<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
FREMONT GENERAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(1)(2) or Item 22(a)(2)
of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule, or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
FREMONT LOGO
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1998
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
Fremont General Corporation (the "Company") will be held in the Wedgewood Room
of the Miramar Sheraton Hotel, 101 Wilshire Boulevard, Santa Monica, California
90401, on Tuesday, May 19, 1998 at 2:00 p.m., for the following purposes:
1. Election of seven (7) Directors to serve until the next Annual
Meeting or until their successors have been elected and qualified;
2. Approval of an amendment to the Company's Amended and Restated
Articles of Incorporation which would increase the Company's authorized
common stock from 45,000,000 to 75,000,000 shares;
3. Ratification of the appointment of Ernst & Young LLP as
independent auditors; and
4. Transaction of such other business as may be properly brought
before the meeting and any postponement or adjournment thereof.
Stockholders of record at the close of business on April 13, 1998 will be
entitled to vote at said meeting and any postponement or adjournment thereof. A
list of such stockholders will be open to the examination of any stockholder at
the meeting and for a period of ten days prior to the date of the meeting at the
executive offices of Fremont General Corporation, 2020 Santa Monica Boulevard,
6th Floor, Santa Monica, California 90404.
Stockholders are requested to mark their choices, date, sign, and return
the enclosed proxy in the enclosed envelope, to which no postage need be affixed
if mailed in the United States. If you plan to attend the meeting and wish to
vote your shares personally, you may do so at any time before the proxy is
voted.
All stockholders are cordially invited to attend the meeting.
Alan W. Faigin, Secretary
April 20, 1998
<PAGE> 3
FREMONT GENERAL CORPORATION
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1998
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Fremont General Corporation, a Nevada Corporation
(hereinafter called the "Company" or "Fremont General"), of proxies to be used
at the Annual Meeting of Stockholders to be held on May 19, 1998 and at any
postponement or adjournments thereof (the "Annual Meeting"). A form of proxy is
enclosed for use at the Annual Meeting. Unless contrary instructions are
indicated on the proxy, the persons designated as proxy holders in the proxy
card will vote all shares represented by valid proxies received pursuant to this
solicitation (and not revoked before they are voted) "for" the election of the
seven nominees for directors named below, "for" the amendment to the Company's
Amended and Restated Articles of Incorporation to increase the number of
authorized common shares to 75,000,000, "for" ratification of the appointment of
Ernst & Young LLP as independent auditors, and as recommended by the Board of
Directors with regard to any other matters, or if no recommendation is given, in
their own discretion.
A proxy may be revoked by a stockholder at any time before it is exercised
by giving written notice of revocation to the Secretary of the Company or by
submitting prior to the time of the Annual Meeting a properly executed proxy
bearing a later date. Stockholders having executed and returned a proxy, who
attend the meeting and desire to vote in person, whether by proxy, voice vote or
ballot, are requested to so notify the Secretary of the Company prior to the
time of the Annual Meeting.
The Company will bear the cost of soliciting the proxies. In addition to
the use of mails, proxies may be solicited by personal contact, telephone or
telegraph, and by officers, directors and other employees of the Company. The
Company will also request persons, firms and corporations holding shares in
their names, or in the names of their nominees, which are beneficially owned by
others, to send or cause to be sent proxy material to, and obtain proxies from,
such beneficial owners and will reimburse such holders for their reasonable
expenses in so doing. The Company has engaged Georgeson and Company, Inc., Wall
Street Plaza, New York, New York, to aid in the solicitation of proxies for
which the Company will pay an estimated fee of $6,000 plus reimbursable
out-of-pocket expenses.
The principal executive office of the Company is 2020 Santa Monica
Boulevard, 6th Floor, Santa Monica, California 90404. The approximate date when
this Proxy Statement and form of proxy are being first sent to stockholders is
April 20, 1998.
VOTING SECURITIES AND VOTE REQUIRED
The close of business on April 13, 1998 has been fixed by the Board of
Directors as the record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting.
Shares of common stock, of which 34,766,686 shares were outstanding as of
April 13, 1998, are the only voting securities of the Company. Unless otherwise
noted, all statistics as to stock ownership are given as of April 13, 1998. Each
stockholder of record at the close of business on April 13, 1998 is entitled to
one vote for each share of common stock then held on each matter to come before
the meeting. There is no cumulative voting with respect to the election of
directors. The presence in person or by proxy of persons entitled to vote a
majority of the voting shares at any meeting shall constitute a quorum for the
transaction of business. If such quorum is present, the affirmative vote of the
majority of the shares represented and voting at the Annual Meeting is required
to elect each nominee as director and to ratify the appointment of Ernst & Young
LLP as independent auditors for the Company. The affirmative vote of a majority
of the shares outstanding is required to approve the proposal to increase the
number of authorized shares.
<PAGE> 4
Votes cast by proxy or in person at the Annual Meeting will be counted by
the persons appointed by the Company to act as election inspectors for the
meeting. If a broker or nominee has indicated on the proxy that it does not have
discretionary authority to vote certain shares (i.e., "broker non-votes"), these
shares will be treated as not present and not entitled to vote with respect to
that matter. These shares will be counted, however, for quorum purposes and
entitled to vote on other matters. With respect to the election of directors and
ratification of auditors, abstentions and broker non-votes will have no effect
on the outcome of the vote. With respect to the proposal to increase the
authorized common stock of the Company, abstentions and broker non-votes will
have the effect of a vote "against" such proposal.
Any executed but unmarked proxies, including those submitted by brokers or
nominees will be voted "for" each of the foregoing proposals and nominees of the
Board of Directors, as indicated in the accompanying proxy card.
ITEM 1
ELECTION OF DIRECTORS
At the Annual Meeting, seven (7) directors are to be elected to serve until
the next annual meeting of stockholders and until their respective successors
are elected and qualified. The shares represented by validly executed proxies
will be voted for the election of the nominees named below as directors, unless
authority to vote for directors is withheld. If any nominee for any reason
presently unknown cannot be a candidate for election or if a vacancy should
occur before the election (which events are not anticipated), the shares
represented by valid proxies will be voted in favor of the remaining nominees
and may be voted for the election of a substitute nominee recommended by the
Board of Directors (or the number of authorized directors may be reduced).
The information set forth below as to each nominee for director has been
furnished to the Company by the respective nominees for director:
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
EXPERIENCE DURING PAST
FIVE YEARS AND CERTAIN DIRECTOR
NAME AGE OTHER DIRECTORSHIPS SINCE
---- --- ---------------------- --------
<S> <C> <C> <C>
James A. McIntyre(1).............. 65 Chairman and Chief Executive Officer of the 1972
Company.
Wayne R. Bailey................... 43 Executive Vice President, Treasurer and 1996
Chief Financial Officer of the Company
since May 1995; Senior Vice President and
CFO of the Company from February 1994 to
May 1995; Vice President and CFO from 1990
to 1994. Director and officer of subsidiary
companies during the past 12 years.
Dr. Houston I. Flournoy(2)(3)..... 68 Special Assistant to the President for 1977
Governmental Affairs, University of
Southern California since August 1981;
Professor, University of Southern
California from 1973 to 1993; Director and
member of Audit and Nominating Committees
of Lockheed-Martin Corporation, a
manufacturer of aircraft; Director and a
member of the Audit and Compensation
Committees of Tosco Corporation, an oil
refiner.
C. Douglas Kranwinkle(1)(2)(3).... 57 Managing Partner, O'Melveny & Myers since 1973
June 1996; previously Senior Partner,
O'Melveny & Myers.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
EXPERIENCE DURING PAST
FIVE YEARS AND CERTAIN DIRECTOR
NAME AGE OTHER DIRECTORSHIPS SINCE
---- --- ---------------------- --------
<S> <C> <C> <C>
David W. Morrisroe(2)(3).......... 65 Formerly Vice President, Business and 1989
Finance and Treasurer, California Institute
of Technology; Director, Huntington
Memorial Hospital Board; Member, Huntington
Library Investment Committee; Member
Emeritus, NASA Space Telescope Institute
Council; Member Emeritus, National Optical
Observatories Board; Trustee Emeritus,
University of San Diego.
Louis J. Rampino(1)............... 45 President and Chief Operating Officer of 1994
the Company; Director and officer of the
Company and certain subsidiary companies
during the past 15 years; employee for 20
years.
Dickinson C. Ross(2)(3)........... 74 Formerly Chairman of Johnson & Higgins of 1987
California, an international insurance
brokerage firm.
</TABLE>
- ---------------
(1) Member of the Executive Committee (Mr. McIntyre, Chairman), which has the
authority to exercise the powers of the Board of Directors in the management
of the Company in accordance with the policy of the Company when said Board
is not in session, except for actions specifically required by statute to be
performed by the full Board. There were no meetings of the Executive
Committee during 1997.
(2) Member of the Audit Committee (Mr. Morrisroe, Chairman), which meets
periodically with management, the independent public accountants and the
internal auditors to make inquiries regarding the manner in which the
responsibilities of each are being discharged and reports thereon to the
Board of Directors. The Audit Committee also recommends for the approval of
the Board of Directors and ratification by the stockholders, the annual
appointment of the independent public accountants with whom the Audit
Committee reviews the scope of the audit and non-audit assignments and the
related fees, the accounting principles being applied by the Company in
financial reporting, the scope of internal financial auditing procedures,
and the adequacy of internal controls. The Audit Committee met four (4)
times during 1997.
(3) Member of the Compensation Committee (Mr. Ross, Chairman), which reviews and
makes recommendations to the Board of Directors with respect to the
Company's various compensation programs and administers the Company's stock
option and restricted stock award plans. The Compensation Committee met four
(4) times, and took action by unanimous written consent two (2) times,
during 1997. See "Report of the Compensation Committee."
The Company's Board of Directors met four (4) times and took four (4)
actions by unanimous written consent during 1997. No nominee for director who
served as a director during the past year attended fewer than 75% of the
aggregate of the total number of meetings of the Board of Directors and the
total number of meetings of committees of the Board of Directors on which he
served. There is no nominating committee of the Board of Directors.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE NOMINEES
LISTED ABOVE.
COMPENSATION OF DIRECTORS
In addition to a monthly fee of $2,000, a per-meeting fee of $1,500 is paid
to directors who are not also employees of the Company or any of its
subsidiaries for serving as such and for attending regular and special meetings
of the Board and meetings of the various committees on which they are members,
plus reimbursement for the actual expenses incurred to attend such meetings. No
additional compensation is provided for
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<PAGE> 6
committee members, nor are directors who are also employees of the Company or
any subsidiary paid compensation for serving as directors or members of
committees of the Board.
The Board previously adopted a retirement plan for non-employee directors
who retire from active service on the Board after completing at least five (5)
years of service as a director of the Company and attaining age sixty-five (65).
Under the plan, the Company will continue paying monthly service fees for three
(3) years after a director's retirement from the Board, or, at the discretion of
the Board, a lump sum payment will be made to the retired director. Such
benefits as remain owing are extended to the surviving spouse of an eligible
director who dies prior to retirement or during the three (3) year period
thereafter. Age restrictions for sitting directors when the plan was adopted
were grand-fathered. In May 1996, Kenneth L. Trefftzs retired from the Company's
Board of Directors and is currently receiving fees under this retirement plan.
Under the Company's Amended Non-Qualified Stock Option Plan of 1989 (the
"1989 Plan"), each non-employee director was granted automatically on May 14,
1992, May 13, 1993, May 12, 1994 and on May 11, 1995, a non-qualified stock
option to purchase 6,188 shares of the Company's common stock at the exercise
price of $8.889, $13.434, $14.321 and $15.682 per share, respectively. The
number of shares and exercise prices have been adjusted to reflect the effect of
stock splits and a stock dividend distributed by the Company subsequent to the
grant dates of the respective stock options. No stock options were granted to
non-employee directors in 1996. On May 8, 1997, under the Company's 1997 Stock
Plan (the "1997 Plan"), each non-employee director was granted a non-qualified
stock option to purchase 10,000 shares of the Company's common stock at the
exercise price of $28.00 per share. The purchase price per share of common stock
covered by each such option granted to a non-employee director was the fair
market value of the common stock on the date the option was granted. The options
are exercisable at the rate of 25% per annum commencing on the first anniversary
of their grant and, unless earlier exercised or terminated, will expire ten (10)
years after they are granted.
Each non-employee director was awarded 26,000 shares of restricted common
stock in 1996 under the Company's 1995 Restricted Stock Award Plan, As Amended.
The restrictions on these shares will generally be released at the rate of 10%
per year beginning on the first designated release date, commencing in 1997, and
on each of the nine anniversaries thereafter, provided that the director is
still serving on the Board of Directors and the Company has not exercised its
reacquisition option with respect to such shares. See "1995 Restricted Stock
Award Plan, As Amended." No restricted stock awards were made to non-employee
directors in 1997 or in 1998, as of the date of this proxy statement.
4
<PAGE> 7
EXECUTIVE OFFICERS
The following table sets forth the names, ages, employment dates and
positions of the executive officers and certain other officers of the Company
and the date each became an officer of the Company (or its predecessor
companies). All executive officers have been with the Company for over five (5)
years and have served as officers of the Company and its subsidiary companies.
Executive officers are elected annually by the Board of Directors. There are no
family relationships among directors, executive officers or nominees for
director.
<TABLE>
<CAPTION>
EMPLOYEE OFFICER
NAME POSITION AGE SINCE SINCE
- ---- -------- --- -------- -------
<S> <C> <C> <C> <C>
McIntyre, James A.(1)... Chairman of the Board, & Chief Executive
Officer 65 1963 1963
Rampino, Louis J.(1).... President & Chief Operating Officer 45 1977 1989
Bailey, Wayne R.(1)..... Executive Vice President, Treasurer &
Chief Financial Officer 43 1986 1989
Donaldson, John A....... Senior Vice President, Controller & Chief
Accounting Officer 43 1981 1993
Meyers, Raymond G....... Senior Vice President & Chief
Administrative Officer 51 1980 1989
Lamb, E. Patrick(1)..... Vice President, Finance 38 1986 1998
Faigin, Alan W.(1)...... Secretary & General Counsel 41 1980 1994
</TABLE>
- ---------------
(1) Messrs. McIntyre, Rampino, and Bailey are directors, and Messrs. McIntyre,
Rampino, Lamb and Faigin are officers, of Fremont Funding, Inc., a
consolidated wholly-owned subsidiary of the Company which has securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934.
Directors and officers of Fremont Funding, Inc. are elected annually.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended (the "Exchange Act") that might incorporate
future filings, including this Proxy Statement, in whole or in part, the
following report and the Stock Price Performance Graph (see "Fremont General
Corporation Stock Price Performance") shall not be incorporated by reference
into such filings or any future filings, except to the extent the Company
specifically incorporates this report or the graph referenced therein, and the
report and the graph shall not be deemed soliciting material or otherwise deemed
filed under either of such Acts.
The Compensation Committee of the Board of Directors of the Company (the
"Committee") is comprised of independent, non-employee directors within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") and Rule 16b-3 under the Exchange Act, respectively. The Compensation
Committee reviews and recommends executive compensation levels, cash and equity
incentives for executive officers and reports such recommendations to the Board
of Directors for its consideration and action. The Committee's responsibilities
include: (a) reviewing compensation policies and programs to ensure that they
are consistent with and linked to the Company's strategies; (b) reviewing and
recommending executive compensation levels, cash and equity incentives for
executive officers, and any compensation plans in which officers and directors
of the Company are eligible to participate and reports such recommendations to
the Board of Directors for its consideration and action; (c) assessing the
performance of the Chief Executive Officer and other executive officers; (d)
ensuring that executive and senior officers' compensation is based on objective
measures of performance at the individual, corporate and applicable business
unit level; and (e) administering the Company's employee stock option,
restricted stock, and annual and long-term incentive plans. The Committee
believes that compensation should be driven by the long-term interests of the
stockholders and should be directly linked to corporate performance.
5
<PAGE> 8
The compensation policy of the Company with respect to its executives and
employees has long been and continues to be focused on paying for performance
principally as related to achievement of pretax earnings targets. This policy
includes all forms of compensation -- base salary, bonuses, stock options,
restricted stock, benefits and perquisites.
The Executive Compensation program for officers of Fremont General is
composed of three basic components tied to financial objective performance
standards: (1) base salary, (2) annual cash bonus opportunity, and (3) long term
cash and stock ownership opportunity. The Company's compensation policy is to
pay its executives for performance at rates which are above the averages of
compensation survey data reported by insurance, financial and diversified
financial services organizations of comparable size and structure.
The Committee is provided with reports and data developed by internal
Company staff and by retained outside compensation consultants with access to
extensive industry data in the compensation area. Also, at the request of the
Committee, the Company occasionally retains the services of a leading nationally
recognized consulting firm to review its compensation practices in keeping with
the stated policy of the Committee, and to ascertain that the Company's
compensation practices are comparable to those of companies in the various
market indices reported in the Performance Graph (see "Fremont General
Corporation Stock Price Performance") which have similar businesses, size, and
performance.
Compensation Limitations. Under Section 162(m) of the Code, adopted in
August 1993, and regulations adopted thereunder, publicly-held companies may be
precluded from deducting certain compensation paid to an executive officer in
excess of $1,000,000 in any one year, excluding from this limit
performance-based compensation. The Committee has considered the potential
future effects on the Company of Section 162(m) and does not currently
anticipate changing its policy solely for the purpose of qualifying such
compensation as performance-based within the meaning of Section 162(m).
BASE SALARY
Base salary represents only a portion of each executive's total targeted
cash compensation opportunity each year. Individual annual performance criteria
are used to annually adjust the base salary.
MANAGEMENT INCENTIVE COMPENSATION PLAN (ANNUAL BONUS PLAN)
The Company places significant emphasis on attaining predetermined pretax
earnings targets. It provides each executive with an opportunity to earn an
annual bonus upon the Company's achievement of those goals.
Bonus "targets" represent the balance of each executive's total targeted
annual cash compensation opportunity, and range from 10% to 50% of each
executive's base salary. These individual "target" bonus amounts are set by the
Committee at the beginning of the plan year based on available total annual
compensation survey data to reflect the ranking and relative level of
contribution each executive is expected to make to the achievement of the
Company's predetermined pretax earnings targets. Actual bonuses earned can range
from half of the executive's "target" amount for performance at the minimum
acceptable earnings level as set by the Committee, to a maximum of three (3)
times the "target" amount for earnings substantially in excess of the Company's
goals.
LONG-TERM COMPENSATION
In addition to annual compensation considerations, the Company has adopted
three (3) forms of long-term compensation which focus the executives on
increasing stockholder value over the long term by aligning the interests of the
officers with those of the stockholders.
BONUS OPPORTUNITY:
-- The Long-Term Incentive Compensation Plan ("LTICP") provides for a cash
bonus opportunity dependent upon the Company achieving a predetermined
cumulative pretax earnings target over a three (3) year period.
6
<PAGE> 9
STOCK OWNERSHIP:
-- The Amended Non-Qualified Stock Option Plan of 1989 (the "1989 Plan")
provides a long-term compensation opportunity for the officers of the
Company and certain key subsidiary officers. Stock options granted to
the participants ("Optionees") vest at the rate of 25% per year
beginning on the first anniversary of each grant.
In determining the number of stock options to grant each executive, the
Committee considered a variety of methods to use, including a target
gain projection, a present value calculation and a structure based on
executive salary grades or salary multiples. The Committee opted to use
a salary multiple calculation model, which is common practice where
grants are staggered over three (3) to five (5) years. The Committee's
intent in utilizing these methods, coupled with the four (4) year
vesting schedule for each grant, was to enhance the long-term nature of
this program and to achieve its goal of linking the financial interests
of the executives very closely to those of the stockholders.
In 1997, non-qualified stock options to purchase 806,000 shares were
awarded under the 1989 Plan to executive officers and certain subsidiary
officers of the Company. In February 1997 the Company implemented a
stock option exercise program which included the repurchase of Company
common stock by the Company's employee benefits trust (the "Trust").
Under the program, officers exercised outstanding vested options to
purchase 1,263,256 shares of common stock. The Trust purchased
approximately 808,000 of such shares, which were sold by the officers to
cover their respective exercise price and tax withholding obligations.
The program's purpose was to encourage its officers to increase their
outright ownership of Company stock. The program also made it possible
for the officers to avoid having to sell a large number of shares in the
open market, thus eliminating a potentially adverse effect on the market
price of Company common stock. As a result, the Company was able to
realize a tax deduction of approximately $25.5 million and effectively
remove the 808,000 shares from the weighted average share calculation
for earnings per share, thus decreasing the dilution of earnings per
share attributable to stock options. Officers increased their ownership
by approximately 455,000 shares. Shares repurchased by the Trust will be
used to fund future employee benefit plans. As part of the inducement to
exercise the stock options at that time the Committee granted the
806,000 new stock options at the current market price to the officers.
-- The 1995 Restricted Stock Award Plan, As Amended (the "1995 Plan"), also
provides a long-term compensation opportunity for the officers and
certain key employees of the Company and its subsidiaries. The shares of
common stock awarded under the 1995 Plan are restricted and may not be
sold by the participants ("1995 Plan Participants") until these
restrictions lapse. All of the shares issued under the 1995 Plan are
held in escrow by the Company for the account of each 1995 Plan
Participant pending the release of the restrictions. Shares will
generally be released from restriction at the rate of ten percent (10%)
per year beginning on the first designated release date and on each of
the nine anniversaries thereafter, provided that the 1995 Plan
Participant's status as an employee or director has not terminated and
the Company has not exercised its reacquisition option. 1995 Plan
Participants have full voting and dividend rights with respect to the
shares. In 1997, 23,000 shares of restricted common stock were awarded
under the 1995 Plan.
-- The 1997 Stock Plan (the "1997 Plan") provides a long-term compensation
opportunity for the officers and certain key employees of the Company
and its subsidiaries. Stock options and awards of rights to purchase
shares of the Company's common stock ("Stock Rights") may be granted
under the 1997 Plan. Stock options granted under the 1997 Plan may be
either "incentive stock options," as defined in Section 422 of the Code,
or non-statutory stock options. Non-statutory stock options and Stock
Rights may be granted under the 1997 Plan to employees, directors and
consultants of the Company or any parent or subsidiary of the Company.
Incentive stock options may be granted only to employees. A Stock Right
may award the recipient shares of common stock or may give the recipient
the right to purchase common stock. Such shares are subject to the
Company's reacquisition option (which is similar to that under the 1995
Plan) and may not be sold by the participants ("1997 Plan Participants")
until released therefrom. All of the Stock Right shares issued under the
1997 Plan are
7
<PAGE> 10
held in escrow by the Company for the account of each 1997 Plan
Participant pending the release from the Company's reacquisition option.
The reacquisition option lapses at a rate determined by the 1997 Plan
Administrator, but generally shares will be released from restriction at
the rate of ten percent (10%) per year beginning on the first designated
release date and on each of the nine anniversaries thereafter, provided
that the 1997 Plan Participant's status as an employee, director or
consultant has not terminated and the Company has not exercised its
reacquisition option. 1997 Plan Participants have full voting and
dividend rights with respect to Stock Right shares. During 1997, 40,000
non-statutory stock option shares were granted to non-employee directors
and 478,000 Stock Rights in the form of restricted common stock were
awarded to executive officers and certain other officers of the Company
and its subsidiary companies under the 1997 Plan.
The Committee used a salary multiple calculation model to determine the
number of restricted shares to award to each 1995 Plan and 1997 Plan
Participant.
The Company has entered into employment agreements with certain executive
officers which include provisions for early release of restrictions on shares
awarded to them under the 1995 Plan and 1997 Plan, and for acceleration of
vesting of stock options granted to them under the 1989 Plan and 1997 Plan, upon
the occurrence of certain events.
SPLIT-DOLLAR LIFE INSURANCE:
-- In May 1996, the Company adopted a Split-Dollar Life Insurance Program
(the "Program") for Executive Officers and certain other key employees
of the Company. Participants under the Program are provided with
individual permanent life insurance policies, with death benefit limits
of two (2) or two-and-one-half (2 1/2) times compensation (depending
upon the individual participant's position level with the Company) and
with a cash value that accumulates over time. Participants are entitled
to any excess cash surrender values over premiums paid by the Company
upon their termination of employment. At age sixty-five (65) the excess
cash surrender value is intended to provide a fully paid-up
post-retirement life insurance benefit equal to fifty percent (50%) of
the pre-retirement life insurance benefit. The policy is owned by the
participant. The Company pays all premiums and retains a collateral
interest in the policy equal to the amount of such premiums. The Company
will recover this collateral interest when the insured participant
reaches age sixty-five (65), after ten (10) policy years, when the
policy is fully or partially surrendered, or upon payment of the death
benefit. All employees in this Program also have basic group term life
insurance coverage of $50,000 paid by the Company.
EMPLOYMENT AGREEMENTS
In 1997 the Committee recommended, and the Board of Directors approved, an
amendment to the 1994 Employment Agreement with Mr. James A. McIntyre, Chairman
and Chief Executive Officer. In 1996, the Compensation Committee recommended and
the Board of Directors approved Employment Agreements with Messrs. Louis J.
Rampino, President and Chief Operating Officer, and Wayne R. Bailey, Executive
Vice President and Chief Financial Officer, and a Management Continuity
Agreement with Mr. Raymond G. Meyers, Senior Vice President and Chief
Administrative Officer. See "Employment Agreements."
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Specifically, with respect to the compensation of James A. McIntyre,
Chairman and Chief Executive Officer, the Committee reports:
1. Base Salary -- Mr. McIntyre's base salary in 1997 was $794,778
(see "Summary Compensation Table"), which accounted for approximately
forty-six percent (46%) of his total annual compensation earned in 1997.
This amount is within the 50th-75th percentile of salaries paid to Chief
Executive Officers in companies of comparable-size in the diversified
financial services industries.
8
<PAGE> 11
2. Annual Bonus -- Mr. McIntyre was awarded an annual bonus for 1997
of $793,932 pursuant to the 1997 Management Incentive Compensation Plan
which accounts for approximately forty-six percent (46%) of the total
annual compensation Mr. McIntyre earned in 1997. This bonus is
approximately one hundred percent (100%) of his 1997 base salary rate and
results from the Company's achievement of pretax profit in 1997 that
exceeded the goal set by the Committee at the beginning of 1997.
3. Long-Term Incentive Compensation Plan -- Mr. McIntyre participates
in the Company's Long-Term Incentive Compensation Plan ("LTICP"). The LTICP
was adopted by the Board in 1996, and provides for bonus opportunity
dependent upon the Company achieving a predetermined cumulative pretax
earnings target during the three year period from January 1, 1996 through
December 31, 1998. The current 1996 LTICP is substantially a renewal of the
1993 LTICP, also a three year plan, which ran through December 31, 1995.
Certain senior officers, including Mr. McIntyre, were given the option of
making an irrevocable election at the beginning of the LTICP term to tie
this cash award to the performance of the Company's stock during this
period. Mr. McIntyre's bonus amount at the maturity of the LTICP is a cash
award equal to his annual salary (or salary grade midpoint, if higher),
averaged over the three year term of the LTICP, multiplied by a percentage
of between 60% to 150% depending on the actual pretax earnings result
achieved by the Company. Once this basis of the award has been calculated
using this formula, the product is divided by $24.00, the common stock
closing trading price on January 2, 1996 at the inception of the LTICP (as
adjusted for stock splits and stock dividends). The result of this
calculation will then be multiplied by the closing trading price of the
common stock on December 31, 1998, the LTICP maturity date, and the product
will be the total cash award payable by the Company to Mr. McIntyre under
the LTICP. See "1996 Long-Term Incentive Compensation Plan."
4. Other Compensation -- In 1997, other compensation paid to Mr.
McIntyre included Company contributions to the Investment Incentive Plan
(401(k) Plan), Supplemental Executive Retirement Plan, Employee Stock
Ownership Plan and Excess Benefits Plan (collectively, $186,971),
contributions to fund supplemental medical, life and personal liability
insurance ($50,665) and paydown of excess vacation accrual ($87,949). The
Company advanced a portion of the premiums payable in 1997 on a
split-dollar life insurance policy ($393,596) under an agreement between
the Company and a trust established by Mr. and Mrs. James A. McIntyre.
These advances are secured by a collateral assignment of the policy to the
Company. See "Employment Agreements." Mr. McIntyre also participates in the
Company's Split-Dollar Life Insurance Program under which the Company
advanced $140,000 in premiums in 1997. See "Split-Dollar Life Insurance
Program." In 1997 Mr. McIntyre was awarded options to purchase 300,000
shares under the 1989 Plan and 113,000 shares of restricted stock under the
1997 Plan.
The Company entered into an employment agreement with Mr. McIntyre in 1994
which replaced a prior agreement. In 1996 and 1997, the Company entered into
amendments to this employment agreement. This agreement ensures that the Company
will continue to have Mr. McIntyre's services available to it pursuant to the
agreement's terms. See "Employment Agreements."
The Committee's policies with respect to executive compensation for other
executive officers of the Company are substantially the same as those applied to
Mr. McIntyre on an appropriate scale based upon scope of responsibility and
position level. Each of these five (5) executives received annual base salaries,
annual bonuses, long-term bonuses, restricted stock awards and other
compensation as reported in the Summary Compensation Table (see "Summary
Compensation Table") on substantially the same basis as were applied to the
Chief Executive Officer, at lesser rates.
It remains the primary goal of the Committee to relate compensation to
corporate performance and to compensate executives of the Company based
principally on achievement of pretax earnings targets in an effort to enhance
stockholder value on a long term basis.
9
<PAGE> 12
The tables that follow disclose details of compensation paid to the
executives of the Company in 1997, as well as that paid in the previous two (2)
years. Descriptions of the Company's employment agreements with its officers and
the retirement and benefit plans follow.
Compensation Committee:
Dickinson C. Ross, Chairman
Houston I. Flournoy
C. Douglas Kranwinkle
David W. Morrisroe
The following table and accompanying notes provide information with respect
to total compensation earned or paid by the Company to the Chief Executive
Officer and the four most highly compensated executive officers of the Company
serving at the end of fiscal 1997 (the "Named Executive Officers") during fiscal
years 1997, 1996, and 1995.
SUMMARY COMPENSATION TABLE
DOLLARS IN THOUSANDS ($000)
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------ ----------------------- --------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) ($) (#) ($) ($)
------------------ ---- --------- -------- ------------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James A. McIntyre, 1997 $794.8 $ 793.9 $132.5 $ 5,311.0 300,000 $ -- $ 196.0
Chairman and Chief 1996 718.8 1,050.0 31.9 11,253.7 -- -- 273.1
Executive Officer 1995 684.6 979.7 28.3 -- -- 1,099.3 194.7
Louis J. Rampino, 1997 639.0 571.6 7.6 4,700.0 160,000 -- 135.1
President and Chief 1996 565.9 742.5 4.9 7,965.6 -- -- 186.9
Operating Officer 1995 544.1 653.1 4.8 -- -- 774.5 121.2
Wayne R. Bailey, 1997 518.8 410.7 86.3 3,384.0 90,000 -- 111.3
Executive Vice President, 1996 463.5 540.0 5.1 5,373.2 -- -- 133.8
Treasurer and Chief 1995 391.1 464.4 4.7 -- -- 599.5 85.1
Financial Officer
Raymond G. Meyers, 1997 330.7 258.3 8.5 940.0 61,000 -- 66.9
Senior Vice President 1996 304.0 348.0 10.2 3,179.9 -- -- 96.6
and Chief Administrative 1995 286.2 319.3 6.6 -- -- 444.6 66.1
Officer
John A. Donaldson, 1997 246.5 190.5 4.4 705.0 8,000 -- 34.6
Senior Vice President 1996 214.5 105.0 4.4 881.9 -- -- 53.5
and Chief Accounting 1995 201.8 98.1 4.1 -- -- 320.6 37.3
Officer
</TABLE>
SUMMARY COMPENSATION TABLE -- EXPLANATIONS
(c) SALARY includes all regular wages paid to the executive, cash automobile
allowances, and any amount which was voluntarily deferred by the executive
pursuant to the INVESTMENT INCENTIVE PLAN (the "401(k) Plan") and/or the
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (the "SERP").
(d) BONUS reflects cash compensation paid pursuant to the Company's MANAGEMENT
INCENTIVE COMPENSATION PLAN. Bonuses under this Plan are awarded upon the
achievement of annual pre-tax earnings targets as determined by the Board at
the beginning of each Plan year. Pretax earnings in a range of eighty
percent (80%) to one hundred twenty percent (120%) of the predetermined
target create a pool for bonuses. Participants are awarded amounts from this
pool as a percentage of their base salaries. The percentage is based upon
scope of responsibility and position level as determined by the Chief
Executive Officer and the Compensation Committee, based upon independent
compensation studies.
(e) OTHER ANNUAL COMPENSATION includes amounts paid on behalf of the executive
to provide for supplemental medical, life and personal liability insurance.
Also includes paydown of excess vacation
10
<PAGE> 13
accrual for Messrs. McIntyre and Bailey. In addition to these amounts, the
executive officers of the Company may receive "perquisites" and other
personal benefits. The aggregate amounts of such personal benefits do not
exceed $50,000 or ten percent (10%) of the annual salary and bonus reported
for any executive officer.
(f) RESTRICTED STOCK AWARDS represent the numbers of restricted shares of common
stock that were awarded under the 1995 Restricted Stock Award Plan, As
Amended (the "1995 Plan") and the 1997 Stock Plan (the "1997 Plan"). Ten
percent (10%) of each participant's shares are generally released from the
Company's reacquisition option on the first designated release date and on
each of the nine (9) anniversaries thereafter, provided that such
participant's status as an employee or director has not terminated and the
Company has not exercised its reacquisition option. All such shares issued
under the 1995 Plan and the 1997 Plan are restricted and are held in escrow
by the Company for the account of each participant pending the release of
the restrictions. Regular cash dividends are paid on the restricted shares.
See "1995 Restricted Stock Award Plan, As Amended" and "1997 Stock Plan." At
December 31, 1997 the number and market value ($54.75 per share) of the
aggregate restricted stock held by the Named Executive Officers were: Mr.
McIntyre, 514,940 shares, $28,192,965; Mr. Rampino, 377,344 shares,
$20,659,584; Mr. Bailey, 257,760 shares, $14,112,360; Mr. Meyers, 130,700
shares, $7,155,825; and, Mr. Donaldson, 45,150 shares, $2,471,963.
(g) OPTIONS represent the numbers of shares of common stock for which options to
purchase were granted during each of the last three fiscal years. The
options vest in installments at the rate of twenty-five percent (25%) per
year, pursuant to the terms of the 1989 Plan. The original exercise price,
which was the fair market value on the date of grant, has been adjusted from
time to time for stock dividends and stock splits. No stock options were
granted to the executives during 1995 or 1996. See "Amended 1989 Non-
Qualified Stock Option Plan," "Option/SAR Grants In Last Fiscal Year" and
"Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values."
(h) LTIP PAYOUTS represent bonuses earned pursuant to the LONG-TERM INCENTIVE
COMPENSATION PLAN ("LTICP") adopted by the Board in 1993. The LTICP provided
for bonus opportunity dependent upon the Company achieving a cumulative
pretax earnings target for the three year period from January 1, 1993
through December 31, 1995. The cash bonus amount paid at the maturity of the
LTICP, as reported in the table, resulted from the Company achieving 130.6%
of the pretax earnings target established by the Board in 1993 at the
inception of the LTICP. A similar LTICP was adopted by the Board in 1996 for
the three-year period from January 1, 1996 through December 31, 1998. Any
bonus that becomes payable under the 1996 LTCIP will be paid in cash. See
"1996 Long-Term Incentive Compensation Plan."
(i) ALL OTHER COMPENSATION includes Company contributions to the executive
officers' accounts in the EMPLOYEE STOCK OWNERSHIP PLAN (the "ESOP") and the
401(k) PLAN, both of which are "qualified defined contribution retirement
benefit" plans under the Code and to the SERP and the EXCESS BENEFIT PLAN
("EBP"), both of which are "non-qualified" supplemental retirement plans
under the Code. The amounts allocated to each Named Executive Officer in
1997 were:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS ($000)
--------------------------------
NAME ESOP 401(K) SERP EBP
---- ---- ------ ------ ----
<S> <C> <C> <C> <C>
McIntyre................................ $8.6 $6.0 $172.4 $ --
Rampino.................................. 8.6 6.0 119.1 --
Bailey................................... 8.6 6.0 95.8 --
Meyers................................... 8.6 6.0 51.2 --
Donaldson................................ 8.6 6.0 19.6 --
</TABLE>
The premiums paid in 1996 and 1997, respectively, for the Split-Dollar Life
Insurance Program implemented during fiscal year 1996 were: Mr. McIntyre,
$140,000, $140,000; Mr. Rampino, $74,400, $74,400; Mr. Bailey, $54,400, $54,400;
Mr. Meyers, $53,200, $53,200; and Mr. Donaldson, $23,000, $23,000. Upon
retirement (age 65) the Company will recover its net premium outlays and release
the policy when it
11
<PAGE> 14
determines that the policy cash value is sufficient on an actuarial basis to
provide the post-retirement benefit. Based upon an "actuarial modified premium
test," the Company estimates the cash value of an Executive's policy on the
earliest possible date the premium paid by the Company may be refunded. The
present value of the portion of this cash value generated by the premium paid in
1997 was then calculated, and the premium paid in 1997 was subtracted from the
result of this present value calculation in current non-discounted dollars. The
resulting difference was added to the "term" value of the Executive's insurance
policy (calculated pursuant to Internal Revenue Service rules) and included in
the All Other Compensation column. A similar calculation was done for premiums
paid during 1996. See "Split-Dollar Life Insurance Program." In addition, the
Company advanced a portion of the premiums payable in 1996 ($393,596) and in
1997 ($393,596) on an individual split-dollar life insurance policy under an
agreement between the Company and a trust established by Mr. and Mrs. James A.
McIntyre. See "Employment Agreements."
In 1997, there were 846,000 non-qualified stock options granted to
executive officers, directors and to employees. The following table and
accompanying notes summarize the options granted to each executive officer of
the Company in 1997 and projects potential realizable gains at hypothetical
assumed annual compounded rates of appreciation.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G)
POTENTIAL REALIZED VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM
- ---------------------------------------------------------------------------- ----------------------------
NUMBER OF % OF TOTAL DOLLARS IN THOUSANDS
SECURITIES OPTIONS/SARS ($000)
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN 1997 ($/SH) DATE 5% 10%
---- ------------ ------------ -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
McIntyre............. 300,000 37.2% $29.875 02/13/2007 $5,636.5 $14,283.9
Rampino.............. 160,000 19.9% $29.875 02/13/2007 $3,006.1 $ 7,618.1
Bailey............... 90,000 11.2% $29.875 02/13/2007 $1,690.9 $ 4,285.2
Meyers............... 61,000 7.6% $29.875 02/13/2007 $1,146.1 $ 2,904.4
Donaldson............ 8,000 1.0% $29.875 02/13/2007 $ 150.3 $ 380.9
</TABLE>
OPTION GRANTS TABLE -- EXPLANATIONS
(b) OPTIONS GRANTED -- This column represents the total number of shares for
which the executive officer was granted options to purchase common stock
pursuant to the terms of the 1989 Plan and 1997 Plan. These options are
exercisable at the rate of 25% each year beginning on the first anniversary
of grant. The options expire ten (10) years from the date of grant unless
exercised or earlier terminated.
(c) PERCENT OF TOTAL -- In 1997 the Compensation Committee, pursuant to the
terms of the 1989 Plan, granted the options in column "(b)" along with other
options to certain executive officers of key subsidiaries of the Company.
The total number of option shares granted in 1997 to all employees was
806,000, excluding options granted to non-employee directors of the Company
who received a total of 40,000 option shares pursuant to the 1997 Plan.
(d) EXERCISE PRICE -- Pursuant to the terms of the 1989 Plan, the option
exercise price was set at 100% of the actual closing price of the Company's
common stock in the open market on the date of grant, as reported by the New
York Stock Exchange.
(f) and (g) APPRECIATION OVER TERM -- These values are solely the mathematical
results of hypothetical assumed appreciation of the market value of the
underlying shares at an annual rate of 5% (column "(f)") and at an annual
rate of 10% (column "(g)"), less the exercise price. Actual gains, if any,
will depend on the future stock market performance of the Company's common
stock, market factors and conditions, and each Optionee's continued
employment through the applicable vesting periods. The Company makes no
prediction as to the future value of these options or of its common stock
and these
12
<PAGE> 15
values are provided solely as examples pursuant to the proxy reporting rules of
the Securities and Exchange Commission.
Each Optionee is responsible for any and all tax liabilities resulting from
the exercise of these options or any portion thereof, subject to contingent
rights to surrender or offset shares to satisfy tax withholding obligations.
Stock options granted pursuant to the 1989 Plan and the 1997 Plan include tax
withholding rights.
The following table and accompanying notes summarize exercises of stock
options during 1997 by the Named Executive Officers and certain required
information regarding outstanding options held by them at the end of fiscal
1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
DOLLARS IN THOUSANDS ($000)
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF SECURITIES VALUE OF UNEXERCISED(1)
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/ OPTIONS/SARS
SHARES ACQUIRED VALUE SARS AT FY-END (#)(1) AT FY-END($)(2)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
McIntyre................ 541,329 $11,247.5 34,690 319,387 $1,386.3 $ 8,240.5
Rampino................. 226,833 4,473.4 25,286 177,325 1,011.7 4,675.2
Bailey.................. 124,371 2,392.9 16,706 102,375 668.7 2,735.3
Meyers.................. 86,668 1,649.6 10,601 69,250 424.5 1,848.4
Donaldson............... 9,324 140.3 3,794 10,062 151.6 281.8
------- --------- ------ ------- -------- ---------
Total......... 988,525 $19,903.7 91,077 678,399 $3,642.8 $17,781.2
======= ========= ====== ======= ======== =========
</TABLE>
- ---------------
(1) Options and values reported in the table have been adjusted to reflect the
three-for-two stock split paid in February 1996 and a stock dividend
distributed in June 1995.
(2) VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT YEAR END represents the
difference between the market value at December 31, 1997 ($54.75 per share)
of unexercised options and the respective exercise prices of the options. No
representation regarding the "value" of such options is intended.
FREMONT GENERAL CORPORATION STOCK PRICE PERFORMANCE
The Stock Price Performance Graph below includes comparisons required by
the Securities and Exchange Commission (the "SEC") and shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or under
the Exchange Act, except to the extent Fremont General Corporation specifically
incorporates this information by reference, and shall not otherwise be deemed
soliciting material or filed under such Acts.
The graph below compares cumulative total return (i.e., change in stock
price plus reinvestment of dividends) of the Company's common stock measured
against the cumulative total return of the Wilshire 5000 Broad Index and the
Financial Sector Sub-Index of the Wilshire 5000 (the "Finance Index"), which
represent indices selected by the Company as an appropriate peer group. The
stock price performance shown in this graph is not necessarily indicative of and
not intended to suggest future stock price performance.
13
<PAGE> 16
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
AMONG FREMONT GENERAL CORPORATION, WILSHIRE FINANCE INDEX
AND WILSHIRE 5000
<TABLE>
<CAPTION>
MEASUREMENT PERIOD FREMONT GENERAL WILSHIRE FINANCE
(FISCAL YEAR COVERED) CORP. INDEX WILSHIRE 5000
<S> <C> <C> <C>
1992 $100 $100 $100
1993 $111 $112 $111
1994 $108 $110 $111
1995 $193 $164 $152
1996 $250 $218 $184
1997 $447 $325 $241
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------
TOTAL RETURN INDEX 1992 1993 1994 1995 1996 1997
------------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fremont General Corp.......................... $100 $111 $108 $193 $250 $447
Wilshire Finance Index........................ $100 $112 $110 $164 $218 $325
Wilshire 5000................................. $100 $111 $111 $152 $184 $241
</TABLE>
Assumes $100 invested on December 31, 1992, as adjusted for stock splits
and dividends. Total returns assume dividends reinvested on ex-date.
EMPLOYMENT AGREEMENTS
In 1994, the Compensation Committee recommended and the Board of Directors
approved an employment agreement (the "Agreement") with Mr. James A. McIntyre,
Chairman and Chief Executive Officer of the Company, replacing a prior such
employment agreement which expired on December 31, 1993. In November 1996, the
Compensation Committee recommended and the Board of Directors approved a first
amendment to the Agreement (the "First Amendment") to conform the Agreement with
certain provisions of the employment agreements then in effect for Messrs.
Rampino and Bailey (see below). The First Amendment (i) adds a definition of
"Company Event" (as defined below) to the Agreement, (ii) provides that the
unvested and/or restricted portion of any stock option and restricted stock held
by Mr. McIntyre will accelerate in full so as to become completely vested and/or
unrestricted upon certain terminations of employment or in the event of a
"Company Event" (as defined below); and (iii) provides for a "Gross-Up Payment"
(as defined below). The Agreement provides for a base salary of $600,000,
subject to discretionary increases by the Board of Directors of the Company
beginning in 1995. Mr. McIntyre's annual compensation rate was increased by the
Board from $550,000 to $600,000 in February 1994, to $675,000 in February 1995,
to $700,000 in February 1996, to $750,000 in February 1997 and to $800,000 in
February 1998. Mr. McIntyre also participates in all of the bonus and incentive
compensation plans and programs generally available to the senior management of
the Company, as well as other employee benefit plans maintained by the Company
for
14
<PAGE> 17
its employees. In the event Mr. McIntyre's employment with the Company
terminates for any reason other than pursuant to a termination by the Company
for cause or as the result of Mr. McIntyre's death or total disability, Mr.
McIntyre will receive a pro-rated portion of his bonuses for the year in which
he so terminates. In addition, Mr. McIntyre will become a consultant to the
Company. For the first five (5) years of the consultancy, the Company will
compensate Mr. McIntyre at an annual rate equal to his base salary at the time
his employment terminated. During that period, Mr. McIntyre will also receive,
whether by way of reimbursement, direct compensation or otherwise, specified
fringe and other benefits. After such five-year period and for the remainder of
Mr. McIntyre's life, Mr. McIntyre will receive an annual amount equal to fifty
percent (50%) of his base salary at the time his employment terminated. In the
event Mr. McIntyre's employment terminates as a result of his disability, the
Company will pay Mr. McIntyre, for life, an annual amount equal to fifty percent
(50%) of his base salary at the time his employment terminated, offset by any
disability benefits he receives. In the event of Mr. McIntyre's death, the
Company will pay his estate any earned but unpaid salary, vacation pay and
pro-rated bonus amounts accrued to the date of his death.
In November 1997, the Compensation Committee recommended and the Board of
Directors approved a Second Amendment to the Agreement to extend the employment
period under the Agreement for an additional term of three years. After such
additional three-year period, or any extension term, the employment period
automatically extends for additional one-year terms unless terminated by either
party with at least ninety (90) days' advance written notice prior to the end of
the then-current term.
In November 1995, a trust established by Mr. and Mrs. James A. McIntyre
entered into an agreement with the Company whereby the Company, with the
approval of the Compensation Committee of the Board of Directors, agreed to make
advances of a portion of the premiums payable on a split-dollar life insurance
policy purchased by the trust on the lives of Mr. and Mrs. McIntyre. The Company
will be reimbursed the full amounts advanced, without interest, upon the first
to occur of (a) the death of the survivor of Mr. and Mrs. McIntyre or (b) the
surrender of the policy. These advances are secured by a collateral assignment
of the policy to the Company. During each of the fiscal years ended December 31,
1996 and 1997 the Company advanced $393,596 toward the payment of such premium.
In 1996, the Compensation Committee recommended and the Board of Directors
approved Employment Agreements with Messrs. Louis J. Rampino and Wayne R.
Bailey. These Agreements, which were effective as of February 8, 1996, have a
term of three (3) years, which term extends for an additional three (3) years if
not terminated on or before February 8, 1998. The material terms of these
agreements provide for base salaries as of the effective date of $550,000 for
Mr. Rampino and $450,000 for Mr. Bailey. These base salaries will be reviewed
annually, and may be increased or decreased at the Committee's discretion but
not below these levels. The annual base salary for Messrs. Rampino and Bailey
were increased by the Board of Directors and in February 1998 were $650,000 and
$550,000, respectively. These executives will participate in any annual and/or
longer term incentive plan(s), as well as any retirement, welfare or other
benefit plans made available to other senior officers. In the event of
termination of employment, other than a voluntary termination or a termination
by the Company for cause, but including death or total disability (a
"Termination"), the Company will pay the executive officer (or his heirs) the
equivalent of three (3) years' base salary at the then current rate, along with
pro-rata portions of any annual and/or longer term incentive plan(s). In
addition, upon such a Termination (other than as a result of the executive's
death) the executive will continue to be provided welfare and other employee
benefits for up to three (3) years and the unvested and/or restricted portion of
any stock option or restricted stock held by the executive at the time of such
Termination will accelerate in full so as to become completely vested and/or
unrestricted. In the event the termination occurs within the thirty-six (36)
month period following a "Company Event" (as defined below) a cash payment equal
to the aggregate stock option exercise price attributable to any then
outstanding stock options shall be paid to the executive.
In February 1996, the Company also entered into a Management Continuity
Agreement with Mr. Raymond G. Meyers which provides that upon a termination of
employment in the event of a Company Event (as defined below), the unvested
and/or restricted portion of any stock option and restricted stock held by the
executive will accelerate in full so as to become completely vested and/or
unrestricted. This Agreement provides for a base salary of $290,000, which is to
be reviewed annually, and may be increased or decreased at
15
<PAGE> 18
the Committee's discretion subject to the terms of this Agreement. In February
1998, the Board of Directors increased Mr. Meyers' annual base salary to
$325,000. This Agreement does not have a specified term. Mr. Meyers will
participate in any annual and/or longer term incentive plan(s), as well as any
retirement, welfare or other benefits made available to other senior officers.
For purposes of Messrs. McIntyre's, Rampino's, Bailey's and Meyers'
agreements, a "Company Event" is defined to have occurred when any one of the
following events occurs: (i) any "person" or "group" acquires thirty percent
(30%) or more of the total voting power represented by outstanding securities of
the Company; (ii) the occurrence of certain changes in the composition of the
Board of Directors; (iii) the stockholders approve a merger or consolidation of
the Company involving a fifty percent (50%) or more change in ownership of the
total voting power represented by the Company's outstanding securities; (iv) the
stockholders approve a complete liquidation or sale of all or substantially all
of the assets of the Company; or, (v) James A. McIntyre, while serving as
Chairman of the Board of Directors, has a conservator of his person appointed or
dies.
For purposes of Messrs. McIntyre's, Rampino's, Bailey's and Meyers'
agreements, to the extent that any payments made to the executive by the Company
trigger the excise tax pursuant to the Internal Revenue Code Sections 280G and
4999, additional payments will be made to the executive so that after taxes, the
net economic effect to such executive will be the same as if the additional
taxes imposed by Sections 280G and 4999 did not apply to such executive. These
additional payments are referred to as "Gross-Up Payments."
RETIREMENT AND OTHER BENEFIT PLANS
A. INVESTMENT INCENTIVE PLAN ("401(K) PLAN")
The 401(k) Plan has qualified as an employee retirement plan under Section
401(a) and 401(k) of the Code. Participation is optional for employees once they
are eligible to participate.
Under the 401(k) Plan, employees may elect to have up to fifteen percent
(15%) of their eligible compensation deferred and deposited with the plan
trustee which will invest the money at the employee's discretion among a variety
of investment funds including Company stock. Employee contributions are matched
by the Company at a rate determined annually by the Board. In 1997 this matching
rate was $0.75 for every dollar contributed up to six percent (6%) of
compensation. The Company may make additional contributions in its discretion.
All employee contributions are one hundred percent (100%) vested. Vesting in
Company matching and other contributions accrues over a period of years.
Disbursement of the employee's account balance will occur upon retirement,
termination of employment, total disability or death. Shares of the Company's
common stock held in the 401(k) Plan and allocated to participants' accounts are
voted by the 401(k) Plan's Trustee upon instructions from the participants.
B. EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
In 1989, the Company adopted the ESOP which is a qualified retirement plan
as defined by the Internal Revenue Service. Under the Plan, the Company
contributes cash and/or stock to be held in trust for eligible employee
participants. Contributions are made in such amounts as the Board deems
appropriate and reasonable, taking into account the financial performance of the
participating companies. In general, contributions have ranged between zero and
fifteen percent (0-15%) of the eligible compensation of each employee
participant. The contributions allocated to each eligible participating employee
of participating companies are allocated as a percentage of the employee's
eligible compensation.
In 1990 and in 1993, the Board authorized the Company to loan funds to the
ESOP to finance the purchase of shares of Company common stock. In 1994, these
loans from the Company were refinanced through a term credit facility with Wells
Fargo Bank, formerly First Interstate Bank of California, in the principal
amount of $11,000,000. In 1995, the amount of the term credit facility was
increased to $15,000,000. As of December 31, 1997, the outstanding loan balance
was $8,582,674. The Wells Fargo Bank note is due in
16
<PAGE> 19
six (6) annual installments, commencing April 1, 1997. The Wells Fargo Bank note
bears interest at a variable rate which at December 31, 1997 averaged six and
nine-tenths percent (6.9%) per annum.
As of December 31, 1997 the ESOP had 2,135,594 shares allocated to its
participants' individual accounts and 542,370 unallocated shares representing
six and two-tenths percent (6.2%) and one and six-tenths percent (1.6%),
respectively, of the outstanding shares of common stock of the Company on that
date, as adjusted for stock dividends and stock splits. Shares held by the ESOP
are voted by the ESOP's Trustee upon instructions from the participants to whose
accounts the stock is allocated, and by the ESOP committee appointed by the
Board as to the unallocated shares of stock. The committee is comprised of
Messrs. James A. McIntyre, Louis J. Rampino, Wayne R. Bailey, Raymond G. Meyers,
and Dickinson C. Ross. Benefits from the ESOP are paid out upon retirement,
termination of employment, permanent disability or death.
C. SUPPLEMENTAL RETIREMENT PLANS (THE "SERPS")
The Supplemental and the Senior Supplemental Executive Retirement Plans
(collectively, the "SERPs") are mechanisms for providing full benefits to those
executives subject to IRS Code limitations. These limits may affect (i) the
amount of eligible compensation permitted to be deferred into the Company's
401(k) Plan, and (ii) the amount of any ESOP contribution declared by the Board
to be allocated to the ESOP. In addition, employee compensation deferrals under
the SERPs, in combination with the employee's 401(k) compensation deferrals, may
equal up to one hundred percent (100%) of total eligible compensation. The SERPs
are non-qualified plans within the meaning of the Code. Compensation deferrals
under the SERPs are deposited to a grantor trust. The assets of the SERPs remain
those of the Company until the SERPs' benefits are paid out upon retirement,
termination, death or disability.
D. EXCESS BENEFIT PLAN ("EBP")
The Board adopted the EBP in 1990 as a mechanism to insure that
participants who are subject to IRS Code limitations on ESOP contributions
receive the full retirement benefit declared by the Board. Contributions to the
EBP, as in the ESOP, are made in common stock. Pursuant to the terms and
conditions of the EBP, the combined contribution to both ESOP and EBP will not
exceed twenty-five percent (25%) or $30,000, whichever is less (the "annual
additions limit") of a participant's total eligible compensation. Contributions
under the EBP are deposited to a grantor trust. The assets of the EBP remain
those of the Company until the EBP benefits are paid out upon retirement,
termination, death or disability.
E. AMENDED 1989 NON-QUALIFIED STOCK OPTION PLAN (THE "1989 PLAN")
In 1989 the Board adopted, and the stockholders approved, the 1989 Plan
which is administered by the Compensation Committee of the Board. Subsequently,
the Board adopted and the stockholders approved amendments to the 1989 Plan. The
1989 Plan provides long-term compensation opportunities for officers of the
Company and certain key subsidiary executives. Stock options have been granted
to such individuals in each year from 1989 to 1994, and provide for the right to
acquire shares of the common stock of the Company at a price based upon the fair
market value on the date of grant. In determining the number of options to grant
to each executive, the Committee has used a salary multiple calculation which
was set at levels consistent with the ranking of their respective positions.
Directors were granted stock options under the non-discretionary provisions of
the 1989 Plan in each year from 1989 to 1995. Stock options granted under the
1989 Plan have a term of ten (10) years, and vest annually at the rate of 25%
per year beginning on the first anniversary of the date of grant. Following
adoption and approval of the 1997 Plan, all shares available for awards under
the 1989 Plan flowed into the 1997 Plan.
In February 1997, 806,000 non-qualified stock option shares were awarded
under the 1989 Plan to executive officers and certain subsidiary officers of the
Company. In February 1997, the Company implemented a stock option exercise
program which included the repurchase of Company common stock by the Company's
employee benefit trust (the "Trust"). Under the program, officers exercised
outstanding vested options to purchase 1,263,256 shares of common stock. The
Trust purchased approximately 808,000 of such shares, which were sold by the
officers to cover their respective exercise price and tax withholding
obligations.
17
<PAGE> 20
The program's purpose was to encourage its officers to increase their outright
ownership of Company stock. The program also made it possible for the officers
to avoid having to sell a large number of shares in the open market, thus
eliminating a potentially adverse effect on the market price of Company common
stock. As a result, the Company was able to realize a tax deduction of
approximately $25.5 million and effectively remove the 808,000 shares from the
weighted average share calculation for earnings per share, thus decreasing the
dilution of earnings per share attributable to stock options. Officers increased
their ownership by approximately 455,000 shares. Shares repurchased by the Trust
will be used to fund future employee benefit plans. As part of the inducement to
exercise the stock options at that time, the Committee granted the 806,000 new
stock options at the current market price to the officers.
F. 1995 RESTRICTED STOCK AWARD PLAN, AS AMENDED (THE "1995 PLAN")
In November 1995, the Board of Directors approved the 1995 Plan. The 1995
Plan became effective upon adoption by the Board in November 1995 and will
continue in effect for a term of ten (10) years unless earlier terminated. The
1995 Plan is a long-term employee benefit plan for officers, directors and
employees that is designed to attract and retain these individuals and to
maximize stockholder value by aligning the interests of such individuals with
those of the stockholders through equity ownership. The 1995 Plan's goals are to
be achieved by providing such participants with awards of restricted common
stock.
All shares of common stock awarded under the 1995 Plan are subject to the
Company's reacquisition option and may not be sold by the 1995 Plan Participants
until this option lapses. Ten percent (10%) of each 1995 Plan Participant's
shares are generally released from the Company's reacquisition option on the
first designated release date and on each of the nine (9) anniversaries
thereafter, provided that the 1995 Plan Participant's status as an employee or
director has not terminated and the Company has not exercised its reacquisition
option. All of the shares issued under the 1995 Plan are held in escrow by the
Company for the account of each 1995 Plan Participant pending the release from
the Company's reacquisition option. If 1995 Plan shares are forfeited to the
Company, they will become available for reissuance under the 1995 Plan. Upon a
Change of Control of the Company, one hundred percent (100%) of the shares
awarded under the 1995 Plan will become unrestricted and will be released from
the Company's reacquisition option.
The 1995 Plan is administered by the Compensation Committee of the Board of
Directors. Participants are entitled to the rights of stockholders with respect
to shares awarded to them under the 1995 Plan, including the right to vote such
shares and to receive cash and stock dividends, subject to the restrictions
under the 1995 Plan. The number of shares of common stock awarded under the 1995
Plan will be proportionately adjusted for stock dividends and stock splits.
During 1997, 23,000 shares of restricted common stock were awarded under
the 1995 Plan, none of which were awarded to the Named Executive Officers. As of
December 31, 1997 there had been 2,124,910 restricted stock shares awarded and
issued pursuant to the 1995 Plan since its inception, including 57,700 shares
that were reallocated from 185,150 shares forfeited to the Company. As of
February 28, 1998 there were 1,519,413 of such shares which were still subject
to restriction pursuant to the Company's reacquisition option. In 1996 the
shares of restricted stock awarded under the 1995 Plan to the Named Executive
Officers were: Mr. McIntyre, 446,600; Mr. Rampino, 308,160; Mr. Bailey, 206,400;
Mr. Meyers, 123,000; and Mr. Donaldson, 33,500. Officers who received awards of
restricted stock in 1996 were not granted stock options during 1995 or 1996.
During 1998, as of the date of this proxy statement, awards of 25,000 shares of
restricted stock were made under the 1995 Plan. All shares awarded in 1997 and
in 1998-to-date under the 1995 Plan were made with forfeited shares.
G. 1997 STOCK PLAN (THE "1997 PLAN")
In April 1997, the Board of Directors approved the 1997 Plan. The 1997 Plan
became effective upon approval by the Company's Stockholders in May 1997 and
will continue in effect for a term of ten (10) years unless earlier terminated.
The 1997 Plan provides a long-term compensation opportunity for the officers and
certain key employees of the Company and its subsidiaries, and is designed to
attract and retain these individuals and to align interests of such individuals
with those of the stockholders through equity ownership.
18
<PAGE> 21
Stock options granted under the 1997 Plan may be either "incentive stock
options," as defined in Section 422 of the Code, or non-statutory stock options.
Non-statutory stock options and awards of rights to purchase shares of the
Company's common stock ("Stock Rights") may be granted under the 1997 Plan to
employees, directors and consultants of the Company or any parent or subsidiary
of the Company. Incentive stock options may be granted only to employees. A
Stock Right may award the recipient shares of common stock or may give the
recipient the right to purchase common stock. Shares received or purchased
pursuant to a Stock Right are subject to a restricted stock agreement between
the Company and the recipient. Unless the 1997 Plan Administrator determines
otherwise, such agreement gives the Company a reacquisition option exercisable
upon the termination of the recipient's employment or consulting relationship
with the Company. All shares of common stock awarded as Stock Rights under the
1997 Plan are subject to the Company's reacquisition option and may not be sold
by the recipients until these restrictions lapse. The reacquisition option
lapses at a rate determined by the 1997 Plan Administrator. Ten percent (10%) of
each 1997 Plan Participant's shares are generally released from the Company's
reacquisition option on the first designated release date and on each of the
nine (9) anniversaries thereafter, provided that the 1997 Plan Participant's
status as an employee or director has not terminated and the Company has not
exercised its reacquisition option. All of the Stock Right shares issued under
the 1997 Plan are held in escrow by the Company for the account of each 1997
Plan Participant pending the release of the restrictions. If 1997 Plan shares
are forfeited to the Company, they will become available for reissuance under
the 1997 Plan. Upon a Change of Control of the Company, one hundred percent
(100%) of the shares awarded under the 1997 Plan will become unrestricted and
will be released from the Company's reacquisition option.
The 1997 Plan is administered by the Compensation Committee of the Board of
Directors. Participants are entitled to the rights of stockholders with respect
to shares issued to them under the 1997 Plan, including the right to vote such
shares and to receive cash and stock dividends, subject to the restrictions
under the 1997 Plan. The number of shares of common stock awarded under and
subject to the 1997 Plan will be proportionately adjusted for stock dividends
and stock splits. As of February 28, 1998, 1,438,842 shares of common stock,
including the shares available for grant under the 1989 Plan as of May 8, 1997
were reserved for issuance under the 1997 Plan. In addition, shares that would
have returned to the 1989 Plan as a result of termination of options granted
under the 1989 Plan will flow into, and become available for awards under, the
1997 Plan. Annually in May, an increase will be made to the shares available for
issuance under the 1997 Plan in an amount equal to (i) the number of shares
awarded under the 1997 Plan in any given year or (ii) a lesser amount determined
by the Board of Directors.
During 1997, 40,000 stock option shares were granted under the 1997 Plan to
the Company's non-employee directors, and 478,000 shares of restricted common
stock were issued under the 1997 Plan. As of February 28, 1998 there were
425,700 of such shares which were still subject to restriction pursuant to the
Company's reacquisition option, and 40,000 stock options outstanding under the
1997 Plan. In 1997 the shares of restricted stock awarded to the Named Executive
Officers under the 1997 Plan were: Mr. McIntyre, 113,000; Mr. Rampino, 100,000;
Mr. Bailey, 72,000; Mr. Meyers, 20,000; and Mr. Donaldson, 15,000. During 1998,
as of the date of this proxy statement, no awards had been made under the 1997
Plan.
H. SPLIT-DOLLAR LIFE INSURANCE PROGRAM
In May 1996, the Company adopted a Split-Dollar Life Insurance Program for
Executive Officers and certain other key employees of the Company (the
"Program"). Participants under the Program are provided with individual
permanent life insurance policies, with death benefit limits of two (2) or
two-and-one-half (2 1/2) times compensation (depending upon the individual
participant's position level with the Company) and with a cash value that
accumulates over time. The policy is owned by the participant. The Company pays
all premiums and retains a collateral interest in the policy equal to the amount
of such premiums. The Company will recover this collateral interest when the
insured participant reaches age sixty-five (65), after ten (10) policy years,
when the policy is fully or partially surrendered, or upon payment of the death
benefit. All employees in this Program also have basic group term life insurance
coverage of $50,000 paid by the Company.
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<PAGE> 22
I. 1996 LONG-TERM INCENTIVE COMPENSATION PLAN
The 1996 Long-Term Incentive Compensation Plan (the "LTICP") was adopted by
the Board of Directors in 1996, became effective January 1, 1996 and matures on
December 31, 1998. Participants and earnings targets were designated by the
Board of Directors at the LTICP's inception. The LTICP is a three year plan
designed to provide incentive to executives and other key employees to achieve
the cumulative pretax earnings targets of the Company for 1996 through 1998 by
linking a substantial portion of their compensation to the long-range growth and
increased value of the Company. The LTICP provides for bonus opportunity
dependent upon the Company achieving a predetermined cumulative pretax earnings
target during the period from January 1, 1996 through December 31, 1998, and as
a function of a participant's base salary for the period. Bonuses earned under
the LTICP are payable in cash after the maturity date.
The LTICP includes a provision for senior executives whereby certain senior
officers, as designated by the Board of Directors, could make an irrevocable
election at the inception of the LTICP to tie their bonus earned under the LTICP
to a future "closing" trading price of the Company's common stock. On February
12, 1998 the Board of Directors amended the LTICP to designate that such future
"closing" trading price will be the closing price of the Company's common stock
on December 31, 1998, as reported by the New York Stock Exchange (the "NYSE").
Under this provision, the senior executive's bonus amount at the maturity of the
LTICP is a cash award equal to the senior officer's salary (or salary grade
midpoint, if higher) averaged over the three year term of the LTICP, multiplied
by a percentage of between 60% to 150% depending on the actual cumulative pretax
earnings result achieved by the Company. Once the basis of the award has been
calculated using this formula, the product is divided by $24.00, the common
stock closing price on January 2, 1996 at the inception of the LTICP (as
adjusted for stock splits and dividends). The result of this calculation will
then be multiplied by the closing trading price of the common stock on December
31, 1998, the LTICP maturity date, and the product will be the total cash award
payable by the Company to the respective senior officer under the LTICP. Each of
the Named Executive Officers who were eligible for this provision made the
irrevocable election to have their bonus calculated in this manner.
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<PAGE> 23
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
Except as otherwise provided, the following table sets forth certain
information as of February 28, 1998 with respect to shares of the Company's
common stock held by the only persons known to the Company to be the beneficial
owners of more than five percent (5%) of such stock. For purposes of this Proxy
Statement, the term "beneficial ownership" of securities as used herein is
defined in accordance with the rules of the Securities and Exchange Commission
and means generally the power to vote or to exercise investment discretion with
respect to securities, regardless of any economic interests therein, or to
acquire securities on or within sixty (60) days of the applicable date of
determination. The shares represented in the table have been adjusted to reflect
stock splits and dividends. On February 28, 1998, the Company had outstanding
34,578,106 shares of common stock.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
--------------------
NAME AND ADDRESS NUMBER OF
OF STOCKHOLDER SHARES PERCENT
---------------- --------- -------
<S> <C> <C>
JAMES A. MCINTYRE(1)........................................ 3,990,372 11.5%
2020 Santa Monica Blvd.
Santa Monica, California 90404
FIDELITY MANAGEMENT & RESEARCH CO.(2)....................... 3,810,442 11.5%
82 Devonshire Street
Boston, Massachusetts 02109
MERRILL LYNCH & CO., INC.(3)................................ 2,002,700 6.1%
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
</TABLE>
- ---------------
(1) Includes (i) 1,487,841 shares held by the James A. McIntyre Living Trust
under which Mr. James A. McIntyre is the trustee and holds a vested
beneficiary ownership, (ii) 10,000 shares held by the James A. McIntyre
Charitable Remainder Uni-Trust under which Mr. McIntyre is the trustee,
(iii) 11,300 shares held by the James A. McIntyre Grandchildren's Trust
under which Mr. McIntyre is the trustee, (iv) 55,960 directly owned shares,
(v) 1,500,000 shares held by the Padaro Partnership, L.P. of which the James
A. McIntyre Living Trust is a 2% general partner (a 98% limited partner
interest of the Padaro Partnership L.P. is held by The Padaro Trust, of
which Mr. McIntyre is a remainder beneficiary and his mother Mrs. Maurine
McIntyre is trustee), (vi) 109,690 stock option shares which Mr. McIntyre
has the right to exercise within sixty days of the date of the table, (vii)
258,101 shares owned directly or beneficially through the trustee(s) of the
employee retirement or other benefit plans, (viii) 458,980 shares of
restricted stock, and (ix) 98,500 shares which were given by the James A.
McIntyre Living Trust in 1997 to the McIntyre Foundation in which Mr.
McIntyre has no pecuniary interest. The Company is aware that the McIntyre
Foundation subsequently sold 1,500 of such shares.
(2) Fidelity Research & Management Co., filing as FMR Corp., has reported on its
Schedule 13G, dated February 14, 1998, that it was the beneficial owner of
such shares at December 31, 1997, and stated that it has sole voting power
with respect to 290,947 such shares and no voting power with respect to the
remaining such shares, and sole dispositive powers with respect to all such
shares. The Company is unaware of any subsequent change in FMR Corp.'s
beneficial ownership.
(3) Merrill Lynch & Co., Inc., filing as Princeton Services, Inc., Merrill Lynch
Asset Management, L.P., and Merrill Lynch Capital Fund, Inc., has reported
on its Schedule 13G, dated January 29, 1998, that it was the beneficial
owner of such shares at December 31, 1997, and stated that it has shared
voting and dispositive powers with respect to such shares. The Company is
unaware of any subsequent change in Merrill Lynch's beneficial ownership.
This does not include the Company's 542,370 unallocated ESOP shares of which
Merrill Lynch & Co., Inc. is Trustee, and which currently are pledged to
Wells Fargo Bank pursuant to the terms of the ESOP Loan described under
"Employee Stock Ownership Plan." Unallocated shares of stock are voted upon
instructions from the ESOP committee appointed by the Board of Directors.
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<PAGE> 24
The following table sets forth certain information as of February 28, 1998
with respect to shares of the Company's common stock beneficially owned by each
nominee for director, director, Named Executive Officer and by all nominees for
director, directors, Named Executive Officers and executive officers as a group.
<TABLE>
<CAPTION>
COMMON STOCK
COMMON STOCK BENEFICIALLY
NUMBER OF OWNED
NAME SHARES(1) PERCENT
---- ------------ ------------
<S> <C> <C>
James A. McIntyre....................................... 3,990,372(2,3) 11.5%
Louis J. Rampino........................................ 643,431(2,4) 1.9%
Wayne R. Bailey......................................... 400,145(2,5) 1.2%
Raymond G. Meyers....................................... 253,795(2,6) *
John A. Donaldson....................................... 83,960(2,7) *
Houston I. Flournoy..................................... 36,031(8) *
C. Douglas Kranwinkle................................... 39,626(9) *
David W. Morrisroe...................................... 48,636(10) *
Dickinson C. Ross....................................... 52,463(11) *
--------- ----
All directors, nominees, Named Executive Officers and
executive officers as a group (10 persons)............ 5,606,106(2-10) 16.1%
========= ====
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares ("option shares") which directors, nominees, Named
Executive Officers and executive officers own directly or indirectly or
have a right to acquire on or within sixty (60) days of February 28, 1998
through the exercise of stock options granted under the 1989 Plan and 1997
Plan.
(2) Includes shares owned directly or beneficially through the trustee(s) of
the Company's various employee Retirement Benefit Plans (the "Plans").
Except for Messrs. McIntyre, Rampino and Bailey, the percentages of shares
beneficially owned by any executive officer do not exceed one percent (1%)
of the Company's outstanding common stock.
(3) Includes (i) 1,487,841 shares held by the James A. McIntyre Living Trust
under which Mr. James A. McIntyre is the trustee and holds a vested
beneficiary ownership, (ii) 10,000 shares held by the James A. McIntyre
Charitable Remainder Uni-Trust under which Mr. McIntyre is the trustee,
(iii) 11,300 shares held by the James A. McIntyre Grandchildren's Trust
under which Mr. McIntyre is the trustee, (iv) 55,960 directly owned shares,
(v) 1,500,000 shares held by the Padaro Partnership, L.P. of which the
James A. McIntyre Living Trust is a 2% general partner (a 98% limited
partner interest of the Padaro Partnership L.P. is held by The Padaro
Trust, of which Mr. McIntyre is a remainder beneficiary and his mother Mrs.
Maurine McIntyre is trustee), (vi) 109,690 stock option shares which Mr.
McIntyre has the right to exercise within sixty days of the date of the
table, (vii) 258,101 shares owned directly or beneficially through the
trustee(s) of the employee retirement or other benefit plans, (viii)
458,980 shares of restricted stock, and (ix) 98,500 shares which were given
by the James A. McIntyre Living Trust in 1997 to the McIntyre Foundation in
which Mr. McIntyre has no pecuniary interest. The Company is aware that the
McIntyre Foundation subsequently sold 1,500 of such shares.
(4) Includes 336,528 restricted shares awarded under the 1995 Plan and 1997
Plan, and 143,253 shares held by the trustee under the Plans. Also includes
exercisable options to purchase 65,286 shares on or within sixty (60) days
of the table date.
(5) Includes 229,920 restricted shares awarded under the 1995 Plan and 1997
Plan, and 93,327 shares held by the trustee under the Plans. Also includes
exercisable options to purchase 39,206 shares on or within sixty (60) days
of the table date.
(6) Includes 116,400 restricted shares awarded under the 1995 Plan and 1997
Plan, and 80,044 shares held by the trustee under the Plans. Also includes
exercisable options to purchase 25,851 shares on or within sixty (60) days
of the table date.
(7) Includes 40,300 restricted shares awarded under the 1995 Plan and 1997
Plan, and 32,831 shares held by the trustee under the Plans. Also includes
exercisable options to purchase 5,794 shares on or within sixty
22
<PAGE> 25
(60) days of the table date. Excludes 3,150 shares of common stock and 800
shares of the Preferred Securities owned by Mr. Donaldson's mother, for which
Mr. Donaldson disclaims beneficial ownership.
(8) Dr. Flournoy owns beneficially 36,031 shares, less than one percent (1%) of
the Company's outstanding common stock. Includes 15,231 shares held by the
Flournoy Family Trust under which Dr. Flournoy is trustee and holds a
vested beneficiary interest. Includes 20,800 restricted shares awarded
under the 1995 Plan. In addition, Dr. Flournoy owns beneficially, through
his wife's individual retirement account, 175 shares, less than one percent
(1%), of the Preferred Securities.
(9) Includes exercisable options to purchase 4,641 shares on or within sixty
(60) days of the table date, and 20,800 restricted shares awarded under the
1995 Plan.
(10) Includes exercisable options to purchase 18,111 shares on or within sixty
(60) days of the table date, and 20,800 restricted shares awarded under the
1995 Plan.
(11) Includes exercisable options to purchase 20,111 shares on or within sixty
(60) days of the table date, and 20,800 restricted shares awarded under the
1995 Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than 10% of the Company's
common stock to file reports of ownership and reports of changes in ownership of
common stock and certain other equity securities of the Company with the
Securities and Exchange Commission ("SEC") and the New York Stock Exchange.
Additionally, SEC regulations require that the Company identify any individuals
for whom one of the referenced reports was not filed on a timely basis during
the most recent fiscal year or prior fiscal years. To the Company's knowledge,
based solely on review of reports furnished to it and written representations
that no other reports were required during and with respect to the fiscal year
ended December 31, 1997, all Section 16(a) filing requirements applicable to its
officers, directors and more than ten percent (10%) beneficial owners of the
Company's common stock were complied with.
ITEM 2
INCREASE OF AUTHORIZED COMMON STOCK
On February 12, 1998, the Board of Directors adopted, subject to
stockholder approval at the Annual Meeting, a proposal to amend the Company's
Amended and Restated Articles of Incorporation, which will increase the amount
of common stock the Company is authorized to issue from 45,000,000 to 75,000,000
shares (the "Charter Amendment"). The Board of Directors unanimously recommends
that stockholders vote "for" the Charter Amendment.
As of April 13, 1998 34,766,686 shares of common stock were outstanding and
an additional 2,957,655 shares were reserved for issuance upon conversion of
existing securities, the exercise of options granted under the Company's 1989
Plan and 1997 Plan, and exercise of stock-based compensation awards under the
1997 Plan. In October 1993 the Company reserved approximately 7,208,460 shares
of common stock (as adjusted for subsequent stock splits and stock dividends)
for issuance upon the conversion of the Company's Liquid Yield Option Notes due
2013 (Zero Coupon-Subordinated), of which approximately 6,733,722 shares have
been issued and 474,738 are reserved for issuance. After taking into effect the
shares reserved for issuance, as of the date of this proxy statement, the
Company will have approximately only 7,275,660 shares of common stock available
for issuance.
The Board believes that it is advisable to increase the number of
authorized shares. The increase will provide the Company with flexibility by
assuring the availability of sufficient authorized but unissued common stock for
valid corporate purposes such as funding stock-based employee benefit plans,
financings, stock dividends, mergers and acquisitions. If the Charter Amendment
is approved at the Annual Meeting, the newly authorized common stock will be
available for issuance without further action by stockholders except as required
by law or applicable stock exchange requirements. For example, the current rules
of the New York
23
<PAGE> 26
Stock Exchange require approval by the Company's stockholders if the number of
shares of common stock to be issued in a particular transaction equals or
exceeds 20% of the number of shares of common stock outstanding immediately
prior to such issuance.
The Company has no current plan or commitment to issue common stock for any
purpose, including any plan or intention to issue shares as a takeover defense.
Nevertheless, the additional authorized shares could be used to discourage
persons from attempting to gain control of the Company or make more difficult
the removal of management. For example, additional shares could be used to
dilute the voting power of shares then outstanding or issued to persons who
would support the Board in opposing a takeover bid or solicitation in opposition
to management. Management is not currently aware of any specific effort to
obtain control of the Company by means of a merger, tender offer, proxy
solicitation in opposition or otherwise.
The Amended and Restated Articles of Incorporation and the Bylaws of the
Company contain certain provisions that are intended to enhance the likelihood
of continuity and stability in the composition of the Board of Directors and the
policies formulated by the Board and to discourage an unsolicited takeover of
the Company if the Board determines that such a takeover is not in the best
interests of the Company and its stockholders. However, these provisions could
have the effect of discouraging certain attempts to acquire the Company or to
remove incumbent management.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE CHARTER AMENDMENT. ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE EFFECT OF
A VOTE AGAINST THE CHARTER AMENDMENT. EXECUTED BUT UNMARKED PROXIES WILL BE
VOTED "FOR" THE CHARTER AMENDMENT.
ITEM 3
SELECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The firm of Ernst & Young LLP, independent certified public accountants,
has served as the Company's principal independent auditors since 1972, and is
familiar with the business and operations of the Company and its subsidiaries. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting and will have the opportunity to make a statement and will be available
to answer appropriate questions.
On February 12, 1998, upon recommendation of its Audit Committee, the Board
of Directors approved the firm of Ernst & Young LLP to be the Company's
independent certified public accountants for the year 1998, to audit the books
of account and records of the Company and to make a report thereon to the
stockholders and the Board of Directors. Ratification of Ernst & Young LLP as
the Company's auditors for the year 1998 will be submitted to the stockholders
for their approval at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF ERNST &
YOUNG LLP AS INDEPENDENT AUDITORS. IF NOT OTHERWISE SPECIFIED, PROXIES WILL BE
VOTED "FOR" RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
ANNUAL REPORT TO STOCKHOLDERS AND ADDITIONAL INFORMATION
The Annual Report of the Company for the fiscal year ended December 31,
1997 was mailed on or about April 20, 1998 to stockholders of record on April
13, 1998. The Annual Report does not constitute, and should not be considered, a
part of this proxy solicitation material, except as otherwise expressly
provided.
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO ANY STOCKHOLDER WHO SO
REQUESTS IN WRITING, A COPY OF THE COMPANY'S ANNUAL REPORT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1997, WITHOUT EXHIBITS. REQUESTS SHOULD BE DIRECTED TO ALAN W. FAIGIN, SECRETARY
OF THE COMPANY, AT 2020 SANTA MONICA BOULEVARD, 6TH FLOOR, SANTA MONICA, CA
90404.
24
<PAGE> 27
1999 ANNUAL MEETING -- RECEIPT OF STOCKHOLDER PROPOSALS
Any stockholder proposal must be submitted in writing to the Secretary of
the Company at 2020 Santa Monica Boulevard, 6th Floor, Santa Monica, CA 90404,
and received by December 21, 1998 if it is to be considered for inclusion in the
Company's 1999 proxy materials.
OTHER MATTERS
The Board of Directors does not know of any matter to be presented for
consideration at the Annual Meeting which is not listed on the Notice of Annual
Meeting and discussed above. If any such other business should properly come
before the Annual Meeting, the shares represented at the Annual Meeting by the
proxies and voting instructions solicited hereby will be voted in accordance
with the judgment of the proxy holders.
By Order of the Board of Directors
/s/ Alan W. Faigin
----------------------------------
Alan W. Faigin, Secretary
Dated: April 20, 1998
25
<PAGE> 28
FREMONT GENERAL CORPORATION
C/O CHASEMELLON SHAREHOLDER SERVICES
P.O. BOX 1515
NEW YORK, NY 10277-1515
Board of Directors Proxy
ANNUAL MEETING OF STOCKHOLDERS: May 19, 1998
John A. Donaldson and Raymond G. Meyers, or either of them, with full power of
substitution, are hereby appointed by the signatory of this Proxy to vote all
shares of Common Stock held by the signatory on April 13, 1998, at the Annual
Meeting of Stockholders of Fremont General Corporation, or any postponement or
adjournment thereof, on each of the items on the reverse side and in accordance
with the directions given there and, in their discretion, on all other matters
that may properly come before the Annual Meeting or any adjournment thereof.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED ON THE REVERSE SIDE OR
IF NO DIRECTION IS GIVEN WILL BE VOTED FOR ITEMS 1, 2 AND 3.
(Continued, and to be dated and signed on reverse side)
- ------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C> <C>
The Board of Directors recommends a vote FOR Items 1, 2 and 3 Please mark
your votes [X]
as this.
WITHHOLD
AUTHORITY
to vote for
FOR ALL nominees FOR AGAINST ABSTAIN
Item 1. ELECTION OF DIRECTORS [ ] [ ] Item 2: APPROVAL OF CHARTER AMENDMENT
TO INCREASE AUTHORIZED COMMON [ ] [ ] [ ]
Duly nominated: J. A. McIntyre W. R. Bailey STOCK TO 75 MILLION SHARES
H. I. Flournoy C. D. Kranwinkle FOR AGAINST ABSTAIN
D. W. Morrisroe L. J. Rampino Item 3: RATIFICATION OF APPOINTMENT
D. C. Ross OF ERNST & YOUNG LLP AS [ ] [ ] [ ]
INDEPENDENT AUDITORS
WITHHOLD AUTHORITY TO VOTE FOR THE FOLLOWING NOMINEE(S)
________________________________________________________
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS FOR THE MAY 19, 1998 ANNUAL MEETING OF
STOCKHOLDERS OF FREMONT GENERAL CORPORATION
see other side for important information
Signature(s):_____________________________________________________________________________________ Dated:______________________
</TABLE>
- -------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
REVERSE SIDE
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET
AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE
