<PAGE>
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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 June 30, 1997
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 July 31, 1997
Common Stock, $1.00 par value 32,658,250
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<PAGE>
FREMONT GENERAL CORPORATION
INDEX
PART I - Financial Information
Page No.
-------
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 ...................... 3
Consolidated Statements of Income
Three Months and Six Months Ended June 30, 1997 and 1996 . 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 .................. 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
Items 1-3. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders ...... 17
Item 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K ......................... 18
Signature ........................................................... 22
2
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FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Securities available for sale at fair value:
Fixed maturity investments (cost: 1997 - $1,107,207; 1996 - $1,004,248) .... $ 1,114,922 $ 1,005,147
Non-redeemable preferred stock (cost: 1997 - $393,314; 1996 - $351,812) .... 406,271 354,958
----------- -----------
Total securities available for sale ..................................... 1,521,193 1,360,105
Loans receivable ............................................................... 1,857,001 1,688,040
Short-term investments ......................................................... 191,222 118,582
Other investments .............................................................. 7,039 5,623
----------- -----------
TOTAL INVESTMENTS AND LOANS ............................................. 3,576,455 3,172,350
Cash ........................................................................... 32,092 55,378
Accrued investment income ...................................................... 28,958 26,794
Premiums receivable and agents' balances ....................................... 113,525 99,404
Reinsurance recoverable on paid losses ......................................... 13,410 13,173
Reinsurance recoverable on unpaid losses ....................................... 413,883 438,459
Deferred policy acquisition costs .............................................. 28,078 25,551
Costs in excess of net assets acquired ......................................... 64,706 67,287
Deferred income taxes .......................................................... 56,001 64,035
Other assets ................................................................... 132,887 79,881
Assets held for discontinued operations ........................................ 261,271 265,200
----------- -----------
TOTAL ASSETS ............................................................ $ 4,721,266 $ 4,307,512
=========== ===========
LIABILITIES
Claims and policy liabilities:
Losses and loss adjustment expenses ......................................... $ 1,196,195 $ 1,256,345
Life insurance benefits and liabilities ..................................... 189,443 202,465
Unearned premiums ........................................................... 103,190 87,422
Dividends to policyholders .................................................. 28,211 33,093
----------- -----------
TOTAL CLAIMS AND POLICY LIABILITIES ..................................... 1,517,039 1,579,325
Reinsurance premiums payable and funds withheld ................................ 4,268 4,106
Other liabilities .............................................................. 84,420 65,574
Thrift deposits ................................................................ 1,293,506 1,114,352
Short-term debt ................................................................ 232,276 16,896
Long-term debt ................................................................. 572,920 636,456
Liabilities of discontinued operations ......................................... 227,757 231,686
----------- ----------
TOTAL LIABILITIES ....................................................... 3,932,186 3,648,395
Commitments and contingencies
Company-obligated mandatorily redeemable preferred securities of
subsidiary Trust holding solely Company junior subordinated debentures ...... 100,000 100,000
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share -- Authorized: 49,500,000 shares;
issued and outstanding: (1997 - 32,649,000 and 1996 - 28,093,000) ........... 32,649 28,093
Additional paid-in capital ..................................................... 267,532 168,452
Retained earnings .............................................................. 459,349 419,136
Deferred compensation .......................................................... (83,887) (59,193)
Net unrealized gain on investments, net of deferred taxes ...................... 13,437 2,629
----------- -----------
TOTAL STOCKHOLDERS' EQUITY .............................................. 689,080 559,117
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................. $ 4,721,266 $ 4,307,512
=========== ===========
See notes to consolidated financial statements on Form 10-Q.
</TABLE>
3
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FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES
Property and casualty premiums earned ... $ 120,802 $ 125,561 $ 236,030 $ 252,238
Net investment income ................... 31,268 31,292 61,045 65,069
Loan interest ........................... 47,319 39,018 91,496 77,054
Realized investment losses .............. (498) (863) (1,029) (1,524)
Other revenue ........................... 7,264 4,700 13,348 10,504
--------- --------- --------- ---------
Total Revenues .................. 206,155 199,708 400,890 403,341
EXPENSES
Losses and loss adjustment expenses ..... 76,180 85,828 149,277 179,505
Policy acquisition costs ................ 25,271 23,995 48,782 49,515
Provision for loan losses ............... 2,167 2,330 3,896 5,848
Other operating costs and expenses ...... 32,765 26,427 62,565 51,960
Interest expense ........................ 33,630 27,815 64,406 55,969
--------- --------- --------- ---------
Total Expenses .................. 170,013 166,395 328,926 342,797
--------- --------- --------- ---------
Income before taxes ..................... 36,142 33,313 71,964 60,544
Income tax expense ...................... 11,204 10,887 22,667 19,601
--------- --------- --------- ---------
NET INCOME .................... $ 24,938 $ 22,426 $ 49,297 $ 40,943
========= ========= ========= =========
PER SHARE DATA
Net income:
Primary ........................... $ 0.83 $ 0.85 $ 1.70 $ 1.57
Fully diluted ..................... 0.75 0.71 1.50 1.30
Cash dividends ......................... 0.15 0.15 0.30 0.30
Weighted average shares:
Primary ........................... 29,990 26,266 29,039 26,034
Fully diluted ..................... 34,366 33,495 34,123 33,242
See notes to consolidated financial statements on Form 10-Q.
</TABLE>
4
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FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income ........................................................... $ 49,297 $ 40,943
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 .................. (13,579) 4,318
Change in accrued investment income ............................. (2,076) 1,223
Change in claims and policy liabilities ......................... (65,652) (112,122)
Amortization of policy acquisition costs ........................ 48,782 49,515
Policy acquisition costs deferred ............................... (51,061) (47,603)
Provision for deferred income taxes ............................. 4,948 11,331
Provision for loan losses ....................................... 3,896 5,848
Provision for depreciation and amortization ..................... 14,824 11,860
Net amortization on fixed maturity investments .................. (8,949) (11,910)
Realized investment losses ...................................... 1,029 1,524
Change in other assets and liabilities .......................... (26,378) (39,241)
------------- ----------
NET CASH USED IN OPERATING ACTIVITIES ........................ (44,919) (84,314)
INVESTING ACTIVITIES
Securities available for sale:
Purchases of securities .............................................. (1,677,515) (1,170,579)
Sales of securities .................................................. 1,570,783 1,220,690
Securities matured or called ......................................... 16,183 44,650
(Increase) decrease in short-term and other investments .............. (74,056) 179,320
Loan originations and bulk purchases funded .......................... (445,471) (250,282)
Receipts from repayments of loans .................................... 272,614 211,693
Purchase of property and equipment ................................... (9,998) (5,576)
-------------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES .......... (347,460) 229,916
FINANCING ACTIVITIES
Proceeds from short-term debt ........................................ 212,497 91,115
Repayments of short-term debt ........................................ - (72,191)
Proceeds from long-term debt ......................................... 29,260 74,058
Repayments of long-term debt ......................................... (20,000) (71,004)
Net increase in thrift deposits ...................................... 179,154 32,662
Annuity contract receipts ............................................ 687 108,231
Annuity contract withdrawals ......................................... (16,907) (18,142)
Proceeds from sale of Preferred Securities ........................... - 100,000
Dividends paid ....................................................... (8,316) (7,112)
Stock options exercised .............................................. 13,110 996
Settlement under life insurance reinsurance agreement ................ - (363,415)
Net increase in deferred compensation plans .......................... (20,392) (26,450)
-------------- ----------
Net Cash Provided by (Used in) Financing Activities .......... 369,093 (151,252)
-------------- ----------
DECREASE IN CASH ..................................................... (23,286) (5,650)
Cash at beginning of year ............................................ 55,378 39,559
-------------- ----------
CASH AT JUNE 30, ..................................................... $ 32,092 $ 33,909
============== ==========
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, 1996. Certain 1996 amounts have been
reclassified to conform to the 1997 presentation.
NOTE B --- STOCKHOLDERS' EQUITY
During the first three months of 1997, the Company purchased an
aggregate 864,824 shares at an aggregate cost of approximately $26 million to
fund stock-based management and employee benefit programs.
NOTE C --- NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 ("FASB 128"), "Earnings Per Share" and Statement No. 129
("FASB 129) "Disclosure of Information about Capital Structure" which are both
effective for periods ending after December 15, 1997. At that time, pursuant to
FASB 128, the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of primary earnings per share would have resulted in an increase of $0.01 and
$0.03 per share for the quarters ended June 30, 1997 and 1996, respectively. The
impact was nil for the six months ended June 30, 1997 but would have resulted in
an increase of $0.06 for the six months ended June 30, 1996. There was no impact
on fully diluted earnings per share for these periods.
FASB 129 consolidates existing requirements regarding disclosure of
certain information about an entity's capital, and therefore will have no
impact.
NOTE D --- SUBSEQUENT EVENT
On August 1, 1997, the Company completed the acquisition of Industrial
Indemnity Holdings, Inc. a Delaware corporation ("Industrial Indemnity"),
pursuant to a Stock Purchase Agreement dated as of May 16, 1997 by and among the
Company, Fremont Indemnity Company, a California corporation and wholly-owned
subsidiary of the Company ("Fremont Indemnity") and Talegen Holdings, Inc., a
Delaware corporation and subsidiary of Xerox Corporation ("Talegen"), whereby
Fremont Indemnity purchased from Talegen all of the issued and outstanding
capital stock of Industrial Indemnity. The purchase price paid by the Company
consisted of $365 million in cash and the pay-off of approximately $79 million
of an outstanding debt obligation that Industrial Indemnity owed to Talegen.
Financing for the transaction was provided by internal funds and bank
borrowings. The aggregate purchase price was determined pursuant to arms-length
negotiations among the constituent corporations The acquisition will be treated
as a purchase for accounting purposes.
Industrial Indemnity, which specializes in underwriting workers'
compensation insurance and providing risk management services, has a strong
presence in the western United States dating back over 70 years. In 1996,
Industrial Indemnity had gross premiums of $259 million, with invested assets of
approximately $1.1 billion.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS INCLUDING THOSE SETFORTH ELSEWHERE IN THIS QUARTERLY
REPORT ON FORM 10-Q.
RESULTS OF OPERATIONS
Fremont General Corporation (the "Company") is engaged domestically in
select insurance and financial services businesses. Fremont General's insurance
business includes one of the largest underwriters of workers' compensation
insurance in the nation. The Company also provides medical malpractice
insurance. Fremont General's financial services business includes commercial
real estate lending, residential real estate lending, commercial finance and
premium financing. The Company's total assets as of June 30, 1997 were $4.7
billion. The primary operating strategy of the Company is to build upon its core
business units through acquisition opportunities and new business development.
The Company's secondary strategy is to achieve income balance and geographic
diversity among its business units in order to limit the exposure of the Company
to industry, market and regional concentrations. The Company's stock is traded
on the New York Stock Exchange under the symbol "FMT" (NYSE: FMT).
The following table presents information for the three and six months
ended June 30, 1997 and 1996 with respect to the Company's primary business
segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues:
Property and casualty ..................... $ 148,461 $ 152,601 $ 290,964 $ 308,605
Financial services ........................ 57,173 46,482 109,396 93,708
Corporate ................................. 521 625 530 1,028
--------- ---------- ---------- ---------
Total ............................ $ 206,155 $ 199,708 $ 400,890 $ 403,341
========= ========== ========= =========
Income (Loss) Before Taxes:
Property and casualty ..................... $ 32,689 $ 30,442 $ 65,098 $ 55,405
Financial services ........................ 10,482 8,873 20,961 16,388
Corporate ................................. (7,029) (6,002) (14,095) (11,249)
----------- ---------- ---------- ----------
Total ............................ $ 36,142 $ 33,313 $ 71,964 $ 60,544
=========== ========== ========== ==========
</TABLE>
The Company generated revenues of approximately $206 million and $401
million in the three and six month periods ended June 30, 1997, as compared to
$200 million and $403 million in the same periods in 1996. Revenues were
slightly higher in the three months ended June 30, 1997 as compared to the same
prior year period, due primarily to higher loan interest revenues in the
financial services segment, offset partially by lower workers' compensation
insurance premiums. These same conditions resulted in relatively flat revenues
for the six month periods ended June 30, 1997 and 1996. The lower workers'
compensation insurance premiums were due primarily to lower premiums earned in
the mid-west region, particularly Illinois. See "Property and Casualty Insurance
Operations - Premiums." Higher loan interest revenues in the financial services
segment were due mainly to significant growth in the average loan portfolios of
the real estate lending and commercial finance operations. See "Financial
Services." Realized investment losses in the three and six month periods ended
June 30, 1997 were $498,000 and $1,029,000, respectively, compared to $863,000
and $1,524,000, respectively, for the same periods in 1996.
The Company had net income of $24.9 million or $0.83 per share and $49.3
million or $1.70 per share for the three and six month periods ended June 30,
1997, respectively, as compared to $22.4 million or $0.85 per share and $40.9
million or $1.57 per share for the same periods in 1996. Income before taxes for
the three and six month periods ended June 30, 1997 was $36.1 million and $72.0
million, respectively, as compared to $33.3 million and
7
<PAGE>
$60.5 million for the same periods in 1996, representing increases of 8.5% and
18.9% for the three and six month periods, respectively.
Workers' compensation insurance operations posted income before taxes of
$33.8 million and $67.1 million for the three and six month periods ended June
30, 1997, respectively, as compared to $31.1 million and $56.5 million for the
same periods in 1996. The increases in income before taxes of 8.6% and 18.6% for
the three and six month periods, respectively, were due primarily to the
recognition of continued lower claim frequency in both the west and mid-west
regions. The combined ratio for the three and six month periods ended June 30,
1997 was 90.0% and 90.1% compared to 93.4% and 96.5% for the same periods in
1996.
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 Compensation Insurance Group
("FCIG"). Medical malpractice premiums earned were $7.5 million and $14.9
million for the three and six month periods ended June 30, 1997, respectively,
compared to $6.8 million and $13.7 million for the same periods of 1996. Income
before taxes for the medical malpractice business was $0.5 million and $1.4
million for the three and six months ended June 30. 1997, respectively, compared
to $0.9 million and $1.8 million for the same periods of 1996. Expenses of FCIG
include interest expense on debt and other obligations of $1.6 million and $3.1
million for the three and six months ended June 30, 1997, flat as compared to
$1.5 million and $2.9 million for the same periods of 1996. Since the operations
of FCIG 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 for the
three and six months ended June 30, 1997 of $10.5 million, and $21.0 million,
respectively, as compared to $8.9 million and $16.4 million for the same periods
of 1996. These increases were due mainly to the general growth in the average
loan portfolio. The average loan portfolio grew to $1.88 billion and $1.83
billion for the three and six month periods ended June 30, 1997, respectively,
from $1.52 billion and $1.53 billion for the same periods of 1996.
Corporate revenues during the three and six month periods ended June 30,
1997 and 1996 consisted primarily of investment income, while corporate expenses
consisted primarily of interest expense and general and administrative expenses.
The corporate loss before income taxes for the three and six months ended June
30, 1997 was $7.0 million and $14.1 million as compared to $6.0 million and
$11.2 million for the same periods of 1996. The increase in the corporate loss
before taxes for both the three and six month periods was due primarily to lower
investment income and increased administrative expenses.
Income tax expense of $11.2 million and $22.7 million for the three and
six months ended June 30, 1997, respectively, represents effective tax rates of
31.0% and 31.5% on respective pre-tax income of $36.1 million and $72.0 million.
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.
PROPERTY AND CASUALTY INSURANCE OPERATIONS
The following table represents information for the three and six month
periods ended June 30, 1997 and 1996 with respect to the Company's property
and casualty insurance operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues .................................... $ 148,461 $ 152,601 $ 290,964 $ 308,605
Expenses .................................... 115,772 122,159 225,866 253,200
--------- --------- --------- ---------
Income Before Taxes ......................... $ 32,689 $ 30,442 $ 65,098 $ 55,405
========= ========= ========= =========
</TABLE>
Revenues from the property and casualty insurance operations consist
primarily of workers' compensation insurance premiums earned and net investment
income. Expenses are comprised mainly of loss and loss adjustment expenses,
policy acquisition costs and other operating costs and expenses.
8
<PAGE>
PREMIUMS. Premiums earned from the Company's workers' compensation
insurance operations were $113.2 million and $220.8 million in the three and six
month periods ended June 30, 1997, as compared to $118.5 million and $237.8
million for the same periods of 1996. The lower premiums were due primarily to
lower premium rates in the mid-west region. For the three and six month periods
ended June 30, 1997, the Company's workers' compensation insurance premiums
earned in its mid-western region, consisting primarily of Illinois, accounted
for $65.1 million and $131.6 million or 57.5% and 59.6% of the Company's total
workers' compensation insurance premiums earned. This is compared to $74.6
million and $149.1 million, or 63.0% and 62.7% in premiums earned for the same
periods of 1996. The lower premiums earned were due mainly to continued price
competition in Illinois, where an overall average decrease of 10.0% in advisory
premium rates, which workers' compensation insurance companies in Illinois tend
to follow, became effective January 1, 1997. The Company's workers' compensation
insurance premiums earned in its western region, consisting primarily of
California, accounted for $48.1 million and $89.2 million in the three and six
month periods ended June 30, 1997, or 42.5% and 40.4%, respectively, of the
Company's total workers' compensation insurance premiums earned. This represents
increases over the $43.9 million and $88.7 million in workers' compensation
insurance premiums earned for the same periods of 1996 and is due mainly to a
moderation of price competition in California, which adopted an open rating
system effective January 1, 1995. See "Variability of Operating Results" and
"Workers' Compensation Regulation."
NET INVESTMENT INCOME. Net investment income within the property and
casualty insurance operations was $28.2 million and $56.0 in the three and six
month periods ended June 30, 1997, relatively even as compared to $27.9 million
and $57.9 million for the same periods of 1996. This is due primarily to a flat
average investment portfolio between the respective three and six month periods
ended June 30, 1997 and 1996.
LOSS AND LOSS ADJUSTMENT EXPENSE. Workers' compensation loss and loss
adjustment expenses ("LAE") were $69.8 million and $136.6 million for the three
and six month periods ended June 30, 1997, as compared to $80.3 million and
$168.3 million for the same periods of 1996. In addition, the ratio of these
losses and LAE to workers' compensation insurance premiums earned ("loss ratio")
was 61.7% and 61.9% for the three and six month periods ended June 30, 1997, as
compared to 67.8% and 70.8% for the same periods of 1996. The decrease in the
loss ratio was due primarily to the recognition of continued lower claim
frequency in the Company's west and mid-west regions.
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 28.3% for both the three and six month periods ended
June 30, 1997, as compared to 25.6% and 25.7% for the same respective periods of
1996. The increase in this ratio was due primarily to higher agents' commission
costs and higher operating costs and expenses.
DIVIDENDS TO POLICYHOLDERS. In the three and six month periods ended June
30, 1997 and June 30, 1996, there were no dividends accrued. This is due
primarily to the type of workers' compensation insurance policies written by the
Company. The Company's workers' compensation insurance policies are
predominately written as non-participating, which does not include provisions
for dividend consideration.
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
9
<PAGE>
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. Additionally, price
competition in Illinois continues to impact the Company's profitability, where
overall average decreases of 10.0% and 13.6% in advisory premium rates, which
workers' compensation insurance companies in Illinois tend to follow, became
effective January 1, 1997 and January 1, 1996, respectively. See "Workers'
Compensation Regulation." 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 and Illinois. 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 premium rates by job classification and
each insurance company determines its own premium rates based in part upon its
particular operating and loss costs. Although insurance companies are not
required to adopt such advisory premium rates, companies in Illinois generally
follow such rates. This characteristic has resulted in price competition in
Illinois, where overall average decreases in advisory premium rates of 10.0% and
13.6% became effective January 1, 1997 and 1996, respectively. However,
insurance companies in California have, since the adoption of an open rating
system, generally set their premium rates below such advisory premium rates.
Before January 1, 1995, California operated under a minimum rate law, whereby
premium rates established by the California Department of Insurance were the
minimum rates which could be charged by an insurance carrier.
FINANCIAL SERVICES
The Company's financial services operations, which are comprised primarily
of the results of Fremont General Credit Corporation ("FGCC"), are principally
engaged in commercial and residential real estate lending, commercial finance
and premium financing. Revenues consist primarily of interest income and, to a
lesser extent fees and other income.
The following table presents information for the three and six month
periods ended June 30, 1997 and 1996 with respect to the Company's financial
services operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues ...................................... $ 57,173 $ 46,482 $ 109,396 $ 93,708
Expenses ...................................... 46,691 37,609 88,435 77,320
---------- ---------- --------- ---------
Income Before Taxes ........................... $ 10,482 $ 8,873 $ 20,961 $ 16,388
========== ========== ========== =========
</TABLE>
Revenues increased 23.0% and 16.7% in the three and six month periods
ended June 30, 1997, respectively, as compared to the same periods of 1996, due
primarily to greater loan interest revenue attributable to the growth in the
average loan portfolio of the commercial and residential real estate lending and
commercial finance operations.
Income before taxes in the financial services operations was $10.5 million
and $21.0 million for the three and six month periods ended June 30, 1997, as
compared to $8.9 million and $16.4 million for the same periods of 1996. The
18.1% and 27.9% increases in income before taxes in the three and six month
periods ended June 30, 1997 was due primarily to higher income before taxes in
the real estate lending operation. Contributing to this higher income before
taxes were higher loan interest revenue due to a greater average real estate
loan portfolio, a higher net interest margin, and a lower loan loss provision
relative to loans receivable, which resulted from lower loan loss experience.
These conditions were partially offset by an increase in the cost of funds and
increases in operating expenses.
10
<PAGE>
The following table identifies the interest income, interest expense,
average interest-bearing assets and liabilities, and interest margins for the
Company's financial services operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------
1997 1996
----------------------------------- ----------------------------------
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, premium
finance and other loans ................ $ 649,635 $ 34,809 10.72 % $ 637,526 $ 35,183 11.04 %
Thrift and loan:
Cash equivalents ....................... 113,345 3,025 5.34 173,004 4,615 5.34
Investments ............................ 40,335 1,128 5.59 26,446 733 5.54
Commercial real estate loans ........... 906,951 42,884 9.46 707,080 33,864 9.58
Residential real estate loans .......... 292,662 14,126 9.65 187,657 8,787 9.36
Other thrift loans ..................... 1,352 69 10.21 585 24 8.21
------------ --------- ------------ ----------
Total interest bearing assets ............ $ 2,004,280 $ 96,041 9.58 % $ 1,732,298 $ 83,206 9.61 %
============ ========= ============ ==========
Interest bearing liabilities:
Savings deposits ......................... $ 245,811 $ 6,115 4.98 % $ 259,322 $ 6,486 5.00 %
Time deposits ............................ 961,426 27,791 5.78 703,507 20,209 5.75
Commercial paper and other ............... 10,644 295 5.54 3,094 84 5.43
Securitization obligation ................ 302,819 9,174 6.06 292,823 8,952 6.11
Debt with banks .......................... 220,376 7,274 6.60 225,710 7,239 6.41
Debt from affiliates ..................... 50,553 1,294 5.12 60,440 807 2.67
------------ --------- ------------ ----------
Total interest bearing liabilities ....... $ 1,791,629 $ 51,943 5.80 % $ 1,544,896 $ 43,777 5.67 %
============ ========= ============ ==========
Net interest income .......................... $ 44,098 $ 39,429
========= ==========
Net yield .................................... 4.40 % 4.55 %
- ---------------------
(1) Annualized
(2) Average loan balances include non-accrual loan balances.
</TABLE>
The margin between the Company's interest income and cost of funds
decreased in the six month period ended June 30, 1997 as compared to the six
month period ended June 30, 1996, due primarily to a decrease in the net margins
in the commercial finance lending segment due primarily to increases in the
credit quality of the commercial loan portfolio, as well as increased
competition. Partially offsetting this was a slight increase in the net margins
in the real estate lending operation, due mainly to an increase in the yield on
residential real estate loans offset partially by decreases in the yield on
commercial real estate loans.
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>
JUNE 30, DECEMBER 31,
1997 1996
--------------------- ------------------
% of % of
Amount Total Amount Total
------------ ----- ----------- -----
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C>
Accounts receivable and inventory loans:
Commercial finance ......................... $ 412,494 22 % $ 385,734 22 %
Term loans:
Thrift and loan ............................ 1,260,618 66 1,113,950 65
Commercial finance, premium finance
and other loans ............................ 223,619 12 226,103 13
------------ ----- ------------ -----
Total term loans ......................... 1,484,237 78 1,340,053 78
------------ ----- ------------ -----
Total loans .............................. 1,896,731 100 1,725,787 100
Less allowance for possible loan losses ........ 39,730 2 37,747 2
------------ ----- ------------ -----
Loans receivable ........................... $ 1,857,001 98 % $ 1,688,040 98 %
============ ===== ============ ======
</TABLE>
11
<PAGE>
The following table illustrates the maturities of the Company's loans
receivable:
<TABLE>
<CAPTION>
MATURITIES AT JUNE 30, 1997
------------------------------------------------------
1 TO 24 25-60 OVER 60
MONTHS MONTHS MONTHS TOTAL
----------- ----------- ----------- ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Accounts receivable and inventory
loans -- variable rate .......... $ 412,494 $ - $ - $ 412,494
Term loans -- variable rate ............ 214,532 565,120 507,716 1,287,368
Term loans -- fixed rate ............... 102,353 48,830 45,686 196,869
----------- ----------- ----------- -----------
Total ............................. $ 729,379 $ 613,950 $ 553,402 $ 1,896,731
=========== =========== =========== ===========
</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, among
other things, reduce the demand for loans, impair the ability of borrowers to
pay loans and impair the value of the underlying collateral.
12
<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>
JUNE 30,
-----------------------------
1997 1996
------------- -------------
(THOUSANDS OF DOLLARS,
EXCEPT PERCENTS)
<S> <C> <C>
Non-accrual loans .................................................... $ 25,291 $ 26,549
Accrual loans 90 days past due ....................................... 1,360 5,010
Real estate owned ("REO") ............................................ 7,802 11,602
------------- -------------
Total non-performing assets .......................................... $ 34,453 $ 43,161
============= =============
Beginning allowance for possible loan losses ......................... $ 37,747 $ 31,781
Provision for loan losses ............................................ 3,896 5,848
Reserves established with portfolio acquisitions ..................... - 1,830
Charge-offs:
Commercial finance, premium finance and other loans ............... 1,444 5,439
Thrift and Loan:
Commercial real estate ......................................... 755 1,884
Residential real estate loans .................................. 615 63
Other thrift loans ............................................. 1 94
------------- -------------
Total charge-offs ................................................ 2,815 7,480
------------- -------------
Recoveries:
Commercial finance, premium finance and other loans .............. 22 25
Thrift and Loan:
Commercial real estate ......................................... 247 293
Residential real estate loans .................................. 565 85
Other thrift loans ............................................. 68 106
------------- -------------
Total recoveries ................................................. 902 509
------------- -------------
Net charge-offs ...................................................... 1,913 6,971
------------- -------------
Ending allowance for possible loan losses ............................ $ 39,730 $ 32,488
============= =============
Allocation of allowance for possible loan losses:
Commercial finance, premium finance and other loans .............. $ 12,576 $ 13,307
Thrift and loan .................................................. 27,154 19,181
------------- -------------
Total allowance for possible loan losses ......................... $ 39,730 $ 32,488
============= =============
Total loans receivable ............................................... $ 1,896,731 $ 1,563,576
Average total loans receivable ....................................... $ 1,831,712 1,525,843
Net charge-offs to average total loans receivable (annualized) ....... 0.21% 0.91%
Non-performing assets to total loans receivable ...................... 1.82% 2.76%
Allowance for possible loan losses to total loans receivable ......... 2.09% 2.08%
Allowance for possible loan losses to non-performing assets .......... 115.32% 75.27%
Allowance for possible loan losses to non-accrual
loans and accrual loans 90 days past due ......................... 149.08% 102.94%
</TABLE>
Non-performing assets decreased to $34.5 million at June 30, 1997 from
$43.2 million at June 30, 1996. This decrease is due primarily to decreases in
non-accrual real estate loans, accrual real estate loans 90 days past due and
REO. Overall, these decreases resulted from improved loan loss experience in the
real estate lending operation.
The lower provision for loan losses in the six month period ended June 30,
1997 as compared to the same period of the prior year, is due primarily to
improved loan loss experience in the real estate lending operation.
Additionally, a lower loan loss provision occurred in the commercial finance
operation as the Company was adversely impacted in the first three months of
1996 by a specific loan loss provision associated with one loan in the
commercial finance loan portfolio. Substantially all of the charge-offs in the
commercial finance segment in the first six months of 1996 were also related to
this loan. The Company's overall improved loan loss experience is evidenced by
the decreases in both the ratio of net charge-offs to average total loans
receivable and the ratio of
13
<PAGE>
non-performing assets to total loans receivable in the preceding table. The
Company's allowance for possible loan losses strengthened in 1997 as indicated
by the increase in the ratio of the allowance for possible loan losses to
non-accrual loans and accrual loans 90 days past due to 149.08% at June 30, 1997
from 102.94% at June 30, 1996.
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 of $20.7 million and $4.0 million at
June 30, 1997 and December 31, 1996, respectively.
The Company's thrift and loan subsidiary, which is principally engaged in
real estate lending, finances its lending activities primarily through customer
deposits, which have grown to $1.29 billion at June 30, 1997 from $1.11 billion
at December 31, 1996. In addition, this subsidiary is eligible for financing
through the Federal Home Loan Bank of San Francisco ("FHLB"). This financing is
available at varying rates and terms. As of June, 30 1997, $276 million was
available under the facility with no outstanding advances.
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. As of June 30, 1997, an aggregate
$244 million senior series and a $30 million subordinated series of asset-backed
certificates were outstanding. The interest rate on the certificates, set
monthly, ranged from LIBOR plus 0.23% to LIBOR plus 0.95% at June 30, 1997. The
securities issued in this program have a scheduled maturity of three to five
years, but could mature earlier depending on fluctuations in outstanding
balances of loans in the portfolio and other factors. As of June 30, 1997, up to
$265 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 portfolio. In February 1996, $135 million of the senior
series certificates ("Series C") were issued. The proceeds were used, in
conjunction with existing cash, to retire $200 million in Series A certificates,
which were outstanding as of December 31, 1995. 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 June 30, 1997, $27 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 $450 million, which includes a revolving credit facility of $350 million
expiring August 1998 and a term loan of $100 million maturing 2001. The balance
outstanding at June 30, 1997 of the revolving credit facility and the term loan
was $118 million and $100 million, respectively, with a weighted average
interest rate of 6.09%. This credit line is primarily used to finance assets
which are not included in the Company's asset securitization program.
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 $9.1 million and $7.6 million for
the six months ended June 30, 1997 and 1996, 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 insurance subsidiaries and dividends on
preferred stock of its thrift and loan holding company and commercial finance
subsidiaries. The maximum amount available for payment of dividends by the
property and casualty insurance subsidiaries during 1997, without prior
regulatory approval, is approximately $62.6 million.
To facilitate general corporate operations, the Company maintains a
revolving line of credit with a syndicated bank group that permitted borrowings
of up to $200 million, of which $15 million was outstanding as of June 30, 1997.
In July 1997, this credit line was replaced with a new credit line which permits
borrowings of up to $400 million. This new credit facility expires in July 2002.
In addition, the Company has an externally financed
14
<PAGE>
loan to its Employee Stock Ownership Plan ("ESOP") with a bank totaling $11
million. The maximum principal amount of this loan is $15 million. The loan is
due in seven equal annual installments that commenced April 1, 1996 and is
secured by certain shares of the ESOP. The balance outstanding at June 30, 1997
was $8.6 million. The interest and principal payments are guaranteed by the
Company.
During the six months ended June 30, 1997, an aggregate $167,096,000
principal amount at maturity of Liquid Yield OptionTM Notes due October 12, 2013
(Zero Coupon-Subordinated) ("LYONs") were converted into 3,223,000 shares of the
Company's Common Stock. The effect of these conversions was an increase in
stockholders' equity and a decrease in long-term debt of $73 million. During
1996, an aggregate 72,505,000 principal amount at maturity of LYONs were
converted into 1,399,000 shares of the Company's Common Stock. The effect of the
conversions was an increase in stockholders' equity and a decrease in long-term
debt of $31 million.
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 proceeds
from the sale of the Junior Subordinated Debentures were used to repay
approximately $50 million in revolving bank line of credit indebtedness, with
the remainder used for general corporate purposes. The $100 million Junior
Subordinated Debentures are the sole asset of the Trust. The Preferred
Securities will be redeemed upon maturity of the Junior Subordinated Debentures
in 2026, subject to the election available to the Company to extend the maturity
up to 2045, and they may be redeemed, in whole or in part, at any time on or
after March 31, 2001 and under certain specified circumstances. The Junior
Subordinated Debentures rank PARI PASSU with the Company's $134,149,000
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.
Net cash used in operating activities of continuing operations was $44.9
million and $84.3 million for the six months ended June 30, 1997 and 1996,
respectively. Net cash used in continuing operations decreased in the six months
ended June 30, 1997, due primarily to an increase in net income, a lower
reduction in claims and policy liabilities, an increase in premiums receivable
and agents' balances and an increase in other liabilities resulting from an
increase in the accrual of certain operating expenses. Partially offsetting
these conditions was an increase in other assets in the six months ended June
30, 1997. This increase was due primarily to certain investment securities which
were acquired by the Company on June 30, 1997, but which did not settle until
July 1997.
Net cash provided by (used in) investing activities decreased to $347.5
million from $229.9 million for the six months ended June 30, 1997 and 1996,
respectively. The increase in net cash used in investing activities was due
mainly to an increase in loan originations, net of loan repayments, and an
increase in investment purchases, net of sales and maturities. The increase in
loan originations is consistent with the general growth in the Company's
financial services' loan portfolio. The increase in net investment purchases is
due primarily to increases in liquidity in the Company's thrift and loan
operation and the investing of certain short-term debt proceeds in the Company's
property and casualty insurance operation.
Net cash provided by (used in) financing activities was $369.1 million and
$(151.3) million in the six months ended June 30, 1997 and 1996, respectively.
Net cash provided by financing activities increased in the six months ended June
30, 1997, due primarily to an increase in short-term debt proceeds, net of
repayments, an increase in thrift deposits, a decrease in the funding of certain
deferred compensation plans, net of stock options exercised, and the payment in
1996 of $363 million in settlement of certain reinsurance and assumption
agreements within the life insurance operation. These reinsurance and assumption
agreements, which became effective on December 31, 1995 and January 1, 1996
resulted in a significant reduction in the Company's life insurance operations
beginning in 1996. Contributing to the increase in short-term debt proceeds was
an increase of $204 million in borrowings pursuant to certain reverse repurchase
agreements within the property and casualty insurance operation. Partially
offsetting these increases in financing activities were decreases in annuity
contract receipts, net of contract withdrawals, and a decrease in long-term debt
proceeds, net of repayments. The decrease in annuity contract receipts is
consistent with the Company's substantial reduction in life insurance operations
which occurred on January 1, 1996. Additionally, the Company's financing
activities in the first quarter of 1996 were significantly impacted by the
proceeds of $100 million from the sale of the Preferred Securities which were
issued on March 1, 1996.
15
<PAGE>
The amortized cost of the Company's invested assets were $1.70 billion and
$1.48 billion at June 30, 1997 and December 31, 1996, respectively. The $217
million increase in the invested assets resulted primarily from an increase in
liquidity in the Company's thrift and loan subsidiary and the investing of
certain short-term debt proceeds in the Company's property and casualty
insurance operation.
The Company's property and casualty premium to surplus ratio for the year
ended December 31, 1996 was 1.2 to 1, which is within industry guidelines. The
FDIC has established certain capital and liquidity standards for its member
institutions, and the Company's thrift and loan subsidiary was in compliance
with these standards as of June 30, 1997.
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.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 ("FASB 128"), "Earnings Per Share" and Statement No. 129
("FASB 129) "Disclosure of Information about Capital Structure" which are both
effective for periods ending after December 15, 1997. At that time, pursuant to
FASB 128, the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of primary earnings per share would have resulted in an increase of $0.01 and
$0.03 per share for the quarters ended June 30, 1997 and 1996, respectively. The
impact was nil for the six months ended June 30, 1997 but would have resulted in
an increase of $0.06 for the six months ended June 30, 1996. There was no impact
on fully diluted earnings per share for these periods.
FASB 129 consolidates existing requirements regarding disclosure of
certain information about an entity's capital, and therefore will have no
impact.
SUBSEQUENT EVENT
On August 1, 1997, the Company completed the acquisition of Industrial
Indemnity Holdings, Inc. a Delaware corporation ("Industrial Indemnity"),
pursuant to a Stock Purchase Agreement dated as of May 16, 1997 by and among the
Company, Fremont Indemnity Company, a California corporation and wholly-owned
subsidiary of the Company ("Fremont Indemnity") and Talegen Holdings, Inc., a
Delaware corporation and subsidiary of Xerox Corporation ("Talegen"), whereby
Fremont Indemnity purchased from Talegen all of the issued and outstanding
capital stock of Industrial Indemnity. The purchase price paid by the Company
consisted of $365 million in cash and the pay-off of approximately $79 million
of an outstanding debt obligation that Industrial Indemnity owed to Talegen.
Financing for the transaction was provided by internal funds and bank
borrowings. The aggregate purchase price was determined pursuant to arms-length
negotiations among the constituent corporations. The acquisition will be treated
as a purchase for accounting purposes.
Industrial Indemnity, which specializes in underwriting workers'
compensation insurance and providing risk management services, has a strong
presence in the western United States dating back over 70 years. In 1996,
Industrial Indemnity had gross premiums of $259 million, with invested assets of
approximately $1.1 billion.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1: Legal Proceedings.
None.
Item 2: Changes in Securities.
None.
Item 3: Defaults Upon Senior Securities.
None.
Item 4: Submission of Matters to a Vote of Security Holders.
a) The Annual Meeting of Stockholders was held on May 8, 1997.
b) The following directors were elected to serve until the next Annual
Meeting of Stockholders or until their successors have been elected and
qualified:
J.A. McIntyre D.W. Morrisroe
W.R. Bailey L.J. Rampino
H.I. Flournoy D.C. Ross
C.D. Kranwinkle
c) The directors named in (b) above were elected. The results of the voting
of the 27,605,308 represented at the meeting are summarized in the
following table:
<TABLE>
<CAPTION>
WITHHELD
FOR AUTHORITY
---------- ---------
<S> <C> <C>
J.A. McIntyre 27,492,625 112,683
W.R. Bailey 27,482,527 112,781
H.I. Flournoy 27,491,091 114,217
C.D. Kranwinkle 27,495,498 109,810
D.W. Morrisroe 27,493,502 111,806
L.J. Rampino 27,481,254 124,054
D.C. Ross 27,479,568 125,740
</TABLE>
The 1997 Stock Plan was approved. The results of the voting of the
27,605,308 shares represented at the meeting are summarized in the
following table:
<TABLE>
WITHHELD BROKER
FOR AGAINST AUTHORITY NON-VOTE
---------- --------- --------- ---------
<C> <C> <C> <C>
18,951,395 6,531,350 362,817 1,759,746
</TABLE>
d) The appointment of the accounting firm of Ernst & Young LLP as the
Corporation's Independent Auditors was ratified. The results of the voting
of the 27,605,308 shares represented at the meeting are summarized in the
following table:
<TABLE>
WITHHELD
FOR AGAINST AUTHORITY
---------- ------- ---------
<C> <C> <C>
27,446,133 55,187 103,988
</TABLE>
17
<PAGE>
Item 5: Other Information.
None.
Item 6: Exhibits, Financial Statement Schedules 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.)
2.3 Stock Purchase Agreement by and among Talegen Holdings, Inc., Fremont
Indemnity Company and Fremont General Corporation dated as of May 16,
1997 including exhibits thereto. (Filed as Exhibit No. 2.1 to Current
Report on Form 8-K, as of August 1, 1997, Commission File Number
1-8007, and incorporated herein by reference.)
2.4 Tax Allocation and Indemnification Agreement, dated as of May 16, 1997
by and among Xerox financial Services, Inc., Talegen Holdings, Inc.,
Industrial Indemnity Holdings, Inc., Fremont General Corporation, and
Fremont Indemnity Corporation, a California corporation. (Filed as
Exhibit No. 2.2 to Current Report on Form 8-K, as of August 1, 1997,
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.)
18
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
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 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.)
19
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.5(b) Amendment to Supplemental Retirement Plan. (Filed as Exhibit No. 10.5
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.)
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 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 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 Amended Non-Qualified Stock Option Plan of 1989 and related agreements
of the Company. (Filed as Exhibit No. 10.9 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1996, Commission File
Number 1-8007, and incorporated herein by reference.)
10.10 1997 Stock Plan and related agreements.
10.11(a) Long-Term Incentive Compensation Plan of the Company - Senior
Executive Plan. (Filed as Exhibit No. 10.10 (a) on Form 10-Q for the
period ended September 30, 1996, Commission File Number 1-8007, and
incorporated herein by reference.)
10.11(b) Long-Term Incentive Compensation Plan of the Company (Filed as Exhibit
No. 10.10 (b) on Form 10-Q for the period ended September 30, 1996,
Commission File Number 1-8007, and incorporated herein by reference.)
10.12 1995 Restricted Stock Award Plan as amended and forms of agreement
thereunder. (Filed as Exhibit No. 4.1 to Registration Statement on
Form S-8/S-3 File No. 333-17525 which was filed on December 10, 1996,
and incorporated herein by reference.)
10.13 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.)
10.14(a) 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(b) First Amendment to Employment Agreement between the Company and James
A. McIntyre dated August 1, 1996.
20
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.15(a) Employment Agreement between the Company and Louis J. Rampino. (Filed
as Exhibit No. 10.14 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(b) Employment Agreement between the Company and Wayne R. Bailey. (Filed
as Exhibit No. 10.14 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 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.)
10.17 1996 Management Incentive Compensation Plan of the Company. (Filed as
Exhibit No. 10.16 to Quarterly Report on Form 10-Q, for the period
ended March 31, 1996, Commission File Number 1-8007, and incorporated
herein by reference.)
10.18 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.)
10.19 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.)
10.20(a) Amended and Restated 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.)
10.20(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.)
10.21 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, 1996, Commission
File Number 1-8007, and incorporated herein by reference.)
10.22 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 June 30, 1997.
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: August 14, 1997 /s/ LOUIS J. RAMPINO
------------------------------
Louis J. Rampino, President,
Chief Operating Officer
and Director
Date: August 14, 1997 /s/ JOHN A. DONALDSON
------------------------------
John A. Donaldson, Senior Vice
President, Controller and
Chief Accounting Officer
22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION 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 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.)
2.3 Stock Purchase Agreement by and among Talegen Holdings, Inc., Fremont
Indemnity Company and Fremont General Corporation dated as of May 16,
1997 including exhibits thereto. (Filed as Exhibit No. 2.1 to Current
Report on Form 8-K, as of August 1, 1997, Commission File Number
1-8007, and incorporated herein by reference.)
2.4 Tax Allocation and Indemnification Agreement, dated as of May 16, 1997
by and among Xerox financial Services, Inc., Talegen Holdings, Inc.,
Industrial Indemnity Holdings, Inc., Fremont General Corporation, and
Fremont Indemnity Corporation, a California corporation. (Filed as
Exhibit No. 2.2 to Current Report on Form 8-K, as of August 1, 1997,
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.)
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 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
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 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 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 Amended Non-Qualified Stock Option Plan of 1989 and related agreements
of the Company. (Filed as Exhibit No. 10.9 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1996, Commission File
Number 1-8007, and incorporated herein by reference.)
10.10 1997 Stock Plan and related agreements.
10.11(a) Long-Term Incentive Compensation Plan of the Company - Senior
Executive Plan. (Filed as Exhibit No. 10.10 (a) on Form 10-Q for the
period ended September 30, 1996, Commission File Number 1-8007, and
incorporated herein by reference.)
10.11(b) Long-Term Incentive Compensation Plan of the Company (Filed as Exhibit
No. 10.10 (b) on Form 10-Q for the period ended September 30, 1996,
Commission File Number 1-8007, and incorporated herein by reference.)
10.12 1995 Restricted Stock Award Plan as amended and forms of agreement
thereunder. (Filed as Exhibit No. 4.1 to Registration Statement on
Form S-8/S-3 File No. 333-17525 which was filed on December 10, 1996,
and incorporated herein by reference.)
10.13 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.)
10.14(a) 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(b) First Amendment to Employment Agreement between the Company and James
A. McIntyre dated August 1, 1996.
10.15(a) Employment Agreement between the Company and Louis J. Rampino. (Filed
as Exhibit No. 10.14 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(b) Employment Agreement between the Company and Wayne R. Bailey. (Filed
as Exhibit No. 10.14 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 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.)
10.17 1996 Management Incentive Compensation Plan of the Company. (Filed as
Exhibit No. 10.16 to Quarterly Report on Form 10-Q, for the period
ended March 31, 1996, Commission File Number 1-8007, and incorporated
herein by reference.)
10.18 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.)
10.19 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.)
10.20(a) Amended and Restated 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.)
10.20(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.)
10.21 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, 1996, Commission
File Number 1-8007, and incorporated herein by reference.)
10.22 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
</TABLE>
FREMONT GENERAL CORPORATION
1997 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Rights are, or will
be, granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means Fremont General Corporation, a Nevada
corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "DIRECTOR" means a member of the Board.
<PAGE>
(j) "DISABILITY" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "NOTICE OF GRANT" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock Right
grant.
2
<PAGE>
(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "OPTIONED STOCK" means the Common Stock subject to an Option
or Stock Right.
(v) "OPTIONEE" means the holder of an outstanding Option or Stock
Right granted under the Plan.
(w) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "PLAN" means this 1997 Stock Plan.
(y) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of a Stock Right under Section 11 of the Plan.
(z) "RESTRICTED STOCK AGREEMENT" means a written agreement between
the Company and the Optionee evidencing the terms and restrictions applying to
stock received under a Stock Right. The Restricted Stock Agreement is subject to
the terms and conditions of the Plan and the Notice of Grant.
(aa) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any
successor rule or provision.
(bb) "SECTION 16(B)" means Section 16(b) of the Exchange Act.
(cc) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(dd) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
3
<PAGE>
(ee) "STOCK RIGHT" means a right to acquire Common Stock pursuant to
Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 1,350,000 Shares, plus (a) any Shares which have been reserved
but not issued under the Company's Amended Non-Qualified Stock Option Plan of
1989 (the "1989 Plan") as of the date of shareholder approval of this Plan, (b)
any Shares returned to the 1989 Plan as a result of termination of options under
the 1989 Plan and (c) an annual increase to be added on each anniversary date of
the adoption of the Plan equal to the lesser of (i) the number of Shares subject
to Options and Stock Rights granted in the preceding year or (ii) a lesser
amount determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option or Stock Right expires or becomes unexercisable without
having been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Stock Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are reacquired by the
Company at their original purchase price (if any), such Shares shall become
available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16B-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
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(iv) OTHER ADMINISTRATION. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Right granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options or Stock Rights may be exercised (which may be based
on performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
Right of the shares of Common Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock Right
to the then current Fair Market Value if the Fair Market Value of the Common
Stock covered by such Option or Stock Right shall have declined since the date
the Option or Stock Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Right (subject to
Section 15(c) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
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(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock Right
previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Rights.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Right shall confer upon
an Optionee any right with respect to continuing the Optionee's relationship as
a Service Provider with the Company, nor shall they interfere in any way with
the Optionee's right or the Company's right to terminate such relationship at
any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 350,000 Shares.
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(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 50,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
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(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
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10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall
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<PAGE>
remain exercisable for twelve (12) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. STOCK RIGHTS.
(a) GRANT. Stock Rights may be issued either alone, in addition to,
or in tandem with other awards granted under the Plan and/or cash awards made
outside of the Plan. After the Administrator determines that it will offer Stock
Rights under the Plan, it shall advise the offeree in writing or electronically,
by means of a Notice of Grant, of the terms, conditions and restrictions related
to the offer, including the number of Shares subject to the Stock Right, the
price to be paid (if any), and the time within which the offeree must accept
such offer. The offer shall be accepted by execution of a Restricted Stock
Agreement in such form as is determined by the Administrator.
(b) REACQUISITION OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Agreement shall grant the Company a
reacquisition option exercisable upon the voluntary or involuntary termination
of the recipient's status as a Service Provider for any reason (including death
or Disability) . The reacquisition price (if any) for Shares reacquired pursuant
to the Restricted Stock Agreement shall be determined by the Administrator and
may be paid by cancellation of any indebtedness of the recipient to the Company.
The reacquisition option shall lapse at a rate determined by the Administrator.
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(c) OTHER PROVISIONS. The Restricted Stock Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once Restricted Stock is acquired
pursuant to a Stock Right, the recipient shall have rights equivalent to those
of a shareholder, and shall be a shareholder when his or her acquisition is
entered upon the records of the duly authorized transfer agent of the Company.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance of Common Stock pursuant to a Stock Right,
except as provided in Section 13 of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK RIGHTS. Unless determined
otherwise by the Administrator, an Option or Stock Right may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee. If the Administrator
makes an Option or Stock Right transferable, such Option or Stock Right shall
contain such additional terms and conditions as the Administrator deems
appropriate.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Right, and the number of shares of Common
Stock which have been authorized for issuance under the Plan but as to which no
Options or Stock Rights have yet been granted or which have been returned to the
Plan upon cancellation or expiration of an Option or Stock Right, as well as the
price per share of Common Stock covered by each such outstanding Option or Stock
Right, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company
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reacquisition option applicable to any Shares acquired upon exercise of an
Option or Stock Right shall lapse as to all such Shares, provided the proposed
dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an Option or
Stock Right will terminate immediately prior to the consummation of such
proposed action.
(c) MERGER OR ASSET SALE. Subject to Section 13(d), in the event of
a merger of the Company with or into another corporation, or the sale of
substantially all of the assets of the Company, each outstanding Option and
Stock Right shall be assumed or an equivalent option or right substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation refuses to assume or substitute for the
Option or Stock Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable, and any
Company reacquisition option applicable to any Shares acquired upon exercise of
an Option or Stock Right shall lapse as to all such Shares. If an Option or
Stock Right becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator shall
notify the Optionee in writing or electronically that the Option or Stock Right
shall be fully vested and exercisable for a period of fifteen (15) days from the
date of such notice, and the Option or Stock Right shall terminate upon the
expiration of such period. For the purposes of this paragraph, the Option or
Stock Right shall be considered assumed if, following the merger or sale of
assets, the option or right confers the right to purchase or receive, for each
Share of Optioned Stock subject to the Option or Stock Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Right, for each Share of Optioned Stock subject to the Option or Stock Right, to
be solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common Stock
in the merger or sale of assets.
(d) CHANGE OF CONTROL. In the event of a Change of Control (as
defined below), the Optionee shall fully vest in and have the right to exercise
the Option or Stock Right as to all of the Optioned Stock, including Shares as
to which it would not otherwise be vested or exercisable, and any Company
reacquisition option applicable to any Shares acquired upon exercise of an
Option or Stock Right shall lapse as to all such Shares. If an Option or Stock
Right becomes fully vested and exercisable as the result of a Change of Control,
the Administrator shall notify the Optionee in writing or electronically prior
to the Change of Control that the Option or Stock Right shall be fully vested
and exercisable for a period of fifteen (15) days from the date of such notice,
and the Option or Stock Right shall terminate upon the expiration of such
period. For purposes of this Agreement, a "Change of Control" means the
happening of any of the following events:
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(i) When any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), other than the Company, a subsidiary of the Company or a Company employee
benefit plan, including any trustee of such plan acting as trustee, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities entitled to vote generally in the election of directors;
or
(ii) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders
of the Company approve an agreement for the sale or disposition by the Company
of all or substantially all the Company's assets; or
(iii) A change in the composition of the Board of Directors of
the Company, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either (A)
are directors of the Company as of the date the Plan is approved by the
shareholders, or (B) are elected, or nominated for election, to the Board of
Directors of the Company with the affirmative votes of at least a majority of
the Incumbent Directors at the time of such election or nomination (but shall
not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company).
14. DATE OF GRANT. The date of grant of an Option or Stock Right shall be,
for all purposes, the date on which the Administrator makes the determination
granting such Option or Stock Right, or such other later date as is determined
by the Administrator. Notice of the determination shall be provided to each
Optionee within a reasonable time after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the
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Optionee and the Company. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such termination.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option or Stock Right unless the exercise of such Option or Stock
Right and the issuance and delivery of such Shares shall comply with Applicable
Laws and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option or Stock Right, the Company may require the person exercising such Option
or Stock Right to represent and warrant at the time of any such exercise that
the Shares are being acquired only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required.
17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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FREMONT GENERAL CORPORATION
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address and Social Security Number]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
VESTING SCHEDULE:
This Option may be exercised, in whole or in part, in accordance with the
following schedule: 25% OF THE SHARES SUBJECT TO THE OPTION SHALL VEST TWELVE
MONTHS AFTER THE VESTING COMMENCEMENT DATE, AND 25% OF THE SHARES SUBJECT TO THE
OPTION SHALL VEST EACH YEAR THEREAFTER UNTIL THE OPTION IS FULLY VESTED, SUBJECT
TO THE OPTIONEE CONTINUING TO BE A SERVICE PROVIDER ON SUCH DATES.
<PAGE>
TERMINATION PERIOD:
This Option may be exercised for ninety (90) days (if this Option is
designated as a nonstatutory stock option) or for thirty (30) days (if this
Option is designated as an incentive stock option) after Optionee ceases to be a
Service Provider. Upon the death or Disability of the Optionee, this Option may
be exercised for such longer period as provided in the Plan. In no event shall
this Option be exercised later than the Term/Expiration Date as provided above.
II. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants to
the Optionee named in the Notice of Grant attached as Part I of this Agreement
(the "Optionee") an option (the "Option") to purchase the number of Shares, as
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price"), subject to the terms and conditions
of the Plan, which is incorporated herein by reference. Subject to Section 15(c)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Director of Corporate Compliance or to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment of
the aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
<PAGE>
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; or
4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. TERM OF OPTION. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. TAX CONSEQUENCES. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY
IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO
CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION.
(i) NONSTATUTORY STOCK OPTION. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
<PAGE>
(ii) INCENTIVE STOCK OPTION. If this Option qualifies as an
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) DISPOSITION OF SHARES.
(i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING
<PAGE>
SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL
OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION
OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: FREMONT GENERAL CORPORATION
- ----------------------------------- --------------------------------------
Signature By:
- ------------------------------------
Social Security Number Title:
- ------------------------------------
Printed Name
- ------------------------------------
Residence Address
<PAGE>
EXHIBIT A
1997 STOCK PLAN
EXERCISE NOTICE
Fremont General Corporation
2020 Santa Monica Blvd., 6th Floor
Santa Monica, California 90404
Attention: [Title]
1. EXERCISE OF OPTION. Effective as of today, ________________, 199__, the
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of Fremont General Corporation (the "Company")
under and pursuant to the 1997 Stock Plan (the "Plan") and the Stock Option
Agreement dated ____________, 19___ (the "Option Agreement"). The purchase price
for the Shares shall be $_____________, as required by the Option Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE>
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: FREMONT GENERAL CORPORATION
- ---------------------------------- -------------------------------------
Signature By:
- ---------------------------------- -------------------------------------
Print Name Its:
- ----------------------------------
Social Security Number
ADDRESS: ADDRESS:
_________________________________ Fremont General Corporation
Attention: Director, Corporate
Compliance or Secretary
_________________________________ 2020 Santa Monica Blvd., 6th Floor
Santa Monica, California 90404
-------------------------------------
Date Received
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between Fremont
General Corporation, a Nevada corporation ("Pledgee"), and
_________________________ ("Pledgor").
RECITALS
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1997 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration of the
transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant
to the California Commercial Code, hereby pledges all of such Shares (herein
sometimes referred to as the "Collateral") represented by certificate number
______, duly endorsed in blank or with executed stock powers, and herewith
delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who
shall hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
a. PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum
of the Note secured hereby, together with interest thereon, at the time and in
the manner provided in the Note.
b. ENCUMBRANCES. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE>
c. MARGIN REGULATIONS. In the event that Pledgee's Common Stock is
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. VOTING RIGHTS. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. STOCK ADJUSTMENTS. In the event that during the term of the pledge any
stock dividend, reclassification, readjustment or other changes are declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. OPTIONS AND RIGHTS. In the event that, during the term of this pledge,
subscription Options or other rights or options shall be issued in connection
with the pledged Shares, such rights, Options and options shall be the property
of Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. DEFAULT. Pledgor shall be deemed to be in default of the Note and
of this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. RELEASE OF COLLATERAL. Subject to any applicable contrary rules under
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder
<PAGE>
hereunder upon payments of the principal of the Note. The number of the pledged
Shares which shall be released shall be that number of full Shares which bears
the same proportion to the initial number of Shares pledged hereunder as the
payment of principal bears to the initial full principal amount of the Note.
8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. TERM. The within pledge of Shares shall continue until the payment of
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of the terms
of this Security Agreement shall be binding on their respective successors and
assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall
be deemed to include, for all purposes, the respective designees, successors,
assigns, heirs, executors and administrators.
14. GOVERNING LAW. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of California.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" _________________________________
Signature
---------------------------------
Print Name
---------------------------------
Social Security Number
---------------------------------
Address
---------------------------------
"PLEDGEE" Fremont General Corporation,
a Nevada corporation
By:_____________________________
Signature
--------------------------------
Print Name
Its:_____________________________
Title
"PLEDGEHOLDER" ________________________________
Signature
--------------------------------
Print Name
Title: Secretary of Fremont General
Corporation
<PAGE>
EXHIBIT C
NOTE
$_______________ [City, State]
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to Fremont General
Corporation, a Nevada corporation (the "Company"), or order, the principal sum
of _______________________ ($_____________), together with interest on the
unpaid principal hereof from the date hereof at the rate of _______________
percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
------------------------------------
Signature
- --------------------------------- ------------------------------------
Social Security Number Printed Name
<PAGE>
1997 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[Grantee's Name and Address and Social Security Number]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Agreement),
as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative below, you and
the Company agree that this Stock Right is granted under and governed by the
terms and conditions of the 1997 Stock Plan and the Restricted Stock Agreement,
attached hereto as Exhibit A-1, both of which are made a part of this document.
You further agree to execute the attached Restricted Stock Agreement as a
condition to purchasing any shares under this Stock Right.
GRANTEE: FREMONT GENERAL CORPORATION
- --------------------------- --------------------------------
Signature By:
___________________________ Its:_____________________________
Print Name Title
<PAGE>
EXHIBIT A-1
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is a
Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Administrator has granted to the Purchaser a Stock
Right subject to the terms and conditions of the Plan and the Notice of Grant,
which are incorporated herein by reference, and pursuant to this Restricted
Stock Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. SALE OF STOCK. The Company hereby agrees to sell to the Purchaser
and the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. PAYMENT OF PURCHASE PRICE. The purchase price for the Shares may be
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. REPURCHASE OPTION.
(a) In the event the Purchaser ceases to be a Service Provider for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
cancelling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals the aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price,
<PAGE>
the Company shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interests therein or relating thereto, and the
Company shall have the right to retain and transfer to its own name the number
of Shares being repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares to
be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. RELEASE OF SHARES FROM REPURCHASE OPTION.
(a) [Twenty-five percent (25%) of the Shares shall be released from
the Company's Repurchase Option one year after the Date of Grant, and
twenty-five percent 25% of the Shares shall be released each year thereafter
until all Shares have been released from the Company's Repurchase Option,
provided that the Purchaser does not cease to be a Service Provider prior to the
date of any such release.] Specific terms of release will be set by
Administrator at the time of grant.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. RESTRICTION ON TRANSFER. Except for the escrow described in Section 6
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. ESCROW OF SHARES.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
<PAGE>
Agreement, the Company may require the spouse of Purchaser, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. LEGENDS. The share certificate evidencing the Shares, if any,
issued hereunder shall be endorsed with the following legend (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares and
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. TAX CONSEQUENCES. The Purchaser has reviewed with the Purchaser's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any
<PAGE>
statements or representations of the Company or any of its agents. The Purchaser
understands that the Purchaser (and not the Company) shall be responsible for
the Purchaser's own tax liability that may arise as a result of the transactions
contemplated by this Agreement. The Purchaser understands that Section 83 of the
Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income
the difference between the purchase price for the Shares and the Fair Market
Value of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" includes the right of the Company to buy back the Shares
pursuant to the Repurchase Option. The Purchaser understands that the Purchaser
may elect to be taxed at the time the Shares are purchased rather than when and
as the Repurchase Option expires by filing an election under Section 83(b) of
the Code with the IRS within 30 days from the date of purchase. The form for
making this election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. GENERAL PROVISIONS.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of California. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the purchase of the Shares
by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given
by either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
<PAGE>
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal remedy
available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: _____________________
PURCHASER: FREMONT GENERAL CORPORATION
- ------------------------------ ----------------------------------
Signature By:
______________________________ Its:_______________________________
Print Name Title
- ------------------------------
Social Security Number
<PAGE>
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto (__________) shares of the Common Stock of Fremont General
Corporation standing in my name of the books of said corporation represented by
Certificate No. _____ herewith and do hereby irrevocably constitute and appoint
____________________________________________ to transfer the said stock on the
books of the within named corporation with full power of substitution in the
premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Agreement (the "Agreement") between________________________ and the
undersigned dated ______________, 19__.
Dated: __________________________, 19__
Signature:______________________________
Your signature on this document must be GUARANTEED by an authorized officer of a
bank or brokerage firm who is a member of the Medallion Stamp Program, approved
by the Securities and Exchange Commission, or in certain instances, by an
officer of the Company. (Notary is not sufficient.)
INSTRUCTIONS: Please do not fill in any blanks other than the signature line. Do
not date. The purpose of this assignment is to enable the Company to exercise
the Repurchase Option, as set forth in the Agreement, without requiring
additional signatures on the part of the Purchaser.
<PAGE>
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
_____________, 19__
Corporate Secretary
Fremont General Corporation
2020 Santa Monica Blvd., 6th Flr.
Santa Monica, California 90404
Dear _________________:
As Escrow Agent for both Fremont General Corporation, a Nevada corporation
(the "Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock
Agreement 1
("Agreement") between the Company and the undersigned, in accordance with
the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities.
<PAGE>
Subject to the provisions of this paragraph 3, Purchaser shall exercise all
rights and privileges of a shareholder of the Company while the stock is held by
you.
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
<PAGE>
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Fremont General Corporation
2020 Santa Monica Blvd., 6th Floor
Santa Monica, California 90404
PURCHASER: ___________________________________________________
ESCROW AGENT: Corporate Secretary
Fremont General Corporation
2020 Santa Monica Blvd., 6th Floor
Santa Monica, California 90404
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
<PAGE>
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
FREMONT GENERAL CORPORATION
-------------------------------------
By:
Its:__________________________________
Title:
PURCHASER:
-------------------------------------
Signature
-------------------------------------
Print Name
ESCROW AGENT:
- -------------------------------------
Corporate Secretary of Fremont General Corporation
<PAGE>
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of Fremont General Corporation, as set forth in the Agreement, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: _______________, 19_____
--------------------------------------
Signature of Spouse
-------------------------------------
Printed Name
<PAGE>
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME:
TAXPAYER:______________________
SPOUSE: _______________________
ADDRESS:________________________________________________
IDENTIFICATION NO.: TAXPAYER: _____________
SPOUSE: ________________
TAXABLE YEAR: _____________
2. The property with respect to which the election is made is described as
follows: __________________ shares (the "Shares") of the Common Stock of
Fremont General Corporation (the "Company").
3. The date on which the property was transferred is:
____________________________ , 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the Shares
based on the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will never
lapse, of such property is:
$---------------.
6. The amount (if any) paid for such property is:
$---------------.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ___________________, 19____
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____
Spouse of Taxpayer
<PAGE>
1997 STOCK PLAN
NOTICE OF RESTRICTED STOCK GRANT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.
[Grantee's Name and Address and Social Security Number]
You have been granted Common Stock of the Company, subject to the
Company's Reacquisition Option and your ongoing status as a Service Provider (as
described in the Plan and the attached Restricted Stock Agreement), as follows:
Grant Number
Date of Grant
Total Number of Shares Subject
to This Stock Right
Expiration Date
By your signature and the signature of the Company's representative
below, you and the Company agree that this Stock Right is granted under and
governed by the terms and conditions of the 1997 Stock Plan and the Restricted
Stock Agreement, attached hereto as Exhibit A-1, both of which are made a part
of this document. You further agree to execute the attached Restricted Stock
Agreement as a condition to acquiring any shares under this Stock Right.
GRANTEE: FREMONT GENERAL CORPORATION
- --------------------------------- -----------------------------------
Signature By:
Its _________________________
Print Name Title
<PAGE>
EXHIBIT A-1
1997 STOCK PLAN
RESTRICTED STOCK AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Agreement.
WHEREAS the Acquiror named in the Notice of Grant (the "Acquiror") is a
Service Provider, and the Acquiror's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Acquiror an opportunity to acquire an
equity interest in the Company as an incentive for the Acquiror to participate
in the affairs of the Company, the Administrator has granted to the Acquiror a
Stock Right subject to the terms and conditions of the Plan and the Notice of
Grant, which are incorporated herein by reference, and pursuant to this
Restricted Stock Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to issue to the Acquiror
and the Acquiror hereby accepts the shares of the Company's Common Stock
(the "Shares") as described in the Notice of Grant.
2. Reacquisition Option.
(a) In the event the Acquiror ceases to be a Service Provider for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Reacquisition Option (see Section 3), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company), have an irrevocable, exclusive option (the "Reacquisition Option")
for a period of sixty (60) days from such date to reacquire up to that number of
shares which constitute the Unreleased Shares (as defined in Section 3) without
consideration to the Acquiror. The Reacquisition Option shall be exercised by
the Company by delivering written notice to the Acquiror or the Acquiror's
executor (with a copy to the Escrow Holder). Upon delivery of such notice the
Company shall become the legal and beneficial owner of the Shares being
reacquired and all rights and interests therein or relating thereto, and the
Company shall have the right to retain and transfer to its own name the number
of Shares being reacquired by the Company.
(b) Whenever the Company shall have the right to reacquire Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's rights under this Agreement and
reacquire all or a part of such Shares, provided that any such designee or
assignee shall pay the Company cash equal to the Reacquisition FMV.
<PAGE>
3. Release of Shares From Reacquisition Option.
(a) Ten percent (10%) of the Shares shall be released from the
Company's Reacquisition Option one year after the Date of Grant, and ten percent
(10%) of the Shares shall be released each year thereafter until all Shares have
been released from the Company's Reacquisition Option, provided that the
Acquiror does not cease to be a Service Provider prior to the date of any such
release. Specific terms of release will be set by Administrator at the time of
grant.
(b) Any of the Shares that have not yet been released from the
Reacquisition Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Reacquisition
Option shall be delivered to the Acquiror at the Acquiror's request (see Section
5).
4. Restriction on Transfer. Except for the escrow described in Section 5
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Reacquisition Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
5. Escrow of Shares.
(a) To ensure the availability for delivery of the Acquiror's
Unreleased Shares upon reacquisition by the Company pursuant to the
Reacquisition Option, the Acquiror shall, upon execution of this Agreement,
deliver and deposit with an escrow holder designated by the Company (the "Escrow
Holder") the share certificates representing the Unreleased Shares, together
with the stock assignment duly endorsed in blank, attached hereto as Exhibit
A-2. The Unreleased Shares and stock assignment shall be held by the Escrow
Holder, pursuant to the Joint Escrow Instructions of the Company and Acquiror
attached hereto as Exhibit A-3, until such time as the Company's Reacquisition
Option expires. As a further condition to the Company's obligations under this
Agreement, the Company may require the spouse of Acquiror, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do
or omit to do with respect to holding the Unreleased Shares in escrow while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Reacquisition
Option hereunder, the Escrow Holder, upon receipt of written notice of such
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Reacquisition Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Reacquisition
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Acquiror, as the case may be.
(e) Subject to the terms hereof, the Acquiror shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Reacquisition Option, there is (i) any stock dividend, stock split
or other change in the Shares, or (ii) any merger or sale of all or
substantially all of the assets or other acquisition of the Company, any and all
new, substituted or additional securities to which the Acquiror is entitled by
reason of the Acquiror's ownership of the Shares shall be immediately subject to
this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Reacquisition Option.
6. Legends. The share certificate evidencing the Shares, if any,
issued hereunder shall be endorsed with the following legend (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REACQUISITION AS SET FORTH IN AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY.
7. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
8. Tax Consequences. The Acquiror has reviewed with the Acquiror's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Acquiror is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Acquiror understands that the Acquiror
(and not the Company) shall be responsible for the Acquiror's own tax liability
that may arise as a result of the transactions contemplated by this Agreement.
The Acquiror understands that Section 83 of the Internal Revenue Code of 1986,
as amended (the "Code"), taxes as ordinary income the difference between the
purchase price for the Shares and the Fair Market Value of the Shares as of the
date any restrictions on the Shares lapse. In this context, "restriction"
includes the right of the Company to reacquire the Shares pursuant to the
Reacquisition Option. The Acquiror understands that the Acquiror may elect to be
taxed at the time the Shares are acquired rather than when and as the
Reacquisition Option expires by filing an election under Section 83(b) of the
Code with the IRS within 30 days from the date of acquisition. The form for
making this election is attached as Exhibit A-5 hereto.
THE ACQUIROR ACKNOWLEDGES THAT IT IS THE ACQUIROR'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE ACQUIROR REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE ACQUIROR'S BEHALF.
9. General Provisions.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of California. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the acquisition of the
Shares by the Acquiror. Subject to Section 15(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Acquiror pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by, the
Company's successors and assigns. The rights and obligations of the Acquiror
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal remedy
available to it.
(e) The Acquiror agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) ACQUIROR ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
ACQUIRING SHARES HEREUNDER). ACQUIROR FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH ACQUIROR'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE ACQUIROR'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Acquiror's signature below, Acquiror represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Acquiror has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Acquiror agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Acquiror further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED:
ACQUIROR: FREMONT GENERAL CORPORATION
- ------------------------------------
Signature By:
Its:
Print Name Title
Social Security Number
<PAGE>
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, ____________________________, hereby sell, assign
and transfer unto ______________________________________________ (_________)
shares of the Common Stock of Fremont General Corporation standing in my name on
the books of said corporation represented by Certificate No. ______ herewith and
do hereby irrevocably constitute and appoint _______________________ to transfer
the said stock on the said books of the within named corporation with full power
of substitution in the premises.
This Stock Assignment may be uwed only in accordance with the Restricted
Stock Agreement (the "Agreement") between ___________________________ and the
undersigned dated ___________________, 19___.
Dated: _____________________ , 19_____
Signature: ___________________________
Your signature on this document must be GUARANTEED by an authorized
officer of a bank of brokerage firm who is a member of the Medallian Stamp
Program, approved by the Securities and Exchange Commission, or in certain
instances, by an officer of the Company. (Notary is not sufficient.)
INSTRUCTIONS: Please do not fill in any blanks other than the signature line. Do
not date. The purchase of this assignment is to enable the Company to exercise
the Reacquisition Option, as set forth in the Agreement, without requiring
additional signatures on the part of the Acquiror.
<PAGE>
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
, 19___
Corporate Secretary
Fremont General Corporation
2020 Santa Monica Blvd., 6th Flr.
Santa Monica, California 90404
Dear :
As Escrow Agent for both Fremont General Corporation, a Nevada
corporation (the "Company"), and the undersigned acquiror of stock of the
Company (the "Acquiror"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted
Stock Agreement ("Agreement") between the Company and the undersigned, in
accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Reacquisition Option
set forth in the Agreement, the Company shall give to Acquiror and you a written
notice specifying the number of shares of stock to be acquired, the acquisition
price, and the time for a closing hereunder at the principal office of the
Company. Acquiror and the Company hereby irrevocably authorize and direct you to
close the transaction contemplated by such notice in accordance with the terms
of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, for the number of shares of stock being reacquired pursuant to the
exercise of the Company's Reacquisition Option.
3. Acquiror irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement. Acquiror
does hereby irrevocably constitute and appoint you as Acquiror's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Acquiror shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Acquiror, but no more than once per
calendar year, unless the Company's Reacquisition Option has been exercised, you
shall deliver to Acquiror a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Reacquisition Option.
Within 90 days after Acquiror ceases to be a Service Provider, you shall deliver
to Acquiror a certificate or certificates representing the aggregate number of
shares held or issued pursuant to the Agreement and not reacquired by the
Company or its assignees pursuant to exercise of the Company's Reacquisition
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Acquiror,
you shall deliver all of the same to Acquiror and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Acquiror while acting in good faith, and
any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Fremont General Corporation
2020 Santa Monica Blvd., 6th Flr.
Santa Monica, California 90404
ACQUIROR:
ESCROW AGENT: Corporate Secretary
Fremont General Corporation
2020 Santa Monica Blvd., 6th Flr.
Santa Monica, California 90404
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
FREMONT GENERAL CORPORATION
By:
Its:
Title
ACQUIROR:
Signature
FirstName LastName
Print Name
ESCROW AGENT:
- ------------------------------------------
Corporate Secretary of Fremont General Corporation
<PAGE>
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of FirstName LastName, have read and
approve the foregoing Restricted Stock Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the shares of Fremont
General Corporation, as set forth in the Agreement, I hereby appoint my spouse
as my attorney-in-fact in respect to the exercise of any rights under the
Agreement and agree to be bound by the provisions of the Agreement insofar as I
may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: _______________, 19
Signature of Spouse
Printed Name
<PAGE>
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: shares (the "Shares") of the Common Stock of Fremont General
Corporation (the "Company").
3. The date on which the property was transferred is:
___________________, 19__.
4. The property is subject to the following restrictions:
The Shares may be reacquired by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the Shares
based on the continued performance of services by the taxpayer over
time.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will
never lapse, of such property is:
$___________________.
6. The amount (if any) paid for such property is:
$-------------------.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment is made effective as of August 1, 1996, by and between
Fremont General Corporation (the "Company") and James A. McIntyre (the
"Executive"). Unless otherwise defined herein, capitalized terms used in this
Amendment shall have the same meaning as in the Employment Agreement dated
January 1, 1994.
WHEREAS, the Executive and the Company entered into an Employment
Agreement dated January 1, 1994 (the "Employment Agreement"); and
WHEREAS, the Executive and the Company desire to amend the Employment
Agreement to provide additional financial security and benefits to the Executive
in recognition of past services and to encourage Executive to continue
employment with the Company.
NOW, THEREFORE, in consideration of the foregoing recitals and the
respective covenants and agreements of the parties contained in this document
and in consideration of the continuing employment of Executive by the Company,
the Company and the Executive agree to amend the Employment Agreement as
follows:
1. A new Section 3(f) will be added as follows:
"3(f) COMPANY EVENT. "Company Event" shall mean the occurrence
Of any of the following events:
(i) Any "person" or "group" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 30% or more of
the total voting power represented by the Company's then outstanding voting
securities; or
(ii) A change in the composition of the Board of the
Company occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors. "Incumbent Directors" shall
mean directors who either (A) are directors of the Company as of August 1, 1996,
or (B) are elected, or nominated for election, to the Board of the Company with
the affirmative votes of at least a majority of the Incumbent Directors at the
time of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company); or
(iii) The stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by
1
<PAGE>
being converted into voting securities of the surviving entity) more than fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets (other than to a
subsidiary or subsidiaries); or
(iv) The Executive, while serving as Chairman of the
Board, has a conservator of his person appointed or dies."
2. Section 11(a)(ii) shall be amended to read, in its entirety, as
follows:
"(ii) OPTIONS AND RESTRICTED STOCK. The unvested
portion of any options to acquire Company stock granted to Executive under any
Company plan or arrangement ("Options") shall automatically be accelerated and
for a period of three (3) months following the Termination Date (or such longer
period as is specified in the applicable option plan), the Executive shall have
the right to exercise all or any portion of such Options in addition to any
portion of the Options exercisable prior to the Termination Date. The unvested
portion of any unvested stock issued to the Executive or held for the
Executive's benefit under any Company plan or arrangement ("Restricted Stock")
shall automatically be accelerated in full to become completely vested on the
Termination Date."
3. A new section shall be added as Section 12 to read, in its
entirety, as follows:
"12. BENEFITS UPON A COMPANY EVENT. In the event of a
Company Event that occurs while the Executive is employed by the Company, the
unvested portion of any Options or Restricted Stock held by the Executive shall
automatically be accelerated in full so as to become completely vested."
4. A new section shall be added as Section 13 to read, in its
entirety, as follows:
"13. LIMITATION ON PAYMENTS. Notwithstanding anything to the
contrary contained herein, in the event it shall be determined that any payment
by the Company to or for the benefit of the Executive, whether paid or payable
but determined without regard to any additional payments required under this
Section 13 (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any
comparable federal, state, or local excise tax (such excise tax, together with
any interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in such an amount that after the payment of all
taxes (including, without limitation, any interest and penalties on such taxes
and the Excise Tax) on the payment and on the Gross-Up Payment, the Executive
shall retain an amount equal to the Payment minus all applicable taxes on the
Payment. The intent of the parties is that the
2
<PAGE>
Company shall be solely responsible for, and shall pay, any Excise Tax on the
Payment and Gross-Up Payment and any income and employment taxes (including,
without limitation, penalties and interest) imposed on any Gross-Up Payment, as
well as any loss of tax deduction caused by the Gross-Up Payment. All
determinations required to be made under this Section, including without
limitation, whether and when a Gross-Up Payment is required, the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determinations, shall be made by a nationally recognized accounting firm that is
the Company's outside auditor at the time of such determinations, which firm
must be reasonably acceptable to the Executive (the "Accounting Firm"). All fees
and expenses of the Accounting Firm shall be borne solely by the Company."
5. Section number and references shall be amended as necessary
throughout the Employment Agreement to reflect the foregoing.
IN WITNESS WHEREOF, this amendment has been entered into as of the date
first set forth above.
EXECUTIVE: FREMONT GENERAL CORPORATION
By:____________________________ __________________________________
James A. McIntyre
Title: President and Chief Operating
Officer
Date: _________________________
By:________________________________
Dickinson C. Ross
Title: Chair, Compensation
Committee of the Board
of Directors
FREMONT GENERAL CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
1997 1996 1997 1996
------------ ----------- ------------ ------------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding ............. 29,873 25,343 28,935 25,090
Net effect of dilutive stock options -
based on the treasury stock method
using average market price .................... 117 923 104 944
------------ ----------- ------------ ------------
Total ........................................... 29,990 26,266 29,039 26,034
============ =========== ============ ============
Net income ...................................... $24,938 $22,426 $49,297 $40,943
============ =========== ============ ============
Per share earnings .............................. $0.83 $0.85 $1.70 $1.57
============ =========== ============ ============
Fully Diluted:
Weighted average shares outstanding ............. 29,873 25,343 28,935 25,090
Net effect of dilutive stock options -
based on the treasury stock method
using the quarter-end market price, if
higher than average market price .............. 231 944 160 944
Assumed conversion of LYONs: .................... 4,262 7,208 5,028 7,208
------------ ----------- ------------ ------------
Total ........................................... 34,366 33,495 34,123 33,242
============ =========== ============ ============
Net income ...................................... $24,938 $22,426 $49,297 $40,943
Income adjustments for fully diluted computation:
Add interest expense and amortization
of prepaid expense, net of federal
income tax, for assumed conversion
of LYONs .................................. 726 1,191 1,701 2,358
------------ ----------- ------------ ------------
Total ........................................... $25,664 $23,617 $50,998 $43,301
============ =========== ============ ============
Per share earnings .............................. $0.75 $0.71 $1.50 $1.30
============ =========== ============ ============
</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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 1,114,922
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 406,271
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,576,455<F1>
<CASH> 32,092
<RECOVER-REINSURE> 13,410
<DEFERRED-ACQUISITION> 28,078
<TOTAL-ASSETS> 4,721,266
<POLICY-LOSSES> 1,385,638
<UNEARNED-PREMIUMS> 103,190
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 28,211
<NOTES-PAYABLE> 805,196
100,000
0
<COMMON> 32,649
<OTHER-SE> 656,431<F2>
<TOTAL-LIABILITY-AND-EQUITY> 4,721,266
236,030
<INVESTMENT-INCOME> 61,045
<INVESTMENT-GAINS> (1,029)
<OTHER-INCOME> 104,844<F3>
<BENEFITS> 149,277
<UNDERWRITING-AMORTIZATION> 48,782
<UNDERWRITING-OTHER> 17,063
<INCOME-PRETAX> 71,964
<INCOME-TAX> 22,667
<INCOME-CONTINUING> 49,297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,297
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.50
<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, short-term and other 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>
