<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1996.
REGISTRATION NO. 33-64771
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C> <C>
FREMONT GENERAL CORPORATION NEVADA 95-2815260
FREMONT GENERAL FINANCING I DELAWARE TO BE APPLIED FOR
(Exact names of Registrants (State or other jurisdiction of (I.R.S. Employer
as incorporation or organization) Identification Nos.)
specified in their charter)
</TABLE>
------------------------
2020 SANTA MONICA BOULEVARD, SUITE 600
SANTA MONICA, CALIFORNIA 90404
(310) 315-5500
(Address, including zip code, and telephone number, including area code, of
Registrants' principal executive offices)
------------------------
LOUIS J. RAMPINO
PRESIDENT AND CHIEF OPERATING OFFICER
FREMONT GENERAL CORPORATION
2020 SANTA MONICA BOULEVARD, SUITE 600
SANTA MONICA, CALIFORNIA 90404
(310) 315-5500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ALAN K. AUSTIN, ESQ.
ELIZABETH R. FLINT, ESQ.
MEREDITH S. JACKSON, ESQ. THOMAS C. JANSON, JR.
WILSON, SONSINI, GOODRICH & ROSATI SKADDEN, ARPS, SLATE, MEAGHER & FLOM
PROFESSIONAL CORPORATION 300 SOUTH GRAND AVENUE
650 PAGE MILL ROAD SUITE 3400
PALO ALTO, CALIFORNIA 94304 LOS ANGELES, CALIFORNIA 90071
(415) 493-9300 (213) 687-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE PRICE OFFERING REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE*
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% Trust Originated Preferred SecuritiesSM....... 4,600,000 $25.00 $115,000,000 $39,656
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% Junior Subordinated Debentures due
of Fremont General Corporation(3)................
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Guarantee of Fremont General Corporation with
respect to the % Trust Originated Preferred
SecuritiesSM(4)..................................
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Back-up undertakings of Fremont General Corporation
in connection with the % Trust Originated
Preferred Securities of Fremont General Financing
I(5).............................................
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</TABLE>
(footnotes on following page)
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
(footnotes from preceding page)
SMService Mark of Merrill Lynch & Co., Inc.
* Previously paid.
(1) Includes 600,000 shares subject to an Underwriters' over-allotment option.
(2) Estimated in accordance with Rule 457 under the Securities Act of 1933
solely for purposes of computing the registration fee.
(3) The % Junior Subordinated Debentures will be purchased by Fremont General
Financing I with the proceeds of the sale of the % Trust Originated
Preferred Securities. No separate consideration will be received for the
issuance of the % Junior Subordinated Debentures. Pursuant to Rule 457(a),
no separate fee is payable with respect to the % Junior Subordinated
Debentures.
(4) No separate consideration will be received for the Fremont General
Corporation Guarantee. Pursuant to Rule 457(a), no separate fee is payable
with respect to the Fremont General Corporation Guarantee.
(5) Includes the obligations of Fremont General Corporation under the
Declaration for Fremont General Financing I, the Fremont General Corporation
Guarantee issued with respect to the Preferred Securities issued by Fremont
General Financing I, the Junior Subordinated Debentures purchased by Fremont
General Financing I and the Indenture, including Fremont General
Corporation's agreement (under Section 3.6 of the Declaration) to pay all
Trust obligations other than those under the Common Securities and Preferred
Securities, all as described in the Registration Statement. No separate
consideration will be received for these obligations. Pursuant to Rule
457(a) no separate fee is payable with respect to these obligations.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 7, 1996
PROSPECTUS
4,000,000 PREFERRED SECURITIES
FREMONT GENERAL FINANCING I
% TRUST ORIGINATED PREFERRED SECURITIESSM ("TOPRSSM")
[LOGO] (LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
FREMONT GENERAL CORPORATION
------------------------
The % Trust Originated Preferred Securities (the "Preferred
Securities") offered hereby represent preferred undivided beneficial interests
in the assets of Fremont General Financing I, a statutory business trust formed
under the laws of the State of Delaware (the "Trust"). Fremont General
Corporation, a Nevada corporation ("Fremont General" or the "Company"), will
directly or indirectly own all the common securities (the "Common Securities"
and, together with the Preferred Securities, the "Trust Securities")
representing undivided beneficial interests in the assets of the Trust. The
Trust exists for the sole purpose of issuing the Preferred Securities and Common
Securities and investing the proceeds thereof in an equivalent amount of %
Junior Subordinated Debentures (the "Junior Subordinated Debentures") of Fremont
General.
(continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE
PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE
PREFERRED SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF ANY SUCH DEFERRAL.
The Preferred Securities have been approved for listing on the New York
Stock Exchange, Inc. (the "New York Stock Exchange"). Trading of the Preferred
Securities on the New York Stock Exchange is expected to commence within a
30-day period after the initial delivery of the Preferred Securities. See
"Underwriting."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<S> <C> <C> <C>
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE
OFFERING PRICE(1) COMMISSION(2) TRUST(3)(4)
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Per Preferred Security.......................... $25.00 (3) $25.00
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Total (5)....................................... $ (3) $
</TABLE>
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(1) Plus accrued distributions, if any, from , 1996.
(2) The Trust and Fremont General have agreed to indemnify the several
Underwriters against, and to provide contribution with respect to, certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in the Junior Subordinated Debentures, Fremont
General has agreed to pay to the Underwriters as compensation (the
"Underwriters' Compensation") for their arranging the investment therein of
such proceeds $ per Preferred Security (or $ in the
aggregate); provided, that such compensation for sales of 10,000 or more
Preferred Securities to a single purchaser will be $ per Preferred
Security. Therefore, to the extent of such sales, the actual amount of
Underwriters' Compensation will be less than the aggregate amount specified
in the preceding sentence. See "Underwriting."
(4) Before estimated expenses of the offering of $525,000 which are payable by
Fremont General.
(5) The Trust and Fremont General have granted to the Underwriters an option
exercisable for 30 days to purchase up to an additional 600,000 Preferred
Securities at the initial public offering price per Preferred Security
solely to cover over-allotments, if any. Fremont General will pay to the
Underwriters, as Underwriters' Compensation, the commission set forth above
in footnote (3) with respect to such additional Preferred Securities. If
such option is exercised in full, the Initial Public Offering Price,
Underwriters' Compensation, and Proceeds to the Trust will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Preferred Securities will be made only in book-entry form
through the facilities of The Depository Trust Company, on or about ,
1996.
------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
PAINEWEBBER INCORPORATED
------------------------
The date of this Prospectus is , 1996.
SM"TRUST ORIGINATED PREFERRED SECURITIES" AND "TOPRS" ARE SERVICE MARKS OF
MERRILL LYNCH & CO., INC.
<PAGE> 4
(continued from preceding page)
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of % of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing March 31, 1996 ("distributions"). The payment of distributions
out of moneys held by the Trust and payments on liquidation of the Trust or the
redemption of Preferred Securities, as set forth below, are guaranteed by
Fremont General (the "Guarantee") to the extent the Trust has funds available to
make such payments. See "Risk Factors -- Rights Under the Guarantee" and
"Description of the Guarantee." The obligations of Fremont General under the
Guarantee are subordinate and junior in right of payment to all other
liabilities of Fremont General and pari passu with the most senior preferred
stock, if any, issued from time to time by Fremont General. The Junior
Subordinated Debentures when issued will be unsecured obligations of Fremont
General. The obligations of Fremont General under the Junior Subordinated
Debentures rank pari passu with Fremont General's $373,750,000 aggregate
principal amount at Maturity of Liquid Yield Optiontm Notes Due 2013 (the
"LYONs") and subordinate and junior in right of payment to all present and
future Senior Indebtedness (as defined herein) of Fremont General, which
aggregated approximately $613.9 million at September 30, 1995 (excluding accrued
interest thereon). See "Capitalization of Fremont General." Upon an event of a
default under the Declaration (as defined herein), the holders of Preferred
Securities will have a preference over the holders of the Common Securities with
respect to payments in respect of distributions and payments upon redemption,
liquidation and otherwise. Upon the occurrence of certain events, the Junior
Subordinated Debentures purchased by the Trust may be subsequently distributed
pro rata to holders of the Preferred Securities and Common Securities in
connection with the dissolution of the Trust.
The distribution rate and the distribution payment date and other payment
dates for the Preferred Securities will correspond to the interest rate and
interest payment date and other payment dates on the Junior Subordinated
Debentures, which will be the sole assets of the Trust. As a result, if
principal or interest is not paid on the Junior Subordinated Debentures, no
amounts will be paid on the Preferred Securities. If Fremont General does not
make principal or interest payments on the Junior Subordinated Debentures, the
Trust will not have sufficient funds to make distributions on the Preferred
Securities, in which event, the Guarantee will not apply to such distributions
until the Trust has sufficient funds available therefor.
Fremont General has the right to defer payments of interest on the Junior
Subordinated Debentures by extending the interest payment period on the Junior
Subordinated Debentures at any time for up to 20 consecutive quarters (each, an
"Extension Period"). If interest payments are so deferred, distributions will
also be deferred. During such Extension Period, distributions will continue to
accrue, with interest thereon (to the extent permitted by applicable usury or
similar law), at an annual rate of % per annum, compounded quarterly, and
during any Extension Period holders of Preferred Securities will continue to
include deferred interest allocable to their Preferred Securities in income (as
original issue discount ("OID")) for United States federal income tax purposes
even though no current cash distribution will be made in respect of such income.
There could be multiple Extension Periods of varying lengths throughout the term
of the Junior Subordinated Debentures. See "Risk Factors -- Option to Extend
Interest Payment Period; Tax Impact of Extension," "Description of the Junior
Subordinated Debentures -- Option to Extend Interest Payment Period" and "United
States Federal Income Taxation -- Original Issue Discount."
The Junior Subordinated Debentures are redeemable by Fremont General, in
whole or, from time to time in part, on or after , 2001, or at any
time in certain circumstances upon the occurrence of a Tax Event (as defined
herein). If Fremont General redeems Junior Subordinated Debentures, the Trust
must redeem Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Junior Subordinated Debentures so redeemed at
a redemption price per Preferred Security of $25, plus accrued and unpaid
distributions thereon to the date fixed for redemption (the "Redemption Price").
See "Description of the Preferred Securities -- Mandatory Redemption." The
Preferred Securities will be redeemed upon maturity of the Junior Subordinated
Debentures. On March 31, 2026, the maturity date of the Junior Subordinated
Debentures may be extended at the option of Fremont General only once for a
period of up to an additional 19 years, provided certain financial covenants and
conditions are met. In the event the
2
<PAGE> 5
maturity date for the Junior Subordinated Debentures is extended, the Preferred
Securities will remain outstanding until such new maturity date or such earlier
date on which the Junior Subordinated Debentures are redeemed by the Company and
all rights of the holders of the Preferred Securities, including payment of
distributions and accrual of any interest, shall continue during such extended
term. See "Description of the Junior Subordinated Debentures -- Option to Extend
Maturity Date." Upon the occurrence of a Tax Event (as defined herein) arising
from a change after the issuance of the Preferred Securities in law or in the
legal interpretation regarding certain tax matters, unless the Junior
Subordinated Debentures are redeemed in the limited circumstances described
herein, the Trust will be dissolved, with the result that the Junior
Subordinated Debentures will be distributed to the holders of the Preferred
Securities, on a pro rata basis, in lieu of any cash distribution. See
"Description of the Preferred Securities -- Tax Event Redemption or
Distribution." In certain circumstances, Fremont General will have the right to
redeem the Junior Subordinated Debentures, which would result in the redemption
by the Trust of Trust Securities in the same amount on a pro rata basis. If the
Junior Subordinated Debentures are distributed to the holders of the Preferred
Securities, Fremont General will use its best efforts to have the Junior
Subordinated Debentures listed on the New York Stock Exchange or on such other
exchange as the Preferred Securities are then listed. See "Description of the
Preferred Securities -- Tax Event Redemption or Distribution" and "Description
of the Junior Subordinated Debentures."
In the event of the involuntary or voluntary dissolution, winding up or
termination of the Trust, the holders of the Preferred Securities will be
entitled to receive for each Preferred Security a liquidation amount of $25 plus
accrued and unpaid distributions thereon (including interest thereon) to the
date of payment, unless, in connection with such dissolution, the Junior
Subordinated Debentures are distributed to the holders of the Preferred
Securities. See "Description of the Preferred Securities -- Liquidation
Distribution Upon Dissolution."
------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING
TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
FOR NORTH CAROLINA RESIDENTS: THE COMMISSIONER OF INSURANCE OF THE STATE
OF NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS THE
COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
3
<PAGE> 6
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). The Registration Statement of which this
Prospectus is a part, the exhibits and schedules forming a part thereof and the
reports and other information filed by the Company with the Commission in
accordance with the Exchange Act may be inspected and copied at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, such material concerning the Company can also be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (of which this Prospectus is a part), under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Preferred Securities offered
hereby. Statements contained in this Prospectus as to the content of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference and the exhibits and schedules hereto. For
further information regarding the Company and the Preferred Securities offered
hereby, reference is hereby made to the Registration Statement and such exhibits
and schedules which may be obtained from the Commission at its principal office
in Washington, D.C. upon payment of the fees prescribed by the Commission.
No separate financial statements of the Trust are included herein. Fremont
General does not believe that such statements would be material to holders of
the Preferred Securities. The Trust is not currently subject to the
informational reporting requirements of the Exchange Act. The Trust will become
subject to such requirements upon the effectiveness of the Registration
Statement of which this Prospectus is a part, although it intends to seek and
expects to receive an exemption therefrom.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Except to the extent modified or superseded by information contained
herein, the Company's Annual Report on Form 10-K and Amendments No. 1 and No. 2
on Form 10-K/A thereto for the year ended December 31, 1994, the Quarterly
Report on Form 10-Q and Amendment No. 1 on Form 10-Q/A thereto for the quarter
ended March 31, 1995, the Quarterly Report on Form 10-Q and Amendment No. 1 on
Form 10-Q/A thereto for the quarter ended June 30, 1995, the Quarterly Report on
Form 10-Q and Amendments No. 1 and No. 2 on Form 10-Q/A thereto for the quarter
ended September 30, 1995, the Current Report on Form 8-K and Amendments No. 1
and No. 2 on Form 8-K/A thereto, dated March 8, 1995, April 27, 1995 and
February 7, 1996, respectively, the Proxy Statement, dated May 11, 1995, as
filed with the Commission and the Registration Statement on Form 8-A dated
December 4, 1995 and Amendment No. 1 on Form 8-A/A thereto dated January 19,
1996, are hereby incorporated by reference in this Prospectus. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
document that is subsequently filed under the Exchange Act and is incorporated,
or deemed to be incorporated, by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
All documents filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Prospectus and prior to the termination of
the offering of the Preferred Securities offered hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents referred to above which have been
incorporated into this Prospectus by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
the information that the Prospectus incorporates). Requests for such copies
should be directed to Wayne R. Bailey, Executive Vice President, Treasurer and
Chief Financial Officer, Fremont General Corporation, 2020 Santa Monica
Boulevard, Suite 600, Santa Monica, California 90404; Telephone: (310) 315-5500.
4
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements (including the notes
thereto) incorporated herein by reference. Except as set forth under
"Description of the Guarantee" and "Description of the Junior Subordinated
Debentures," unless the context otherwise requires, references in this
Prospectus to "Fremont General" or the "Company" shall mean Fremont General
Corporation and its consolidated subsidiaries viewed as a single entity and
include its predecessors. Investors should consider carefully the information
set forth under the heading "Risk Factors." All share information included in
this Prospectus has been adjusted to reflect the three-for-two stock split of
the Common Stock of Fremont General Corporation to be distributed on February 7,
1996 to stockholders of record of the Company at close of business on January 8,
1996 (which three-for-two stock split is not reflected in documents incorporated
herein by reference). This Prospectus contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and 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 the risk
factors set forth under the heading "Risk Factors."
THE COMPANY
Fremont General is a diversified holding company, engaged through
subsidiaries in selected insurance and financial service businesses. 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 first nine months of 1995,
the Company's workers' compensation insurance premiums were approximately evenly
distributed between the Western and the Midwestern regions. For the year ended
December 31, 1994 and the nine months ended September 30, 1995, the Company had
workers' compensation insurance premiums earned of $401 million and $433
million, respectively. The Company recently expanded its workers' compensation
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 business, while providing greater geographic
diversification. 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 finance lending, principally to middle market companies
nationwide, and residential and commercial real estate lending in California.
The Company's financial services loan portfolio has grown from $536 million at
December 31, 1991 to $1.5 billion at September 30, 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, 1994, the Company's income before taxes grew at a compound annual
rate of approximately 20% to $82 million in 1994. The Company's book value
increased from $165 million at December 31, 1989 to $454 million at September
30, 1995. The Company's assets exceeded $4 billion at September 30, 1995.
FREMONT GENERAL FINANCING I
The Trust is a statutory business trust formed on December 4, 1995 under
the Delaware Business Trust Act (the "Business Trust Act") pursuant to a
declaration of trust among the Fremont Trustees (as defined below) and Fremont
General and the filing of a certificate of trust with the Secretary of State of
the State of Delaware on December 1, 1995. Such declaration will be amended and
restated in its entirety (as so amended and restated, the "Declaration")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus is a part, as of the date the Preferred Securities are
initially issued. The Declaration will be qualified as an indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Upon
issuance of the Preferred Securities, the purchasers thereof will own all of the
Preferred Securities. The
5
<PAGE> 8
Company will acquire Common Securities in an amount equal to at least 3% of the
total capital of the Trust for a purchase price equal to $1 million for each 1%
of the total capital so acquired and will own, directly or indirectly, all of
the issued and outstanding Common Securities. The Trust exists solely for the
purpose of (a) issuing its Trust Securities for cash and investing the proceeds
thereof in an equivalent amount of Junior Subordinated Debentures and (b)
engaging in such other activities as are necessary and incidental thereto. The
rights of the holders of the Preferred Securities, including economic rights,
rights to information and voting rights, are set forth in the Declaration, the
Business Trust Act and the Trust Indenture Act. The Declaration does not permit
the incurrence by the Trust of any indebtedness for borrowed money or the making
of any investment other than in the Junior Subordinated Debentures. In the
Indenture, Fremont General has agreed to pay for all debts and obligations
(other than with respect to the Trust Securities) and all costs and expenses of
the Trust, including the fees and expenses of the Trustees and any income taxes,
duties and other governmental charges, and all costs and expenses with respect
thereto, to which the Trust may become subject, except for United States
withholding taxes. See "Description of the Preferred Securities." Payment of
distributions out of moneys held by the Trust, and payments on liquidation of
the Trust or the redemption of Preferred Securities are guaranteed by Fremont
General to the extent the Trust has funds available therefor. See "Description
of the Preferred Securities Liquidation Distribution Upon Dissolution" and
"Description of the Guarantee."
The Trust's business and affairs will be conducted by the trustees (the
"Fremont Trustees") each of which will be appointed by Fremont General, as
holder of all of the Common Securities. The duties and obligations of the
Fremont Trustees shall be governed by the Declaration. Pursuant to the
Declaration, the number of Fremont Trustees will initially be three. Two of the
Fremont Trustees (the "Regular Trustees") will be persons who are employees or
officers of, or affiliated with, Fremont General. The third Fremont Trustee will
be a financial institution unaffiliated with Fremont General which maintains a
principal place of business in the State of Delaware and which will serve as
property trustee under the Declaration and as indenture trustee for purposes of
the Trust Indenture Act (the "Institutional Trustee"). The Chase Manhattan Bank,
N.A., a national banking association, will act as the Institutional Trustee
until the Trust terminates or such trustee is removed or replaced by the holder
of the Common Securities. The Chase Manhattan Bank, N.A., a national banking
association, will also act as indenture trustee under the Guarantee (the
"Guarantee Trustee"). See "Description of the Guarantee."
The duties and obligations of the Regular Trustees will be to conduct all
of the Trust's business and affairs except for the specific duties assigned to
the Institutional Trustee. All decisions of the Fremont Trustees, other than
those relating to the specific duties assigned to the Institutional Trustee,
require the consent of a majority of the Regular Trustees, or, if there are two
or fewer Regular Trustees, of any Regular Trustee. As a result, Fremont has the
ability to control the actions taken by the Trust with respect to the duties and
obligations of the Regular Trustees. The Institutional Trustee will hold title
to the Junior Subordinated Debentures for the benefit of the holders of the
Trust Securities and will have the power to exercise all rights, powers and
privileges under the Indenture (as defined herein) as the holder of all of the
Junior Subordinated Debentures. In addition, the Institutional Trustee will
maintain exclusive control of a segregated non-interest bearing bank account
(the "Property Account") to hold all payments made in respect of the Junior
Subordinated Debentures for the benefit of the holders of the Trust Securities.
The Institutional Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities out
of funds from the Property Account. In addition, the Institutional Trustee will
have the right to enforce the rights of the holders of the Preferred Securities
against Fremont General under the Declaration. See "Risk Factors -- Enforcement
of Certain Rights by Holders of Preferred Securities." The Guarantee Trustee
will hold the Guarantee for the benefit of the holders of the Preferred
Securities. Fremont General, as the holder of all the Common Securities, will
have the right to appoint, remove or replace any Fremont Trustee, including the
Institutional Trustee, and to increase the number of Fremont Trustees, provided
that the number of Fremont Trustees shall be at least one. Fremont General will
pay all fees and expenses related to the Trust, the offering of the Trust
Securities and the issuance of the Junior Subordinated Debentures. See
"Description of the Junior Subordinated Debentures -- Miscellaneous."
The trustee in the State of Delaware is The Chase Manhattan Bank, (USA), a
Delaware banking corporation, 802 Delaware Avenue, 13th Floor, Wilmington,
Delaware 19801. The principal place of business of the Trust shall be c/o
Fremont General Corporation, 2020 Santa Monica Boulevard, Suite 600, Santa
Monica, California 90404 (telephone number (310) 315-5500).
6
<PAGE> 9
THE OFFERING
Preferred Securities Offered. 4,000,000 % Trust Originated Preferred
Securities evidencing preferred undivided beneficial interests in the assets of
the Trust. Holders of the Preferred Securities are entitled to receive
cumulative cash distributions at an annual rate of % of the liquidation amount
of $25 per Preferred Security, accruing from the date of original issuance and
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year commencing on March 31, 1996. The distribution rate and the
distribution and other payment dates for the Preferred Securities will
correspond to the interest rate and interest and other payment dates on the
Junior Subordinated Debentures, which will be the sole assets of the Trust. As a
result, if principal or interest is not paid on the Junior Subordinated
Debentures, no amounts will be paid on the Preferred Securities. See
"Description of the Preferred Securities."
Junior Subordinated Debentures. The Trust will invest the proceeds from
the issuance of the Preferred Securities and Common Securities in an equivalent
amount of % Junior Subordinated Debentures of Fremont General. The Junior
Subordinated Debentures will rank pari passu with the LYONs and subordinate and
junior in right of payment to all Senior Indebtedness of Fremont General. In
addition, because Fremont General is a holding company, its obligations under
the Junior Subordinated Debentures will be effectively subordinated to all
existing and future liabilities of its subsidiaries. See "Description of the
Junior Subordinated Debentures -- Subordination."
Guarantee. Payment of distributions out of moneys held by the Trust, and
payments on liquidation of the Trust or the redemption of Preferred Securities
are guaranteed by Fremont General to the extent the Trust has funds available
therefor. If Fremont General does not make principal or interest payments on the
Junior Subordinated Debentures, the Trust will not have sufficient funds to make
distributions on the Preferred Securities, in which event the guarantee shall
not apply to such distribution until the Trust has sufficient funds available
therefor. See "Description of the Guarantee" and "Effect of Obligations Under
the Junior Subordinated Debentures and the Guarantee." The obligations of
Fremont General under the Guarantee are subordinate and junior in right of
payment to all other liabilities of Fremont General and will be pari passu with
the most senior preferred stock issued by Fremont General. In addition, because
Fremont General is a holding company, its obligations under the Guarantee are
effectively subordinated to all existing and future liabilities of its
subsidiaries. See "Risk Factors -- Holding Company Structure; Ranking of
Subordinate Obligations Under the Guarantee and Junior Subordinated Debentures"
and "Description of the Guarantee."
Right to Defer Interest. Fremont General has the right to defer payments
of interest on the Junior Subordinated Debentures by extending the interest
payment period on the Junior Subordinated Debentures, at any time, for up to 20
consecutive quarters. If interest payments on the Junior Subordinated Debentures
are so deferred, distributions on the Preferred Securities will also be
deferred. During any deferral, distributions will continue to accrue with
interest thereon (to the extent permitted by the applicable usury or similar
law) as described herein. There could be multiple Extension Periods of varying
lengths throughout the term of the Junior Subordinated Debentures. During an
Extension Period, holders of Preferred Securities will be required to include
deferred interest income allocated to their Preferred Securities in their gross
income (as OID) in advance of receipt of the cash interest payments attributable
thereto. See "Description of the Junior Subordinated Debentures -- Option to
Extend Interest Payment Period" and "United States Federal Income
Taxation -- Original Issue Discount."
Redemption. The Junior Subordinated Debentures are redeemable by Fremont
General (in whole, or from time to time in part) on or after , 2001,
or at any time upon the occurrence of a Tax Event. If the Junior Subordinated
Debentures are redeemed, the Trust must redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate principal amount of the
Junior Subordinated Debentures so redeemed. The Preferred Securities will be
redeemed upon maturity of the Junior Subordinated Debentures. See "Description
of the Preferred Securities -- Mandatory Redemption."
Option to Extend Maturity Date. The Junior Subordinated Debentures mature
on March 31, 2026, but the maturity date may be extended once only for up to an
additional 19 years, provided certain financial covenants and conditions are
met. If the maturity of the Junior Subordinated Debentures is extended, the
maturity date of the Preferred Securities will also be extended for the same
time period. See "Description of the Junior Subordinated Debentures -- Option to
Extend Maturity Date."
7
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- ----------------------
1990(1) 1991 1992 1993 1994 1994 1995(2)
-------- -------- -------- -------- -------- ----------- --------
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS, RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Property and casualty premiums earned........... $411,403 $413,156 $411,956 $455,765 $433,584 $ 329,343 $457,694
Net investment income........................... 82,992 73,796 70,820 77,198 76,821 58,962 85,842
Loan interest income............................ 50,191 60,685 73,310 87,244 113,382 77,405 120,928
Realized investment gains (losses).............. 92 5,290 16,208 2,165 (315) 120 8
Other revenue................................... 28,712 28,247 26,399 29,033 29,676 21,969 26,179
-------- -------- -------- -------- -------- -------- --------
Total revenues.................................. $573,390 $581,174 $598,693 $651,405 $653,148 $ 487,799 $690,651
======== ======== ======== ======== ======== ======== ========
Property and casualty income.................... $ 46,805 $ 37,946 $ 45,187 $ 52,092 $ 61,265 $ 45,671 $ 60,048
Financial services income....................... 1,001 9,340 14,878 21,456 28,014 21,033 25,838
Other interest and corporate expense............ (8,801) (6,277) (11,484) (9,200) (7,708) (5,380) (13,036)
-------- -------- -------- -------- -------- -------- --------
Income before taxes, discontinued operations,
extraordinary items and cumulative effect of
accounting change............................. 39,005 41,009 48,581 64,348 81,571 61,324 72,850
Income tax expense.............................. (12,888) (8,878) (13,381) (21,638) (25,759) (19,665) (23,512)
Discontinued operations and extraordinary
items......................................... 711 (964) -- -- -- -- --
Cumulative effect of accounting change for income
taxes........................................... -- -- 43,509 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income...................................... $ 26,828 $ 31,167 $ 78,709 $ 42,710 $ 55,812 $ 41,659 $ 49,338
======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE DATA(3):
Cash dividends declared......................... $0.32.... $ 0.35 $ 0.39 $ 0.44 $ 0.45 $ 0.34 $ 0.38
Stockholders' equity:
Including FASB 115 for 1994 and 1995(4)....... N/A N/A N/A N/A 13.84 13.99 17.87
Excluding FASB 115 for 1994 and 1995(4)....... 8.53 9.79 13.39 14.55 16.40 15.95 18.15
Income before discontinued operations,
extraordinary items and cumulative effect of
accounting change:
Primary....................................... 1.28 1.57 1.73 1.85 2.16 1.61 1.90
Fully diluted................................. 1.20 1.43 1.53 1.65 1.82 1.36 1.59
Net income:
Primary....................................... 1.31 1.52 3.84 1.85 2.16 1.61 1.90
Fully diluted................................. 1.23 1.39 3.29 1.65 1.82 1.36 1.59
RATIO OF EARNINGS TO FIXED CHARGES(5):
Including interest on thrift deposits........... 2.02x 1.97x 2.03x 2.34x 2.29x 2.44x 1.95x
Excluding interest on thrift deposits........... 2.67x 2.72x 2.70x 3.34x 3.34x 3.49x 2.79x
GAAP RATIOS FOR PROPERTY AND
CASUALTY SUBSIDIARIES:
Combined ratio.................................. 105.0% 106.0% 105.4% 101.2% 98.0% 98.4% 100.7%
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets.......................................................................................... $ 4,285,673
Fixed income and other investments.................................................................... 1,749,983
Loans receivable...................................................................................... 1,508,074
Claims and policy liabilities......................................................................... 1,915,464
Long-term debt........................................................................................ 746,308
Stockholders' equity:
Including FASB 115(4)............................................................................... 453,845
Excluding FASB 115(4)............................................................................... 460,905
</TABLE>
- ---------------
(1) Fremont General acquired Investors Bancor in 1990 and, in 1989, a majority
ownership in Fremont Pacific Capital Corporation, which owned two workers'
compensation insurance companies. This percentage ownership was increased to
100% at December 1, 1991.
(2) The Company acquired Casualty Insurance Company on February 22, 1995.
(3) Adjusted for a three-for-two split of the Common Stock to be 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.
(4) Effective January 1, 1994, the Financial Accounting Standards Board
Statement 115 ("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.
(5) The ratio of earnings to fixed charges is expressed as the ratio of income
before income taxes, discontinued operations, extraordinary items,
cumulative effects of accounting changes and fixed charges to fixed charges.
Fixed charges consist principally of interest expense and the interest
component of rental expense.
8
<PAGE> 11
RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained elsewhere or incorporated by reference in this Prospectus
and should particularly consider the following matters:
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 could contribute to significant variation of results of operations in
different aspects of the Company's business, or as a whole, 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 the nine months ended
September 30, 1995, the Company experienced lower premiums and 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. The
Company anticipates that its workers' compensation 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 "Recent Developments."
ADEQUACY OF LOSS RESERVES
The Company's property and casualty insurance subsidiaries are required to
maintain reserves to cover their estimated ultimate liability for losses and
loss adjustment expense ("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.
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,
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. See "Recent Developments."
LOAN PORTFOLIOS RISKS; EXPOSURE TO ECONOMIC CONDITIONS
The Company's financial service businesses are highly dependent on the
value of the collateral securing the loans. Loans provided by the Company's
thrift and loan subsidiary, Fremont Investment & Loan ("Fremont I&L"), are
collateralized by commercial and residential real estate. The Company's strategy
for Fremont I&L is to pursue growth of the commercial real estate and
residential real estate loan portfolios primarily through origination of new
loans. Fremont I&L also purchases loan portfolios that meet its underwriting
guidelines applied to origination of new loans.
In 1994, Fremont I&L purchased approximately $366.6 million principal
amount of seasoned commercial real estate loans for approximately $331.3 million
which accounted for a substantial portion of the commercial real estate loan
growth for the year. All loans were current with their respective mortgage notes
at the time of purchase, and a substantial purchase discount was calculated to
adjust for the values of the underlying
9
<PAGE> 12
collateral based upon Fremont I&L's valuations at the date of purchase. In 1995,
Fremont I&L did not purchase any portfolios of commercial real estate loans,
primarily due to increased competition which resulted in inadequate yields or
unacceptable risk profiles for the portfolios considered.
The loan portfolio of the Company's commercial finance subsidiary, Fremont
Financial Corporation ("Fremont Financial"), consists primarily of working
capital loans to small and middle market businesses which require careful
monitoring of the underlying collateral by the Company. Due to the leverage or
operating performance of borrowers, the potential default rate on these
commercial finance loans is generally higher relative to loans made to more
creditworthy businesses.
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.
COMPETITION
The insurance and financial services industries are characterized by
competition on the basis of price and service. The Company believes that 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 business in California. See
"Recent Developments." The Company recently expanded its workers' compensation
operation through the acquisition on February 22, 1995 of Casualty, which
underwrites workers' compensation insurance in several Midwestern 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. Overall, a decrease in such advisory rates of 10.9%
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. Fremont Financial primarily
competes with commercial finance companies and banks, most of whom are larger
and have greater financial resources than Fremont Financial. 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.
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 the 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 stockholders of an issuer. The Company's multistate insurance
operations require, and will continue to require, significant resources of the
Company in its efforts to comply with the regulations of each state in which it
transacts business.
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
10
<PAGE> 13
the California Department of Insurance were the minimum rates which could be
charged by an insurance carrier. The repeal of the minimum rate law has resulted
in lower premiums and profitability on the Company's California workers'
compensation policies due to increased price competition.
The payment of stockholder 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 and are contingent upon the earnings of
those subsidiaries.
Fremont I&L is a FDIC insured California thrift and loan subject to
supervision and regulation by the California Department of Corporations and the
FDIC. Federal and state regulations prescribe certain minimum capital
requirements and, while Fremont I&L is currently in compliance with such
requirements, Fremont General 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 I 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 and the California Department of Corporations ("the DOC"), the
primary regulatory authorities for Fremont I&L, conducted another examination as
of March 31, 1995. 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,
including its obligations under the Junior Subordinated Debentures or the
Guarantees. However, no assurances can be given as to when, or if, the MOU will
be terminated. See "Recent Developments."
HOLDING COMPANY STRUCTURE; RANKING OF SUBORDINATE OBLIGATIONS UNDER THE
GUARANTEE AND JUNIOR SUBORDINATED DEBENTURES
Fremont General's assets consist primarily of investments in its
subsidiaries. The operations of the Company are currently conducted through its
subsidiaries. Accordingly, the cash flow and the consequent ability to service
debt of the Company, including the Junior Subordinated Debentures, are primarily
dependent upon the earnings of its subsidiaries and the distribution of those
earnings to the Company or upon loans or other payments of funds by those
subsidiaries to the Company. The Company's subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the Junior Subordinated Debentures or to make any
funds available therefor, whether by dividends, loans or other payments. In
addition, the payment of dividends and the making of loan advances to the
Company by its subsidiaries are and may continue to be 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. Furthermore, the Company's rights, and the rights of its creditors to
participate in the distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization will be effectively subordinated to
all existing and future liabilities, including trade payables, of the Company's
subsidiaries, except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would still
be subordinate to any security interests in the assets of such subsidiary and
any indebtedness of such subsidiary senior to that held by the Company.
11
<PAGE> 14
Fremont General's obligations under the Guarantee are subordinate and
junior in right of payment to all other liabilities of Fremont General and pari
passu with the most senior preferred stock, if any, issued from time to time by
Fremont General. The obligations of Fremont General under the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
present and future Senior Indebtedness (as defined below) of Fremont General and
pari passu with the holders of the LYONs. As of September 30, 1995, outstanding
Senior Indebtedness of the Company aggregated approximately $613.9 million
(excluding accrued interest thereon). See "Capitalization of Fremont General."
In the event that any proceeding under bankruptcy, insolvency or other debtor
relief laws (an "Insolvency Proceeding") were initiated by or against the
Company, the Indenture provides that the Institutional Trustee, as holder of the
Junior Subordinated Debentures, is not entitled to receive or to retain any
amounts received in respect of the Junior Subordinated Debentures until all
outstanding Senior Indebtedness has been paid in full. In such event no amounts
would be available to make distributions to the holders of the Preferred
Securities until such Senior Indebtedness of the Company has been paid in full.
In addition, the Indenture provides that no payments may be made in respect of
the Junior Subordinated Debentures, and therefore no amounts would be available
for distributions in respect of the Preferred Securities so long as any default
under any Senior Indebtedness has occurred and, with respect to defaults other
than payment defaults continued beyond applicable grace periods, the maturity of
any Senior Indebtedness has been accelerated. See "Description of the Junior
Subordinated Debentures -- Subordination." There are no terms in the Preferred
Securities, the Junior Subordinated Debentures or the Guarantee that limit
Fremont General's ability to incur additional indebtedness, including
indebtedness senior to the Junior Subordinated Debentures and the Guarantee. See
"Description of Preferred Securities," "Description of the Guarantee -- Status
of the Guarantee" and "Description of the Junior Subordinated
Debentures -- Subordination."
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act. The Chase Manhattan Bank, N.A. will act as indenture trustee under the
Guarantee for the purposes of compliance with the provisions of the Trust
Indenture Act (the "Guarantee Trustee"). The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Preferred Securities.
The Guarantee guarantees to the holders of the Preferred Securities the
payment of (i) any accrued and unpaid distributions that are required to be paid
on the Preferred Securities, to the extent the Trust has funds available
therefor, (ii) the Redemption Price, including all accrued and unpaid
distributions with respect to Preferred Securities called for redemption by the
Trust, to the extent the Trust has funds available therefor, and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Junior Subordinated
Debentures to the holders of Preferred Securities or a redemption of all the
Preferred Securities), the lesser of (a) the aggregate of the liquidation amount
and all accrued and unpaid distributions on the Preferred Securities to the date
of the payment to the extent the Trust has funds available therefor or (b) the
amount of assets of the Trust remaining available, after satisfaction of higher
priority claims including expenses, for distribution to holders of the Preferred
Securities in liquidation of the Trust. The holders of a majority in liquidation
amount of the Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails, following
any such direction from the requisite holders to enforce the Guarantee, any
holder of Preferred Securities may institute a legal proceeding directly against
Fremont General to enforce the Guarantee Trustee's rights under the Guarantee
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity. If Fremont General were to default on its
obligation to pay amounts payable on the Junior Subordinated Debentures, the
Trust would lack available funds for the payment of distributions or amounts
payable on redemption of the Preferred Securities or otherwise, and, in such
event, holders of the Preferred Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, holders of the Preferred
Securities would rely on the enforcement by the Institutional Trustee of its
rights as registered holder of the Junior Subordinated Debentures against
Fremont General pursuant to the terms of the Junior Subordinated Debentures. See
"Description of the Guarantee" and "Description of the Junior Subordinated
Debentures." The Declaration
12
<PAGE> 15
provides that each holder of Preferred Securities, by acceptance thereof, agrees
to the provisions of the Guarantee, including the subordination provisions
thereof, and the Indenture (as such term is defined in "Description of Junior
Subordinated Debentures").
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If (i) the Trust fails to pay distributions in full on the Preferred
Securities for six consecutive quarterly distribution periods or (ii) a
Declaration Event of Default (as defined herein) occurs and is continuing, then
the holders of Preferred Securities would rely on the enforcement by the
Institutional Trustee of its rights against Fremont General as a holder of the
Junior Subordinated Debentures. The holders of a majority in liquidation amount
of the Preferred Securities will have the right to direct the time, method, and
place of conducting any proceeding for any remedy available to the Institutional
Trustee or to direct the exercise of any trust or power conferred upon the
Institutional Trustee under the Declaration, including the right to direct the
Institutional Trustee to exercise the remedies available to it as a holder of
the Junior Subordinated Debentures. If an Event of Default with respect to the
Junior Subordinated Debentures (an "Indenture Event of Default"), constituting
the failure to pay interest or principal on the Junior Subordinated Debentures
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 Junior Subordinated Debentures with 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 Junior Subordinated
Debentures. The holders of Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Junior Subordinated
Debentures unless the Institutional Trustee fails to do so. If the Company were
at any time unable to make payments of interest on the Junior Subordinated
Debentures, it has the right, subject to the terms of the Junior Subordinated
Debentures, to defer interest payments on the Junior Subordinated Debentures for
up to 20 consecutive quarters. During such interest deferral period, interest on
the Junior Subordinated Debentures and distributions on the Preferred Securities
would continue to accrue, but would not be payable until the end of such period,
and no Indenture Event of Default or Declaration Event of Default would occur as
a result of non-payment during the continuance of such interest deferral period.
See "Description of the Junior Subordinated Debentures -- Option to Extend
Interest Payment Period." In the event that an Insolvency Proceeding were
initiated by or against the Company, the ability of the Institutional Trustee
and the holders of the Preferred Securities to enforce the obligations of the
Company under the Junior Subordinated Debentures would be limited by applicable
laws, including automatic stay provisions that limit the ability to pursue
remedies other than as part of such Insolvency Proceeding, and would generally
require the approval of the presiding court or tribunal. Even if the holders
obtained approval for such action, there could be no assurance that the Company
would have sufficient assets to make payments on the Junior Subordinated
Debentures. See "Description of the Junior Subordinated
Debentures -- Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX IMPACT OF EXTENSION
Fremont General has the right under the Indenture to defer payments of
interest on the Junior Subordinated Debentures by extending the interest payment
period at any time, and from time to time, on the Junior Subordinated
Debentures. As a consequence of such an extension, quarterly distributions on
the Preferred Securities would be deferred (but despite such deferral would
continue to accrue with interest thereon compounded quarterly) by the Trust
during any such extended interest payment period. Such right to extend the
interest payment period for the Junior Subordinated Debentures is limited to a
period not exceeding 20 consecutive quarters or extending beyond the maturity of
the Junior Subordinated Debentures. In the event that Fremont General exercises
this right to defer interest payments, then (a) Fremont General 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 Fremont General 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 Fremont General's capital
13
<PAGE> 16
stock for Fremont General's Common Stock, (iii) the purchase of fractional
interests in shares of Fremont General's capital stock pursuant to the
conversion or exchange provisions of such Fremont General capital stock or the
security being converted or exchanged, or (iv) the payment of any stock dividend
by Fremont General payable in Fremont General's Common Stock) or make any
guarantee payments with respect to the foregoing and (b) Fremont General 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 Fremont General 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 or (iii) in connection with the
contemporaneous conversion or exchange of such debt securities for Common Stock
of Fremont General; provided, however, that in no event shall the amount to be
paid by Fremont General 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, Fremont General may further extend the interest payment
period; provided, that no Extension Period may exceed 20 consecutive quarters or
extend beyond the maturity of the Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due,
Fremont General may commence a new Extension Period, subject to the above
requirements. See "Description of the Preferred Securities -- Distributions" and
"Description of the Junior Subordinated Debentures -- Option to Extend Interest
Payment Period."
Should Fremont General exercise its right to defer payments of interest by
extending the interest payment period, each holder of Preferred Securities will
be required to continue to include the deferred interest allocable to its
Preferred Securities in income (as OID) for United States federal income tax
purposes even though no current cash distribution will be made in respect of
such income. In addition, each such holder of Preferred Securities will not
receive the cash from the Trust related to such income if such holder disposes
of its Preferred Securities prior to the record date for the date on which
distributions of such amounts are made. Fremont General has no current intention
of exercising its right to defer payments of interest by extending the interest
payment period on the Junior Subordinated Debentures. However, should Fremont
General determine to exercise such right in the future, the market price of the
Preferred Securities is likely to be affected. A holder that disposes of its
Preferred Securities during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its
Preferred Securities. In addition, as a result of the existence of Fremont
General's right to defer interest payments, the market price of the Preferred
Securities (which represent an undivided beneficial interest in the Junior
Subordinated Debentures) may be more volatile than other securities on which OID
accrues that do not have such rights. See "United States Federal Income
Taxation -- Original Issue Discount."
TAX EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Tax Event, the Trust would be dissolved, except in
the limited circumstance described below, with the result that the Junior
Subordinated Debentures would be distributed to the holders of the Trust
Securities in connection with the liquidation of the Trust. In certain
circumstances, Fremont General would have the right to redeem the Junior
Subordinated Debentures, in whole or in part, in lieu of a distribution of the
Junior Subordinated Debentures by the Trust, in which event the Trust would
redeem the Trust Securities on a pro rata basis to the same extent as the Junior
Subordinated Debentures are redeemed by Fremont General. See "Description of the
Preferred Securities -- Tax Event Redemption or Distribution."
Under current United States federal income tax law, a distribution of
Junior Subordinated Debentures upon the dissolution of the Trust would not be a
taxable event to holders of the Preferred Securities. The distribution of cash
upon a dissolution of the Trust would be a taxable event to such holders. See
"United States Federal Income Taxation -- Receipt of Junior Subordinated
Debentures or Cash Upon Liquidation of the Trust."
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution or liquidation of the
14
<PAGE> 17
Trust were to occur. Accordingly, the Preferred Securities that an investor may
purchase, whether pursuant to the offer made hereby or in the secondary market,
or the Junior Subordinated Debentures that a holder of Preferred Securities may
receive on dissolution and liquidation of the Trust, may trade at a discount to
the price that the investor paid to purchase the Preferred Securities offered
hereby. Because holders of Preferred Securities may receive Junior Subordinated
Debentures upon the occurrence of a Tax Event, prospective purchasers of
Preferred Securities are also making an investment decision with regard to the
Junior Subordinated Debentures and should carefully review all the information
regarding the Junior Subordinated Debentures contained herein and in the
accompanying Prospectus. See "Description of the Preferred Securities -- Tax
Event Redemption or Distribution" and "Description of the Junior Subordinated
Debentures."
PROPOSED TAX LEGISLATION
On December 7, 1995, the Treasury Department announced certain legislative
proposals to be submitted to the Congress, including a proposal (the "Treasury
Proposal") which would treat as equity and not as debt, and accordingly deny any
deduction for interest or OID on, any instruments with terms similar to the
Junior Subordinated Debentures. If the Treasury Proposal were enacted by
Congress without substantial modification or without transitional relief, it
would have been applicable to the Junior Subordinated Debentures and would have
resulted in the characterization of the Junior Subordinated Debentures as
equity, thus denying any deduction to the Company for interest or OID accrued on
the Junior Subordinated Debentures. In a Treasury Department News Release issued
on December 19, 1995 (the "Release"), the Treasury Department stated that, based
on input it had received to date, it would recommend to Congress that
transitional relief from the Treasury Proposal be granted for instruments issued
pursuant to a registration statement filed with the Securities and Exchange
Commission on or before December 7, 1995. Because the registration statement
relating to the Preferred Securities and the Junior Subordinated Debentures was
filed on December 5, 1995, based on the Release, the Junior Subordinated
Debentures would not be subject to the Treasury Proposal. It is not possible to
predict whether Congress will enact the Treasury Proposal or the transitional
relief proposed by the Treasury Department in the Release. However, if the
Treasury Proposal and the transitional relief proposed in the Release are
enacted into law, the Company would be able to deduct interest or OID on the
Junior Subordinated Debentures. If legislation is enacted limiting, in whole or
in part, the deductibility by the Company of interest or OID on the Junior
Subordinated Debentures, such enactment would constitute a Tax Event which, in
certain circumstances, would require the dissolution of the Trust or permit the
Company to redeem the Junior Subordinated Debentures within 90 days of the date
thereof. See "Description of the Preferred Securities -- Tax Event Redemption or
Distribution." The December 7, 1995 proposed tax legislation would not alter the
United States federal income tax consequences of the purchase, ownership and
disposition of the Preferred Securities as described above. See "United States
Federal Income Taxation."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights and will
not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of, Fremont Trustees, which voting rights are vested
exclusively in the holder of the Common Securities. See "Description of the
Preferred Securities -- Voting Rights."
TRADING PRICE
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. A holder who disposes of his Preferred Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Junior Subordinated Debentures
through the date of disposition in income as ordinary income, and to add such
amount to his adjusted tax basis in his pro rata share of the underlying Junior
Subordinated Debentures deemed disposed of. To the extent the selling price is
less than the holder's adjusted tax basis (which will include, in the form of
OID, all accrued but unpaid interest), a holder will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset
15
<PAGE> 18
ordinary income for United States federal income tax purposes. See "United
States Federal Income Taxation -- Original Issue Discount."
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with the
Company's financial statements with the Preferred Securities accounted for and
captioned in the consolidated balance sheet directly above stockholders' equity
as "Company-obligated mandatorily redeemable preferred securities of subsidiary
Trust holding solely Company junior subordinated debentures."
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities will be invested by
the Trust in Junior Subordinated Debentures of Fremont General. The net proceeds
from the sale of the Junior Subordinated Debentures are expected to be used by
Fremont General for general corporate purposes, including repayment of
indebtedness of approximately $50 million, investments in the Company's
subsidiaries or the possible acquisition of or investment in complementary
businesses. The indebtedness repaid will consist of approximately $50 million of
the Company's variable rate bank debt, which was incurred to finance the
Casualty acquisition and is due in 2001. The interest rate payable on this debt
at September 30, 1995 was 6.33%. The Company routinely reviews opportunities to
make acquisitions or investments; however, the Company currently has no
commitments, agreements or understandings to acquire or invest in any specific
business. Pending such uses, the Company intends to invest the net proceeds of
this offering in short-term, interest-bearing, investment-grade securities.
16
<PAGE> 19
CAPITALIZATION OF FREMONT GENERAL
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1995 actual and as adjusted to give effect to the
issuance and sale of the Preferred Securities offered hereby and the application
of the net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
--------------------------
AS
ACTUAL ADJUSTED(1)
---------- -----------
(UNAUDITED)
<S> <C> <C>
(THOUSANDS OF DOLLARS)
Long-term debt:
Variable Rate Asset Backed Certificates........................... $ 330,000 $ 330,000
$200 million Credit Facility due 2001............................. 70,000 20,000
$300 million Senior Revolving Credit Facility due 1998............ 190,000 190,000
$373,750,000 principal amount at maturity Liquid Yield Option(TM)
Notes
due 2013....................................................... 149,667 149,667
Other notes payable............................................... 6,641 6,641
---------- ----------
Total long-term debt........................................... 746,308 696,308
Company-obligated mandatorily redeemable preferred securities of a
subsidiary Trust holding solely Company junior subordinated
debentures(2)..................................................... -- 100,000
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized, none
outstanding.................................................... -- --
Common stock, $1.00 par value, 30,000,000 shares authorized,
16,929,010 shares issued and outstanding(3).................... 16,929 16,929
Additional paid-in capital........................................ 118,280 118,280
Retained earnings................................................. 332,308 332,308
Unearned Employee Stock Ownership Plan shares..................... (6,612) (6,612)
Net unrealized loss on investments, net of deferred taxes......... (7,060) (7,060)
---------- ----------
Total stockholders' equity..................................... 453,845 453,845
---------- ----------
Total capitalization...................................... $1,200,153 $ 1,250,153
========== ==========
</TABLE>
- ---------------
(1) Reflects receipt and application of the estimated net proceeds from the sale
of the Preferred Securities offered hereby. See "Use of Proceeds."
(2) As described in this Prospectus, the sole assets of the Trust will be the
% Junior Subordinated Debentures due March 31, 2026 of Fremont General
with a principal amount of $ , and upon redemption of such debt the
Preferred Securities will be mandatorily redeemable.
(3) Excludes 1,217,269 shares of Common Stock reserved for issuance upon the
exercise of outstanding options pursuant to the Company's stock option plan
as of September 30, 1995 and 4,805,640 shares of Common Stock issuable upon
the conversion of the LYONs.
17
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
Except as provided below, the following table sets forth certain selected
financial data for, and as of the end of, each of the years in the five-year
period ended December 31, 1994 as derived from the consolidated financial
statements of the Company and related notes thereto, which have been audited by
the Company's independent auditors. The table also sets forth certain selected
unaudited financial data for, and as of the end of, each of the nine months
ended September 30, 1994 and 1995 as derived from the unaudited consolidated
financial statements of the Company and related notes thereto. This selected
consolidated financial data should be read in conjunction with "Recent
Developments" and with the Consolidated Financial Statements and related notes
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1990(1) 1991 1992 1993 1994 1994 1995(2)
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA, RATIOS AND PERCENTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Property and casualty premiums earned......... $411,403 $413,156 $411,956 $455,765 $433,584 $329,343 $457,694
Net investment income......................... 82,992 73,796 70,820 77,198 76,821 58,962 85,842
Loan interest income.......................... 50,191 60,685 73,310 87,244 113,382 77,405 120,928
Realized investment gains (losses)............ 92 5,290 16,208 2,165 (315) 120 8
Other revenue................................. 28,712 28,247 26,399 29,033 29,676 21,969 26,179
-------- -------- -------- -------- -------- -------- --------
Total revenues.......................... $573,390 $581,174 $598,693 $651,405 $653,148 $487,799 $690,651
======== ======== ======== ======== ======== ======== ========
Property and casualty income.................. $ 46,805 $ 37,946 $ 45,187 $ 52,092 $ 61,265 $ 45,671 $ 60,048
Financial services income..................... 1,001 9,340 14,878 21,456 28,014 21,033 25,838
Other interest and corporate expense.......... (8,801) (6,277) (11,484) (9,200) (7,708) (5,380) (13,036)
-------- -------- -------- -------- -------- -------- --------
Income before taxes, discontinued operations,
extraordinary items and cumulative effect of
accounting change........................... 39,005 41,009 48,581 64,348 81,571 61,324 72,850
Income tax expense............................ (12,888) (8,878) (13,381) (21,638) (25,759) (19,665) (23,512)
Discontinued operations and extraordinary
items....................................... 711 (964) -- -- -- -- --
Cumulative effect of accounting change for
income taxes................................ -- -- 43,509 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income.................................... $ 26,828 $ 31,167 $ 78,709 $ 42,710 $ 55,812 $ 41,659 $ 49,338
======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE DATA(3):
Cash dividends declared....................... $ 0.32 $ 0.35 $ 0.39 $ 0.44 $ 0.45 $ 0.3 4 $ 0.38
Stockholders' equity:
Including FASB 115 for 1994 and 1995(4)..... N/A N/A N/A N/A 13.84 13.99 17.87
Excluding FASB 115 for 1994 and 1995(4)..... 8.53 9.79 13.39 14.55 16.40 15.95 18.15
Income before discontinued operations,
extraordinary items and cumulative effect of
accounting change:
Primary..................................... 1.28 1.57 1.73 1.85 2.16 1.61 1.90
Fully diluted............................... 1.20 1.43 1.53 1.65 1.82 1.36 1.59
Net income:
Primary..................................... 1.31 1.52 3.84 1.85 2.16 1.61 1.90
Fully diluted............................... 1.23 1.39 3.29 1.65 1.82 1.36 1.59
RATIO OF EARNINGS TO FIXED CHARGES(5):
Including interest on thrift deposits......... 2.02x 1.97x 2.03x 2.34x 2.29x 2.44x 1.95x
Excluding interest on thrift deposits......... 2.67x 2.72x 2.70x 3.34x 3.34x 3.49x 2.79x
GAAP RATIOS FOR PROPERTY AND CASUALTY
SUBSIDIARIES:
Combined ratio................................ 105.0% 106.0% 105.4% 101.2% 98.0% 98.4% 100.7%
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------- SEPTEMBER 30,
1990(1) 1991 1992 1993 1994 1995(2)
---------- ---------- ---------- ---------- ---------- -------------
(THOUSANDS OF DOLLARS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets(6)............................ $1,969,347 $1,952,169 $2,070,533 $2,669,290 $3,134,390 $ 4,285,673
Fixed income and other investments......... 773,309 772,947 782,542 1,055,289 888,918 1,749,983
Loans receivable........................... 431,744 519,874 689,443 846,443 1,440,774 1,508,074
Claims and policy liabilities(6)........... 870,909 838,459 812,081 1,007,054 1,012,704 1,915,464
Long-term debt............................. 102,073 101,303 100,572 451,581 468,390 746,308
Stockholders' equity:
Including FASB 115 for 1994 and
1995(4)................................ N/A N/A N/A N/A 351,013 453,845
Excluding FASB 115 for 1994 and
1995(4)................................ 174,828 198,724 271,710 369,369 416,378 460,905
</TABLE>
- ---------------
(1) Fremont General acquired Investors Bancor in 1990 and, in 1989, a majority
ownership in Fremont Pacific Capital Corporation, which owned two workers'
compensation insurance companies. This percentage ownership was increased to
100% at December 1, 1991.
(2) The Company acquired Casualty Insurance Company on February 22, 1995.
(3) Adjusted for a three-for-two split of the Common Stock to be 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.
(4) 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.
(5) The ratio of earnings to fixed charges is expressed as the ratio of income
before income taxes, discontinued operations, extraordinary items,
cumulative effects of accounting changes and fixed charges to fixed charges.
Fixed charges consist principally of interest expense and the interest
component of rental expense.
(6) Reflects an increase of approximately $139 million at December 31, 1993 due
to a change in accounting principle.
19
<PAGE> 22
RECENT DEVELOPMENTS
OVERVIEW
Fremont General is a diversified holding company engaged through
subsidiaries in selected insurance and financial service businesses. The Company
is one of the largest mono-line workers' compensation insurer in the United
States, with major market positions in California and Illinois, and a presence
in Arizona, Indiana, Michigan and Wisconsin. For the first nine months of 1995,
the Company's workers' compensation insurance premiums were approximately evenly
distributed between the Western and the Midwestern regions. For the year ended
December 31, 1994 and the nine months ended September 30, 1995, the Company had
workers' compensation insurance premiums earned of $401 million and $433
million, respectively. The Company recently expanded its workers' compensation
operations through the acquisition on February 22, 1995 of Casualty and its
wholly owned subsidiary 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 business, while providing greater geographic
diversification. 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
principally in commercial finance lending, principally to middle market
companies nationwide, and residential and commercial real estate lending in
California. The Company's financial services loan portfolio has grown from $536
million at December 31, 1991 to $1.5 billion at September 30, 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, 1994, the Company's income before taxes grew at
compound annual rates of approximately 20% to $82 million in 1994. The Company's
book value increased from $165 million at December 31, 1989 to $454 million at
September 30, 1995. The Company's assets exceeded $4 billion at September 30,
1995.
The Casualty acquisition has resulted in the Company's revenues approaching
parity between the Western and Midwestern regions, which the Company believes
mitigates potential fluctuations in earnings resulting from cyclical downturns
in various industries or regional economies. For the nine-months ended September
30, 1995, the Company's workers' compensation premiums earned in its Western
region, consisting primarily of California, accounted for $228 million, or 53%
of the Company's total workers' compensation premiums earned for such period,
representing a decrease of $77 million from the comparable period in 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. 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. The Company expects that the premiums earned in California
will continue to decrease, principally due to price competition. For the nine
months ended September 30, 1995, the Company's workers' compensation premiums
earned in its Midwestern region, consisting primarily of Illinois, accounted for
$205 million, or 47% of the Company's total workers' compensation premiums
earned.
The Company's balance sheet at September 30, 1995 has also been
significantly impacted by the acquisition of Casualty, which was treated as a
purchase for accounting purposes. The purchase price paid was $250 million,
comprised of $225 million in cash and $25 million in a note payable. The assets
acquired account for the significant increase in the Company's fixed maturity
and non-redeemable preferred stock portfolios at September 30, 1995 as compared
to December 31, 1994.
The Company's medical malpractice insurance operation predominantly writes
standard professional liability insurance for physicians and other healthcare
providers, primarily in California. The Company has been able to maintain its
premium volume and achieve favorable loss experience through selective
underwriting.
The Company manages its investments internally. As of September 30, 1995,
substantially all of the securities in the portfolio were rated investment
grade. Using Standard and Poor's Corporation, Moody's Investors Service, Inc.
and Fitch Investor Services rating services, approximately 65% were rated "A" or
20
<PAGE> 23
higher, approximately 35% were rated "BBB" and less than 1% were rated "BB" as
of September 30, 1995. These investment securities had an approximate fair value
of $624 million and $1.5 billion at December 31, 1994 and September 30, 1995,
respectively, which was below amortized cost by approximately $108 million and
$11 million, respectively. The Company does not currently intend to invest in
securities rated below investment grade. Included in the investment portfolio as
of September 30, 1995 were inverse variable rate collateralized mortgage
obligations with a fair value of $64 million (amortized cost of $78 million).
These securities, which have a rating of "AAA," represent 4% of the Company's
total investment portfolio at September 30, 1995.
Fremont Financial makes commercial finance loans to small and middle market
businesses nationwide. These commercial finance loans are primarily secured by
accounts receivable and inventory. Fremont Financial's total loan portfolio grew
from $189 million at December 31, 1991 to $625 million at September 30, 1995.
This growth has been achieved partly through development of Fremont Financial's
customer base and partly through purchases of loans originated by others. 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 1990, the Company acquired Fremont I&L, a California thrift and loan
that now serves more than 22,000 customers through its 13 branches. The thrift
and loan operations are primarily engaged in commercial real estate loans with
principal amounts primarily between $1 to $5 million and residential real estate
loans with principal amounts below $300,000. Assets of the thrift and loan
operation grew from $278 million at December 31, 1991 to $957 million at
September 30, 1995, due to increased loan originations and to the purchase of
loans from other financial institutions. 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 have a significant adverse impact on the value of such
collateral. If the Company's collateral were to prove inadequate, the Company's
results of operations could be adversely affected.
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.
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the risk factors set forth under the heading "Risk
Factors."
21
<PAGE> 24
RESULTS OF OPERATIONS
Summary of Recent Financial Results for the Year Ended December 31, 1995
(unaudited)
The Company generated revenues of approximately $924 million for the year
ended December 31, 1995 as compared to approximately $653 million for the
previous year representing an increase of 42%. Realized investment gains for the
year ended December 31, 1995 were $1,000 compared to realized investment losses
of $315,000 for the similar prior year period. Net income for the year ended
December 31, 1995 was approximately $68 million or $2.61 per share compared to
approximately $56 million or $2.16 per share, for the same prior year period.
For the year ended December 31, 1995, income before taxes was $100.3 million
compared to $81.6 million for the previous year, representing an increase of
23%.
Workers' compensation insurance operations posted income before taxes of
$85 million for the year ended December 31, 1995, as compared to $62.2 million
for the year ended December 31, 1994. The increase in income before taxes of 37%
is due primarily to the acquisition of Casualty Insurance Company, which was
completed in February of 1995. The GAAP combined ratio for the year ended
December 31, 1995 was 100.4% as compared to 97.6% for the year ended December
31, 1994.
The Company's financial services operations posted income before taxes for
the year ended December 31, 1995 of $35.7 million as compared to $28.0 million
for the year ended December 31, 1994, representing an increase of 28%. This
increase is due primarily to the significant growth in the average loan
portfolio from $1.1 billion through December 31, 1994 to $1.5 billion through
December 31, 1995.
Results of Operations for the Nine Months Ended September 30, 1995
The following table presents information for the nine months ended
September 30, 1994 and 1995 with respect to the Company's principal lines of
business.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1994 1995
-------- --------
<S> <C> <C>
(UNAUDITED)
(THOUSANDS OF
DOLLARS)
Revenues:
Workers' compensation........................................ $348,758 $504,068
Medical malpractice.......................................... 24,717 26,079
Property and casualty corporate and other.................... 3,379 2,174
-------- --------
Total property and casualty.......................... 376,854 532,321
Financial services........................................... 108,087 157,822
Corporate.................................................... 2,858 508
-------- --------
Total................................................ $487,799 $690,651
======== ========
Income (Loss) Before Taxes:
Workers' compensation........................................ $ 46,062 $ 61,556
Medical malpractice.......................................... 5,533 3,762
Property and casualty corporate and other.................... (5,924) (5,270)
-------- --------
Total property and casualty.......................... 45,671 60,048
Financial services........................................... 21,033 25,838
Corporate.................................................... (5,380) (13,036)
-------- --------
Total................................................ $ 61,324 $ 72,850
======== ========
</TABLE>
The Company generated revenues of approximately $691 million in the nine
months ended September 30, 1995, as compared to $488 million for the same period
in 1994. The 42% increase in revenues is due primarily to higher workers'
compensation premiums and net investment income. The higher workers'
compensation premiums earned and net investment income are due primarily to the
acquisition of Casualty, partially offset by lower premiums earned in
California. Realized investment gains in the nine months ended September 30,
1995 were $8,000, compared to $120,000 for the same period in 1994.
Net income for the nine months ended September 30, 1995 was $49.3 million
or $1.90 per share compared to $41.7 million or $1.61 per share for the same
period in 1994. For the nine months ended
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<PAGE> 25
September 30, 1995, income before tax was $72.9 million compared to $61.3
million for the same period in 1994, representing an increase of 19% in the nine
months ended September 30, 1995.
Workers' compensation insurance operations posted income before taxes of
$61.6 million for the nine months ended September 30, 1995 as compared to $46.1
million for the same period in 1994. The increase in income before taxes of 34%
for the nine month periods is due primarily to the acquisition of Casualty,
offset partially by lower income on the Company's California business. The GAAP
combined ratio for the nine months ended September 30, 1995 was 100.6% compared
to 98.2% for the same period in 1994.
Medical malpractice insurance operations recorded income before tax of $3.8
million for the nine months ended September 30, 1995 as compared to $5.5 million
for the same period in 1994. The lower pre-tax income in 1995 is due primarily
to an increase in the frequency of reported claims as compared to the same
period in 1994.
The financial services operations posted an increase in income before taxes
for the nine months ended September 30, 1995 of 23% as compared to the same
period in 1994. This segment, which primarily includes commercial finance and
thrift and loan operations, recorded income before taxes of $25.8 million for
the nine months ended September 30, 1995 as compared to $21.0 million for the
same period in 1994. These increases are due primarily to the significant growth
in the average loan portfolio from $1.0 billion at September 30, 1994, to $1.5
billion at September 30, 1995. Contributing to this growth in the loan portfolio
is the acquisition of approximately $120 million in commercial real estate loan
portfolios which were completed during the period from September 30, 1994 to
September 30, 1995.
The Company's property and casualty corporate and other segment is composed
of miscellaneous revenues and expenses associated with the Company's downstream
property and casualty insurance holding company. Since this segment's operations
consist primarily of interest expense and overhead expenses, management does not
expect this segment to operate at a profit.
Corporate revenues during the nine months ended September 30, 1995 and 1994
consisted primarily of investment income, while corporate expenses consisted
primarily of interest expense and general and administrative expense. The
increase in corporate loss before taxes for the nine months ended September 30,
1995 is 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.
Income tax expense of $23.5 million for the nine months ended September 30,
1995 represent an effective tax rate of 32.3% on pre-tax income of $72.9
million. The 1995 effective tax rate is similar to the effective tax rate of
32.1% for the same period in 1994. The Company's effective tax rate was lower
than the enacted federal income tax rate of 35%, due primarily to tax exempt
investment income which reduces the Company's taxable income.
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 securities with an objective of providing a reasonable return while
limiting credit and liquidity risk. The Company's investment portfolio had a net
unrealized loss of $108 million and $11 million at December 31, 1994 and
September 30, 1995, respectively.
The Company's commercial finance operation funds its lending activities
through an asset securitization program, an unsecured revolving line of credit
with a syndicated bank group and its capital. The securities issued in the asset
securitization program have scheduled maturities of three and four years with
the first scheduled maturity of $200 million in March 1996, but could mature
earlier depending on fluctuations in
23
<PAGE> 26
outstanding balances of loans in the portfolio and other factors. As of
September 30, 1995, $330 million was outstanding and, up to $470 million in
additional asset-backed certificates may be issued pursuant to a shelf
registration statement. The Company's commercial finance operation has an
unsecured revolving line of credit with a syndicated bank group that presently
permits borrowings of up to $300 million, of which $190 million was outstanding
as of September 30, 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 thrift and loan operation finances its lending activities
primarily through customer deposits, which have grown from $747 million at
December 31, 1994 to $829 million at September 30, 1995. In January 1995,
Fremont I&L became eligible for financing through the Federal Home Loan Bank of
San Francisco ("FHLB"). This financing is available at varying rates and terms.
As of September 30, 1995, $109 million was available under the facility and no
borrowings were outstanding.
As a holding company, Fremont General pays its operating expenses, meets
its other obligations and pays stockholder dividends from its cash on hand,
management fees paid by its subsidiaries and dividends paid by its subsidiaries.
Several of the Company's subsidiaries are subject to California laws that
restrict their ability to distribute dividends. The Company expects that during
the next few years dividends from its subsidiaries will consist primarily of
dividends from its property and casualty subsidiaries and dividends on preferred
stock of its financial service subsidiaries. The maximum amount available for
payment of dividends by the property and casualty subsidiaries during 1995
without prior regulatory approval is approximately $24 million, of which $8
million was paid during the first nine months of 1995.
To facilitate general corporate operations, the Company has obtained a
revolving line of credit with a syndicated bank group that permits borrowings of
up to $200 million, of which $70 million was outstanding as of September 30,
1995. The Company's Employee Stock Ownership Plan has a term loan of up to $15
million of which $6.6 million was outstanding on September 30, 1995.
On February 22, 1995, the Company completed the acquisition of Casualty
which resulted in the disbursement of funds totaling $250 million, comprised
$225 million in cash and $25 million in a note payable. The cash used to fund
the acquisition included $55 million in borrowings under the Company's existing
line of credit and the remainder from internally generated funds.
The Company believes that its existing cash, 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.
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<PAGE> 27
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Institutional Trustee, The Chase Manhattan Bank, N.A., a
national banking association, will act as indenture trustee for the Preferred
Securities under the Declaration for purposes of compliance with the provisions
of the Business Trust Act and the Trust Indenture Act. The terms of the
Preferred Securities will include those stated in the Declaration and those made
part of the Declaration by the Trust Indenture Act. The following summary of all
of the principal terms and provisions of the Preferred Securities does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the Declaration, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part, the Business Trust
Act and the Trust Indenture Act. As used in this section, references to "Fremont
General" or the "Company" refer to Fremont General Corporation and not to any of
its subsidiaries.
GENERAL
The Declaration authorizes the Regular Trustees to issue the Trust
Securities on behalf of the Trust, which securities represent undivided
beneficial interests in the assets of the Trust. All of the Common Securities
will be owned, directly or indirectly, by Fremont General. The Common Securities
rank pari passu, and payments will be made thereon on a pro rata basis, with the
Preferred Securities, except that upon the occurrence of a Declaration Event of
Default, the rights of the holders of the Common Securities to receive payment
of periodic distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. The Declaration does not permit the issuance by the Trust of any
securities other than the Trust Securities or the incurrence by the Trust of any
indebtedness. Pursuant to the Declaration, the Institutional Trustee will hold
the Junior Subordinated Debentures purchased by the Trust for the benefit of the
holders of the Trust Securities. The payment of distributions out of money held
by the Trust, and payments upon redemption of the Preferred Securities or
liquidation of the Trust, are guaranteed by Fremont General to the extent
described under "Description of the Guarantee." The Guarantee will be held by
The Chase Manhattan Bank, N.A., a national banking association, the Guarantee
Trustee, for the benefit of the holders of the Preferred Securities. The
Guarantee does not cover payment of distributions when the Trust does not have
sufficient available funds to pay such distributions. In such event, the remedy
of a holder of Preferred Securities is to vote to direct the Institutional
Trustee to enforce the Institutional Trustee's rights against Fremont General
under the Junior Subordinated Debentures. See "-- Voting Rights."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of % of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears for more than one quarter will bear interest thereon at
the rate per annum of % thereof, compounded quarterly. The term "distribution"
as used herein includes any such interest payable unless otherwise stated. The
amount of distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months.
Distributions on the Preferred Securities will be cumulative, will accrue
from February , 1996, and will be payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, commencing March 31, 1996,
when, as and if available for payment, distributions will be made by the
Institutional Trustee, except as otherwise described below.
Fremont General has the right under the Indenture to defer payments of
interest on the Junior Subordinated Debentures by extending the interest payment
period from time to time on the Junior Subordinated Debentures, which, if
exercised, would defer quarterly distributions on the Preferred Securities (such
distributions would continue to accrue interest and interest would continue to
accrue on the Junior Subordinated Debentures) during any such extended interest
payment period. Such right to extend the interest payment period for the Junior
Subordinated Debentures is limited to a period not exceeding 20 consecutive
quarters or extending beyond the maturity of the Junior Subordinated Debentures.
In the event that Fremont General exercises this right, then (a) Fremont General
shall not, and shall not allow any of its
25
<PAGE> 28
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
Fremont General 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 Fremont General's capital
stock for Fremont General Common Stock, (iii) the purchase of fractional
interests in shares of Fremont General's capital stock pursuant to the
conversion or exchange provisions of such Fremont General capital stock or the
security being converted or exchanged, or (iv) the payment of any stock dividend
by Fremont General payable in Fremont General's Common Stock) or make any
guarantee payments with respect to the foregoing and (b) Fremont General 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 Fremont General 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 or (iii) in connection with the
contemporaneous conversion or exchange of such debt securities for Common Stock
of Fremont General; provided, however, that in no event shall the amount to be
paid by Fremont General 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, Fremont General may further extend the interest payment
period; provided, that no Extension Period may exceed 20 consecutive quarters or
extend beyond the maturity of the Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due,
Fremont General may elect to commence a new Extension Period, subject to the
above requirements. See "-- Interest" and "-- Option to Extend Interest Payment
Period" below. If distributions are deferred, the deferred distributions and
accrued interest thereon shall be paid to holders of record of the Preferred
Securities as they appear on the books and records of the Trust on the record
date next following the termination of such deferral period.
Distributions on the Preferred Securities must be paid on the dates payable
to the extent that no Extension Period is then in effect and the Trust has funds
available for the payment of such distributions in the Property Account (as
defined in the Declaration). The Trust's funds available for distribution to the
holders of the Preferred Securities will be limited to payments received from
Fremont General on the Junior Subordinated Debentures. The payment of
distributions out of moneys held by the Trust is guaranteed by Fremont General
to the extent set forth under "Description of the Guarantee." In the event that
an Insolvency Proceeding were initiated by or against the Company, the Indenture
provides that the Institutional Trustee, as holder of the Junior Subordinated
Debentures, is not entitled to receive or to retain any amounts received in
respect of the Junior Subordinated Debentures until all outstanding Senior
Indebtedness has been paid in full. In such event no amounts would be available
to make distributions to the holders of the Preferred Securities until such
Senior Indebtedness of the Company has been paid in full. In addition, the
Indenture provides that no payments may be made in respect of the Junior
Subordinated Debentures, and therefore no amounts would be available for
distributions in respect of the Preferred Securities, so long as any default
under any Senior Indebtedness has occurred and, with respect to defaults other
than payment defaults continued beyond applicable grace periods, the maturity of
any Senior Indebtedness has been accelerated.
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Preferred Securities remain in book-entry
only form, will be one Business Day prior to the relevant payment dates. Such
distributions will be paid through the Institutional Trustee who will hold
amounts received in respect of the Junior Subordinated Debentures in the
Property Account for the benefit of the holders of the Trust Securities. Subject
to any applicable laws and regulations and the provisions of the Declaration,
each such payment will be made as described under "--Book-Entry Only
Issuance -- The Depository Trust Company" below. In the event that the Preferred
Securities do not continue to remain in book-entry only form, the Regular
Trustee shall have the right to select relevant record dates, which shall be
more than one Business Day prior to the
26
<PAGE> 29
relevant payment dates. In the event that any date on which distributions are to
be made on the Preferred Securities is not a Business Day, then payment of the
distributions 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 such distribution
date. A "Business Day" shall mean any day other than Saturday, Sunday or any
other day on which banking institutions in New York City are permitted or
required by any applicable law to close.
MANDATORY REDEMPTION OF THE PREFERRED SECURITIES
The Junior Subordinated Debentures will mature on March 31, 2026, subject
to the election by Fremont General to extend the maturity thereof up to March
31, 2045, and may be redeemed, in whole or in part, at any time on or after
, 2001, or at any time in certain circumstances upon the occurrence of a
Tax Event. See "-- Tax Event Redemption or Distribution" below. Upon the
repayment of the Junior Subordinated Debentures, whether at maturity or upon
acceleration, redemption or otherwise, the proceeds from such repayment or
payment shall simultaneously be applied to redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate principal amount of the
Junior Subordinated Debentures so repaid or redeemed at the Redemption Price;
provided that, except in the case of payments upon maturity, holders of Trust
Securities shall be given not less than 30 nor more than 60 days notice of such
redemption. See "Description of the Junior Subordinated Debentures." In the
event that fewer than all of the outstanding Preferred Securities are to be
redeemed, the Preferred Securities will be redeemed in accordance with the
procedures of DTC "See -- Book-Entry Only Issuance -- The Depository Trust
Company" below.
TAX EVENT REDEMPTION OR DISTRIBUTION
"Tax Event" means that the Regular Trustees shall have received an opinion
from independent tax counsel experienced in such matters (a "Dissolution Tax
Opinion") to the effect that, on or after the date of this Prospectus, 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) 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 this Prospectus,
there is more than an insubstantial risk that (i) the Trust would be subject to
United States federal income tax with respect to interest accrued or received on
the Junior Subordinated Debentures, (ii) interest payable to the Trust on the
Junior Subordinated Debentures would not be deductible in whole or in part by
Fremont General for United States federal income tax purposes or (iii) the Trust
would be subject to more than a de minimis amount of other taxes, duties or
other governmental charges.
If, at any time, a Tax Event shall occur and be continuing, the Trust
shall, except in the circumstances described below, be dissolved with the result
that Junior Subordinated Debentures with an aggregate principal amount equal to
the aggregate stated liquidation amount of, with an interest rate identical to
the distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Trust Securities would be distributed to the
holders of the Trust 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; provided, however, that in the case of the occurrence of a Tax Event,
as a condition of such dissolution and distribution, the Regular Trustees shall
have received an opinion from 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 Trust Securities will not recognize any gain or loss for United States
federal income tax purposes as a result of such dissolution of the Trust and the
distribution of the Junior Subordinated Debentures; and, provided, further,
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, such as filing a form or making an election, or pursuing some other
similar reasonable measure, which has no adverse effect on the Trust, Fremont
General or the holders of the Trust Securities, the Trust will pursue such
measure in lieu of
27
<PAGE> 30
dissolution. Furthermore, if in the case of the occurrence of a Tax Event, (i)
Fremont General has received an opinion (a "Redemption Tax Opinion") from
independent tax counsel experienced in such matters that, as a result of a Tax
Event, there is more than an insubstantial risk that Fremont General would be
precluded from deducting the interest on the Junior Subordinated Debentures for
United States federal income tax purposes even after the Junior Subordinated
Debentures were distributed to the holders of Trust Securities in liquidation of
such holders' interests in the Trust as described above or (ii) the Regular
Trustees shall have been informed by such tax counsel that a No Recognition
Opinion cannot be delivered, Fremont General shall have the right, upon not less
than 30 nor more than 60 days notice, to redeem the Junior Subordinated
Debentures in whole or in part for cash within 90 days following the occurrence
of such Tax Event, and, following such redemption, Trust Securities with an
aggregate liquidation amount equal to the aggregate principal amount of the
Junior Subordinated 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 Fremont General or the Trust the opportunity to eliminate,
within such 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 which has no adverse effect on the Trust, Fremont General or
the holders of the Trust Securities, Fremont General or the Trust will pursue
such measure in lieu of redemption. See "United States Federal Income
Taxation -- Receipt of Junior Subordinated Debentures or Cash Upon Liquidation
of the Trust."
If Junior Subordinated Debentures are distributed to the holders of the
Preferred Securities, Fremont General will use its best efforts to have the
Junior Subordinated Debentures listed on the New York Stock Exchange or on such
other exchange as the Preferred Securities are then listed.
After the date for any distribution of Junior Subordinated Debentures upon
dissolution of the Trust, upon the occurrence of a Tax Event or otherwise, (i)
the Preferred Securities and Preferred Securities Guarantee will no longer be
deemed to be outstanding, (ii) the depositary or its nominee, as the record
holder of the Preferred Securities, will receive a registered global certificate
or certificates representing the Junior Subordinated Debentures to be delivered
upon such distribution and (iii) any certificates representing Preferred
Securities and Preferred Securities Guarantee not held by the depositary or its
nominee will be deemed to represent Junior Subordinated Debentures having an
aggregate principal amount equal to the aggregate stated liquidation amount of,
with an interest rate identical to the distribution rate of, and accrued and
unpaid interest equal to accrued and unpaid distributions on, such Preferred
Securities, until such certificates are presented to Fremont General or its
agent for transfer or exchange.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for the Preferred Securities if a dissolution and liquidation of the
Trust were to occur. Accordingly, the Preferred Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby.
PROPOSED TAX LEGISLATION
On December 7, 1995, the Treasury Department announced certain legislative
proposals to be submitted to the Congress, including a proposal (the "Treasury
Proposal") which would treat as equity and not as debt, and accordingly deny any
deduction for interest or OID on, any instruments with terms similar to the
Junior Subordinated Debentures. If the Treasury Proposal were enacted by
Congress without substantial modification or without transitional relief, it
would have been applicable to the Junior Subordinated Debentures and would have
resulted in the characterization of the Junior Subordinated Debentures as
equity, thus denying any deduction to the Company for interest or OID accrued on
the Junior Subordinated Debentures. In a Treasury Department News Release issued
on December 19, 1995 (the "Release"), the Treasury Department stated that, based
on input it had received to date, it would recommend to Congress that
transitional relief from the Treasury Proposal be granted for instruments issued
pursuant to a registration statement filed with the Securities and Exchange
Commission on or before December 7, 1995. Because the registration statement
relating to the Preferred Securities and the Junior Subordinated Debentures was
filed on December 5, 1995, based on the Release, the Junior Subordinated
Debentures would not be subject to the Treasury Proposal. It is not possible to
predict whether Congress will enact the Treasury Proposal or the transitional
relief proposed by
28
<PAGE> 31
the Treasury Department in the Release. However, if the Treasury Proposal and
the transitional relief proposed in the Release are enacted into law, the
Company would be able to deduct interest or OID on the Junior Subordinated
Debentures. If legislation is enacted limiting, in whole or in part, the
deductibility by the Company of interest or OID on the Junior Subordinated
Debentures, such enactment would constitute a Tax Event which, in certain
circumstances, would require the dissolution of the Trust or permit the Company
to redeem the Junior Subordinated Debentures within 90 days of the date thereof.
See "Description of the Preferred Securities -- Tax Event Redemption or
Distribution." The December 7, 1995 proposed tax legislation would not alter the
United States federal income tax consequences of the purchase, ownership and
disposition of the Preferred Securities as described above. See "United States
Federal Income Taxation."
REDEMPTION PROCEDURES
The Trust must have paid all accrued and unpaid distributions on all Trust
Securities for all quarterly distribution periods terminating on or prior to any
redemption date.
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then by 12:00 noon, New York City
time, on the redemption date, provided that Fremont General has paid to the
Institutional Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Junior Subordinated Debentures, the Trust will
irrevocably deposit with the depositary funds sufficient to pay the applicable
Redemption Price and will give the depositary irrevocable instructions and
authority to pay the Redemption Price to the holders of the Preferred
Securities. Thereupon, distributions will cease to accrue on the Preferred
Securities to be redeemed. See "-- Book-Entry Only Issuance -- The Depository
Trust Company." If notice of redemption shall have been given and funds
deposited as required, then immediately prior to the close of business on the
date of such deposit, all rights of holders of such Preferred Securities so
called for redemption will cease, except the right of the holders of such
Preferred Securities to receive the Redemption Price, but without interest on
such Redemption Price. In the event that any date fixed for redemption of
Preferred Securities is not a Business Day, then payment of the Redemption Price
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 falls in the next calendar year, such payment
will be made on the immediately preceding Business Day. In the event that
payment of the Redemption Price in respect of Preferred Securities is improperly
withheld or refused and not paid either by the Trust or by Fremont General
pursuant to the Preferred Securities Guarantee, distributions on such Preferred
Securities will continue to accrue at the rate then currently being paid
pursuant to the Declaration, 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.
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed pro rata as
described under "-- Book-Entry Only Issuance -- The Depository Trust Company."
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), Fremont General or its
affiliates may, at any time and from time to time, purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each, a "Liquidation"), the holders of
the Preferred Securities will be entitled to receive out of the assets of the
Trust, after satisfaction of liabilities to creditors and expenses of such
Liquidation, distributions in an amount equal to the aggregate of the stated
liquidation amount of $25 per Preferred Security plus accrued and unpaid
distributions thereon to the date of payment (the "Liquidation Distribution"),
unless, in connection with such Liquidation, Junior Subordinated Debentures in
an aggregate principal amount equal to the aggregate stated liquidation amount
of, with an interest rate identical to the distribution rate of, and
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accrued and unpaid interest equal to accrued and unpaid distributions on, the
Preferred Securities have been distributed on a pro rata basis to the holders of
the Preferred Securities.
The Liquidation Distribution shall be paid only to the extent that the
Trust has assets available to make such Liquidation Distribution and pay the
expenses of liquidation. If, upon any such Liquidation, 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 the Preferred Securities shall be paid
on a pro rata basis. The holders of the Common Securities will be entitled to
receive distributions upon any such dissolution pro rata with the holders of the
Preferred Securities, except that if a Declaration Event of Default has occurred
and is continuing, the Preferred Securities shall have a preference over the
Common Securities with regard to such distributions. Under the Declaration in
the event of a Liquidation, Fremont General, solely in its capacity as a holder
of the Common Securities of the Trust, will be liable for the debts and
obligations of the Trust (other than with respect to the Trust Securities) to
the extent not satisfied out of the Trust's assets. Fremont General will,
however, remain liable to the extent provided pursuant to the terms of the
Guarantees and the Junior Subordinated Debentures.
TERMINATION
Pursuant to the Declaration, the Trust shall terminate upon the earliest of
(i) March 31, 2045, (ii) upon the voluntary or involuntary liquidation,
insolvency or bankruptcy of Fremont General or the holder of the Common
Securities, (iii) the filing of a certificate of dissolution or its equivalent
with respect to Fremont General, the filing of a certificate of cancellation
with respect to the Trust, or the revocation of the charter of Fremont General
and the expiration of 90 days after the date of revocation without a
reinstatement thereof, (iv) the distribution of Junior Subordinated Debentures
upon the occurrence of a Tax Event, (v) upon the redemption of all the Trust
Securities or (vi) upon the entry of a decree of a judicial dissolution of
Fremont General or the Trust.
DECLARATION EVENTS OF DEFAULT
An Indenture Event of Default also constitutes an event of default under
the Declaration with respect to the Preferred Securities and the Common
Securities (a "Declaration Event of Default"); provided, that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. See "Description of the Junior
Subordinated Debentures -- Indenture Events of Default. As a result of such
waiver deemed to be made by the holders of the Common Securities, until such
Declaration Events of Default with respect to the Preferred Securities have been
so cured, waived, or otherwise 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 a majority of the Preferred Securities will have the
right to direct the Institutional Trustee with respect to certain matters under
the Declaration, and therefore the Indenture. See "Risk Factors -- Enforcement
of Certain Rights by Holders of Preferred Securities."
Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Junior Subordinated Debentures will have the
right under the Indenture to declare the principal of and interest on the Junior
Subordinated Debentures to be immediately due and payable. Fremont General and
the Trust are each required to file annually with the Institutional Trustee an
officer's certificate as to its compliance with all conditions and covenants
under the Declaration.
VOTING RIGHTS
Except as described in this section, under the Business Trust Act, the
Trust Indenture Act and under "Description of the Guarantee -- Modification of
the Guarantee; Assignment," and as otherwise required by law and the
Declaration, the holders of the Preferred Securities will have no voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate liquidation amount of the
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Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Institutional Trustee,
or direct the exercise of any trust or power conferred upon the Institutional
Trustee under the Declaration including the right to direct the Institutional
Trustee, as holder of the Junior Subordinated Debentures, to (i) exercise the
remedies available under the Indenture with respect to the Junior Subordinated
Debentures, (ii) waive any past Indenture Event of Default 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 Junior Subordinated Debentures
shall be due and payable. If the Institutional Trustee fails, after such
direction by the requisite percentage of the holders, to enforce its rights
under the Junior Subordinated Debentures, a record holder of Preferred
Securities may, after such holder's written request to the Institutional Trustee
to enforce such rights, institute a legal proceeding directly against Fremont
General to enforce the Institutional Trustee's rights under the Junior
Subordinated Debentures without first instituting any legal proceeding against
the Institutional Trustee or any other person or entity. The Institutional
Trustee shall notify all holders of the Preferred Securities of any notice of
default received from the Debt Trustee (as defined herein) with respect to the
Junior Subordinated Debentures. Such notice shall state that such Indenture
Event of Default also constitutes a Declaration Event of Default. Except with
respect to directing the time, method and place of conducting a proceeding for a
remedy, the Institutional Trustee shall not take any of the actions described in
clauses (i), (ii) or (iii) above unless the Institutional Trustee has obtained
an opinion of tax counsel to the effect that, as a result of such action, the
Trust will not fail to be classified as a grantor trust for United States
federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Junior Subordinated Debentures, is required under the Indenture with respect to
any amendment, modification or termination of the Indenture, the Institutional
Trustee shall request the instruction of all holders of the Trust Securities
with respect to such amendment, modification, or termination and vote with
respect to such amendment, modification or termination as directed by a majority
in liquidation amount of the Trust Securities voting together as a single class.
The Institutional Trustee shall be under no obligation to take any such action
in accordance with the directions of the holders of the Trust Securities unless
the Institutional Trustee has obtained an opinion of tax counsel to the affect
that for the purposes of United States federal income tax the Trust will not be
classified as other than a grantor trust. The Trust is designed to be a grantor
trust so that it is not subject to entity level tax.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required 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 the holders of Trust Securities generally 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 the following information: (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 Preferred Securities will be required for the
Trust to redeem and cancel Preferred Securities or distribute Junior
Subordinated Debentures in accordance with the Declaration.
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 at such time by Fremont General or any entity directly
or indirectly controlling or controlled by, or under direct or indirect common
control with, Fremont General, shall not be entitled to vote or consent and
shall, for purposes of such vote or consent, be treated as if such Preferred
Securities were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company" below.
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Holders of the Preferred Securities will have no rights to appoint or
remove the Fremont Trustees (including the Institutional Trustee), who may be
appointed, removed or replaced solely by Fremont General as the indirect or
direct holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances, such as any amendment which would affect
the rights, powers, duties, obligations or immunities of the Institutional
Trustee, the Institutional Trustee), provided that, if any proposed amendment
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 Trust Securities, whether by way of amendment to the Declaration or
otherwise or (ii) the dissolution, winding-up or termination of the Trust other
than pursuant to the terms of the Declaration, then the holders of the Trust
Securities voting together as a single 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 at least a majority in liquidation amount of the
Trust Securities affected thereby; provided, that, if any amendment or proposal
referred to in clause (i) above would adversely affect only the Preferred
Securities or 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 such class of securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States federal income taxation as other
than a grantor trust, (ii) reduce or otherwise adversely affect the powers of
the Institutional Trustee or (iii) cause the Trust to be deemed an "investment
company" which is required to be registered under the Investment Company Act of
1940, as amended (the "1940 Act").
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
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 below. The Trust may, with the consent of the Regular Trustees and
without the consent of the holders of the Trust Securities, 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 either (x)
expressly assumes all of the obligations of the Trust under the Trust Securities
or (y) substitutes for the Preferred Securities other securities having
substantially the same terms as the Trust Securities (the "Successor
Securities"), so long as the Successor Securities have a priority at least equal
to that of the Trust Securities rank with respect to distributions and payments
upon liquidation, redemption and otherwise, (ii) Fremont General expressly
acknowledges a trustee of such successor entity possessing the same powers and
duties as the Institutional Trustee as the holder of the Junior Subordinated
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 Preferred
Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization which has been requested
by the Company to rate the Preferred Securities, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution of
the holders' interest in the new entity), (vi) such successor entity has a
purpose identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation or replacement, Fremont General has received an
opinion of a nationally recognized independent counsel to the Trust experienced
in such matters (which may rely on an Officer's Certificate of Fremont General
as to matters of fact) 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 Trust Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution of
the holders' interest in the new entity), and (B) following such merger,
consolidation, amalgamation or replacement, neither the Trust nor
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such successor entity will be required to register as an investment company
under the 1940 Act and (viii) Fremont General guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee and the Common Securities Guarantee (as defined herein).
Notwithstanding the foregoing, the Trust shall not, except with the consent of
holders of 100% in liquidation amount of the Trust 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
the Successor Entity to be classified as other than a grantor trust for United
States federal income tax purposes.
BOOK-ENTRY ONLY ISSUANCE-THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary for
the Preferred Securities. The Preferred Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (DTC's
nominee). One or more fully-registered global Preferred Securities certificates,
representing the total aggregate number of Preferred Securities, will be issued
and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer or pledge beneficial interests in the global
Preferred Securities as represented by a global certificate.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others, such as
securities brokers and dealers, banks and trust companies ("Indirect
Participants") that clear transactions through or maintain a direct or indirect
custodial relationship with a Direct Participant. The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for each purchase of
the Preferred Securities on DTC's records. The ownership interest of each actual
purchaser of each Preferred Security ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which the Beneficial Owners
purchased Preferred Securities. Transfers of ownership interests in the
Preferred Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in the Preferred
Securities, except in the event that use of the book-entry system for the
Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
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Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce the amount of the
interest of each Direct Participant in such Preferred Securities in accordance
with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date for such vote or consent. The Omnibus Proxy assigns Cede &
Co. consenting or voting rights to those Direct Participants to whose accounts
the Preferred Securities are credited on the applicable record date (identified
in a listing attached to the Omnibus Proxy). Fremont General and the Trust
believe that the arrangements among DTC, Direct and Indirect Participants, and
Beneficial Owners will enable the Beneficial Owners to exercise rights
equivalent in substance to the rights that can be directly exercised by a holder
of a beneficial interest in the Trust.
Distribution payments on the Preferred Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the account of customers in bearer form or registered in "street name,"
and such payments will be the responsibility of such Participant and not of DTC,
the Trust or Fremont General, subject to any statutory or regulatory
requirements to the contrary that may be in effect from time to time. Payment of
distributions to DTC is the responsibility of the Trust, disbursement of such
payments to Direct Participants is the responsibility of DTC, and disbursement
of such payments to the Beneficial Owners is the responsibility of Direct and
Indirect Participants.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained, Preferred Securities certificates would be required
to be printed and delivered. Additionally, the Regular Trustees (with the
consent of Fremont General) may decide to discontinue use of the system of
book-entry transfers through DTC (or any successor depositary) with respect to
the Preferred Securities. In that event, certificates for the Preferred
Securities will be printed and delivered.
Except as provided herein, a Beneficial Owner in a global Preferred
Security certificate will not be entitled to receive physical delivery of
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Preferred Securities.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Fremont General and the Trust believe to be
reliable, but neither Fremont General nor the Trust takes responsibility for the
accuracy thereof.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee, prior to the occurrence of a default with
respect to the Trust Securities, undertakes to perform only such duties as are
specifically set forth in the Declaration and, after default, shall exercise the
same degree of care as a prudent individual would exercise in the conduct of his
or her own affairs. Subject to such provisions, the Institutional Trustee is
under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Preferred Securities, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The holders of Preferred Securities will not be
required to offer such indemnity in the event such holders, by exercising their
voting rights, direct the Institutional Trustee to take any action following a
Declaration Event of Default.
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PAYING AGENT
In addition, in the event that the Preferred Securities do not remain in
book-entry only form, the following provisions would apply:
The Institutional Trustee will act as paying agent and may designate an
additional or substitute paying agent at any time.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as the Trust or Fremont General may require) in respect of any tax or
other government charges that may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities have been
called for redemption.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an "investment
company" under the 1940 Act or characterized as other than a grantor trust for
United States federal income tax purposes. Fremont General is authorized and
directed to conduct its affairs so that the Junior Subordinated Debentures will
be treated as indebtedness of Fremont General for United States federal income
tax purposes. In this connection, Fremont General and the Regular Trustees are
authorized to take any action, not inconsistent with applicable law, the
Declaration or the certificate of incorporation of Fremont General, that each of
Fremont General and the Regular Trustees determine in their discretion to be
necessary or desirable to achieve such end, as long as such action does not
adversely affect the interests of the holders of the Preferred Securities or
vary the terms thereof.
Holders of the Preferred Securities have no preemptive rights.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee that
will be executed and delivered by Fremont General for the benefit of the holders
of Preferred Securities. The Guarantee will be qualified as an indenture under
the Trust Indenture Act. The Chase Manhattan Bank, N.A., a national banking
association, will act as indenture trustee under the Guarantee (the "Guarantee
Trustee"). The terms of the Guarantee will be those set forth in the Guarantee
and those made part of the Guarantee by the Trust Indenture Act. This summary
does not purport to be complete and is subject in all respects to the provisions
of, and is qualified in its entirety by reference to, the form of Guarantee,
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, and the Trust Indenture Act. The Guarantee will be held by
the Guarantee Trustee for the benefit of the holders of the Preferred
Securities. The Guarantee does not cover payment of distributions when the Trust
does not have sufficient available funds to pay such distributions. In such
event, the remedy of a holder of Preferred Securities is to vote to direct the
Institutional Trustee to enforce the Institutional Trustee's rights against
Fremont General under the Junior Subordinated Debentures. As used in this
section references to "Fremont General" or the "Company" refer only to Fremont
General Corporation and not to any of its subsidiaries.
GENERAL
The Guarantee covers payments of distributions and other payments on the
Preferred Securities only if and to the extent that Fremont General has made a
payment of interest or principal or other payments on the Junior Subordinated
Debentures held by the Trust as its sole asset. The obligations of Fremont
General under the Declaration, the Guarantee, the Preferred Securities, the
Indenture and the Junior Subordinated
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Debentures will collectively provide a full and unconditional guarantee by
Fremont General of payments due on the Preferred Securities.
Pursuant to the Guarantee, Fremont General will irrevocably and
unconditionally agree, to the extent set forth herein, to pay in full to the
holders of the Preferred Securities, the Guarantee Payments (as defined herein)
(except to the extent paid by the Trust), as and when due, regardless of any
defense (other than payment), right or set-off or counterclaim that the Trust
may have or assert. The following amounts with respect to the Preferred
Securities (the "Guarantee Payments"), to the extent not paid by the Trust, will
be subject to the Guarantee (without duplication): (i) any accrued and unpaid
distributions that are required to be paid on the Preferred Securities, to the
extent the Trust shall have funds available therefor, which funds would exist
only to the extent Fremont General has made a payment of interest or principal
on the Junior Subordinated Debentures, (ii) the Redemption Price to the extent
the Trust has funds available therefor with respect to any Preferred Securities
called for redemption by the Trust, which funds would exist only to the extent
Fremont General has paid the redemption price for the Junior Subordinated
Debentures called for redemption and (iii) upon a voluntary or involuntary
liquidation, dissolution, winding-up termination of the Trust (other than in
connection with the distribution of Junior Subordinated Debentures of Fremont
General to the holders of Preferred Securities or the redemption of all the
Preferred Securities upon maturity or redemption of the Junior Subordinated
Debentures), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid distributions on the Preferred Securities to the date of
payment to the extent the Trust has funds available therefor or (b) the amount
of assets of the Trust remaining available for distribution to holders of the
Preferred Securities in liquidation of the Trust. Fremont General's obligation
to make a Guarantee Payment may be satisfied by direct payment of the required
amounts by Fremont General to the holders of Preferred Securities or by causing
the Trust to pay such amounts to such holders.
The Guarantee will be a full and unconditional guarantee, to the extent
described herein, with respect to the Preferred Securities from the time of
issuance, but will only apply to any payment of distributions on the Preferred
Securities if and to the extent the Trust shall have funds available therefor.
If Fremont General does not make interest payments on the Junior Subordinated
Debentures purchased by the Trust, the Trust will not pay distributions on the
Preferred Securities and will not have funds available therefor. See
"Description of Junior Subordinated Debentures -- Certain Covenants."
Fremont General has also agreed to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities
(the "Common Securities Guarantee") to the same extent as the Guarantee, except
that, upon an Indenture Event of Default, holders of Preferred Securities under
the Guarantee shall have priority over holders of Common Securities under the
Common Securities Guarantee.
In the event that an Insolvency Proceeding were initiated by or against the
Company, the Indenture provides that the Institutional Trustee, as holder of the
Junior Subordinated Debentures, is not entitled to receive or to retain any
amounts received in respect of the Junior Subordinated Debentures until all
outstanding Senior Indebtedness has been paid in full. In such event no amounts
would be available to make distributions to the holders of the Preferred
Securities until such Senior Indebtedness of the Company has been paid in full.
In addition, the Indenture provides that no payments may be made in respect of
the Junior Subordinated Debentures, and therefore no amounts would be available
for distributions in respect of the Preferred Securities so long as any default
under any Senior Indebtedness has occurred and, with respect to defaults other
than payment defaults continued beyond applicable grace periods, the maturity of
any Senior Indebtedness has been accelerated.
CERTAIN COVENANTS OF FREMONT GENERAL
In the Guarantee, Fremont General will covenant that, so long as any
Preferred Securities issued by the Trust remain outstanding, if there shall have
occurred any event that would constitute an Indenture Event of Default or an
event of default under the Guarantee or the Declaration, then (a) Fremont
General 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
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Common Stock of Fremont General 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 Fremont General's
capital stock for Fremont General's Common Stock, (iii) the purchase of
fractional interests in shares of Fremont General's capital stock pursuant to
the conversion or exchange provisions of such Fremont General capital stock or
the security being converted or exchanged, or (iv) the payment of any stock
dividend by Fremont General with respect to which the dividend stock is either
the Common Stock) or make any guarantee payments with respect to the foregoing
and (b) Fremont General 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 Fremont General 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 or (iii)
in connection with the contemporaneous conversion or exchange of such debt
securities for Common Stock of Fremont General; provided, however, that in no
event shall the amount to be paid by Fremont General or any of its subsidiaries
under (a) or (b)(ii) or (iii) above exceed in the aggregate $500,000 per year.
MODIFICATIONS OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of the Preferred Securities (in which case no vote will be required),
the Guarantee may be amended only with the prior approval of the holders of not
less than a majority in liquidation amount of the Preferred Securities then
outstanding. All guarantees and agreements contained in a Guarantee shall bind
the successors, assigns, receivers, trustees and representatives of Fremont
General and shall inure to the benefit of the holders of the Preferred
Securities then outstanding.
EVENTS OF DEFAULT
An Event of Default under the Guarantee will occur upon the failure of
Fremont General to make any of the payments required by the Guarantee or to
perform its other obligations thereunder. The holders of a majority in
liquidation amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee in respect of the Guarantee or to direct the exercise of
any trust or power conferred upon the Guarantee Trustee under the Guarantee. If
the Guarantee Trustee fails to enforce such Preferred Securities, any holder of
Preferred Securities may institute a legal proceeding directly against the
Company to enforce the Guarantee Trustee's rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee or
any other person or entity. Notwithstanding the foregoing, if the Company has
failed to make a guarantee payment, a holder of Preferred Securities may
directly institute a proceeding against the Company for enforcement of the
Guarantee for such payment.
Fremont General will be required to provide annually to the Guarantee
Trustee a statement as to the performance by Fremont General of certain of its
obligations under the Guarantee and as to any default in such performance.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after such default with respect to a Guarantee,
shall exercise the same degree of care a prudent person would exercise under the
circumstances in the conduct of his or her own affairs. Subject to such
provision, the Guarantee Trustee is under no obligation to exercise any of the
powers vested in it by the Guarantee at the request of any holder of the
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
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TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to the Preferred Securities upon full
payment of the Redemption Price of all Preferred Securities, upon distribution
of the Junior Subordinated Debentures of Fremont General held by the Trust to
the holders of the Preferred Securities or upon full payment of the amounts
payable in accordance with the Declaration upon liquidation of the Trust. The
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 the Guarantee.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of Fremont General
and will rank (i) subordinate and junior in right of payment to all other
liabilities of Fremont General (ii) pari passu with the most senior preferred or
preference stock now or hereafter issued by Fremont General and with any
guarantee now or hereafter entered into by Fremont General in respect of any
preferred or preference stock of any affiliate of Fremont General and (iii)
senior to Fremont General's Common Stock. The subordination provisions of the
Junior Subordinated Debentures will also apply to the Guarantee with respect to
all indebtedness of the Company ranking senior to the Guarantee. See
"Description of the Junior Subordinated Debentures -- Subordination." The terms
of the Preferred Securities provide that each holder of Preferred Securities by
acceptance thereof agrees to the subordination provisions and other terms of the
Guarantee.
The Guarantee will constitute a guarantee of payment and not of collection
only (that is, the guaranteed party may institute a legal proceeding directly
against Fremont General as the guarantor to enforce its rights under the
Guarantee without instituting a legal proceeding against any other person or
entity).
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the
internal laws of the State of New York.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Junior
Subordinated Debentures in which the Trust will invest the proceeds from the
issuance and sale of the Trust Securities. The following description does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Indenture, dated as of February , 1996 (the "Indenture"),
between Fremont General and First Interstate Bank of California, a California
banking corporation, as Trustee (the "Debt Trustee"), the form of which is filed
as an Exhibit to the Registration Statement of which this Prospectus is a part.
Certain capitalized terms used herein are defined in the Indenture. As used in
this section, references to "Fremont General" or the "Company" refer only to
Fremont General Corporation and not to any of its subsidiaries.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Tax Event, Junior Subordinated Debentures may be
distributed to the holders of the Trust Securities in liquidation of the Trust.
See "Description of the Preferred Securities -- Tax Event Redemption or
Distribution."
If the Junior Subordinated Debentures are distributed to the holders of the
Preferred Securities, Fremont General will use its best efforts to have the
Junior Subordinated Debentures listed on the New York Stock Exchange or on such
other national securities exchange or similar organization on which the
Preferred Securities are then listed or quoted.
GENERAL
The Junior Subordinated Debentures will be issued as unsecured debt under
the Indenture. The Junior Subordinated Debentures will be limited in aggregate
principal amount to approximately $ ,000,000 ($ ,000,000 if the
over-allotment option is exercised in full), such amount being the sum of the
aggregate stated liquidation of the Preferred Securities and the capital
contributed by Fremont General in exchange for the Common Securities (the
"Fremont Payment").
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The Junior Subordinated Debentures are not subject to a sinking fund
provision. The entire principal amount of the Junior Subordinated Debentures
will mature and become due and payable, together with any accrued and unpaid
interest thereon including Compound Interest (as defined herein) and Additional
Interest (as defined herein), if any, on March 31, 2026, subject to the right of
Fremont General to elect to extend the scheduled maturity date of the Junior
Subordinated Debentures to a date not later than March 31, 2045, which election
may be made only once and is subject to Fremont General's satisfying certain
financial covenants and conditions. See "-- Option to Extend Maturity Date."
If Junior Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, such Junior
Subordinated Debentures will initially be issued as a Global Security (as
defined herein). As described herein, under certain limited circumstances,
Junior Subordinated Debentures may be issued in certificated form in exchange
for a Global Security. See "--Book-Entry and Settlement" below. In the event
that Junior Subordinated Debentures are issued in certificated form, such Junior
Subordinated Debentures will be in denominations of $25 and integral multiples
thereof and may be transferred or exchanged at the offices described below.
Payments on Junior Subordinated Debentures issued as a Global Security will be
made to DTC, a successor depositary or, in the event that no depositary is used,
to a Paying Agent for the Junior Subordinated Debentures. In the event Junior
Subordinated Debentures are issued in certificated form, principal and interest
will be payable, the transfer of the Junior Subordinated Debentures will be
registrable and Junior Subordinated Debentures will be exchangeable for Junior
Subordinated Debentures of other denominations of a like aggregate principal
amount at the corporate trust office of the Institutional Trustee in New York,
New York; provided, that payment of interest may be made at the option of
Fremont General by check mailed to the address of the persons entitled thereto.
SUBORDINATION
The Indenture provides that the Junior Subordinated Debentures are
subordinated and junior in right of payment to all Senior Indebtedness (as
defined below) of Fremont General and pari passu with the LYONs. No payment of
principal (including redemption payments), premium, if any, or interest on the
Junior Subordinated Debentures may be made if (i) any Senior Indebtedness of
Fremont General is not paid when due, (ii) any applicable grace period with
respect to any default under the Senior Indebtedness has ended and such default
has not been cured or waived or ceased to exist or (iii) the maturity of any
Senior Indebtedness of Fremont General has been accelerated because of a default
(other than as described in clause (i)) with respect to such Senior
Indebtedness. Upon any distribution of assets of Fremont General to creditors
upon any dissolution, winding-up, liquidation or reorganization, whether
voluntary or involuntary, or in bankruptcy, insolvency, receivership or other
proceedings, all principal, premium, if any, and interest due or to become due
on all Senior Indebtedness of Fremont General must be paid in full before the
holders of Junior Subordinated Debentures are entitled to receive or retain any
payment. Upon satisfaction of all claims of all Senior Indebtedness then
outstanding, the rights of the holders of the Junior Subordinated Debentures
should be subrogated to the rights of the holders of Senior Indebtedness of
Fremont General to receive, pro rata with any holders of indebtedness of Fremont
General ranking pari passu with the Junior Subordinated Debentures, payments or
distributions applicable to Senior Indebtedness until all amounts owing on the
Junior Subordinated Debentures are paid in full. In the event that an Insolvency
Proceeding were initiated by or against the Company, the Indenture provides that
the Institutional Trustee, as holder of the Junior Subordinated Debentures, is
not entitled to receive or to retain any amounts received in respect of the
Junior Subordinated Debentures until all outstanding Senior Indebtedness has
been paid in full. In such event no amounts would be available to make
distributions to the holders of the Preferred Securities until such Senior
Indebtedness of the Company has been paid in full. In addition, the Indenture
provides that no payments may be made in respect of the Junior Subordinated
Debentures, and therefore no amounts would be available for distributions in
respect of the Preferred Securities so long as any default under any Senior
Indebtedness has occurred and, with respect to defaults other than payment
defaults continued beyond applicable grace periods, the maturity of any Senior
Indebtedness has been accelerated.
The term "Senior Indebtedness" means, with respect to Fremont General, (i)
the principal, premium, if any, and interest in respect of (A) indebtedness of
Fremont General, for money borrowed and (B) indebtedness evidenced by
securities, debentures, bonds or other similar instruments issued by Fremont
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General, including, without limitation, all obligations under the Company's $200
million Credit Facility due 2001, $300 million Senior Revolving Credit Facility
due 1998, 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 Fremont General, (iii) all
obligations of Fremont General issued or assumed as the deferred purchase price
of property, all conditional sale obligations of Fremont General and all
obligations of Fremont General under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business),
(iv) all obligations of Fremont General 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 the type referred to
in clauses (i) through (v) above of other persons for the payment of which
Fremont General is responsible or liable as obligor, guarantor or otherwise 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 Fremont General
(whether or not such obligation is assumed by such obligor), except for (1) any
such indebtedness that is by its terms subordinated to or pari passu with the
Junior Subordinated Debentures, and (2) any indebtedness between or among
Fremont General 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 Fremont
General that is a financing vehicle of Fremont General (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 increases 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, guaranties,
collateral security or other credit support therefor or otherwise renders the
terms thereof more favorable to the holders thereof.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by Fremont General. As of September 30, 1995, Senior
Indebtedness of Fremont General aggregated approximately $613.9 million
(excluding accrued interest).
Certain of the Company's financial services and thrift subsidiaries have
incurred, and may from time to time in the future incur, Senior Indebtedness
secured by liens on their assets, and Fremont Financial has monetized a
substantial portion of its assets by conveying the assets to a trust for the
benefit of holders of the trust's securities. Creditors holding secured claims
against these subsidiaries would be entitled to priority in any Insolvency
Proceeding of the relevant subsidiary, and the incurrence of secured Senior
Indebtedness could impair the affected subsidiary's ability to recapitalize or
restructure its Senior Indebtedness, ultimately affecting its ability to pay
dividends to the Company.
CERTAIN COVENANTS
If (i) there shall have occurred any event that would constitute an
Indenture Event of Default or (ii) Fremont General shall be in default with
respect to its payment of any obligations under the Guarantee or the Common
Securities Guarantee, then (a) Fremont General 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 Fremont General 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 Fremont General's capital
stock for Fremont General Common Stock, (iii) the purchase of fractional
interests in shares of Fremont General's capital stock pursuant to the
conversion or exchange provisions of such Fremont General capital stock or the
security being converted
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or exchanged, or (iv) the payment of any stock dividend by Fremont General
payable in Fremont General'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) Fremont General 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 Fremont General
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 or (iii)
in connection with the contemporaneous conversion or exchange of such debt
securities for Common Stock of Fremont General; provided, however, that in no
event shall the amount to be paid by Fremont General or any of its subsidiaries
under (a) or (b) (ii) or (iii) above exceed in the aggregate $500,000 per year.
For as long as the Trust Securities remain outstanding, Fremont General
will covenant (i) to directly or indirectly maintain 100% direct or indirect
ownership of the Common Securities of the Trust; provided, however, that any
permitted successor of Fremont General under the Indenture may succeed to
Fremont General's ownership of such Common Securities, (ii) not to cause, as
sponsor of the Trust, or to permit, as holder of the Common Securities, the
dissolution, winding-up or termination of the Trust, except in connection with
certain mergers, consolidations or amalgamations and (iii) to use its reasonable
efforts to cause the Trust (a) to remain a statutory business trust, except in
connection with the distribution of Junior Subordinated Debentures to the
holders of Trust Securities in liquidation of the Trust, the redemption of all
of the Trust Securities of the Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration, and (b) to otherwise
continue to be classified as a grantor trust for United States federal income
purposes.
OPTIONAL REDEMPTION
Fremont General shall have the right to redeem the Junior Subordinated
Debentures, in whole or in part, from time to time, on or after , 2001, or
at any time in certain circumstances upon the occurrence of a Tax Event as
described under "Description of the Preferred Securities--Tax Event Redemption
or Distribution," upon not less than 30 nor more than 60 days notice, at a
redemption price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest, including Additional Interest, if any, to the
redemption date. If a partial redemption of the Preferred Securities resulting
from a partial redemption of the Junior Subordinated Debentures would result in
the delisting of the Preferred Securities, Fremont General may only redeem the
Junior Subordinated Debentures in whole.
INTEREST
Each Junior Subordinated Debenture shall bear interest at the rate of %
per annum from the original date of issuance, payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year (each an "Interest
Payment Date"), commencing March 31, 1996, to the person in whose name such
Junior Subordinated Debenture is registered, subject to certain exceptions, at
the close of business on the Business Day next preceding such Interest Payment
Date. In the event the Junior Subordinated Debentures shall not continue to
remain in book-entry only form, Fremont General shall have the right to select
record dates, which shall be more than one Business Day prior to the Interest
Payment Date.
The amount of interest payable for any period will 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 the actual number of days elapsed per 30-day
month. In the event that any date on which interest is payable on the Junior
Subordinated Debentures is not a Business Day, then payment of the interest
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, then
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.
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OPTION TO EXTEND MATURITY DATE
The maturity date of the Junior Subordinated Debentures is March 31, 2026
(the "Scheduled Maturity Date"). Fremont General, however, may, before the
Scheduled Maturity Date, extend such maturity date no more than one time for up
to an additional 19 years from the Scheduled Maturity Date; provided that (a)
Fremont General is not in bankruptcy or otherwise insolvent, (b) Fremont General
is not in default on any Junior Subordinated Debentures issued to the Trust or
to any trustee of the Trust in connection with an issuance of Trust Securities
by the Trust, (c) Fremont General has made timely payments on the Junior
Subordinated Debentures for the immediately preceding six quarters without
deferrals, (d) the Trust is not in arrears on payments of distributions on the
Preferred Securities, (e) the Junior Subordinated Debentures are rated
Investment Grade by any one of Standard & Poor's Corporation, Moody's Investors
Service, Inc. or Fitch Investor Services and (f) the final maturity of such
Junior Subordinated Debentures is not later than the 49th anniversary of the
issuance of the Preferred Securities. Pursuant to the Declaration, the Regular
Trustees are required to give notice of Fremont General's election to extend the
Scheduled Maturity Date to the holders of the Preferred Securities. In the event
the maturity date for the Junior Subordinated Debentures is extended, the
maturity date for Preferred Securities will be extended for a corresponding
period and all rights of the holders of the Preferred Securities shall continue
for such period of extension including payment of distributions and accrual of
any interest thereon.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Fremont General shall have the right at any time, and from time to time,
during the term of the Junior Subordinated Debentures to defer payments of
interest by extending the interest payment period for a period not exceeding 20
consecutive quarters, at the end of which Extension Period, Fremont General
shall pay all interest then accrued and unpaid (including any Additional
Interest, as herein defined) together with interest thereon compounded quarterly
at the rate specified for the Junior Subordinated Debentures to the extent
permitted by applicable law ("Compound Interest"); provided, that during any
such Extension Period, (a) Fremont General 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
Fremont General 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 Fremont General's capital
stock for Fremont General's Common Stock, (iii) the purchase of fractional
interests in shares of Fremont General's capital stock pursuant to the
conversion or exchange provisions of such Fremont General capital stock or the
security being converted or exchanged, or (iv) the payment of any stock dividend
by Fremont General payable in Fremont General's Common Stock or make any
guarantee payments with respect to the foregoing and (b) Fremont General 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 Fremont General 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 or (iii) in connection with the
contemporaneous conversion or exchange of such debt securities for Common Stock
of Fremont General, provided, however, that in no event shall the amount to be
paid by Fremont General 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, Fremont General may further defer payments of
interest by extending the interest payment period; provided, that no Extension
Period may exceed 20 consecutive quarters or extend beyond the maturity of the
Junior Subordinated Debentures. Upon the termination of any Extension Period and
the payment of all amounts then due, Fremont General may commence a new
Extension Period, subject to the terms set forth in this section. No interest
during an Extension Period, except at the end thereof, shall be due and payable.
Fremont General has no present intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. If the Institutional
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Trustee shall be the sole holder of the Junior Subordinated Debentures, Fremont
General shall give the Regular Trustees and the Institutional Trustee notice of
its selection of such Extension Period one Business Day prior to the earlier of
(i) the date distributions on the Preferred Securities are payable or (ii) the
date the Regular 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 distribution is
payable. The Regular Trustees shall give notice of Fremont General's selection
of such Extension Period to the holders of the Preferred Securities. If the
Institutional Trustee shall not be the sole holder of the Junior Subordinated
Debentures, Fremont General shall give the holders of the Junior Subordinated
Debentures 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 Fremont General is required to give notice to the New York Stock Exchange
(or other applicable self-regulatory organization) or to holders of the Junior
Subordinated Debentures of the record or payment date of such related interest
payment.
ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, Fremont General will pay as additional interest ("Additional
Interest") such additional amounts as shall be required so that the net amounts
received and retained by the Trust after paying any such taxes, duties,
assessments or other governmental charges will be not less than the amounts the
Trust would have received had no such taxes, duties, assessments or other
governmental charges been imposed.
PAYMENT AND PAYING AGENTS
Payment of principal of any Junior Subordinated Debentures will be made
only against surrender to the Paying Agent of the Junior Subordinated Debenture.
Principal of and interest on Junior Subordinated Debentures will be payable,
subject to any applicable laws and regulations, at the office of such Paying
Agent or Paying Agents as the Trust may designate from time to time, except that
at the option of the Trust payment of any interest may be made by check mailed
to the address of the person entitled thereto as such address shall appear in
the Debenture Register. Payment of interest on a Junior Subordinated Debenture
on any Interest Payment Date will be made to the person in whose name such
Junior Subordinated Debenture (or predecessor security) is registered at the
close of business on the Regular Record Date for such interest payment.
The Institutional Trustee will act as Paying Agent with respect to the
Junior Subordinated Debentures, Fremont General may at any time designate
additional Paying Agents or rescind the designation of any Paying Agents or
approve a change in the office through which any Paying Agent acts, except that
Fremont General will be required to maintain a Paying Agent at the place of
payment.
All moneys paid by Fremont General to a Paying Agent for the payment of the
principal of or premium or interest, if any, on any Junior Subordinated
Debentures which remain unclaimed at the end of two years after such principal
or interest shall have become due and payable will be repaid to Fremont General
and the holder of such Junior Subordinated Debentures will thereafter look only
to Fremont General for payment thereof.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting Fremont General and the Debt
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Junior Subordinated Debentures, to modify the Indenture;
provided that no such modification may, without the consent of the holder of
each outstanding Junior Subordinated Debenture (or, if the Junior Subordinated
Debentures are held by the Trust, the holders of each of the Preferred
Securities) affected thereby, (i) extend the fixed maturity of any Junior
Subordinated Debentures, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon, or reduce any premium
payable upon the redemption thereof, or (ii) reduce the percentage of Junior
Subordinated Debenture, the holders of which are required to consent to any such
supplemental indenture.
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In addition, Fremont General and the Debt Trustee may execute, without the
consent of the holders of the Junior Subordinated Debentures, any supplemental
indenture to cure any ambiguity, defect or inconsistency, to provide for the
assumption of Fremont General's obligations to holders of the Junior
Subordinated Debentures by a successor corporation, to comply with the Trust
Indenture Act or to effect any change that does not adversely affect the rights
of any holder of the Junior Subordinated Debentures.
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events which has occurred and is continuing constitutes an Indenture Event of
Default with respect to the Junior Subordinated Debentures:
(a) failure for 30 days to pay interest on the Junior Subordinated
Debentures, including any Additional Interest in respect thereof, when due;
provided, however, that, during the pendency of an Extension Period, no such
failure shall be deemed to exist with respect to interest payments due during
such Extension Period;
(b) failure to pay principal on the Junior Subordinated Debentures when due
whether at maturity, upon redemption by declaration or otherwise; provided,
however, that the Junior Subordinated Debentures shall not be deemed to have
matured solely by virtue of an extension of their maturity in accordance with
the terms of the Indenture;
(c) failure to observe or perform any other covenant contained in the
Indenture for 90 days after written notice to Fremont General from the Debt
Trustee or the holders of at least 25% in principal amount of the outstanding
Junior Subordinated Debentures;
(d) default under any bond, debenture or any other evidence relating to
indebtedness for money borrowed of Fremont General 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 Fremont General from the Debt Trustee or by
Fremont General and the Debt Trustee from the holders of not less than 25% in
aggregate principal amount at maturity of the Junior Subordinated Debentures
then outstanding;
(e) certain events in bankruptcy, insolvency or reorganization of Fremont
General; or
(f) the voluntary or involuntary dissolution, winding-up or termination of
the Trust, except in connection with the distribution of Junior Subordinated
Debentures to the holders of Trust Securities in liquidation of the Trust, the
redemption of all of the Trust Securities of the Trust, or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debt Trustee.
The Debt Trustee or the holders of not less than 25% in aggregate outstanding
principal amount of the Junior Subordinated Debentures may declare the principal
thereof due and payable immediately on default, but the holders of a majority in
aggregate outstanding principal amount of such series may annul such declaration
and waive the default if the default has been cured and a sum sufficient to pay
all matured installments of interest and principal due otherwise than by
acceleration and any applicable premium has been deposited with the Debt
Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default, except (i) a
default in the payment of principal or interest (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 Debt
Trustee) or (ii) a default in the covenants described in the first paragraph
under "-- Certain Covenants." and in "-- Option to Extend Interest Payment
Period."
In an Event of Default with respect to the Junior Subordinated Debentures
constituting the failure to pay interest or principal on the Junior Subordinated
Debentures 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
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<PAGE> 47
proceeding for enforcement of payment to such holder directly of the principal
of or interest on the Junior Subordinated 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 Junior Subordinated
Debentures. The holders of Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Junior Subordinated
Debentures unless the Institutional Trustee fails to do so.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Trust as
a result of the occurrence of a Tax Event, the Junior Subordinated Debentures
will be issued in the form of one or more global certificates (each a "Global
Security") registered in the name of the depositary or its nominee. Except under
the limited circumstances described below, or at Fremont General's discretion
Junior Subordinated Debentures represented by the Global Security will not be
exchangeable for, and will not otherwise be issuable as, Junior Subordinated
Debentures in definitive form. The Global Securities described above may not be
transferred except 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
or to a successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer or pledge beneficial interests in such a
Global Security.
Except as provided below, unless Fremont General determines in its
discretion to the contrary owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Junior
Subordinated Debentures in definitive form and will not be considered the
holders (as defined in the Indenture) thereof for any purpose under the
Indenture, and no Global Security representing Junior Subordinated Debentures
shall be exchangeable, except for another Global Security of like denomination
and tenor to be registered in the name of the Depositary or its nominee or to a
successor Depositary or its nominee. Accordingly, each Beneficial Owner must
rely on the procedures of the Depositary or if such person is not a Participant,
on the procedures of the Participant through which such person owns its interest
to exercise any rights of a holder under the Indenture.
THE DEPOSITARY
If Junior Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, DTC will act
as securities depositary for the Junior Subordinated Debentures. For a
description of DTC and the specific terms of the depositary arrangements, see
"Description of the Preferred Securities-Book-Entry Only Issuance-The Depository
Trust Company." As of the date of this Prospectus, the description therein of
DTC's book-entry system and DTC's practices as they relate to purchases,
transfers, notices and payments with respect to the Preferred Securities apply
in all material respects to any debt obligations represented by one or more
Global Securities held by Fremont General. Fremont General may appoint a
successor to DTC or any successor depositary in the event DTC or such successor
depositary is unable or unwilling to continue as a depository for the Global
Securities.
None of Fremont General, the Trust, the Institutional Trustee, any paying
agent and any other agent of Fremont General or the Debt Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
for such Junior Subordinated Debentures or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Security shall be exchangeable for Junior Subordinated Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the depositary notifies Fremont General that it is unwilling or unable to
continue as a depositary for such Global Security and no successor depositary
shall have
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<PAGE> 48
been appointed, (ii) the depositary, at any time, ceases to be a clearing agency
registered under the Exchange Act at which time the depositary is required to be
so registered to act as such depositary and no successor Depositary shall have
been appointed, (iii) Fremont General, in its sole discretion, determines that
such Global Security shall be so exchangeable or (iv) there shall have occurred
an Indenture Event of Default with respect to such Junior Subordinated
Debentures. Any Global Security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for Junior Subordinated Debentures registered in
such names as the Depositary shall direct. It is expected that such instructions
will be based upon directions received by the Depositary from its Participants
with respect to ownership of beneficial interests in such Global Security.
CONSOLIDATION, MERGER AND SALE
The Indenture does not contain any covenant which restricts the ability of
Fremont General or the Trust to merge or consolidate with or into any other
corporation, sell or convey all or substantially all of its assets to any
person, firm or corporation or otherwise engage in restructuring transactions.
DEFEASANCE AND DISCHARGE
Under the terms of the Indenture, Fremont General and the Trust will be
discharged from any and all obligations in respect of the Junior Subordinated
Debentures (except in each case for certain obligations to register the transfer
or exchange of Junior Subordinated Debentures, replace stolen, lost or mutilated
Junior Subordinated Debentures, maintain paying agencies and hold moneys for
payment in trust) if Fremont General deposits with the Debt Trustee, in trust,
moneys or Government Obligations, in an amount sufficient to pay all the
principal of, and interest on, the Junior Subordinated Debentures on the dates
such payments are due in accordance with the terms of such Junior Subordinated
Debentures.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by,
and construed in accordance with, the internal laws of the State of New York.
INFORMATION CONCERNING THE DEBT TRUSTEE
The Debt Trustee, prior to default, undertakes to perform only such duties
as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Debt Trustee
is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Junior Subordinated Debentures, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Debt Trustee is not required to
expand or risk its own funds or otherwise incur personal financial liability in
the performance of its duties if the Debt Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
Fremont General and certain of its affiliates, including the Trust,
maintain a deposit account and banking relationship with the Debt Trustee. The
Debt Trustee serves as trustee under other indentures pursuant to which
unsecured debt securities of Fremont General are outstanding.
MISCELLANEOUS
The Indenture will provide that Fremont General will pay all fees and
expenses related to (i) the offering of the Trust Securities and the Junior
Subordinated Debentures, (ii) the organization, maintenance and dissolution of
the Trust, (iii) the retention of the Fremont Trustees and (iv) the enforcement
by the Institutional Trustee of the rights of the holders of the Preferred
Securities. The payment of such fees and expenses will be fully and
unconditionally guaranteed by Fremont General.
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<PAGE> 49
EFFECT OF OBLIGATIONS UNDER THE
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, and to invest the proceeds from such issuance and sale in the Junior
Subordinated Debentures.
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because of the following
factors: (i) the aggregate principal amount of Junior Subordinated Debentures
will be equal to the sum of the aggregate stated liquidation amount of the Trust
Securities; (ii) the interest rate and the interest and other payment dates on
the Junior Subordinated Debentures will match the distribution rate and
distribution and other payment dates for the Preferred Securities; (iii) Fremont
General shall pay all, and the Trust shall not be obligated to pay, directly or
indirectly, any, costs and expenses of the Trust; and (iv) the Declaration
further provides that the Fremont Trustees shall not cause or permit the Trust
to, among other things, engage in any activity that is not consistent with the
purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by Fremont General as and to the extent set forth
under "Description of the Guarantee." If Fremont General does not make interest
payments on the Junior Subordinated Debentures purchased by the Trust, it is
expected that the Trust will not have sufficient funds to pay distributions on
the Preferred Securities. The Guarantee is a full and unconditional guarantee
from the time of its issuance but does not apply to any payment of distributions
unless and until the Trust has sufficient funds for the payment of such
distributions.
If Fremont General fails to make interest or other payments on the Junior
Subordinated Debentures when due (taking account of any Extension Period), the
Declaration provides a mechanism whereby the holders of the Preferred
Securities, using the procedures described in "Description of the Preferred
Securities -- Book-Entry Only Issuance -- The Depository Trust Company" and
"-- Voting Rights," may direct the Institutional Trustee to enforce its rights
under the Junior Subordinated Debentures. If the Institutional Trustee fails to
enforce its rights under the Junior Subordinated Debentures, a holder of
Preferred Securities may institute a legal proceeding against Fremont General to
enforce the Institutional Trustee's rights under the Junior Subordinated
Debentures without first instituting any legal proceeding against the
Institutional Trustee or any other person or entity. If an Indenture Event of
Default 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 Junior Subordinated Debentures
with 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 Junior Subordinated Debentures. Fremont General, under the
Guarantee, acknowledges that the Guarantee Trustee shall enforce the Guarantee
on behalf of the holders of the Preferred Securities. If Fremont General fails
to make payments under the Guarantee, the Guarantee provides a mechanism whereby
the holders of the Preferred Securities may direct the Guarantee Trustee to
enforce its rights thereunder. If the Guarantee Trustee fails to enforce the
Guarantee, any holder of Preferred Securities may institute a legal proceeding
directly against Fremont General to enforce the Guarantee Trustee's rights under
the Guarantee without first instituting a legal proceeding against the Trust,
the Guarantee Trustee, or any other person or entity.
The above mechanisms and obligations, taken together, provide a full and
unconditional guarantee by Fremont General of payments due on the Preferred
Securities. See "Description of the Guarantee -- General."
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<PAGE> 50
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership and disposition of the
Preferred Securities. Unless otherwise stated, this summary deals only with the
Preferred Securities held as capital assets by holders who purchase the
Preferred Securities upon original issuance. The tax treatment of a holder of
the Preferred Securities may vary depending on his particular situation. This
summary does not address all the tax consequences that may be relevant to
holders who may be subject to special tax treatment such as, for example, banks,
real estate investments trusts, regulated investment companies, insurance
companies, dealers in securities or currencies, tax-exempt investors, or, except
as specifically described herein, foreign taxpayers. In addition, this summary
does not address any aspects of state, local, or foreign laws. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations promulgated thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. Each holder should consult its tax
advisor as to the particular tax consequences of acquiring, holding, and
disposing of the Preferred Securities, including the tax consequences under
state, local, or foreign laws.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
In connection with the issuance of the Junior Subordinated Debentures,
Wilson, Sonsini, Goodrich & Rosati, counsel to Fremont General, has rendered its
opinion that although not entirely free from doubt, under then current United
States federal income tax law and assuming full compliance with the terms of the
Indenture (and in the other agreements and documents relating to the offering
referred to herein), and based on certain facts and assumptions contained in
such opinion, the Junior Subordinated Debentures held by the Trust will be
classified for United States federal income tax purposes as indebtedness of
Fremont General. Accordingly, corporate holders of Preferred Securities will not
be entitled to a dividends-received deduction with respect to any income
recognized with respect to the Preferred Securities.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Wilson,
Sonsini, Goodrich & Rosati, counsel to Fremont General and the Trust, will
render its opinion that, under then current law and assuming full compliance
with the terms of the Declaration and the Indenture (and in the other agreements
and documents relating to the offering referred to herein), and based on certain
facts and assumptions contained in such opinion, the Trust will be classified
for United States federal income tax purposes as a grantor trust and not as an
association taxable as a corporation. Accordingly, for United States federal
income tax purposes, each holder of Preferred Securities will generally be
considered the owner of an undivided interest in the Junior Subordinated
Debentures, and each holder will be required to include in its gross income any
original issue discount ("OID") accrued with respect to its allocable share of
such Junior Subordinated Debentures.
ORIGINAL ISSUE DISCOUNT
Because Fremont General has the option, under the terms of the Junior
Subordinated Debentures, to defer payments of interest by extending interest
payment periods for up to 20 quarters, all of the stated interests payments on
the Junior Subordinated Debentures will be treated as OID. Holders of debt
instruments issued with OID must include that discount in income on an economic
accrual basis before the receipt of cash attributable to the interest,
regardless of their method of tax accounting. Generally, all of a holder's
taxable interest income with respect to the Junior Subordinated Debentures will
be accounted for as OID, and actual distributions of stated interest will not be
separately reported as taxable income. The amount of OID that accrues in any
quarter will approximately equal the amount of the interest that accrues on the
Junior Subordinated Debentures in that quarter at the stated interest rate. In
the event that the interest payment period is extended, holders will continue to
accrue OID approximately equal to the amount of the interest payment due at the
end of the extended interest payment period on an economic accrual basis over
the length of the extended interest period.
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<PAGE> 51
MARKET DISCOUNT AND BOND PREMIUM
Holders of Preferred Securities other than a holder who purchased the
Preferred Securities upon original issuance may be considered to have acquired
their undivided interest in the Junior Subordinated Debentures with market
discount or acquisition premium as such terms are defined for United States
federal income tax purposes. Such holders are advised to consult their tax
advisors as to the income tax consequences of the acquisition, ownership and
disposition of the Preferred Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Tax Event Redemption or Distribution," Junior
Subordinated Debentures may be distributed to holders in exchange for the
Preferred Securities and in liquidation of the Trust. Under current United
States federal income tax law, such a distribution would be treated as a
non-taxable event to each holder, and each holder would receive an aggregate tax
basis in the Junior Subordinated Debenture equal to such holder's aggregate tax
basis in its Preferred Securities. A holder's holding period in the Junior
Subordinated Debentures so received in liquidation of the Trust would include
the period during which the Preferred Securities were held by such holder.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), the Junior Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to holders in redemption of
their Preferred Securities. Under current United States federal income tax law,
such a redemption would constitute a taxable disposition of the redeemed
Preferred Securities, and a holder would recognize gain or loss as if it sold
such redeemed Preferred Securities for cash. See "-- Sales of Preferred
Securities.
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between its adjusted tax basis in the Preferred Securities and
the amount realized on the sale of such Preferred Securities. A holder's
adjusted tax basis in the Preferred Securities will generally be its initial
purchase price increased by OID previously includible in such holder's gross
income to the date of disposition and decreased by payments received on the
Preferred Securities. Such gain or loss will generally be a capital gain or loss
and will generally be a long-term capital gain or loss if the Preferred
Securities have been held for more than one year.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Junior Subordinated Debentures. A holder who disposes of his Preferred
Securities between record dates for payments of distributions thereon will be
required to include accrued but unpaid interest on the Junior Subordinated
Debentures through the date of disposition in income as ordinary income, and to
add such amount to his adjusted tax basis in his pro rata share of the
underlying Junior Subordinated Debentures deemed disposed of. To the extent that
the selling price is less than the holder's adjusted tax basis (which will
include, in the form of OID, all accrued but unpaid interest) a holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a nonresident alien individual, a foreign
partnership, or a nonresident fiduciary of a foreign estate or trust.
Under current United States federal income tax law, (i) payments by the
Trust or any of its paying agents to any holder of a Preferred Security who or
which is a United States Alien Holder will not be subject to withholding of
United States federal income tax; provided that, (a) the beneficial owner of the
Preferred Security does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of Fremont General entitled
to vote, (b) the beneficial owner of the Preferred Security is not a
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<PAGE> 52
controlled foreign corporation that is related to Fremont General through stock
ownership, and (c) either (A) the beneficial owner of the Preferred Security
certifies in a written statement to the Trust or its agent, under penalties of
perjury, that it is not a United States holder and provides its name and address
or (B) a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
(a "Financial Institution"), and holds the Preferred Securities in such
capacity, certifies to the Trust or its agent, under penalties of perjury, that
such written statement has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
Trust or its agent with a copy thereof, and (ii) a United States Alien Holder of
a Preferred Security will not be subject to withholding of United States federal
income tax on any gain realized upon the sale or other disposition of a
Preferred Security.
INFORMATION REPORTING TO HOLDERS
Income on the Preferred Securities will be reported to holders on Forms
1099, which forms should be mailed to holders of Preferred Securities by January
31 following each calendar year.
PROPOSED TAX LEGISLATION
On December 7, 1995, the Treasury Department announced certain legislative
proposals to be submitted to the Congress, including a proposal (the "Treasury
Proposal") which would treat as equity and not as debt, and accordingly deny any
deduction for interest or OID on, any instruments with terms similar to the
Junior Subordinated Debentures. If the Treasury Proposal were enacted by
Congress without substantial modification or without transitional relief, it
would have been applicable to the Junior Subordinated Debentures and would have
resulted in the characterization of the Junior Subordinated Debentures as
equity, thus denying any deduction to the Company for interest or OID accrued on
the Junior Subordinated Debentures. In a Treasury Department News Release issued
on December 19, 1995 (the "Release"), the Treasury Department stated that, based
on input it had received to date, it would recommend to Congress that
transitional relief from the Treasury Proposal be granted for instruments issued
pursuant to a registration statement filed with the Securities and Exchange
Commission on or before December 7, 1995. Because the registration statement
relating to the Preferred Securities and the Junior Subordinated Debentures was
filed on December 5, 1995, based on the Release, the Junior Subordinated
Debentures would not be subject to the Treasury Proposal. It is not possible to
predict whether Congress will enact the Treasury Proposal or the transitional
relief proposed by the Treasury Department in the Release. However, if the
Treasury Proposal and the transitional relief proposed in the Release are
enacted into law, the Company would be able to deduct interest or OID on the
Junior Subordinated Debentures. If legislation is enacted limiting, in whole or
in part, the deductibility by the Company of interest or OID on the Junior
Subordinated Debentures, such enactment would constitute a Tax Event which, in
certain circumstances, would require the dissolution of the Trust or permit the
Company to redeem the Junior Subordinated Debentures within 90 days of the date
thereof. See "Description of the Preferred Securities -- Tax Event Redemption or
Distribution." The December 7, 1995 proposed tax legislation would not alter the
United States federal income tax consequences of the purchase, ownership and
disposition of the Preferred Securities as described above.
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<PAGE> 53
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Trust has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Dean Witter Reynolds Inc., Goldman, Sachs &
Co., and PaineWebber Incorporated are acting as representatives (the
"Representatives"), has severally agreed to purchase the number of Preferred
Securities set forth opposite its name below. In the Underwriting Agreement, the
several Underwriters have agreed, subject to the terms and conditions set forth
therein, to purchase all the Preferred Securities offered hereby if any of the
Preferred Securities are purchased. In the event of default by an Underwriter,
the Underwriting Agreement provides that, in certain circumstances, the purchase
commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER PREFERRED SECURITIES
----------- --------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
Dean Witter Reynolds Inc............................................
Goldman, Sachs & Co.................................................
PaineWebber Incorporated............................................
----------
Total.................................................. 4,000,000
==========
</TABLE>
The Underwriters propose to offer the Preferred Securities, in part,
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and, in part, to certain securities dealers at
such price less a concession of $ per Preferred Security, provided that
such concession for sales of 10,000 or more Preferred Securities to any single
purchaser will be $ per Preferred Security. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per
Preferred Security to certain brokers and dealers. After the Preferred
Securities are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds from the sale of the Preferred
Securities will ultimately be used to purchase the Junior Subordinated
Debentures, the Underwriting Agreement provides that Fremont General will pay as
compensation ("Underwriters' Compensation") to the Underwriters' arranging the
investment therein of such proceeds, an amount in New York Clearing House (next
day) funds of $ per Preferred Security (or $ in the aggregate)
($ in the aggregate if the Underwriters' over-allotment option is
exercised in full) for the accounts of the several Underwriters; provided that,
such compensation for sales of 10,000 or more Preferred Securities to any single
purchaser will be $ per Preferred Security. Therefore, to the extent of
such sales, the actual amount of Underwriters' Compensation will be less than
the aggregate amount specified in the preceding sentence.
Pursuant to the Underwriting Agreement, the Trust and Fremont General have
granted to the Underwriters an option exercisable for 30 days to purchase up to
an additional 600,000 Preferred Securities at the offering price per Preferred
Security set forth on the cover page hereof, solely to cover over-allotments, if
any, in the sale of the Preferred Securities. Fremont General will pay
Underwriters' Compensation in the amounts per Preferred Security set forth above
with respect to such additional Preferred Securities. To the extent such option
is exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
Preferred Securities as the number set forth
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<PAGE> 54
next to such Underwriter's name in the preceding table bears to the total number
of Preferred Securities offered by the Underwriters hereby.
During a period of 30 days from the date of this Prospectus, neither
Fremont General nor the Trust will, without the prior written consent of the
Representatives, directly or indirectly, sell, offer to sell, grant any option
for the sale of, or otherwise dispose of, any Preferred Securities, any security
convertible into or exchangeable into or exercisable for Preferred Securities or
Junior Subordinated Debentures or any debt securities substantially similar to
the Junior Subordinated Debentures or equity securities substantially similar to
the Preferred Securities (except for the Junior Subordinated Debentures and the
Preferred Securities offered hereby).
Application has been made to list the Preferred Securities on the New York
Stock Exchange. If so approved, trading of the Preferred Securities on the New
York Stock Exchange is expected to commence within a 30-day period after the
initial delivery of the Preferred Securities. The Representatives have advised
the Trust that they intend to make a market in the Preferred Securities prior to
the commencement of trading on the New York Stock Exchange. The Representatives
will have no obligation to make a market in the Preferred Securities, however,
and may cease market making activities, if commenced, at any time.
Prior to this offering there has been no public market for the Preferred
Securities. In order to meet one of the requirements for listing the Preferred
Securities on the New York Stock Exchange, the Underwriters will undertake to
sell lots of 100 or more Preferred Securities to a minimum of 400 beneficial
holders.
The Trust and Fremont General have agreed to indemnify the Underwriters
against, or contribute to payments that the Underwriters may be required to make
in respect of, certain liabilities, including liabilities under the Securities
Act of 1933.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, Fremont General and its subsidiaries in the
ordinary course of business.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters will be passed upon for the Underwriters
by Skadden, Arps, Slate, Meagher & Flom, Los Angeles, California.
EXPERTS
The consolidated financial statements of Fremont General at December 31,
1994 and 1993, and for each of the three years in the period ended December 31,
1994, included in Fremont General's Annual Report (Form 10-K) have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. The special purpose
Statement of Assets to be Acquired and Liabilities to be Assumed of the
Specialty Workers' Compensation Business Unit of The Continental Corporation as
of December 31, 1994, and the related special purpose Statement of Underwriting
Gains and Losses for the year then ended appearing in Fremont General's Current
Report on Form 8-K/A have been audited by Ernst & Young LLP, as set forth in
their report included therein and incorporated herein by reference. Such
consolidated financial statements and special purpose financial information
referred to above are incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
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GLOSSARY OF INSURANCE AND FINANCIAL TERMS
The following terms used in this Prospectus have the meanings set forth
below:
Combined ratio............. The sum of the loss ratio, the expense ratio and,
with respect to participating policies of workers'
compensation insurance, the policyholder dividend
ratio, expressed as a percentage. Generally, a
combined ratio below 100% indicates an underwriting
profit and above 100% an underwriting loss.
Expense ratio.............. Policy acquisition costs and other underwriting
expenses, divided by net premiums earned under GAAP
accounting or by net premiums written under
statutory accounting, expressed as a percentage.
GAAP....................... United States generally accepted accounting
principles.
Loss adjustment expenses
("LAE").................. The expenses of investigating and settling claims,
including legal fees and other general expenses of
administrating the claims adjustment process.
Loss ratio................. The ratio of net incurred losses and loss
adjustment expenses to net premiums earned. Net
incurred losses include an estimated provision for
IBNR.
Loss reserves.............. The estimated liability, at a given point in time,
needed to pay reported claims, loss adjustment
expenses and IBNR.
Net premiums earned........ The portion of premiums written applicable to the
expired period of policies after the assumption and
cession of reinsurance.
Net premiums written....... Premiums retained by an insurer, after the
assumption and cession of reinsurance.
Participating policy....... An insurance policy under which the policyholder
may receive a dividend, which is a partial return
of premium after the policy period, subject to
declaration by an insurance company's board of
directors, if, among other factors, the insured had
a favorable loss history during the policy period.
Policy acquisition costs... Agents' and brokers' commissions, premium taxes,
marketing, underwriting, and other expenses
associated with acquiring and retained business.
Policyholder dividend
ratio...................... The ratio of policyholder dividends accrued to net
premiums earned, expressed as a percentage.
Statutory accounting
practices ("SAP").......... Recording transactions and preparing financial
statements in accordance with the rules and
procedures adopted by insurance regulatory
authorities, generally emphasizing solvency
considerations rather than a going concern concept
of accounting.
Tier 1 capital............. 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 credit card relationships.
Underwriting............... The process whereby an insurer reviews applications
submitted for insurance coverage and determines
whether it will provide all or part of the coverage
being requested and at what premium.
Underwriting expense....... The aggregate of policy acquisition costs and the
portion of administrative, general, and other
expenses attributable to insurance underwriting
operations.
Underwriting profit
(loss)..................... The amount of pre-tax income (loss) from insurance
operations, before net investment income and
realized gains (losses).
53
<PAGE> 56
GLOSSARY OF TERMS RELATING TO
THE DESCRIPTION OF THE SECURITIES
The following defined terms used in this Prospectus have the meanings set
forth below:
1940 Act...................... The Investment Company Act of 1940, as amended.
Additional Interest........... Any taxes, duties, assessments or governmental
charges of whatever nature (other than
withholding taxes) imposed by the United
States, or any other taxing authority on the
Trust.
Business Day.................. 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............ The Delaware Business Trust Act (Chapter 38 of
Title 12 of the Delaware Code, 12 Del. Code
Section 3801 et seq.).
Code.......................... Internal Revenue Code of 1986, as amended.
Common Securities............. A class of common securities representing an
undivided beneficial interest in the assets of
the Trust.
Common Securities Guarantee... Guarantee agreement of Fremont General with
respect to the Common Securities.
Compound Interest............. Interest compounded quarterly at the rate
specified for the Junior Subordinated
Debentures to the extent permitted by
applicable law.
Debt Trustee.................. Trustee under the Indenture which initially
shall be First Interstate Bank of California.
Declaration................... Declaration of Trust among the Fremont Trustees
and Fremont General dated December 1, 1995 and
as amended and restated in its entirety.
Declaration Event of
Default....................... An event of default under the Declaration.
Distributions................. Cumulative cash distributions at an annual rate
of % of the stated liquidation amount of $25
per Preferred Security, accruing from the date
of original issuance and payable quarterly in
arrears on March 31, June 30, September 30 and
December 31 of each year, commencing March 31,
1996. Distributions include any interest
payable and any Distributions in arrears for
more than one quarter will bear interest at a
rate per annum of %, compounded quarterly.
DTC........................... The Depository Trust Company.
Extension Period.............. The period or periods for which Fremont General
has the right to defer payments of interest on
the Junior Subordinated Debentures at any time
for up to 20 consecutive quarters.
Fremont Payment............... The capital contributed by Fremont General in
exchange for the Common Securities.
Fremont Trustees.............. The trustees of the Trust, appointed by Fremont
General and consisting of the Regular Trustees
and the Institutional Trustee.
Global Security............... One or more global certificates registered in
the name of the depositary or its nominee.
54
<PAGE> 57
Guarantee..................... Guarantee agreement of Fremont General with
respect to the Preferred Securities.
Guarantee Payments............ As defined in the Prospectus under the caption
"Description of the Guarantee -- General."
Guarantee Trustee............. Indenture trustee under the Guarantee, which
shall initially be The Chase Manhattan Bank,
N.A.
Indenture..................... Dated , 1996 between Fremont
General and First Interstate Bank of
California.
Indenture Event of Default.... An event of default under the Indenture, as
defined under the caption "Description of the
Junior Subordinated Debentures -- Indenture
Events of Default."
Insolvency Proceeding......... A proceeding or action under bankruptcy,
insolvency or other debtor relief laws.
Institutional Trustee......... A Fremont Trustee which is a financial
institution unaffiliated with Fremont General,
which maintains a principal place of business
in the State of Delaware and which will serve
as property trustee under the Declaration and
as indenture trustee for purposes of the Trust
Indenture Act, initially, the Chase Manhattan
Bank, N.A.
Interest Payment Date......... Quarterly dates of March 31, June 30, September
30 and December 31 of each year.
Junior Subordinated
Debentures.................... % Junior Subordinated Debentures to be issued
by the Company.
Liquidation................... Any voluntary or involuntary liquidation,
dissolution, winding-up or termination of the
Trust.
Liquidation Distribution...... Distributions up to an amount equal to the
aggregate of the stated liquidation amount of
$25 per Preferred Security plus accrued and
unpaid distributions thereon to the date of
payment.
OID........................... Original issue discount.
Participants.................. Participants of DTC.
Preferred Securities.......... % Trust Originated Preferred Securities,
representing preferred individual beneficial
interests in the assets of the Trust.
Property Account.............. A segregated non-interest bearing bank account
to hold all payments made in respect of the
Junior Subordinated Debentures for the benefit
of the holders of the Trust Securities.
Redemption Price.............. 100% of the principal amount of Junior
Subordinated Debentures redeemed plus any
accrued or unpaid interest, including
Additional Interest, if any, to the redemption
date.
Regular Trustees.............. Fremont Trustees who are employees or officers
of, or affiliated with, Fremont General,
initially Louis J. Rampino and Wayne R. Bailey.
Scheduled Maturity Date....... March 31, 2026.
Senior Indebtedness........... As defined in the Prospectus under the caption
"Description of Junior Subordinated
Debentures -- Subordination."
55
<PAGE> 58
Successor Securities.......... Other securities having substantially the same
terms as the Trust Securities substituted for
the Trust Securities by a successor of the
Trust.
Tax Event..................... As defined under the caption "Description of
the Preferred Securities -- Tax Event
Redemption or Distribution."
Trust......................... Fremont General Financing I, a statutory
business trust formed under the Business Trust
Act.
Trust Indenture Act........... The Trust Indenture Act of 1939, as amended.
Trust Securities.............. The Preferred Securities and the Common
Securities.
United States Alien Holder.... Any corporation, individual, partnership,
estate or trust that is, as to the United
States, a foreign corporation, a nonresident
alien individual, a foreign partnership, or a
nonresident fiduciary of a foreign estate or
trust.
56
<PAGE> 59
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST OR
THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 4
Incorporation of Certain Documents
by Reference........................ 4
Prospectus Summary.................... 5
Risk Factors.......................... 9
Accounting Treatment.................. 16
Use of Proceeds....................... 16
Capitalization of Fremont General..... 17
Selected Consolidated Financial and
Operating Data...................... 18
Recent Developments................... 20
Description of the Preferred
Securities.......................... 25
Description of the Guarantee.......... 35
Description of the Junior Subordinated
Debentures.......................... 38
Effect of Obligations under the Junior
Subordinated Debentures and the
Guarantee........................... 47
United States Federal Income
Taxation............................ 48
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Glossary of Insurance and Financial
Terms............................... 53
Glossary of Terms Relating to the
Description of the Securities....... 54
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,000,000
PREFERRED SECURITIES
FREMONT GENERAL
FINANCING I
% TRUST ORIGINATED
PREFERRED SECURITIESSM ("TOPRSSM")
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY
FREMONT GENERAL CORPORATION
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
PAINEWEBBER INCORPORATED
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 60
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting commission, payable by the Registrant in connection with the sale
of Preferred Securities being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee................................................ $ 39,656
NASD filing fee..................................................... 12,000
New York Stock Exchange Additional Listing Fee...................... 45,000
Blue Sky fees and expenses.......................................... 10,000
Printing and engraving expenses..................................... 150,000
Legal fees and expenses............................................. 175,000
Accounting fees and expenses........................................ 50,000
Transfer agent and registrar fees................................... 15,000
Miscellaneous expenses.............................................. 28,344
--------
Total..................................................... $ 525,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada General Corporation Law ("Nevada Law")
provides generally and in pertinent part that a Nevada corporation may indemnify
its directors and officers against expenses, judgments, fines, and settlements
actually and reasonably incurred by them in connection with any civil suit or
action, except actions by or in the right of the corporation, or any
administrative or investigative proceeding if, in connection with the matters in
issue, they acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the corporation, and in connection
with any criminal suit or proceeding, if in connection with the matters in
issue, they had no reasonable cause to believe their conduct was unlawful.
Section 78.751 further provides that, in connection with the defense or
settlement of any action by or in the right of the corporation, a Nevada
corporation may indemnify its directors and officers against expenses actually
and reasonably incurred by them if, in connection with the matters in issue,
they acted in good faith, in a manner they reasonably believed to be in, or not
opposed to, the best interests of the corporation. Section 78.751 further
permits a Nevada corporation to grant its directors and officers additional
rights of indemnification through bylaw provisions or otherwise, provided, that
indemnification may not be made for any claim or matter as to which an officer
or director has been finally adjudged liable unless a court of competent
jurisdiction determines that such person is fairly and reasonably entitled to
indemnity for such expenses.
Section 78.037 of the Nevada Law provides that the articles of
incorporation may contain a provision eliminating or limiting the personal
liability of a director or officer to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director or officer provided
that such provision shall not eliminate or limit the liability of a director or
officer (i) for acts or omission which involve intentional misconduct, fraud, or
a knowing violation of law, or (ii) under Section 78.300 of the Nevada Law
(relating to liability for unauthorized acquisitions or redemptions of, or
dividends on, capital stock).
The Registrant has a policy of directors and officers liability insurance
which insures directors and officers against the cost of defense, settlement or
payment of a judgment under certain circumstances.
Section 6 of the Purchase Agreement (Exhibit 1.1 hereto) provides for
indemnification of directors and officers by the Underwriter in certain
circumstances.
II-1
<PAGE> 61
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Purchase Agreement
2.1 Stock Purchase Agreement among Fremont Compensation Insurance Company, the
Registrant, 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, the Registrant, 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 December
1, 1995 with the Secretary of State of the State of Nevada
3.2 Certificate of Amendment of Articles of Incorporation of Fremont General
Corporation filed January 8, 1996 with the Secretary of State of the State of
Nevada
4.1* Form of Indenture among the Registrant, the Trust and First Interstate Bank of
California, a California banking corporation, as trustee
4.2* Form of Declaration of Trust among the Registrant, the Regular Trustees and The
Chase Manhattan Bank (USA), a Delaware banking corporation, as Delaware trustee
4.3* Form of 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
4.4* Form of Preferred Securities Guarantee Agreement between the Registrant and The
Chase Manhattan Bank, N.A., a national banking association, as Preferred Guarantee
Trustee
4.5* Form of Common Securities Guarantee Agreement by the Registrant
4.6* Form of Preferred Securities (included in Exhibit 4.3)
4.7* Form of % Junior Subordinated Debenture (included in Exhibit 4.1)
5.1* Opinion of Wilson, Sonsini, Goodrich & Rosati, P.C.
8.1* Opinion of Wilson, Sonsini, Goodrich & Rosati, P.C., with respect to certain tax
matters
12.1* Statement of Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3* Consent of Counsel (included in Exhibit 5.1)
24.1* Power of Attorney (see page II-4)
26.1* Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The
Chase Manhattan Bank, N.A. as Institutional Trustee, Guarantee Trustee and
Delaware Trustee
26.2* Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of
First Interstate Bank of California, a California banking corporation, as
Indenture Trustee
28.1 Information from reports provided to state insurance authorities (Filed as an
exhibit to the Registrant's Registration Statement on Form S-3 (File No.
33-59900), and incorporated herein by reference)
</TABLE>
- ---------------
* Previously filed.
II-2
<PAGE> 62
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that: (1) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of the registration statement
in reliance upon Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of the registration statement as of the time it was
declared effective; (2) for the purpose of determining any liability under the
Securities Act of 1933, each posteffective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and (3) for
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Amendment to
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on this 7th day of February, 1996.
FREMONT GENERAL CORPORATION
By: /s/ LOUIS J. RAMPINO
------------------------------------
Louis J. Rampino
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ---------------------------------------- -----------------
<S> <C> <C>
* Chairman of the Board, and Chief February 7, 1996
- ------------------------------ Executive Officer (Principal Executive
James A. McIntyre Officer)
* President, Chief Operating Officer and February 7, 1996
- ------------------------------ Director
Louis J. Rampino
* Executive Vice President, Treasurer and February 7, 1996
- ------------------------------ Chief Financial Officer (Principal
Wayne R. Bailey Financial Officer)
* Controller (Principal Accounting February 7, 1996
- ------------------------------ Officer)
John A. Donaldson
* Director February 7, 1996
- ------------------------------
Houston I. Flournoy
* Director February 7, 1996
- ------------------------------
C. Douglas Kranwinkle
* Director February 7, 1996
- ------------------------------
David W. Morrisroe
* Director February 7, 1996
- ------------------------------
Dickinson C. Ross
* Director February 7, 1996
- ------------------------------
Kenneth L. Trefftzs
*By: /s/ LOUIS J. RAMPINO
-------------------------
Louis J. Rampino
(Attorney-in-fact)
</TABLE>
II-4
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act, Fremont General
Financing I certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this Amendment
to Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on this 7th day of February, 1996.
FREMONT GENERAL FINANCING I
By: Fremont General Corporation, as
Sponsor
By: /s/ LOUIS J. RAMPINO
--------------------------------------
Louis J. Rampino
President
By: Its Regular Trustees
/s/ LOUIS J. RAMPINO
--------------------------------------
Louis J. Rampino, as Trustee
/s/ WAYNE R. BAILEY
--------------------------------------
Wayne R. Bailey, as Trustee
II-5
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------ -------------
<C> <S> <C>
1.1 Form of Purchase Agreement..............................................
2.1 Stock Purchase Agreement among Fremont Compensation Insurance Company,
the Registrant, 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, the Registrant, 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
December 1, 1995 with the Secretary of State of the State of Nevada.....
3.2 Certificate of Amendment of Articles of Incorporation of Fremont General
Corporation filed January 8, 1996 with the Secretary of State of the
State of Nevada.........................................................
4.1* Form of Indenture among the Registrant, the Trust and First Interstate
Bank of California, a California banking corporation, as trustee........
4.2* Form of Declaration of Trust among the Registrant, the Regular Trustees
and The Chase Manhattan Bank (USA), a Delaware banking corporation, as
Delaware trustee........................................................
4.3* Form of 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..................
4.4* Form of Preferred Securities Guarantee Agreement between the Registrant
and The Chase Manhattan Bank, N.A., a national banking association, as
Preferred Guarantee Trustee.............................................
4.5* Form of Common Securities Guarantee Agreement by the Registrant.........
4.6* Form of Preferred Securities (included in Exhibit 4.3)..................
4.7* Form of % Junior Subordinated Debenture (included in Exhibit
4.1)....................................................................
5.1* Opinion of Wilson, Sonsini, Goodrich & Rosati, P.C......................
8.1* Opinion of Wilson, Sonsini, Goodrich & Rosati, P.C., with respect to
certain tax matters.....................................................
12.1* Statement of Computation of Ratio of Earnings to Fixed Charges..........
23.1 Consent of Ernst & Young LLP............................................
23.2 Consent of KPMG Peat Marwick LLP........................................
23.3* Consent of Counsel (included in Exhibit 5.1)............................
24.1* Power of Attorney (see page II-4).......................................
26.1* Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Chase Manhattan Bank, N.A. as Institutional Trustee,
Guarantee Trustee and Delaware Trustee..................................
26.2* Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of First Interstate Bank of California, a California banking
corporation, as Indenture Trustee.......................................
28.1 Information from reports provided to state insurance authorities (Filed
as an exhibit to the Registrant's Registration Statement on Form S-3
(File No. 33-59900), and incorporated herein by reference)..............
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
4,000,000 Preferred Securities
FREMONT GENERAL FINANCING I
(a Delaware Trust)
[ ]% Trust Originated Preferred Securities(SM) ("TOPrS"(SM))
(Liquidation Amount of $25 Per Preferred Security)
PURCHASE AGREEMENT
------------------
February __, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
PAINEWEBBER INCORPORATED
as Representatives of the several Underwriters
c/o Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Dear Sirs:
Fremont General Financing I (the "Trust"), a statutory
business trust organized under the Business Trust Act (the "Delaware Act") of
the State of Delaware (Chapter 38, Title 12, of the Delaware Code, 12 Del. C.
Sections 3801 et seq.), and Fremont General Corporation, a Nevada corporation
(the "Company" and, together with the Trust, the "Offerors"), confirm their
agreement (the "Agreement") with Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Dean Witter Reynolds Inc. ("Dean
Witter"), Goldman, Sachs & Co. ("Goldman"), PaineWebber, Incorporated
("PaineWebber") and each of the other Underwriters named in Schedule A hereto
(collectively, the "Underwriters," which term shall also include any
underwriter substituted as hereinafter provided in Section 10 hereof), for whom
Merrill Lynch, Dean Witter, Goldman and PaineWebber are acting as
representatives (in such capacity, Merrill Lynch, Dean Witter, Goldman and
PaineWebber
_______________________
(SM) "Trust Originated Preferred Securities" and "TOPrS" are service marks
of Merrill Lynch & Co., Inc.
<PAGE> 2
shall hereinafter be referred to as the "Representatives"), with respect to the
sale by the Trust and the purchase by the Underwriters, acting severally and
not jointly, of the respective numbers of [ ]% Trust Originated Preferred
Securities (liquidation amount of $25 per preferred security) of the Trust (the
"Preferred Securities") set forth in said Schedule A (except as may otherwise
be provided in the Pricing Agreement, as hereinafter defined) and with respect
to the grant by the Offerors to the Underwriters, acting severally and not
jointly, of the option described in Section 2(c) hereof to purchase all or any
part of 600,000 additional shares of Preferred Securities to cover
over-allotments (except as may otherwise be provided in the Pricing Agreement).
All or any part of the 600,000 shares of Preferred Securities subject to the
option described in Section 2(c) hereof are hereinafter referred to as the
"Option Securities". The Preferred Securities will be guaranteed by the
Company with respect to distributions and payments upon liquidation, redemption
and otherwise (the "Preferred Securities Guarantee") pursuant to and subject to
the limitations set forth therein, the Preferred Securities Guarantee Agreement
(the "Preferred Securities Guarantee Agreement"), dated as of February __,
1996, between the Company and The Chase Manhattan Bank, N.A., a national
banking association, as trustee (the "Guarantee Trustee"), and entitled to the
benefits of certain undertakings pursuant to the Indenture (as defined herein)
to pay all expenses relating to administration of the Trust (the
"Undertakings"). The Preferred Securities and the related Preferred Securities
Guarantee and the Option Securities are referred to herein as the "Securities."
Prior to the purchase and public offering of the Preferred
Securities by the several Underwriters, the Offerors and the Representatives,
acting on behalf of the several Underwriters, shall enter into an agreement
substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Offerors and the Representative and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the Preferred Securities will be governed by this Agreement, as
supplemented by the Pricing Agreement. From and after the date of the
execution and delivery of the Pricing Agreement, this Agreement shall be deemed
to incorporate the Pricing Agreement.
The Offerors have filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (No.
33-64771) and a related preliminary prospectus for the registration under the
Securities Act of 1933 (the "1933 Act") of a combination of (i) 4,000,000
2
<PAGE> 3
Preferred Securities, and at the election of the Underwriters, up to
600,000 Option Securities, (ii) the Preferred Securities Guarantee, (iii) the
Subordinated Debt Securities (as defined below) to be issued and sold to the
Trust by the Company, and (iv) the back-up undertakings of the Company in
connection with the Preferred Securities, have filed such amendments thereto,
if any, and such amended preliminary prospectuses as may have been required to
the date hereof, and will file such additional amendments thereto and such
amended prospectuses as may hereafter be required by the 1933 Act, the 1933 Act
Regulations (as defined below) and the 1934 Act (as defined below) in
connection with the distribution by the Underwriters of the Securities. Such
registration statement (as amended at the Effective Time) and if any
post-effective amendment is filed, as amended, at the Effective Time of any
such post-effective amendment, and the prospectus constituting a part thereof
(including, in each case, all documents incorporated or deemed to be
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
1933 Act and all information contained in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the 1933 Act Regulations (as defined
below) and the information, if any, deemed to be part thereof at the Effective
Time pursuant to Rule 430A(b) or Rule 434(d) of the rules and regulations of
the Commission under the 1933 Act (the "1933 Act Regulations")), as from time
to time amended or supplemented pursuant to the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), or otherwise, are
hereinafter referred to as the "Registration Statement" and the "Prospectus,"
respectively, except that, if any revised prospectus shall be provided to the
Underwriters by the Offerors for use in connection with the offering of the
Preferred Securities which differs from the Prospectus on file at the
Commission at the time the Registration Statement becomes effective (whether or
not such revised prospectus is required to be filed by the Offerors pursuant to
Rule 424(b) of the 1933 Act Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. As used in this Agreement, "Effective Time" means
the date and time as of which such Registration Statement, or the most recent
post-effective amendment thereto, if any, was declared effective by the
Commission. All references in this Agreement to financial statements and
schedules and other information that is "contained," "included" or "stated" in
the Registration Statement or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information that are or are deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be;
and all refer-
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<PAGE> 4
ences in this Agreement to amendments or supplements to the Registration
Statement or the Prospectus shall be deemed to mean and include the filing of
any document under the 1934 Act that is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be.
The Offerors understand that the Underwriters propose to make
a public offering of the Securities as soon as the Representatives deem
advisable after the Pricing Agreement has been executed and delivered, and the
Declaration (as defined herein), the Indenture (as defined herein), and the
Preferred Securities Guarantee Agreement have been qualified under the Trust
Indenture Act of 1939, as amended (the "1939 Act"). The entire proceeds from
the sale of the Securities will be combined with the entire proceeds from the
sale by the Trust to the Company of its common securities (the "Common
Securities"), as guaranteed by the Company, to the extent set forth in the
Prospectus, with respect to distributions and payments upon liquidation and
redemption (the "Common Securities Guarantee" and together with the Preferred
Securities Guarantee, the "Guarantees") pursuant to the Common Securities
Guarantee Agreement (the "Common Securities Guarantee Agreement" and, together
with the Preferred Securities Guarantee Agreement, the "Guarantee Agreements"),
dated as of February __, 1996, between the Company and the Guarantee Trustee,
as trustee, and will be used by the Trust to purchase $100,000,000 principal
amount (or up to $115,000,000 if the over-allotment option is exercised) of
[ ]% junior subordinated debt securities (the "Subordinated Debt Securities")
issued by the Company. The Preferred Securities and the Common Securities will
be issued pursuant to the amended and restated declaration of trust of the
Trust, dated as of February __, 1996 (the "Declaration"), among the Company, as
Sponsor, Louis J. Rampino and Wayne R. Bailey, as trustees (the "Regular
Trustees"), and The Chase Manhattan Bank N.A., a national banking association,
as property trustee (the "Property Trustee" and, together with the Regular
Trustees, the "Trustees"). The Subordinated Debt Securities will be issued
pursuant to an indenture, dated as of February __, 1996 (the "Indenture"),
between the Company and First Interstate Bank of California, a California
banking corporation, as trustee (the "Debt Trustee").
Section 1. Representations and Warranties.
(a) The Offerors jointly and severally represent
and warrant to each Underwriter as of the date hereof and as of the date of the
Pricing Agreement (such later date being hereinafter referred to as the
"Representation Date") and as of the Closing Time referred to in
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<PAGE> 5
Section 2(c) hereof (except for representations or warranties which by their
terms speak as of a different date or dates), as follows:
(i) At the time the Registration Statement
becomes effective and at the Representation Date and at the Closing
Time (and if any Option Securities are purchased, at each Date of
Delivery referred to below), the Registration Statement will comply in
all material respects with the requirements of the 1933 Act and the
1933 Act Regulations, and the Declaration, the Preferred Securities
Guarantee and the Indenture will conform in all material respects to
the applicable requirements of the 1939 Act and the rules and
regulations of the Commission under the 1939 Act (the "1939 Act
Regulations"), and the Registration Statement will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus, at the Representation Date
(unless the term "Prospectus" refers to a prospectus that has been
provided to the Underwriters by the Trust for use in connection with
the offering of the Securities that differs from the Prospectus on
file at the Commission at the time the Registration Statement becomes
effective, in which case, at the time it is first provided to the
Underwriters for such use) and at the Closing Time (and, if any Option
Securities are purchased, at each Date of Delivery referred to below),
will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that the representations and
warranties in this subsection shall not apply to statements in or
omissions from the Registration Statement or Prospectus made in
reliance upon and in conformity with information furnished to the
Offerors in writing by any Underwriter through Merrill Lynch, on
behalf of the Representatives, expressly for use in the Registration
Statement or Prospectus and to the Statement of Eligibility of the
Property Trustee on Form T-1, the Statement of Eligibility of the
Guarantee Trustee on Form T-1, and the Statement of Eligibility of the
Debt Trustee on Form T-1, each as filed with the Commission as part of
the Registration Statement.
(ii) The documents incorporated or deemed to
be incorporated by reference in the Registration Statement or
Prospectus, at the time they were or hereafter are filed with the
Commission, complied
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<PAGE> 6
and will comply in all material respects with the requirements of the
1933 Act, the 1933 Act Regulations, the 1934 Act and the rules and
regulations of the Commission under the 1934 Act (the "1934 Act
Regulations"), as applicable, and, at the time the Registration
Statement and any amendments thereto become effective and at the
Closing Time (and, if any Option Securities are purchased, at each
Date of Delivery referred to below), will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
(iii) To the Company's knowledge, Ernst &
Young LLP, the accountants who certified the financial statements and
supporting schedules of the Company in the Registration Statement, are
independent public accountants as required by the 1933 Act and the
1933 Act Regulations.
(iv) The consolidated financial statements
of the Company included or incorporated by reference in the
Registration Statement and the Prospectus present fairly the financial
position of the Company and its consolidated subsidiaries, as at the
dates indicated and the results of their operations for the periods
specified; except as otherwise stated in the Registration Statement,
said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent
basis; the Company's ratio of earnings to fixed charges included in
the Prospectus and in Exhibit 12 to the Registration Statement have
been calculated in compliance with Item 503(d) of Regulation S-K of
the Commission and the supporting schedules included in the
Registration Statement present fairly in all material respects the
information required to be stated therein; and the selected financial
data included in the Prospectus present fairly the information shown
therein and have been compiled on a basis consistent with that of the
audited consolidated financial statements included or incorporated by
reference in the Registration Statement.
(v) The conditions for use of Form S-3, as
set forth in the General Instructions thereto, have been satisfied by
each of the Offerors.
(vi) Since the respective dates as of which
information is given in the Registration State-
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<PAGE> 7
ment and the Prospectus, except as otherwise stated
therein, (A) there has been no material adverse change in the
condition (financial or otherwise), earnings, business affairs or
business prospects of the Company and its Subsidiaries (as defined in
Section 1(ix) herein), considered as one enterprise or of the Trust,
whether or not arising in the ordinary course of business, other than
fluctuations in the market value of securities held by the Company as
part of its investment portfolio which are not required to be
recognized for financial statement reporting purposes, (B) there have
been no transactions entered into by the Trust or by the Company or
any of its Subsidiaries, other than those in the ordinary course of
business, which are material with respect to the Trust or the Company
and its Subsidiaries, considered as one enterprise and (C) except for
regular quarterly dividends, there has been no dividend or
distribution of any kind declared, paid or made by the Company on its
capital stock or by the Trust on any of the trust securities.
(vii) The Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the State of Nevada with corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and Prospectus, to enter into
and perform its obligations under this Agreement, the Pricing
Agreement, the Declaration, the Indenture and each of the Guarantees
and to purchase, own, and hold the Common Securities issued by the
Trust; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure so to qualify would not have a material adverse
effect on the condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and its Subsidiaries,
considered as one enterprise (a "Material Adverse Effect").
(viii) The authorized, issued and
outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization of Fremont General"
(except for the effect of the three for two stock split effective on
February 7, 1996, subsequent issuances, if any, pursuant to
reservations, agreements, employee benefit plans, employee or
non-employee director stock option plans or conversion
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<PAGE> 8
of convertible securities referred to in the Prospectus); and all of
the issued and outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and
non-assessable.
(ix) The Company's subsidiaries which are
considered "Significant Subsidiaries" as defined in Regulation S-X, as
promulgated under the 1933 Act, are as listed on Schedule B attached
hereto (collectively referred to herein as the "Subsidiaries"). Each
Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation
with corporate power and authority under such laws to own, lease and
operate its properties and conduct its business; and each Subsidiary
is duly qualified to transact business as a foreign corporation and is
in good standing in each other jurisdiction in which it owns or leases
property of a nature, or transacts business of a type, that would make
such qualification necessary, except to the extent that the failure to
so qualify would not have a Material Adverse Effect. All of the
outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued and are fully paid and non-assessable
and are owned by the Company, directly or through Subsidiaries, free
and clear of any pledge, lien, security interest, mortgage, charge,
claim, equity or encumbrance of any kind, except that the stock of
Fremont Insurance Group, Inc. has been pledged to The Chase Manhattan
Bank, N.A. by the Company in connection with the Credit Agreement
dated _____ between the Company and The Chase Manhattan Bank, N.A.
(x) The Trust has been duly created and is
validly existing in good standing as a business trust under the
Delaware Act with the power and authority to own property and to
conduct its business as described in the Registration Statement and
Prospectus and to enter into and perform its obligations under this
Agreement, the Pricing Agreement, the Preferred Securities, the Common
Securities and the Declaration; the Trust is duly qualified to
transact business as a foreign company and is in good standing in any
other jurisdiction in which such qualification is necessary, except to
the extent that the failure to so qualify or be in good standing would
not have a material adverse effect on the Trust; the Trust is not a
party to or otherwise bound by any agreement other than those
described in this Agreement or in the Prospectus; the Trust is and
will be classified for United States
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<PAGE> 9
federal income tax purposes as a grantor trust and not as an
association taxable as a corporation; and the Trust is and will be
treated as a consolidated subsidiary of the Company pursuant to
generally accepted accounting principles.
(xi) The Common Securities have been duly
authorized by the Declaration and, when issued and delivered by the
Trust to the Company against payment therefor as described in the
Registration Statement and Prospectus, will be validly issued and
(subject to the terms of the Declaration) fully paid and
non-assessable undivided beneficial interests in the assets of the
Trust and will conform to all statements relating thereto contained in
the Prospectus; the issuance of the Common Securities is not subject
to preemptive rights; and at the Closing Time all of the issued and
outstanding Common Securities of the Trust will be directly owned by
the Company free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity.
(xii) This Agreement has been and, at
Closing Time, the Pricing Agreement will have been duly authorized by
all necessary business trust or corporate action, as the case may be,
executed and delivered by each of the Offerors and each of this
Agreement and the Pricing Agreement at the Closing Time, will be a
valid and binding obligation of the Offerors, enforceable against each
of them in accordance with each of their terms except to the extent
that enforcement thereof may be limited by (A) bankruptcy, insolvency,
receivership, reorganization, moratorium, liquidation, fraudulent
conveyance or other similar laws relating to or affecting the rights
and remedies of creditors generally or (B) by general principles of
equity, including applicable law relating to fiduciary duties
(regardless of whether enforcement is considered, and applied in a
proceeding at law or in equity) (the enforceability exceptions
referred to in classes (A) and (B) above and referred to herein as the
"Enforceability Exceptions") and the effect of applicable public
policy on the enforceability of provisions relating to indemnification
or contribution.
(xiii) The Declaration has been duly
authorized by the Company by all necessary corporate action and, at
the Closing Time, will have been duly executed and delivered by the
Company and the Trustees, and assuming due authorization, execution
and delivery of the Declaration by the Property Trustee,
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<PAGE> 10
the Declaration will, at the Closing Time, be a valid and binding
obligation of the Company and the Regular Trustees, enforceable
against the Company and the Regular Trustees in accordance with its
terms, except to the extent that enforcement may be limited by the
Enforceability Exceptions and the effect of applicable public policy
on the enforceability of provisions relating to indemnification and
contribution, and will conform in all material respects to all
statements relating thereto in the Prospectus; and at the Closing
Time, the Declaration will have been qualified under the 1939 Act.
(xiv) Each of the Guarantee Agreements has
been duly authorized by the Company by all necessary corporate action
and, when validly executed and delivered by the Company, and, in the
case of the Preferred Securities Guarantee Agreement, assuming due
authorization, execution and delivery of the Preferred Securities
Guarantee by the Guarantee Trustee, will constitute a valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms except to the extent that enforcement
thereof may be limited by the Enforceability Exceptions, and each of
the Guarantees and the Guarantee Agreements will conform in all
material respects to all statements relating thereto contained in the
Prospectus; and the Preferred Securities Guarantee Agreement, at the
Closing Time, will have been qualified under the 1939 Act.
(xv) The Preferred Securities have been duly
authorized by the Declaration and, when issued and delivered pursuant
to the Declaration and this Agreement against payment of the
consideration set forth in the Pricing Agreement, will be validly
issued and (subject to the terms of the Declaration) fully paid and
non-assessable undivided beneficial interests in the assets of the
Trust, will be entitled to the benefits of the Declaration and will
conform in all material respects to all statements relating thereto
contained in the Prospectus; the issuance of the Preferred Securities
is not subject to any preemptive or other similar rights; and (subject
to the terms of the Declaration) holders of Preferred Securities, as
beneficial owners of the Trust, will be entitled to the same
limitation of personal liability as extended to stockholders of
private corporations for profit organized under the General
Corporation Law of the State of Delaware.
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<PAGE> 11
(xvi) The Indenture has been duly authorized
by the Company by all necessary corporate action and, when validly
executed and delivered by the Company, will constitute a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms except to the extent that enforcement
thereof may be limited by the Enforceability Exceptions and by the
enforceability of Section 515 of the Indenture; the Indenture will
conform in all material respects to all statements relating thereto
contained in the Prospectus; and at the Closing Time, the Indenture
will have been qualified under the 1939 Act.
(xvii) The Subordinated Debt Securities have
been duly authorized by the Company and, at the Closing Time, will
have been duly executed by the Company and, when authenticated in the
manner provided for in the Indenture and delivered against payment
therefor as described in the Prospectus, will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms except to the extent that enforcement
thereof may be limited by the Enforceability Exceptions, will be in
substantially the form contemplated by, and entitled to the benefits
of, the Indenture and will conform in all material respects to all
statements relating thereto in the Prospectus.
(xviii) Each of the Regular Trustees of the
Trust is an employee of the Company and has been duly authorized by
the Company to execute and deliver the Declaration; the Declaration
has been duly executed and delivered by the Regular Trustees and is a
valid and binding obligation of the Regular Trustees, enforceable
against the Regular Trustees in accordance with its terms except to
the extent that enforcement thereof may be limited by the
Enforceability Exceptions and the effect of applicable public policy
on the enforceability provisions relating to indemnification or
contribution.
(xix) None of the Offerors is an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended (the
"1940 Act").
(xx) Neither the Company nor any of the
Subsidiaries is in violation of its charter or by-laws; the Trust is
not in violation of the Declaration or its certificate of trust filed
with the State of Delaware on December 4, 1995 (the "Certificate of
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<PAGE> 12
Trust"); none of the Company, any of the Subsidiaries or the Trust is
in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other agreement or instrument
to which the Company, any of the Subsidiaries or the Trust is a party
or by which it or any of them may be bound, or to which any of the
property or assets of the Company, any of its Subsidiaries or the
Trust is subject, except for such defaults that would not have a
Material Adverse Effect or have any material adverse effect on the
Trust; and the execution, delivery and performance of this Agreement,
the Pricing Agreement, the Declaration, the Preferred Securities, the
Common Securities, the Indenture, the Subordinated Debt Securities,
the Guarantee Agreements and the Guarantees and the consummation of
the transactions contemplated herein and therein and compliance by the
Offerors with their respective obligations hereunder and thereunder
have been duly authorized by all necessary action (corporate or
otherwise) on the part of the Offerors and do not and will not result
in (A) any violation of the charter or by-laws of the Company or any
Subsidiary, or any provision of the Declaration or Certificate of
Trust (B) a breach of or conflict with any of the terms or provisions
of, or constitute a default under, any material contract, indenture,
mortgage, loan agreement, note, lease or other agreement or instrument
to which the Trust, the Company or any Subsidiary is a party or by
which it may be bound or to which any of its properties may be subject
(except for such conflicts, breaches or defaults that would not have a
Material Adverse Effect or have any material adverse effect on the
Trust) or (C) a breach or violation of or conflict with or result in
the creation or imposition of any lien, change or encumbrance upon any
property or assets of the Trust, the Company or any Subsidiary under
any existing applicable law, rule, regulation, (other than the
securities or blue sky laws of the various states), judgment, order or
decree of any government, governmental instrumentality or court,
domestic or foreign, or any regulatory body or administrative agency
or other governmental body (including, without limitation, any
insurance or banking regulatory body or agency) having jurisdiction
over the Trust, the Company, or any Subsidiary or any of their
respective properties, except for such creation or imposition of any
lien, charge or encumbrance that would not have a Material Adverse
Effect or any material adverse effect on the Trust.
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<PAGE> 13
(xxi) Except as disclosed in the Prospectus,
there is no action, suit or proceeding before or by any government,
governmental instrumentality or court, domestic or foreign,
(including, without limitation, any insurance, banking, or lending
regulatory authority, agency or body), now pending or, to the
knowledge of the Trust or the Company, threatened against or affecting
the Trust, the Company or any Subsidiary that is required to be
disclosed in the Prospectus or that could reasonably be expected to
result in any Material Adverse Effect or any material adverse effect
on the Trust, or that could materially and adversely affect the
properties or assets of the Trust or the Company and its Subsidiaries,
considered as one enterprise, or that could adversely affect the
consummation of the transactions contemplated in this Agreement or any
applicable Pricing Agreement; the aggregate of all pending legal or
governmental proceedings that are not described in the Prospectus to
which the Trust, the Company or any Subsidiary is a party or which
affect any of their respective properties, including ordinary routine
litigation incidental to the business of the Trust, the Company or any
Subsidiary, would not have a Material Adverse Effect or any material
adverse effect on the Trust; and there are no contracts or documents
of the Company, any of its Subsidiaries or the Trust that are required
to be filed as exhibits to the Registration Statement by the 1933 Act
or by the 1933 Act Regulations that have not been so filed.
(xxii) No authorization, approval, consent
or order of any court or governmental authority or agency (including,
without limitation, any insurance, banking or lending regulatory
authority, agency or body) is necessary in connection with the
issuance and sale of the Common Securities or the offering and sale of
the Preferred Securities, the Subordinated Debt Securities or the
Guarantees hereunder, except (a) such as have already been obtained or
as may be required under the 1933 Act or the 1933 Act Regulations, the
1934 Act or the 1934 Act Regulations or state securities laws, or (b)
the qualification of the Declaration, the Preferred Securities
Guarantee Agreement and the Indenture under the 1939 Act.
(xxiii) Each of the Company and the
Subsidiaries has good and marketable title to all properties and
assets described in the Prospectus as owned by it to the extent and
subject to the limitations set forth in the Prospectus, free and clear
of all liens, charges, encumbrances or restrictions,
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<PAGE> 14
except such as (A) are described in the Prospectus or (B) are neither
material in amount nor materially significant in relation to the
business of the Company and its subsidiaries, considered as one
enterprise; all of the leases and subleases material to the business
of the Company and its subsidiaries, considered as one enterprise, and
under which the Company or any Subsidiary holds properties described
in the Prospectus, are in full force and effect, and neither the
Company nor any Subsidiary has any notice of any material claim of any
sort that has been asserted by anyone adverse to the rights of the
Company or any Subsidiary under any of the leases or subleases
mentioned above, or affecting or questioning the rights of such
corporation to the continued possession of the leased or subleased
premises under any such lease or sublease.
(xxiv) Each of the Trust, the Company and
the Subsidiaries owns, possesses or has obtained, all material
licenses, franchises, consents, orders, approvals, permits,
certificates and other authorizations issued by the appropriate local,
state, federal or foreign regulatory agencies or bodies (including,
without limitation, (x) insurance licenses from the insurance
regulatory authorities, agencies or bodies of the various states where
it conducts business (the "Insurance Licenses") and (y) banking and
lending licenses from the banking regulatory authorities, agencies or
bodies of the various states where it conducts business (the "Banking
Licenses")) necessary to conduct the business now operated by any of
them; none of the Trust, the Company or any of the Subsidiaries has
received any notice of proceedings relating to the revocation,
modification or suspension of any such license, franchise, consent,
order, approval, permit, certificate or authority (including, without
limitation, the Insurance Licenses and the Banking Licenses) which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, is reasonably likely to have a Material Adverse
Effect or a material adverse effect on the Trust; and, except as
disclosed in the Registration Statement, no insurance or banking
regulatory authority, agency or body has issued any order or decree
impairing, restricting or prohibiting the payment of dividends by any
Subsidiary to its parent which, singularly in the aggregate, or is
reasonably likely to have a Material Adverse Effect.
(xxv) No labor problem or dispute exists
with the employees of the Company or any of its
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<PAGE> 15
Subsidiaries, or to the knowledge of the Company, is imminent, that
could reasonably be expected to have a Material Adverse Effect.
(xxvi) The Company and the Trust have, and
all "affiliated purchasers" have, complied with Rule 10b-6 under the
1934 Act and neither the Company nor the Trust has taken and neither
will take, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Preferred Securities or any other
securities of the Trust or the Company which may be deemed to be of
the same "class" as the Preferred Securities or the Junior
Subordinated Debentures for purposes of Rule 10b-6 under the 1934 Act.
(xxvii) Except as disclosed in the
Registration Statement, the Company and the Subsidiaries have made no
material changes in their insurance reserve practices during the past
two years except where such change in such insurance reserving
practices could not be expected to have a Material Adverse Effect.
(xxviii) Fremont Compensation Insurance
Company and Pacific Compensation Insurance Company are rated "A-
(Excellent)"; Fremont Indemnity Company is rated "B++ (Very Good)";
Casualty Insurance Company is rated "A- (Excellent)" and Workers'
Compensation and Indemnity Company is rated "A- (Excellent)" by A.M.
Best Company ("A.M. Best") for 1995 and neither the Company nor any
such Subsidiaries is aware of any threatened or pending downgrading in
the Company's or any such Subsidiaries' A.M. Best.
(xxix) All reinsurance treaties, contracts,
agreements and arrangements and all retrocessional treaties,
contracts, agreements and arrangements to which the Company or any
Subsidiary is a party are in full force and effect and none of the
Company or the Subsidiaries is in violation of, or in default in the
performance, observance or fulfillment of, any obligation, agreement,
covenant or condition contained therein, except to the extent that any
such violation or default, singularly or in the aggregate with all
such other violations or defaults, would not have a Material Adverse
Effect; neither the Company nor any of the Subsidiaries has received
any notice from any of the other parties to such treaties, contracts,
agreements or arrangements that such other party is unable or intends
not to perform in any mate-
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<PAGE> 16
rial respect such treaty, contract, agreement or arrangement or if
such notice has been received, adequate reserves have been
established.
(xxx) The 1994 statutory annual statements
and the 1995 statutory quarterly statements of the Subsidiaries
engaged in the insurance or an insurance-related business and the
statutory balance sheets and income statements included in such
statutory annual and quarterly statements have been prepared in
conformity with statutory accounting principles or practices required
or permitted by the appropriate Insurance Department of the state of
domicile of each such Subsidiary, and such statutory accounting
practices have been applied on a consistent basis throughout the
periods involved, except as may otherwise be indicated in the notes
thereto, and present fairly in all material respects the statutory
financial position of the Subsidiaries as of the date thereof, and the
statutory basis results of operations of the Subsidiaries for the
periods covered thereby.
(xxxi) The Company and the Subsidiaries have
filed all material federal, state and local tax returns and other
reports that have been required to be filed and which are true,
complete and correct in all material respects, and have paid all taxes
and fees indicated by said returns and reports and franchise reports
and all assessments received by them or any of them to the extent that
such taxes and/or fees have become due, except where being contested
in good faith and for which the Company has established adequate
reserves.
(xxxii) No change in any insurance or
lending or banking laws or regulations applicable to the Company or
the Subsidiaries is formally pending which is likely to be adopted and
if adopted, could reasonably be expected to have, individually or in
the aggregate with all such changes, a Material Adverse Effect.
(xxxiii) Each of the Offerors is in
compliance with all provisions of Section 1 of the Laws of Florida,
Chapter 92-198, An Act Relating to Disclosure of Doing Business With
Cuba.
(b) Any certificate signed by any officer of the Company
or either Regular Trustee of the Trust and delivered to any of the
Representatives or to counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by the
16
<PAGE> 17
Company or the Trust, as the case may be, to each Underwriter as to the matters
covered hereby.
Section 2. Sale and Delivery to Underwriters; Closing.
(a) On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Trust agrees to sell to each Underwriter, severally and not jointly,
and each Underwriter, severally and not jointly, agrees to purchase from the
Trust, at the price per security set forth in the Pricing Agreement, the number
of Preferred Securities set forth in Schedule A opposite the name of such
Underwriter (except as otherwise provided in the Pricing Agreement), plus any
additional number of Preferred Securities that such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.
The purchase price per security to be paid by the several
Underwriters for the Preferred Securities shall be an amount equal to the
initial public offering price. The initial public offering price per Preferred
Security shall be a fixed price to be determined by agreement between the
Representatives and the Offerors. The initial public offering price and the
purchase price, when so determined, shall be set forth in the Pricing
Agreement. In the event that such prices have not been agreed upon and the
Pricing Agreement has not been executed and delivered by all parties thereto by
the close of business on the fourteenth business day following the date of this
Agreement, this Agreement shall terminate forthwith, without liability of any
party to any other party, unless otherwise agreed to by the Offerors and the
Representatives. As compensation to the Underwriters for their commitments
hereunder and in view of the fact that the proceeds of the sale of the
Preferred Securities will be used to purchase the Subordinated Debt Securities
of the Company, the Company hereby agrees to pay at Closing Time (as defined
below) to the Representatives, for the accounts of the several Underwriters, a
commission per Preferred Security determined by agreement between the
Representative and the Company for the Preferred Securities to be delivered by
the Trust hereunder at Closing Time. The commission, when so determined, shall
be set forth in the Pricing Agreement.
(b) Payment of the purchase price for, and delivery
of certificates for, the Preferred Securities shall be made at the office of
Skadden, Arps, Slate, Meagher & Flom, 300 South Grand Avenue, Suite 3400, Los
Angeles, California 90071, or at such other place as shall be agreed upon by
the Representatives and the Trust, at 10:00 A.M.,
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<PAGE> 18
New York City time, on the third or fourth business day (as permitted under
Rule 15c6-1 under the 1934 Act), unless postponed in accordance with the
provisions of Section 10, after execution of the Pricing Agreement, or such
other time not later than ten business days after such date as shall be agreed
upon by the Representatives, the Trust and the Company (such time and date of
payment and delivery being herein called "Closing Time"). Payment shall be
made to the Trust by certified or official bank check or checks drawn in New
York Clearing House funds or similar next day funds payable to the order of the
Trust to an account designated by the Trust, against delivery to the
Representatives for the respective accounts of the Underwriters of certificates
for the Preferred Securities to be purchased by them. Certificates for the
Preferred Securities shall be in such denominations and registered in such
names as the Representatives may request in writing at least two business days
before the Closing Time. It is understood that each Underwriter has authorized
the Representatives, for its account, to accept delivery of, receipt for, and
make payment of the purchase price for, the Preferred Securities which it has
agreed to purchase. Merrill Lynch, Dean Witter, Goldman or PaineWebber,
individually and not as a Representative of the Underwriters, may (but shall
not be obligated to) make payment of the purchase price for the Preferred
Securities to be purchased by any Underwriter whose check has not been received
by the Closing Time, but such payment shall not relieve such Underwriter from
its obligations hereunder.
The certificate(s) for the Preferred Securities will be made
available for examination and packaging by the Representatives not later than
10:00 A.M., New York City time, on the last business day prior to the Closing
Time. For purposes of this Agreement, "business day" means a day on which the
New York Stock Exchange Inc. is open for business.
At the Closing Time, the Company will pay, or cause to be
paid, the commission payable at such time to the Underwriters under Section 2
hereof by certified or official bank check or checks payable to Merrill Lynch,
Pierce, Fenner & Smith Incorporated in New York Clearing House funds or other
similar next day funds.
(c) In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Offerors hereby grant an option to the Underwriters, severally
and not jointly, to purchase up to all of the Option Securities at the purchase
price per share set forth in the Pricing Agreement. The option granted will
expire 30 days after
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<PAGE> 19
the Representation Date and may be exercised in whole or in part from time to
time only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Preferred Securities upon
notice by the Representatives to the Offerors setting forth the number of
Option Securities as to which the several Underwriters are then exercising the
option and the time and date of payment and delivery for such Option
Securities. Any such time and date of delivery (a "Date of Delivery") shall be
determined by the Representatives, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Time, as hereinabove defined, unless otherwise agreed by the
Representatives and the Offerors. If the option is exercised as to all or any
portion of the Option Securities, each of the Underwriters, acting severally
and not jointly, will purchase that proportion of the total number of Options
Securities then being purchased which the number of Preferred Securities set
forth in Schedule A opposite the name of such Underwriter bears to the total
number of Preferred Securities (except as otherwise provided in the Pricing
Agreement), subject in each case to such adjustments as the Representatives in
their discretion shall make to eliminate any purchases of fractional interests,
plus any additional number of Option Securities which such Underwriter may
become obligated to purchase pursuant to the provisions of Section 10 hereof.
(d) In addition, in the event that any or all of the
Option Securities are purchased by the Underwriters, payment of the purchase
price for such Option Securities shall be made at the above-mentioned offices
of Skadden, Arps, Slate, Meagher & Flom, or at such other place as shall be
agreed upon by the Representatives and the Offerors, on the Date of Delivery as
specified in the notice from the Representatives to the Offerors. Payment
shall be made to the Trust by certified or official bank check or checks drawn
in New York Clearing House funds or similar next day funds payable to the order
of the Trust to an account designated by the Trust, against delivery to the
Representatives for the respective accounts of the Underwriters of certificates
for the Option Securities to be purchased by them. Certificates, if any, for
the Option Securities, if any, shall be in such denominations and registered in
such names as the Representatives may request in writing at least two business
days before the Closing Time or the relevant Date of Delivery, as the case may
be. It is understood that each Underwriter has authorized the Representatives,
for their accounts, to accept delivery of, receipt for, and make payment of the
purchase price for the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as a representative of
19
<PAGE> 20
the Underwriters, may (but shall not be obligated to) make payment of the
purchase price for the Option Securities, if any, to be purchased by any
Underwriter whose check has not been received by the relevant Date of Delivery,
as the case may be, but such payment shall not relieve such Underwriter from
its obligations hereunder. The certificates, if any, for the Option
Securities, if any, will be made available for examination and packaging by the
Representatives not later than 10:00 A.M. on the last business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
Section 3. Covenants of the Offerors. Each of the Offerors
jointly and severally covenant with each Underwriter as follows:
(a) The Offerors will notify the Representatives
immediately, and, if requested by any Representative, confirm the notice in
writing, (i) of the effectiveness of the Registration Statement and any
amendment thereto (including any post-effective amendment), (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for that
purpose. The Offerors will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) The Offerors will give the Representatives
notice of their intention to file or prepare (i) any amendment to the
Registration Statement (including any post-effective amendment) or (ii) any
amendment or supplement to the Prospectus (including any revised prospectus
which the Offerors propose for use by the Underwriters in connection with the
offering of the Preferred Securities which differs from the prospectus on file
at the Commission at the time the Registration Statement becomes effective,
whether or not such revised prospectus is required to be filed pursuant to Rule
424(b) of the 1933 Act Regulations), or (iii) any document that would as a
result thereof be incorporated by reference in the Prospectus whether pursuant
to the 1933 Act, the 1934 Act or otherwise, will furnish the Representative
with copies of any such amendment, supplement or other document within a
reasonable period of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment, supplement or other document or use
any such prospectus to which the Representatives or counsel for the
Underwriters shall
20
<PAGE> 21
reasonably object. The Offerors will file the Prospectus pursuant to Rule
424(b) under the 1933 Act not later than the Commission's close of business on
the second business day following the execution and delivery of this Agreement,
or, if applicable, such earlier time as may be required by Rule 430A(a)(3)
under the 1933 Act.
(c) The Offerors will deliver to the Representatives
as many signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein and documents incorporated or deemed to be incorporated by
reference therein) as the Representatives may reasonably request and will also
deliver to the Representatives a conformed copy of the Registration Statement
as originally filed and of each amendment thereto (without exhibits) for each
of the Underwriters.
(d) The Offerors will furnish to each Underwriter,
from time to time during the period when the Prospectus is required to be
delivered under the 1933 Act, such number of copies of the Prospectus (as
amended or supplemented) as such Underwriter may reasonably request for the
purposes contemplated by the 1933 Act or the 1934 Act or the respective
applicable rules and regulations of the Commission thereunder.
(e) If at any time when the Prospectus is required
by the 1933 Act to be delivered in connection with sales of the Preferred
Securities, any event shall occur or condition exists as a result of which it
is necessary, in the opinion of counsel for the Underwriters or counsel to the
Company and the Trust, to amend or supplement the Prospectus in order to make
the Prospectus not misleading in the light of the circumstances existing at the
time it is to be delivered to a purchaser, or if it shall be necessary at any
such time, to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or the 1933
Act Regulations, the Offerors will promptly prepare and file with the
Commission subject to paragraph (b) above such amendment or supplement as may
be necessary to correct such untrue statement or omission or to make the
Registration Statement or the Prospectus comply with such requirements; and the
Offerors will furnish to the Underwriters a reasonable number of copies of such
amendment or supplement.
(f) The Offerors will endeavor, in cooperation with
the Underwriters, to qualify the Securities and the Subordinated Debt
Securities for offering and sale under the applicable securities laws of such
states and the other jurisdictions of the United States as the Representa-
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<PAGE> 22
tives may designate; provided, however, that none of the Offerors
shall be obligated to file any general consent to service of process in any
jurisdiction in which it is not so subject or to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified.
(g) The Trust will make generally available to its
security holders as soon as practicable but not later than 60 days after the
close of the period covered thereby, an earnings statement of the Trust (in
form complying with the provisions of Rule 158 of the 1933 Act Regulations)
covering a twelve-month period beginning not later than the first day of the
Trust's fiscal quarter next following the "effective date" (as defined in said
Rule 158) of the Registration Statement.
(h) For a period of five years after the Closing
Time, the Company will furnish to the Representatives and, upon request, to
each Underwriter, copies of all annual reports, quarterly reports and current
reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other
similar forms as may be designated by the Commission, and such other documents,
reports and information as shall be furnished by the Company to its
stockholders or security holders generally.
(i) The Offerors will use all reasonable efforts to
effect the listing of the Securities on the New York Stock Exchange, Inc.; if
the Preferred Securities are exchanged for Subordinated Debt Securities, the
Company will use all reasonable efforts to effect the listing of the
Subordinated Debt Securities on the principal national securities exchange on
which the Preferred Securities were then listed.
(j) During a period of 30 days from the date of the
Pricing Agreement, neither the Trust nor the Company will, without the
Representatives' prior written consent, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of, any Preferred
Securities, any security convertible into or exchangeable into or exercisable
for Preferred Securities or the Subordinated Debt Securities or any debt
securities substantially similar to the Subordinated Debt Securities or
securities substantially similar to the Preferred Securities (except for the
Subordinated Debt Securities and the Preferred Securities issued pursuant to
this Agreement).
Section 4. Payment of Expenses. The Company will pay all
expenses incident to the performance of each Offerors' obligations under this
Agreement, including, but not limited to, (i) the printing and filing of the
Regis-
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<PAGE> 23
tration Statement as originally filed and of each amendment thereto, (ii)
the printing of this Agreement and the Pricing Agreement, (iii) the
preparation, issuance and delivery to the Underwriters of the certificates for
the Preferred Securities, (iv) the fees and disbursements of the Offerors'
counsel and accountants, (v) the qualification of the Preferred Securities, the
Preferred Securities Guarantee and the Subordinated Debt Securities under state
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the fees and disbursements of counsel for the
Underwriters in connection therewith and in connection with the preparation of
any blue sky survey and any legal investment survey, (vi) the printing and
delivery to the Underwriters of copies of the Registration Statement as
originally filed and of each amendment thereto, of each preliminary prospectus,
and of the Prospectus and any amendments or supplements thereto, (vii) the
printing and delivery to the Underwriters of copies of any blue sky survey and
any legal investment survey, (viii) any fees of the National Association of
Securities Dealers, Inc., (ix) the fees and expenses of the Debt Trustee, the
Property Trustee and the Guarantee Trustee, including the fees and
disbursements of counsel for the Debt Trustee in connection with the Indenture
and the Subordinated Debt Securities and for the Property Trustee in connection
with the Declaration and the Certificate of Trust, (x) any fees payable in
connection with the rating of the Preferred Securities and Subordinated Debt
Securities, (xi) the fees and expenses incurred in connection with the listing
of the Preferred Securities (and the related Preferred Securities Guarantee)
and, if applicable, the Subordinated Debt Securities, on the New York Stock
Exchange Inc., (xii) the cost and charges of any transfer agent or registrar
and (xiii) the cost of qualifying the Preferred Securities with The Depository
Trust Company.
If this Agreement is terminated by the Representatives in
accordance with the provisions of Section 5 or Section 9 hereof, the Company
shall reimburse the Underwriters for all of their reasonable out-of-pocket
expenses, including the reasonable fees and expenses of counsel for the
Underwriters.
Section 5. Conditions of Underwriters' Obligations. The
obligations of the Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Offerors herein contained, to the
performance by the Offerors of their obligations hereunder, and to the
following further conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 P.M., New York City
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<PAGE> 24
time, on the date hereof, or with the consent of the Representatives, at a
later time and date, not later, however, than 5:30 P.M., New York City time, on
the first business day following the date hereof, or at such later time and
date as may be approved by the Representatives; and at the Closing Time no stop
order suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act or proceedings therefor initiated or threatened
by the Commission. The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the 1933 Regulations and in accordance with Section 3(b), and prior
to the Closing Time the Offerors shall have provided evidence satisfactory to
the Representatives of such timely filing.
(b) At the Closing Time the Representatives shall
have received:
(1) The favorable opinion, dated as of the
Closing Time, of Wilson, Sonsini, Goodrich & Rosati, counsel for the Offerors,
in form and substance satisfactory to counsel for the Underwriters, to the
effect that:
(i) The Company has been duly incorporated
and is validly existing in good standing under the laws of the State
of Nevada with corporate power and authority under such laws to own,
lease and operate its properties and conduct its business as described
in the Prospectus.
(ii) This Agreement and the Pricing
Agreement have been duly authorized by all necessary business trust or
corporate action, as the case may be, executed and delivered by each
of the Trust and the Company.
(iii) The Trust has been duly created and is
validly existing in good standing as a business trust under the
Delaware Act; all filings required under the laws of the State of
Delaware with respect to the creation and valid existence of the Trust
as a business trust have been made; under the Delaware Act and the
Declaration the Trust has the business trust power and authority (x)
to own property and to conduct its business, all as described in the
Registration Statement and the Prospectus, (y) to execute and deliver
and to perform its obligations under this Agreement and the Pricing
Agreement, and (z) to issue and perform its obligations under the
Preferred Securities and the Common Securities; the Trust is duly
qualified and in good standing as a foreign company in
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<PAGE> 25
any other jurisdiction in which such qualification is necessary,
except to the extent that the failure to so qualify or be in good
standing would not have a material adverse effect on the Trust; and to
our knowledge the Trust is not a party to or otherwise bound by any
agreement other than those described in the Prospectus.
(iv) The Declaration has been duly
authorized, executed and delivered by the Company, by all necessary
corporate action, and by the Regular Trustees and constitutes a valid
and binding obligation of the Company and the Regular Trustees, and is
enforceable against the Company and the Regular Trustees, in
accordance with its terms, except to the extent that the enforcement
thereof may be limited by the Enforceability Exceptions and the effect
of the applicable public policy on the enforceability of provisions
relating to indemnification or contribution; and the Declaration has
been qualified under the 1939 Act.
(v) The Common Securities have been duly
authorized by the Declaration and, when issued, delivered and paid for
in accordance with the Declaration and as described in the Prospectus,
will be validly issued and represent undivided beneficial interests in
the assets of the Trust, and the issuance of the Common Securities is
not subject to preemptive rights.
(vi) The Preferred Securities have been duly
authorized by the Declaration and, when issued, delivered and paid for
in accordance with this Agreement, will be validly issued, and,
subject to the qualifications set forth herein, fully paid and
non-assessable undivided beneficial interests in the assets of the
Trust; the holders of the Preferred Securities, as beneficial owners
of the Trust, will be entitled to the same limitation of personal
liability as is extended to stockholders of private corporations for
profit organized under the General Corporation Law of the State of
Delaware; and the issuance of the Preferred Securities is not subject
to preemptive rights. The Preferred Security holders may be obligated
to make payments set forth in the Declaration.
(vii) Each of the Guarantee Agreements has
been duly authorized, executed and delivered by the Company; the
Preferred Securities Guarantee Agreement, assuming it is duly
authorized, executed, and delivered by the Guarantee Trustee,
constitutes a
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<PAGE> 26
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent that
enforcement thereof may be limited by the Enforceability Exceptions
and the effect of applicable public policy on the enforceability of
provisions relating to indemnification and contribution; and the
Preferred Securities Guarantee Agreement has been qualified under the
1939 Act.
(viii) The Indenture has been duly
authorized, executed and delivered by the Company and, assuming due
authorization, execution, and delivery thereof by the Debt Trustee, is
a valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent that
enforcement thereof may be limited by the Enforceability Exceptions
and the effect of applicable public policy on the enforceability of
provisions relating to indemnification or contribution, and such
counsel need not express any opinion regarding the enforceability or
effect of Section 515 of the Indenture, and the Indenture has been
qualified under the 1939 Act.
(ix) The Subordinated Debt Securities are in
substantially the form contemplated by the Indenture, have been duly
authorized, executed and delivered by the Company and, when
authenticated by the Debt Trustee in the manner provided for in the
Indenture and delivered against payment therefor, will constitute
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except to the extent that
enforcement thereof may be limited by the Enforceability Exceptions
and the effect of applicable public policy on the enforceability of
provisions relating to indemnification or contribution.
(x) The Common Securities, the Preferred
Securities, the Subordinated Debt Securities, each of the Guarantees,
the Declaration, the Indenture and each of the Guarantee Agreements
conform in all material respects to all statements relating thereto
contained in the Prospectus and the statements in the Prospectus under
the captions "Description of the Preferred Securities," "Description
of the Guarantees," "Fremont General Financing I," "Description of the
Subordinated Debt Securities" and "Effect of Obligations under the
Subordinated Debt Securities and the Guarantee," insofar as they
constitute matters of law, summaries of legal matters, documents or
proceedings, or legal conclusions, have been reviewed by them and
26
<PAGE> 27
fairly present the information disclosed therein in all material
respects.
(xi) The Registration Statement is effective
under the 1933 Act and, to the best of their knowledge and
information, no stop order suspending the effectiveness of the
Registration Statement has been issued under the 1933 Act and no
proceedings therefor have been initiated or threatened by the
Commission.
(xii) The Registration Statement and the
Prospectus, and each amendment or supplement thereto (other than the
financial statements, financial and statistical data and supporting
schedules included therein, as to which such counsel need express no
opinion) as of the effective date of the Registration Statement and at
the Representation Date, complied as to form in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations,
and the Declaration, the Indenture, the Preferred Securities Guarantee
Agreement and the Statements of Eligibility on Forms T-1 with respect
to each of the Property Trustee, the Debt Trustee, and the Guarantee
Trustee filed with the Commission as part of the Registration
Statement complied as to form in all material respects with the
requirements of the 1939 Act and the 1939 Act Regulations.
(xiii) Each of the documents incorporated by
reference in the Registration Statement or the Prospectus at the time
they were filed or last amended (other than the financial statements,
financial and statistical data and supporting schedules included
therein, as to which such counsel need express no opinion) complied as
to form in all material respects with the requirements of the 1933
Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act
Regulations, as applicable.
(xiv) Each of the Offerors meets the
registrant requirements for use of Form S-3 under the 1933 Act
Regulations.
(xv) Neither the Company nor the Trust is an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the 1940 Act.
(xvi) No authorization, approval, consent or
order of any Delaware, California, New York or Nevada court or
governmental authority or agency (ex-
27
<PAGE> 28
cept for insurance or lending regulatory authorities or agencies,
and except for thrift and loan-related authorities or agencies, as to
which such counsel need not opine) is required to be obtained by the
Trust, the Company or its Subsidiaries, in connection with the
issuance and sale of the Common Securities and the Preferred
Securities, the Subordinated Debt Securities or the Guarantees, except
(a) such as may be required under the 1933 Act or the 1933 Act
Regulations, the 1934 Act or the 1934 Act Regulations or state
securities or Blue Sky laws, and (b) the qualification of the
Declaration, the Preferred Securities Guarantee Agreement and the
Indenture under the 1939 Act and 1939 Act Regulations.
(xvii) The issuance and sale by the Trust
of the Preferred Securities and the Common Securities, the execution,
delivery and performance by the Trust and the Company, respectively
of, this Agreement, the Pricing Agreement, the Declaration, the
Indenture, the Subordinated Debt Securities, the Guarantee Agreements,
and the Guarantees; the consummation of the transactions contemplated
herein and therein; and the compliance by each of the Offerors with
their respective obligations hereunder and thereunder do not result in
(A) any violation of the charter or bylaws of the Company or any
Subsidiary or any of the provisions of the Declaration or the
Certificate of Trust, (B) a breach of a conflict with any of the terms
or provisions of, or constitute a default under, any material
contract, indenture, mortgage, loan agreement, note, lease or any
other agreement or instrument known to such counsel to which the Trust
or the Company or any Subsidiary is a party or by which it may be
bound or to which any of its properties may be subject (except for
such conflicts, breaches or defaults that would not have a Material
Adverse Effect or a material adverse effect on the Trust), (C) a
breach or violation of or conflict with or result in the creation or
imposition of any lien, charge or encumbrance upon any assets or
property of the Trust, the Company or any Subsidiary under any
existing applicable law, rule or regulation (other than the securities
or blue sky laws of the various states, and except for insurance or
lending regulatory authorities or agencies, and except for thrift and
loan related authorities or agencies, as to which such counsel need
express no opinion) which, in the experience of such counsel, is
customarily applicable to transactions of this kind and, which would
have a Material Adverse Effect or a material adverse effect on the
Trust, or (D) any material judgment, order or decree of any
28
<PAGE> 29
government, governmental instrumentality or court, domestic or
foreign, or any regulatory body or administrative agency or other
governmental body (except for insurance or lending regulatory
authorities or agencies, and except for thrift and loan-related
authorities or agencies, as to which such counsel need not opine)
having jurisdiction over the Trust, the Company or any Subsidiary or
any of their respective properties.
In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of the
Offerors, representatives of the independent public accountants for the
Offerors and the Representatives and counsel for the Underwriters, at which
conferences the contents of the Registration Statement and the Prospectus and
related matters were discussed and, such counsel shall state that although they
have not verified the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which (except as set forth in paragraph (x)
above), caused them to believe that, at the time the Registration Statement
became effective, at the Representation Date and at the Closing Time (and if
any Option Securities are purchased, at the Date of Delivery referred to
above), the Registration Statement (except as to financial statements,
financial data and supporting schedules contained therein, as to which such
counsel need express no opinion) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that at the
Representation Date or at the Closing Time (or if any Option Securities are
purchased, at the Date of Delivery referred to above), the Prospectus (except
as aforesaid) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading.
Such opinion shall be limited to the internal laws of the
State of California, Delaware and New York, the federal laws of the United
States, and the general corporate law of the State of Nevada, and shall
specifically exclude any laws pertaining to insurance, lending, or thrift and
loan-related activities. In giving such opinion such counsel may rely, as to
matters set forth in paragraphs __ above, on consultations with Orrick,
Herrington & Sutcliffe, admitted to the bar of New York, and in paragraphs
(b)(1)(ii)-(vi), (xix) and (xx) above on the opinion of Richards, Layton &
Finger, admitted to the bar of Dela-
29
<PAGE> 30
ware, in both instances the opinions shall state that your firm believes
that the Underwriters are entitled to so rely on such opinions. Such counsel
may also state that, insofar as such opinion involves factual matters, they
have relied, to the extent they deemed proper, upon representations of officers
of the Company and certificates of public officials; provided, that such
Certificates have been delivered to the Underwriter.
(2) The favorable opinion, dated as of
Closing Time, of Alan W. Faigin, Esq., General Counsel and Secretary for the
Company, in form and substance satisfactory to counsel for the Underwriters, to
the effect that:
(i) The Company is duly qualified to
transact business as a foreign corporation and is in good standing in
each other jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a Material Adverse
Effect.
(ii) All of the outstanding shares of
capital stock of each Subsidiary have been duly authorized and validly
issued and are fully paid and non-assessable; all of such shares are
owned by the Company, either directly or through wholly owned
subsidiaries, free and clear of any pledge, lien, security interest,
charge, claim, equitable right or encumbrance of any kind (except that
the stock of Fremont Insurance Group, Inc. has been pledged to The
Chase Manhattan Bank, N.A. by the Company in connection with the
Credit Agreement dated _________ between the Company and The Chase
Manhattan Bank, N.A.); no holder thereof is subject to personal
liability by reason of being such a holder; and none of such shares
was issued in violation of the preemptive rights of any stockholders
of the Subsidiaries.
(iii) All of the issued and outstanding
Common Securities of the Trust are directly owned by the Company free
and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equitable right.
(iv) Each Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of
the jurisdiction of its incorporation with corporate power and
authority under such
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laws to own, lease and operate its properties and conduct its business.
(v) Each Subsidiary is duly qualified to
transact business as a foreign corporation and is in good standing in
each other jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a Material Adverse
Effect.
(vi) Each of the Trust, the Company and the
Subsidiaries owns, possesses or has obtained all material licenses,
franchises, permits, certificates, consents, orders, approvals and
other authorizations issued by the appropriate local, state, federal
or foreign regulatory agencies or bodies (including, without
limitation, Insurance Licenses and Banking Licenses) necessary to own
or lease, as the case may be, and to operate its properties and to
carry on its business as described in the Registration Statement; none
of the Trust, the Company or any of the Subsidiaries has received any
notice of proceedings relating to the recovation, modification or
suspension of any such license, franchise, consent, order, approval,
permit, certificate of authority, which, singly or in the aggregate is
the subject of an unfavorable decision, ruling or finding, and is
reasonably likely to have a Material Adverse Effect or a material
adverse effect on the Trust.
(vii) There are no contracts, indentures,
mortgages, loan agreements, notes, leases or other instruments
required to be described or referred to in the Registration Statement
or to be filed as exhibits thereto other than those described or
referred to therein or that are filed or incorporated by reference as
exhibits thereto; the descriptions thereof or references thereto have
been reviewed by such counsel and fairly present such information in
all material respects; and no default exists in the due performance or
observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument so described, referred to,
or filed or incorporated by reference that would have a Material
Adverse Effect or a material adverse effect on the Trust.
(viii) There are no legal or governmental
proceedings pending or, to the best of such
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counsel's knowledge and information, threatened (including, without
limitation, any proceeding to revoke or deny renewal of any Insurance
License or Banking License) that are required to be disclosed in the
Registration Statement or Prospectus other than those disclosed
therein, and all pending legal or governmental proceedings to which
the Company, any of the Subsidiaries or the Trust is a party, or to
which any of their property is subject, that are not described in the
Registration Statement or Prospectus, including ordinary routine
litigation incidental to the business, are, considered in the
aggregate, not material.
(ix) This Agreement and the Pricing
Agreement have been duly authorized by all necessary business trust or
corporate action, as the case may be, executed and delivered by the
Company and the Trust.
(x) The issuance and sale by the Trust of
the Preferred Securities and the Common Securities, the execution,
delivery and performance by the Trust and the Company, respectively,
of this Agreement, the Pricing Agreement, the Declaration, the
Indenture, the Subordinated Debt Securities, the Guarantee Agreements,
and the Guarantees; the consummation of the transactions contemplated
herein and therein; and the compliance by each of the Offerors with
their respective obligations hereunder and thereunder do not result in
(A) any violation of the charter or bylaws of the Company or any
Subsidiary or any of the provisions of the Declaration or the
Certificate of Trust, (B) a breach of or conflict with any of the
terms or provisions of, or constitute a default under, any material
contract, indenture, mortgage, loan agreement, note, lease or any
other agreement or instrument to which the Trust or the Company or any
Subsidiary is a party or by which it may be bound or to which any of
its properties may be subject (except for such conflicts, breaches or
defaults that would not have a Material Adverse Effect or a material
adverse effect on the Trust), (C) a breach or violation or conflict
with or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Trust, the Company or
any Subsidiary under any existing applicable law, rule or regulation
(other than the securities or blue sky laws of the various states, as
to which such counsel need express no opinion) or which in the
experience of such counsel, is customarily applicable to transactions
of this kind and which would have a Material Adverse Effect or a
material adverse effect on the Trust, (D)
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any material judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, or any regulatory body
or administrative agency or other governmental body (including,
without limitation, any insurance regulatory agency or body) having
jurisdiction over the Trust, the Company or any Subsidiary or any of
their respective properties.
(xi) No authorization, approval, consent or
order of any Delaware, New York, California or Nevada court or
governmental authority or agency is required to be obtained by the
Trust, the Company or its Subsidiaries, in connection with the
issuance and sale of the Common Securities and the Preferred
securities, the Subordinated Debt Securities or the Guarantees, except
(a) such as may be required under the 1933 Act or the 1933 Act
Regulations, the 1934 Act or the 1934 Act Regulations or state
securities or Blue Sky laws, and (b) the qualification of the
Declaration, the Preferred Securities Guarantee Agreement and the
Indenture under the 1939 Act and 1939 Act Regulations.
In addition, such counsel shall state that he has participated
in conferences with other officers and representatives of the Offerors,
representatives of the independent public accountants for the Offerors and the
Representative and counsel for the Underwriters, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed and, such counsel shall state that although they have not
verified the accuracy, completeness or fairness of the statements contained in
the Registration Statement or the Prospectus, nothing has come to the attention
of such counsel which caused them to believe that, at the time the Registration
Statement became effective, at the Representation Date and at the Closing Time
(and if any Option Securities are purchased, at the Date of Delivery referred
to above), the Registration Statement (except as to financial statements,
financial data and supporting schedules contained therein, as to which such
counsel need express no opinion) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that at the
Representation Date or at the Closing Time (or if any Option Securities are
purchased, at the Date of Delivery referred to above), the Prospectus (except
as aforesaid) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading.
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Such opinion shall be to such further effect with respect to
other legal matters relating to this Agreement and the sale of the Securities
hereunder as counsel for the Underwriters may reasonably request. Such opinion
shall be limited to the internal laws of the State of California, Delaware and
New York, the federal laws of the United States, and the general corporate law
of the State of Nevada. Such counsel may also state that, insofar as such
opinion involves factual matters, he has relied, to the extent he deemed
proper, upon representations of officers of the Company and certificates of
public officials; provided, that such certificates have been delivered to the
Underwriter.
(3) The favorable opinion, dated as of
the Closing Time, of Richards, Layton & Fingers, counsel for the Property
Trustee under the Declaration, and Guarantee Trustee under the Preferred
Securities Guarantee Agreements, in form and substance satisfactory to counsel
for the Underwriters, to the effect that,
(i) The Property Trustee is a Delaware
banking corporation with trust powers, duly organized, validly
existing and in good standing under the laws of the State of Delaware
with all necessary power and authority to execute and deliver, and to
carry out and perform its obligations under the terms of the
Declaration and the Preferred Securities Guarantee Agreement.
(ii) The execution, delivery and
performance by the Property Trustee of the Declaration and the
execution, delivery and performance by the Guarantee Trustee of the
Preferred Securities Guarantee Agreement have been duly authorized by
all necessary corporate action on the part of the Property Trustee and
the Guarantee Trustee, respectively. The Declaration and the
Preferred Securities Guarantee Agreement have been duly executed and
delivered by the Property Trustee and the Guarantee Trustee,
respectively, and constitute the legal, valid and binding obligations
of the Property Trustee and the Guarantee Trustee, respectively,
enforceable against the Property Trustee and the Guarantee Trustee,
respectively, in accordance with their terms, except as enforcement
thereof may be limited by the Bankruptcy Exceptions.
(iii) The execution, delivery and
performance of the Declaration and the Preferred Securities Guarantee
Agreement by the Property Trustee and the Guarantee Trustee,
respectively, does not conflict
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<PAGE> 35
with or constitute a breach of the Articles of Organization or Bylaws
of the Property Trustee and the Guarantee Trustee, respectively.
(iv) No consent, approval or authorization
of, or registration with or notice to, any Delaware or federal banking
authority is required for the execution, delivery or performance by
the Property Trustee and the Guarantee Trustee of the Declaration and
the Preferred Securities Guarantee Agreement.
(4) The opinion of Wilson, Sonsini, Goodrich
& Rosati, counsel to the Company and the Trust, generally to the effect that:
(i) Under current United States federal
income tax law, the Trust will be classified as a grantor trust and
not as an association taxable as a corporation; accordingly, for
United States federal income tax purposes, each holder of Preferred
Securities will generally be considered the owner of an undivided
interest in the Subordinated Debt Securities, and each holder will be
required to include in its gross income any original issue discount
accrued with respect to its allocable share of the Subordinated Debt
Securities.
(ii) Although no entirely free from doubt,
under current United States federal income tax law, the Subordinated
Debt Securities will be classified for United States federal income
tax purposes as indebtedness of the Company.
(iii) Although the discussion set forth in
the Prospectus under the heading "United States Federal Income
Taxation" does not purport to discuss all possible United States
federal income tax consequences of the acquisition, ownership and
disposition of Preferred Securities, such discussion constitutes in
all material respects, a fair and accurate summary of the United
States federal income tax consequences of the acquisition, ownership
and disposition of Preferred Securities under current law and the
assumptions stated or referred to therein.
Such opinion may be conditioned on, among other things, the
initial and continuing accuracy of the facts, financial and other information,
covenants and representations set forth in certificates of officers of the
Company and the Trust and other documents deemed necessary for such opinion,
and customary assumptions set forth therein which are reasonably satisfactory
to the Underwriters.
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<PAGE> 36
(5) The favorable opinion, dated as of the
Closing Time, of Skadden, Arps, Slate, Meagher & Flom, counsel for the
Underwriters, in form and substance satisfactory to the Underwriters with
respect to such matters as the Representatives may reasonably require.
(c) At the Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Registration Statement and the Prospectus, any material adverse
change in the condition (financial or otherwise), earnings, business affairs or
business prospects of the Trust or the Company and its Subsidiaries considered
as one enterprise, whether or not arising in the ordinary course of business,
and the Representative shall have received a certificate of the President or a
Vice President of the Company and of the chief financial or chief accounting
officer of the Company and a certificate of the Regular Trustee of the Trust,
each dated as of Closing Time, to the effect that (i) there has been no such
material adverse change, (ii) the representations and warranties in Section 1
hereof are true and correct with the same force and effect as though expressly
made at and as of the Closing Time (except for representations or warranties
which by their terms speak as of a different date or dates), (iii) the Trust
and the Company have complied with all agreements and satisfied all conditions
on its part to be performed or satisfied at or prior to the Closing Time, and
(iv) no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been initiated or
threatened by the Commission.
(d) At the time of the execution of this Agreement,
the Representatives shall have received from Ernst & Young LLP a letter dated
such date, in form and substance satisfactory to the Representatives, to the
effect that:
(i) they are independent auditors with
respect to the Company and its consolidated subsidiaries, within the
meaning of the 1933 Act and the 1933 Act Regulations;
(ii) in their opinion, the consolidated
financial statements and schedules audited (and, if applicable,
prospective financial statements and/or pro forma financial
information examined) by them and included or incorporated by
reference in the Registration Statement or the Prospectus comply as to
form in all material respects with the accounting requirements of the
1933 Act or the 1934 Act, as applicable, and
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the related published rules and regulations thereunder, as applicable;
(iii) based upon limited procedures set
forth in detail in such letter, nothing has come to their attention
which causes them to believe that:
(A) the unaudited consolidated
financial statements of the Company included or incorporated by
reference in the Registration Statement do not comply as to form in
all material respects with the applicable accounting requirements of
the 1934 Act and the 1934 Act Regulations, as they apply to Form 10-Q,
or are not presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of
the audited financial statements included in the Registration
Statement,
(B) the unaudited amounts of
revenues, net income and net income per share set forth under
"Selected Consolidated Financial and Operating Data" in the Prospectus
were not determined on a basis substantially consistent with that used
in determining the corresponding amounts in the audited financial
statements included in the Registration Statement, or
(C) at a specified date not more
than five days prior to the date of this Agreement, there has been any
change in the consolidated capital stock of the Company and its
subsidiaries, considered as one enterprise or any increase in the
consolidated long-term debt of the Company and its Subsidiaries or any
decrease in total assets or net assets as compared with the amounts
shown on the date of the most recent consolidated balance sheet
included in or incorporated by reference in the Registration Statement
and the Prospectus or, during the period from the date of the most
recent consolidated balance sheet included in or incorporated by
reference in the Registration Statement and the Prospectus to a
specified date not more than five days prior to the date of this
Agreement, there were any decreases, as compared with the
corresponding period in the preceding year, in operating revenues, net
earnings available for common stock or net earnings per common share
of the Company and its Subsidiaries, except in all instances for
changes, increases or decreases which the Registration Statement and
the Prospectus disclose have occurred or may occur; and
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(iv) in addition to the audit referred to
in their opinions and the limited procedures referred to in clause
(iii) above, they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages
and financial information which are included in the Registration
Statement and Prospectus, or incorporated therein by reference, and
which are specified by the Representatives, and have found such
amounts, percentages and financial information to be in agreement with
the relevant accounting, financial and other records of the Company
and its Subsidiaries identified in such letter.
(e) At the Closing Time, the Representatives
shall have received from Ernst & Young LLP a letter, dated as of the Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (d) of this Section, except that the specified
date referred to shall be a date not more than five days prior to the Closing
Time.
(f) At the Closing Time, and each Date of
Delivery, if any, counsel for the Underwriters shall have been furnished with
such documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the issuance and sale of the Preferred Securities as
herein contemplated and related proceedings, or in order to evidence the
accuracy of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the Offerors
in connection with the issuance and sale of the Preferred Securities as herein
contemplated shall be reasonably satisfactory in form and substance to the
Representative and Skadden, Arps, Slate, Meagher & Flom, counsel for the
Underwriters.
(g) At the Closing Time, the Preferred Securities
and the Subordinated Debt Securities shall be rated in one of the four highest
rating categories for long-term debt ("Investment Grade") by any nationally
recognized statistical rating agency (as defined for purposes of Rule 436(g)
under the Act) ("NRSO"), and the Trust shall have delivered to the
Representatives a letter, dated the Closing Time, from such NRSO, or other
evidence satisfactory to the Representatives, confirming that the Preferred
Securities and the Subordinated Debt Securities have Investment Grade ratings;
and there shall not have occurred any decrease in the rating of either (i) the
Preferred Securities by any NRSO or (ii) the Company or any Subsidiary by A.M.
Best, and such organization shall not have publicly announced that it has under
surveillance or re-
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view, with possible negative implications, its rating of the Preferred
Securities or the Company, as the case may be.
(h) At the Closing Time, the Preferred Securities
shall have been approved for listing on the New York Stock Exchange upon notice
of issuance.
If any condition specified in this Section 5 shall not have
been fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Representatives by notice to the Offerors at any time at or
prior to Closing Time, and such termination shall be without liability of any
party to any other party except as provided in Section 4 hereof.
Notwithstanding any such termination, the provisions of Sections 6, 7 and 8
shall remain in effect.
Section 6. Indemnification.
(a) The Offerors agree to jointly and severally
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act as
follows:
(i) against any and all loss, liability,
claim, damage and expense whatsoever, as incurred, arising out of any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment thereto),
including the information deemed to be part of the Registration
Statement pursuant to Rule 430A(b) or Rule 434(d) of the 1933 Act
Regulations, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out
of any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability,
claim, damage and expense whatsoever, as incurred, to the extent of
the aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any
such untrue statement or omission, or any such
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alleged untrue statement or omission, if such settlement is effected
with the written consent of the Company; and
(iii) against any and all expense whatsoever,
as incurred (including, subject to Section 6(d) hereof, the fees and
disbursements of counsel chosen by Merrill Lynch), reasonably incurred
in investigating, preparing or defending against any litigation, or
any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, to the extent that any such expense is
not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Trust or the
Company by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto); and provided,
further, that this indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, liabilities, claims, damages or expenses
purchased Securities, or any person controlling such Underwriter, if the
Offerors sustain the burden that they have complied with their prospectus
delivery obligations under Section 3(d) hereof and that a copy of the
Prospectus (as then amended or supplemented if the Company or the Trust shall
have furnished any such amendments or supplements thereto), but excluding
documents incorporated or deemed to be incorporated by reference, was not sent
or given by or on behalf of such Underwriter to such person, if such is
required by law, at or prior to the written confirmation of the sale of such
Securities to such person and if the Prospectus (as so amended or supplemented,
but excluding documents incorporated or deemed to be incorporated by reference
therein) would have corrected the defect giving rise to such loss, liability,
claim, damage or expense, it being understood that this proviso shall have no
application if such defect shall have been corrected in a document which is
incorporated or deemed to be incorporated by reference in the Prospectus.
(b) The Company agrees to indemnify the Trust
against all loss, liability, claim, damage and expense whatsoever, as due from
the Trust under Section 6(a) hereunder.
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(c) Each Underwriter severally agrees to
indemnify and hold harmless the Offerors, their directors, trustees, each of
its officers who signed the Registration Statement, and each person, if any,
who controls the Offerors within the meaning of Section 15 of the 1933 Act
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto)
including the information deemed to be a part of the Registration Statement
pursuant to Rule 430 A(b) or Rule 434(d) of the 1933 Act Regulations, if
applicable, or any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto) in reliance upon and in conformity with written
information furnished to the Offerors by such Underwriter through Merrill
Lynch, on behalf of the Representatives, expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(d) Each indemnified party shall give notice as
promptly as reasonably practicable to each indemnifying party of any action
commenced against it in respect of which indemnity may be sought hereunder, but
failure to so notify an indemnifying party shall not relieve such indemnifying
party from any liability which it may have otherwise than on account of this
indemnity agreement. An indemnifying party may participate at its own expense
in the defense of any such action. In no event shall the indemnifying parties
be liable for fees and expenses of more than one counsel (in addition to any
local counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances.
Section 7. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnity agreement
provided for in Section 6 hereof is for any reason held to be unenforceable by
the indemnified parties although applicable in accordance with its terms, the
Offerors and the Underwriters shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by said
indemnity agreement incurred by the Offerors and one or more of the
Underwriters, as incurred, in such proportions that the Underwriters are
responsible for that portion represented by the percentage that the
underwriting compensation paid by the Company appearing on the cover page of
the Prospectus bears to the initial public offering price appearing
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thereon and the Offerors are responsible for the balance; provided, however,
that no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section, each person, if any, who controls an Underwriter within the
meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such Underwriter, and each director of the Company and each
officer of the Company who signed the Registration Statement, each trustee of
the Trust and each person, if any, who controls an Offeror within the meaning
of Section 15 of the 1933 Act shall have the same rights to contribution as the
Offerors.
Section 8. Representations, Warranties and Agreements to
Survive Delivery. All representations, warranties and agreements contained in
this Agreement and the Pricing Agreement, or contained in certificates of
officers or Trustees of the Offerors submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or controlling person, or by or on behalf of
the Offerors and shall survive delivery of the Preferred Securities to the
Underwriters.
Section 9. Termination of Agreement.
(a) The Representatives may terminate this
Agreement, by notice to the Offerors, at any time at or prior to the Closing
Time (i) if there has been, since the date of this Agreement or since the
respective dates as of which information is given in the Registration
Statement, any material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of the Trust or
the Company and its Subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business, (ii) if there has occurred any
material adverse change in the financial markets in the United States or
elsewhere or any outbreak of hostilities or escalation thereof or other
calamity or crisis the effect of which is such as to make it, in the judgment
of the Representatives, impracticable to market the Preferred Securities or to
enforce contracts for the sale of the Preferred Securities, (iii) if trading in
the Preferred Securities has been suspended by the Commission, or if trading
generally on the New York Stock Exchange Inc. has been suspended, limited or
restricted or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required, by said exchange or by
order of the Commission or any other governmental authority, or if a banking
moratorium has been declared by
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either Federal, California, New York, Nevada, Texas or Delaware authorities or
(iv) if (A) there has been any decrease in the rating of the Preferred
Securities by any NRSO or any NRSO has publicly announced that it has placed
any of such securities on what is commonly termed a "watch list" for possible
downgrading, or (B) there has been any decrease in the rating of the Company or
Fremont Compensation and Indemnity Company or Casualty Insurance Company by
A.M. Best, or such organization shall have publicly announced that it has such
ratings under review with possible negative implications.
(b) If this Agreement is terminated pursuant to
this Section, such termination shall be without liability of any party to any
other party except as provided in Section 4 hereof. Notwithstanding any such
termination, the provisions of Sections 6, 7 and 8 shall remain in effect.
Section 10. Default by One or More of the Underwriters. If
one or more of the Underwriters shall fail at the Closing Time to purchase the
Preferred Securities that it or they are obligated to purchase under this
Agreement and the Pricing Agreement (the "Defaulted Securities"), the
Representatives shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representatives shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does
not exceed 10% of the Preferred Securities, each of the non-defaulting
Underwriters shall be obligated, severally and not jointly, to
purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds
10% of the Preferred Securities, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
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In the event of any such default which does not result in a
termination of this Agreement, either the Representatives or the Offerors shall
have the right to postpone the Closing Time for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements.
Section 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to
the Underwriters shall be directed to the Representatives, c/o Merrill Lynch at
Merrill Lynch World Headquarters, North Tower, World Financial Center, New
York, New York 10281-1201, attention of General Counsel, copy (which shall not
constitute notice) to Thomas C. Janson, Esq., c/o Skadden, Arps, Slate, Meagher
& Flom, 300 South Grand Avenue, Suite 3400, Los Angeles, CA. 90071; notices to
the Trust and the Company shall be directed to them at 2020 Santa Monica
Boulevard, Suite 600, Santa Monica, California, attention of Louis J. Rampino,
copy to Alan K. Austin, Esq., c/o Wilson, Sonsini, Goodrich & Rosati, 650 Page
Mill Road, Palo Alto, CA. 94304-1050.
Section 12. Parties. This Agreement and the Pricing
Agreement shall each inure to the benefit of and be binding upon the
Underwriters and the Trust, the Company and their respective successors.
Nothing expressed or mentioned in this Agreement or the Pricing Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Underwriters and the Trust and the Company and their respective
successors and the controlling persons and officers, directors and trustees
referred to in Sections 6 and 7 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or the Pricing Agreement or any provision herein or therein contained. This
Agreement and the Pricing Agreement and all conditions and provisions hereof
and thereof are intended to be for the sole and exclusive benefit of the
Underwriters and the Trust and the Company and their respective successors, and
said controlling persons and officers, directors and trustees and their heirs
and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any Underwriter shall be deemed
to be a successor by reason merely of such purchase.
Section 13. Governing Law and Time. This Agreement and the
Pricing Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
in
44
<PAGE> 45
said State. Except as otherwise set forth herein, specified times of day refer
to New York City time.
Section 14. Counterparts. This Agreement may be executed by
any one or more of the parties hereto in any number of counterparts, each of
which shall be deemed to be an original, but all such respective counterparts
shall together constitute one and the same instrument.
45
<PAGE> 46
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Trust a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Trust and the Company in accordance
with its terms.
Very truly yours,
FREMONT GENERAL CORPORATION
By____________________________________
Title:
FREMONT GENERAL FINANCING I
By____________________________________
Title: Regular Trustee
By____________________________________
Title: Regular Trustee
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
PAINEWEBBER INCORPORATED
For themselves and as Representatives of the other Underwriters named
in Schedule A hereto.
By MERRILL LYNCH & CO.
By__________________________________
Authorized Signatory
46
<PAGE> 47
SCHEDULE A
<TABLE>
<CAPTION>
Number of Number of
Preferred Option
Name of Underwriter Securities Securities
------------------- ---------- ----------
<S> <C> <C>
Merrill Lynch, Pierce Fenner &
Smith Incorporated . . . . . . . . . . . . . . . .
Dean Witter Reynolds, Inc . . . . . . . . . . . . . .
Goldman, Sachs & Co . . . . . . . . . . . . . . . . .
PaineWebber Incorporated . . . . . . . . . . . . . . _________ _______
Total . . . . . . . . . . . . . . . 4,000,000 600,000
========= =======
</TABLE>
<PAGE> 48
SCHEDULE B
Fremont Insurance Group, Inc.
Fremont Indemnity Company
Fremont Pacific Insurance Group, Inc.
Casualty Insurance Company
Worker's Compensation & Indemnity Co.
Fremont Compensation Insurance Co.
Pacific Compensation Insurance
Investors Bancor
Fremont Investment & Loan
Fremont Financial Corporation
Fremont Funding Inc.
<PAGE> 49
EXHIBIT A
4,000,000 Preferred Securities
FREMONT GENERAL FINANCING I
(a Delaware business trust)
_____% Trust Originated Preferred Securities ("TOPrS")
(Liquidation Amount of $25 Per Security)
PRICING AGREEMENT
MERRILL LYNCH & CO. February __ , 1996
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
PAINEWEBBER INCORPORATED
as Representative of the several
Underwriters named in the within-
mentioned Purchase Agreement
c/o Merrill Lynch World Headquarters
North Tower World Financial Center
New York, New York 10281
Dear Sirs:
Reference is made to the Purchase Agreement, dated February
__, 1996 (the "Purchase Agreement"), relating to the purchase by the several
Underwriters named in Schedule A thereto, for whom Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Dean Witter Reynolds, Inc.,
Goldman, Sachs & Co. and PaineWebber Incorporated are acting as representatives
(the "Representatives"), of the above ___% Trust Originated Preferred
Securities (the "Preferred Securities"), of FREMONT GENERAL FINANCING I, a
Delaware business trust (the "Trust").
Pursuant to Section 2 of the Purchase Agreement, the Trust and
Fremont General Corporation (the "Company"), a Nevada corporation, agree with
each Underwriter as follows:
1. The initial public offering price per security
for the Preferred Securities, determined as provided in said Section
2, shall be $25.00.
<PAGE> 50
2. The purchase price per security for the Preferred
Securities to be paid to the Trust by the several Underwriters shall
be $25.00, being an amount equal to the initial public offering price
set forth above.
3. The compensation per Preferred Security to be
paid by the Company to the several Underwriters in respect of their
commitments hereunder shall be $______; provided, however, that the
compensation per Preferred Security for sales of 10,000 or more
Preferred Securities to a single purchaser shall be $_____.
2
<PAGE> 51
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Trust a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Trust and the Company in accordance
with its terms.
Very truly yours,
FREMONT GENERAL CORPORATION
By____________________________________
Title:
FREMONT GENERAL FINANCING I
By____________________________________
Title: Regular Trustee
By____________________________________
Title: Regular Trustee
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
PAINEWEBBER INCORPORATED
For themselves and as Representatives of the other Underwriters named
in the Underwriting Agreement.
By MERRILL LYNCH & CO.
By________________________________
Authorized Signatory
<PAGE> 1
EXHIBIT 3.1
RESTATED
ARTICLES OF INCORPORATION
OF
FREMONT GENERAL CORPORATION
FIRST: that the name of said corporation is:
FREMONT GENERAL CORPORATION
SECOND: That, the place where its principal office is to be located is
303 East Proctor Street, Carson City, Nevada 89701, but this corporation may
maintain an office or offices in such other places as may be from time to time
fixed by its board of directors or as may be fixed by the By-Laws of the
corporation.
THIRD: That the purposes for which said corporation is formed are:
1. To participate in the business of life, fire, casualty and other
forms of insurance and in similar types of business through other companies
doing an insurance business as insurers or reinsurers or controlling companies
so engaged, or through companies doing similar types of business; to exercise
control over such companies, or any of them, through stock ownership,
participation in management or otherwise; to acquire through purchase,
exchange, gift, devise, contract, concession, or otherwise, the stocks, bonds,
debentures and other interests in any company or companies doing business as
insurers or reinsurers or controlling companies so engaged, in any company or
companies doing similar types of business, or in any other company, companies
or other businesses, and to hold, own, and dispose of the same, and to
guarantee the obligations of such companies, to contract with any company or
companies to furnish managerial or other services to them, at a profit, at cost
without charge, or otherwise, as the corporation's interest shall appear, in
furtherance of the corporation's business, to participate actively, through the
participation of its officers, directors or employees, or otherwise in the
management or administration of any company or companies in which it is
interested; to found companies to be engaged in doing an insurance business as
insurer or reinsurer, or in doing a similar business, and to develop them and
assist in their development; to finance, and assist in the financing of such
companies, and to facilitate their operations in every lawful fashion; provided
(i) that the corporation shall itself be an insurer and shall not itself have
the power to make, write, insure or reinsure contracts or policies of insurance
on its own account; nor to make, as guarantor or surety, any contract of
guaranty or suretyship not merely incidental to its other lawful business or
activities, and (ii) that the corporation shall not purchase, subscribe to, or
acquire any shares of stock in any insurance company organized under the laws
of the State of Nevada without the prior written consent or approval of the
Insurance Commissioner or the State of Nevada.
<PAGE> 2
2. To manufacture, buy, sell, assemble, distribute, and to otherwise
acquire, or to own, hold, use, sell, assign, transfer, exchange, lease, license
or otherwise dispose of, and to invest, trade, deal in and with goods, wares,
merchandise, building materials, supplies and all other property of every class
and description.
3. To acquire by purchase, lease, gift, devise or otherwise and own,
hold, use, lease, either as lessor or lessee, rent, sublet, grant, sell,
exchange, subdivide, mortgage, deed in trust, manage, improve, cultivate,
develop, maintain, construct, operate, and generally deal in any and all real
estate, improved or unimproved, stores, office buildings, dwelling houses,
boarding houses, apartment houses, hotels, business blocks, garages,
warehouses, manufacturing plants, and other buildings of any kind or
description, and other buildings of any kind or description, and any and all
other property of every kind or description, real, personal and mixed, and any
interest or right therein, including water and water rights, wheresoever
situated, either in Nevada, other states of the United States, the District of
Columbia, territories and colonies of the United States and foreign countries.
4. To purchase, acquire, take, hold, own, use, and enjoy, and to sell,
lease, transfer, pledge, mortgage, convey, grant, assign or otherwise dispose
of, and generally to invest, trade, deal in and with oil royalties, mineral
rights of all kinds, oil, gas and mineral leases, and all rights and interests
therein, and in general products of the earth and deposits both subsoil and
surface, of every nature and description.
5. To enter into, make, perform, and carry out contracts of every kind
for any lawful purpose without limit as to amount, with any person, firm,
association or corporation, municipality, county, parish, state, territory,
government (foreign or domestic) or other municipal or governmental
subdivision.
6. To become a partner (either general or limited, or both) and to
enter into agreements of partnership with one or more other persons or
corporations, for the purpose of carrying on any business which this
corporation may deem proper or convenience in connection with any of the
purposes herein set forth or otherwise, or which may be calculated, directly or
indirectly, to promote the interest of this corporation or to enhance the value
of its property or business.
7. To acquire, by purchase or otherwise, the goodwill, business,
property rights, franchise and assets of every kind, with or without
undertaking either wholly or in part, the liabilities of any person, firm,
association or corporation; and to acquire any property or business as a going
concern or otherwise, (i) by purchase of the assets thereof wholly or in part,
(ii) by acquisition of the shares or any part thereof, or (iii) in any other
manner; and to pay for the same in cash or in the shares or bonds or other
evidence of indebtedness of this corporation, or otherwise; to hold, maintain
and operate, or in any manner dispose of the whole or any part of the goodwill,
business, rights and property so acquired, and to conduct in any lawful manner,
the whole or any part of any business so acquired; and to exercise all the
powers necessary or convenient in and about the management of such business.
-2-
<PAGE> 3
8. To take, purchase and otherwise acquire, own, hold, use, sell,
assign, transfer, exchange, lease, mortgage, convey in trust, pledge,
hypothecate, grant licenses in respect of and otherwise dispose of letters
patent of the United States or any foreign country, patent rights, licenses and
privileges, inventions, improvements and processes, copyrights, trade-marks,
and trade names, and government state, territorial, county and municipal grants
and concessions of every character which this corporation may deem advantageous
in the prosecution of its business or in the maintenance, operation,
development or extension of its properties.
9. From time to time to apply for, purchase, acquire by assignment,
transfer or otherwise exercise, carry out and enjoy any benefit, right,
privilege, prerogative or power conferred by, acquired under or granted by any
statute, ordinance, order, license, power, authority, franchise, commission,
right or privilege which any government or authority or governmental agency or
corporation or other public body may be empowered to enact, make or grant, to
pay for, and in, and contribute toward carrying the same into effect; and to
appropriate any of this corporation's shares, bond and/or assets to defray the
costs, charges and expenses thereof.
10. To subscribe or cause to be subscribed for, and to take, purchase,
and otherwise acquire, own, hold, use, sell, assign, transfer, exchange,
distribute and otherwise dispose of, the whole or any part of the shares of the
capital stock, bonds, coupons, mortgages, deeds of trust, debentures,
securities, obligations, evidences of indebtedness, notes, goodwill, rights,
assets and property of any and every kind, or any part thereof, of any other
corporation or corporations, association or associations, firm or firms, or
person or persons, together with the shares, rights, units or interest in or in
respect of any trust estate, now or hereafter existing, and whether created by
the laws of the State of Nevada or any other state, territory or country; and
to operate, manage and control such properties, or any of them, either in the
name of such other corporation or corporations or in the name of this
corporation, and, while the owner of any of said shares of capital stock, to
exercise all of the rights, powers and privileges of ownership of every kind
and description, including the right to vote thereon, with power to designate
some person or persons for that purpose from time to time, and to the same
extent as natural persons might or could do.
11. To promote or to aid in any manner, financially or otherwise, any
person, firm, corporation or association of which any shares of stock, bonds,
notes, debentures or other securities or evidences of indebtedness are held
directly or indirectly by this corporation; and for this purpose to guarantee
the contracts, dividends, shares, bonds, debentures, notes and other
obligations of such other persons, firms, corporations or associations; and to
do any other acts or things designed to protect, preserve, improve or enhance
the value of such shares, bonds, notes, debentures or other securities or
evidences of indebtedness.
12. To borrow and lend money, but nothing herein contained shall be
construed as authorizing the business of banking, or as including the business
purposes of a commercial bank, savings bank or trust company.
-3-
<PAGE> 4
13. To issue bonds, notes, debentures or other obligations of this
corporation from time to time for any of the objects or purposes of this
corporation, and to secure the same by mortgage, deed of trust, pledge, or
otherwise, or to issue the same unsecured; to purchase or otherwise acquire its
own bonds, debentures or other evidences of its indebtedness or obligations; to
purchase, hold, sell and transfer the shares of its own capital stock to the
extent and in the manner provided by the laws of the State of Nevada as the
same are now in force or may hereafter be amended.
14. To conduct and carry on, directly or indirectly, research,
development and promotional or experimental activities, and to promote or aid
financially or otherwise, any person, firm or corporation engaged in such
activities, or any of them.
15. To carry on any business whatsoever, either as principal, agent or
partner, which this corporation may deem proper or convenient in connection
with any of the foregoing purposes or otherwise, or which may be calculated
directly or indirectly to promote the interests of this corporation or to
enhance the value of its property or business; and to conduct its business in
this state, in other states, in the District of Columbia, in the territories
and colonies of the United States, and in foreign countries.
FOURTH: This corporation is authorized to issue two classes of shares
of stock, to be designated, respectively, "preferred stock" and "common stock";
the total number of shares shall be 32,000,000; the total number of shares of
preferred stock shall be 2,000,000, with a par value of $.01 per share and any
of such shares of preferred stock may be with full or limited voting powers or
without voting powers and with such designations, preferences and relative,
participating, optional or other special rights, or qualification, limitations
or restrictions thereof, as shall be stated and expressed in any resolution or
resolutions providing for the issue of such preferred stock adopted by the
Board of Directors of this corporation pursuant to the authority expressly
vested in it by this Article Fourth; the Board of Directors of this corporation
is hereby authorized and directed, from time to time, to determine whether
preferred stock may be issued, with full or limited voting powers or without
voting powers and with such designations, preferences and relative,
participating, optional or other special rights, or qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issuance of such preferred stock adopted by the
Board of Directors pursuant to the authority expressly vested in it by the
provisions of this Article FOURTH; any preferred stock may be made subject to
redemption at such time or times and at such price or prices, and may be issued
in such series, with such designations, preferences, and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions thereof as shall be stated and expressed in the resolution or
resolutions providing for the issuance of such preferred stock adopted by the
Board of Directors of this corporation as hereinabove provided; the holders of
preferred stock of any class or series thereof shall be entitled to receive
dividends at such rates, on such conditions and at such times as shall be
expressed in the resolution or resolutions providing for the issuance of such
preferred stock adopted by the Board of Directors of this corporation as
hereinabove provided, payable in preference to, or in such relation to, the
dividends payable on any other class or classes of stock and cumulative or
non-cumulative as shall so be expressed; the holders of preferred stock or any
class or series thereof shall be entitled to such rights
-4-
<PAGE> 5
upon the dissolution of, or upon any distribution of the assets of, this
corporation as shall be stated and expressed in the resolution or resolutions
providing for the issue of such preferred stock adopted by the Board of
Directors of this corporation as hereinabove provided; any preferred stock or
any class or series thereof, if there are other classes or series, may be made
convertible into, or exchangeable for, shares of any other class or classes or
of any other series of the same or any class or classes of stock of this
corporation at such price or prices or at such rates of exchange and with such
adjustments as shall be stated and expressed in the resolution or resolutions
providing for the issuance of such preferred stock adopted by the Board of
Directors as hereinabove provided; the total number of shares of common stock
shall be 30,000,000 and the par value of each share of common stock shall be
$1.00 per share; the common stock of this corporation shall be non-assessable
and shall be fully paid when issued;
FIFTH: The members of the governing board shall be styled "Directors" and
their number shall be three (3), and, in this respect, the Board of Directors
of this corporation is expressly vested with the power to increase or decrease
the number of such directors within the limits provided by law, except that no
decrease in the number of such directors shall prevent any incumbent director
from serving the balance of the term for which he was duly elected or appointed
unless he is removed from office in accordance with law. All vacancies
including those caused by an increase in the number of directors may be filled
by a majority of the remaining directors, though less than a quorum. Directors
so appointed to fill any vacancy shall serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Until
further action of the Board of Directors as herein provided, the governing
board of this company shall consist of three (3) directors.
SIXTH: The capital stock of this corporation, after the amount of
subscription price or par value, whichever shall be the greater, has been paid,
shall not be subject to assessment to pay the debts of the corporation, and no
stock issued as fully paid up shall ever be assessable or assessed nor shall
the private property of stockholders, directors or officers of this corporation
be subject to the payment of any corporate debts to any extent whatsoever and
in this particular the Articles of Incorporation shall not be subject to
amendment.
SEVENTH: This corporation shall have perpetual existence.
EIGHTH: All holders of common stock issued by this corporation shall have
equal voting rights per share of common stock.
NINTH: This corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation with the
exception of Article Sixth, in the manner now or hereafter prescribed by the
laws of the State of Nevada, and all rights conferred upon officers, directors
and stockholders herein are granted subject to this reservation.
TENTH: No stockholder of this corporation shall have the right to purchase
a pro rata share of any new capital of this corporation sold for cash, or any
other preemptive or preferential right to subscribe for, purchase or receive
any additional shares of capital stock of this corporation or
-5-
<PAGE> 6
rights or options to purchase additional shares of capital stock of this
corporation or securities convertible into or carrying rights or options to
purchase additional shares of the capital stock of this corporation.
ELEVENTH: The affirmative vote of the holders of not less than eighty
percent (80%) of the total voting power of all outstanding shares of voting
stock of this corporation shall be required for the approval of any proposal
that (1) this corporation merge or consolidate with any other corporation or
any affiliate of such other corporation and if such other corporation and its
affiliates singly or in the aggregate are directly or indirectly the beneficial
owners of more than five percent (5%) of the outstanding shares of the common
stock of this corporation (such other corporation and any affiliate thereof
being herein referred to as a "Related Corporation"), or that (2) this
corporation sell or exchange all of its assets or business to or with such
Related Corporation, or that (3) this corporation issue or deliver any stock or
other securities of its issue in exchange or payment for any properties or
assets of such Related Corporation or securities issued by such Related
Corporation, or in a merger of any affiliate of this corporation with or into
such Related Corporation or any of its affiliates, and to effect such
transaction the approval of stockholders of this corporation is required by law
or by any agreement between this corporation and any national securities
exchange; provided, however, that the foregoing shall not apply to any such
merger, consolidation, sale or exchange, or issuance or delivery of stock or
other securities which was approved by resolution of the Board of Directors of
this corporation prior to the acquisition of the beneficial ownership of more
than five percent (5%) of the outstanding common stock of this corporation by
such Related Corporation and its affiliates, nor shall it apply to any such
transaction solely between this corporation and another corporation, fifty
percent (50%) or more of the voting stock of which is owned by this
corporation. For the purpose hereof, an "affiliate" is any person (including a
corporation, partnership, trust, estate or individual) who directly, or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, the person specified; "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of management and policies of a person, whether through the ownership
of voting securities, by contract, or otherwise; and in computing the
percentage of outstanding common stock beneficially owned by any person, the
shares outstanding and the shares shall be determined as of the record date
fixed to determine the stockholders entitled to vote or express consent with
respect to such proposal. The stockholder vote, if any, required for mergers,
consolidations, sales or exchanges of assets or issuances of stock or other
securities not expressly provided for in this Article, shall be such as may be
required by applicable law.
TWELFTH: The provisions set forth in this Article TWELFTH and in Article
ELEVENTH (dealing with the eighty percent (80%) vote of stockholders required
for certain mergers and other transactions) may not be repealed or amended in
any respect unless such repeal or amendment is approved by the affirmative vote
of not less than eighty percent (80%) of the total voting power of all
outstanding shares of voting stock of this corporation.
THIRTEENTH: No director of this corporation shall have personal liability
to the corporation or any of its stockholders for monetary damages for breach
of fiduciary duty as a director. The foregoing provision shall not eliminate
or limit the liability of a director, (i) for any
-6-
<PAGE> 7
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct, fraud or a knowing violation of law, (iii) for the
payment of dividends in violation of Nevada Revised Statutes, or (iv) for any
transaction from which the director derived an improper personal benefit. In
the event that the law of the State of Nevada is amended after approval of this
Article by the stockholders so as to authorize corporate action further
eliminating or limiting the liability of the directors, the liability of a
director of this Corporation shall thereupon be eliminated or limited to the
fullest extent permitted by the General Corporation Law of the State of Nevada,
as so amended from time to time. The provisions of this Article shall not be
deemed to limit or preclude indemnification of a director by the corporation
for any liability of a director which has not been eliminated by the provisions
of this Article.
FOURTEENTH: The names and addresses of the Board of Directors shall be:
James A. McIntyre 2020 Santa Monica Blvd.
Santa Monica, California 90404
Dr. Houston I. Flournoy 2020 Santa Monica Blvd.
Santa Monica, California 90404
C. Douglas Kranwinkle 2020 Santa Monica Blvd.
Santa Monica, California 90404
David W. Morrisroe 2020 Santa Monica Blvd.
Santa Monica, California 90404
Louis J. Rampino 2020 Santa Monica Blvd.
Santa Monica, California 90404
Dickinson C. Ross 2020 Santa Monica Blvd.
Santa Monica, California 90404
Dr. Kenneth L. Trefftzs 2020 Santa Monica Blvd.
Santa Monica, California 90404
-7-
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF
THE ARTICLES OF INCORPORATION OF
FREMONT GENERAL CORPORATION
Louis J. Rampino and Alan W. Faigin hereby certify that:
1. They are the President and the Assistant Secretary, respectively, of
Fremont General Corporation, a Nevada corporation (the "Corporation").
2. Article FOURTH of the Articles of Incorporation of the Corporation is
amended in its entirety to read as follows:
"FOURTH: This corporation is authorized to issue two classes of shares
of stock, to be designated, respectively, "preferred stock" and "common
stock"; the total number of shares shall be 47,000,000; the total number
of shares of preferred stock shall be 2,000,000, with a par value of $.01
per share and any of such shares of preferred stock may be with full or
limited voting powers or without voting powers and with such designations,
preferences and relative, participating, optional or other special rights,
or qualification, limitations or restrictions thereof, as shall be stated
and expressed in any resolution or resolutions providing for the issue of
such preferred stock adopted by the Board of Directors of this corporation
pursuant to the authority expressly vested in it by this Article FOURTH;
the Board of Directors of this corporation is hereby authorized and
directed, from time to time, to determine whether preferred stock may be
issued, with full or limited voting powers or without voting powers and
with such designations, preferences and relative, participating, optional
or other special rights, or qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
providing for the issuance of such preferred stock adopted by the Board of
Directors pursuant to the authority expressly vested in it by the
provisions of this Article FOURTH; any preferred stock may be made subject
to redemption at such time or times and at such price or prices, and may
be issued in such series, with such designations, preferences, and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof as shall be stated and expressed in
the resolution or resolutions providing for the issuance of such preferred
stock adopted by the Board of Directors of this corporation as hereinabove
provided; the holders of preferred stock of any class or series thereof
shall be entitled to receive dividends at such rates, on such conditions
and at such times as shall be expressed in the resolution or resolutions
providing for the issuance of such preferred stock adopted by the Board of
Directors of this corporation as hereinabove provided, payable in
preference to, or in such relation to, the dividends payable on any other
class or classes of stock and cumulative or non-cumulative as shall so be
expressed; the holders of preferred stock or any class or series thereof
shall be entitled to such rights upon the dissolution of, or upon any
distribution of the assets of, this corporation as shall be stated and
expressed in the resolution or resolutions providing for the issue of such
preferred stock adopted by the Board of Directors of this corporation as
hereinabove provided; any preferred stock or any class or series thereof,
if there are other classes or series, may be made convertible into, or
-1-
<PAGE> 2
exchangeable for, shares of any other class or classes or of any
other series of the same or any class or classes of stock of this
corporation at such price or prices or at such rates of exchange and
with such adjustments as shall be stated and expressed in the
resolution or resolutions providing for the issuance of such
preferred stock adopted by the Board of Directors as hereinabove
provided; the total number of shares of common stock shall be
45,000,000 and the par value of each share of common stock shall be
$1.00 per share; the common stock of this corporation shall be
non-assessable and shall be fully paid when issued.
Upon the effective time of the amendment of this Article FOURTH that
first includes authorization to issue not less than 45,000,000
shares of common stock as hereinabove set forth, each two (2) issued
and outstanding shares of common stock, $1.00 par value per share,
shall be thereby and thereupon split up and become three (3) shares
of common stock, $1.00 par value per share; provided, however that
no fractional shares or interests shall be issued and cash in lieu
thereof (in an amount based on the closing price of the
corporation's common stock on January 8, 1996, as reported on the
New York Stock Exchange) shall be paid. The effective time of such
amendment shall be the close of business on January 8, 1996.
Certificates representing the additional shares created by the split
and any cash in lieu of fractional interests in shares will be
issued and distributed on February 7, 1996."
3. By unanimous written consent of the Board of Directors of the
Corporation on December 4, 1995, the foregoing amendment to the
Articles of Incorporation was duly adopted.
4. Pursuant to Section 78.207 of the General Corporation Law of
Nevada, the foregoing amendment did not require approval by the
stockholders of the Corporation.
-2-
<PAGE> 3
IN WITNESS WHEREOF, this Certificate of Amendment of Articles of
Incorporation of Fremont General Corporation has been executed this 22nd day of
December, 1995.
/s/ Louis Rampino
- ------------------------------------
Louis J. Rampino, President
/s/ Alan W. Faigin
- ------------------------------------
Alan W. Faigin, Assistant Secretary
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On December 22, 1995, before me, Brenda Dee Oster, a Notary Public in
and for said State, personally appeared Louis J. Rampino, President and Alan W.
Faigin, Assistant Secretary, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the persons whose names are subscribed to
the within instrument and acknowledged to me that they executed the same in
their authorized capacities and that by their signatures on the instrument the
persons, or the entity upon behalf of which the persons acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Brenda Dee Oster
--------------------------------------
Signature of Notary
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 33-64771) and related Prospectus of Fremont
General Corporation for the registration of 4,600,000 shares of its % Trust
Originated Preferred Securities of Fremont General Financing I, % Junior
Subordinated Debentures due of Fremont General Corporation,
Guarantee of Fremont General with respect to the % Trust Originated
Preferred Securities and Back-up undertakings of Fremont General Corporation in
connection with the % Trust Originated Preferred Securities of Fremont
General Financing I and to the incorporation by reference therein of our report
dated March 10, 1995, with respect to the consolidated financial statements and
schedules of Fremont General Corporation included in its Annual Report (Form
10-K and Amendment No. 1 and Amendment No. 2 on Form 10-K/A) for the year ended
December 31, 1994 and our report dated March 23, 1995, with respect to the
special purpose Statement of Assets to be Acquired and Liabilities to be Assumed
of the Specialty Workers' Compensation Business Unit of The Continental
Corporation as of December 31, 1994, and the related special purpose Statement
of Underwriting Gains and Losses for the year then ended included in its Current
Reports on Form 8-K/A dated April 27, 1995 and February 7, 1996, both filed with
the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Los Angeles, California
February 7, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Fremont General Corporation:
We consent to the incorporation by reference in the registration statement (No.
33-64771) on Form S-3 of Fremont General Corporation of our report dated March
23, 1995 with respect to the special purpose Statement of Assets to be Acquired
and Liabilities to be Assumed of the Specialty Workers' Compensation Business
Unit of The Continental Corporation as of December 31, 1993 and the related
special purpose Statement of Underwriting Gains and Losses for the year then
ended, which report appears in Fremont General Corporation's Current
Report -- Amendment No. 1 and Amendment No. 2 on Form 8-K/A dated April 27, 1995
and February 7, 1996, respectively.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
February 7, 1996
