<PAGE>
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from __________ to __________
Commission File Number 1-8007
FREMONT GENERAL CORPORATION
(Exact name of registrant as specified in this charter)
NEVADA 95-2815260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2020 Santa Monica Blvd.
Santa Monica, California 90404
(Address of principal executive offices)
(Zip Code)
(310) 315-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15 (d) of Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
SHARES OUTSTANDING
CLASS JULY 31, 1998
- ------------------------------ ------------------
Common Stock, $1.00 par value 34,813,078
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<PAGE>
FREMONT GENERAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 .................... 3
Consolidated Statements of Income
Three and Six Months Ended June 30, 1998 and 1997 ...... 4
Consolidated Statements of Cash Flows
Three and Six Months Ended June 30, 1998 and 1997 ...... 5
Notes to Consolidated Financial Statements on
Form 10-Q .............................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 7
Item 3. Quantitative and Qualitative Disclosure About
Market Risk ............................................... 18
PART II - OTHER INFORMATION
Items 1-3. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders ......... 19
Item 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K ............................ 20
Signatures ............................................................. 24
2
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Securities available for sale at fair value:
Fixed maturity investments (cost: 1998 - $1,620,814; 1997 - $1,835,086) ....... $ 1,677,797 $ 1,893,876
Non-redeemable preferred stock (cost: 1998 - $406,679; 1997 - $356,223) ..... 434,539 378,832
----------- -----------
Total securities available for sale ....................................... 2,112,336 2,272,708
Loans receivable ............................................................... 2,243,341 1,983,687
Short-term investments ......................................................... 226,245 164,626
Other investments .............................................................. 5,638 5,479
----------- -----------
TOTAL INVESTMENTS AND LOANS ............................................... 4,587,560 4,426,500
Cash ........................................................................... 104,367 64,987
Accrued investment income ...................................................... 39,495 42,038
Premiums receivable and agents' balances ....................................... 157,502 146,144
Reinsurance recoverable on paid losses ......................................... 22,147 20,287
Reinsurance recoverable on unpaid losses ....................................... 684,736 522,928
Deferred policy acquisition costs .............................................. 38,956 38,014
Costs in excess of net assets acquired ......................................... 146,046 149,321
Deferred income taxes .......................................................... 135,994 148,757
Other assets ................................................................... 250,384 275,144
Assets held for discontinued operations ........................................ 254,200 256,507
----------- -----------
TOTAL ASSETS .............................................................. $ 6,421,387 $ 6,090,627
=========== ===========
LIABILITIES
Claims and policy liabilities:
Losses and loss adjustment expenses .......................................... $ 2,116,726 $ 2,163,323
Life insurance benefits and liabilities ...................................... 160,971 180,976
Unearned premiums ............................................................ 80,929 78,625
Dividends to policyholders ................................................... 27,781 37,626
----------- -----------
Total Claims and Policy Liabilities ....................................... 2,386,407 2,460,550
Reinsurance premiums payable and funds withheld ................................ 52,121 13,049
Other liabilities .............................................................. 235,767 250,877
Thrift deposits ................................................................ 1,678,973 1,492,985
Short-term debt ................................................................ 54,714 26,290
Long-term debt ................................................................. 796,442 691,068
Liabilities of discontinued operations ......................................... 220,686 222,993
----------- -----------
TOTAL LIABILITIES ......................................................... 5,425,110 5,157,812
Commitments and contingencies
Company-obligated mandatorily redeemable preferred securities of
subsidiary Trust holding solely Company junior subordinated debentures ....... 100,000 100,000
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share -- Authorized: 75,000,000 shares;
issued and outstanding: (1998 - 34,855,000 and 1997 - 34,571,000) ............ 34,855 34,571
Additional paid-in capital ..................................................... 334,089 323,065
Retained earnings .............................................................. 562,545 508,533
Deferred compensation .......................................................... (90,360) (86,263)
Accumulated other comprehensive income ......................................... 55,148 52,909
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ................................................ 896,277 832,815
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................ $ 6,421,387 $ 6,090,627
=========== ===========
See notes to consolidated financial statements on Form 10-Q.
</TABLE>
3
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES
Property and casualty premiums earned .................. $ 119,368 $ 120,802 $ 273,530 $ 236,030
Loan interest .......................................... 55,348 47,319 106,374 91,496
Net investment income .................................. 47,953 31,268 94,931 61,045
Realized investment losses ............................. (466) (498) (924) (1,029)
Other revenue .......................................... 16,148 7,264 27,779 13,348
--------- --------- --------- ---------
TOTAL REVENUES ................................. 238,351 206,155 501,690 400,890
EXPENSES
Losses and loss adjustment expenses .................... 70,233 76,180 173,489 149,277
Policy acquisition costs ............................... 32,638 25,271 58,353 48,782
Provision for loan losses .............................. 2,595 2,167 4,982 3,896
Other operating costs and expenses ..................... 46,529 32,765 95,890 62,565
Interest expense ....................................... 38,172 33,630 73,659 64,406
--------- --------- --------- ---------
TOTAL EXPENSES ................................. 190,167 170,013 406,373 328,926
--------- --------- --------- ---------
Income before taxes .................................... 48,184 36,142 95,317 71,964
Income tax expense ..................................... 15,601 11,204 31,082 22,667
--------- --------- --------- ---------
NET INCOME ................................ $ 32,583 $ 24,938 $ 64,235 $ 49,297
========= ========= ========= =========
PER SHARE DATA
Net income:
Basic ............................................ $ 1.02 $ 0.89 $ 2.01 $ 1.82
Diluted .......................................... 0.93 0.75 1.84 1.50
Cash dividends ........................................ 0.15 0.15 0.30 0.30
Weighted average shares:
Basic ............................................ 32,013 28,011 31,909 27,074
Diluted .......................................... 35,083 34,253 35,027 34,066
See notes to consolidated financial statements on Form 10-Q.
</TABLE>
4
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................................. $ 64,235 $ 49,297
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in premiums receivable and agents' balances
and reinsurance recoverable on paid losses ......................... (13,113) (13,579)
Change in accrued investment income .................................... 2,543 (2,076)
Change in claims and policy liabilities ................................ (184,633) (65,652)
Amortization of policy acquisition costs ............................... 58,353 48,782
Policy acquisition costs deferred ...................................... (59,798) (51,061)
Provision for deferred income taxes .................................... 11,557 4,948
Provision for loan losses .............................................. 4,982 3,896
Provision for depreciation and amortization ............................ 18,215 14,824
Net amortization on fixed maturity investments ......................... (24,215) (8,949)
Realized investment losses ............................................. 924 1,029
Change in other assets and liabilities ................................. 31,433 (26,378)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES ................................ (89,517) (44,919)
INVESTING ACTIVITIES
Securities available for sale:
Purchases of securities ................................................ (421,514) (1,677,515)
Sales of securities .................................................... 338,984 1,570,783
Securities matured or called ........................................... 269,638 16,183
(Increase) decrease in short-term and other investments .................... (61,778) (74,056)
Loan originations and bulk purchases funded ................................ (1,035,847) (496,766)
Receipts from repayments of loans and bulk sales of loans .................. 771,211 323,909
Purchase of property and equipment ......................................... (15,196) (9,998)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES ................................ (154,502) (347,460)
FINANCING ACTIVITIES
Proceeds from short-term debt .............................................. 16,007 212,497
Repayments of short-term debt .............................................. (800) -
Proceeds from long-term debt ............................................... 130,000 29,260
Repayments of long-term debt ............................................... (6,228) (20,000)
Net increase in thrift deposits ............................................ 185,988 179,154
Annuity contract receipts .................................................. 267 687
Annuity contract withdrawals ............................................... (24,223) (16,907)
Dividends paid ............................................................. (10,188) (8,316)
Stock options exercised .................................................... 1,214 13,110
Net increase in deferred compensation plans ................................ (8,638) (20,392)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................ 283,399 369,093
----------- -----------
INCREASE (DECREASE) IN CASH ................................................ 39,380 (23,286)
Cash at beginning of year .................................................. 64,987 55,378
----------- -----------
CASH AT JUNE 30, ........................................................... $ 104,367 $ 32,092
=========== ===========
See notes to consolidated financial statements on Form 10-Q.
</TABLE>
5
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-Q
(UNAUDITED)
NOTE A --- BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
These statements have been prepared in accordance with generally accepted
accounting principles and, accordingly, adjustments (consisting of normal
accruals) have been made as management considers necessary for fair
presentations. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1997. Certain 1997 amounts have been
reclassified to conform to the 1998 presentation.
NOTE B --- COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130 ("FASB 130"), "Reporting Comprehensive Income." This new
standard establishes new rules for the reporting of comprehensive income and its
components; however, the adoption of this standard had no impact on the
Company's net income or stockholders' equity. FASB 130 requires unrealized gains
or losses on the Company's securities available-for-sale to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to these requirements.
Total comprehensive income amounted to $32.9 million and $49.7 million for
the three months ended June 30, 1998 and 1997, respectively, and $66.5 million
and $60.1 million for the six months ended June 30, 1998 and 1997, respectively.
NOTE C --- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the three and six month periods ended June 30, 1998 and
1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- -------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income (numerator for basic earnings per share) ......................... $ 32,583 $ 24,938 $ 64,235 $ 49,297
Effect of dilutive securities:
Liquid Yield Option Notes ("LYONs") ....................................... 83 727 192 1,701
-------- -------- -------- --------
Income available to common stockholders
after assumed conversions (numerator for diluted earnings per share) ...... $ 32,666 $ 25,665 $ 64,427 $ 50,998
======== ======== ======== ========
Weighted-average shares (denominator for basic earnings per share) .......... 32,013 28,011 31,909 27,074
Effect of dilutive securities:
Restricted stock .......................................................... 2,085 1,861 2,085 1,861
Stock options ............................................................. 528 118 495 103
LYONs ..................................................................... 457 4,263 538 5,028
-------- -------- -------- --------
Dilutive potential common shares ............................................ 3,070 6,242 3,118 6,992
-------- -------- -------- --------
Adjusted weighted-average shares and assumed
conversions (denominator for diluted earnings per share) .................. 35,083 34,253 35,027 34,066
======== ======== ======== ========
Basic earnings per share .................................................... $ 1.02 $ 0.89 $ 2.01 $ 1.82
======== ======== ======== ========
Diluted earnings per share .................................................. $ 0.93 $ 0.75 $ 1.84 $ 1.50
======== ======== ======== ========
</TABLE>
NOTE D --- SUBSEQUENT EVENT
On July 29, 1998, the Company signed a definitive agreement to purchase
UNICARE Specialty Services, Inc., the workers' compensation insurance subsidiary
of WellPoint Health Networks Inc., one of the nation's largest publicly traded
managed care companies, for approximately $100 million. The cash transaction,
subject to regulatory approvals, is expected to close by the end of the third
quarter of 1998.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ("MD&A") CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E
OF THE SECURITIES ACT OF 1934. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE FACTORS SET FORTH IN THIS
MD&A SECTION AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q.
RESULTS OF OPERATIONS
Fremont General is a nationwide insurance and financial services holding
company operating select businesses in niche markets. Fremont General's
insurance business includes one of the largest underwriters of workers'
compensation insurance in the nation. The Company's financial services business
includes commercial real estate lending, residential real estate lending,
commercial finance and insurance premium financing. The Company's reported
assets as of June 30, 1998 were $6.4 billion. Income before taxes for the six
months ended June 30, 1998 was $95.3 million. The primary operating strategy of
the Company is to build upon its core business units through acquisition
opportunities and new business development. The Company's secondary strategy is
to achieve income balance and geographic diversity among its business units in
order to limit the exposure of the Company to industry, market and regional
concentrations. The Company's stock is traded on the New York Stock Exchange
under the symbol "FMT."
Consistent with its primary operating strategy, the Company's workers'
compensation insurance operations have recently expanded through the acquisition
on August 1, 1997 of Industrial Indemnity Holdings, Inc. ("Industrial") from
Talegen Holdings, Inc ("Talegen"), a subsidiary of Xerox Corporation, whereby a
subsidiary of the Company purchased all of the issued and outstanding capital
stock of Industrial. The purchase price paid by the Company consisted of $365
million in cash and the pay-off of approximately $79 million of an outstanding
debt obligation that Industrial owed to Talegen. Financing for the transaction
was provided by internal funds and bank borrowings. Industrial, which
specializes in underwriting workers' compensation insurance, has a strong
presence in the western United States dating back over 70 years. The acquisition
was treated as a purchase for accounting purposes. (See also "Subsequent Event"
for information concerning the Company's pending acquisition.)
The following table presents information for the three and six months ended
June 30, 1998 and 1997 with respect to the Company's primary business segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues:
Property and casualty .......... $ 163,326 $ 148,461 $ 360,769 $ 290,964
Financial services ............. 74,175 57,173 139,912 109,396
Corporate ...................... 850 521 1,009 530
--------- --------- --------- ---------
Total ................. $ 238,351 $ 206,155 $ 501,690 $ 400,890
========= ========= ========= =========
Income (Loss) Before Taxes:
Property and casualty .......... $ 41,015 $ 32,689 $ 82,024 $ 65,098
Financial services ............. 14,191 10,482 27,294 20,961
Corporate ...................... (7,022) (7,029) (14,001) (14,095)
--------- --------- --------- ---------
Total ................. $ 48,184 $ 36,142 $ 95,317 $ 71,964
========= ========= ========= =========
</TABLE>
The Company generated revenues of approximately $238 million and $502
million in the three and six months ended June 30, 1998, as compared to $206
million and $401 in the same respective periods in 1997. Revenues were higher in
the three and six months ended June 30, 1998 as compared to the same prior year
periods, due primarily to higher net investment income in the Company's property
and casualty segment, as well as higher loan interest and other revenues within
the financial services segment. Additionally, workers' compensation
7
<PAGE>
insurance premiums in the Company's property and casualty segment were flat in
the three month period ended June 30, 1998 and higher in the six month period
ended June 30, 1998, as compared to the same prior year periods. The higher
workers' compensation insurance premiums and net investment income was due
mainly to the acquisition of Industrial on August 1, 1997. Substantially
offsetting the Industrial-related increases in workers' compensation insurance
premiums in the three months ended June 30, 1998, was the impact of additional
ceded reinsurance costs incurred. These additional reinsurance costs were due
primarily to additional excess of loss reinsurance purchased for the Company's
workers' compensation insurance business which became effective January 1, 1998.
See "Property and Casualty Insurance Operations - Premiums." Higher revenues in
the financial services segment were due mainly to higher loan interest resulting
from growth in the average loan portfolios of the real estate lending
operations, as well as higher other revenues resulting primarily from
residential real estate loan sales. See "Financial Services." Realized
investment losses in the three and six month periods ended June 30, 1998 were
$466,000 and $924,000, respectively, as compared to $498,000 and $1,029,000 for
the same respective periods in 1997.
The Company posted net income of $32.6 million or $0.93 diluted earnings
per share and $64.2 million or $1.84 diluted earnings per share for the three
and six months ended June 30, 1998, respectively, as compared to $24.9 million
or $0.75 diluted earnings per share and $49.3 million or $1.50 diluted earnings
per share for the same respective periods in 1997. Income before taxes for the
three and six month periods ended June 30, 1998 was $48.2 million and $95.3
million, respectively, as compared to $36.1 million and $72.0 million for the
same respective periods of 1997, representing increases of 33.3% and 32.5%,
respectively, for the three and six month periods.
The property and casualty insurance operations, consisting primarily of
workers' compensation insurance, posted income before taxes of $41.0 million and
$82.0 for the three and six month periods ended June 30, 1998, respectively, as
compared to $32.7 million and $65.1 million for the three and six month periods
ended June 30, 1997, respectively. The increases in income before taxes of 25.5%
and 26.0% for the three and six month periods, respectively, were due primarily
to the acquisition of Industrial and lower losses incurred resulting from the
additional reinsurance purchased by the Company which became effective January
1, 1998. The combined ratio for the three and six month periods ended June 30,
1998 was 96.3% and 96.6%, respectively, as compared to 91.1% and 91.1% for the
same respective periods in 1997. The higher combined ratio was due primarily to
the combined effects of higher underwriting expenses associated with
Industrial's operations, as well as the previously mentioned additional
reinsurance, which resulted in a lower premium base as compared to the prior
year periods. See "Property and Casualty Insurance Operations - Premiums."
The financial services operations posted income before taxes for the three
and six months ended June 30, 1998 of $14.2 million and $27.3 million,
respectively, as compared to $10.5 million and $21.0 million for the same
respective periods of 1997. The increases in income before taxes were due mainly
to the growth in the average loan portfolio of the real estate lending
operation, as well as to gains on residential real estate loan sales. The
average loan portfolio of the financial services operations grew to $2.14
billion for the six month period ended June 30, 1998, from $1.83 billion for the
same period of 1997.
Corporate revenues during the three and six month periods ended June 30,
1998 consisted primarily of investment income, while corporate expenses
consisted primarily of interest expense and general and administrative expenses.
The corporate loss before income taxes for the three and six months ended June
30, 1998 was $7.0 million and $14.0 million, respectively, as compared to $7.0
million and $14.1 million for the same respective periods of 1997.
Income tax expense of $15.6 million and $31.1 million for the three and six
months ended June 30, 1998, respectively, represents effective tax rates of
32.4% and 32.6% on respective income before taxes of $48.2 million and $95.3
million. These effective tax rates are lower than the enacted federal income tax
rate of 35%, due primarily to tax exempt investment income which reduces the
Company's taxable income.
8
<PAGE>
PROPERTY AND CASUALTY INSURANCE OPERATIONS
The following table represents information for the three and six month
periods ended June 30, 1998 and 1997 with respect to the Company's property and
casualty insurance operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues ............................ $ 163,326 $ 148,461 $ 360,769 $ 290,964
Expenses ............................ 122,311 115,772 278,745 225,866
--------- --------- --------- ---------
Income Before Taxes ................. $ 41,015 $ 32,689 $ 82,024 $ 65,098
========= ========= ========= =========
</TABLE>
PREMIUMS. Insurance premiums from the Company's property and casualty
insurance operations were $119.4 million and $273.5 million in the three and six
month periods ended June 30, 1998, as compared to $120.8 million and $236.0
million for the same periods of 1997. The higher premiums in the six months
ended June 30, 1998 were due primarily to the acquisition of Industrial. With
this acquisition, the Company has broadened the geographic diversity of its
premium writings. Using the Company's estimated annual premiums on policies in
effect at June 30, 1998 and 1997 (referred to as "inforce premium"), the
percentage of the Company's combined inforce premium in California and Illinois
was 58% at June 30, 1998, down significantly from 74% at June 30, 1997. See
"Variability of Operating Results" and "Workers' Compensation Regulation." The
Industrial acquisition has also afforded the Company a significant presence in
the western United States, in addition to California. Historically, these
western states, excluding California, have collectively exhibited relatively
stable competitive environments; however, there can be no assurance that this
stability will continue in the future. In the three months ended June 30, 1998,
the Industrial-related increases in workers' compensation insurance premiums
were substantially offset by the impact of additional ceded reinsurance costs
incurred. These additional reinsurance costs were due primarily to additional
excess of loss reinsurance purchased for the Company's workers' compensation
insurance business which became effective January 1, 1998. The Company purchased
the additional reinsurance in an effort to further reduce the volatility of
operating results which occurs through fluctuations in loss costs. As of March
31, 1998, the additional reinsurance purchased reduced the point at which
reinsurers assume liability ("the attachment point") from $1 million per loss
occurrence to $100,000 per loss occurrence. During the second quarter ended June
30, 1998, the Company purchased additional reinsurance, which was made
retroactive to January 1, 1998, that further reduced the attachment point to
$50,000 per loss occurrence.
NET INVESTMENT INCOME. Net investment income within the property and
casualty insurance operations increased to $44.4 and $88.2 million in the three
and six months ended June 30, 1998, from $28.2 million and $56.0 million for the
same periods of 1997. These increases were due primarily to the acquisition of
Industrial.
LOSS AND LOSS ADJUSTMENT EXPENSE. The property and casualty loss and loss
adjustment expenses ("LAE") were $70.2 million and $173.5 million in the three
and six month periods ended June 30, 1998, as compared to $76.2 million and
$149.3 million for the same respective periods of 1997. In addition, the ratio
of these losses and LAE to property and casualty insurance premiums earned
("loss ratio") was 58.9% and 63.4% for the three and six month periods ended
June 30, 1998, as compared to 63.1% and 63.2% for the same respective periods of
1997. The loss ratio was relatively even for the six month period ended June 30,
1998, as compared to the same prior year period due mainly to the offsetting
effects of higher loss ratios in 1998 associated with Industrial, and lower loss
ratios in 1998 resulting from the additional reinsurance purchased by the
Company and which became effective January 1, 1998. See "Premiums". The loss
ratio decreased for the three months ended June 30, 1998, as compared to the
same prior year period, due primarily to the impact of the previously mentioned
additional reinsurance purchased by the Company in 1998.
The Company regularly reviews its reserving techniques, overall reserve
position and reinsurance. In light of present facts and current legal
interpretations, management believes that adequate provisions have been made for
loss reserves. In making this determination, management has considered its
claims experience to date, loss development history for prior accident years and
estimates of future trends of claims frequency and severity.
9
<PAGE>
However, establishment of appropriate reserves is an inherently uncertain
process, and there can be no certainty that currently established reserves will
prove adequate in light of subsequent actual experience. Subsequent actual
experience has resulted and could result in loss reserves being too high or too
low. Future loss development could require reserves for prior periods to be
increased, which would adversely impact earnings in future periods.
POLICY ACQUISITION COSTS AND OTHER OPERATING COSTS AND EXPENSES. The ratio
of policy acquisition costs and other operating costs and expenses to insurance
premiums is referred to as the expense ratio, which was 36.2% and 32.1% for the
three and six month periods ended June 30, 1998, as compared to 28.0% and 27.9%
for the same periods of 1997. The increase in this ratio was due primarily to a
lower premium base in the three and six month periods of June 30, 1998,
resulting from additional reinsurance costs incurred. See "Premiums".
VARIABILITY OF OPERATING RESULTS. The Company's profitability can be
affected significantly by many factors including competition, the severity and
frequency of claims, interest rates, regulations, court decisions, the judicial
climate, and general economic conditions and trends, all of which are outside of
the Company's control. These factors have contributed, and in the future could
contribute, to significant variation of results of operations in different
aspects of the Company's business from quarter to quarter and year to year. With
respect to the workers' compensation insurance business, changes in economic
conditions can lead to reduced premium levels due to lower payrolls as well as
increased claims due to the tendency of workers who are laid off to submit
workers' compensation claims. Legislative and regulatory changes can also
contribute to variable operating results for workers' compensation insurance
businesses. For example, in 1995 the Company experienced the negative impact of
lower premiums and lower profitability on the Company's California workers'
compensation business due to increased price competition resulting from
legislation enacted in California in July 1993 which, among other things,
repealed the minimum rate law effective January 1, 1995. Additionally, price
competition in Illinois, where the Company has a significant presence, continues
to impact the Company's profitability, where overall average decreases of 7.9%
and 10.0% in advisory premium rates, which workers' compensation insurance
companies in Illinois tend to follow, became effective January 1, 1998 and 1997,
respectively. See "Workers' Compensation Regulation." The acquisition of
Industrial has mitigated the adverse effects of this price competition in
Illinois by providing the Company with a broader geographic diversity of its
premium writings. The Company anticipates that its results of operations and
financial condition will continue to be adversely affected by the continued
price competition in Illinois and California. Also, the establishment of
appropriate reserves necessarily involves estimates, and reserve adjustments
have caused significant fluctuations in operating results from year to year.
WORKERS' COMPENSATION REGULATION. At June 30, 1998, approximately 58% of
the Company's inforce premiums were in California and Illinois. Illinois began
operating under an open rating system in 1982 and California began operating
under such a system effective January 1, 1995. In an open rating system,
workers' compensation companies are provided with advisory premium rates by job
classification and each insurance company determines its own rates based in part
upon its particular operating and loss costs. Although insurance companies are
not required to adopt such advisory premium rates, companies in Illinois
generally follow such rates. This characteristic has resulted in increased price
competition in Illinois, where overall average decreases in advisory premium
rates of 7.9% and 10.0% became effective January 1, 1998 and 1997, respectively.
In contrast, insurance companies in California have, since the adoption of an
open rating system, generally set their premium rates below such advisory
premium rates. Before January 1, 1995, California operated under a minimum rate
law, whereby premium rates established by the California Department of Insurance
were the minimum rates which could be charged by an insurance carrier. Most of
the states in which the Company writes premiums operate under some form of open
rating system.
FINANCIAL SERVICES
The Company's financial services operations, which are comprised
primarily of the results of Fremont General Credit Corporation ("FGCC"), are
principally engaged in commercial and residential real estate lending,
commercial finance and insurance premium financing. Revenues consist primarily
of interest income and to a lesser extent fees and other income.
10
<PAGE>
The following table presents information for the three and six month
periods ended June 30, 1998 and 1997 with respect to the Company's financial
services operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
--------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues ............................ $ 74,175 $ 57,173 $ 139,912 $ 109,396
Expenses ............................ 59,984 46,691 112,618 88,435
-------- -------- --------- ---------
Income Before Taxes ................. $ 14,191 $ 10,482 $ 27,294 $ 20,961
======== ======== ========= =========
</TABLE>
Revenues increased 30% and 28% in the three and six month periods ended
June 30, 1998, respectively, as compared to the same respective periods of 1997,
due primarily to greater loan interest revenue attributable to the growth in the
average loan portfolio of the commercial and residential real estate lending
operations. Additionally, higher revenues resulted from increased residential
real estate loan sales. These loan sales are pursuant to a program, begun by the
Company's real estate lending operation in 1995 and expanded in 1997, of selling
certain residential real estate loans to other financial institutions. This has
allowed the Company an opportunity to become more selective in its residential
real estate loan portfolio, as well as to offer a broader range of residential
real estate loans to its customers, primarily through independent brokers. These
loan sales are made without recourse to the Company or its subsidiaries.
Income before taxes in the financial services operations was $14.2 million
and $27.3 million for the three and six month periods ended June 30, 1998,
respectively, as compared to $10.5 million and $21.0 million for the same
respective periods of 1997. The 35% and 30% increases in income before taxes in
the three and six month periods ended June 30, 1998, respectively, were due to
higher income before taxes in the real estate lending operation. Contributing to
this higher income before taxes were higher loan interest revenue due to a
greater average real estate loan portfolio, as well as the previously described
gains on residential real estate loan sales. These conditions were partially
offset by increases in operating expenses.
The following table identifies the interest income, interest expense,
average interest-bearing assets and liabilities, and interest margins for the
Company's financial services operations:
11
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------
1998 1997
--------------------------------- -----------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST (1) BALANCE INTEREST COST (1)
----------- --------- -------- ----------- -------- --------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing assets (2) :
Commercial finance and other assets ............ $ 596,750 $ 30,669 10.28% $ 597,209 $ 31,824 10.66%
Thrift and loan:
Cash equivalents ............................. 69,429 1,709 4.92 113,345 3,025 5.34
Investments .................................. 119,887 3,454 5.76 40,335 1,128 5.59
Commercial real estate loans ................. 1,106,852 54,274 9.81 906,951 42,884 9.46
Residential real estate loans ................ 394,956 18,646 9.44 292,662 14,126 9.65
Insurance premium financing
and other thrift loans .................... 59,624 3,388 11.36 53,778 3,054 11.36
----------- --------- ----------- --------
Total interest bearing assets .................. $ 2,347,498 $ 112,140 9.55% $ 2,004,280 $ 96,041 9.58%
=========== ========= =========== ========
Interest bearing liabilities:
Savings deposits ............................... $ 339,088 $ 8,766 5.17% $ 245,811 $ 6,115 4.98%
Time deposits .................................. 1,234,898 35,371 5.73 961,426 27,791 5.78
Other .......................................... 1,673 30 3.59 10,644 295 5.54
Securitization obligation ...................... 285,647 8,788 6.15 302,819 9,174 6.06
Debt with banks ................................ 187,617 6,205 6.61 220,376 7,274 6.60
Debt from affiliates ........................... 53,660 1,594 5.94 50,553 1,294 5.12
----------- --------- ----------- --------
Total interest bearing liabilities ............. $ 2,102,583 $ 60,754 5.78% $ 1,791,629 $ 51,943 5.80%
=========== ========= =========== ========
Net interest income ................................ $ 51,386 $ 44,098
========= ========
Net yield .......................................... 4.38% 4.40%
- ---------------------------------------
(1) Annualized.
(2) Average loan balances include non-accrual loan balances.
</TABLE>
The margin between the Company's interest income and cost of funds was
relatively even in the six month period ended June 30, 1998 as compared to the
six month period ended June 30, 1997, due primarily to the offsetting effects of
a decrease in the yields in the commercial finance segment as increases in the
credit quality of the commercial finance portfolio and continued competition
resulted in lower yields; and a slight increase in the net margins in the real
estate lending operation, due mainly to an increase in the yield on commercial
real estate loans offset partially by a decrease in the yield on residential
real estate loans.
LOANS RECEIVABLE AND RESERVE ACTIVITY. The following table shows loans
receivable in the various financing categories and the percentages of the total
represented by each category:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------------- -------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
----------- ----- ----------- -----
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C>
Accounts receivable and inventory loans:
Commercial finance ......................... $ 435,863 19% $ 389,252 19%
Term loans:
Thrift and loan ............................ 1,675,445 73 1,480,824 73
Commercial finance loans ................... 180,144 8 158,013 8
----------- ---- ----------- -----
Total term loans ..................... 1,855,589 81 1,638,837 81
----------- ---- ----------- -----
Total loans .......................... 2,291,452 100 2,028,089 100
Less allowance for possible loan losses ......... 48,111 2 44,402 2
----------- ---- ----------- -----
Loans receivable ........................... $ 2,243,341 98% $ 1,983,687 98%
=========== ==== =========== =====
</TABLE>
12
<PAGE>
The following table illustrates the maturities of the Company's loans
receivable:
<TABLE>
<CAPTION>
MATURITIES AT JUNE 30, 1998
----------------------------------------------
1 TO 24 25 - 60 OVER 60
MONTHS MONTHS MONTHS TOTAL
--------- --------- --------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Accounts receivable and inventory
loans -- variable rate ..................... $ 435,863 $ - $ - $ 435,863
Term loans -- variable rate ................... 321,981 763,746 499,463 1,585,190
Term loans -- fixed rate ...................... 115,624 67,569 87,206 270,399
--------- --------- --------- -----------
Total ................................. $ 873,468 $ 831,315 $ 586,669 $ 2,291,452
========= ========= ========= ===========
</TABLE>
The Company monitors the relationship of fixed and variable rate loans and
interest bearing liabilities in order to minimize interest rate risk.
During 1997, the Company began originating both commercial and residential
real estate loans outside of California. The Company intends to seek portfolio
growth outside of California in order to achieve greater geographic diversity in
its loan portfolio and thereby lessen the Company's exposure to regional
economic conditions. The total amount of commercial and residential real estate
loans outstanding on properties located outside of California at June 30, 1998
was $106.6 million and $78.1 million, respectively.
Adverse economic developments can negatively affect the Company's business
and results of operations in a number of ways. Such developments can, among
other things, reduce the demand for loans, impair the ability of borrowers to
pay loans and impair the value of the underlying collateral.
The following table describes the asset classifications, loss experience
and reserve reconciliation of the real estate lending and commercial finance
operations as of or for the periods ended as shown below:
13
<PAGE>
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1998 1997
----------- -----------
(THOUSANDS OF DOLLARS,
EXCEPT PERCENTS)
<S> <C> <C>
Non-accrual loans .......................................................... $ 25,207 $ 25,291
Accrual loans 90 days past due ............................................. 1,515 1,360
Real estate owned ("REO") .................................................. 9,638 7,802
----------- -----------
Total non-performing assets ................................................ $ 36,360 $ 34,453
=========== ===========
Beginning allowance for possible loan losses ............................... $ 44,402 $ 37,747
Provision for loan losses .................................................. 4,982 3,896
Charge-offs:
Commercial finance loans ............................................. 892 1,444
Thrift and loan:
Commercial real estate ........................................... 173 755
Residential real estate loans .................................... 571 615
Insurance premium financing and other thrift loans ............... 97 1
----------- -----------
Total charge-offs .................................................... 1,733 2,815
----------- -----------
Recoveries:
Commercial finance loans ............................................. 111 22
Thrift and loan:
Commercial real estate ........................................... 239 247
Residential real estate loans .................................... 66 565
Insurance premium financing and other thrift loans ............... 44 68
----------- -----------
Total recoveries ..................................................... 460 902
----------- -----------
Net charge-offs ............................................................ 1,273 1,913
----------- -----------
Ending allowance for possible loan losses .................................. $ 48,111 $ 39,730
=========== ===========
Allocation of allowance for possible loan losses:
Commercial finance loans ............................................. $ 11,396 $ 12,576
Thrift and loan ...................................................... 36,715 27,154
----------- -----------
Total allowance for possible loan losses ............................. $ 48,111 $ 39,730
=========== ===========
Total loans receivable ..................................................... $ 2,291,452 $ 1,896,731
Average total loans receivable ............................................. $ 2,135,611 $ 1,831,712
Net charge-offs to average total loans receivable (annualized) ............. 0.12% 0.21%
Non-performing assets to total loans receivable ............................ 1.59% 1.82%
Allowance for possible loan losses to total loans receivable ............... 2.10% 2.09%
Allowance for possible loan losses to non-performing assets ................ 132.32% 115.32%
Allowance for possible loan losses to non-accrual
loans and accrual loans 90 days past due ............................. 180.04% 149.08%
</TABLE>
Non-performing assets increased a modest 5.5% to $36.4 million at June 30,
1998 from $34.5 million at June 30, 1997, which is a lower rate of increase than
the 20.8% increase in total loans receivable to $2.3 billion at June 30, 1998
from $1.9 billion at June 30, 1997.
The higher provision for loan losses in the six month period ended June 30,
1998, as compared to the same prior year period, is also consistent with the
overall increase in total loans receivable. The Company continues to experience
low loan loss experience as evidenced by the continued low ratio of net
charge-offs to average total loans receivable. The Company's low loan loss
experience is further evidenced by the decrease in the ratio of
14
<PAGE>
non-performing assets to total loans receivable in the preceding table. The
Company's ratio of the allowance for possible loan losses to non-accrual loans
and accrual loans 90 days past due increased to 180.04% from 149.08% for the six
month periods ended June 30, 1998 and 1997, respectively, thereby increasing the
coverage of these non-performing assets by the allowance for possible loan
losses.
MARKET RISK
The Company is subject to market risk resulting primarily from fluctuations
in interest rates arising from balance sheet financial instruments such as
investments, loans and debt. In the property and casualty insurance operations,
the greatest interest rate risk exposure occurs where the interest rate of the
financial instrument is fixed in nature and there is a difference between the
fixed rate of the financial instrument and the market rate. The greatest
interest rate risk exposure in the financial services operations occurs when
interest rate gaps arise wherein assets are funded with liabilities having
different repricing intervals or different market indices to which the
instruments' interest rates are tied. Changes in interest rates will affect the
Company's net investment income, loan interest, interest expense and total
stockholders' equity. The objective of the Company's asset and liability
management activities is to provide the highest level of net interest income and
to seek cost effective sources of capital, while maintaining acceptable levels
of interest rate and liquidity risk. The Company has designated its entire
investment portfolio as investments that would be available for sale in response
to changing market conditions, liquidity requirements, interest rate movements
and other investment factors. The Company currently owns no derivative financial
instruments and, consequently, is not subject to market risk for such
off-balance sheet financial instruments. Furthermore, the Company does not have
exposure to foreign currency or commodity price risk.
For additional information regarding market risk, see the discussion set
forth under the subheadings "Property and Casualty Insurance Operations-Interest
Rate Risk," "Financial Services Operations-Interest Rate Risk" and "Fremont
General Corporation (Parent-only)-Interest Rate Risk" in the corresponding
Management's Discussion and Analysis in the Company's 1997 Annual Report on Form
10-K. No material changes in market risk have occurred since year-end.
LIQUIDITY AND CAPITAL RESOURCES
The property and casualty insurance operations must have cash and liquid
assets available to meet their obligations to policyholders in accordance with
contractual obligations, in addition to having the funds available to meet
ordinary operating costs. These operations have several sources of funds to meet
their obligations, including cash flow from operations, recoveries from
reinsurance contracts and investment securities. By statute, the majority of the
cash from these operations is required to be invested in investment grade
securities to provide protection for policyholders. The Company invests in fixed
income and preferred equity securities with an objective of providing a
reasonable return while limiting credit and liquidity risk. The Company's
investment portfolio had an unrealized gain of $84.8 million and $81.4 million
at June 30, 1998 and December 31, 1997, respectively.
The Company's thrift and loan subsidiary, which is principally engaged in
real estate lending, finances its lending activities primarily through customer
deposits, which have grown to $1.7 billion at June 30, 1998 from $1.5 billion at
December 31, 1997. In addition, this subsidiary is eligible for financing
through the Federal Home Loan Bank of San Francisco ("FHLB"). This financing is
available at varying rates and terms. As of June 30, 1998, $370 million was
available under the facility with $13 million in advances outstanding.
The Company's commercial finance operation funds its lending activities
primarily through its asset securitization program, an unsecured revolving line
of credit with a syndicated bank group and its capital. The asset securitization
program was established to provide a stable and cost effective source of funds
to facilitate the expansion of this business. As of June 30, 1998, an aggregate
$235 million senior series and an aggregate $39 million subordinated series of
asset-backed certificates were outstanding. The interest rate on the
certificates, set monthly, ranged from LIBOR plus 0.23% to LIBOR plus 0.95% at
June 30, 1998. The securities issued in this program have a scheduled maturity
of three to five years, but could mature earlier depending on fluctuations in
outstanding balances of loans in the portfolio and other factors. As of June 30,
1998, up to $265 million in additional publicly offered asset-backed
certificates may be issued pursuant to a shelf registration statement to fund
future growth in the commercial finance portfolio. In April 1997, $109.26
million in certificates ("Series D") were
15
<PAGE>
issued, comprised of $100 million in senior certificates and $9.26 million in
subordinated certificates. The Series D certificates were issued to retire $100
million in maturing Series B certificates. In December 1995, a commercial paper
facility was established as part of the asset securitization program. This
facility, which expires in December 1998, provides for the issuance of up to
$150 million in commercial paper, dependent upon the level of assets within the
asset securitization program. As of June 30, 1998, $16 million was outstanding
under this facility. The commercial finance operation's unsecured revolving line
of credit is with a syndicated bank group that presently permits borrowings of
up to $450 million, which includes a revolving credit facility of $350 million
and a term loan of $100 million. The revolving credit facility converts to a
term loan in August 2000, with ultimate maturity of the term loan in June 2002.
The $100 million term loan matures July 2001. The balance outstanding at June
30, 1998 of the revolving credit facility and the term loan was $226 million,
with a weighted average interest rate of 6.06%. This credit line is primarily
used to finance assets which are not included in the Company's asset
securitization program.
As a holding company, Fremont General pays its operating expenses, meets
its other obligations and pays stockholders' dividends from its cash on hand,
management fees paid by its subsidiaries and dividends paid by its subsidiaries.
Stockholders' dividends declared aggregated $10.2 million and $9.1 million for
the quarters ended June 30, 1998 and 1997, respectively. Several of the
Company's subsidiaries are subject to certain statutory and regulatory
restrictions and various agreements, principally loan agreements, that restrict
their ability to distribute dividends to the Company. The Company expects that
during the next few years dividends from its subsidiaries will consist of
dividends from its property and casualty insurance subsidiaries and dividends on
preferred stock of its thrift and loan holding company and commercial finance
subsidiaries. The maximum amount available for payment of dividends by the
property and casualty insurance subsidiaries during 1998, without prior
regulatory approval, is approximately $67.8 million.
To facilitate general corporate operations, the Company maintains a
revolving line of credit with a syndicated bank group that permits borrowings of
up to $400 million, of which $305 million was outstanding as of June 30, 1998.
This credit facility expires in July 2002.
During 1997, an aggregate $185,952,000 principal amount at maturity of
Liquid Yield OptionTM Notes due October 12, 2013 (Zero Coupon-Subordinated)
("LYONs") were converted into 3,586,000 shares of the Company's Common Stock.
The effect of these conversions was an increase in stockholders' equity and a
decrease in long-term debt of $81 million. During the first six months of 1998,
an aggregate $12,093,000 principal amount at maturity of LYONs were converted
into 233,000 shares of the Company's Common Stock. The effect of the conversions
was an increase in stockholders' equity and a decrease in long-term debt of $5.5
million.
On March 1, 1996, Fremont General Financing I, a statutory business trust
(the "Trust") and consolidated wholly-owned subsidiary of the Company, sold $100
million of 9% Trust Originated Preferred SecuritiesSM ("the Preferred
Securities") in a public offering. The Preferred Securities represent preferred
undivided beneficial interests in the assets of the Trust. The proceeds from the
sale of the Preferred Securities were invested in 9% Junior Subordinated
Debentures of the Company ("the Junior Subordinated Debentures"). The proceeds
from the sale of the Junior Subordinated Debentures were used to repay
approximately $50 million in revolving bank line of credit indebtedness, with
the remainder used for general corporate purposes. The $100 million Junior
Subordinated Debentures are the sole asset of the Trust. The Preferred
Securities will be redeemed upon maturity of the Junior Subordinated Debentures
in 2026, subject to the election available to the Company to extend the maturity
up to 2045, and they may be redeemed, in whole or in part, at any time on or
after March 31, 2001 and under certain specified circumstances. The Junior
Subordinated Debentures are subordinate and junior to all senior indebtedness of
the Company. Payment of distributions out of cash held by the Trust, and
payments on liquidation of the Trust or the redemption of the Preferred
Securities are guaranteed by the Company.
Net cash used in operating activities of continuing operations was $89.5
million and $44.9 million for the six months ended June 30, 1998 and 1997,
respectively. Net cash used in continuing operations increased in the six months
ended June 30, 1998, due primarily to a higher reduction in claims and policy
liabilities and a higher net amortization on fixed maturity investments, offset
partially by an increase in net income, an increase in the provision for
deferred income taxes, an increase in the change in other assets and liabilities
and a higher change in accrued investment income. The higher reduction in claims
and policy liabilities is due primarily to an increase in 1998 in reinsurance
recoverables on unpaid losses and LAE resulting from the additional excess of
loss reinsurance
16
<PAGE>
purchased by the Company and which became effective January 1, 1998. See
"Premiums". The increase in the change in other assets and liabilities is due
mainly to the combined effects of an increase in reinsurance premiums payable in
1998 resulting from the previously mentioned additional reinsurance purchased by
the Company, and an increase in other assets in the six months ended June 30,
1997, resulting primarily from certain investment securities acquired by the
Company on June 30, 1997, but which did not settle until July 1997.
Net cash used in investing activities decreased to $154.5 million from
$347.5 million for the six months ended June 30, 1998 and 1997, respectively.
The decrease in net cash used in investing activities was due mainly to an
increase in investment sales, maturities and calls, net of purchases and
short-term investment activity, offset partially by an increase in loan
originations, net of loan sales and repayments.
Net cash provided by financing activities was $283.4 million and $369.1
million in the six months ended June 30, 1998 and 1997, respectively. Net cash
provided by financing activities decreased in the quarter ended June 30, 1998,
due primarily to a decrease in short-term and long-term debt proceeds, net of
repayments. Contributing to the decrease in short-term debt proceeds was $204
million in borrowings at June 30, 1997 pursuant to certain reverse repurchase
agreements within the property and casualty insurance operations.
The amortized cost of the Company's invested assets were $2.26 billion and
$2.36 billion at June 30, 1998 and December 31, 1997, respectively. The invested
assets are down slightly at June 30, 1998, as compared to December 31, 1997, due
mainly to a decrease in the invested assets of the property and casualty
operations.
The Company's property and casualty premium to surplus ratio for the year
ended December 31, 1997 was 1.5 to 1, which is within industry guidelines. The
FDIC has established certain capital and liquidity standards for its member
institutions, and the Company's thrift and loan subsidiary was in compliance
with these standards as of June 30, 1998.
The Company believes that its existing cash, its bank lines of credit,
revenues from operations and other available sources of liquidity will be
sufficient to satisfy its liquidity needs for at least the next twelve months.
INFORMATION SYSTEMS - "YEAR 2000"
The Company's operations rely on various computer-based information systems
in the conduct of its businesses ("Systems"). Currently, some of these Systems
will be unable to function properly after December 31, 1999 due to the inability
of the affected Systems to recognize the year 2000. This problem exists for a
substantial number of business enterprises, both domestically and
internationally, and has been referred to as the "Year 2000" problem.
As of June 30, 1998, significant Year 2000 compliance issues remain only
within the Company's workers' compensation operation. The Company's financial
services Systems, administrative Systems (personnel and accounting) and treasury
Systems (cash management and investment portfolio management) are substantially
all vendor-supported Systems and have all been rendered Year 2000 compliant. The
Company's vendor-supported payroll System has been scheduled for upgrade to a
Year 2000 compliant version by September 30, 1998. With respect to the financial
services and administrative Systems, the Company has performed the Year 2000
planning, testing, and maintenance tasks using existing internal resources and
no additional costs have been incurred. Substantially all remediation work has
been performed by the Systems' vendors. The Company also has initiated
discussions with its significant policyholders, agents, suppliers, borrowers and
financial institutions to ensure that those parties have appropriate plans to
remediate Year 2000 issues where their computer systems interface with the
Company's Systems or otherwise impact its operations.
With regard to the workers' compensation operation, the Company developed
an action plan in 1996 to render its workers' compensation Systems Year 2000
compliant. Based on an evaluation of the progress made as of June 30, 1998, the
Company estimates that its workers' compensation Systems, excluding those
Systems supporting Industrial which were acquired August 1, 1997, will be Year
2000 compliant by September 30, 1998. The Industrial Systems are expected to be
converted to Year 2000 compliant Systems by June 30, 1999. The costs to be
incurred in 1998 by the Company in completing these Year 2000 initiatives are
estimated to be approximately $4.5 million.
17
<PAGE>
SUBSEQUENT EVENT
On July 29, 1998, the Company signed a definitive agreement to purchase
UNICARE Specialty Services, Inc., the workers' compensation insurance subsidiary
of WellPoint Health Networks Inc., one of the nation's largest publicly traded
managed care companies, for approximately $100 million. The cash transaction,
subject to regulatory approvals, is expected to close by the end of the third
quarter of 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the subheading "Market Risk" in the
Company's Management Discussion and Analysis contained in this Quarterly Report
on Form 10-Q is incorporated herein by reference.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings.
None.
ITEM 2: Changes in Securities.
None.
ITEM 3: Defaults Upon Senior Securities.
None.
ITEM 4: Submission of Matters to a Vote of Security Holders.
a) The Annual Meeting of Stockholders was held on May 19, 1998.
b) The following directors were elected to serve until the next Annual
Meeting of Stockholders or until their successors have been elected and
qualified:
J.A. McIntyre D.W. Morrisroe
W.R. Bailey L.J. Rampino
H.I. Flournoy D.C. Ross
C.D. Kranwinkle
c) The directors named in (b) above were elected. The results of the voting
of the 31,816,165 represented at the meeting are summarized in the
following table:
VOTES
FOR WITHHELD
---------- --------
J.A. McIntyre 31,749,747 66,418
W.R. Bailey 31,759,534 56,631
H.I. Flournoy 31,722,457 93,708
C.D. Kranwinkle 31,762,506 53,659
D.W. Morrisroe 31,762,799 53,366
L.J. Rampino 31,759,194 56,971
D.C. Ross 31,746,307 69,858
d) The Amendment to the Articles of Incorporation - Increase of Authorized
shares to 75 million was approved. The results of the voting of the
31,816,165 shares represented at the meeting are summarized in the
following table:
FOR AGAINST ABSTAINED
---------- ------- ---------
31,095,528 660,621 60,016
e) The appointment of the accounting firm of Ernst & Young LLP as the
Corporation's Independent Auditors was ratified. The results of the voting
of the 31,816,165 shares represented at the meeting are summarized in the
following table:
FOR AGAINST ABSTAINED
---------- ------- ---------
31,713,850 31,728 70,587
19
<PAGE>
ITEM 5: OTHER INFORMATION.
None.
ITEM 6: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT NO. DESCRIPTION
------------ --------------------------------------------------------------
2.1 Stock Purchase Agreement by and among Talegen Holdings, Inc.,
Fremont Indemnity Company and Fremont General Corporation
dated as of May 16, 1997 including exhibits thereto. (Filed as
Exhibit No. 2.1 to Current Report on Form 8-K, as of August 1,
1997, Commission File Number 1-8007, and incorporated herein
by reference.)
2.2 Tax Allocation and Indemnification Agreement, dated as of May
16, 1997 by and among Xerox Financial Services, Inc., Talegen
Holdings, Inc., Industrial Indemnity Holdings, Inc., Fremont
General Corporation, and Fremont Indemnity Corporation, a
California corporation. (Filed as Exhibit No. 2.2 to Current
Report on Form 8-K, as of August 1, 1997, Commission File
Number 1-8007, and incorporated herein by reference.)
3.1 Restated Articles of Incorporation of Fremont General
Corporation and amendments.
3.2 Amended and Restated By-Laws of Fremont General Corporation.
(Filed as Exhibit No. 3.3 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
4.1 Form of Stock Certificate for Common Stock of the Registrant.
(Filed as Exhibit No. (1) Form 8-A filed on March 17, 1993,
Commission File Number 1-8007, and incorporated herein by
reference.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013
between the Registrant and Bankers Trust Company. (Filed as
Exhibit No. 4.4 to Registration Statement on Form S-3 filed on
October 1, 1993, and incorporated herein by reference.)
4.3 Indenture among the Registrant, the Trust and First Interstate
Bank of California, a California banking corporation, as
trustee. (Filed as Exhibit No. 4.3 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1995, Commission
File Number 1-8007, and incorporated herein by reference.)
4.4 Amended and Restated Declaration of Trust among the
Registrant, the Regular Trustees, The Chase Manhattan Bank
(USA), a Delaware banking corporation, as Delaware trustee,
and The Chase Manhattan Bank, N.A., a national banking
association, as Institutional Trustee. (Filed as Exhibit No.
4.5 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.5 Preferred Securities Guarantee Agreement between the
Registrant and The Chase Manhattan Bank, N.A., a national
banking association, as Preferred Guarantee Trustee. (Filed as
Exhibit No. 4.6 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
20
<PAGE>
EXHIBIT NO. DESCRIPTION
------------ --------------------------------------------------------------
4.6 Common Securities Guarantee Agreement by the Registrant.
(Filed as Exhibit No. 4.7 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission
File Number 1-8007, and incorporated herein by reference.)
4.7 Form of Preferred Securities. (Included in Exhibit 4.5).
(Filed as Exhibit No 4.8 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission
File Number 1-8007, and incorporated herein by reference.)
4.8 Form of 9% Junior Subordinated Debenture. (Included in Exhibit
4.3). (Filed as Exhibit No. 4.9 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
10.1(a) Fremont General Corporation Employee Stock Ownership Plan
as amended. (Filed as Exhibit No. 10.1 to Annual Report on
Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by
reference.)
10.1(b) Amendment Number Two to the Fremont General Corporation
Employee Stock Ownership Plan. (Filed as Exhibit No. 10.1 (b)
to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1997, Commission File Number 1-8007, and
incorporated herein by reference.)
10.2 Amended and Restated Trust Agreement for Fremont General
Corporation Employee Stock Ownership Plan. (Filed as Exhibit
No. 10.2 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.3(a) Fremont General Corporation and Affiliated Companies
Investment Incentive Plan. (Filed as Exhibit No. 10.3 to
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
10.3(b) Amendments Number One, Two and Three to the Fremont General
Corporation and Affiliated Companies Investment Incentive
Plan. (Filed as Exhibit No. 10.3 (b) to Quarterly Report on
Form 10-Q, for the period ended September 30, 1997,Commission
File Number 1-8007, and incorporated herein by reference.)
10.3(c) Amendment Number Four to the Fremont General Corporation
and Affiliated Companies Investment Incentive Plan. (Filed as
Exhibit No. 10.3 (c) to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1997, Commission File Number
1-8007, and incorporated herein by reference.)
10.4(a) Trust Agreement for Investment Incentive Plan. (Filed as
Exhibit No. (10)(xi) to Annual Report on Form 10-K, for the
Fiscal Year Ended December 31, 1993, Commission File Number
1-8007, and incorporated herein by reference.)
10.4(b) Amendment to Trust Agreement for Investment Incentive Plan.
(Filed as Exhibit No. 10.4 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
10.5(a) Supplemental Retirement Plan of the Company, as restated
January 1, 1997. (Filed as Exhibit No. 10.5 to Quarterly
Report on Form 10-Q, for the period ended September 30, 1997,
Commission File Number 1-8007, and incorporated herein by
reference.)
10.5(b) Amendment Number One to the Fremont General Corporation
Supplemental Retirement Plan of the Company. (Filed as Exhibit
No. 10.5(b) to Quarterly Report on Form 10-Q for the period
ended March 31, 1998, Commission File Number 1-8007, and
incorporated herein by reference.)
21
<PAGE>
EXHIBIT NO. DESCRIPTION
------------ --------------------------------------------------------------
10.6 Trust Agreement for Supplemental Retirement Plan of the
Company and the Senior Supplemental Retirement Plan of The
Company, as amended. (Filed as Exhibit No. 10.6 to Annual
Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein
by reference.)
10.7 Senior Supplemental Retirement Plan, as restated January 1,
1997. (Filed as Exhibit No. 10.7 to Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission File
Number 1-8007, and incorporated herein
by reference).
10.8(a) Excess Benefit Plan of the Company. (Filed as Exhibit No.
(10)(vi) to Annual Report on Form 10-K, for the Fiscal Year
Ended December 31, 1993, Commission File Number 1-8007, and
incorporated herein by reference.)
10.8(b) Amendment to Excess Benefit Plan of the Company. (Filed as
Exhibit No. 10.8 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
10.8(c) Trust Agreement for Excess Benefit Plan. (Filed as Exhibit
No. 10.8 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.9 Amended Non-Qualified Stock Option Plan of 1989 and related
agreements of the Company. (Filed as Exhibit No. 10.9 to
Annual Report on Form 10-K, for the fiscal year ended December
31, 1996, Commission File Number 1-8007, and incorporated
herein by reference.)
10.10 1997 Stock Plan and related agreements. (Filed as Exhibit No.
10.10 to Quarterly Report on Form 10-Q, for the period ended
June 30, 1997, Commission File Number 1-8007, and incorporated
herein by reference.)
10.11(a) Long-Term Incentive Compensation Plan of the Company -
Senior Executive Plan. (Filed as Exhibit No. 10.10 (a) on Form
10-Q for the period ended September 30, 1996, Commission File
Number 1-8007, and incorporated herein by reference.)
10.11(b) Long-Term Incentive Compensation Plan of the Company
(Filed as Exhibit No. 10.10 (b) on Form 10-Q for the period
ended September 30, 1996, Commission File Number 1-8007, and
incorporated herein by reference.)
10.12 1995 Restricted Stock Award Plan as amended and forms
of agreement thereunder. (Filed as Exhibit No. 4.1 to
Registration Statement on Form S-8/S-3 File No. 333-17525
which was filed on December 9, 1997, and incorporated
herein by reference.)
10.13 Fremont General Corporation Employee Benefits Trust Agreement
("Grantor Trust") dated September 7, 1995 between the Company
and Merrill Lynch Trust Company of California. (Filed as
Exhibit No. 10.12 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.14(a) Employment Agreement between the Company and James A.
McIntyre dated January 1, 1994. (Filed as Exhibit No. (10)(i)
to Quarterly Report on Form 10-Q for the period ended March
31, 1994, Commission File Number 1-8007, and incorporated
herein by reference.)
10.14(b) First Amendment to Employment Agreement between the
Company and James A. McIntyre dated August 1, 1996. (Filed as
Exhibit No. 10.10 to Quarterly Report on Form 10-Q, for the
period ended June 30, 1997, Commission File Number 1-8007, and
incorporated herein by reference.)
22
<PAGE>
EXHIBIT NO. DESCRIPTION
------------ --------------------------------------------------------------
10.14(c) Second Amendment to Employment Agreement between the
Company and James A. McIntyre dated August 8, 1997. (Filed as
Exhibit No. 10.14 (c) to Quarterly Report on Form 10-Q, for
the period ended September 30, 1997, Commission File Number
1-8007, and incorporated herein by reference.)
10.15(a) Employment Agreement between the Company and Louis J.
Rampino dated February 8, 1996. (Filed as Exhibit No. 10.14
(a) to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.15(b) Employment Agreement between the Company and Wayne R.
Bailey dated February 8, 1996. (Filed as Exhibit No. 10.14 to
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
10.16 Management Continuity Agreement between the Company and
Raymond G. Meyers dated February 8, 1996. (Filed as Exhibit
No. 10.15 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.17 1998 Management Incentive Compensation Plan of the Company.
(Filed as Exhibit No. 10.17 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1997, Commission File
Number 1-8007, and incorporated herein by reference.)
10.18 Continuing Compensation Plan for Retired Directors. (Filed
as Exhibit No. 10.17 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.19 Non-Employee Directors' Deferred Compensation Plan. (Filed
as Exhibit No.10.18 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.20 Credit Agreement among Fremont General Corporation, Various
Lending Institutions and the Chase Manhattan Bank, N.A., As
Agent dated August 1, 1997. (Filed as Exhibit No. 10.20 to
Quarterly Report on Form 10-Q, for the period ended September
30, 1997, Commission File Number 1-8007, and incorporated
herein by reference).
10.21 Credit Agreement $15,000,000 by and among Merrill Lynch Trust
Company of California as trustee for the Fremont General
Corporation Employee Stock Ownership Trust. The Plan Committee
(hereinafter described) on behalf of the Fremont General
Corporation Employee Stock Ownership Plan, Fremont General
Corporation, and First Interstate Bank of California August
10, 1995. (Filed as Exhibit No. (10)(viii) to Quarterly Report
on Form 10-Q for the period ended September 30, 1995, and
incorporated herein by reference.)
27 Financial Data Schedule
(b) REPORT ON FORM 8-K. None filed during the quarter ended June 30, 1998.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FREMONT GENERAL CORPORATION
Date: August 13, 1998 /s/ LOUIS J. RAMPINO
----------------------------
Louis J. Rampino, President,
Chief Operating Officer and Director
Date: August 13, 1998 /s/ JOHN A. DONALDSON
-----------------------------
John A. Donaldson, Senior Vice
President, Controller and Chief
Accounting Officer
24
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
------------ -------------------------------------------------------------- -------------
<C> <S> <C>
2.1 Stock Purchase Agreement by and among Talegen Holdings, Inc.,
Fremont Indemnity Company and Fremont General Corporation
dated as of May 16, 1997 including exhibits thereto. (Filed as
Exhibit No. 2.1 to Current Report on Form 8-K, as of August 1,
1997, Commission File Number 1-8007, and incorporated herein
by reference.)
2.2 Tax Allocation and Indemnification Agreement, dated as of May
16, 1997 by and among Xerox Financial Services, Inc., Talegen
Holdings, Inc., Industrial Indemnity Holdings, Inc., Fremont
General Corporation, and Fremont Indemnity Corporation, a
California corporation. (Filed as Exhibit No. 2.2 to Current
Report on Form 8-K, as of August 1, 1997, Commission File
Number 1-8007, and incorporated herein by reference.)
3.1 Restated Articles of Incorporation of Fremont General
Corporation.
3.2 Amended and Restated By-Laws of Fremont General Corporation.
(Filed as Exhibit No. 3.3 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
4.1 Form of Stock Certificate for Common Stock of the Registrant.
(Filed as Exhibit No. (1) Form 8-A filed on March 17, 1993,
Commission File Number 1-8007, and incorporated herein by
reference.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013
between the Registrant and Bankers Trust Company. (Filed as
Exhibit No. 4.4 to Registration Statement on Form S-3 filed on
October 1, 1993, and incorporated herein by reference.)
4.3 Indenture among the Registrant, the Trust and First Interstate
Bank of California, a California banking corporation, as
trustee. (Filed as Exhibit No. 4.3 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1995, Commission
File Number 1-8007, and incorporated herein by reference.)
4.4 Amended and Restated Declaration of Trust among the
Registrant, the Regular Trustees, The Chase Manhattan Bank
(USA), a Delaware banking corporation, as Delaware trustee,
and The Chase Manhattan Bank, N.A., a national banking
association, as Institutional Trustee. (Filed as Exhibit No.
4.5 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.5 Preferred Securities Guarantee Agreement between the
Registrant and The Chase Manhattan Bank, N.A., a national
banking association, as Preferred Guarantee Trustee. (Filed as
Exhibit No. 4.6 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
4.6 Common Securities Guarantee Agreement by the Registrant.
(Filed as Exhibit No. 4.7 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission
File Number 1-8007, and incorporated herein by reference.)
4.7 Form of Preferred Securities. (Included in Exhibit 4.5).
(Filed as Exhibit No 4.8 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission
File Number 1-8007, and incorporated herein by reference.)
4.8 Form of 9% Junior Subordinated Debenture. (Included in Exhibit
4.3). (Filed as Exhibit No. 4.9 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
10.1(a) Fremont General Corporation Employee Stock Ownership Plan
as amended. (Filed as Exhibit No. 10.1 to Annual Report on
Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by
reference.)
10.1(b) Amendment Number Two to the Fremont General Corporation
Employee Stock Ownership Plan. (Filed as Exhibit No. 10.1 (b)
to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1997, Commission File Number 1-8007, and
incorporated herein by reference.)
10.2 Amended and Restated Trust Agreement for Fremont General
Corporation Employee Stock Ownership Plan. (Filed as Exhibit
No. 10.2 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.3(a) Fremont General Corporation and Affiliated Companies
Investment Incentive Plan. (Filed as Exhibit No. 10.3 to
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
10.3(b) Amendments Number One, Two and Three to the Fremont General
Corporation and Affiliated Companies Investment Incentive
Plan. (Filed as Exhibit No. 10.3 (b) to Quarterly Report on
Form 10-Q, for the period ended September 30, 1997,Commission
File Number 1-8007, and incorporated herein by reference.)
10.3(c) Amendment Number Four to the Fremont General Corporation
and Affiliated Companies Investment Incentive Plan. (Filed as
Exhibit No. 10.3 (c) to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1997, Commission File Number
1-8007, and incorporated herein by reference.)
10.4(a) Trust Agreement for Investment Incentive Plan. (Filed as
Exhibit No. (10)(xi) to Annual Report on Form 10-K, for the
Fiscal Year Ended December 31, 1993, Commission File Number
1-8007, and incorporated herein by reference.)
10.4(b) Amendment to Trust Agreement for Investment Incentive Plan.
(Filed as Exhibit No. 10.4 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
10.5(a) Supplemental Retirement Plan of the Company, as restated
January 1, 1997. (Filed as Exhibit No. 10.5 to Quarterly
Report on Form 10-Q, for the period ended September 30, 1997,
Commission File Number 1-8007, and incorporated herein by
reference.)
10.5(b) Amendment Number One to the Fremont General Corporation
Supplemental Retirement Plan of the Company. (Filed as Exhibit
No. 10.5(b) to Quarterly Report on Form 10-Q for the period
ended March 31, 1998, Commission File Number 1-8007, and
incorporated herein by reference.)
10.6 Trust Agreement for Supplemental Retirement Plan of the
Company and the Senior Supplemental Retirement Plan of The
Company, as amended. (Filed as Exhibit No. 10.6 to Annual
Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein
by reference.)
10.7 Senior Supplemental Retirement Plan, as restated January 1,
1997. (Filed as Exhibit No. 10.7 to Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission File
Number 1-8007, and incorporated herein
by reference).
10.8(a) Excess Benefit Plan of the Company. (Filed as Exhibit No.
(10)(vi) to Annual Report on Form 10-K, for the Fiscal Year
Ended December 31, 1993, Commission File Number 1-8007, and
incorporated herein by reference.)
10.8(b) Amendment to Excess Benefit Plan of the Company. (Filed as
Exhibit No. 10.8 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
10.8(c) Trust Agreement for Excess Benefit Plan. (Filed as Exhibit
No. 10.8 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.9 Amended Non-Qualified Stock Option Plan of 1989 and related
agreements of the Company. (Filed as Exhibit No. 10.9 to
Annual Report on Form 10-K, for the fiscal year ended December
31, 1996, Commission File Number 1-8007, and incorporated
herein by reference.)
10.10 1997 Stock Plan and related agreements. (Filed as Exhibit No.
10.10 to Quarterly Report on Form 10-Q, for the period ended
June 30, 1997, Commission File Number 1-8007, and incorporated
herein by reference.)
10.11(a) Long-Term Incentive Compensation Plan of the Company -
Senior Executive Plan. (Filed as Exhibit No. 10.10 (a) on Form
10-Q for the period ended September 30, 1996, Commission File
Number 1-8007, and incorporated herein by reference.)
10.11(b) Long-Term Incentive Compensation Plan of the Company
(Filed as Exhibit No. 10.10 (b) on Form 10-Q for the period
ended September 30, 1996, Commission File Number 1-8007, and
incorporated herein by reference.)
10.12 1995 Restricted Stock Award Plan as amended and forms
of agreement thereunder. (Filed as Exhibit No. 4.1 to
Registration Statement on Form S-8/S-3 File No. 333-17525
which was filed on December 9, 1997, and incorporated
herein by reference.)
10.13 Fremont General Corporation Employee Benefits Trust Agreement
("Grantor Trust") dated September 7, 1995 between the Company
and Merrill Lynch Trust Company of California. (Filed as
Exhibit No. 10.12 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.14(a) Employment Agreement between the Company and James A.
McIntyre dated January 1, 1994. (Filed as Exhibit No. (10)(i)
to Quarterly Report on Form 10-Q for the period ended March
31, 1994, Commission File Number 1-8007, and incorporated
herein by reference.)
10.14(b) First Amendment to Employment Agreement between the
Company and James A. McIntyre dated August 1, 1996. (Filed as
Exhibit No. 10.10 to Quarterly Report on Form 10-Q, for the
period ended June 30, 1997, Commission File Number 1-8007, and
incorporated herein by reference.)
10.14(c) Second Amendment to Employment Agreement between the
Company and James A. McIntyre dated August 8, 1997. (Filed as
Exhibit No. 10.14 (c) to Quarterly Report on Form 10-Q, for
the period ended September 30, 1997, Commission File Number
1-8007, and incorporated herein by reference.)
10.15(a) Employment Agreement between the Company and Louis J.
Rampino dated February 8, 1996. (Filed as Exhibit No. 10.14
(a) to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.15(b) Employment Agreement between the Company and Wayne R.
Bailey dated February 8, 1996. (Filed as Exhibit No. 10.14 to
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
10.16 Management Continuity Agreement between the Company and
Raymond G. Meyers dated February 8, 1996. (Filed as Exhibit
No. 10.15 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.17 1998 Management Incentive Compensation Plan of the Company.
(Filed as Exhibit No. 10.17 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1997, Commission File
Number 1-8007, and incorporated herein by reference.)
10.18 Continuing Compensation Plan for Retired Directors. (Filed
as Exhibit No. 10.17 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.19 Non-Employee Directors' Deferred Compensation Plan. (Filed
as Exhibit No.10.18 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.20 Credit Agreement among Fremont General Corporation, Various
Lending Institutions and the Chase Manhattan Bank, N.A., As
Agent dated August 1, 1997. (Filed as Exhibit No. 10.20 to
Quarterly Report on Form 10-Q, for the period ended September
30, 1997, Commission File Number 1-8007, and incorporated
herein by reference).
10.21 Credit Agreement $15,000,000 by and among Merrill Lynch Trust
Company of California as trustee for the Fremont General
Corporation Employee Stock Ownership Trust. The Plan Committee
(hereinafter described) on behalf of the Fremont General
Corporation Employee Stock Ownership Plan, Fremont General
Corporation, and First Interstate Bank of California August
10, 1995. (Filed as Exhibit No. (10)(viii) to Quarterly Report
on Form 10-Q for the period ended September 30, 1995, and
incorporated herein by reference.)
27 Financial Data Schedule
</TABLE>
EXHIBIT 3.1
RESTATED
ARTICLES OF INCORPORATION
OF
FREMONT GENERAL CORPORATION
FIRST: that the name of said corporation is:
FREMONT GENERAL CORPORATION
SECOND: That, the place where its principal office is to be located is
303 East Proctor Street, Carson City, Nevada 89701, but this corporation may
maintain an office or offices in such other places as may be from time to time
fixed by its board of directors or as may be fixed by the By-Laws of the
corporation.
THIRD: That the purposes for which said corporation is formed are:
1. To participate in the business of life, fire, casualty and other
forms of insurance and in similar types of business through other companies
doing an insurance business as insurers or reinsurers or controlling companies
so engaged, or through companies doing similar types of business; to exercise
control over such companies, or any of them, through stock ownership,
participation in management or otherwise; to acquire through purchase, exchange,
gift, devise, contract, concession, or otherwise, the stocks, bonds, debentures
and other interests in any company or companies doing business as insurers or
reinsurers or controlling companies so engaged, in any company or companies
doing similar types of business, or in any other company, companies or other
businesses, and to hold, own, and dispose of the same, and to guarantee the
obligations of such companies, to contract with any company or companies to
furnish managerial or other services to them, at a profit, at cost without
charge, or otherwise, as the corporation's interest shall appear, in furtherance
of the corporation's business, to participate actively, through the
participation of its officers, directors or employees, or otherwise in the
management or administration of any company or companies in which it is
interested; to found companies to be engaged in doing an insurance business as
insurer or reinsurer, or in doing a similar business, and to develop them and
assist in their development; to finance, and assist in the financing of such
companies, and to facilitate their operations in every lawful fashion; provided
(i) that the corporation shall itself be an insurer and shall not itself have
the power to make, write, insure or reinsure contracts or policies of insurance
on its own account; nor to make, as guarantor or surety, any contract of
guaranty or suretyship not merely incidental to its other lawful business or
activities, and (ii) that the corporation shall not purchase, subscribe to, or
acquire any shares of stock in any insurance company organized under the laws of
the State of Nevada without the prior written consent or approval of the
Insurance Commissioner or the State of Nevada.
<PAGE>
2. To manufacture, buy, sell, assemble, distribute, and to otherwise
acquire, or to own, hold, use, sell, assign, transfer, exchange, lease, license
or otherwise dispose of, and to invest, trade, deal in and with goods, wares,
merchandise, building materials, supplies and all other property of every class
and description.
3. To acquire by purchase, lease, gift, devise or otherwise and own,
hold, use, lease, either as lessor or lessee, rent, sublet, grant, sell,
exchange, subdivide, mortgage, deed in trust, manage, improve, cultivate,
develop, maintain, construct, operate, and generally deal in any and all real
estate, improved or unimproved, stores, office buildings, dwelling houses,
boarding houses, apartment houses, hotels, business blocks, garages, warehouses,
manufacturing plants, and other buildings of any kind or description, and other
buildings of any kind or description, and any and all other property of every
kind or description, real, personal and mixed, and any interest or right
therein, including water and water rights, wheresoever situated, either in
Nevada, other states of the United States, the District of Columbia, territories
and colonies of the United States and foreign countries.
4. To purchase, acquire, take, hold, own, use, and enjoy, and to sell,
lease, transfer, pledge, mortgage, convey, grant, assign or otherwise dispose
of, and generally to invest, trade, deal in and with oil royalties, mineral
rights of all kinds, oil, gas and mineral leases, and all rights and interests
therein, and in general products of the earth and deposits both subsoil and
surface, of every nature and description.
5. To enter into, make, perform, and carry out contracts of every kind
for any lawful purpose without limit as to amount, with any person, firm,
association or corporation, municipality, county, parish, state, territory,
government (foreign or domestic) or other municipal or governmental subdivision.
6. To become a partner (either general or limited, or both) and to enter
into agreements of partnership with one or more other persons or corporations,
for the purpose of carrying on any business which this corporation may deem
proper or convenience in connection with any of the purposes herein set forth or
otherwise, or which may be calculated, directly or indirectly, to promote the
interest of this corporation or to enhance the value of its property or
business.
7. To acquire, by purchase or otherwise, the goodwill, business,
property rights, franchise and assets of every kind, with or without undertaking
either wholly or in part, the liabilities of any person, firm, association or
corporation; and to acquire any property or business as a going concern or
otherwise, (i) by purchase of the assets thereof wholly or in part, (ii) by
acquisition of the shares or any part thereof, or (iii) in any other manner; and
to pay for the same in cash or in the shares or bonds or other evidence of
indebtedness of this corporation, or otherwise; to hold, maintain and operate,
or in any manner dispose of the whole or any part of the goodwill, business,
rights and property so acquired, and to conduct in any lawful manner, the whole
or any part of any business so acquired; and to exercise all the powers
necessary or convenient in and about the management of such business.
-2-
<PAGE>
8. To take, purchase and otherwise acquire, own, hold, use, sell,
assign, transfer, exchange, lease, mortgage, convey in trust, pledge,
hypothecate, grant licenses in respect of and otherwise dispose of letters
patent of the United States or any foreign country, patent rights, licenses and
privileges, inventions, improvements and processes, copyrights, trade-marks, and
trade names, and government state, territorial, county and municipal grants and
concessions of every character which this corporation may deem advantageous in
the prosecution of its business or in the maintenance, operation, development or
extension of its properties.
9. From time to time to apply for, purchase, acquire by assignment,
transfer or otherwise exercise, carry out and enjoy any benefit, right,
privilege, prerogative or power conferred by, acquired under or granted by any
statute, ordinance, order, license, power, authority, franchise, commission,
right or privilege which any government or authority or governmental agency or
corporation or other public body may be empowered to enact, make or grant, to
pay for, and in, and contribute toward carrying the same into effect; and to
appropriate any of this corporation's shares, bond and/or assets to defray the
costs, charges and expenses thereof.
10. To subscribe or cause to be subscribed for, and to take, purchase,
and otherwise acquire, own, hold, use, sell, assign, transfer, exchange,
distribute and otherwise dispose of, the whole or any part of the shares of the
capital stock, bonds, coupons, mortgages, deeds of trust, debentures,
securities, obligations, evidences of indebtedness, notes, goodwill, rights,
assets and property of any and every kind, or any part thereof, of any other
corporation or corporations, association or associations, firm or firms, or
person or persons, together with the shares, rights, units or interest in or in
respect of any trust estate, now or hereafter existing, and whether created by
the laws of the State of Nevada or any other state, territory or country; and to
operate, manage and control such properties, or any of them, either in the name
of such other corporation or corporations or in the name of this corporation,
and, while the owner of any of said shares of capital stock, to exercise all of
the rights, powers and privileges of ownership of every kind and description,
including the right to vote thereon, with power to designate some person or
persons for that purpose from time to time, and to the same extent as natural
persons might or could do.
11. To promote or to aid in any manner, financially or otherwise, any
person, firm, corporation or association of which any shares of stock, bonds,
notes, debentures or other securities or evidences of indebtedness are held
directly or indirectly by this corporation; and for this purpose to guarantee
the contracts, dividends, shares, bonds, debentures, notes and other obligations
of such other persons, firms, corporations or associations; and to do any other
acts or things designed to protect, preserve, improve or enhance the value of
such shares, bonds, notes, debentures or other securities or evidences of
indebtedness.
12. To borrow and lend money, but nothing herein contained shall be
construed as authorizing the business of banking, or as including the business
purposes of a commercial bank, savings bank or trust company.
-3-
<PAGE>
13. To issue bonds, notes, debentures or other obligations of this
corporation from time to time for any of the objects or purposes of this
corporation, and to secure the same by mortgage, deed of trust, pledge, or
otherwise, or to issue the same unsecured; to purchase or otherwise acquire its
own bonds, debentures or other evidences of its indebtedness or obligations; to
purchase, hold, sell and transfer the shares of its own capital stock to the
extent and in the manner provided by the laws of the State of Nevada as the same
are now in force or may hereafter be amended.
14. To conduct and carry on, directly or indirectly, research,
development and promotional or experimental activities, and to promote or aid
financially or otherwise, any person, firm or corporation engaged in such
activities, or any of them.
15. To carry on any business whatsoever, either as principal, agent or
partner, which this corporation may deem proper or convenient in connection with
any of the foregoing purposes or otherwise, or which may be calculated directly
or indirectly to promote the interests of this corporation or to enhance the
value of its property or business; and to conduct its business in this state, in
other states, in the District of Columbia, in the territories and colonies of
the United States, and in foreign countries.
FOURTH: This corporation is authorized to issue two classes of shares of
stock, to be designated, respectively, "preferred stock" and "common stock"; the
total number of shares shall be 32,000,000; the total number of shares of
preferred stock shall be 2,000,000, with a par value of $.01 per share and any
of such shares of preferred stock may be with full or limited voting powers or
without voting powers and with such designations, preferences and relative,
participating, optional or other special rights, or qualification, limitations
or restrictions thereof, as shall be stated and expressed in any resolution or
resolutions providing for the issue of such preferred stock adopted by the Board
of Directors of this corporation pursuant to the authority expressly vested in
it by this Article Fourth; the Board of Directors of this corporation is hereby
authorized and directed, from time to time, to determine whether preferred stock
may be issued, with full or limited voting powers or without voting powers and
with such designations, preferences and relative, participating, optional or
other special rights, or qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions providing for the
issuance of such preferred stock adopted by the Board of Directors pursuant to
the authority expressly vested in it by the provisions of this Article FOURTH;
any preferred stock may be made subject to redemption at such time or times and
at such price or prices, and may be issued in such series, with such
designations, preferences, and relative, participating, optional or other
special rights, qualifications, limitations or restrictions thereof as shall be
stated and expressed in the resolution or resolutions providing for the issuance
of such preferred stock adopted by the Board of Directors of this corporation as
hereinabove provided; the holders of preferred stock of any class or series
thereof shall be entitled to receive dividends at such rates, on such conditions
and at such times as shall be expressed in the resolution or resolutions
providing for the issuance of such preferred stock adopted by the Board of
Directors of this corporation as hereinabove provided, payable in preference to,
or in such relation to, the dividends payable on any other class or classes of
stock and cumulative or non-cumulative as shall so be expressed; the holders of
preferred stock or any class or series thereof shall be entitled to such rights
-4-
<PAGE>
upon the dissolution of, or upon any distribution of the assets of, this
corporation as shall be stated and expressed in the resolution or resolutions
providing for the issue of such preferred stock adopted by the Board of
Directors of this corporation as hereinabove provided; any preferred stock or
any class or series thereof, if there are other classes or series, may be made
convertible into, or exchangeable for, shares of any other class or classes or
of any other series of the same or any class or classes of stock of this
corporation at such price or prices or at such rates of exchange and with such
adjustments as shall be stated and expressed in the resolution or resolutions
providing for the issuance of such preferred stock adopted by the Board of
Directors as hereinabove provided; the total number of shares of common stock
shall be 30,000,000 and the par value of each share of common stock shall be
$1.00 per share; the common stock of this corporation shall be non-assessable
and shall be fully paid when issued;
FIFTH: The members of the governing board shall be styled "Directors" and
their number shall be three (3), and, in this respect, the Board of Directors of
this corporation is expressly vested with the power to increase or decrease the
number of such directors within the limits provided by law, except that no
decrease in the number of such directors shall prevent any incumbent director
from serving the balance of the term for which he was duly elected or appointed
unless he is removed from office in accordance with law. All vacancies including
those caused by an increase in the number of directors may be filled by a
majority of the remaining directors, though less than a quorum. Directors so
appointed to fill any vacancy shall serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Until further
action of the Board of Directors as herein provided, the governing board of this
company shall consist of three (3) directors.
SIXTH: The capital stock of this corporation, after the amount of
subscription price or par value, whichever shall be the greater, has been paid,
shall not be subject to assessment to pay the debts of the corporation, and no
stock issued as fully paid up shall ever be assessable or assessed nor shall the
private property of stockholders, directors or officers of this corporation be
subject to the payment of any corporate debts to any extent whatsoever and in
this particular the Articles of Incorporation shall not be subject to amendment.
SEVENTH: This corporation shall have perpetual existence.
EIGHTH: All holders of common stock issued by this corporation shall have
equal voting rights per share of common stock.
NINTH: This corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation with the
exception of Article Sixth, in the manner now or hereafter prescribed by the
laws of the State of Nevada, and all rights conferred upon officers, directors
and stockholders herein are granted subject to this reservation.
TENTH: No stockholder of this corporation shall have the right to purchase
a pro rata share of any new capital of this corporation sold for cash, or any
other preemptive or preferential right to subscribe for, purchase or receive any
additional shares of capital stock of this corporation or
-5-
<PAGE>
rights or options to purchase additional shares of capital stock of this
corporation or securities convertible into or carrying rights or options to
purchase additional shares of the capital stock of this corporation.
ELEVENTH: The affirmative vote of the holders of not less than eighty
percent (80%) of the total voting power of all outstanding shares of voting
stock of this corporation shall be required for the approval of any proposal
that (1) this corporation merge or consolidate with any other corporation or any
affiliate of such other corporation and if such other corporation and its
affiliates singly or in the aggregate are directly or indirectly the beneficial
owners of more than five percent (5%) of the outstanding shares of the common
stock of this corporation (such other corporation and any affiliate thereof
being herein referred to as a "Related Corporation"), or that (2) this
corporation sell or exchange all of its assets or business to or with such
Related Corporation, or that (3) this corporation issue or deliver any stock or
other securities of its issue in exchange or payment for any properties or
assets of such Related Corporation or securities issued by such Related
Corporation, or in a merger of any affiliate of this corporation with or into
such Related Corporation or any of its affiliates, and to effect such
transaction the approval of stockholders of this corporation is required by law
or by any agreement between this corporation and any national securities
exchange; provided, however, that the foregoing shall not apply to any such
merger, consolidation, sale or exchange, or issuance or delivery of stock or
other securities which was approved by resolution of the Board of Directors of
this corporation prior to the acquisition of the beneficial ownership of more
than five percent (5%) of the outstanding common stock of this corporation by
such Related Corporation and its affiliates, nor shall it apply to any such
transaction solely between this corporation and another corporation, fifty
percent (50%) or more of the voting stock of which is owned by this corporation.
For the purpose hereof, an "affiliate" is any person (including a corporation,
partnership, trust, estate or individual) who directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, the person specified; "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of management and
policies of a person, whether through the ownership of voting securities, by
contract, or otherwise; and in computing the percentage of outstanding common
stock beneficially owned by any person, the shares outstanding and the shares
shall be determined as of the record date fixed to determine the stockholders
entitled to vote or express consent with respect to such proposal. The
stockholder vote, if any, required for mergers, consolidations, sales or
exchanges of assets or issuances of stock or other securities not expressly
provided for in this Article, shall be such as may be required by applicable
law.
TWELFTH: The provisions set forth in this Article TWELFTH and in Article
ELEVENTH (dealing with the eighty percent (80%) vote of stockholders required
for certain mergers and other transactions) may not be repealed or amended in
any respect unless such repeal or amendment is approved by the affirmative vote
of not less than eighty percent (80%) of the total voting power of all
outstanding shares of voting stock of this corporation.
THIRTEENTH: No director of this corporation shall have personal liability
to the corporation or any of its stockholders for monetary damages for breach
of fiduciary duty as a director. The foregoing provision shall not eliminate
or limit the liability of a director, (i) for any
-6-
<PAGE>
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct, fraud or a knowing violation of law, (iii) for the payment of
dividends in violation of Nevada Revised Statutes, or (iv) for any transaction
from which the director derived an improper personal benefit. In the event that
the law of the State of Nevada is amended after approval of this Article by the
stockholders so as to authorize corporate action further eliminating or limiting
the liability of the directors, the liability of a director of this Corporation
shall thereupon be eliminated or limited to the fullest extent permitted by the
General Corporation Law of the State of Nevada, as so amended from time to time.
The provisions of this Article shall not be deemed to limit or preclude
indemnification of a director by the corporation for any liability of a director
which has not been eliminated by the provisions of this Article.
FOURTEENTH: The names and addresses of the Board of Directors shall be:
James A. McIntyre 2020 Santa Monica Blvd.
Santa Monica, California 90404
Dr. Houston I. Flournoy 2020 Santa Monica Blvd.
Santa Monica, California 90404
C. Douglas Kranwinkle 2020 Santa Monica Blvd.
Santa Monica, California 90404
David W. Morrisroe 2020 Santa Monica Blvd.
Santa Monica, California 90404
Louis J. Rampino 2020 Santa Monica Blvd.
Santa Monica, California 90404
Dickinson C. Ross 2020 Santa Monica Blvd.
Santa Monica, California 90404
Dr. Kenneth L. Trefftzs 2020 Santa Monica Blvd.
Santa Monica, California 90404
-7-
<PAGE>
CERTIFICATE OF AMENDMENT OF
THE ARTICLES OF INCORPORATION OF
FREMONT GENERAL CORPORATION
Louis J. Rampino and Alan W. Faigin hereby certify that:
1. They are the President and the Assistant Secretary, respectively, of
Fremont General Corporation, a Nevada corporation (the "Corporation").
2. Article FOURTH of the Articles of Incorporation of the Corporation is
amended in its entirety to read as follows:
"FOURTH: This corporation is authorized to issue two classes of shares of
stock, to be designated, respectively, "preferred stock" and "common
stock"; the total number of shares shall be 47,000,000; the total number of
shares of preferred stock shall be 2,000,000, with a par value of $.01 per
share and any of such shares of preferred stock may be with full or limited
voting powers or without voting powers and with such designations,
preferences and relative, participating, optional or other special rights,
or qualification, limitations or restrictions thereof, as shall be stated
and expressed in any resolution or resolutions providing for the issue of
such preferred stock adopted by the Board of Directors of this corporation
pursuant to the authority expressly vested in it by this Article FOURTH;
the Board of Directors of this corporation is hereby authorized and
directed, from time to time, to determine whether preferred stock may be
issued, with full or limited voting powers or without voting powers and
with such designations, preferences and relative, participating, optional
or other special rights, or qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
providing for the issuance of such preferred stock adopted by the Board of
Directors pursuant to the authority expressly vested in it by the
provisions of this Article FOURTH; any preferred stock may be made subject
to redemption at such time or times and at such price or prices, and may be
issued in such series, with such designations, preferences, and relative,
participating, optional or other special rights, qualifications,
limitations or restrictions thereof as shall be stated and expressed in the
resolution or resolutions providing for the issuance of such preferred
stock adopted by the Board of Directors of this corporation as hereinabove
provided; the holders of preferred stock of any class or series thereof
shall be entitled to receive dividends at such rates, on such conditions
and at such times as shall be expressed in the resolution or resolutions
providing for the issuance of such preferred stock adopted by the Board of
Directors of this corporation as hereinabove provided, payable in
preference to, or in such relation to, the dividends payable on any other
class or classes of stock and cumulative or non-cumulative as shall so be
expressed; the holders of preferred stock or any class or series thereof
shall be entitled to such rights upon the dissolution of, or upon any
distribution of the assets of, this corporation as shall be stated and
expressed in the resolution or resolutions providing for the issue of such
preferred stock adopted by the Board of Directors of this corporation as
hereinabove provided; any preferred stock or any class or series thereof,
if there are other classes or series, may be made convertible into, or
-1-
<PAGE>
exchangeable for, shares of any other class or classes or of any
other series of the same or any class or classes of stock of this
corporation at such price or prices or at such rates of exchange and
with such adjustments as shall be stated and expressed in the
resolution or resolutions providing for the issuance of such
preferred stock adopted by the Board of Directors as hereinabove
provided; the total number of shares of common stock shall be
45,000,000 and the par value of each share of common stock shall be
$1.00 per share; the common stock of this corporation shall be
non-assessable and shall be fully paid when issued.
Upon the effective time of the amendment of this Article FOURTH that
first includes authorization to issue not less than 45,000,000 shares
of common stock as hereinabove set forth, each two (2) issued and
outstanding shares of common stock, $1.00 par value per share, shall
be thereby and thereupon split up and become three (3) shares of
common stock, $1.00 par value per share; provided, however that no
fractional shares or interests shall be issued and cash in lieu
thereof (in an amount based on the closing price of the corporation's
common stock on January 8, 1996, as reported on the New York Stock
Exchange) shall be paid. The effective time of such amendment shall
be the close of business on January 8, 1996. Certificates
representing the additional shares created by the split and any cash
in lieu of fractional interests in shares will be issued and
distributed on February 7, 1996."
3. By unanimous written consent of the Board of Directors of the
Corporation on December 4, 1995, the foregoing amendment to the
Articles of Incorporation was duly adopted.
4. Pursuant to Section 78.207 of the General Corporation Law of Nevada,
the foregoing amendment did not require approval by the stockholders
of the Corporation.
-2-
<PAGE>
IN WITNESS WHEREOF, this Certificate of Amendment of Articles of
Incorporation of Fremont General Corporation has been executed this 22nd day of
December, 1995.
/s/ Louis Rampino
- -------------------------------------
Louis J. Rampino, President
/s/ Alan W. Faigin
- -------------------------------------
Alan W. Faigin, Assistant Secretary
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On December 22, 1995, before me, Brenda Dee Oster, a Notary Public in
and for said State, personally appeared Louis J. Rampino, President and Alan W.
Faigin, Assistant Secretary, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the persons whose names are subscribed to
the within instrument and acknowledged to me that they executed the same in
their authorized capacities and that by their signatures on the instrument the
persons, or the entity upon behalf of which the persons acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Brenda Dee Oster
--------------------------------------
Signature of Notary
<PAGE>
CERTIFICATE OF AMENDMENT OF
THE RESTATED ARTICLES OF INCORPORATION OF
FREMONT GENERAL CORORATION
Louis J. Rampino and Marilyn I. Hauge hereby certify that:
1. They are the President and the Assistant
Secretary, respectively, of Fremont General
Corporation, a Nevada Corporation (the
"Corporation").
2. Article Fourth of the Articles of Incorporation of the Corporation is amended
in its entirety to read as follows:
"FOURTH: This corporation is authorized to issue two classes of stock, to
be designated, respectively, "preferred stock" and "common stock"; the
total number of shares shall be 77,000,000; the total number of shares of
preferred stock shall be 2,000,000, with a par value of $.01 per share and
any of such shares of preferred stock may be with full or limited voting
powers or without voting powers and with such designations, preferences
and relative, participating, optional or other special rights, or
qualification, limitations or restrictions thereof, as shall be stated and
expressed in any resolution or resolutions providing for the issue of such
preferred stock adopted by the Board of Directors of this corporation
pursuant to the authority expressly vested in it by this Article FOURTH;
the Board of Directors of this corporation is hereby authorized and
directed, from time to time, to determine whether preferred stock may be
issued, with full or limited voting powers or without voting powers and
with such designations, preferences and relative, participating, optional
or other special rights, or qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
providing for the issuance of such preferred stock adopted by the Board of
Directors pursuant to the authority expressly vested in it by the
provisions of this Article FOURTH; any preferred stock may be made subject
to redemption at such time or times and at such price or prices, and may
be issued in such series, with such designations, preferences, and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof as shall be stated and expressed in
the resolution or resolutions providing for the issuance of such preferred
stock adopted by the Board of Directors of this corporation as hereinabove
provided; the holders of preferred stock of any class or series thereof
shall be entitled to receive dividends at such rates, on such conditions
and at such times as shall be expressed in the resolution or resolutions
providing for the issuance of such preferred stock adopted by the Board of
Directors of this corporation as hereinabove provided, payable in
preference to, or in such relation to, the dividends payable on any other
class or classes of stock and cumulative or non-cumulative as shall so be
expressed; the holders of preferred stock or any class or series thereof
shall be entitled to such rights upon the dissolution of, or upon any
distribution of the asses of, this corporation as shall be stated and
expressed in the resolution or resolutions providing for the issue of such
preferred stock adopted by the Board of Directors of this corporation as
hereinabove provided; any preferred stock or any class or series thereof,
if there are other classes or series, may be made convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any class or classes of stock of this corporation at
such price or prices or
Page 1
<PAGE>
at such rates of exchange and with such adjustments as shall be stated and
expressed in the resolution or resolutions providing for the issuance of such
preferred stock adopted by the Board of Directors as hereinabove provided; the
total number of shares of common stock shall be 75,000,000 and the par value of
each share of common stock shall be $1.00 per share; the common stock of this
corporation shall be non-assessable and shall be fully paid when issued.
Upon the effective time of the amendment of this Article FOURTH that first
includes authorization to issue not less than 75,000,000 shares of common
stock as hereinabove set forth, shall be the close of business of June
3, 1998."
3. The Board of Directors of the corporation unanimously approved the foregoing
amendment to the Restated Articles of Incorporation by resolutions duly adopted
on February 12, 1998.
4. The requisite majority of the stockholders of said corporation have adopted
said amendment by resolution at their annual meeting held at Santa Monica,
California on May 19, 1998.
5. The number of shares of common stock of the Corporation that voted
affirmatively for the adoption of said amendment and resolution was 31,095,528,
and that the total number of shares entitled to vote on said amendment and
resolution was 34,766,686 shares of common stock.
IN WITNESS WHEREOF, this Certificate of Amendment of the Restated Articles
of Incorporation of Fremont General Corporation has been executed this 3 day
of June, 1998.
/s/ LOUIS J. RAMPINO /s/ MARILYN I. HAUGE
- ---------------------------- -------------------------------------
Louis J. Rampino, President Marilyn I. Hauge, Assistant Secretary
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
On June 4, 1998, before me, Belen Armer, a Notary Public in and for said
State, personally appeared Louis J. Rampino, President, and Marilyn I. Hauge,
Assistant Secretary, personally known to me to be the persons whose names are
subscribed to the within instrument and acknowledged to me that they executed
the same in their authorized capacities and that by their signatures on the
instrument the persons, or the entity upon behalf of which the persons acted,
executed this instrument.
WITNESS my hand and official seal.
/s/ BELEN ARMER
-----------------------------------
Signature of Notary
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000038984
<NAME> FREMONT GENERAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 1,677,797
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 434,539
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,587,560<F1>
<CASH> 104,367
<RECOVER-REINSURE> 22,147
<DEFERRED-ACQUISITION> 38,956
<TOTAL-ASSETS> 6,421,387
<POLICY-LOSSES> 2,277,697
<UNEARNED-PREMIUMS> 80,929
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 27,781
<NOTES-PAYABLE> 851,156
100,000
0
<COMMON> 34,855
<OTHER-SE> 861,422<F2>
<TOTAL-LIABILITY-AND-EQUITY> 6,421,387
273,530
<INVESTMENT-INCOME> 94,931
<INVESTMENT-GAINS> (924)
<OTHER-INCOME> 134,153<F3>
<BENEFITS> 173,489
<UNDERWRITING-AMORTIZATION> 58,353
<UNDERWRITING-OTHER> 29,507
<INCOME-PRETAX> 95,317
<INCOME-TAX> 31,082
<INCOME-CONTINUING> 64,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,235
<EPS-PRIMARY> 2.01<F4>
<EPS-DILUTED> 1.84<F5>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes Loans receivable, Short-term and Other investments.
<F2>Sum of Additional paid-in-capital, Retained earnings, Deferred Compensation
and Accumulated other comprehensive income.
<F3>Includes Loan interest and Other revenue.
<F4>Basic earnings per share
<F5>Diluted earnings per share
</FN>
</TABLE>
