<PAGE>
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from __________ to __________
Commission File Number 1-8007
FREMONT GENERAL CORPORATION
(Exact name of registrant as specified in this charter)
Nevada 95-2815260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2020 Santa Monica Blvd.
Santa Monica, California 90404
(Address of principal executive offices)
(Zip Code)
(310) 315-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15 (d) of Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes
of common stock:
Shares Outstanding
Class April 30, 1996
----- --------------
Common Stock, $1.00 par value 25,393,723
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<PAGE>
FREMONT GENERAL CORPORATION
INDEX
PART I - Financial Information
Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 ............... 3
Consolidated Statements of Income
Three Months Ended March 31, 1996 and 1995 ........ 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 ......... 5
Notes to Consolidated Financial Statements
on Form 10-Q ....................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................ 7
PART II - Other Information
Item 1. Not applicable
Item 2. Changes in Securities ............................... 18
Item 3. Not applicable
Item 4. Not applicable
Item 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K .................... 18
Signature ..................................................... 22
2
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------------- ----------------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Securities available for sale at fair value:
Fixed maturity investments (cost: 1996 - $1,428,296; 1995 - $1,255,434).... $1,400,789 $1,296,550
Non-redeemable preferred stock (cost: 1996 - $343,036; 1995 - $285,337).... 332,015 277,451
---------------- ----------------
Total securities available for sale........................ 1,732,804 1,574,001
Loans receivable............................................................... 1,466,931 1,499,043
Short-term investments......................................................... 344,968 362,163
Other investments.............................................................. 3,195 1,726
---------------- ----------------
Total Investments and Loans................................ 3,547,898 3,436,933
Cash .......................................................................... 42,565 39,559
Accrued investment income ..................................................... 29,009 30,396
Premiums receivable and agents' balances ...................................... 97,569 107,973
Reinsurance recoverable on paid losses ........................................ 16,126 9,422
Reinsurance recoverable on unpaid losses ...................................... 283,774 289,461
Deferred policy acquisition costs ............................................. 27,424 76,638
Costs in excess of net assets acquired ........................................ 69,134 70,656
Deferred income taxes ......................................................... 96,197 78,619
Other assets .................................................................. 77,820 75,240
Assets held for discontinued operations ....................................... 261,789 262,502
---------------- ----------------
Total Assets .............................................. $4,549,305 $4,477,399
================ ================
LIABILITIES
Claims and policy liabilities:
Losses and loss adjustment expenses ........................................ $1,399,974 $1,455,692
Life insurance benefits and liabilities .................................... 381,891 374,724
Unearned premiums .......................................................... 103,130 100,481
Dividends to policyholders ................................................. 39,055 40,822
---------------- ----------------
Total Claims and Policy Liabilities ....................... 1,924,050 1,971,719
Reinsurance premiums payable and funds withheld ............................... 5,095 5,452
Other liabilities ............................................................. 65,512 81,371
Thrift deposits ............................................................... 964,148 926,312
Short-term debt ............................................................... 75,654 72,191
Long-term debt ................................................................ 731,233 693,276
Liabilities of discontinued operations ........................................ 228,275 228,988
---------------- ----------------
Total Liabilities ......................................... 3,993,967 3,979,309
Commitments and contingencies
Company-obligated mandatorily redeemable preferred securities of
subsidiary Trust holding solely Company junior subordinated debentures ..... 100,000 -
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share -- Authorized: 49,500,000
shares; issued and outstanding: 1996 and 1995 - 25,393,000 ................. 25,393 25,393
Additional paid-in capital .................................................... 108,690 110,103
Retained earnings ............................................................. 362,376 347,607
Deferred compensation ......................................................... (29,050) (6,612)
Net unrealized gain (loss) on investments, net of deferred taxes .............. (12,071) 21,599
---------------- ----------------
Total Stockholders' Equity ................................ 455,338 498,090
---------------- ----------------
Total Liabilities and Stockholders' Equity ................ $4,549,305 $4,477,399
================ ================
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
REVENUES
Property and casualty premiums earned........................ $126,677 $123,423
Net investment income........................................ 33,777 22,374
Loan interest................................................ 38,036 39,213
Realized investment gains (losses) .......................... (661) 6
Other revenue................................................ 5,804 14,141
------------ ------------
Total Revenues....................................... 203,633 199,157
EXPENSES
Losses and loss adjustment expenses.......................... 93,677 93,517
Policy acquisition costs..................................... 25,520 23,710
Provision for loan losses.................................... 3,518 4,357
Other operating costs and expenses........................... 25,533 34,144
Interest expense............................................. 28,154 22,614
------------ ------------
Total Expenses ...................................... 176,402 178,342
------------ ------------
Income before taxes.......................................... 27,231 20,815
Income tax expense........................................... 8,714 6,609
------------ ------------
NET INCOME........................................ $18,517 $14,206
============ ============
PER SHARE DATA
Net income:
Primary................................................ $0.72 $0.55
Fully diluted.......................................... 0.60 0.46
Cash dividends.............................................. 0.15 0.12
Weighted average shares:
Primary................................................ 25,802 25,823
Fully diluted.......................................... 33,010 33,030
See notes to consolidated financial statements on Form 10-Q.
</TABLE>
4
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income .................................................... $18,517 $14,206
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in premiums receivable and agents' balances
and reinsurance recoverable on paid losses ........... 2,925 3,895
Change in accrued investment income ...................... 1,387 391
Change in claims and policy liabilities .................. (37,292) 2,770
Amortization of policy acquisition costs ................. 25,520 23,710
Policy acquisition costs deferred ........................ (25,244) (27,490)
Provision for deferred income taxes ...................... 553 (802)
Provision for loan losses ................................ 3,518 4,357
Provision for depreciation and amortization .............. 5,422 4,430
Net amortization on fixed maturity investments ........... (6,360) (1,042)
Realized investment (gains) losses ....................... 661 (6)
Change in other assets and liabilities ................... (22,188) 4,631
------------ ------------
Net Cash Provided by (Used in) Operating Activities ... (32,581) 29,050
INVESTING ACTIVITIES Securities available for sale:
Purchases of securities .................................. (711,633) (766,883)
Sales of securities ...................................... 485,579 178,543
Securities matured or called ............................. 21,149 11,360
Securities held to maturity:
Purchases of securities .................................. - (18,937)
Sales of securities ...................................... - -
Securities matured or called ............................. - 2,489
Decrease in short-term and other investments ................. 15,726 697,645
Loan originations and bulk purchases funded .................. (114,371) (111,442)
Receipts from repayments of loans ............................ 142,269 106,749
Purchase of subsidiaries, less cash acquired ................. - (249,305)
Purchase of property and equipment ........................... (2,545) (1,661)
------------ ------------
Net Cash Used in Investing Activities ................. (163,826) (151,442)
FINANCING ACTIVITIES
Proceeds from short-term debt ................................ 74,311 22,436
Repayments of short-term debt ................................ (70,848) (10,598)
Proceeds from long-term debt ................................. 74,000 75,000
Repayments of long-term debt ................................. (38,004) (2,808)
Net increase in thrift deposits .............................. 37,836 9,606
Annuity contract receipts .................................... 57,777 10,873
Annuity contract withdrawals ................................. (7,606) (845)
Proceeds from sale of Preferred Securities ................... 100,000 -
Dividends paid ............................................... (3,325) (2,923)
Stock options exercised ...................................... 975 -
Net (increase) decrease in deferred compensation plans ....... (25,703) 4,380
------------ ------------
Net Cash Provided by Financing Activities ............. 199,413 105,121
------------ ------------
Increase (Decrease) in Cash .................................. 3,006 (17,271)
Cash at beginning of year .................................... 39,559 31,058
------------ ------------
Cash at March 31, ............................................ $42,565 $13,787
============ ============
See notes to consolidated financial statements on Form 10-Q.
</TABLE>
5
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-Q
(Unaudited)
NOTE A --- BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
These statements have been prepared in accordance with generally
accepted accounting principles and, accordingly, adjustments (consisting of
normal accruals) have been made as management considers necessary for fair
presentations. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995. Certain 1995 amounts have been
reclassified to conform to the 1996 presentation, including the reclassification
of life insurance premiums to other revenue.
NOTE B --- PUBLIC OFFERING
On March 1, 1996, Fremont General Financing I, a statutory business trust
(the "Trust") and consolidated wholly-owned subsidiary of the Company, sold $100
million of 9% Trust Originated Preferred Securities (SM) ("the Preferred
Securities") in a public offering. The Preferred Securities represent preferred
undivided beneficial interests in the assets of the Trust. The proceeds from the
sale of the Preferred Securities were invested in 9% Junior Subordinated
Debentures of the Company ("the Junior Subordinated Debentures"). The $100
million Junior Subordinated Debentures are the sole asset of the Trust.
The Preferred Securities will be redeemed upon maturity of the Junior
Subordinated Debentures in 2026, subject to the election available to the
Company to extend the maturity up to 2045, and they may be redeemed, in whole or
in part, at any time on or after March 31, 2001 and under certain specified
circumstances.
The Junior Subordinated Debentures rank "pari pasu" with the Company's
$373,750,000 aggregate principal amount at maturity of Liquid Yield Option Notes
due 2013, and subordinate and junior to all senior indebtedness of the Company.
Payment of distributions out of cash held by the Trust, and payments on
liquidation of the Trust or the redemption of the Preferred Securities are
guaranteed by the Company.
NOTE C --- REINSURANCE
On January 1, 1996, the Company entered into a reinsurance and
assumption agreement with a reinsurer whereby assets and liabilities related to
certain life and annuity insurance polices, primarily investment-type contracts
and credit life and accident and health, were ceded to the reinsurer. This
reinsurance agreement is part of several other agreements which collectively act
to significantly reduce the Company's life insurance operations. The effect on
operations from these agreements was not material.
NOTE D -- STOCKHOLDERS' EQUITY AND PER SHARE DATA
The three-for-two Common Stock split declared on December 4, 1995 was
distributed on February 7, 1996 to stockholders of record on January 8, 1996.
Per share data have been computed based on the weighted average number
of shares outstanding adjusted retroactively for this stock split, as well as,
the ten percent stock dividend distributed June 15, 1995.
During the first quarter of 1996, the Company completed a stock
repurchase program. This program, previously announced on November 17, 1995, was
initiated to fund stock-based management and employee benefit programs. A total
of 845,799 shares were purchased at a cost of $20,160,000.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Fremont General Corporation (the "Company"), a nationwide property and
casualty insurance and financial services holding company, operates through its
wholly-owned subsidiaries in select businesses in niche markets. The three core
operating lines of business are workers' compensation insurance, real estate
lending and commercial finance lending. Additionally, on a smaller scale, the
Company is involved in underwriting various other insurance products.
The following table presents information for the quarters ended March
31, 1996 and March 31, 1995 with respect to the Company's primary business
segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1996 1995
---------------- ----------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revenues:
Workers' compensation ......................................... $147,662 $133,578
Professional medical liability corporate and other ............ 8,342 9,672
---------------- ----------------
Total property and casualty ...................... 156,004 143,250
Financial services ............................................ 47,226 55,713
Corporate ..................................................... 403 194
---------------- ----------------
Total ............................................ $203,633 $199,157
================ ================
Income (Loss) Before Taxes:
Workers' compensation ......................................... $25,446 $16,750
Professional medical liability, corporate and other ........... (483) (380)
---------------- ----------------
Total property and casualty ...................... 24,963 16,370
Financial services ............................................ 7,515 7,727
Corporate ..................................................... (5,247) (3,282)
---------------- ----------------
Total $27,231 $20,815
================ ================
</TABLE>
The Company generated revenues of approximately $204 million in the first
quarter ended March 31, 1996, as compared to revenues of $199 million for the
first quarter of 1995. Revenues were higher in the first quarter of 1996 as
compared to the first quarter of 1995, due primarily to higher workers'
compensation insurance premiums and net investment income, offset partially by
lower life insurance premiums in the financial services segment. The higher
workers' compensation insurance premiums and net investment income are due
primarily to the acquisition on February 22, 1995, of Casualty Insurance Company
("Casualty") from the Buckeye Union Insurance Company. Casualty underwrites
workers' compensation insurance primarily in Illinois and several other
mid-western states. Casualty currently is the largest underwriter of workers'
compensation insurance in Illinois and has provided the Company with a
significant presence in the mid-western region. The increased insurance premiums
and net investment income from this acquisition have been partially offset by
lower workers' compensation insurance premiums earned in California. See
"Property and Casualty Insurance Operations Premiums." Lower revenues in the
financial services segment are due primarily to lower life insurance premiums as
the Company significantly reduced its life insurance operations effective
January 1, 1996 by entering into certain reinsurance and assumption agreements
with a reinsurer. See "Financial Services." Realized investment gains (losses)
in the first quarter ended March 31, 1996 were ($661,000) compared to $6,000 for
the first quarter of 1995.
7
<PAGE>
The Company had net income of $18.5 million or $.72 per share for the
first quarter of 1996, as compared to $14.2 million or $0.55 per share for the
first quarter of 1995. Income before taxes for the first quarter of 1996 was
$27.2 million as compared to $20.8 million for the first quarter of 1995,
representing an increase of 30.8%.
Workers' compensation insurance operations posted income before taxes
of $25.4 million for the first quarter of 1996, as compared to $16.8 million for
the first quarter of 1995. The 51.9% increase in income before taxes in the
first quarter of 1996 is due primarily to the acquisition of Casualty, offset
partially by lower income on the Company's California business. The combined
ratio for the first quarter of 1996 was 99.5% compared to 99.6% for the first
quarter of 1995.
The Company's professional medical liability, corporate and other
segment is composed principally of revenues and expenses that pertain to the
Company's professional medical liability business ("medical malpractice"), as
well as miscellaneous expenses associated with the Company's downstream property
and casualty insurance holding company, Fremont Insurance Group, Inc., ("Fremont
Insurance Group"). Medical malpractice premiums were down slightly at $6.9
million for the first quarter of 1996 as compared to $7.7 million for the first
quarter of 1995. Income before taxes for the medical malpractice business was
$923,000 for the first quarter of 1996, also down slightly from $1.3 million for
the first quarter of 1995. Expenses of Fremont Insurance Group include interest
expense on debt and other obligations of $1.5 million for the first quarter of
1996 as compared to $1.6 million for the first quarter of 1995. Since the
operations of Fremont Insurance Group consist primarily of interest expense and
overhead expenses, management does not expect it to operate at a profit.
The financial services business segment posted income before taxes of
$7.5 million for the first quarter of 1996, down 2.7% from $7.7 million for the
first quarter of 1995. The decrease in income before taxes is due primarily to
the establishment of a specific loan loss reserve associated with a particular
loan in the commercial finance loan portfolio. See "Financial Services." The
average loan portfolio in the financial services segment grew to $1.52 billion
in the quarter ended March 31, 1996 from $1.47 billion in the quarter ended
March 31, 1995.
Corporate revenues during the quarters ended March 31, 1996 and 1995
consisted primarily of investment income, while corporate expenses consisted
primarily of interest expense and general and administrative expense. The
corporate loss before income taxes for the first quarter of 1996 was $5.2
million as compared to $3.3 million for the same period of 1995. The increase in
the corporate loss before taxes in the first quarter of 1996 over the same
period in 1995 was due primarily to increased interest expense and increased
administrative expenses. The increase in interest expense is due primarily to
additional debt incurred in the acquisition of Casualty, as well as to accrued
dividends in connection with a public offering on March 1, 1996 of $100 million
of 9% Trust Originated Preferred SecuritiesSM (the "Preferred Securities") sold
by a consolidated wholly-owned subsidiary of the Company. See "Liquidity and
Capital Resources." Since the proceeds from this offering were invested in 9%
Junior Subordinated Debentures of the Company, the accrued dividends on the
Preferred Securities have been classified in the Consolidated Statements of
Income as interest expense.
Income tax expense of $8.7 million for the first quarter ended March
31, 1996 represents an effective tax rate of 32.0% on pre-tax income of $27.2
million. The Company's effective tax rate represents a slight increase from the
effective tax rate of 31.8% for the first quarter of 1995. These effective tax
rates are lower than the enacted federal income tax rate of 35%, due primarily
to tax exempt investment income which reduces the Company's taxable income.
8
<PAGE>
PROPERTY AND CASUALTY INSURANCE OPERATIONS
The following table represents information for the quarters ended March
31, 1996 and 1995 with respect to the Company's property and casualty insurance
operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revenues ........................................ $156,004 $143,250
Expenses ........................................ 131,041 126,880
------------ ------------
Income before taxes ............................. $24,963 $16,370
============ ============
</TABLE>
Revenues from the property and casualty insurance operations consist
primarily of workers' compensation insurance premiums earned and net investment
income. Expenses consist primarily of loss and loss adjustment expenses, policy
acquisition costs, other operating costs and expenses.
PREMIUMS. Premiums earned from the Company's workers' compensation
insurance operations were $119.4 million in the first quarter ended March 31,
1996, as compared to $115.1 million in the same period of 1995. Premiums were
slightly higher in the first quarter of 1996 as compared to the first quarter of
1995, due primarily to the acquisition of Casualty, partially offset by lower
premiums earned in California. For the first quarter ended March 31,1996, the
Company's workers' compensation insurance premiums earned in its western region,
consisting primarily of California, accounted for $44.9 million, or 37.6% of the
Company's total workers' compensation insurance premiums earned for such period,
representing a decrease of $31.6 million from the same period in 1995. This
decrease was due primarily to the increased price competition resulting from
California's adoption of an open rating system and the repeal of the minimum
rate law. See "Workers' Compensation Regulation." This increased price
competition has led to (i) lower premium rates and (ii) a lower average policy
size due to the Company's shift in focus to smaller employers. Additionally, an
increase in non-renewing polices have contributed to the lower premium volume in
California. The increase in non-renewing polices occurs as a result of certain
premium prices falling below required minimum pricing pursuant to the Company's
underwriting standards. For the first quarter ended March 31, 1996, the
Company's workers' compensation insurance premiums earned in its mid-western
region, consisting primarily of Illinois, accounted for $74.5 million, or 62.4%
of the Company's total workers' compensation insurance premiums earned. In
addition, the Company anticipates price competition to continue in Illinois,
where an overall average decrease of 13.6% in advisory rates, which workers'
compensation insurance companies in Illinois tend to follow, became effective
January 1, 1996. See "Variability of Operating Results."
NET INVESTMENT INCOME. Net investment income within the property and
casualty insurance operations was $30.0 million, in the first quarter ended
March 31, 1996, as compared to $19.9 million in the same period of 1995.
Significantly higher invested assets, due primarily to the acquisition of
Casualty, resulted in increased investment income during the first quarter ended
March 31, 1996 as compared to the same period of 1995.
LOSS AND LOSS ADJUSTMENT EXPENSE. Workers' compensation loss and loss
adjustment expenses ("LAE") were $88.0 million and $87.0 million for the
quarters ended March 31, 1996 and 1995, respectively. In addition, the ratio of
these losses and LAE to workers' compensation insurance premiums earned was
73.7%, and 75.6% for the quarters ended March 31, 1996 and 1995, respectively.
The modest increase in incurred loss and LAE in the first quarter of 1996 as
compared to the same period of 1995 is due primarily to the acquisition of
Casualty, partially offset by lower incurred loss and LAE in California.
Additionally, the decrease in the loss and LAE ratio in the first quarter of
1996 as compared to the same period of 1995, is due primarily to lower claim
frequency and severity in the Company's mid-west region, offset partially by a
higher loss and LAE ratio in the Company's west region resulting from lower
insurance premiums earned on California policies which resulted from increased
competition. See "Premiums". The decrease in California premiums was greater
than the decrease in California incurred loss and LAE, thereby resulting in a
higher loss and LAE ratio.
9
<PAGE>
The Company regularly reviews its reserving techniques, overall reserve
position and reinsurance. In light of present facts and current legal
interpretations, management believes that adequate provisions have been made for
loss reserves. In making this determination, management has considered its
claims experience to date, loss development history for prior accident years and
estimates of future trends of claims frequency and severity. However,
establishment of appropriate reserves is an inherently uncertain process, and
there can be no certainty that currently established reserves will prove
adequate in light of subsequent actual experience. Subsequent actual experience
has resulted and could result in loss reserves being too high or too low. Future
loss development could require reserves for prior periods to be increased, which
would adversely impact earnings in future periods.
POLICY ACQUISITION COSTS AND OTHER OPERATING COSTS AND EXPENSES. The
ratio of policy acquisition costs and other operating costs and expenses to
premiums earned is referred to as the expense ratio, which for the Company's
workers' compensation business was 25.8% in the first quarter ended March 31,
1996, as compared to 24.0% in the same period of 1995. The increase in this
ratio in the first quarter of 1996 was due primarily to higher operating costs
and expenses, partially offset by lower agents' commission costs.
DIVIDENDS TO POLICYHOLDERS. In the quarters ended March 31, 1996 and
March 31, 1995 there were no dividends accrued. This is due primarily to a
change in the type of workers' compensation insurance policy written on and
after January 1, 1995. In 1995, the Company's workers' compensation insurance
policies, both in California and those underwritten by Casualty, were
predominately written as non-participating, which does not include provisions
for dividend consideration. Prior to 1995 the Company's policies were
predominately written as participating, thereby obligating the Company to
consider the payment of dividends. This shift in policy type is due primarily to
the increased competition in the California market which has resulted from the
repeal of the minimum rate law, effective January 1, 1995. The Company
anticipates that this shift to non-participating policies will continue and be a
characteristic element of the competitive environment established by the July
1993 California legislation. See "Workers' Compensation Regulation."
VARIABILITY OF OPERATING RESULTS. The Company's profitability can be
affected significantly by many factors including competition, the severity and
frequency of claims, interest rates, regulations, court decisions, the judicial
climate, and general economic conditions and trends, all of which are outside of
the Company's control. These factors have contributed, and in the future could
contribute, to significant variation of results of operations in different
aspects of the Company's business from quarter to quarter and year to year. With
respect to the workers' compensation insurance business, changes in economic
conditions can lead to reduced premium levels due to lower payrolls as well as
increased claims due to the tendency of workers who are laid off to submit
workers' compensation claims. Legislative and regulatory changes can also
contribute to variable operating results for workers' compensation insurance
businesses. For example, in 1995 the Company experienced the negative impact of
lower premiums and lower profitability on the Company's California workers'
compensation business due to increased price competition resulting from
legislation enacted in California in July 1993 which, among other things,
repealed the minimum rate law effective January 1, 1995. See "Workers'
Compensation Regulation." Additionally, price competition in Illinois continues
to impact the Company's profitability, where an overall average decrease of
13.6% in advisory rates, which workers' compensation insurance companies in
Illinois tend to follow, became effective January 1, 1996. The Company
anticipates that its results of operations and financial condition will continue
to be adversely affected by the increased price competition which has lowered
the Company's workers' compensation insurance premiums earned in California.
Also, the establishment of appropriate reserves necessarily involves estimates,
and reserve adjustments have caused significant fluctuations in operating
results from year to year.
WORKERS' COMPENSATION REGULATION. Illinois began operating under an
open rating system in 1982 and California began operating under such a system
effective January 1, 1995. In an open rating system, workers' compensation
companies are provided with advisory rates by job classification and each
insurance company determines its own rates based in part upon its particular
operating and loss costs. Although insurance companies are not required to adopt
such advisory rates, companies in Illinois generally follow such rates. However,
insurance companies in California have, since the adoption of an open rating
system, generally set their premium rates below such advisory rates. Before
January 1, 1995, California operated under a minimum rate law, whereby premium
10
<PAGE>
rates established by the California Department of Insurance were the minimum
rates which could be charged by an insurance carrier.
In July 1993, California enacted legislation to reform the workers'
compensation insurance system and to, among other things, (i) reduce workers'
compensation manual premium rates by 7% effective July 16, 1993 and (ii) repeal
the minimum rate law effective January 1, 1995. In addition to the July 1993
legislation, in December 1993, the California Insurance Commissioner reduced
workers' compensation manual premium rates on new and renewal business an
additional 12.7% effective January 1, 1994. In September 1994, California
workers' compensation manual premium rates were further reduced by 16% effective
October 1, 1994 on all business incepting on or after January 1, 1994.
The repeal of the minimum rate law on January 1, 1995 has resulted in
lower premiums and lower profitability in the Company's California workers'
compensation insurance business due to increased price competition. The Company
believes that its acquisition of Casualty, with policies written primarily
outside of California, has lessened the impact of the repeal of the minimum rate
law by providing geographic diversity, which mitigates the impact of economic
and regulatory changes within a regional marketplace.
FINANCIAL SERVICES
The Company's financial services operations are principally engaged in
commercial and residential real estate lending through Fremont Investment & Loan
and asset-based lending through Fremont Financial. The Company also has small
premium finance and life insurance operations included in this segment. Revenues
consist principally of interest income and, to a lesser extent, fees, life
insurance premiums and other income.
The following table presents information with respect to the Company's
financial services operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revenues ........................................ $47,226 $55,713
Expenses ........................................ 39,711 47,986
------------ ------------
Income before taxes ............................. $ 7,515 $ 7,727
============ ============
</TABLE>
Revenues decreased 15.2% in the first quarter ended March 31, 1996 over the
same period of 1995, due primarily to lower life insurance revenues. These lower
life insurance revenues resulted from certain reinsurance and assumption
agreements which the Company entered into on December 31, 1995 and January 1,
1996, primarily with one reinsurer, whereby assets and liabilities related to
certain life and annuity insurance policies, primarily investment-type contracts
and credit life and accident and health, were ceded to the reinsurer. The
reinsurance agreements are part of several other agreements which collectively
act to significantly reduce the Company's life insurance operations. The effect
on income before taxes and net income from these agreements was not material.
Income before taxes in the financial services operations was $7.5
million for the first quarter ended March 31, 1996 as compared to $7.7 million
for the first quarter of 1995. The decrease in income before taxes in the first
quarter is due primarily to the establishment of a specific loan loss reserve
associated with a particular loan in the commercial finance loan portfolio.
Partially offsetting the impact of this specific loan loss reserve was higher
income before taxes in the real estate lending operation due to lower loan loss
experience resulting in a lower provision for loan losses in the first quarter
of 1996 as compared to the same period of 1995.
11
<PAGE>
The following table identifies the interest income, interest expense,
average interest-bearing assets and liabilities, and interest margins for the
Company's real estate lending and commercial finance subsidiaries:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
------------------------------------- --------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST (1) BALANCE INTEREST COST (1)
--------------- ---------- -------- --------------- --------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing assets (2):
Commercial finance
and other assets .................. $637,448 $17,535 11.00 % $582,147 $17,516 12.04 %
Real estate lending:
Cash equivalents ..................... 182,539 2,457 5.38 71,119 916 5.15
Investments .......................... 19,883 286 5.75 422 2 1.90
Commercial real estate loans ......... 715,777 17,000 9.50 681,176 16,043 9.42
Residential real estate loans ........ 176,172 4,128 9.37 108,160 2,709 10.02
Contract loans ....................... 113 (1) (3.54) 20,632 693 13.44
Installment loans .................... 689 19 11.03 2,937 94 12.80
Finance leases ....................... - - - 73 1 5.48
--------------- ---------- --------------- ---------
Total interest bearing assets .......... $1,732,621 $41,424 9.56 $1,466,666 $37,974 10.36
=============== ========== =============== =========
Interest bearing liabilities:
Savings deposits ....................... $260,322 $3,383 5.20 % $71,117 $857 4.82 %
Time deposits .......................... 705,080 10,314 5.85 686,190 9,774 5.70
Commercial paper and other ............. 3,559 64 7.19 17,747 303 6.83
Securitization obligation .............. 304,258 4,700 6.18 300,000 4,886 6.51
Debt with banks ........................ 210,449 3,410 6.48 163,053 2,803 6.88
Debt from affiliates ................... 58,240 719 4.94 49,892 514 4.12
--------------- ---------- --------------- ---------
Total interest bearing liabilities ..... $1,541,908 $22,590 5.86 $1,287,999 $19,137 5.94
=============== ========== =============== =========
Net interest income $18,834 $18,837
========== =========
Net yield 4.35 % 5.14 %
- ---------------------
(1) Annualized.
(2) Average loan balances include non-accrual balances.
</TABLE>
The margin between the Company's interest income and cost of funds
decreased in the quarter ended March 31, 1996 as compared to the quarter ended
March 31, 1995, due primarily to an increase in lower yielding cash equivalents,
changes in the mix of loans and a modest increase in the cost of savings and
time deposits in the real estate lending operation, as well as a slight decrease
in the net margins in the commercial finance lending segment. In the real estate
lending operation, the change in portfolio mix occurred as the Company continued
its shift away from high rate, high risk residential real estate loans secured
by personal property or junior liens on real estate, to lower yielding
residential first trust deed real estate loans. The lower yields on the first
trust deed loans are compensated for by the improved underlying collateral and
by the improved lien position on the collateral. The net margins decreased in
the commercial finance segment due primarily to an increase in the competitive
environment.
12
<PAGE>
LOANS RECEIVABLE AND RESERVE ACTIVITY. The following table shows loans
receivable in the various financing categories and the percentages of the total
represented by each category:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------------------- -----------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
---------------- ------ --------------- ------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C>
Accounts receivable and inventory loans:
Commercial finance ........................................ $410,034 27 % $415,038 27 %
Term loans:
Commercial finance ........................................ 153,017 10 110,647 7
Real estate lending ....................................... 878,411 59 888,952 58
Other ..................................................... 57,643 4 116,187 8
---------------- ---- --------------- -----
Total term loans ...................................... 1,089,071 73 1,115,786 73
---------------- ---- --------------- -----
Total loans ........................................... 1,499,105 100 1,530,824 100
Less allowance for possible loan losses ....................... 32,174 2 31,781 2
---------------- ---- -------------- -----
Loans receivable .......................................... $1,466,931 98 % $1,499,043 98 %
================ ==== =============== =====
</TABLE>
The following table illustrates the maturities of the
Company's loans receivable:
<TABLE>
<CAPTION>
MATURITIES AT MARCH 31, 1996
------------------------------------------------------------------
1 TO 24 25 TO 60 OVER 60
MONTHS MONTHS MONTHS TOTAL
-------------- -------------- ------------- ----------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Accounts receivable and inventory
loans -- variable rate ...................... $410,034 $ - $ - $410,034
Term loans -- variable rate ...................... 150,981 119,147 625,601 895,729
Term loans -- fixed rate ......................... 95,439 47,748 50,155 193,342
-------------- -------------- ------------- ----------------
Total ........................................ $656,454 $166,895 $675,756 $1,499,105
============== ============== ============= ================
</TABLE>
The Company monitors the relationship of fixed and variable rate loans and
interest bearing liabilities in order to minimize interest rate risk.
Adverse economic developments can negatively affect the Company's
business and results of operations in a number of ways. Such developments can
reduce the demand for loans, impair the ability of borrowers to pay loans and
impair the value of the underlying collateral.
13
<PAGE>
The following table describes the asset classifications, loss
experience and reserve reconciliation of the real estate lending and commercial
finance operations as of or for the periods ended as shown below:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------
1996 1995
---------------- ----------------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C>
Non-accrual loans ............................................... $27,089 $25,765
Accrual loans 90 days past due .................................. 1,595 170
Real estate owned ("REO") ....................................... 8,057 12,400
---------------- ----------------
Total non-performing assets ..................................... $36,741 $38,335
================ ================
Beginning allowance for possible loan losses .................... $31,781 $27,406
Provision for loan losses ....................................... 3,518 4,357
Reserves established with portfolio acquisitions ................ 1,830 -
Charge-offs:
Commercial finance and other loans .......................... 4,011 96
Real estate lending:
Commercial real estate loans ............................ 970 213
Residential real estate loans ........................... - 442
Contract and installment loans .......................... 95 113
---------------- ----------------
Total charge-offs ........................................... 5,076 864
---------------- ----------------
Recoveries:
Commercial finance and other loans .......................... 7 337
Real estate lending:
Commercial real estate loans ............................ 19 -
Residential real estate loans ........................... 35 331
Contract and installment loans .......................... 51 87
Finance leases .......................................... 9 1
---------------- ----------------
Total recoveries ............................................ 121 756
---------------- ----------------
Net charge-offs ................................................. 4,955 108
---------------- ----------------
Ending allowance for possible loan losses ....................... $32,174 $31,655
================ ================
Allocation of allowance for possible loan losses:
Commercial finance and other loans .......................... $14,366 $14,211
Real estate lending ......................................... 17,808 17,444
---------------- ----------------
Total allowance for possible loan losses .................... $32,174 $31,655
================ ================
Total loans receivable .......................................... $1,499,105 $1,472,765
Average total loans receivable .................................. 1,520,177 1,465,408
Net charge-offs to average total loans receivable ............... 1.30 % 0.03 %
Non-performing assets to total loans receivable ................. 2.45 % 2.60 %
Allowance for possible loan losses to total loans receivable .... 2.15 % 2.15 %
Allowance for possible loan losses to non-performing assets ..... 87.57 % 82.57 %
Allowance for possible loan losses to non-accrual
loans and accrual loans 90 days past due .................... 112.17 % 122.06 %
</TABLE>
Non-performing assets decreased slightly to $36.7 million at March 31,
1996 from $38.3 million at March 31, 1995. This decrease is due primarily to a
reduction in REO assets of $4.3 million, offset partially by an
14
<PAGE>
increase in non-accrual loans and accrual loans 90 days past due. The
non-accrual loan increases are consistent with the increase in total loans
receivable. The decrease in REO was achieved primarily through asset sales.
The lower provision for loan losses in the quarter ended March 31, 1996
as compared to the same quarter of the prior year, is due primarily to improved
loan loss experience in the real estate lending operation, offset partially by
an additional specific loan loss reserve in the commercial finance operation
associated with one loan in the commercial finance portfolio. Substantially all
of the charge-offs in the commercial finance segment in the first quarter of
1996 were also related to this loan. This accounts for the increase in net
charge-offs to average total loans receivable to 1.30% at March 31, 1996 from
0.03% at March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The property and casualty insurance operations must have cash and
liquid assets available to meet their obligations to policyholders in accordance
with contractual obligations, in addition to having the funds available to meet
ordinary operating costs. These operations have several sources of funds to meet
their obligations, including cash flow from operations, recoveries from
reinsurance contracts and investment securities. By statute, the majority of the
cash from these operations is required to be invested in investment grade
securities to provide protection for policyholders. The Company invests in fixed
income and preferred equity securities with an objective of providing a
reasonable return while limiting credit and liquidity risk. The Company's
investment portfolio had an unrealized gain (loss) of ($18.6) million and $33.2
million at March 31, 1996 and December 31. 1995, respectively.
The Company's thrift and loan subsidiary finances its lending
activities primarily through customer deposits, which have grown to $964 million
at March 31, 1996 from $926 million at December 31, 1995. In addition, Fremont
Investment & Loan is eligible for financing through the Federal Home Loan Bank
of San Francisco. This financing is available at varying rates and terms. As of
March 31, 1996, $190 million was available under the facility and no borrowings
were outstanding.
The Company's commercial finance operation funds its lending activities
primarily through its asset securitization program, an unsecured revolving line
of credit with a syndicated bank group and its capital. The asset securitization
program was established to provide a stable and cost effective source of funds
to facilitate the expansion of this business. The securities issued in this
program have scheduled maturities in 1997 and 2000, but could mature earlier
depending on fluctuations in outstanding balances of loans in the portfolio and
other factors. During April 1995, the Company issued $30 million in subordinated
variable rate asset-backed certificates, which mature in 2000, via a private
placement. In February 1996, $135 million in asset-backed certificates were
issued which mature in 2000. The proceeds were used, in conjunction with
existing cash, to retire $200 million in previously issued variable rate
asset-backed certificates. As of March 31, 1996 there were $265 million in
outstanding variable rate asset-backed certificates. Additionally, up to $365
million in additional publicly offered asset-backed certificates may be issued
pursuant to a shelf registration statement to fund future growth in the
commercial finance loan portfolio. In December 1995, a commercial paper facility
was established as part of the asset securitization program. This facility,
which expires in December 1998, provides for the issuance of up to $150 million
in commercial paper, dependent upon the level of assets within the asset
securitization program. As of March 31, 1996, $11 million was outstanding under
this facility. The commercial finance operation's unsecured revolving line of
credit is with a syndicated bank group that presently permits borrowings of up
to $300 million, of which $231 million was outstanding as of March 31, 1996.
This credit line is primarily used to finance assets which are not included in
the Company's asset securitization program. This credit line expires August
1998.
As a holding company, Fremont General pays its operating expenses,
meets its other obligations and pays stockholders' dividends from its cash on
hand, management fees paid by its subsidiaries and dividends paid by its
subsidiaries. Stockholders' dividends declared aggregated $3.7 million and $2.9
million for the quarters ended March 31, 1996 and 1995, respectively. Several of
the Company's subsidiaries are subject to certain statutory and regulatory
restrictions and various agreements, principally loan agreements, that restrict
their ability to distribute dividends to the Company. The Company expects that
during the next few years dividends from its subsidiaries will consist of
dividends from its property and casualty subsidiaries and dividends on preferred
stock of its thrift and
15
<PAGE>
loan holding company and commercial finance subsidiaries. The maximum amount
available for payment of dividends by the property and casualty subsidiaries at
December 31, 1995 without prior regulatory approval is approximately $30
million.
To facilitate general corporate operations, in August 1994 the Company
obtained a revolving line of credit with a syndicated bank group that permitted
borrowings of up to $150 million. In August 1995, the Company negotiated an
increase of this line to $200 million, of which $78 million was outstanding as
of March 31, 1996. In August 1997, this credit line converts to a term loan of
up to $100 million, with scheduled semi-annual payments through August 2001. In
addition, in July 1994 the Company replaced its internally financed loan to its
Employee Stock Ownership Plan ("ESOP") with an external bank-financed loan
totaling $11 million. The maximum principal amount of this loan was increased to
$15 million in August 1995. The loan is due in seven equal annual installments
commencing on April 1, 1996 and is secured by certain shares of the ESOP. The
balance outstanding at March 31, 1996 was $3.6 million. The interest and
principal payments are guaranteed by the Company.
On February 22, 1995, the Company completed the acquisition of Casualty
which resulted in the disbursement of funds totaling $256.5 million, comprised
of $231.5 million in cash and $25 million in a note payable to the seller. In
September 1995, the note payable to the seller was refinanced using the
Company's existing revolving line of credit. The cash used to fund the
acquisition includes $55 million in borrowings under the Company's existing line
of credit and the remainder from internally generated funds.
On March 1, 1996, Fremont General Financing I, a statutory business
trust (the "Trust") and consolidated wholly-owned subsidiary of the Company,
sold $100 million of 9% Trust Originated Preferred SecuritiesSM ("the Preferred
Securities") in a public offering. The Preferred Securities represent preferred
undivided beneficial interests in the assets of the Trust. The proceeds from the
sale of the Preferred Securities were invested in 9% Junior Subordinated
Debentures of the Company ("the Junior Subordinated Debentures"). The $100
million Junior Subordinated Debentures are the sole asset of the Trust. The
Preferred Securities will be redeemed upon maturity of the Junior Subordinated
Debentures in 2026, subject to the election available to the Company to extend
the maturity up to 2045, and they may be redeemed, in whole or in part, at any
time on or after March 31, 2001 and under certain specified circumstances. The
Junior Subordinated Debentures rank "pari pasu" with the Company's $373,750,000
aggregate principal amount at maturity of Liquid Yield Option(TM) Notes due
2013, and subordinate and junior to all senior indebtedness of the Company.
Payment of distributions out of cash held by the Trust, and payments on
liquidation of the Trust or the redemption of the Preferred Securities are
guaranteed by the Company. The Company used the proceeds from the sale of the
Junior Subordinated Debentures to reduce outstanding debt under the Company's
revolving line of credit by approximately $50 million, and the remaining
proceeds have been used for general corporate purposes. The reduction of $50
million in the Company's revolving line of credit occurred over several months,
with the final reduction paid in May 1996.
Net cash provided by (used in) operating activities of continuing
operations was ($32.6) million and $29.1 million for the first quarter ended
March 31, 1996 and 1995, respectively. Net cash provided by (used in) continuing
operations decreased in the first quarter of 1996 over the same quarter of 1995
due primarily to a decrease in claims and policy liabilities resulting from
lower premium volume in the Company's California workers' compensation insurance
business, as well as a decrease in other liabilities due primarily to the
settlement of accrued operating costs.
Net cash used in investing activities increased modestly to $163.8
million from $151.4 million for the quarters ended March 31, 1996 and 1995,
respectively. The increase in net cash used in investing activities is due
primarily to an increase in investment purchases, net of sales, maturities, and
calls, offset partially by the purchase of Casualty in February 1995 for a net
cash disbursement of $249.3 million, as well as an increase in receipts from
repayments of loans. The significant decrease in short-term and other
investments of $697.6 million and the purchase of securities of $766.9 million
in the quarter ended March 31, 1995 was due primarily to the effects of
investing the acquired short-term investment portfolio of Casualty into
long-term securities.
Net cash provided by financing activities was $199.4 million and $105.1
million for the quarters ended March 31, 1996 and March 31, 1995, respectively.
Net cash provided by financing activities increased in the first
16
<PAGE>
quarter of 1996 as compared to the first quarter of 1995, due primarily to the
following items: (i) a larger increase in thrift deposits; (ii) a larger
increase in annuity contract receipts, net of contract withdrawals; (iii) and
the impact of the proceeds from the sale of 9% Trust Originated Preferred
Securities SM on March 1, 1996 in a public offering by the Trust. These
conditions were partially offset by lower short-term and long-term debt
proceeds, net of repayments, as well as an increase in deferred compensation
plans. Substantially all of the annuity contract receipts received in the
quarter ended March 31, 1996 will be remitted to a reinsurer under certain
reinsurance and assumption agreements which became effective January 1, 1996.
See "Financial Services". The lower proceeds from long-term debt, net of
repayments, is due primarily to debt incurred in the first quarter of 1995
related to the Casualty acquisition. The increase in deferred compensation plan
is due primarily to the repurchase by the Company of its Common Stock in the
first quarter of 1996 pursuant to certain deferred compensation programs.
The amortized cost of the Company's invested assets were $2.12 billion
and $1.91 billion at March 31, 1996 and December 31, 1995, respectively.
Contributing to the $210 million increase in the invested assets were $100
million in proceeds from the public offering on March 1, 1996 of 9% Trust
Originated Preferred SecuritiesSM by a subsidiary of the Company and a $50
million increase in net annuity receipts in the life insurance operation. These
annuity receipts will ultimately be remitted to a reinsurer under certain
reinsurance and assumption agreements which became effective January 1, 1996.
See "Financial Services".
The Company's property and casualty premium to surplus ratio for the
year ended December 31, 1995 was 2.3 to 1, which is within industry guidelines.
The FDIC has established certain capital and liquidity standards for its member
institutions, and Fremont Investment & Loan was in compliance with these
standards as of March 31, 1996.
The Company believes that its existing cash, its bank lines of credit,
revenues from operations and other available sources of liquidity will be
sufficient to satisfy its liquidity needs for the next several years.
The Company's strategy is to expand its business to the extent possible
without adversely impacting its loan portfolio and policyholder base. However,
the Company's strategic model is not dependent on growth as a source of
liquidity. While the level of revenues will obviously affect results of
operations, the Company's liquidity is not dependent on future revenue growth.
CHANGES IN ACCOUNTING PRINCIPLES
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121 ("FASB 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", which requires impairment
losses to be recorded on long-lived assets used in operations, including
intangible assets, when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. FASB 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted FASB
121 in the first quarter of 1996 and the effect of adoption was not material.
Also, in 1995, the FASB issued Statement 123 ("FASB 123"), "Accounting
for Stock-Based Compensation" that is effective for fiscal years beginning after
December 15, 1995. FASB 123 establishes a method of accounting for stock-based
compensation that is based on the fair value of stock options and similar
instruments and encourages, but does not require, adoption of that method. The
Company has elected to continue following Accounting Principles Board Opinion
No. 25 for measuring compensation cost. Pursuant to FASB 123, the Company will
disclose pro forma net income and earnings per share calculated as if the
recognition and measurement provisions of the new standard had been adopted.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1: Legal Proceedings.
None.
Item 2: Changes in Securities.
On December 4, 1995, the Company announced a three-for-two split of
its Common Stock for stockholders of record at January 8, 1996. The
stock split was effected on February 7, 1996.
Item 3: Defaults Upon Senior Securities.
None.
Item 4: Submission of Matters to a Vote of Security Holders.
None.
Item 5: Other Information.
None.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Stock Purchase Agreement among Fremont Compensation Insurance
Company, Fremont General Corporation, the Buckeye Union Insurance
Company, The Continental Corporation and Casualty Insurance
Company, Dated as of December 16, 1994. (Filed as Exhibit No. 2.1
to Current Report on Form 8-K, as of February 22, 1995,
Commission File Number 1-8007, and incorporated herein by
reference.)
2.2 Amendment No. 1 to Stock Purchase Agreement among Fremont
Compensation Insurance Company, Fremont General Corporation,
the Buckeye Union Insurance Company, The Continental
Corporation and Casualty Insurance Company, Dated as of
December 16, 1994. (Filed as Exhibit No. 2.2 to Current
Report on Form 8-K, as of February 22, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
3.1 Restated Articles of Incorporation of Fremont General
Corporation. (Filed as Exhibit No. 3.1 to Registration
Statement on Form S-3 File No 33-64771 which was declared
effective on March 1, 1996, and incorporated herein by
reference.)
3.2 Certificate of Amendment of Articles of Incorporation of
Fremont General Corporation. (Filed as Exhibit 3.2 to
Registration Statement on Form S-3 File No. 33-64771 which was
declared effective on March 1, 1996 and herein incorporated by
reference.)
3.3 Amended and Restated By-Laws of Fremont General Corporation.
(Filed as Exhibit No. 3.3 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
4.1 Form of Stock Certificate for Common Stock of the Registrant.
(Filed as Exhibit No. (1) Form 8-A filed on March 17, 1993,
Commission File Number 1-8007, and incorporated herein by
reference.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013
between the Registrant and Bankers Trust Company. (Filed as
Exhibit No. 4.4 to Registration Statement on Form S-3 filed on
October 1, 1993, and incorporated herein by reference.)
18
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
4.3 Indenture among the Registrant, the Trust and First Interstate
Bank of California, a California banking corporation, as
trustee. (Filed as Exhibit No. 4.3 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1995, Commission
File Number 1-8007, and incorporated herein by reference.)
4.4 Declaration of Trust among the Registrant, the Regular Trustees
and The Chase Manhattan Bank (USA), a Delaware banking
corporation, as Delaware trustee. (Filed as Exhibit No. 4.4 to
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated herein
by reference.)
4.5 Amended and Restated Declaration of Trust among the Registrant,
the Regular Trustees, The Chase Manhattan Bank (USA), a Delaware
banking corporation, as Delaware trustee, and The Chase Manhattan
Bank, N.A., a national banking association, as Institutional
Trustee. (Filed as Exhibit No. 4.5 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
4.6 Preferred Securities Guarantee Agreement between the
Registrant and The Chase Manhattan Bank, N.A., a national
banking association, as Preferred Guarantee Trustee. (Filed as
Exhibit No. 4.6 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
4.7 Common Securities Guarantee Agreement by the Registrant.
(Filed as Exhibit No. 4.7 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
4.8 Form of Preferred Securities. (Included in Exhibit 4.5).
(Filed as Exhibit No. 4.8 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
4.9 Form of 9% Junior Subordinated Debenture. (Included in Exhibit
4.3). (Filed as Exhibit No. 4.9 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
10.1 Fremont General Corporation Employee Stock Ownership Plan as
amended. (Filed as Exhibit No. 10.1 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1995, Commission
File Number 1-8007, and incorporated herein by reference.)
10.2 Amended and Restated Trust Agreement for Fremont General
Corporation Employee Stock Ownership Plan. (Filed as Exhibit
No. 10.2 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.3 Fremont General Corporation and Affiliated Companies
Investment Incentive Program as amended. (Filed as Exhibit No.
10.3 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.4 (a) Trust Agreement for Investment Incentive Program. (Filed as
Exhibit No. (10)(xi) to Annual Report on Form 10-K, for the
Fiscal Year Ended December 31, 1993, Commission File Number
1-8007, and incorporated herein by reference.)
10.4 (b) Amendment to Trust Agreement for Investment Incentive Program.
(Filed as Exhibit No. 10.4 (b) to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
19
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
10.5 (a) Supplemental Retirement Plan of the Company. (Filed as
Exhibit No. (10)(v) to Annual Report on Form 10-K, for the
Fiscal Year Ended December 31, 1990, Commission File Number
1-8007, and incorporated herein by reference.)
10.5 (b) Amendment to Supplemental Retirement Plan. (Filed as Exhibit
No. 10.5 (b) to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
10.6 Trust Agreement for Supplemental Retirement Plan of the
Company and the Senior Supplemental Retirement Plan of The
Company, as amended. (Filed as Exhibit No. 10.6 to Annual
Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein
by reference.)
10.7 Senior Supplemental Retirement Plan, as amended. (Filed as
Exhibit No. 10.7 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
10.8 (a) Excess Benefit Plan of the Company. (Filed as Exhibit No.
(10)(vi) to Annual Report on Form 10-K, for the Fiscal Year
Ended December 31, 1993, Commission File Number 1-8007, and
incorporated herein by reference.)
10.8 (b) Amendment to Excess Benefit Plan of the Company. (Filed as
Exhibit No. 10.8 (b) to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.8 (c) Trust Agreement for Excess Benefit Plan. (Filed as Exhibit No.
10.8 (c) to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.9 Non-Qualified Stock Option Plan of 1989 of the Company. (Filed
as Exhibit No. 10.9 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.10 Long-Term Incentive Compensation Plan of the Company. (Filed
as Exhibit No. 10.10 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.11 1995 Restricted Stock Award Plan. (Filed as Exhibit No. 10.11
to Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated herein
by reference.)
10.12 Fremont General Corporation Employee Benefits Trust Agreement
("Grantor Trust") dated September 7, 1995 between the Company and
Merrill Lynch Trust Company of California. (Filed as Exhibit No.
10.12 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.13 Employment Agreement between the Company and James A.
McIntyre. (Filed as Exhibit No. (10)(i) to Quarterly Report
on Form 10-Q for the period ended March 31, 1994, Commission
File Number 1-8007, and incorporated herein by reference.)
10.14 (a) Employment Agreement between the Company and Louis J. Rampino.
(Filed as Exhibit No. 10.14 (a) to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
20
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
10.14 (b) Employment Agreement between the Company and Wayne R. Bailey.
(Filed as Exhibit No. 10.14 (b) to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
10.15 Management Continuity Agreement between the Company and
Raymond G. Meyers. (Filed as Exhibit No. 10.15 to Annual
Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.16 1996 Management Incentive Compensation Plan of the Company.
10.17 Continuing Compensation Plan for Retired Directors. (Filed as
Exhibit No. 10.17 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.18 Non-Employee Directors' Deferred Compensation Plan. (Filed as
Exhibit No. 10.18 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.19 (a) Amended and Restated Credit Agreement among Fremont General
Corporation, Various Lending Institutions and the Chase
Manhattan Bank, N.A., As Agent. (Filed as Exhibit No.
(10)(xiii) to Quarterly Report on Form 10-Q for the period
ended September 30, 1995, Commission File Number 1-08007, and
incorporated herein by reference.)
10.19 (b) Amendment to Credit Agreement. (Filed as Exhibit No. 10.19 (b)
to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.20 Keep Well Agreement, dated as of August 24, 1995 by the Company
in connection with the Credit Agreement among Fremont General
Corporation, Various Lending Institutions and the Chase Manhattan
Bank, N.A., As Agent. (Filed as Exhibit No. 10.20 to Annual
Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by
reference.)
10.21 Credit Agreement $15,000,000 by and among Merrill Lynch Trust
Company of California as trustee for the Fremont General
Corporation Employee Stock Ownership Trust. The Plan Committee
(hereinafter described) on behalf of the Fremont General
Corporation Employee Stock Ownership Plan, Fremont General
Corporation, and First Interstate Bank of California August 10,
1995. (Filed as Exhibit No. (10)(viii) to Quarterly Report on
Form 10-Q for the period ended September 30, 1995, and
incorporated herein by reference.)
(11) Statement re: Computation of per share earnings.
(27) Financial Data Schedule
(b) Report on Form 8-K. None filed during the quarter ended
March 31, 1996.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FREMONT GENERAL CORPORATION
Date: May 14, 1996 /s/ LOUIS J. RAMPINO
-------------------------------
Louis J. Rampino, President,
Chief Operating Officer and Director
Date: May 14, 1996 /s/ JOHN A. DONALDSON
-----------------------------
John A. Donaldson, Controller
and Chief Accounting Officer
22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DOCUMENT NUMBERED PAGE
- ------- -------- -------------
<C> <S> <C>
2.1 Stock Purchase Agreement among Fremont Compensation Insurance Company,
Fremont General Corporation, the Buckeye Union Insurance Company, The
Continental Corporation and Casualty Insurance Company, Dated as of
December 16, 1994. (Filed as Exhibit No. 2.1 to Current Report on Form 8-K,
as of February 22, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
2.2 Amendment No.1 to StockPurchase Agreement among Fremont Compensation
Insurance Company, Fremont General Corporation, the Buckeye Union Insurance
Company, The Continental Corporation and Casualty Insurance Company, Dated
as of December 16, 1994.(Filed as Exhibit No. 2.2 to Current Report on Form
8-K, as of February 22, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
3.1 Restated Articles of Incorporation of Fremont General Corporation. (Filed
as Exhibit No. 3.1 to Registration Statement on Form S-3 File No 33-64771
which was declared effective on March 1, 1996, and incorporated herein by
reference.)
3.2 Certificate of Amendment of Articles of Incorporation of Fremont General
Corporation. (Filed as Exhibit 3.2 to Registration Statement on Form S-3
File No. 33-64771 which was declared effective on March 1, 1996 and herein
incorporated by reference.
3.3 Amended and Restated By-Laws of Fremont General Corporation. (Filed as
Exhibit No. 3.3 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated herein
by reference.)
4.1 Form of Stock Certificate for Common Stock of the Registrant. (Filed as
Exhibit No. (1) Form 8-A filed on March 17, 1993, Commission File Number
1-8007, and incorporated herein by reference.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013 between the
Registrant and Bankers Trust Company. (Filed as Exhibit No. 4.4 to
Registration Statement on Form S-3 filed on October 1, 1993, and
incorporated herein by reference.)
4.3 Indenture among the Registrant, the Trust and First Interstate Bank of
California, a California banking corporation, as trustee. (Filed as Exhibit
No. 4.3 to Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
4.4 Declaration of Trust among the Registrant, the Regular Trustees and The
Chase Manhattan Bank (USA), a Delaware banking corporation, as Delaware
trustee. (Filed as Exhibit No. 4.4 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.5 Amended and Restated Declaration of Trust among the Registrant, the Regular
Trustees, The Chase Manhattan Bank (USA), a Delaware banking corporation,
as Delaware trustee, and The Chase Manhattan Bank, N.A., a national banking
association, as Institutional Trustee. (Filed as Exhibit No. 4.5 to Annual
Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
4.6 Preferred Securities Guarantee Agreement between the Registrant and The
Chase Manhattan Bank, N.A., a national banking association, as Preferred
Guarantee Trustee. (Filed as Exhibit No. 4.6 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
4.7 Common Securities Guarantee Agreement by the Registrant. (Filed as Exhibit
No. 4.7 to Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DOCUMENT NUMBERED PAGE
- ------- -------- -------------
4.8 Form of Preferred Securities. (Included in Exhibit 4.5). (Filed as Exhibit
No. 4.8 to Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
4.9 Form of 9% Junior Subordinated Debenture. (Included in Exhibit 4.3). (Filed
as Exhibit No. 4.9 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated herein
by reference.)
10.1 Fremont General Corporation Employee Stock Ownership Plan as amended.
(Filed as Exhibit No. 10.1 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.
10.2 Amended and Restated Trust Agreement for Fremont General Corporation
Employee Stock Ownership Plan. (Filed as Exhibit No. 10.2 to Annual Report
on Form 10-K, for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
10.3 Fremont General Corporation and Affiliated Companies Investment Incentive
Program as amended. (Filed as Exhibit No. 10.3 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.4 (a)Trust Agreement for Investment Incentive Program. (Filed as Exhibit No.
(10)(xi) to Annual Report on Form 10-K, for the Fiscal Year Ended December
31, 1993, Commission File Number 1-8007, and incorporated herein by
reference.)
10.4 (b)Amendment to Trust Agreement for Investment Incentive Program. (Filed as
Exhibit No. 10.4 (b) to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
10.5 (a)Supplemental Retirement Plan of the Company. (Filed as Exhibit No.
(10)(v) to Annual Report on Form 10-K, for the Fiscal Year Ended December
31, 1990, Commission File Number 1-8007, and incorporated herein by
reference.)
10.5 (b)Amendment to Supplemental Retirement Plan. (Filed as Exhibit No. 10.5
(b) to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by reference.)
10.6 Trust Agreement for Supplemental Retirement Plan of the Company and the
Senior Supplemental Retirement Plan of The Company, as amended. (Filed as
Exhibit No. 10.6 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated herein
by reference.)
10.7 Senior Supplemental Retirement Plan, as amended. (Filed as Exhibit No. 10.7
to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
10.8 (a)Excess Benefit Plan of the Company. (Filed as Exhibit No. (10)(vi) to
Annual Report on Form 10-K, for the Fiscal Year Ended December 31, 1993,
Commission File Number 1-8007, and incorporated herein by reference.)
10.8 (b)Amendment to Excess Benefit Plan of the Company. (Filed as Exhibit No.
10.8 (b) to Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.8 (c)Trust Agreement for Excess Benefit Plan. (Filed as Exhibit No. 10.8 (c)
to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
10.9 Non-Qualified Stock Option Plan of 1989 of the Company. (Filed as Exhibit
No. 10.9 to Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DOCUMENT NUMBERED PAGE
- ------- -------- -------------
10.10 Long-Term Incentive Compensation Plan of the Company.(Filed as Exhibit
No. 10.10 to Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.11 1995 Restricted Stock Award Plan. (Filed as Exhibit No. 10.11 to Annual
Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
10.12 Fremont General Corporation Employee Benefits Trust Agreement ("Grantor
Trust") dated September 7, 1995 between the Company and Merrill Lynch Trust
Company of California. (Filed as Exhibit No. 10.12 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.13 Employment Agreement between the Company and James A. McIntyre.(Filed as
Exhibit No. (10)(i) to Quarterly Report on Form 10-Q for the period ended
March 31, 1994, Commission File Number 1-8007, and incorporated herein by
reference.)
10.14(a) Employment Agreement between the Company and Louis J.Rampino.(Filed as
Exhibit No. 10.14 (a) to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
10.14(b) Employment Agreement between the Company and Wayne R. Bailey.(Filed as
Exhibit No. 10.14 (b) to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
10.15 Management Continuity Agreement between the Company and Raymond G. Meyers.
(Filed as Exhibit No. 10.15 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.16 1996 Management Incentive Compensation Plan of the Company.
10.17 Continuing Compensation Plan for Retired Directors. (Filed as Exhibit No.
10.17 to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by reference.
10.18 Non-Employee Directors' Deferred Compensation Plan.(Filed as Exhibit No.
10.18 to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by reference.)
10.19(a) Amended and Restated Credit Agreement among Fremont General
Corporation, Various Lending Institutions and the Chase Manhattan Bank,
N.A., As Agent. (Filed as Exhibit No. (10)(xiii) to Quarterly Report on
Form 10-Q for the period ended September 30, 1995, Commission File Number
1-08007, and incorporated herein by reference.)
10.19(b) Amendment to Credit Agreement. (Filed as Exhibit No. 10.19 (b) to
Annual Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
10.20 Keep Well Agreement, dated as of August 24, 1995 by the Company in
connection with the Credit Agreement among Fremont General Corporation,
Various Lending Institutions and the Chase Manhattan Bank, N.A., As Agent.
(Filed as Exhibit No. 10.20 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.21 Credit Agreement $15,000,000 by and among Merrill Lynch Trust Company of
California as trustee for the Fremont General Corporation Employee Stock
Ownership Trust. The Plan Committee (hereinafter described) on behalf of
the Fremont General Corporation Employee Stock Ownership Plan, Fremont
General Corporation, and First Interstate Bank of California August 10,
1995. (Filed as Exhibit No. (10)(viii) to Quarterly Report on Form 10-Q for
the period ended September 30, 1995, and incorporated herein by reference.)
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DOCUMENT NUMBERED PAGE
- ------- -------- -------------
(11) Statement re: Computation of per share earnings.
(27) Financial Data Schedule
</TABLE>
FREMONT GENERAL CORPORATION & AFFILIATED COMPANIES
1996 MANAGEMENT INCENTIVE COMPENSATION PLAN
INTRODUCTION
The Management Incentive Compensation Plan ("Plan") is designed to encourage and
reinforce management action and performance which results in achieving or
exceeding established pre-tax earnings targets, and to reward participants for
these achievements.
The Company has set pre-tax earnings as the Plan's measurable objective, and
individual participants are rewarded based on the earnings achieved in their
respective profit centers. Some participants' bonuses are calculated partially
on divisional results and partially on overall profit center results.
The Plan is subject to approval each year by the Fremont General Corporation
Board of Directors.
STRUCTURE
The Plan measures actual pre-tax earnings against a pre-determined target
earnings range. Earnings achieved at target, or within a range of 80% to 120% of
the target, generate a bonus pool which is calculated as a percentage of
participant base salaries. Bonuses earned based upon actual earnings in this
range will be between 50% of the participant's established target bonus and as
much as 200% of such target, depending on position and grade ranking. Actual
pre-tax earnings include an accounting accrual for anticipated bonus payments
based on budget.
* A target bonus is established for each participant at the
beginning of the year based on salary grade and current salary.
* The sum of all participants' target bonuses in each profit center
is the target bonus fund for the Plan Year for that profit
center.
* The sum of all profit centers' target bonus funds is the total
Corporate Target Bonus Fund for the Plan Year.
* The actual bonus fund for each profit center depends upon pre-tax
earnings in relation to the target for the year.
-1-
<PAGE>
* Individual participants' bonus awards will vary in relation to
their profit centers' actual bonus fund.
* If participants are added during the year, the fund is increased
by the amount of their target bonuses.
* If participants terminate during the year, the fund is decreased
by the full amount of their target bonuses.
* If a participant's duties change substantially during the year
(resulting in a change in grade), the target bonus may be
adjusted for that participant.
For participants whose bonuses are determined in part by the pre-tax earnings of
their branch, division or regional office and in part by overall regional or
corporate results:
* A bonus based on the overall results of the larger organization
(the region or company) is awarded only where the corresponding
branch, division or regional office result is at least 80% of its
target.
* A bonus based on branch, division or regional office results is
awarded if those results are at least at 80% of target even if
the results of the larger organization (region or company) fall
short of their targets.
ELIGIBILITY
Officers and Managers of Fremont General Corporation and Participating
subsidiaries, as designated by the Board of Directors, are eligible for bonus
consideration.
* Participants must be actively employed in a participating entity
of the Corporation at the end of the Plan Year to be eligible for
bonus payments.
* Designated participants must qualify for an actual bonus award.
To Qualify, the Participant MUST:
- be actively employed at the time the bonus is
awarded;
- have achieved a personal performance appraisal evaluation of
"Satisfactory" (or equivalent rating) or better.
-2-
<PAGE>
TERMINATIONS
* If terminated for reasons of death, disability or retirement
after age 60 and such event:
a) occurs during first half of the Plan Year: No bonus
awarded;
b) during last half of the Plan Year: Payment on a prorated
basis at normal time of award;
c) between year end and time of award: Payment in full at
normal time of award.
* Termination for cause will result in forfeiture of all rights to
bonus consideration.
* Termination for other reasons:
In the event of a voluntary resignation prior to actual award of
a bonus, the participant will forfeit any bonus. Layoffs or other
non-disciplinary terminations will not necessarily cause
forfeiture of an otherwise earned bonus.
-3-
Statement Re: Computation of per share earnings
Fremont General Corporation
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995*
------------ ------------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Primary:
Weighted average shares outstanding 24,837 25,390
Net effect of dilutive stock options - based
on the treasury stock method using
average market price 965 432
------------ ------------
Total 25,802 25,823
============ ============
Net income $18,517 $14,206
============ ============
Per share amount $0.72 $0.55
============ ============
Fully Diluted:
Weighted average shares outstanding 24,837 25,390
Net effect of dilutive stock options - based
on the treasury stock method using the
quarter-end market price, if higher than
average market price 965 432
Assumed conversion of LYONs 7,208 7,208
------------ ------------
Total 33,010 33,030
============ ============
Net income $18,517 $14,206
Income adjustments for fully diluted computation:
Add interest expense and amortization of prepaid
expense, net of federal income tax, for assumed
conversion of LYONs 1,166 1,027
------------ ------------
Total $19,683 $15,233
============ ============
Per share amount $0.60 $0.46
============ ============
* Adjusted retroactively for all stock splits and dividends.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from
SEC Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000038984
<NAME> FREMONT GENERAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 1,400,789
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 355,210
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,547,898<F1>
<CASH> 42,565
<RECOVER-REINSURE> 16,126
<DEFERRED-ACQUISITION> 27,424
<TOTAL-ASSETS> 4,549,305
<POLICY-LOSSES> 1,781,865
<UNEARNED-PREMIUMS> 103,130
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 39,055
<NOTES-PAYABLE> 806,887
<COMMON> 25,393
100,000
0
<OTHER-SE> 429,945<F2>
<TOTAL-LIABILITY-AND-EQUITY> 4,549,305
126,677
<INVESTMENT-INCOME> 33,777
<INVESTMENT-GAINS> (661)
<OTHER-INCOME> 43,840<F3>
<BENEFITS> 93,677
<UNDERWRITING-AMORTIZATION> 25,520
<UNDERWRITING-OTHER> 6,899
<INCOME-PRETAX> 27,231
<INCOME-TAX> 8,714
<INCOME-CONTINUING> 18,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,517
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.60
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes loans receivable and short-term investments.
<F2>Sum of Additional paid-in-capital, Retained earnings, Deferred Compensation
and Net unrealized gain (loss) on investments.
<F3>Includes Loan interest and Other revenue.
</FN>
</TABLE>
