENERAL CORPORATION
EMPLOYEE BENEFITS TRUST AGREEMENT
TRUST AGREEMENT, dated September 7, 1995, by and between FREMONT
GENERAL CORPORATION, a Nevada corporation (the "Company"), and MERRILL LYNCH
TRUST COMPANY OF CALIFORNIA, as directed trustee of the Trust created hereby
(the "Trustee").
The Company is or may become obligated to make periodic contributions
to existing and future compensation and benefit plans, agreements, programs and
arrangements to make payments to or for the benefit of past, present or future
employees or their beneficiaries. For the purpose of providing for the
satisfaction, in whole or in part, of such obligations, as the Board of
Directors of the Company may, in its discretion, from time to time determine,
the Company desires to establish a trust (the "Trust"), which shall be a
grantor trust within the meaning of Section 671 of the Internal Revenue Code of
1986, as amended, the assets of which shall be subject to the claims of the
Company's existing or future general creditors. The Company shall not be
relieved of any obligation to such benefit plans, agreements, programs and
arrangements by reason of establishing the Trust; provided, however, that to
the extent that payments are made from the Trust in discharge of such
obligations, the Company shall be relieved of such obligations.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the parties hereto agree
as follows:
ARTICLE I
Establishment
Section 1.1 Trust Fund. The assets held at any time and from time to
time under the Trust collectively are herein referred to as the "Trust Fund"
and shall consist of contributions received by the Trustee, proceeds of any
loans, investments and reinvestments thereof, the earnings, dividends and
<PAGE> 2
income thereon, less disbursements from the Trust. Except as herein otherwise
provided, title to the assets of the Trust Fund shall at all times be vested in
the Trustee and securities that are part of the Trust Fund shall be held in
such manner that the Trustee's name and the capacity in which the securities
are held are fully disclosed, subject to the right of the Trustee to hold title
in the name of a nominee, and the interests of others in the Trust Fund shall
be only the right to have such assets received, held, invested, administered
and distributed in accordance with the provisions of this Agreement. This
Trust shall be known as the Fremont General Corporation Employee Benefits
Trust. It is intended that the Trust be an independent legal entity.
Section 1.2 Trustee Acceptance. The Trustee hereby accepts this
Trust and all the Company's right, title and interest in the property
transferred to the Trust and all other property coming into the possession of
the Trustee pursuant to the terms of this Agreement, and the Trustee agrees to
hold, administer and distribute the Trust property and the income therefrom
according to the terms and conditions of this Agreement.
Section 1.3 Grantor Trust. The Trust is intended to be a grantor
trust within the meaning of Section 671 of the Code and shall be construed
accordingly. The Trust is intended not to be subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended, and shall be
construed accordingly. The Trust Fund shall at all times remain subject to the
claims of the Company's general creditors.
Section 1.4 Separate Entity. The principal of the Trust Fund, any
earnings thereon and the proceeds of any dispositions thereof shall be held
separate and apart from other funds of the Company and shall be used
exclusively for the uses and purposes set forth in the Plans and this
Agreement. No employee benefit plan of the Company or any of its subsidiaries
(including the Plans), or any participant
-2-
<PAGE> 3
in any such plan, is intended to have any claim on, or any beneficial interest
in, any assets of the Trust prior to the time such assets are distributed as
provided in Article IV.
Section 1.5 Irrevocability. The Trust shall not be revocable by the
Company. This Agreement may be amended as provided in Section 12.1.
Section 1.6 Representation The Company hereby represents that
the Trust is not subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended, that the Trust qualifies as a grantor trust
within the meaning of Section 671 of the Code, that the Trust or interests
therein are not required to be registered under federal or state securities
laws and that the execution of this Trust Agreement and the effectuation of any
of the transactions contemplated hereunder will not constitute a violation of
federal or state securities laws.
ARTICLE II
Definitions
The following definitions shall apply to the Trust:
Section 2.1 "Administrative Committee" means the Company's
Administrative Committee, which shall be appointed by the Board to direct the
Trustee as required under this Agreement and to coordinate the administration
of this Trust with the Company's compensation, incentive and benefits plans,
agreements, programs and arrangements.
Section 2.2 "Board" means the Board of Directors of the Company.
Section 2.3 "Code" means the Internal Revenue Code of 1986, as
amended.
Section 2.4 "Company Stock" means shares of Common Stock of the
Company.
-3-
<PAGE> 4
Section 2.5 "Extraordinary Dividend" means any dividend or other
distribution of cash or other property (other than Company Stock) made with
respect to Company Stock, which the Board of Directors declares to be other
than an ordinary dividend.
Section 2.6 "Note" means any Promissory Note of the Trust to the
Company representing indebtedness of the Trust incurred to purchase Company
Stock.
Section 2.7 "Plan" or "Plans" means any employee benefit plan,
agreement, program or arrangement listed on Exhibit A annexed hereto. The
Administrative Committee may add to or delete from Exhibit A such employee
benefit plans, agreements, programs and arrangements of the Company or its
subsidiaries as the Administrative Committee, in its sole discretion, shall
determine; provided that at all times during which the trust is in existence,
Exhibit A shall contain at a minimum one Plan that is subject to ERISA, and one
Plan that is not so subject.
Section 2.8 "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
Section 2.9 "ESOP" means the Fremont General Corporation Employee
Stock Ownership Plan.
Section 2.10 "ESOP Trustee" means the bank, trust company or other
financial institution at the time serving as trustee under the ESOP.
Section 2.11 "Trust Year" means the calendar year.
ARTICLE III
Funding the Trust
Section 3.1 Initial Delivery. Concurrently with the execution of
this Agreement, the Company is conveying to the Trust cash which,
notwithstanding Section 4.3 hereof, shall be used to acquire shares
-4-
<PAGE> 5
of Company Stock which shares shall be administered and disposed of by the
Trustee as provided in Article IV hereof.
Section 3.2 Contributions.
(a) Cash. In each Trust Year the Company may, in its
sole discretion, contribute cash to the Trust in such amounts and at such times
as the Company shall determine. Such cash, when added to the earnings of the
Trust shall be applied by the Trustee for the following purposes, as directed
by the Company: (i) Notwithstanding Section 4.3 hereof, and if directed by the
Company acting through the Administrative Committee, to acquire shares of
Company Stock which shall be administered and disposed of by the Trustee as
provided in Article IV hereof; (ii) any cash remaining after purchasing shares
of Company Stock pursuant to (i) immediately above, to make interest and
principal payments on any Note. In the event contributions to, and earnings
of, the Trust are insufficient to satisfy any installment of principal and
interest on the due date thereof, the Company (acting through the
Administrative Committee) may, in its discretion, forgive such installment to
the extent of the insufficiency.
(b) Company Stock. In each Trust Year the Company may,
acting through the Administrative Committee and in its sole discretion,
contribute Company Stock to the Trust to be administered and disposed of by the
Trustee as provided in Article IV hereof.
(c) Concurrently with any contribution of cash or Company
Stock, if the Company so requires, the Trustee shall deliver to the Company, on
behalf of the Trust, a Note as consideration for all or part of such cash loan,
or in payment of the purchase price for the Company Stock so conveyed, as the
case may be. In the event the Note is in payment of the purchase price for
Company Stock, the principal amount shall be equal to the number of shares of
Company Stock so contributed multiplied by
-5-
<PAGE> 6
the last sale price as reported on the New York Stock Exchange Composite Tape
on the day of such transfer. Such Note (if required) shall be in substantially
the form set forth as Exhibit B annexed hereto.
(d) The Trust shall have no remedy for any failure by the
Company to make any contribution of cash or Company Stock to the Trust. The
Trustees shall be under no duty or obligation to require the Company to make
any cash or other contributions to the Trust.
Section 3.3 Prepayments. The Company may, from time to time,
contribute cash to the Trust in amounts sufficient to enable the Trust to
prepay, in whole or in part, principal (and accrued interest thereon to the
date of prepayment) of any Note at any time without premium or penalty or, in
lieu of such prepayment, the Administrative Committee may, from time to time,
direct that all or any part of such principal (and interest accrued thereon)
shall be forgiven and the amount so directed shall be forgiven. Each such
prepayment or forgiven amount of principal shall be applied to reduce
installments of principal thereafter due on such Note in the order of their
scheduled maturities.
Section 3.4 Dividends. Dividends (other than an Extraordinary
Dividend) paid in cash on Company Stock held by the Trust shall be used to pay
interest on any Note as it becomes due, and any excess remaining after such
payment shall be applied to the payment of principal thereon. Non-cash
dividends (other than an Extraordinary Dividend) paid on Company Stock shall be
reduced to cash as soon as practicable, in accordance with the directions of
the Administrative Committee, and shall be used to pay interest and principal
on any Note.
Section 3.5 Investment of Cash. In all cases, unless otherwise
instructed by the Administrative Committee the Trustee shall temporarily invest
any cash it holds under this Agreement in accordance with Article VI to the
extent it is not, at the time, required or used to acquire Company Stock or to
pay interest and principal on any Note.
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ARTICLE IV
Release of Company Stock and Allocations
Section 4.1 Release of Company Stock. As soon as practicable after
each payment, forgiveness or prepayment, if any, of principal (and accrued
interest thereon) with respect to a Note, a number of shares of Company Stock
shall be made available for transfer from the Trust ("Released Shares") in the
manner set forth in Section 4.2. The total number of such shares shall equal
the number of shares of Company Stock held in the Trust that are attributable
to that Note (either purchased from the Company in consideration of the Note or
acquired with the proceeds of a loan represented by such Note) and which are
not Released Shares immediately prior to the payment, forgiveness or prepayment
multiplied by a fraction, the numerator of which shall be the amount of
principal paid or prepaid by the Trust on the Note or forgiven upon such
payment or prepayment date or date of forgiveness and the denominator of which
shall be the sum of the numerator plus the remaining principal amount of the
Note. No fractional shares shall be released, and if the preceding computation
results in fractional shares, the number of Released Shares shall be computed
by rounding down to the next whole number. The number of Released Shares, as
so determined, shall be certified to the Trustee by the Administrative
Committee.
Section 4.2 Transfer of Company Stock. All shares of Company Stock,
including Released Shares, shares of Company Stock purchased by the Trust with
cash of the Trust and shares of Company Stock contributed to the Trust by the
Company, shall be transferred by the Trustee to or for the benefit of such
Plans (or their participants and beneficiaries) as the Administrative
Committee, in its sole discretion, shall determine. Such transfers shall be
made at such times and in such amounts (not to exceed the amounts necessary to
fund the benefits provided to participants under the selected Plans) as the
Administrative Committee shall direct.
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<PAGE> 8
Section 4.3 Transfer of Other Assets. Any assets other than Company
Stock held in the Trust pursuant to Section 6.1 or Section 6.3 shall be
transferred by the Trustee in such amounts and at such times to or for the
benefit of such Plans (or their participants and beneficiaries) as the
Administrative Committee shall, in its sole discretion, determine.
Section 4.4 Rights Regarding Common Stock.
(a) Voting Rights. The Trustee shall follow the
directions of the ESOP participants with respect to the manner of voting of
Company Stock held by the Trust on each matter pending before an annual or
special meeting of shareholders of the Company or any action by written consent
of such shareholders in lieu of such meeting. In connection with any such
meeting of the shareholders or Action by written consent in lieu of such
meeting, the Trustee shall obtain from the ESOP Trustee or its designee
certification of the directions received from the ESOP participants (in the
aggregate and not identifying any individual direction) directing the ESOP
Trustee whether and how to vote, abstain or act by written consent with respect
to, the Company Stock held by the ESOP Trustee. Upon receipt by the Trustee of
such certification, the Trustee shall, on each such matter, vote, abstain or
act by written consent with respect to the shares of Company Stock held by the
Trust in the same proportion and manner as the ESOP Trustee. If the ESOP has
been amended, terminated or merged with another Plan of the Company, such that
participant direction of the voting of Company Stock is no longer required, the
Trustee shall vote such shares as the Administrative Committee shall direct.
(b) Tender or Exchange Offer. If a tender or exchange
offer is commenced for Company Stock, the Trustee shall obtain from the ESOP
Trustee or its designee certification of the directions received from the ESOP
participants directing the Company Stock held by the ESOP and upon receipt by
the Trustee of such certification, the Company Stock held by the Trust shall be
tendered or
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<PAGE> 9
exchanged, or not tendered or exchanged, by the Trustee in the same proportion
and manner as the ESOP Trustee. If the ESOP has been amended, terminated or
merged with another Plan of the Company, such that Participant direction of
such tender or exchange is no longer required, the Trustee shall tender or
exchange, or not tender or exchange such Company Stock as the Administrative
Committee shall direct.
(c) Notwithstanding any of the foregoing to the contrary,
in the event the ESOP has been terminated and distributed, or merged with
another plan, or the voting, tender or exchange of its shares of Company stock
are for any reason no longer voted, tendered or exchanged according to
participant direction, and if the Administrative Committee so directs, the
Trustee shall vote, tender or exchange such shares in accordance with the
direction of the Participants of one or more other plans eligible for funding
from this Trust in such manner as the Administrative Committee shall determine.
(d) Confidentiality. All voting and other actions taken
pursuant to this Section 4.4 (a), (b) and (c) shall be held confidential by the
Trustee and shall not be divulged or released to any person (other than agents
of the Trustee), including officers and employees of the Company and its
affiliates, except as may be necessary to effectuate such voting or action or
in response to a court order.
(e) Trustee Action. The Trustee shall not make any
recommendations regarding the manner of Participant exercise of any rights
under this Section 4.4, including whether or not any rights should be
exercised.
Section 4.5 Withholding. The Trustee, at the direction of the
Administrative Committee, shall withhold any taxes from any payment to the
extent, if any, required by applicable law and in such amounts, if any, as
shall be specified by the Administrative Committee.
ARTICLE V
Bankruptcy or Insolvency
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Section 5.1 Deliveries to Creditors of the Company. It is intended
that the Trust Fund is and shall remain at all times subject to the claims of
the general creditors of the Company. Accordingly, neither the Trustee nor the
Company shall create any security interest in the Trust Fund in favor of any
Plan or any creditor. If the Trustee receives the notice provided for in
Section 5.2, or if the Trustee otherwise receives actual notice that the
Company is insolvent or bankrupt as defined in Section 5.2, the Trustee shall
make no further distributions from the Trust Fund, and shall deliver the entire
amount of the Trust Fund as a court of competent jurisdiction, or duly
appointed receiver or other person authorized to act by such a court, may
direct. The Trustee shall resume distribution of the Trust Fund as directed by
the Company under the terms hereof, upon not less than 30 days' advance notice
to the Company, if it determines that the Company was not, or is no longer,
bankrupt or insolvent. Such determination shall be made in a timely fashion,
and shall be based upon a decision of a court of competent jurisdiction or a
certification by the Chief Executive Officer of the Company of such a
determination of its Board of Directors. The Trustee shall have no duty to
inquire as to whether the Company is bankrupt or insolvent.
Section 5.2 Notification of Bankruptcy or Insolvency. The Company
shall advise the Trustee promptly in writing of the Company's bankruptcy or
insolvency. The Company shall be deemed to be bankrupt or insolvent upon the
occurrence of any of the following:
(a) the Company shall make an assignment for the
benefit of creditors, file a petition in bankruptcy, petition or apply to any
tribunal for the appointment of a custodian, receiver, liquidator, sequestrator
or trustee for it or a substantial part of its assets, or shall commence any
case under any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar law or statute of any
jurisdiction (Federal or state), whether now or hereafter in effect; or there
shall have been filed any such petition or application, or any such case shall
have been
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<PAGE> 11
commenced against it, in which an order for relief is entered or which remains
undismissed for a period of 120 days; or the Company by any act or omission
shall indicate its consent to, approval of or acquiescence in (i) any such
petition, application or case or order for relief or (ii) the appointment of
any custodian, receiver or trustee for it or any substantial part of its
property, or shall suffer any such custodianship, receivership or trusteeship
to continue undischarged for a period of 120 days; or
(b) the Company shall generally not pay its debts
as such debts become due or shall cease to pay its debts generally in the
ordinary course of business.
ARTICLE VI
Investments
Section 6.1 Investments. Except where the Company has exercised its
power of substitution under Section 6.3, the Trustee shall invest and reinvest
the Trust Fund primarily in Company Stock; provided, however, that the Trustee
may invest any portion of the Trust Fund temporarily in (i) United States
Government obligations with maturities of less than one year, (ii)
interest-bearing accounts including, but not limited to, certificates of
deposit, time deposits, savings accounts and money market accounts, with
maturities of less than one year, or (iii) a common, collective or pooled trust
fund maintained by the Trustee whose investments are limited to those described
in clauses (i) and (ii) of this Section 6.1, in which event such part of the
Trust Fund so invested shall be subject to all the terms and provisions of the
common, collective or pooled trust fund which contemplate the commingling for
investment purposes of such trust assets with trust assets of other trusts.
Notwithstanding the foregoing, the proceeds of a tender or exchange transaction
to which Section 4.4(b) applies or any non-cash
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<PAGE> 12
Extraordinary Dividend shall be reduced to cash and reinvested in Company
Stock, if available, or, to the extent not available, shall be held or invested
as instructed by the Administrative Committee.
Section 6.2 Trustee's Duties. The Trustee shall have no duty to
determine or review the merit or suitability of investing the Trust Fund in
Company Stock for the objectives of the Trust, and the Trustee shall have no
liability for actions taken by it in conformity with Section 6.1.
Section 6.3 Substitution of Assets. The Company shall have the
right, at any time and from time to time, in its sole discretion, to substitute
assets determined by the Company to have a value equal to that of any Common
Stock or any other asset held by the Trust. This right shall be exercisable by
the Company in a nonfiduciary capacity without the approval or consent of any
person in a fiduciary capacity. The Trustee shall retain such substitute
assets in the Trust or shall dispose of such assets and reinvest the proceeds
thereof in such investments (other than Company Stock) as the Administrative
Committee shall direct.
ARTICLE VII
Accounting by Trustee
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements and other transactions. All such records
shall be open to inspection and audit at all reasonable times by the Company.
Within sixty days following the close of each Trust Year and within sixty days
after the removal or resignation of a Trustee, the Trustee shall deliver to the
Company a written account of its administration of the Trust during such year
or during the period from the close of the last preceding Trust Year to the
date of such removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a description of
all securities and investments purchased and sold with the cost and net
proceeds of such purchases or sales, and showing
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<PAGE> 13
all cash, securities and other property held in the Trust at the end of such
year or as of the date of such removal or resignation, as the case may be. All
tax returns and other regulatory filings, if any, required by the Trust shall
be prepared by the Company. The Trustee shall make such filings as shall be
directed by the Company and shall be entitled to rely on the accuracy of all
returns and filings so prepared by the Company.
ARTICLE VIII
Responsibility and Powers of Trustee
Section 8.1 Duty of Trustee. The Trustee shall incur no liability
for any action taken by the Trustee pursuant to a direction, request, or
approval given by the Company, the Board, or the Administrative Committee in
accordance with the terms of this Agreement; provided, that the Trustee shall
invest the Trust Fund only as provided in Article VI and the Trustee shall
incur no liability by reason of lack of diversification of the Trust Fund.
Section 8.2 Indemnification of Trustee. The Company shall indemnify
and hold the Trustee harmless from any liabilities, claims or expenses which it
may incur in the exercise and performance of its powers and duties hereunder
and which are not due to its negligence or bad faith, including any liability
alleged to have resulted from a violation of law, including, without
limitation, the Securities Act of 1933, or the rules and regulations of any
authority having jurisdiction over the Company or any of its affairs.
Notwithstanding any other provision of this Agreement, in the event the Trust
is determined to be subject to the provisions of ERISA, the Company shall
indemnify and hold the Trustee harmless from any liabilities, claims or
expenses which it may incur in the exercise and performance of its powers and
duties hereunder and which are not due to its gross negligence or bad faith.
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<PAGE> 14
Section 8.3 Management and Control of Trust Fund. Subject to the
terms of this Agreement, the Trustee shall manage and control the assets of the
Trust Fund as directed by the Company or the Administrative Committee.
Section 8.4 Powers of the Trustee. Without in any way limiting the
powers and discretion conferred upon it by the other provisions of this
Agreement or by law, but subject to Article VI and any other provisions of this
Agreement, the Trustee is expressly authorized and empowered:
(i) to sell, exchange, convey, transfer or
otherwise dispose of any property held by it by private contract or at public
auction, and no person dealing with the Trustee shall be bound to see to the
application of the purchase money or to inquire into the validity, expediency
or propriety of any such sale or other disposition;
(ii) to enter into contracts or to make
commitments either alone or in concert with others to sell at any future date
any property held in the Trust Fund or to purchase any property which it may be
authorized to acquire hereunder;
(iii) subject to Section 4.4, to vote any stocks,
bonds or other securities; to give general or special proxies or powers of
attorney with or without power of substitution; to exercise any conversion
privileges, subscription rights or other options and to make any payments
incidental thereto; to consent to or otherwise participate in corporate
reorganizations or other changes affecting corporate securities and to delegate
discretionary powers and to pay any assessments or charges in connection
therewith; and generally to exercise any of the powers of an owner with respect
to stocks, bonds, securities or other property held in the Trust Fund;
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<PAGE> 15
(iv) to make, execute, acknowledge and deliver any
and all documents of transfer and conveyance and any and all other instruments
that may be necessary or appropriate to carry out the powers herein granted;
(v) to register any investment held in the Trust
Fund in its own name or in the name of a nominee and to hold any investment in
bearer form, or to combine //certificates representing such investments with
certificates of the same issue held by the Trustee in other fiduciary
capacities, or to deposit or to arrange for the deposit of such securities in a
qualified central depository even though, when so deposited, such securities
may be merged and held in bulk in the name of the nominee of such depository
with other securities deposited therein by any other person, or to deposit or
to arrange for the deposit of any securities issued by the United States
Government, or any agency or instrumentality thereof, with a Federal Reserve
Bank, but the books and records of the Trustee shall at all times show that all
such investments are part of the Trust Fund;
(vi) to employ suitable agents, depositaries and
counsel, domestic or foreign, and to pay their reasonable expenses and
compensation out of the Trust Fund;
(vii) to borrow money from any source as may be
necessary or advisable to effectuate the purposes of the Trust on such terms
and conditions as the Administrative Committee may direct;
(viii) to deposit all or any part of the Trust Fund
in interest-bearing accounts maintained or savings certificates issued by the
Trustee, in its separate corporate capacity, or in any other banking
institution affiliated with the Trustee;
(ix) to compromise or otherwise adjust all claims in
favor of or against the Trust;
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<PAGE> 16
(x) to maintain cash balances to meet anticipated
distributions from, or administrative expenses of, the Trust Fund without
incurring any obligation to pay interest thereon; and
(xi) to do all things that the Trustee reasonably
deems necessary to carry out the purposes of this Trust.
Section 8.5 Valuation of Trust Fund. The Trustee shall value the
assets of the Trust Fund as of the last business day of each Trust Year.
Shares of Company Stock shall be valued at the Daily Value (as defined below)
as of such date. "Daily Value" shall mean, with respect to a share of Company
Stock, the closing reported sales price per share of Company Stock on the New
York Stock Exchange Composite Tape, or if Company Stock is not traded on such
stock exchange, the principal national securities exchange on which Company
Stock is traded, or if not so traded, the mean between the highest bid and
lowest asked quotation on the over-the-counter market as reported by the
National Quotations Bureau, or any similar organization, on any relevant date,
or if not so reported, as determined by the Administrative Committee in a
manner consistently applied.
ARTICLE IX
Compensation of Trustee
The Trustee shall be entitled to receive such reasonable compensation
for its services as shall be agreed upon in writing by the Company and the
Trustee. To the extent the compensation and expenses of the Trustee are not
paid directly by the Company, they shall be paid by the Trust, but in all
events shall remain an obligation of the Company.
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ARTICLE X
Action by the Administrative Committee
Any action with respect to the Trust by the Administrative Committee
shall be taken by vote or consent of at least a majority of its members or by
any member authorized by the Administrative Committee, as the case may be, to
take action with respect thereto and shall be communicated to the Trustee by
the chairman or any other member designated by the Administrative Committee.
ARTICLE XI
Replacement of Trustee
The Trustee may, with 30 days' advance written notice, be removed at
any time by the Company or may resign, in which case a new trustee shall be
appointed by the Company. Any successor trustee appointed by the Company shall
be an independent, institutional trustee.
ARTICLE XII
Amendment or Termination; Notices
Section 12.1 Amendment. This Agreement may be amended at any time
and to any extent by a written instrument executed by the Trustee and the
Company, except to make the Trust revocable.
Section 12.2 Termination. The Trust shall terminate upon the
earliest of (i) January 1, 2010, (ii) the date on which the Trust no longer
holds any assets, (iii) the date specified in a written notice of termination
given by the Company to the Trustee, (iv) the date the Department of Labor or a
court of competent jurisdiction determines (or, in the Administrative
Committee's sole discretion, would be likely to determine) that the assets of
the Trust are subject to Part 4 of Subtitle B of Title I of ERISA, or (v) the
date the Internal Revenue Service or a court of competent jurisdiction
determines (or, in the
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Administrative Committee's sole discretion, would be likely to determine) that
any portion of the Trust Fund is presently taxable to any participant or
beneficiary under any of the Plans.
Section 12.3 Effect of Termination. Upon termination of the Trust,
the Trustee shall sell sufficient remaining assets of the Trust so that the
proceeds of such sale, together with any other available cash, can be applied
to pay in full the remaining principal of all Notes and any accrued but unpaid
interest thereon. The Administrative Committee may direct the Trustee as to
the timing and manner of such sale in order to comply with applicable law and
to avoid, if possible, adverse effects on the publicly traded market price of
Company Stock. The proceeds of sale shall first be paid to the Company, or
other holder of any Note, up to the amount of any unpaid principal and interest
on such Note. In the event the proceeds of the sale shall be insufficient to
discharge all Notes in their entirety, the Company shall be deemed to have
forgiven all amounts that shall remain due and owing thereon. Any assets or
Company Stock remaining in the Trust after such payment of any Notes shall be
distributed to or for the benefit of any employee benefit plan (including one
or more of the Plans) and in which a broad cross-section of non-collectively
bargained employees of the Company or its subsidiaries participate, as the
Administrative Committee shall, in its sole discretion, determine.
Notwithstanding any other provision of this Agreement, in the event the Trust
is terminated under clause (iv) or (v) of Section 12.2, the Trustee shall
distribute all assets then constituting the Trust Fund to fund such Plans or
benefits thereunder as is determined by the Administrative Committee.
Section 12.4 Notices. Any notice, report, demand or waiver required
or permitted hereunder shall be in writing and shall be given personally,
delivered by overnight delivery service or sent by telecopier, addressed as
follows:
If to the Company:
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Fremont General Corporation
2020 Santa Monica Boulevard
6th Floor
Santa Monica, California 90404
Telephone No.: (310) 315-5530
Telecopier No.: (310) 315-5598
Attention: Raymond G. Meyers
If to the Trustee:
Merrill Lynch Trust Company of California
Employee Benefit Trust Administration
300 Davidson Avenue - 2nd Floor, West
Somerset, New Jersey 08873
Telephone No.: (908) 627-7810
Telecopier No.: (908) 627-7699
Attention: Christopher C. Rosin
Notices shall be effective only upon receipt.
The Company and the Trustee may change the address to which notices,
requests and other communications are to be sent to it by giving written notice
of such address change to the other parties in conformity with this Section
12.4.
ARTICLE XIII
Severability
Any provision of this Agreement prohibited by law shall be ineffective
to the extent of any such prohibition without invalidating the remaining
provisions hereof.
ARTICLE XIV
Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Nevada.
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IN WITNESS WHEREOF, the Company and the Trustee have executed this
Agreement, in duplicate, as of the date set forth above.
FREMONT GENERAL CORPORATION
By: /s/ Raymond G. Meyers
--------------------------
Name: Raymond G. Meyers
------------------------
Title: Senior Vice President
------------------------
MERRILL LYNCH TRUST COMPANY OF
CALIFORNIA
As Directed Trustee
By: /s/ Chris Rosin
---------------------------
Name: Chris Rosin
------------------------
Title: Trust Officer
------------------------
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<PAGE> 21
EXHIBIT A
THE FREMONT GENERAL CORPORATION
EMPLOYEE BENEFITS TRUST
APPLICABLE PLANS
Plan Name
- ---------
Fremont General Corporation Employee Stock Ownership Plan
Fremont General Corporation Investment Incentive Program
Fremont General Corporation Excess Benefit Plan
Fremont General Corporation Supplemental Retirement Plan
Fremont General Corporation Senior Supplemental Retirement Plan
Fremont General Corporation Long-Term Incentive Compensation Plan of 1993
Fremont General Corporation Nonqualified Stock Option Plan of 1989
<PAGE> 22
EXHIBIT B
NOTE
$_______________ [City, State]
______________, 19___
FOR VALUE RECEIVED, Merrill Lynch Trust Company of California, as
directed trustee of the Fremont General Corporation Employee Benefits Trust
(the "Trust"), promises to pay to Fremont General Corporation, a Nevada
corporation (the "Company"), or order, the principal sum of
_______________________ ($_____________), together with interest on the unpaid
principal hereof from the date hereof at the rate of _______________ percent
(____%) per annum, compounded semiannually.
Principal and interest shall be due and payable in equal annual
installments, with the final such payment to be made on January 1, 2010.
Should the undersigned fail to make full payment of principal or interest for a
period of 10 days or more after the due date thereof, the whole unpaid balance
on this Note of principal and interest shall become immediately due at the
option of the holder of this Note. Payments of principal and interest shall be
made in lawful money of the United States of America.
The undersigned, at the direction of the Company's Administrative
Committee, may at any time prepay all or any portion of the principal or
interest owing hereunder.
The holder of this Note shall have full recourse against the Trust.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
Trust.
MERRILL LYNCH TRUST COMPANY OF
CALIFORNIA
As Directed Trustee
By: ____________________________
<PAGE> 1
EXHIBIT 10.14(a)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
effective as of February 8, 1996 (the "Effective Date"), by and between Louis
J. Rampino (the "Executive") and Fremont General Corporation (the "Company").
R E C I T A L S
A. The Company and the Executive desire to enter into this
Agreement in order to provide additional financial security and benefits to the
Executive in recognition of past services and to encourage Executive to
continue employment with the Company.
B. To accomplish the foregoing objectives, the Board of Directors
of the Company (the "Board") has directed the Company, upon execution of this
Agreement by the Executive, to agree to the terms provided herein.
C. Certain capitalized terms used in the Agreement are defined in
Section 8 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Executive by the Company, the
parties agree as follows:
1. Duties and Scope of Employment.
(a) Position. The Company shall employ the Executive in
the position of President and Chief Operating Officer, with such duties,
responsibilities and compensation as in effect as of the Effective Date;
provided, however, that the Board shall have the right to revise such
responsibilities and compen sation from time to time as the Board may deem
necessary or appropriate. If any such revision constitutes "Involuntary
Termination" (as defined in Section 8(e)), the Executive shall be entitled to
benefits upon such Involuntary Termination as provided under this Agreement.
(b) Obligations. The Executive shall devote his full
business efforts and time to the Company and its subsidiaries. The foregoing,
however, shall not preclude the Executive from engaging in such activities and
services as do not interfere or conflict with his responsibilities to the
Company.
2. At-Will Employment. The Company and the Executive acknowledge
that the Executive's employment is and shall continue to be at-will, as
defined under applicable law. If the Executive's employment terminates for any
reason, the Executive shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the Company's established employee
plans and practices or other agreements with the Company at the time of
termination.
3. Term of Agreement. The terms of this Agreement shall
terminate upon the earliest of (i) the date that all obligations of the parties
hereunder have been satisfied, (ii) in the absence of a Company Event (as
defined in Section 8(b)) prior to the sixth anniversary of the Effective Date,
the sixth anniversary of the Effective Date, or (iii) in the event of a Company
Event on or prior to the sixth anniversary of the Effective Date, the third
anniversary of such Company Event. Notwithstanding the foregoing, this
Agreement may
<PAGE> 2
be extended for an additional period or periods by mutual written agreement of
the Company and the Executive. A termination of the terms of this Agreement
pursuant to this Section 3 shall be effective for all purposes, except that
such termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of the terms of this Agreement.
4. Compensation and Benefits.
(a) Base Compensation. The Company shall pay the
Executive as compensation for services a base salary at the annualized rate of
$550,000. Such salary shall be reviewed at least annually and may be increased
from time to time. Such salary may be decreased, subject to the provisions of
subsection 8(e)(ii) of this Agreement. Such salary shall be paid periodically
in accordance with normal Company payroll. The annual compensation specified
in this Section 4(a), as adjusted from time to time, is referred to in this
Agreement as "Base Compensation."
(b) Bonus. Beginning with the Company's current fiscal
year and for each fiscal year thereafter during the term of this Agreement, the
Executive shall be eligible to participate in any bonus plan or arrangement
maintained by the Company of general applicability to other key executives of
the Company.
(c) Executive Benefits. The Executive shall be eligible
to participate in the employee benefit plans and executive compensation
programs maintained by the Company of general applicability to other key
executives of the Company, including (without limitation) retirement plans,
savings or profit-sharing plans, deferred compensation plans, supplemental
retirement or excess-benefit plans, stock option, restricted stock programs,
incentive or other bonus plans, life, disability, health, accident and other
insurance programs, paid vacations, and similar plans or programs, subject in
each case to the generally applicable terms and conditions of the plan or
program in question and to the determination of the Board or any committee
administering such plan or program.
5. Benefits Upon a Company Event. In the event of a Company
Event that occurs while the Executive is employed by the Company, the unvested
portion of any stock option or restricted stock held by the Executive shall
automatically be accelerated in full so as to become completely vested.
6. Severance Benefits.
(a) Severance Benefits. If the Executive's employment
with the Company terminates, either (i) within the thirty-six (36) month period
following a Company Event, or (ii) during the "Employment Term" (as defined in
Section 8(d)) below, then the Executive shall be entitled to receive severance
benefits as follows:
(i) Involuntary Termination; Death; Disability.
If the Executive's employment terminates as a result of Involuntary Termination
other than for Cause, or if the Executive's employment terminates as the result
of the Executive's death or Disability, then the Company shall pay the
Executive (or the Executive's beneficiary or representative, as applicable)
within ten (10) business days after the Termination Date a lump sum amount
equal to thirty-six (36) months Base Compensation of the Executive
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<PAGE> 3
at the time of such termination (without giving effect to any reduction in Base
Compensation that resulted in such Involuntary Termination). In addition, the
Executive shall be entitled to a payment of a pro-rata portion of the target
bonus amount (as such term is defined and applied by the Company) for the then
current bonus period(s) under any bonus plan maintained by the Company in which
the Executive is participating on the Termination Date. The pro-rata portion of
any such bonus opportunity shall be determined by multiplying the target bonus
by a fraction, the numerator of which shall be the number of days in which the
Executive was employed by the Company in the bonus period in which such
termination occurs, and the denominator of which shall be the number of days in
such bonus period. Such payment shall be paid in a lump sum within ten (10)
business days after the Termination Date.
(ii) Voluntary Resignation; Termination for Cause.
If the Executive's employment terminates by reason of the Executive's voluntary
resignation (and is not an Involuntary Termination), or if the Executive is
terminated for Cause, then the Executive shall not be entitled to receive
severance or other benefits except for those (if any) as may then be
established (and applicable) under the Company's then-existing severance and
benefits plans and policies at the time of such termination.
(b) Benefits; Miscellaneous. In the event the Executive
is entitled to severance benefits pursuant to subsection 6(a)(i) (other than as
a result of the Executive's death), then in addition to such severance
benefits, the Company shall continue to provide the Executive, for thirty-six
(36) months after the Termination Date, welfare benefits or such comparable
alternative welfare benefits as the Company may, in its discretion, determine
to be sufficient to satisfy its obligations to the Executive under this
Agreement (including, without limitation, medical, prescription, dental,
disability, individual life, group life, accidental death and travel accident
plans and programs) which are at least as favorable as the most favorable plans
of the Company applicable to other peer executives and their families as of the
Termination Date. Notwithstanding the foregoing, if the Executive is covered
under any medical, life, or disability insurance plan(s) provided by a
subsequent employer, then the amount of coverage required to be provided by the
Company hereunder shall be reduced by the amount of coverage provided by the
subsequent employer's medical, life or disability insurance plan(s). The
Executive's rights under this Section 6(b) shall be in addition to, and not in
lieu of, any post-termination continuation coverage or conversion rights the
Executive may have pursuant to applicable law, including without limitation,
continuation coverage required by Section 4980B of the Internal Revenue Code.
In addition, (i) the Company shall pay the Executive any unpaid base
salary due for periods prior to the Termination Date; (ii) the Company shall
pay the Executive all of the Executive's accrued and unused vacation through
the Termination Date; and (iii) following submission of proper expense reports
by the Executive, the Company shall reimburse the Executive for all expenses
reasonably and necessarily incurred by the Executive in connection with the
business of the Company prior to termination. These payments shall be made
promptly upon termination and within the period of time mandated by law.
(c) Option and Restricted Stock Accelerated Vesting. In
the event the Executive is entitled to severance benefits pursuant to
subsection 6(a)(i), the unvested portion of any stock option or restricted
stock held by the Executive shall automatically be accelerated in full so as to
become completely vested.
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(d) Option Bonus. In the event of a termination
described in subsection 6(a)(i) that occurs within the thirty-six (36) month
period following a Company Event, then, in addition to the severance and other
benefits provided above, the Company shall also pay the Executive a cash bonus
in an amount equal to the aggregate option exercise price attributable to the
Executive's then outstanding Company stock options. Such bonus shall be paid
in a lump sum within ten (10) business days after the Termination Date.
7. Limitation on Payments. Notwithstanding anything to the
contrary contained herein, in the event it shall be determined that any payment
by the Company to or for the benefit of the Executive, whether paid or payable
but determined without regard to any additional payments required under this
Section 7 (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any
comparable federal, state, or local excise tax (such excise tax, together with
any interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in such an amount that after the payment of all
taxes (including, without limitation, any interest and penalties on such taxes
and the Excise Tax) on the payment and on the Gross-Up Payment, the Executive
shall retain an amount equal to the Payment minus all applicable taxes on the
Payment. The intent of the parties is that the Company shall be solely
responsible for, and shall pay, any Excise Tax on the Payment and Gross-Up
Payment and any income and employment taxes (including, without limitation,
penalties and interest) imposed on any Gross-Up Payment, as well as any loss of
tax deduction caused by the Gross-Up Payment. All determinations required to be
made under this Section, including without limitation, whether and when a
Gross-Up Payment is required in the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determinations, shall be made by
a nationally recognized accounting firm that is the Company's outside auditor
at the time of such determinations, which firm must be reasonably acceptable to
the Executive (the "Accounting Firm"). All fees and expenses of the Accounting
Firm shall be borne solely by the Company.
8. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Cause. "Cause" shall mean (i) a willful act of
personal dishonesty knowingly taken by the Executive in connection with his
responsibilities as an employee and intended to result in his substantial
personal enrichment, (ii) a willful and knowing act by the Executive which
constitutes gross misconduct, or any refusal by the Executive to comply with a
reasonable directive of the Board, (iii) a willful breach by the Executive of a
material provision of this Agreement, or (iv) a material and willful violation
of a federal or state law or regulation applicable to the business of the
Company. No act, or failure to act, by the Executive shall be considered
"willful" unless committed without good faith and without a reasonable belief
that the act or omission was in the Company's best interest. Termination for
Cause shall not be deemed to have occurred unless, by the affirmative vote of
all of the members of the Board (excluding the Executive, if applicable), at a
meeting called and held for that purpose (after reasonable notice to the
Executive and his counsel after allowing the Executive and his counsel to be
heard before the Board, a resolution is adopted finding that in the good faith
opinion of such Board members the Executive was guilty of conduct set forth in
(i), (ii), (iii), or (iv) and specifying the particulars thereof.
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(b) Company Event. "Company Event" shall mean the
occurrence of any of the following events:
(i) Any "person" or "group" (as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 30% or more
of the total voting power represented by the Company's then outstanding voting
securities; or
(ii) A change in the composition of the Board of
the Company occurring within a two-year period, as a result of which fewer than
a majority of the directors are Incumbent Directors. "Incumbent Directors"
shall mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of the
Company with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or
(iii) The stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially
all the Company's assets (other than to a subsidiary or subsidiaries); or
(iv) James A. McIntyre, while serving as Chairman
of the Board, has a conservator of his person appointed or dies.
(c) Disability. "Disability" shall mean that the
Executive has been or will be unable to perform his duties under this Agreement
for a period of six or more months due to illness, accident or other physical
or mental incapacity.
(d) Employment Term. "Employment Term" shall mean the
period beginning on the Effective Date and ending (i) on the third anniversary
of the Effective Date in the event the Company or the Executive, before the
second anniversary of the Effective Date, gives advance written notice of
termination of the Employment Term to the other in accordance with Section
10(a), or (ii) in the absence of such notice of termination, on the sixth
anniversary of the Effective Date.
(e) Involuntary Termination. "Involuntary Termination"
shall mean:
(i) the continued assignment to Executive of any
duties or the continued significant change in the Executive's duties, either of
which is substantially inconsistent with the Executive's duties immediately
prior to such assignment or change for a period of 30 days after notice
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thereof from Executive to the Chief Executive Officer of the Company or the
Board setting forth in reasonable detail the respects in which Executive
believes such assignments or duties are significantly inconsistent with the
Executive's prior duties;
(ii) a reduction in Executive's Base Compensation,
other than any such reduction which is part of, and generally consistent with,
a general reduction of officer salaries, except that in no event shall the
Executive's Base Compensation be reduced below the rate set forth in Section
4(a) above as of the Effective Date;
(iii) a material reduction by the Company in the
kind or level of employee benefits (other than salary and bonus) to which
Executive is entitled immediately prior to such reduction with the result that
Executive's overall benefits package (other than salary and bonus) is
substantially reduced (other than any such reduction applicable to officers of
the Company generally);
(iv) the relocation of Executive's principal place
for the rendering of the services to be provided by him hereunder to a location
more than fifty (50) miles from the present location of the principal executive
office of the Company;
(v) any purported termination of the Executive's
employment by the Company other than for Cause;
(vi) the failure of the Company to obtain the
assumption of this Agreement by any successors contemplated in Section 9 below;
or
(vii) any material breach by the Company of any
material provision of this Agreement which continues uncured for 30 days
following notice thereof; provided that none of the foregoing shall constitute
Involuntary Termination to the extent Executive has agreed thereto.
(f) Termination Date. "Termination Date" shall mean (i)
if the Executive's employment is terminated by the Company for Disability,
thirty (30) days after notice of termination is given to the Executive
(provided that the Executive shall not have returned to the performance of the
Executive's duties on a full-time basis during such thirty (30) day period),
(ii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a notice of termination is given, or (iii) if the
Agreement is terminated by the Executive, the date on which the Executive
delivers the notice of termination to the Company.
9. Successors.
(a) Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets shall assume the obligations under this
Agreement and agree expressly to perform the obligations under this Agreement
in the same manner and to the same extent as the Company would be required to
perform such obligations in the absence of a succession. For all purposes
under this Agreement, the term "Company" shall include any successor to the
Company's business
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and/or assets which executes and delivers the assumption agreement described in
this subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Executive's Successors. The terms of this Agreement
and all rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representa tives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
10. Notice.
(a) General. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the case of
the Executive, mailed notices shall be addressed to him at the home address
which he most recently communicated to the Company in writing. In the case of
the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the
Company for Cause or by the Executive as a result of a voluntary resignation or
an Involuntary Termination shall be communicated by a notice of termination to
the other party hereto given in accordance with Section 10 of this Agreement.
Such notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated,
and shall specify the termination date (which shall be not more than 30 days
after the giving of such notice). The failure by the Executive to include in
the notice any fact or circumstance which contributes to a showing of
Involuntary Termination shall not waive any right of the Executive hereunder or
preclude the Executive from asserting such fact or circumstance in enforcing
his rights hereunder.
11. Arbitration. At the option of either party, any and all
disputes or controversies whether of law or fact and of any nature whatsoever
arising from or respecting this Agreement shall be decided by arbitration by
the American Arbitration Association in accordance with the rules and
regulations of that Association.
The arbitrator shall be selected as follows: In the event the
Company and the Executive agree on one arbitrator, the arbitration shall be
conducted by such arbitrator. In the event the Company and the Executive do
not so agree, the Company and the Executive shall each select one independent,
qualified arbitrator and the two arbitrators so selected shall select the third
arbitrator. The Company reserves the right to object to any individual
arbitrator who shall be employed by or affiliated with a competing
organization.
Arbitration shall take place in Los Angeles, California, or
any other location mutually agreeable to the parties. At the request of either
party, arbitration proceedings will be conducted in the utmost secrecy; in such
case all documents, testimony and records shall be received, heard and
maintained by the arbitrators in secrecy under seal, available for the
inspection only of the Company or the Executive and their respective attorneys
and their respective experts who shall agree in advance and in writing to
receive all such information confidentially and to maintain such information in
secrecy until such
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information shall become generally known. The arbitrator, who shall act by
majority vote, shall be able to decree any and all relief of an equitable
nature, including but not limited to such relief as a temporary restraining
order, a temporary and/or a permanent injunction, and shall also be able to
award damages, with or without an accounting and costs, provided that punitive
damages shall not be awarded. The decree or judgment of an award rendered by
the arbitrators may be entered in any court having jurisdiction thereof.
Reasonable notice of the time and place of arbitration shall
be given to all persons, other than the parties, as shall be required by law,
in which case such persons or those authorized representatives shall have the
right to attend and/or participate in all the arbitration hearings in such
manner as the law shall require.
12. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Executive shall not be
required to mitigate the amount of any payment contemplated by this Agreement,
nor shall any such payment be reduced by any earnings that the Executive may
receive from any other source.
(b) Waiver. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Executive and by an authorized officer
of the Company (other than the Executive). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California.
(e) Severability. The invalidity or unenforceability of
any provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) No Assignment of Benefits. The rights of any person
to payments or benefits under this Agreement shall not be made subject to
option or assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy, garnishment,
attachment or other creditor's process, and any action in violation of this
subsection (f) shall be void.
(g) Employment Taxes. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(h) Assignment by Company. The Company may assign its
rights under this Agreement to an affiliate, and an affiliate may assign its
rights under this Agreement to another affiliate of the Company
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or to the Company; provided, however, that no assignment shall be made if the
net worth of the assignee is less than the net worth of the Company at the time
of assignment. In the case of any such assignment, the term "Company" when
used in a section of this Agreement shall mean the corporation that actually
employs the Executive.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.
COMPANY FREMONT GENERAL CORPORATION
/s/ James A. McIntyre
---------------------------------------
By: James A. McIntyre
Title: Chairman of the Board and Chief
Executive Officer
EXECUTIVE LOUIS J. RAMPINO
/s/ Louis J. Rampino
---------------------------------------
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EXHIBIT 10.14(b)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
effective as of February 8, 1996 (the "Effective Date"), by and between Wayne
R. Bailey (the "Executive") and Fremont General Corporation (the "Company").
R E C I T A L S
A. The Company and the Executive desire to enter into this
Agreement in order to provide additional financial security and benefits to the
Executive in recognition of past services and to encourage Executive to
continue employment with the Company.
B. To accomplish the foregoing objectives, the Board of Directors
of the Company (the "Board") has directed the Company, upon execution of this
Agreement by the Executive, to agree to the terms provided herein.
C. Certain capitalized terms used in the Agreement are defined in
Section 8 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Executive by the Company, the
parties agree as follows:
1. Duties and Scope of Employment.
(a) Position. The Company shall employ the Executive in
the position of Executive Vice President and Chief Financial Officer, with such
duties, responsibilities and compensation as in effect as of the Effective
Date; provided, however, that the Board shall have the right to revise such
responsibilities and compensation from time to time as the Board may deem
necessary or appropriate. If any such revision constitutes "Involuntary
Termination"( as defined in Section 8(e)), the Executive shall be entitled to
benefits upon such Involuntary Termination as provided under this Agreement.
(b) Obligations. The Executive shall devote his full
business efforts and time to the Company and its subsidiaries. The foregoing,
however, shall not preclude the Executive from engaging in such activities and
services as do not interfere or conflict with his responsibilities to the
Company.
2. At-Will Employment. The Company and the Executive acknowledge
that the Executive's employment is and shall continue to be at-will, as
defined under applicable law. If the Executive's employment terminates for any
reason, the Executive shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the Company's established employee
plans and practices or other agreements with the Company at the time of
termination.
3. Term of Agreement. The terms of this Agreement shall
terminate upon the earliest of (i) the date that all obligations of the parties
hereunder have been satisfied, (ii) in the absence of a Company Event (as
defined in Section 8(b)) prior to the sixth anniversary of the Effective Date,
the sixth anniversary of the Effective Date, or (iii) in the event of a Company
Event on or prior to the sixth anniversary of the Effective Date, the third
anniversary of such Company Event. Notwithstanding the foregoing, this
Agreement may
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be extended for an additional period or periods by mutual written agreement of
the Company and the Executive. A termination of the terms of this Agreement
pursuant to this Section 3 shall be effective for all purposes, except that
such termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of the terms of this Agreement.
4. Compensation and Benefits.
(a) Base Compensation. The Company shall pay the
Executive as compensation for services a base salary at the annualized rate of
$450,000. Such salary shall be reviewed at least annually and may be increased
from time to time. Such salary may be decreased, subject to the provisions of
subsection 8(e)(ii) of this Agreement. Such salary shall be paid periodically
in accordance with normal Company payroll. The annual compensation specified
in this Section 4(a), as adjusted from time to time, is referred to in this
Agreement as "Base Compensation."
(b) Bonus. Beginning with the Company's current fiscal
year and for each fiscal year thereafter during the term of this Agreement, the
Executive shall be eligible to participate in any bonus plan or arrangement
maintained by the Company of general applicability to other key executives of
the Company.
(c) Executive Benefits. The Executive shall be eligible
to participate in the employee benefit plans and executive compensation
programs maintained by the Company of general applicability to other key
executives of the Company, including (without limitation) retirement plans,
savings or profit-sharing plans, deferred compensation plans, supplemental
retirement or excess-benefit plans, stock option, restricted stock programs,
incentive or other bonus plans, life, disability, health, accident and other
insurance programs, paid vacations, and similar plans or programs, subject in
each case to the generally applicable terms and conditions of the plan or
program in question and to the determination of the Board or any committee
administering such plan or program.
5. Benefits Upon a Company Event. In the event of a Company
Event that occurs while the Executive is employed by the Company, the unvested
portion of any stock option or restricted stock held by the Executive shall
automatically be accelerated in full so as to become completely vested.
6. Severance Benefits.
(a) Severance Benefits. If the Executive's employment
with the Company terminates, either (i) within the thirty-six (36) month period
following a Company Event, or (ii) during the "Employment Term" (as defined in
Section 8(d)) below, then the Executive shall be entitled to receive severance
benefits as follows:
(i) Involuntary Termination; Death; Disability.
If the Executive's employment terminates as a result of Involuntary Termination
other than for Cause, or if the Executive's employment terminates as the result
of the Executive's death or Disability, then the Company shall pay the
Executive (or the Executive's beneficiary or representative, as applicable)
within ten (10) business days after the Termination Date a lump sum amount
equal to thirty-six (36) months Base Compensation of the Executive
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at the time of such termination (without giving effect to any reduction in Base
Compensation that resulted in such Involuntary Termination). In addition, the
Executive shall be entitled to a payment of a pro-rata portion of the target
bonus amount (as such term is defined and applied by the Company) for the then
current bonus period(s) under any bonus plan maintained by the Company in which
the Executive is participating on the Termination Date. The pro-rata portion of
any such bonus opportunity shall be determined by multiplying the target bonus
by a fraction, the numerator of which shall be the number of days in which the
Executive was employed by the Company in the bonus period in which such
termination occurs, and the denominator of which shall be the number of days in
such bonus period. Such payment shall be paid in a lump sum within ten (10)
business days after the Termination Date.
(ii) Voluntary Resignation; Termination for Cause.
If the Executive's employment terminates by reason of the Executive's voluntary
resignation (and is not an Involuntary Termination), or if the Executive is
terminated for Cause, then the Executive shall not be entitled to receive
severance or other benefits except for those (if any) as may then be
established (and applicable) under the Company's then-existing severance and
benefits plans and policies at the time of such termination.
(b) Benefits; Miscellaneous. In the event the Executive
is entitled to severance benefits pursuant to subsection 6(a)(i) (other than as
a result of the Executive's death), then in addition to such severance
benefits, the Company shall continue to provide the Executive, for thirty-six
(36) months after the Termination Date, welfare benefits or such comparable
alternative welfare benefits as the Company may, in its discretion, determine
to be sufficient to satisfy its obligations to the Executive under this
Agreement (including, without limitation, medical, prescription, dental,
disability, individual life, group life, accidental death and travel accident
plans and programs) which are at least as favorable as the most favorable plans
of the Company applicable to other peer executives and their families as of the
Termination Date. Notwithstanding the foregoing, if the Executive is covered
under any medical, life, or disability insurance plan(s) provided by a
subsequent employer, then the amount of coverage required to be provided by the
Company hereunder shall be reduced by the amount of coverage provided by the
subsequent employer's medical, life or disability insurance plan(s). The
Executive's rights under this Section 6(b) shall be in addition to, and not in
lieu of, any post-termination continuation coverage or conversion rights the
Executive may have pursuant to applicable law, including without limitation,
continuation coverage required by Section 4980B of the Internal Revenue Code.
In addition, (i) the Company shall pay the Executive any unpaid base
salary due for periods prior to the Termination Date; (ii) the Company shall
pay the Executive all of the Executive's accrued and unused vacation through
the Termination Date; and (iii) following submission of proper expense reports
by the Executive, the Company shall reimburse the Executive for all expenses
reasonably and necessarily incurred by the Executive in connection with the
business of the Company prior to termination. These payments shall be made
promptly upon termination and within the period of time mandated by law.
(c) Option and Restricted Stock Accelerated Vesting. In
the event the Executive is entitled to severance benefits pursuant to
subsection 6(a)(i), the unvested portion of any stock option or restricted
stock held by the Executive shall automatically be accelerated in full so as to
become completely vested.
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(d) Option Bonus. In the event of a termination
described in subsection 6(a)(i) that occurs within the thirty-six (36) month
period following a Company Event, then, in addition to the severance and other
benefits provided above, the Company shall also pay the Executive a cash bonus
in an amount equal to the aggregate option exercise price attributable to the
Executive's then outstanding Company stock options. Such bonus shall be paid
in a lump sum within ten (10) business days after the Termination Date.
7. Limitation on Payments. Notwithstanding anything to the
contrary contained herein, in the event it shall be determined that any payment
by the Company to or for the benefit of the Executive, whether paid or payable
but determined without regard to any additional payments required under this
Section 7 (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any
comparable federal, state, or local excise tax (such excise tax, together with
any interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in such an amount that after the payment of all
taxes (including, without limitation, any interest and penalties on such taxes
and the Excise Tax) on the payment and on the Gross-Up Payment, the Executive
shall retain an amount equal to the Payment minus all applicable taxes on the
Payment. The intent of the parties is that the Company shall be solely
responsible for, and shall pay, any Excise Tax on the Payment and Gross-Up
Payment and any income and employment taxes (including, without limitation,
penalties and interest) imposed on any Gross-Up Payment, as well as any loss of
tax deduction caused by the Gross-Up Payment. All determinations required to be
made under this Section, including without limitation, whether and when a
Gross-Up Payment is required in the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determinations, shall be made by
a nationally recognized accounting firm that is the Company's outside auditor
at the time of such determinations, which firm must be reasonably acceptable to
the Executive (the "Accounting Firm"). All fees and expenses of the Accounting
Firm shall be borne solely by the Company.
8. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Cause. "Cause" shall mean (i) a willful act of
personal dishonesty knowingly taken by the Executive in connection with his
responsibilities as an employee and intended to result in his substantial
personal enrichment, (ii) a willful and knowing act by the Executive which
constitutes gross misconduct, or any refusal by the Executive to comply with a
reasonable directive of the Board, (iii) a willful breach by the Executive of a
material provision of this Agreement, or (iv) a material and willful violation
of a federal or state law or regulation applicable to the business of the
Company. No act, or failure to act, by the Executive shall be considered
"willful" unless committed without good faith and without a reasonable belief
that the act or omission was in the Company's best interest. Termination for
Cause shall not be deemed to have occurred unless, by the affirmative vote of
all of the members of the Board (excluding the Executive, if applicable), at a
meeting called and held for that purpose (after reasonable notice to the
Executive and his counsel after allowing the Executive and his counsel to be
heard before the Board, a resolution is adopted finding that in the good faith
opinion of such Board members the Executive was guilty of conduct set forth in
(i), (ii), (iii), or (iv) and specifying the particulars thereof.
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(b) Company Event. "Company Event" shall mean the
occurrence of any of the following events:
(i) Any "person" or "group" (as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 30% or more
of the total voting power represented by the Company's then outstanding voting
securities; or
(ii) A change in the composition of the Board of
the Company occurring within a two-year period, as a result of which fewer than
a majority of the directors are Incumbent Directors. "Incumbent Directors"
shall mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of the
Company with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or
(iii) The stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially
all the Company's assets (other than to a subsidiary or subsidiaries); or
(iv) James A. McIntyre, while serving as Chairman
of the Board, has a conservator of his person appointed or dies.
(c) Disability. "Disability" shall mean that the
Executive has been or will be unable to perform his duties under this Agreement
for a period of six or more months due to illness, accident or other physical
or mental incapacity.
(d) Employment Term. "Employment Term" shall mean the
period beginning on the Effective Date and ending (i) on the third anniversary
of the Effective Date in the event the Company or the Executive, before the
second anniversary of the Effective Date, gives advance written notice of
termination of the Employment Term to the other in accordance with Section
10(a), or (ii) in the absence of such notice of termination, on the sixth
anniversary of the Effective Date.
(e) Involuntary Termination. "Involuntary Termination"
shall mean:
(i) the continued assignment to Executive of any
duties or the continued significant change in the Executive's duties, either of
which is substantially inconsistent with the Executive's duties immediately
prior to such assignment or change for a period of 30 days after notice
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thereof from Executive to the Chief Executive Officer of the Company or the
Board setting forth in reasonable detail the respects in which Executive
believes such assignments or duties are significantly inconsistent with the
Executive's prior duties;
(ii) a reduction in Executive's Base Compensation,
other than any such reduction which is part of, and generally consistent with,
a general reduction of officer salaries, except that in no event shall the
Executive's Base Compensation be reduced below the rate set forth in Section
4(a) above as of the Effective Date;
(iii) a material reduction by the Company in the
kind or level of employee benefits (other than salary and bonus) to which
Executive is entitled immediately prior to such reduction with the result that
Executive's overall benefits package (other than salary and bonus) is
substantially reduced (other than any such reduction applicable to officers of
the Company generally);
(iv) the relocation of Executive's principal place
for the rendering of the services to be provided by him hereunder to a location
more than fifty (50) miles from the present location of the principal executive
office of the Company;
(v) any purported termination of the Executive's
employment by the Company other than for Cause;
(vi) the failure of the Company to obtain the
assumption of this Agreement by any successors contemplated in Section 9 below;
or
(vii) any material breach by the Company of any
material provision of this Agreement which continues uncured for 30 days
following notice thereof; provided that none of the foregoing shall constitute
Involuntary Termination to the extent Executive has agreed thereto.
(f) Termination Date. "Termination Date" shall mean (i)
if the Executive's employment is terminated by the Company for Disability,
thirty (30) days after notice of termination is given to the Executive
(provided that the Executive shall not have returned to the performance of the
Executive's duties on a full-time basis during such thirty (30) day period),
(ii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a notice of termination is given, or (iii) if the
Agreement is terminated by the Executive, the date on which the Executive
delivers the notice of termination to the Company.
9. Successors.
(a) Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets shall assume the obligations under this
Agreement and agree expressly to perform the obligations under this Agreement
in the same manner and to the same extent as the Company would be required to
perform such obligations in the absence of a succession. For all purposes
under this Agreement, the term "Company" shall include any successor to the
Company's business
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and/or assets which executes and delivers the assumption agreement described in
this subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Executive's Successors. The terms of this Agreement
and all rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representa tives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
10. Notice.
(a) General. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the case of
the Executive, mailed notices shall be addressed to him at the home address
which he most recently communicated to the Company in writing. In the case of
the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the
Company for Cause or by the Executive as a result of a voluntary resignation or
an Involuntary Termination shall be communicated by a notice of termination to
the other party hereto given in accordance with Section 10 of this Agreement.
Such notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated,
and shall specify the termination date (which shall be not more than 30 days
after the giving of such notice). The failure by the Executive to include in
the notice any fact or circumstance which contributes to a showing of
Involuntary Termination shall not waive any right of the Executive hereunder or
preclude the Executive from asserting such fact or circumstance in enforcing
his rights hereunder.
11. Arbitration. At the option of either party, any and all
disputes or controversies whether of law or fact and of any nature whatsoever
arising from or respecting this Agreement shall be decided by arbitration by
the American Arbitration Association in accordance with the rules and
regulations of that Association.
The arbitrator shall be selected as follows: In the event the
Company and the Executive agree on one arbitrator, the arbitration shall be
conducted by such arbitrator. In the event the Company and the Executive do
not so agree, the Company and the Executive shall each select one independent,
qualified arbitrator and the two arbitrators so selected shall select the third
arbitrator. The Company reserves the right to object to any individual
arbitrator who shall be employed by or affiliated with a competing
organization.
Arbitration shall take place in Los Angeles, California, or
any other location mutually agreeable to the parties. At the request of either
party, arbitration proceedings will be conducted in the utmost secrecy; in such
case all documents, testimony and records shall be received, heard and
maintained by the arbitrators in secrecy under seal, available for the
inspection only of the Company or the Executive and their respective attorneys
and their respective experts who shall agree in advance and in writing to
receive all such information confidentially and to maintain such information in
secrecy until such
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information shall become generally known. The arbitrator, who shall act by
majority vote, shall be able to decree any and all relief of an equitable
nature, including but not limited to such relief as a temporary restraining
order, a temporary and/or a permanent injunction, and shall also be able to
award damages, with or without an accounting and costs, provided that punitive
damages shall not be awarded. The decree or judgment of an award rendered by
the arbitrators may be entered in any court having jurisdiction thereof.
Reasonable notice of the time and place of arbitration shall
be given to all persons, other than the parties, as shall be required by law,
in which case such persons or those authorized representatives shall have the
right to attend and/or participate in all the arbitration hearings in such
manner as the law shall require.
12. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Executive shall not be
required to mitigate the amount of any payment contemplated by this Agreement,
nor shall any such payment be reduced by any earnings that the Executive may
receive from any other source.
(b) Waiver. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Executive and by an authorized officer
of the Company (other than the Executive). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California.
(e) Severability. The invalidity or unenforceability of
any provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) No Assignment of Benefits. The rights of any person
to payments or benefits under this Agreement shall not be made subject to
option or assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy, garnishment,
attachment or other creditor's process, and any action in violation of this
subsection (f) shall be void.
(g) Employment Taxes. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(h) Assignment by Company. The Company may assign its
rights under this Agreement to an affiliate, and an affiliate may assign its
rights under this Agreement to another affiliate of the Company
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or to the Company; provided, however, that no assignment shall be made if the
net worth of the assignee is less than the net worth of the Company at the time
of assignment. In the case of any such assignment, the term "Company" when
used in a section of this Agreement shall mean the corporation that actually
employs the Executive.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.
COMPANY FREMONT GENERAL CORPORATION
/s/ James A. McIntyre
---------------------------------------
By: James A. McIntyre
Title: Chairman of the Board and Chief
Executive Officer
EXECUTIVE WAYNE R. BAILEY
/s/ Wayne R. Bailey
---------------------------------------
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EXHIBIT 10.15
MANAGEMENT CONTINUITY AGREEMENT
This Management Continuity Agreement (the "Agreement") is made and
entered into effective as of February 8, 1996 (the "Effective Date"), by and
between Raymond G. Meyers (the "Executive") and Fremont General Corporation
(the "Company").
R E C I T A L S
A. It is expected that the Company from time to time will
consider the possibility of an acquisition by another company or other
significant Company event. The Board of Directors of the Company (the "Board")
recognizes that such consideration can be a distraction to the Executive and
can cause the Executive to consider alternative employment opportunities. The
Board is determined that it is in the best interests of the Company and its
stockholders to assure that the Company will have the continued dedication and
objectivity of the Executive, notwithstanding the possibility, threat or
occurrence of a Company Event (as defined below).
B. The Board believes that it is the best interests of the
Company and its stockholders to provide the Executive with an incentive to
continue his employment and to motivate the Executive to maximize the value of
the Company upon a Company Event for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the
Executive with certain benefits upon a Company Event and, under certain
circumstances, upon termination of the Executive's employment in connection
with a Company Event, which benefits are intended to provide the Executive with
financial security and provide sufficient incentive and encouragement to the
Executive to remain with the Company notwithstanding the possibility of a
Company Event.
D. To accomplish the foregoing objectives, the Board has directed
the Company, upon execution of this Agreement by the Executive, to agree to the
terms provided herein.
E. Certain capitalized terms used in the Agreement are defined in
Section 8 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Executive by the Company, the
parties agree as follows:
1. Duties and Scope of Employment.
(a) Position. The Company shall employ the Executive in
the position of Senior Vice President, with such duties, responsibilities and
compensation as in effect as of the Effective Date; provided, however, that the
Board shall have the right, at any time prior to the occurrence of a Company
Event, to revise such responsibilities and compensation from time to time as
the Board, in its discretion, may deem necessary or appropriate.
(b) Obligations. The Executive shall continue to devote
his full business efforts and time to the Company and its subsidiaries. The
Executive shall comply with and be bound by the Company's operating policies,
procedures and practices from time to time in effect during his employment.
During the term of the Executive's employment with the Company, the Executive
shall devote his full time, skill and
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<PAGE> 2
attention to his duties and responsibilities, and shall perform them
faithfully, diligently and competently, and the Executive shall use his best
efforts to further the business of the Company and its affiliated entities. The
foregoing, however, shall not preclude the Executive from engaging in such
activities and services as do not interfere or conflict with his
responsibilities to the Company.
2. At-Will Employment. The Company and the Executive acknowledge
that the Executive's employment is and shall continue to be at-will, as
defined under applicable law. If the Executive's employment terminates for any
reason, the Executive shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the Company's established employee
plans and practices or other agreements with the Company at the time of
termination.
3. Term of Agreement. The terms of this Agreement shall
terminate upon the earliest of (i) the date that all obligations of the parties
hereunder have been satisfied, (ii) in the absence of a Company Event (as
defined in Section 8(b)) prior to the sixth anniversary of the Effective Date,
the sixth anniversary of the Effective Date, or (iii) in the event of a Company
Event on or prior to the sixth anniversary of the Effective Date, the third
anniversary of such Company Event. Notwithstanding the foregoing, this
Agreement may be extended for an additional period or periods by mutual written
agreement of the Company and the Executive. A termination of the terms of this
Agreement pursuant to this Section 3 shall be effective for all purposes,
except that such termination shall not affect the payment or provision of
compensation or benefits on account of a termination of employment occurring
prior to the termination of the terms of this Agreement.
4. Compensation and Benefits.
(a) Base Compensation. The Company shall pay the
Executive as compensation for services a base salary at the annualized rate of
$290,000. Such salary shall be reviewed at least annually and may be increased
from time to time. At any time prior to a Company Event, such salary may be
decreased, subject to the provisions of subsection 8(d)(ii) of this Agreement.
Such salary shall be paid periodically in accordance with normal Company
payroll. The annual compensation specified in this Section 4(a), as adjusted
from time to time, is referred to in this Agreement as "Base Compensation."
(b) Bonus. Beginning with the Company's current fiscal
year and for each fiscal year thereafter during the term of this Agreement, the
Executive shall be eligible to participate in any bonus plan or arrangement
maintained by the Company of general applicability to other key executives of
the Company.
(c) Executive Benefits. The Executive shall be eligible
to participate in the employee benefit plans and executive compensation
programs maintained by the Company of general applicability to other key
executives of the Company, including (without limitation) retirement plans,
savings or profit-sharing plans, deferred compensation plans, supplemental
retirement or excess-benefit plans, stock option, restricted stock programs,
incentive or other bonus plans, life, disability, health, accident and other
insurance programs, paid vacations, and similar plans or programs, subject in
each case to the generally applicable terms and conditions of the plan or
program in question and to the determination of the Board or any committee
administering such plan or program.
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<PAGE> 3
5. Benefits Upon a Company Event. In the event of a Company
Event that occurs while the Executive is employed by the Company, the unvested
portion of any stock option or restricted stock held by the Executive shall
automatically be accelerated in full so as to become completely vested.
6. Severance Benefits.
(a) Severance Benefits. If the Executive's employment
with the Company terminates within the thirty-six (36) month period following a
Company Event, then the Executive shall be entitled to receive severance
benefits as follows:
(i) Involuntary Termination; Death; Disability.
If the Executive's employment terminates as a result of Involuntary Termination
other than for Cause, or if the Executive's employment terminates as the result
of the Executive's death or Disability, then the Company shall pay the
Executive (or the Executive's beneficiary or representative, as applicable)
within ten (10) business days after the Termination Date a lump sum amount
equal to thirty-six (36) months Base Compensation of the Executive at the time
of such termination (without giving effect to any reduction in Base
Compensation that resulted in such Involuntary Termination). In addition, the
Executive shall be entitled to a payment of a pro-rata portion of the target
bonus amount (as such term is defined and applied by the Company) for the then
current bonus period(s) under any bonus plan maintained by the Company in which
the Executive is participating on the Termination Date. The pro-rata portion of
any such bonus opportunity shall be determined by multiplying the target bonus
by a fraction, the numerator of which shall be the number of days in which the
Executive was employed by the Company in the bonus period in which such
termination occurs, and the denominator of which shall be the number of days in
such bonus period. Such payment shall be paid in a lump sum within ten (10)
business days after the Termination Date.
(ii) Voluntary Resignation; Termination for Cause.
If the Executive's employment terminates by reason of the Executive's voluntary
resignation (and is not an Involuntary Termination), or if the Executive is
terminated for Cause, then the Executive shall not be entitled to receive
severance or other benefits except for those (if any) as may then be
established (and applicable) under the Company's then-existing severance and
benefits plans and policies at the time of such termination.
(b) Benefits; Miscellaneous. In the event the Executive
is entitled to severance benefits pursuant to subsection 6(a)(i) (other than as
a result of the Executive's death), then in addition to such severance
benefits, the Company shall continue to provide the Executive, for thirty-six
(36) months after the Termination Date, welfare benefits or such comparable
alternative welfare benefits as the Company may, in its discretion, determine
to be sufficient to satisfy its obligations to the Executive under this
Agreement (including, without limitation, medical, prescription, dental,
disability, individual life, group life, accidental death and travel accident
plans and programs) which are at least as favorable as the most favorable plans
of the Company applicable to other peer executives and their families as of the
Termination Date. Notwithstanding the foregoing, if the Executive is covered
under any medical, life, or disability insurance plan(s) provided by a
subsequent employer, then the amount of coverage required to be provided by the
Company hereunder shall be reduced by the amount of coverage provided by the
subsequent employer's medical, life or disability insurance plan(s). The
Executive's rights under this Section 6(b) shall be in addition to, and not in
lieu of, any post-termination continuation coverage or conversion rights the
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Executive may have pursuant to applicable law, including without limitation,
continuation coverage required by Section 4980B of the Internal Revenue Code.
In addition, (i) the Company shall pay the Executive any unpaid base
salary due for periods prior to the Termination Date; (ii) the Company shall
pay the Executive all of the Executive's accrued and unused vacation through
the Termination Date; and (iii) following submission of proper expense reports
by the Executive, the Company shall reimburse the Executive for all expenses
reasonably and necessarily incurred by the Executive in connection with the
business of the Company prior to termination. These payments shall be made
promptly upon termination and within the period of time mandated by law.
(c) Option Bonus. In the event the Executive is entitled
to severance benefits pursuant to subsection 6(a)(i), then, in addition to the
severance and other benefits provided above, the Company shall also pay the
Executive a cash bonus in an amount equal to the aggregate option exercise
price attributable to the Executive's then outstanding Company stock options.
Such bonus shall be paid in a lump sum within ten (10) business days after the
Termination Date.
7. Limitation on Payments. Notwithstanding anything to the
contrary contained herein, in the event it shall be determined that any payment
by the Company to or for the benefit of the Executive, whether paid or payable
but determined without regard to any additional payments required under this
Section 7 (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any
comparable federal, state, or local excise tax (such excise tax, together with
any interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in such an amount that after the payment of all
taxes (including, without limitation, any interest and penalties on such taxes
and the Excise Tax) on the payment and on the Gross-Up Payment, the Executive
shall retain an amount equal to the Payment minus all applicable taxes on the
Payment. The intent of the parties is that the Company shall be solely
responsible for, and shall pay, any Excise Tax on the Payment and Gross-Up
Payment and any income and employment taxes (including, without limitation,
penalties and interest) imposed on any Gross-Up Payment, as well as any loss of
tax deduction caused by the Gross-Up Payment. All determinations required to be
made under this Section, including without limitation, whether and when a
Gross-Up Payment is required in the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determinations, shall be made by
a nationally recognized accounting firm that is the Company's outside auditor
at the time of such determinations, which firm must be reasonably acceptable to
the Executive (the "Accounting Firm"). All fees and expenses of the Accounting
Firm shall be borne solely by the Company.
8. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Cause. "Cause" shall mean (i) a willful act of
personal dishonesty knowingly taken by the Executive in connection with his
responsibilities as an employee and intended to result in his substantial
personal enrichment, (ii) a willful and knowing act by the Executive which
constitutes gross misconduct, or any refusal by the Executive to comply with a
reasonable directive of the Board, (iii) a willful breach by the Executive of a
material provision of this Agreement, or (iv) a material and willful
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violation of a federal or state law or regulation applicable to the business of
the Company. No act, or failure to act, by the Executive shall be considered
"willful" unless committed without good faith and without a reasonable belief
that the act or omission was in the Company's best interest. Termination for
Cause shall not be deemed to have occurred unless, by the affirmative vote of
all of the members of the Board (excluding the Executive, if applicable), at a
meeting called and held for that purpose (after reasonable notice to the
Executive and his counsel after allowing the Executive and his counsel to be
heard before the Board, a resolution is adopted finding that in the good faith
opinion of such Board members the Executive was guilty of conduct set forth in
(i), (ii), (iii), or (iv) and specifying the particulars thereof.
(b) Company Event. "Company Event" shall mean the
occurrence of any of the following events:
(i) Any "person" or "group" (as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 30% or more
of the total voting power represented by the Company's then outstanding voting
securities; or
(ii) A change in the composition of the Board of
the Company occurring within a two-year period, as a result of which fewer than
a majority of the directors are Incumbent Directors. "Incumbent Directors"
shall mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of the
Company with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or
(iii) The stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially
all the Company's assets (other than to a subsidiary or subsidiaries); or
(iv) James A. McIntyre, while serving as Chairman
of the Board, has a conservator of his person appointed or dies.
(c) Disability. "Disability" shall mean that the
Executive has been or will be unable to perform his duties under this Agreement
for a period of six or more months due to illness, accident or other physical
or mental incapacity.
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(d) Involuntary Termination. "Involuntary Termination"
shall mean:
(i) the continued assignment to Executive of any
duties or the continued significant change in the Executive's duties, either of
which is substantially inconsistent with the Executive's duties immediately
prior to such assignment or change for a period of 30 days after notice thereof
from Executive to the Chief Executive Officer of the Company or the Board
setting forth in reasonable detail the respects in which Executive believes
such assignments or duties are significantly inconsistent with the Executive's
prior duties;
(ii) a reduction in Executive's Base Compensation,
other than any such reduction which is part of, and generally consistent with,
a general reduction of officer salaries, except that in no event shall the
Executive's Base Compensation be reduced below the rate set forth in Section
4(a) above as of the Effective Date;
(iii) a material reduction by the Company in the
kind or level of employee benefits (other than salary and bonus) to which
Executive is entitled immediately prior to such reduction with the result that
Executive's overall benefits package (other than salary and bonus) is
substantially reduced (other than any such reduction applicable to officers of
the Company generally);
(iv) the relocation of Executive's principal place
for the rendering of the services to be provided by him hereunder to a location
more than fifty (50) miles from the present location of the principal executive
office of the Company;
(v) any purported termination of the Executive's
employment by the Company other than for Cause;
(vi) the failure of the Company to obtain the
assumption of this Agreement by any successors contemplated in Section 9 below;
or
(vii) any material breach by the Company of any
material provision of this Agreement which continues uncured for 30 days
following notice thereof; provided that none of the foregoing shall constitute
Involuntary Termination to the extent Executive has agreed thereto.
(e) Termination Date. "Termination Date" shall mean (i)
if the Executive's employment is terminated by the Company for Disability,
thirty (30) days after notice of termination is given to the Executive
(provided that the Executive shall not have returned to the performance of the
Executive's duties on a full-time basis during such thirty (30) day period),
(ii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a notice of termination is given, or (iii) if the
Agreement is terminated by the Executive, the date on which the Executive
delivers the notice of termination to the Company.
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9. Successors.
(a) Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets shall assume the obligations under this
Agreement and agree expressly to perform the obligations under this Agreement
in the same manner and to the same extent as the Company would be required to
perform such obligations in the absence of a succession. For all purposes
under this Agreement, the term "Company" shall include any successor to the
Company's business and/or assets which executes and delivers the assumption
agreement described in this subsection (a) or which becomes bound by the terms
of this Agreement by operation of law.
(b) Executive's Successors. The terms of this Agreement
and all rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representa tives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
10. Notice.
(a) General. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the case of
the Executive, mailed notices shall be addressed to him at the home address
which he most recently communicated to the Company in writing. In the case of
the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the
Company for Cause or by the Executive as a result of a voluntary resignation or
an Involuntary Termination shall be communicated by a notice of termination to
the other party hereto given in accordance with Section 10 of this Agreement.
Such notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated,
and shall specify the termination date (which shall be not more than 30 days
after the giving of such notice). The failure by the Executive to include in
the notice any fact or circumstance which contributes to a showing of
Involuntary Termination shall not waive any right of the Executive hereunder or
preclude the Executive from asserting such fact or circumstance in enforcing
his rights hereunder.
11. Arbitration. At the option of either party, any and all
disputes or controversies whether of law or fact and of any nature whatsoever
arising from or respecting this Agreement shall be decided by arbitration by
the American Arbitration Association in accordance with the rules and
regulations of that Association.
The arbitrator shall be selected as follows: In the event the
Company and the Executive agree on one arbitrator, the arbitration shall be
conducted by such arbitrator. In the event the Company and the Executive do
not so agree, the Company and the Executive shall each select one independent,
qualified
-7-
<PAGE> 8
arbitrator and the two arbitrators so selected shall select the third
arbitrator. The Company reserves the right to object to any individual
arbitrator who shall be employed by or affiliated with a competing
organization.
Arbitration shall take place in Los Angeles, California, or
any other location mutually agreeable to the parties. At the request of either
party, arbitration proceedings will be conducted in the utmost secrecy; in such
case all documents, testimony and records shall be received, heard and
maintained by the arbitrators in secrecy under seal, available for the
inspection only of the Company or the Executive and their respective attorneys
and their respective experts who shall agree in advance and in writing to
receive all such information confidentially and to maintain such information in
secrecy until such information shall become generally known. The arbitrator,
who shall act by majority vote, shall be able to decree any and all relief of
an equitable nature, including but not limited to such relief as a temporary
restraining order, a temporary and/or a permanent injunction, and shall also be
able to award damages, with or without an accounting and costs, provided that
punitive damages shall not be awarded. The decree or judgment of an award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
Reasonable notice of the time and place of arbitration shall
be given to all persons, other than the parties, as shall be required by law,
in which case such persons or those authorized representatives shall have the
right to attend and/or participate in all the arbitration hearings in such
manner as the law shall require.
12. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Executive shall not be
required to mitigate the amount of any payment contemplated by this Agreement,
nor shall any such payment be reduced by any earnings that the Executive may
receive from any other source.
(b) Waiver. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Executive and by an authorized officer
of the Company (other than the Executive). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California.
(e) Severability. The invalidity or unenforceability of
any provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
-8-
<PAGE> 9
(f) No Assignment of Benefits. The rights of any person
to payments or benefits under this Agreement shall not be made subject to
option or assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy, garnishment,
attachment or other creditor's process, and any action in violation of this
subsection (f) shall be void.
(g) Employment Taxes. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(h) Assignment by Company. The Company may assign its
rights under this Agreement to an affiliate, and an affiliate may assign its
rights under this Agreement to another affiliate of the Company or to the
Company; provided, however, that no assignment shall be made if the net worth
of the assignee is less than the net worth of the Company at the time of
assignment. In the case of any such assignment, the term "Company" when used
in a section of this Agreement shall mean the corporation that actually employs
the Executive.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.
COMPANY FREMONT GENERAL CORPORATION
By: /s/ James A. McIntyre
--------------------------------------
James A. McIntyre
Chairman of the Board and Chief
Executive Officer
EXECUTIVE /s/ Raymond G. Meyers
-----------------------------------------
Raymond G. Meyers
-9-
<PAGE> 1
EXHIBIT 10.17
RESOLUTION OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
OF
FREMONT GENERAL CORPORATION
The undersigneds, being all the Committee do hereby consent to the adoption of
the following resolution:
Whereas, the Company wishes to provide a modest retirement benefit for
non-employee Directors of our Company who have served at least five (5) years
and who are, at the time of retirement, at least 65 years of age; and
Whereas, the Company wishes to continue to draw on the experience and counsel
of its retired Directors for a period following retirement; and
Whereas, the Company wishes to provide such benefit in the form of continuing
regular monthly fees at the rate in effect, as adopted by the Board, at the
time of the Director's retirement, for a period of three (3) years thereafter;
and
Whereas, the Company wishes to extend such benefits as remain owing under these
provisions to the surviving spouse (if any) of Directors who die prior to
retirement or during the three (3) year period thereafter; and
Whereas, the Company intends to continue these provisions indefinitely but
nonetheless wishes to reserve the absolute right to amend, alter, modify or
discontinue these provisions at its sole discretion;
Now, therefore, be it resolved that the Committee hereby authorizes and
instructs the officers of the Company forthwith to implement a Continuing
Compensation Plan for retired Directors, in a form accept able to the General
Counsel of the Company, which Plan shall provide continuation of the payment of
monthly fees for a period of three (3) years following retirement or to the
Directors' surviving spouses.
/s/ Dickinson C. Ross
---------------------------------------
Dickinson C. Ross
Chairman
/s/ Kenneth L. Trefftzs
---------------------------------------
Kenneth L. Trefftzs
/s/ Houston I. Flournoy
---------------------------------------
Houston I. Flournoy
<PAGE> 2
FREMONT GENERAL CORPORATION
CONTINUING COMPENSATION PLAN FOR RETIRED DIRECTORS
In recognition of their service and contributions as Directors of the Company,
and upon attainment of the age and length of service requirements herein
defined, FREMONT GENERAL CORPORATION provides the benefit of continuing
compensation to those non-employee Directors who elect to retire from active
participation on the Board.
ELIGIBILITY
Directors who are not, nor have been, employees of the Company, or of any of
its principal subsidiaries, who have served at least five (5) consecutive years
on the Board are eligible for continuing compensation under this Plan.
QUALIFICATION
Upon retirement from active service on the Board after completing at least five
(5) years of service and the attainment of age 65 (but not later than the
attainment of age 75), eligible Directors shall continue to receive monthly
payments equal to the monthly fees then in effect as approved by the Board for
a period of three (3) years following retirement.
CONTINGENCY PLANS
DEATH
In the event of an eligible Director's death PRIOR to retirement, the Company
will pay to the Director's surviving spouse (if any) the benefit which the
Company would have paid had the Director retired at the time of death.
Should a Director die AFTER retirement, the Company' will continue to pay the
monthly fees then in effect to the surviving spouse (if any) for the remainder
of the three (3) year period.
At the Company's sole discretion, such a survivor benefit may be paid in
monthly installments or in a lump sum.
<PAGE> 3
DISABILITY
In the event an eligible Director becomes totally and permanently disabled
prior to retirement, the Company will pay such benefit as the Director would
have been paid had he or she retired at the time of disability. Payments to a
Director who becomes disabled after retiring will continue for the duration of
the three (3) year period.
The Company will regard the certification of the attending physician as to the
qualification date for this benefit.
In the event of death following a period of total disability, but within the
three (3) year period, the Company will continue the scheduled benefits as
described under "DEATH" above to the surviving spouse (if any).
EXCLUSIVITY
No one, other than eligible Directors or their surviving spouses, shall have
any claim to the benefits provided under this Plan. Thus, upon the death of a
surviving spouse, all further payments cease; no payments are owed to any
estate or other claimant thereafter.
-2-
<PAGE> 4
ADMINISTRATION
Notwithstanding the Company's desire and intent to implement and maintain this
Plan for the benefit of its Directors, the Plan is an informal, voluntary,
non-contributory, unfunded and non-qualified Plan within the meanings of all
ERISA, IRC or other codes and regulations. Maintenance, funding, and payments
under the terms of this Plan are purely discretionary with the Company which
can alter, suspend, or discontinue this Plan at will. The commitment to pay
under the terms of this Plan is merely an unsecured promise-to-pay obligation
of the Company.
The Plan shall be administered by the Company's Personnel Officer under the
supervision of the Compensation Committee of the Board and the Chief Executive
Officer. Claims against the Plan are administered by the Personnel Officer.
Disputed claims or payments will be reviewed by the Compensation Committee of
the Board which may enforce, in its sole discretion, the action(s) taken by the
Personnel Officer or make whatever adjustments it deems necessary. The
decisions of the Compensation Committee are final.
IMPLEMENTATION
This Plan is effective immediately upon affirmative vote of the majority of all
Directors.
-3-
<PAGE> 1
EXHIBIT 10.18
FREMONT GENERAL CORPORATION
NON-EMPLOYEE DIRECTORS
DEFERRED COMPENSATION PLAN
<TABLE>
<S> <C>
PURPOSE: To permit non-employee Directors to defer all or a portion of any fees earned in performance
of their duties until retirement or other termination of service.
ELIGIBILITY: Any duly-elected non-employee Director of the Board is eligible to participate immediately
upon election or at the beginning of any PlanYear thereafter.
QUALIFICATION: This Deferred Compensation Plan is a "non-qualified" plan under the Internal Revenue Code. This means
that the participants who elect to defer current income to the Plan do so at the risk of having the
Plan subject to forfeiture upon the claims of creditors in the event of bankruptcy or other change in
control of the Company. To minimize this risk, the Plan has adopted a grantor ("rabbi") trust which
provides protection of Plan assets on behalf of participants except in bankruptcy.
DEFERRALS: Participants may elect to participate at the time of election or prior to January 1 of any
subsequent Plan Year. Such elections are irrevocable once made, and the Participant may not
thereafter modify or cease deferrals until the next annual election.
Participants may elect to defer any portion of their regular annual Board retainer fees
and/or meeting fees up to 100% in increments of whole percentages.
INVESTMENTS: The Plan permits Participants who defer income to direct the investment thereof into one or
any combination of investment funds provided through Merrill Lynch & Company under this
Plan.
Participants who elect to buy Fremont common stock must be aware of SEC Rule 16
restrictions.
DISBURSEMENTS: Plan benefits are payable to the Participants upon their retirement or other termination from Board
service. All deferred amounts, plus any accrued interest or appreciation thereon, are paid out in
cash, in lump sum, subject to all Federal, state and local income tax withholding at ordinary income
rates. (Participants who have invested in Company
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
stock may request payment in shares or cash subject to tax withholding).
TRUSTEE: Merrill Lynch & Company
ADMINISTRATOR: The Non-Employee Director Deferred Compensation Plan Administration Committee is composed of three
(3) senior officers of the Company.
OPERATION AND
SERVICES: Fremont will deposit monthly into the Merrill Lynch account of each participant an amount
equal to his pre-tax elected deferral of retainer income, and quarterly an amount equal to
any elected deferral of meeting fees.
The participant shall be permitted, through access to his account on the Merrill Lynch Voice
Response System, to instruct Merrill Lynch on the investment of existing account balances
and current deferral additions.
The Participant shall be permitted to change any investment election through Merrill Lynch
at any time (usually limited to one transaction per investment fund per day).
Merrill Lynch will provide a quarterly account statement to each Participant detailing
current account balance, investment allocations, and performance data.
</TABLE>
<PAGE> 1
EXHIBIT 10.19(b)
FIRST AMENDMENT
This FIRST AMENDMENT (this "Amendment") to the AMENDED AND
RESTATED CREDIT AGREEMENT, dated as of August 24, 1995 (the "Agreement"), among
FREMONT GENERAL CORPORATION, a Nevada corporation (the "Borrower"), the lending
institutions listed from time to time on Annex I thereto (each a "Bank" and,
collectively, the "Banks"), and THE CHASE MANHATTAN BANK, N.A., as Agent (the
"Agent"), is entered into as of December 11, 1995.
W I T N E S S E T H :
WHEREAS, the Borrower desires to amend the Agreement upon the
terms set forth below;
NOW, THEREFORE, IT IS AGREED:
Section 1. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings given thereto in the
Agreement.
Section 2. Amendments to the Agreement.
(a) Section 7.05 of the Agreement shall be amended, as of the
Effective Date (as defined below), by deleting subsection (g) therefrom and
substituting the following therefor:
"(g) The Borrower will not, and will not permit any of its
Subsidiaries to, lend money or credit or make advances to any
Financial Services Subsidiary, or purchase or acquire any capital
stock, obligations (including loans) or securities of, or any other
interest in, or make any capital contribution to, any Financial
Services Subsidiary, except (i) the Borrower may purchase, acquire or
otherwise participate in mortgage loans purchased or originated by FIL
to the extent permitted by Section 7.05(c), (ii) prior to December 31,
1996, the Borrower may contribute an aggregate of up to $25,000,000 to
the capital of one or more of the Thrift Subsidiaries, so long as the
Borrower shall have received, prior to such date of contribution,
gross proceeds of at least $100,000,000 from an incurrence of
Permitted Subordinated Debt in connection with the issuance and sale
of the TOPrS and (iii) to the extent the aggregate amount of such
purchases, acquisitions and contributions (excluding from such
aggregate
<PAGE> 2
amount those purchases, acquisitions and contributions described in
clauses (i) and (ii) above) made pursuant to this Section 7.05(g),
contributions made pursuant to Section 5.05(c) and acquisitions made
pursuant to Section 7.02(d), in each case after the Amendment
Effective Date, does not exceed the Permitted Basket Amount.
Notwithstanding the foregoing sentence, in no event shall the Borrower
permit any of its Subsidiaries (other than Thrift Subsidiaries) to,
lend money or credit or make advances to any Thrift Subsidiary, or
purchase or acquire any capital stock, obligations (including loans)
or securities of, or any other interest in, or make any capital
contribution to, any Thrift Subsidiary."
(b) Section 7 of the Agreement shall be amended, as of
the Effective Date, by adding the following new Section after Section 7.17 of
the Agreement:
"7.18 Trust Originated Preferred Securities.
Notwithstanding any covenant or agreement to the contrary contained in
this Agreement:
(a) The Borrower may establish, form or otherwise create
a Subsidiary (the "TOPrS Subsidiary"), provided that:
(i) the Borrower maintains at all times a 100%
common equity interest in the TOPrS Subsidiary following its
establishment, formation or creation;
(ii) the Borrower's contribution to the capital
of the TOPrS Subsidiary shall not exceed an amount greater
than the difference between the face amount of the TOPrS Debt
and the proceeds received by the Borrower as a result of the
incurrence of the TOPrS Debt;
(iii) the purposes of the TOPrS Subsidiary are
restricted to, and the TOPrS Subsidiary shall conduct no
business other than: (A) the issuance and sale of up to
$125,000,000 of trust originated preferred securities
("TOPrS"), (B) the loaning of the proceeds of the TOPrS to the
Borrower upon terms and conditions so that such loan
constitutes Permitted Subordinated Debt (the "TOPrS Debt") and
(C) the making of distributions to the holders of the TOPrS
solely from payments received from the Borrower pursuant to
the TOPrS Debt;
2
<PAGE> 3
(iv) the TOPrS Subsidiary shall not wind up,
liquidate or dissolve its affairs, unless such action is
taken, (A) upon the advice of nationally recognized tax
counsel, to avoid adverse tax consequences to the Borrower,
the TOPrS Subsidiary or any holder of TOPrS and (B) upon the
advice of nationally recognized counsel experienced in
investment company matters, to avoid the TOPrS Subsidiary
becoming an "investment company" under the Investment Company
Act of 1940, as amended;
(v) the TOPrS Subsidiary shall not enter into
any transaction of merger or consolidation, or convey, sell,
lease or otherwise dispose of (in one transaction or a series
of related transactions) all or any part of its property or
assets, or purchase, lease or otherwise acquire (in one
transaction or a series of related transactions) all or any
part of the property or assets of any Person, except the TOPrS
Subsidiary shall be permitted to distribute its property and
assets to the holders of the TOPrS in connection with a
permitted winding up, liquidation or dissolution of its
affairs;
(vi) the TOPrS Subsidiary shall not create,
incur, assume or suffer to exist any Lien upon or with respect
to any of its property or assets of any kind (real or
personal, tangible or intangible) whether now owned or
hereafter acquired, or assign any right to receive income, or
file or permit the filing of any financing statement under the
UCC or any other similar notice of Lien under any similar
recording or notice statute, except (A) for Liens for taxes
not yet due or Liens for taxes being contested in good faith
and by appropriate proceedings for which adequate reserves
have been established in accordance with GAAP and (B) a Lien
in favor of the trustee for the holders of the TOPrS to secure
its fees and expenses;
(vii) the TOPrS Subsidiary shall not contract,
create, incur, assume or suffer to exist any Indebtedness; and
(viii) except for the TOPrS Debt, the TOPrS
Subsidiary shall not lend money or credit or make advances to
any Person, or purchase or acquire any capital stock,
obligations (including loans) or securities of, or any other
interest in, or make any capital contribution to, any Person.
3
<PAGE> 4
(b) The Borrower may incur and suffer to exist
Indebtedness of the Borrower constituting a guaranty of the TOPrS,
provided that (i) such guaranty is subordinated to the same extent as
the TOPrS Debt and (ii) the Borrower's liability under such guaranty
is no greater than its liability under the TOPrS Debt.
(c) Section 9 of the Agreement shall be amended, as of
the Effective Date, by adding thereto in appropriate alphabetical order the
following new definitions:
"TOPrS" shall have the meaning provided in Section
7.18(a)(iii).
"TOPrS Debt" shall have the meaning provided in Section
7.18(a)(iii).
"TOPrS Subsidiary" shall have the meaning provided in Section
7.18(a).
Section 3. TOPrS Debt and Guaranty. The Banks listed on the
signature pages hereto, which comprise the Required Banks, hereby acknowledge
that the documentation previously provided to the Banks by the Borrower, by
distribution on or about December 4, 1995, related to the incurrence by the
Borrower of the TOPrS Debt and the guaranty described in Section 2(b) above
(the "TOPrS Guaranty") is in form and substance satisfactory to the Required
Banks. The parties hereto hereby acknowledge and agree that the TOPrS Debt
constitutes Permitted Subordinated Debt. The Borrower shall not amend or
modify any of the terms or provisions of the TOPrS Guaranty, except in
accordance with its terms and only for those amendments and modifications
specifically, as opposed to generally, identified in the form of the TOPrS
Guaranty that has, by this First Amendment, been approved by the Required
Banks.
Section 4. Conditions Precedent to the Effectiveness of this
Amendment. This Amendment shall become effective and the Agreement shall be
amended as provided herein on the date on which each of the following documents
shall have been executed and delivered and the following conditions have been
satisfied (such date, the "Effective Date"):
(a) Execution of Amendment. The Agent shall have received a
counterpart of this Amendment duly executed and delivered by the
Borrower and Banks comprising the Required Banks.
4
<PAGE> 5
(b) No Default. No Default or Event of Default shall have
occurred or be continuing or shall result due to the effectiveness of
this Amendment.
Section 5. Representations and Warranties. The Borrower
represents and warrants to each Bank that:
(a) The Borrower has the corporate power to execute, deliver
and perform the terms and provisions of this Amendment, and has taken
all necessary corporate action to authorize the execution, delivery
and performance of this Amendment. The Borrower has duly executed and
delivered this Amendment and this Amendment constitutes its legal,
valid and binding obligation of the Borrower enforceable in accordance
with its terms.
(b) Neither the execution, delivery or performance by the
Borrower of this Amendment, nor the consummation of the transactions
contemplated herein, (i) will contravene any applicable provision of
any law, statute, rule, regulation, order, writ, injunction or decree
of any court or governmental instrumentality, (ii) will conflict or be
inconsistent with or result in any breach of any of the terms,
covenants, conditions or provisions of, or constitute a default under,
or (other than pursuant to the Pledge Agreement) result in the
creation or imposition of (or the obligation to create or impose) any
Lien upon any of the property or assets of the Borrower or any of its
Subsidiaries pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement or any other material instrument to which the
Borrower or any of its Subsidiaries is a party or by which it or any
of its property or assets are bound or to which it may be subject, or
(iii) will violate any provision of the charter or bylaws of the
Borrower or any of its Subsidiaries.
(c) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or exemption
by, any foreign or domestic governmental or public body or authority,
or any subdivision thereof, is required to authorize, or is required
in connection with, (i) the execution, delivery and performance of
this Amendment or (ii) the legality, validity, binding effect or
enforceability of this Amendment.
(d) The representations and warranties of the Borrower set
forth in the Agreement and the other Credit Documents are true and
correct on the date
5
<PAGE> 6
hereof as if such representations and warranties were made as of the
date hereof.
Section 6. Covenant of the Borrower. The Borrower hereby
agrees to pay upon demand the reasonable fees and disbursements of White &
Case, counsel for the Agent, incurred in connection with the preparation,
negotiation, execution and delivery of this Amendment.
Section 7. Miscellaneous.
(a) Except as expressly modified by this Amendment, the
Agreement shall continue to be and remain in full force and effect in
accordance with its terms. Any future reference to the Agreement shall be
deemed to be a reference to the Agreement as amended by this Amendment.
(b) This Amendment may be executed in any number of
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
(c) This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first above written.
FREMONT GENERAL CORPORATION
By WAYNE R. BAILEY
--------------------------------
Name: Wayne R. Bailey
Title: Executive Vice President,
Treasurer and
Chief Financial Officer
THE CHASE MANHATTAN BANK,
N.A., Individually and as
Agent
By ISOLDE G. O'HANLON
--------------------------------
Name: Isolde G. O'Hanlon
Title: Managing Director
6
<PAGE> 7
DEUTSCHE BANK AG,
NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By GAYMA SHIVNARAIN
------------------------------
Name: Gayma Shivnarain
Title: Vice President
By _________________________
Name:_____________________
Title:____________________
FIRST BANK NATIONAL ASSOCIATION
By JOSE A. PERIS
-------------------------------
Name: Jose A. Peris
Title: Vice President
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By BILL A. SHIRLEY
-------------------------------
Name: Bill A. Shirley
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By MASATAKE YASHIRO
-------------------------------
Name: Mr. Masatake Yashiro
Title: General Manager
THE SAKURA BANK, LIMITED,
LOS ANGELES AGENCY
By OFUSA SATO
-------------------------------
Name: Ofusa Sato
Title: Senior Vice President and
Assistant General Manager
7
<PAGE> 8
SANWA BANK CALIFORNIA
By JOHN HYCHE
--------------------------------
Name: John Hyche
Title: Vice President
SHAWMUT BANK CONNECTICUT, N.A.
By TIMOTHY B. BROWN
--------------------------------
Name: Timothy B. Brown
Title: Assistant Vice President
UNION BANK
By ROBERT C. DAWSON
--------------------------------
Name: Robert C. Dawson
Title: Vice President
WELLS FARGO BANK, N.A.
By RICHARD H. PALMER
---------------------------------
Name: Richard H. Palmer
Title: Vice President
THE YASUDA TRUST AND BANKING
CO., LTD., LOS ANGELES AGENCY
By NOBUO NISHIRO
---------------------------------
Name: Nobuo Nishiro
Title: Joint General Manager
8
<PAGE> 1
EXHIBIT 10.20
KEEP WELL AGREEMENT
KEEP WELL AGREEMENT (as same may be amended, supplemented or
modified from time to time in accordance with the terms hereof, this
"Agreement"), dated as of August 24, 1995, made by Fremont General Corporation
("Fremont General"), Fremont Financial Corporation ("Fremont Financial") and
The Chase Manhattan Bank, N.A. (the "Agent") for the benefit of the Agent and
the various lending institutions (the "Banks") party to the Credit Agreement
referred to below. Except as otherwise defined herein, terms defined in the
Credit Agreement shall be used herein as so defined.
W I T N E S S E T H:
WHEREAS, Fremont Financial, the Banks, and The Chase Manhattan
Bank, N.A., as Agent have entered into a Credit Agreement, dated as of August
__, 1995 (as modified, supplemented or amended from time to time, the "Credit
Agreement");
WHEREAS, Fremont General owns 100% of the outstanding capital
stock of Fremont Financial;
WHEREAS, it is a condition precedent to the making of Loans
under the Credit Agreement that Fremont General and Fremont Financial shall
have executed and delivered this Agreement; and
WHEREAS, Fremont General will obtain direct and indirect
benefits as a result of the Loans made under the Credit Agreement and,
accordingly, desires to execute and deliver this Agreement in order to satisfy
the condition described in the preceding paragraph;
NOW, THEREFORE, it is agreed:
1. At all times during the term of this Agreement,
Fremont General agrees that it shall cause Fremont Financial to have a
Consolidated Tangible Net Worth of not less than the sum of (a) US$80,000,000
and (b) an amount (if positive) equal to 50% of the Consolidated Net Income of
Fremont Financial for the period from July 1, 1995 to the end of the then most
recently ended fiscal quarter of Fremont Financial (determined on a cumulative
basis).
<PAGE> 2
Page 2
2. At all times during the term of this Agreement,
Fremont General shall hold, directly or through one or more Wholly-Owned
Subsidiaries, the entire legal title to and beneficial interest in all the
outstanding shares of stock of Fremont Financial, and shall not pledge directly
or indirectly or in any way encumber or otherwise dispose of any such shares of
stock of Fremont Financial or permit its Subsidiaries to do so.
3. Fremont General hereby waives notice of acceptance of
this Agreement and notice of any liability to which it may apply, and waives
presentment, demand of payment, protest, notice of dishonor, or nonpayment of
any such liability, suit or taking of other action by Fremont Financial, the
Agent or any Bank against, and any other notice to, any party liable thereon.
4. No invalidity, irregularity or unenforceability of
all or any of the Loans and/or any of the other Obligations or of any security
therefor shall affect, impair or be a defense to this Agreement, and Fremont
General's obligations hereunder shall be absolute and unconditional
notwithstanding the occurrence of any event or the existence of any
circumstance, including without limitation any bankruptcy or insolvency
proceeding with respect to Fremont General, Fremont Financial or FPFC or any
event or circumstance which would constitute a legal or equitable discharge,
except payment in full of such obligations or partial payment, to the extent of
such partial payment.
5. In order to induce the Banks to enter into the Credit
Agreement and make Loans pursuant thereto, Fremont General makes the following
representations and warranties to, and agreements with, the Agent and the
Banks, all of which shall survive the execution and delivery of this Agreement
and the making of the Loans pursuant to the Credit Agreement:
(a) Each of Fremont General and its Subsidiaries (i) is a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (ii) is duly
qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which
<PAGE> 3
Page 3
failure to be so qualified and in good standing could reasonably be
expected to have a material adverse effect on the business,
management, assets or other properties, liabilities or condition
(financial or otherwise), results of operations or prospects of
Fremont General and its Subsidiaries taken as a whole, and (iii) has
the corporate power and authority to own, operate and encumber its
property and assets and to transact the business in which it is
engaged.
(b) Fremont General has the corporate power to execute,
deliver and perform the terms and provisions of this Agreement and has
taken all necessary corporate action to authorize the execution,
delivery and performance by it of this Agreement. Fremont General has
duly executed and delivered this Agreement, and this Agreement
constitutes its legal, valid and binding obligation enforceable
against it in accordance with its terms.
(c) Neither the execution, delivery or performance by
Fremont General of this Agreement, nor compliance by it with the terms
and provisions hereof, (i) will contravene any provision of any law,
statute, rule or regulation or any order, writ, injunction or decree
of any court or governmental instrumentality having applicability to
Fremont General, (ii) will conflict or be inconsistent with or result
in any breach of any of the terms, covenants, conditions or provisions
of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of Fremont General pursuant to the terms
of any indenture, mortgage, deed of trust, credit agreement, loan
agreement or any other material agreement, contract or instrument to
which Fremont General is a party or by which it or any of its property
or assets is bound or to which it may be subject or (iii) will violate
any provision of the Articles of Incorporation or By-Laws of Fremont
General.
(d) No order, consent, approval, license, authorization
or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority, or any
subdivision thereof, or
<PAGE> 4
Page 4
any other Person, is required to be made or obtained by Fremont
General in order to authorize, or is required to be made or obtained
by Fremont General in connection with, (i) the due execution, delivery
and performance of this Agreement by Fremont General or (ii) the
legality, validity, binding effect or enforceability of this Agreement
by Fremont General.
(e) There are no actions, suits or proceedings pending
or, to the best knowledge of Fremont General, threatened, against
Fremont General or its Subsidiaries (i) which purport to affect the
legality, validity, binding effect or enforceability of this Agreement
or (ii) that could reasonably be expected to have a material adverse
effect on (A) the business, management, assets or other properties,
liabilities or condition (financial or otherwise), results of
operations or prospects of Fremont General and its Subsidiaries taken
as a whole or (B) the rights and remedies of the Agent under, or on
the ability of Fremont General to perform under, this Agreement.
(f) Each of Fremont General and its Subsidiaries is in
compliance in all material respects with all Requirements of Law
applicable to it and its business (including applicable statutes,
regulations, orders and restrictions relating to environmental
standards and controls) and has obtained all Permits necessary for the
conduct of its business as presently conducted.
(g) All tax returns and reports of Fremont General and
each of its Subsidiaries required to be filed have been timely filed,
and all taxes, assessments, fees and other charges of Governmental
Authorities upon Fremont General and its properties, assets, income
and franchises which are shown on such returns as being due and
payable, have been paid. Fremont General has no knowledge of any
proposed tax assessment against it.
(h) The annual report on Form 10-K of Fremont General for
the fiscal year ending December 31, 1994, and the quarterly report on
Form 10-Q of Fremont General for the fiscal quarter ending June 30,
1995, copies of which have been furnished to each Bank, fairly present
(subject, in the case of the quarterly report on Form
<PAGE> 5
Page 5
10-Q, to year-end audit adjustments) the financial condition of
Fremont General and its Subsidiaries as at such date and the results
of the operations of Fremont General and its Subsidiaries for the
period ended on such date.
(i) Since December 31, 1994, there has occurred no event
which has had or could reasonably be expected to have a material
adverse effect on (i) the business, management, assets or other
properties, liabilities or condition (financial or otherwise), results
of operations or prospects of Fremont General or of Fremont General
and its Subsidiaries taken as a whole or (ii) the rights and remedies
of the Agent under, or on the ability of Fremont General to perform
under, this Agreement.
(j) Fremont General shall deliver to the Agent (i) for
each fiscal year of Fremont General ending during the term of this
Agreement, its annual report on Form 10-K and (ii) for each fiscal
quarter of Fremont General ending during the term of this Agreement,
its quarterly report on Form 10-Q, in each case promptly after the
sending or filing thereof with the SEC.
(k) Fremont General shall from time to time deliver to
the Agent, with sufficient copies for each Bank, such other
information or documents respecting the condition or operations,
financial or otherwise, of Fremont General or any of its Subsidiaries
as the Agent may from time to time reasonably request.
(l) The certificates, written statements, materials and
other information furnished by or on behalf of Fremont General to the
Agent and the Banks do not contain any material misstatement of fact
or omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under
which they were made, not misleading in all material respects.
6. No failure or delay on the part of the Agent, Fremont
Financial or any Bank in exercising any right, power or privilege hereunder or
under the Credit Agreement and no course of dealing between Fremont General,
Fremont Financial,
<PAGE> 6
Page 6
the Agent or any Bank shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power or privilege hereunder or under the
Credit Agreement preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights, powers and remedies herein
expressly provided are cumulative and not exclusive of any rights, powers or
remedies which Fremont Financial, the Agent or any Bank would otherwise have.
No notice to or demand on Fremont General or Fremont Financial in any case
shall entitle Fremont General to any other further notice or demand in similar
or other circumstances or constitute a waiver of the rights of the Agent or any
Bank to any other or further action in any circumstances without notice or
demand.
7. This Agreement shall be binding upon Fremont General,
Fremont Financial and their successors and assigns (including, without
limitation, any executors or administrators) and shall inure to the benefit of
each of them. Neither Fremont General nor Fremont Financial may assign any of
its obligations hereunder without the consent of the Banks.
8. Neither this Agreement nor any provision hereof may
be changed, nor may this Agreement be terminated, except with the written
consent of Fremont Financial, Fremont General and the Agent (acting with the
consent of the Banks).
9. All notices and other communication hereunder shall
be made at the addresses, in the manner and with the effect provided in Section
11.03 of the Credit Agreement, provided that, for this purpose, the address of
Fremont General shall be the address specified opposite its signature below.
10. This Agreement shall terminate and be of no further
force and effect upon the earlier of (i) the date on which the Agent (with the
consent of the Banks) gives written notice to Fremont General that its
obligations under this Agreement have been fulfilled or terminated (except to
the extent any party's obligations, if any, arising prior to such time
hereunder have not theretofore been fulfilled) and (ii) the date on which all
Commitments have been terminated and all Obligations repaid in full.
<PAGE> 7
Page 7
11. (a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF FREMONT FINANCIAL, FREMONT GENERAL, THE AGENT AND THE BANKS HEREUNDER SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW
YORK. Any legal action or proceeding with respect to this Agreement may be
brought in the courts of the State of New York or of the United States for the
Southern District of New York and, by execution and delivery of this Agreement,
Fremont General hereby irrevocably accepts for itself and in respect of its
property, unconditionally, the jurisdiction of the aforesaid courts with
respect to any such action or proceeding. Fremont General hereby irrevocably
designates, appoints and empowers CT Corporation System, with offices on the
date hereof at 1633 Broadway, New York, New York 10019 as its designee,
appointee and agent to receive, accept and acknowledge for and on its behalf,
and in respect of its property, service of any and all legal process, summons,
notices and documents which may be served in any such action or proceeding.
The Agent agrees to use reasonable good faith after its receipt thereof to
mail, by registered or certified mail, to Fremont General, at its address set
forth opposite its signature below, copies of any and all legal process,
summons, notices and documents mailed or delivered to CT Corporation System in
connection with the immediately preceding sentence; provided that the failure
of Fremont General to receive, for any reason, copies of such correspondence
shall not in any way affect the effectiveness of the delivery of any legal
process, summons, notice or documents delivered to CT Corporation System. If
for any reason such designee, appointee and agent shall cease to be available
to act as such, Fremont General agrees to designate a new designee, appointee
and agent in New York City on the terms and for the purposes of this provision
satisfactory to the Agent. Fremont General further irrevocably consents to the
service of process out of any of aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to Fremont General at its address set forth opposite its
signature below, such service to become effective thirty days after such
mailing. Nothing herein shall affect the right of the Agent or any Bank to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against Fremont General in any other
jurisdiction.
<PAGE> 8
Page 8
(b) Fremont General hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any of
the aforesaid actions or proceedings arising out of or in connection with this
Agreement brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought
in an inconvenient forum. FREMONT GENERAL FURTHER WAIVES ANY RIGHT IT MAY HAVE
TO TRIAL BY JURY IN ANY COURT OR JURISDICTION, INCLUDING WITHOUT LIMITATION
THOSE REFERRED TO IN CLAUSE (A) ABOVE, IN RESPECT OF ANY MATTER ARISING OUT OF
OR RELATING TO THIS AGREEMENT.
12. The parties hereto acknowledge and agree that the
Agent and the Banks are intended to be third-party beneficiaries of this
Agreement and, as such, are entitled to the benefits hereof and may enforce the
obligations of Fremont General directly against it. Fremont General
acknowledges and agrees that in the event of any breach of Section 1 or 2 of
this Agreement, the Banks will be irreparably and immediately harmed and cannot
be made whole by monetary damages. It is accordingly agreed that, upon a
breach by Fremont General of Section 1 and/or 2 of this Agreement, the Agent,
on behalf of the Banks, in addition to any other remedy to which it may be
entitled in law and/or equity, shall be entitled to compel specific performance
of such Section or Sections.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE> 9
Page 9
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above written.
<TABLE>
<S> <C>
Address: FREMONT GENERAL CORPORATION
2020 Santa Monica Blvd.
Santa Monica, CA 90404
By LOUIS J. RAMPINO
-------------------------
Name: Louis J. Rampino
Title: President
2020 Santa Monica Blvd. FREMONT FINANCIAL CORPORATION
Santa Monica, CA 90404
By PATRICK E. LAMB
--------------------------
Name: Patrick E. Lamb
Title: Senior Vice President
Accepted and Agreed to:
THE CHASE MANHATTAN BANK, N.A.,
as Agent for the Banks
By BRYAN J. ROLFE
-------------------------------
Name: Bryan J. Rolfe
Title: Vice President
</TABLE>
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
FREMONT GENERAL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
------- ------- -------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
PRIMARY:*
Weighted average shares outstanding 25,391 25,305 22,273
Net effect of dilutive stock options--based
on the treasury stock method using
average market price 688 518 766
------- ------- -------
Total 26,079 25,823 23,039
======= ======= =======
Net income $68,022 $55,812 $42,710
======= ======= =======
Per share amount $ 2.61 $ 2.16 $ 1.85
======= ======= =======
FULLY DILUTED:*
Weighted average shares outstanding 25,391 25,305 22,273
Net effect of dilutive stock options#based
on the treasury stock method using the
year-end market price, if higher than
average market price 743 520 766
Assumed conversion of:
LYONs 7,209 7,209 1,802
7 1/4% Convertible Debentures due 2011 - 3,402
------- ------- -------
Total 33,343 33,034 28,243
======= ======= =======
Net income $68,022 $55,812 $42,710
Income adjustments for fully diluted computation:
Add interest expense, amortization of prepaid expense and
redemption premium, net of federal income tax effect re:
LYONs 4,488 4,364 976
7 1/4% Convertible Debentures due 2011 - - 3,110
------- ------- -------
Total $72,510 $60,176 $46,796
======= ======= =======
Per share amount $ 2.17 $ 1.82 $ 1.65
======= ======= =======
</TABLE>
* Adjusted retroactively for all stock splits and dividends..
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF FREMONT GENERAL CORPORATION
Each of the subsidiary companies does business under its incorporated name.
1. Domestic Subsidiaries
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- ---- ----------------------
<S> <C>
Beaver Insurance Company California
Beaver Pacific Corporation Delaware
Casualty Insurance Company Illinois
CB Financial Services, Inc. California
Comstock Insurance Company California
FGC Commercial Mortgage Finance Co. California
Fremont Compensation Insurance Company California
Fremont Indemnity Company California
Fremont Insurance Group, Inc. Delaware
Fremont Financial Corporation California
Fremont Funding, Inc. Delaware
Fremont Health Corporation California
Fremont Life Insurance Company Arizona
Fremont Pacific Insurance Group Incorporated California
Fremont Reinsurance Company California
Fremont Syndicate, Inc. New York
Investors Bancor California
Fremont Investment & Loan California
Pacific Compensation Insurance Corporation California
Menlo Life Insurance Company California
Fremont Premium Finance Corporation California
Workers Compensation and Indemnity Company California
</TABLE>
2. Foreign Subsidiaries
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- ---- -----------------------
<S> <C>
Fremont Reinsurance Co., Ltd. Bermuda
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 pertaining to the Fremont General Corporation and affiliated companies
Investment Incentive Program and in the Registration Statement on Form S-8
pertaining to the Fremont General Corporation Supplemental Retirement Plan and
Fremont General Corporation Senior Supplemental Retirement Plan and in the
Registration Statement on Form S-8 pertaining to the Fremont General
Corporation non-qualified Stock Option Plan of 1989 and in the Registration
Statement on Form S-4 pertaining to the Fremont General Financing I, 9% Trust
Originated Preferred Securities of our report dated March 14, 1996, with
respect to the consolidated financial statements and schedules of Fremont
General Corporation included in the Annual Report (Form 10-K) for the year
ended December 31, 1995.
ERNST & YOUNG LLP
Los Angeles, California
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 1,296,550
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 277,451
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,436,933<F1>
<CASH> 39,559
<RECOVER-REINSURE> 9,422
<DEFERRED-ACQUISITION> 76,638
<TOTAL-ASSETS> 4,477,399
<POLICY-LOSSES> 1,830,416
<UNEARNED-PREMIUMS> 100,481
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 40,822
<NOTES-PAYABLE> 765,467
0
0
<COMMON> 25,393
<OTHER-SE> 472,697<F2>
<TOTAL-LIABILITY-AND-EQUITY> 4,477,399
621,386
<INVESTMENT-INCOME> 119,523
<INVESTMENT-GAINS> 1
<OTHER-INCOME> 182,904<F3>
<BENEFITS> 481,261
<UNDERWRITING-AMORTIZATION> 126,099
<UNDERWRITING-OTHER> 34,433
<INCOME-PRETAX> 100,327
<INCOME-TAX> 32,305
<INCOME-CONTINUING> 68,022
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,022
<EPS-PRIMARY> 2.61
<EPS-DILUTED> 2.17
<RESERVE-OPEN> 610,510<F4>
<PROVISION-CURRENT> 459,951
<PROVISION-PRIOR> 1,382
<PAYMENTS-CURRENT> 132,358
<PAYMENTS-PRIOR> 358,423
<RESERVE-CLOSE> 1,185,706<F5>
<CUMULATIVE-DEFICIENCY> 1,382
<FN>
<F1>Includes loans receivable, short-term and other investments
<F2>Sum of Additional paid-in-capital, Retained earnings, Unearned Employee Stock
Ownership Plan shares and Net unrealized gain on investments.
<F3>Includes loan interest and other revenue
<F4>Reserve for losses and LAE, net of reinsurance recoverble. On Febrruary 22,
1995 the Company acquired Casualty Insurance Company with reserves of 604,444.
<F5>Reserve for Losses and LAE, net of reinsurance recoverable
</FN>
</TABLE>
