<PAGE>
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from __________ to __________
Commission File Number 1-8007
FREMONT GENERAL CORPORATION
(Exact name of registrant as specified in this charter)
NEVADA 95-2815260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2020 Santa Monica Blvd.
Santa Monica, California 90404
(Address of principal executive offices)
(Zip Code)
(310) 315-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15 (d) of Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
SHARES OUTSTANDING
CLASS APRIL 30, 1999
- ------------------------------ ------------------
Common Stock, $1.00 par value 70,075,223
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<PAGE>
FREMONT GENERAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 ................... 3
Consolidated Statements of Income
Three Months Ended March 31, 1999 and 1998 ............. 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998 ............. 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 ....................... 9
Item 3. Quantitative and Qualitative Disclosure About
Market Risk ............................................... 23
PART II - OTHER INFORMATION
Items 1-5. Not applicable
Item 6. Exhibits and Reports on Form 8-K ............................ 24
Signature .............................................................. 30
2
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Securities available for sale at fair value:
Fixed maturity investments (cost:1999-$1,630,508; 1998-$1,597,585) ....... $ 1,666,595 $ 1,646,772
Non-redeemable preferred stock (cost:1999-$457,598; 1998-$489,714) ....... 464,378 500,376
------------ ------------
Total securities available for sale ................................... 2,130,973 2,147,148
Loans receivable ............................................................ 3,311,468 2,958,176
Loans held for sale ......................................................... 138,879 -
Short-term investments ...................................................... 254,121 222,719
Other investments ........................................................... 49,403 16,890
------------ ------------
TOTAL INVESTMENTS AND LOANS ........................................... 5,884,844 5,344,933
Cash ........................................................................ 61,931 79,875
Accrued investment income ................................................... 39,844 44,038
Premiums receivable and agents' balances .................................... 190,783 184,355
Reinsurance recoverable on paid losses ...................................... 20,269 15,801
Reinsurance recoverable on unpaid losses .................................... 902,475 829,002
Deferred policy acquisition costs ........................................... 52,662 44,996
Costs in excess of net assets acquired ...................................... 162,389 164,467
Deferred income taxes ....................................................... 132,271 145,410
Other assets ................................................................ 323,944 273,157
Assets held for discontinued operations ..................................... 241,907 243,578
------------ ------------
TOTAL ASSETS .......................................................... $ 8,013,319 $ 7,369,612
============ ============
LIABILITIES
Claims and policy liabilities:
Losses and loss adjustment expenses ...................................... $ 2,262,957 $ 2,298,118
Life insurance benefits and liabilities .................................. 132,684 136,973
Unearned premiums ........................................................ 144,335 119,774
Dividends to policyholders ............................................... 14,212 16,162
------------ ------------
TOTAL CLAIMS AND POLICY LIABILITIES ................................... 2,554,188 2,571,027
Reinsurance premiums payable and funds withheld ............................. 47,903 46,124
Other liabilities ........................................................... 265,518 277,938
Thrift deposits ............................................................. 2,438,038 2,134,839
Short-term debt ............................................................. 411,129 165,702
Long-term debt .............................................................. 1,019,357 913,006
Liabilities of discontinued operations ...................................... 208,393 210,064
------------ ------------
TOTAL LIABILITIES ..................................................... 6,944,526 6,318,700
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:150,000,000 shares;
issued and outstanding:(1999-70,056,000 and 1998-69,939,000) ............. 70,056 69,939
Additional paid-in capital .................................................. 307,683 308,369
Retained earnings ........................................................... 649,393 620,612
Deferred compensation ....................................................... (86,203) (86,910)
Accumulated other comprehensive income ...................................... 27,864 38,902
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ............................................ 968,793 950,912
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................ $ 8,013,319 $ 7,369,612
============ ============
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
MARCH 31,
1999 1998
--------- ---------
THOUSANDS OF DOLLARS)
<S> <C> <C>
REVENUES
Property and casualty premiums earned ...................................... $ 170,343 $ 154,162
Loan interest .............................................................. 77,549 51,026
Net investment income ...................................................... 45,320 46,978
Realized investment gains (losses) ......................................... 25 (458)
Other revenue .............................................................. 5,542 10,245
--------- ---------
Total Revenues ..................................................... 298,779 261,953
EXPENSES
Losses and loss adjustment expenses ........................................ 97,541 103,256
Policy acquisition costs ................................................... 43,122 25,715
Provision for loan losses .................................................. 4,126 2,387
Other operating costs and expenses ......................................... 45,843 46,494
Dividends to policyholders ................................................. 6,262 1,481
Interest expense ........................................................... 50,674 35,487
--------- ---------
Total Expenses ..................................................... 247,568 214,820
--------- ---------
Income before taxes ........................................................ 51,211 47,133
Income tax expense ......................................................... 16,900 15,481
--------- ---------
NET INCOME ........................................................ $ 34,311 $ 31,652
========= =========
PER SHARE DATA
Net income:
Basic ................................................................ $ 0.51 $ 0.50
Diluted .............................................................. 0.49 0.45
Cash dividends ............................................................ 0.08 0.075
Weighted average shares:
Basic ................................................................ 66,880 63,608
Diluted .............................................................. 69,821 70,051
See notes to consolidated financial statements on Form 10-Q.
</TABLE>
4
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income .................................................................. $ 34,311 $ 31,652
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 ......................... (10,591) (156)
Change in accrued investment income .................................... 4,195 9,621
Change in claims and policy liabilities ................................ (82,162) (75,743)
Amortization of policy acquisition costs ............................... 43,122 25,715
Policy acquisition costs deferred ...................................... (50,788) (26,548)
Provision for deferred income taxes .................................... 19,083 4,130
Provision for loan losses .............................................. 4,126 2,387
Provision for depreciation and amortization ............................ 10,618 9,368
Net amortization on fixed maturity investments ......................... (3,669) (10,940)
Realized investment (gains) losses ..................................... (25) 458
Change in other assets and liabilities ................................. (59,377) (5,593)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES .............................. (91,157) (35,649)
INVESTING ACTIVITIES
Securities available for sale:
Purchases of securities ................................................ (282,923) (172,246)
Sales of securities .................................................... 184,860 120,556
Securities matured or called ........................................... 100,950 141,021
Increase in short-term and other investments ................................ (63,915) (65,918)
Loan originations and bulk purchases funded ................................. (1,090,176) (399,185)
Receipts from repayments of loans and bulk sales of loans ................... 593,879 283,402
Purchase of property and equipment .......................................... (6,126) (5,989)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .............................. (563,451) (98,359)
FINANCING ACTIVITIES
Proceeds from short-term debt ............................................... 246,144 14,961
Repayments of short-term debt ............................................... (6,967) (800)
Proceeds from long-term debt ................................................ 435,237 30,000
Repayments of long-term debt ................................................ (321,285) (1,228)
Net increase in thrift deposits ............................................. 303,199 79,348
Annuity contract receipts ................................................... 88 144
Annuity contract withdrawals ................................................ (8,238) (10,124)
Dividends paid .............................................................. (5,521) (5,107)
Stock options exercised ..................................................... - 71
Net increase in deferred compensation plans ................................. (5,993) (4,837)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......................... 636,664 102,428
------------ ------------
DECREASE IN CASH ............................................................ (17,944) (31,580)
Cash at beginning of year ................................................... 79,875 64,987
------------ ------------
CASH AT MARCH 31, ........................................................... $ 61,931 $ 33,407
============ ============
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, 1998. Certain 1998 amounts have been
reclassified to conform to the 1999 presentation.
NOTE B - COMPREHENSIVE INCOME
The components of total comprehensive income are summarized in the
following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
-------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Net income .................................................................. $ 34,311 $ 31,652
Other comprehensive income:
Net unrealized gains (losses) on investments, net of tax:
Net change in unrealized gains (losses) during the period,
net of deferred income tax expense (benefit)
(1999 - $(5,076), 1998 - $1,243) .................................... (9,427) 2,308
Less: reclassification adjustment, net of tax
(1999 - $868, 1998 - $195 ) ......................................... (1,611) (361)
-------- --------
Other comprehensive income ........................................... (11,038) 1,947
-------- --------
Total comprehensive income .................................................. $ 23,273 $ 33,599
======== ========
</TABLE>
Reclassification adjustments avoid double counting items that are included
in comprehensive income and net income in different periods. The
reclassification adjustments for the three months ended March 31, 1999 and 1998
represent net unrealized gains included in accumulated other comprehensive
income at December 31, 1998 and 1997, respectively.
NOTE C - OPERATIONS BY REPORTABLE SEGMENT
The Company's businesses are managed within two reportable segments:
property and casualty insurance services and financial services. Additionally,
there are certain corporate revenues and expenses, comprised primarily of
investment income, interest expense and certain general and administrative
expenses, that the Company does not allocate to its segments.
6
<PAGE>
The following data at and for the three months ended March 31, 1999 and
1998 provide certain information necessary for reportable segment disclosure, as
well as a reconciliation to total consolidated financial information.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
REVENUES
Property and casualty insurance services .................................... $ 213,827 $ 197,443
Financial services .......................................................... 84,641 64,351
Unallocated corporate ....................................................... 311 159
--------- ---------
Total ....................................................................... 298,779 261,953
Intersegment:
Property and casualty insurance services .................................... 272 306
Unallocated corporate ....................................................... 9,177 8,718
--------- ---------
9,449 9,024
--------- ---------
Total revenue ............................................................... 308,228 270,977
Reconciling items: intersegment revenues ................................... (9,449) (9,024)
--------- ---------
Total consolidated .......................................................... $ 298,779 $ 261,953
========= =========
INCOME (LOSS) BEFORE INCOME TAXES
Property and casualty insurance services .................................... $ 42,253 $ 41,009
Financial services .......................................................... 16,446 13,103
Unallocated corporate ....................................................... (6,418) (5,909)
--------- ---------
Total ....................................................................... 52,281 48,203
Reconciling items - intercompany dividends .................................. (1,070) (1,070)
--------- --------
Total consolidated .......................................................... $ 51,211 $ 47,133
========= ========
</TABLE>
The assets of the financial services segment increased by $594 million at
March 31, 1999 versus the amount reported at December 31, 1998 due to the growth
in the loan portfolio of the commercial and residential real estate lending
operations.
7
<PAGE>
NOTE D - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the three month periods ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
-------- --------
(THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net income (numerator for basic earnings per share) ........................ $ 34,311 $ 31,652
Effect of dilutive securities:
Liquid Yield Option Notes ("LYONs") ..................................... 42 109
-------- --------
Income available to common stockholders
after assumed conversions (numerator for
diluted earnings per share) ............................................. $ 34,353 $ 31,761
======== ========
Weighted-average shares (denominator for basic
earnings per share) ..................................................... 66,880 63,608
Effect of dilutive securities:
Restricted stock ........................................................ 2,083 4,170
Stock options ........................................................... 408 1,031
LYONs ................................................................... 450 1,242
-------- --------
Dilutive potential common shares ........................................... 2,941 6,443
-------- --------
Adjusted weighted-average shares and assumed
conversions (denominator for diluted earnings
per share) .............................................................. 69,821 70,051
======== ========
Basic earnings per share ................................................... $ 0.51 $ 0.50
======== ========
Diluted earnings per share ................................................. $ 0.49 $ 0.45
======== ========
</TABLE>
NOTE E - SUBSEQUENT EVENT
On May 10, 1999, Fremont General Corporation filed a Form S-4 Registration
Statement to register exchange notes related to an exchange offering for the
initial $425 million of Senior Notes issued March 17, 1999 in a private
placement. The exchange notes consist of $200 million Series B 7.70% Senior
Notes due 2004 and $225 million Series B 7.875% Senior Notes due 2009. The form
and terms of the exchange notes are substantially identical to the form and
terms of the initial notes, except that the exchange notes are registered under
the Securities Act.
Unless extended by the Company, the exchange offer will expire on June 11,
1999. The Company did not receive any proceeds from this exchange offer.
8
<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 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 Corporation is a nationwide insurance and financial
services holding company operating select businesses in niche markets. The
insurance property and casualty services business of Fremont General Corporation
and its subsidiaries ("the Company") includes one of the largest underwriters of
workers' compensation insurance in the nation. The Company's financial services
business includes commercial and residential real estate lending, commercial
finance, syndicated loans and insurance premium financing. The Company's
reported assets as of March 31, 1999 were $8.0 billion. Income before taxes for
the first quarter ended March 31, 1999 was $51.2 million. The Company's business
strategy includes achieving income balance and geographic diversity among its
business units in order to limit its exposure to industry, market and regional
concentrations. In addition, the Company seeks to expand its businesses through
new business development and acquisitions. The Company's stock is traded on the
New York Stock Exchange under the symbol "FMT."
The following table presents information for the first quarter ended March
31, 1999 and 1998 with respect to the Company's primary business segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revenues:
Property and casualty insurance services ......... $ 213,827 $ 197,443
Financial services ............................... 84,641 64,351
Unallocated corporate revenue .................... 311 159
--------- ---------
Total ....................................... $ 298,779 $ 261,953
========= =========
Income (Loss) Before Taxes:
Property and casualty insurance services ......... $ 42,253 $ 41,009
Financial services ............................... 16,446 13,103
Unallocated corporate loss ....................... (7,488) (6,979)
--------- ---------
Total ....................................... $ 51,211 $ 47,133
========= =========
</TABLE>
The Company generated revenues of approximately $299 million in the first
quarter ended March 31, 1999, as compared to $262 million for the first quarter
of 1998. The 14% increase in revenues were due mainly to higher loan interest in
the financial services segment and higher workers' compensation insurance
premiums in the property and casualty insurance services segment. The increase
in loan interest revenue is consistent with the significant growth in the
average loan portfolio of the financial services operation in the quarter ended
March 31, 1999, as compared with the same prior year period. (See "Financial
Services.") Higher workers' compensation insurance premiums were achieved
primarily from the September 1, 1998 acquisition of UNICARE Specialty Services,
Inc. ("Unicare") from Wellpoint Health Networks, Inc., as well as to increases
in new business development. (See "Property and Casualty Insurance Services -
Premiums.") Realized investment gains (losses) in the first quarter of 1999 were
$25,000, compared to $(458,000) for the first quarter of 1998.
The Company posted net income of $34.3 million or $0.49 diluted earnings
per share for the first quarter ended March 31, 1999, respectively, as compared
to $31.7 million or $0.45 diluted earnings per share for the first quarter of
1998. Income before taxes for the first quarter ended March 31, 1999 was $51.2
million, as compared to $47.1 million for the same period of 1998, representing
an increase of 8.7%.
9
<PAGE>
The property and casualty insurance services operations, consisting
primarily of workers' compensation insurance, posted income before taxes of
$42.3 million for the quarter ended March 31, 1999, as compared to $41.0 million
for the same period in 1998. The increase in income before taxes of 3.0% for the
three months ended March 31, 1999 was due primarily to the acquisition of
Unicare and lower losses incurred resulting from additional reinsurance
purchased by the Company in the second quarter of 1998. The combined ratio for
the three months ended March 31, 1999 was 96.3%, as compared to 96.9% for the
same respective period in 1998.
The financial services operations posted income before taxes for the first
quarter ended March 31, 1999 of $16.4 million, as compared to $13.1 million for
the same quarter of 1998. The increase in income before taxes was due mainly to
the growth in the total average loan portfolio, offset partially by lower gains
on residential real estate loan sales. The average loan portfolio of the
financial services operations grew to $3.39 billion for the first quarter ended
March 31, 1999, from $2.05 billion for the same period of 1998.
Unallocated corporate revenues during the quarter ended March 31, 1999
consisted primarily of investment income, while unallocated corporate expenses
consisted primarily of interest expense and general and administrative expenses.
The unallocated corporate loss before taxes for the quarter ended March 31, 1999
was $7.5 million, as compared to $7.0 million for the same period of 1998. The
increase in unallocated corporate loss before taxes was due mainly to the
effects of an increase in long-term debt and interest rates pursuant to the
issuance on March 17, 1999 of $425 million of Senior Notes ("the Notes") in a
private placement. (See "Liquidity and Capital Resources.") Net proceeds from
the Notes were used to repay all indebtedness outstanding under the Company's
revolving line of credit and for general corporate purposes, including working
capital. The Notes carry interest rates which are higher than the revolving line
of credit, and this also contributed to the increase in interest expense in the
quarter ended March 31, 1999, as compared to the same prior year period.
Income tax expense of $16.9 million and $15.5 million for the quarters
ended March 31, 1999 and 1998, respectively, represents effective tax rates of
33% on income before taxes of $51.2 million and $47.1 million for the same
respective periods. The effective tax rate is lower than the enacted federal
income tax rate of 35%, due primarily to tax exempt investment income which
reduces the Company's taxable income.
PROPERTY AND CASUALTY INSURANCE SERVICES
The following table represents information for the quarters ended March 31,
1999 and 1998 with respect to the Company's property and casualty insurance
operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revenues ............................................. $ 213,827 $ 197,443
Expenses ............................................. 171,574 156,434
--------- ---------
Income Before Taxes .................................. $ 42,253 $ 41,009
========= =========
</TABLE>
PREMIUMS. Insurance premiums from the Company's property and casualty
insurance services operations were $170.3 million in the quarter ended March 31,
1999, as compared to $154.2 million for the same period of 1998. The increase in
premiums is due primarily to the September 1, 1998 acquisition of Unicare and to
new business development. Partially offsetting these increases was additional
ceded reinsurance costs associated with reinsurance purchased in the second
quarter of 1998. New business development was significant in the quarter ended
March 31, 1999 totaling approximately $180 million in estimated annual direct
premiums written. This compares to $31 million in estimated annual direct
premiums written for the same prior year period. Using estimated annual premiums
on policies in effect at March 31, 1999 and 1998 (referred to as "inforce
premiums"), the Company's inforce premium has grown 39% to $885.4 million at
March 31, 1999 from $638.7 million at March 31, 1998.
NET INVESTMENT INCOME. Net investment income within the property and
casualty insurance services operations was slightly lower at $43.1 million in
the first quarter ended March 31, 1999, as compared to $43.7 million for the
quarter ended March 31, 1998. Higher invested assets associated with the Unicare
acquisition was
10
<PAGE>
more than offset by higher ceded reinsurance costs and claim payments, resulting
in lower average invested assets in the first quarter of 1999 as compared to the
same prior year period.
LOSS AND LOSS ADJUSTMENT EXPENSE. The property and casualty insurance
services loss and loss adjustment expenses ("LAE") were $97.5 million for the
first quarter ended March 31, 1999, as compared to $103.3 million for the same
period of 1998. In addition, the ratio of these losses and LAE to property and
casualty insurance premiums earned ("loss ratio") was 57.3%, and 67.0% for the
first quarter ended March 31, 1999 and 1998, respectively. Lower incurred loss
and LAE and a lower loss ratio in the first quarter of March 31, 1999 resulted
from the combined effects of additional reinsurance purchased by the Company in
the second quarter of 1998, as well as to a continued trend in lower frequency
of claims in the first quarter of 1999.
The Company regularly reviews its reserving techniques, overall reserve
position and reinsurance. In light of present facts and current legal
interpretations, management believes that adequate provisions have been made for
loss reserves. In making this determination, management has considered its
claims experience to date, loss development history for prior accident years and
estimates of future trends of claims frequency and severity. However,
establishment of appropriate reserves is an inherently uncertain process, and
there can be no certainty that currently established reserves will prove
adequate in light of subsequent actual experience. Subsequent actual experience
has resulted and could result in loss reserves being too high or too low. Future
loss development could require reserves for prior periods to be increased, which
would adversely impact earnings in future periods.
POLICY ACQUISITION COSTS AND OTHER OPERATING COSTS AND EXPENSES. The ratio
of policy acquisition costs and other operating costs and expenses to insurance
premiums is referred to as the expense ratio, which was 35.3% for the quarter
ended March 31, 1999, as compared to 28.9% for the same period of 1998. The
increases in this ratio were due primarily to a lower premium base in the first
quarter of March 31, 1999, resulting from the additional reinsurance purchased
by the Company in the second quarter of 1998.
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, legislation and regulations, court
decisions, the judicial climate, and general economic conditions and trends, all
of which are outside of Fremont's control. In addition, the Company's results of
operations may be affected by the Company's ability to assess and integrate
successfully the operations of acquired companies. 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 adversely impact the Company's profitability, where
overall average decreases of 0.2%, 7.9%, and 10.0% in advisory premium rates,
which workers' compensation insurance companies in Illinois tend to follow,
became effective January 1, 1999, 1998 and 1997, respectively. (See "Workers'
Compensation Regulation.") The August 1, 1997 acquisition of Fremont Industrial
Indemnity Company (formerly Industrial Indemnity Company) ("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.
Industrial has a significant presence in the western United States, in addition
to California. 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.
The Company's workers' compensation insurance business competes in a market
characterized by competition on the basis of price and service. In addition,
state regulatory changes could affect competition in the states where the
Company transacts business. Although the Company is one of the largest writers
of workers' compensation insurance in the nation, certain of its competitors are
larger and have greater resources than the Company. The Company cannot be
certain that it will continue to maintain its market share in the future.
11
<PAGE>
WORKERS' COMPENSATION REGULATION. The Company's workers' compensation
insurance operations are concentrated in California and Illinois, with
additional writings in 37 other states and the District of Columbia. Insurance
companies are subject to supervision and regulation by the state insurance
authority in each state in which they transact business. Such supervision and
regulation relate to the numerous aspects of an insurance company's business and
financial condition. The primary purpose of such supervision and regulation is
the protection of policyholders rather than the investors or stockholders of an
issuer. The Company's multistate insurance operations require, and will continue
to require, the Company to devote significant resources to comply with the
regulations of each state in which the Company transacts business.
At March 31, 1999, approximately 64% of the Company's workers' compensation
insurance policies inforce 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
(expected losses and expenses) or loss costs (expected losses only) which vary
by job classification. Each insurance company determines its own rates based in
part upon its particular loss experience and operating costs. Insurance
companies generally set their premium rates below such advisory rates. This
characteristic has resulted in continued price competition in Illinois, where
overall average decreases in advisory premium rates of 0.2%, 7.9%, and 10.0%
became effective January 1, 1999, 1998 and 1997, respectively. 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. The repeal of the minimum rate
law has resulted in lower premiums and lower profitability on the Company's
California workers' compensation insurance policies due to increased price
competition. Most of the states in which Fremont writes premiums operate under
some form of open rating system.
FINANCIAL SERVICES
The Company's financial services operations, which are comprised of the
results of Fremont General Credit Corporation ("FGCC"), are principally engaged
in commercial and residential real estate lending, commercial finance,
syndicated loans (large commercial loans originated and serviced by other
financial institutions) and insurance premium financing. Revenues consist
primarily of interest income and to a lesser extent fees and other income.
The following table presents information for the three month periods ended
March 31, 1999 and 1998 with respect to the Company's financial services
operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revenues ............................................. $ 84,641 $ 64,351
Expenses ............................................. 68,195 51,248
--------- ---------
Income Before Taxes .................................. $ 16,446 $ 13,103
========= =========
</TABLE>
Revenues increased 31.5% in the quarter ended March 31, 1999, as compared
to the same period of 1998, due primarily to greater loan interest revenue
attributable to the growth in the total average loan portfolio of the financial
services operation. Partially offsetting the increase in interest revenues were
lower gains on the sale of residential real estate loans and lower investment
income. The residential real estate 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. Due to market disruption and oversupply, the Company observed that
prices for these loans began to decrease in late 1998. The Company, rather than
sell the loans at prices lower than what it believed was the economic benefit to
be derived, began a program to retain these benefits by either retaining the
loans in its portfolio or by securitizing them. On March 23, 1999, the Company's
thrift issued, through the Fremont Home Loan Owner Trust 1999-1, its first
securitization of these loans in the amount of approximately $415 million. This
trust
12
<PAGE>
issued notes collateralized by a pool of these first lien residential mortgage
loans. The notes are subject to an unconditional and irrevocable guarantee of
timely payment of interest and ultimate payment of loan principal provided by a
financial guarantee insurance policy (issued by Financial Security Assurance
Inc.) Servicing of the loans will be provided by Fairbanks Capital Corporation.
These notes have been rated AAA by Standard and Poor's and Aaa by Moody's. The
Company will continue to monitor market conditions to determine the
appropriateness of any additional securitizations.
Income before taxes in the financial services operation was $16.4 million
for the quarter ended March 31, 1999, as compared to $13.1 million for the same
period of 1998. The 25.5% increase in income before taxes, was due to the
previously described growth in the total average financial services loan
portfolio, partially offset by lower gains on the sale of residential real
estate loans.
The following table identifies the interest income, interest expense,
average interest-bearing assets and liabilities, and interest margins for the
Company's financial services operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------
1999 1998
------------------------------------ -------------------------------------
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 real estate loans ......... $ 1,733,562 $ 39,053 9.01% $ 1,063,326 $ 26,051 9.80%
Residential real estate loans ........ 691,887 16,115 9.32 386,194 9,115 9.44
Commercial finance loans ............. 486,086 12,448 10.24 387,199 10,843 11.20
Syndicated loans ..................... 418,812 8,361 7.99 154,718 3,584 9.27
Insurance premium finance loans ...... 58,591 1,573 10.74 54,558 1,434 10.51
Investments .......................... 210,594 1,944 3.69 225,180 3,080 5.47
----------- -------- ----------- --------
Total interest bearing assets ........ $ 3,599,532 $ 79,494 8.83% $ 2,271,175 $ 54,107 9.53%
=========== ======== =========== ========
Interest bearing liabilities:
Time deposits ........................ $ 1,695,369 $ 22,424 5.29% $ 1,211,034 $ 17,316 5.72%
Savings deposits ..................... 563,474 6,914 4.91 323,872 4,161 5.14
Securitization obligation ............ 308,950 4,219 5.46 280,421 4,303 6.14
Debt with banks ...................... 678,806 9,048 5.33 163,369 2,726 6.67
Debt from affiliates ................. 71,905 1,035 5.76 53,137 767 5.77
Other ................................ 1,475 7 1.90 1,083 6 2.22
----------- --------- ----------- --------
Total interest bearing liabilities ... $ 3,319,979 $ 43,647 5.26% $ 2,032,916 $ 29,279 5.76%
=========== ========= =========== ========
Net interest income ..................... $ 35,847 $ 24,828
========= ========
Net yield ............................... 3.98% 4.37%
- -------------
(1)Annualized
(2)Average loan balances include non-acccrual lon balances
</TABLE>
The margin between the Company's interest income and cost of funds
decreased in the quarter ended March 31, 1999 as compared to the quarter ended
March 31, 1998, due primarily to the combined effects of a decrease in the net
yields on real estate, syndicate and commercial finance loans, and increases in
the level of syndicated loans which generally carry lower net yields.
13
<PAGE>
LOANS RECEIVABLE AND RESERVE ACTIVITY. The following table shows loans
receivable in the various financing categories and the percentages of the total
represented by each category:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------------------- ---------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
----------- ----- ----------- -----
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C>
Term loans:
Commercial and residential real estate loans ........ $ 2,328,740 69% $ 2,110,301 70%
Commercial finance loans ............................ 175,943 5 168,040 5
Syndicated loans .................................... 287,975 8 168,170 6
Insurance premium finance loans ..................... 57,894 2 58,563 2
----------- ----- ----------- -----
Total term loans ................................. 2,850,552 84 2,505,074 83
----------- ----- ----------- -----
Revolving loans:
Commercial finance loans ............................ 334,442 10 317,468 11
Syndicated loans .................................... 188,812 6 191,980 6
----------- ----- ----------- -----
Total revolving loans ............................ 523,254 16 509,448 17
----------- ----- ----------- -----
Total loans ...................................... 3,373,806 100 3,014,522 100
Less allowance for possible loan losses ................ 62,338 2 56,346 2
----------- ----- ----------- -----
Loans receivable .................................... $ 3,311,468 98% $ 2,958,176 98%
=========== ===== =========== =====
</TABLE>
The following table illustrates the maturities of the Company's loans
receivable:
<TABLE>
<CAPTION>
MATURITIES AT MARCH 31, 1999
-----------------------------------------------------------
1 TO 24 25 - 60 OVER 60
MONTHS MONTHS MONTHS TOTAL
----------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Term loans -- variable rate ....................... $ 807,556 $ 894,358 $ 774,334 $ 2,476,248
Term loans -- fixed rate .......................... 113,399 95,344 165,561 374,304
Revolving loans -- variable rate .................. 500,762 16,596 5,896 523,254
----------- ----------- ----------- -----------
Total ................................ $ 1,421,717 $ 1,006,298 $ 945,791 $ 3,373,806
=========== =========== =========== ===========
</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 March 31, 1999
was $479.1 million and $228.3 million, respectively.
During periods when economic conditions are unfavorable, the Company's
financial services businesses may not be able to originate new loan products or
maintain credit quality at previously attained levels. This may negatively
affect the Company's net finance income and levels of non-performing assets and
net charge-offs. Changes in market interest rates, or in the relationships
between various interest rates, could cause the Company's interest margins to
vary and may result in significant changes in the prepayment patterns of the
Company's finance receivables, which could adversely affect the Company's
results of operations and financial condition.
14
<PAGE>
The Company's financial services businesses maintain reserves for credit
losses on its portfolio of finance receivables in amounts that the Company
believes is sufficient to provide adequate protection against potential losses.
The Company attempts to minimize the impact that adverse economic developments
could have on the Company's financial services loan portfolio by concentrating
primarily on lending on a senior and secured basis and by carefully monitoring
the underlying collateral that secures these loans. Although the Company
believes that its level of reserves is sufficient to cover potential credit
losses, the Company's reserves could prove to be inadequate due to unanticipated
adverse changes in economic conditions or discrete events that adversely affect
specific borrowers, industries or markets. Any of these changes could impair the
Company's ability to realize the expected value of the collateral securing
certain of its finance receivables.
The Company's financial services businesses compete in markets that are
highly competitive and are characterized by factors that vary based upon product
and geographic region. The markets in which the Company competes are typically
characterized by a large number of competitors who compete based primarily upon
price, terms and loan structure. The Company primarily competes with banks,
mortgage, insurance, and finance companies, many of which are larger and have
greater financial resources than the Company. The competitive forces of these
markets could adversely affect the Company's net finance income, loan
origination volume or net credit losses.
15
<PAGE>
The following table describes the asset classifications, loss experience
and reserve reconciliation of the financial services operation as of or for the
periods ended as shown below:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1999 1998
----------- -----------
(THOUSANDS OF DOLLARS,
EXCEPT PERCENTS)
<S> <C> <C>
Non-accrual loans .......................................................... $ 29,556 $ 25,112
Accrual loans 90 days past due ............................................. 1,133 945
Real estate owned ("REO") .................................................. 5,095 11,992
----------- -----------
Total non-performing assets ................................................ $ 35,784 $ 38,049
=========== ===========
Beginning allowance for possible loan losses ............................... $ 56,346 $ 44,402
Provision for loan losses .................................................. 4,126 2,387
Reserves established with portfolio acquisitions ........................... 2,544 -
Charge-offs:
Commercial and residential real estate loans ............................. 350 262
Commercial finance loans ............................................ - 656
Syndicated loans .................................................... 350 -
Insurance premium finance loans ..................................... 19 87
----------- -----------
Total charge-offs ................................................... 719 1,005
----------- -----------
Recoveries:
Commercial and residential real estate loans ........................ 19 150
Commercial finance loans ............................................ 13 8
Syndicated loans .................................................... - -
Insurance premium finance loans ..................................... 9 7
----------- -----------
Total recoveries .................................................... 41 165
----------- -----------
Net charge-offs ............................................................ 678 840
----------- -----------
Ending allowance for possible loan losses .................................. $ 62,338 $ 45,949
=========== ===========
Allocation of allowance for possible loan losses:
Commercial and residential real estate loans ........................ $ 43,928 $ 34,377
Commercial finance loans ............................................ 9,487 7,690
Syndiated loans ..................................................... 8,466 3,494
Insurance premium finance loans ..................................... 457 388
----------- -----------
Total allowance for possible loan losses ............................ $ 62,338 $ 45,949
=========== ===========
Total loans receivable ..................................................... $ 3,373,806 $ 2,063,806
Average total loans receivable ............................................. $ 3,388,945 $ 1,815,607
Net charge-offs to average total loans receivable (annualized) ............. 0.08% 0.19%
Non-performing assets to total loans receivable ............................ 1.06% 1.84%
Allowance for possible loan losses to total loans receivable ............... 1.85% 2.23%
Allowance for possible loan losses to non-performing assets ................ 174.21% 120.76%
Allowance for possible loan losses to non-accrual
loans and accrual loans 90 days past due ................................. 203.13% 176.34%
</TABLE>
Non-performing assets decreased 6.0% to $35.8 million at March 31, 1999
from $38.0 million at March 31, 1998, despite a 63.5% increase in total loans
receivable to $3.4 billion at March 31, 1999 from $2.1 billion at March 31,
1998.
The higher provision for loan losses in the first quarter ended March 31,
1999, as compared to the same prior year period, is also consistent with the
overall increase in total loans receivable. The Company continues to
16
<PAGE>
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 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 203.13% from 176.34% for the quarters ended March 31,
1999 and 1998, 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 1998 Annual Report on Form
10-K. No material changes in market risk have occurred since year-end, except
for Fremont General Corporation's issuance on March 17, 1999 of $425 million of
Senior Notes offered in a private placement. (See "Liquidity and Capital
Resources.") The proceeds were used to repay all outstanding indebtedness under
the Company's revolving line of credit and for general corporate purposes. This
transaction has the effect of increasing the interest rate exposure related to
LIBOR and United States prime interest rates because the Senior Notes are fixed
rate obligations, the proceeds of which were used to repay variable interest
rate debt.
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 $42.9 million and $59.8 million
at March 31, 1999 and December 31, 1998, respectively.
The Company's thrift and loan subsidiary, which is principally engaged in
commercial and residential real estate lending, syndicated loans and insurance
premium financing, finances its lending activities primarily through customer
deposits, which have grown to $2.44 billion at March 31, 1999 from $2.13 billion
at December 31, 1998. 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 March 31, 1999, approximately $463
million was available under the facility of which $337 million was 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 March 31, 1999, an aggregate
$235 million senior series and an aggregate $39
17
<PAGE>
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 March 31, 1999. The securities issued in this program have a
scheduled maturity of two to four years, but could mature earlier depending on
fluctuations in outstanding balances of loans in the portfolio and other
factors. As of March 31, 1999, 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 million in certificates ("Series D") were issued, comprised of $100
million in senior certificates and $9 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 2000, provides for the issuance of up to $150 million in commercial
paper, dependent upon the level of assets within the asset securitization
program. As of March 31, 1999, $49 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 $431 million,
which includes a revolving credit facility of $350 million and a term loan of
$81 million. The revolving credit facility converts to a term loan in August
2000, with ultimate maturity of the term loan in June 2002. The term loan
matures July 2001. This facility is also used to finance certain syndicated
loans. The balance outstanding at March 31, 1999 of the revolving credit
facility and the term loan was $341 million, with a weighted average interest
rate of 5.30%. 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 $5.5 million and $5.1 million for
the quarters ended March 31, 1999 and 1998, 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 1999, without prior
regulatory approval, is approximately $235.3 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. There were no advances outstanding as of March 31, 1999.
This credit facility expires in July 2002. On March 17, 1999, Fremont General
Corporation issued $425 million of Senior Notes consisting of $200 million of
7.70% Senior Notes due 2004 and $225 million of 7.875% Senior Notes due 2009.
The notes were offered in a private placement to qualified institutional buyers
and a limited number of institutional accredited investors. Net proceeds from
the Notes were used to repay all indebtedness outstanding under the revolving
line of credit and for general corporate purposes, including working capital. On
May 10, 1999, the Company filed a form S-4 Registration Statement to register
exchange notes related to an exchange offering for the Senior Notes. The
exchange notes consist of $200 million Series B 7.70% Senior Notes due 2004 and
$225 million Series B 7.875% Senior Notes due 2009. The form and terms of the
exchange notes are substantially identical to the form and terms of the initial
notes, except that the exchange notes are registered under the Securities Act.
Unless extended by the Company, the exchange offer will expire on June 11, 1999.
The Company did not receive any proceeds from this exchange offer.
During 1998, an aggregate $21.0 million principal amount at maturity of
Liquid Yield OptionTM Notes due October 12, 2013 (Zero Coupon-Subordinated)
("LYONs") were converted into 809,000 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 $10 million. During the first quarter of 1999, an
aggregate $3.0 principal amount at maturity of LYONs were converted into 117,000
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 $1 million.
Net cash used in operating activities of continuing operations was $91.2
million and $35.6 million for the quarters ended March 31, 1999 and 1998,
respectively. The increase in net cash used in continuing operations was due
primarily to increases in reinsurance recoverables on paid losses; increases in
policy acquisition costs deferred, net of amortization; a higher reduction in
claims and policy liabilities; and an increase in the change in other assets,
net of other liabilities. Partially offsetting these conditions was an increase
in the provision for deferred income taxes and a decrease in the net
amortization on fixed maturity investments, both of which have the effect of
decreasing the net cash used in operating activities. The increase in
reinsurance recoverables on paid losses results
18
<PAGE>
mainly from additional reinsurance purchased by the Company in 1998. The
increase in policy acquisition costs deferred is consistent with the significant
increase in workers' compensation insurance premiums in the first quarter of
1999. (See "Property and Casualty Insurance Services Premiums.") The significant
increase in the change in other assets, net of other liabilities, is due mainly
to the payment of certain accrued operating expenses including payments under
various incentive compensation plans, as well as the recognition of
approximately $20 million in residual interest receivable in connection with the
March 23, 1999 securitization of certain residential real estate loans
originated by the Company. (See "Financial Services.")
Net cash used in investing activities increased to $563.5 million from
$98.4 million in the quarters ended March 31, 1999 and 1998, respectively. The
increase in net cash used in investing activities was due mainly to significant
increases in loan originations, net of loan repayments and bulk sales of loans,
and an increase in the purchase of investment securities, net of investment
sales and maturities and short-term investment activity. The increase in loan
originations is consistent with the overall increase in loans receivable to
$3.37 billion at March 31, 1999 from $2.06 billion at March 31, 1998.
Additionally, included in receipts from repayments of loans and bulk sales of
loans is $415 million in residential real estate loans sold through the
securitization on March 23, 1999. The increase in investment purchases was due
mainly to the investing of the residual proceeds from Fremont General
Corporation's issuance on March 17, 1999 of $425 million of Senior Notes.
Net cash provided by financing activities was $636.7 million and $102.4
million for the quarters ended March 31, 1999 and 1998, respectively. The
increase in net cash provided by financing activities was due primarily to an
increase in short-term debt, net of repayments; an increase in long-term debt,
net of repayments; and an increase in thrift deposits. The increase in
short-term debt results mainly from an increase in borrowings under the thrift's
financing facility with the FHLB. This financing, coupled with the increase in
thrift deposits, was used to support the growth in the Company's financial
services loan portfolio. The increase in long-term debt, net of repayments,
results from Fremont General Corporation's issuance on March 17, 1999 of $425
million of Senior Notes, and the use of a majority of the proceeds in the
repayment of all the indebtedness under Fremont General Corporation's revolving
line of credit.
The amortized cost of the Company's invested assets was $2.39 billion and
$2.33 billion at March 31, 1999 and December 31, 1998, respectively. The
invested assets are up slightly at March 31, 1999, as compared to December 31,
1998, due mainly to the residual proceeds (after the repayment of all
indebtedness under the Company's revolving line of credit), from the issuance on
March 17, 1999 of $425 million of Senior Notes. Partially offsetting this
increase were decreases in invested assets resulting from the payment of certain
accrued operating expenses, including payments under various incentive
compensative plans.
The Company's property and casualty premium to surplus ratio for the year
ended December 31, 1998 was 1.0 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 March 31, 1999.
The Company believes that its existing cash, its bank lines of credit,
revenues from operations and other available sources of liquidity will be
sufficient to satisfy its liquidity needs for the next several years.
YEAR 2000 READINESS DISCLOSURE
Problems may arise from computer software programs and operating systems
that use only two digits to designate the calendar year in a date code field.
For example, where the date December 21, 2000, is encoded as "12/21/00" instead
of "12/21/2000." Based on this two-digit format for date coding, computers with
date-sensitive programs could recognize the year 2000 as "00" and incorrectly
assume that the year is 1900. Similar problems can arise for systems dependent
upon embedded chips that are encoded to only use or recognize two digits when
referring to a calendar year. Additionally, problems may arise from the
computer's inability to process (including calculating, comparing, sequencing,
displaying, or storing), transmit, or receive date data from, into, and between
the 20th and 21st centuries, and during the years 1999 and 2000, and leap year
calculations. The Company refers to these problems as the "Year 2000 Problem."
The Company considers the Year 2000 Problem a critical business continuity issue
and has categorized the Year 2000 Problem into the following four areas:
19
<PAGE>
Office facilities and equipment - Will the telephones, facsimile machines, copy
machines, elevators, air conditioning and heating systems, and other utility
systems used by the Company in its leased and owned facilities function properly
in the year 2000 and beyond?
Key business partners, vendors, other suppliers - Will the Company's key
business partners, major vendors, and other suppliers face significant
disruption to the goods and services provided to the Company due to Year 2000
Problems?
Customers - Will the Company's revenues be significantly adversely affected by
customers' inability to remediate successfully their own Year 2000 Problems?
Internal Computer systems - Considered the most important area to resolve, will
the Company's computer systems operate properly in the year 2000 and beyond?
The following discussion establishes the extent of work performed, or to be
performed, and results obtained as of May 12, 1999 in addressing the impact of
the Year 2000 Problem on the above-described areas.
OFFICE FACILITIES AND EQUIPMENT:
The Company has evaluated all of its telephone systems to determine the
extent of any Year 2000 Problems. The majority of the Company's telephone
systems have been rendered Year 2000 compliant. The remaining non-compliant
systems are expected to be compliant by June 30, 1999.
Regarding the Company's leased facilities, we have inquired from facility
owners the extent of any Year 2000 Problems (if any) as they relate to the
elevator, air conditioning/heating, and other utility systems in these
facilities. The Company has evaluated representations rendered by these facility
owners for most of the Company's leased facilities. Based on the representations
received through May 12, 1999, the Company anticipates no significant disruption
from these various facility-related systems due to the Year 2000 Problem.
Further, with respect to the Company's owned facilities, an evaluation of the
extent of any Year 2000 Problems relating to these facilities' utility and
elevator systems has been made and no significant disruptions (if any) to the
Company's operations from these systems are anticipated.
Finally, with regard to office equipment such as facsimile and copy
machines, the Company considers the risk minimal as to any significant cost or
disruption to its operations resulting from a Year 2000 Problem impacting any of
its office equipment (excluding telephone and computer systems). Accordingly, no
significant work is currently being planned in this area.
KEY BUSINESS PARTNERS, VENDORS, OTHER SUPPLIERS:
The Company has identified its key business partners, such as its critical
banking, employee benefits, reinsurance, auditors, outside legal counsel, and
other professional service relationships. The Company has been surveying all of
these relationships as to their Year 2000 compliance, and will develop
appropriate contingency plans in its effort to avoid significant disruption to
the Company's operations. The Company anticipates this process to be completed
by June 30, 1999. Many surveys have already been received and evaluated in the
areas of employee benefits and reinsurance. Based on the evaluations received to
date, most of these business partners have stated that they anticipate their
Year 2000 compliance and testing to be completed by mid-1999.
In addition to key business partners, the Company's suppliers and vendors
are concentrated into the areas of office supplies, office furniture and
equipment, and computer hardware and software. With the exception of computer
software, the Company believes that there are many alternative suppliers for
their office supply and furniture needs, as well as several alternative sources
for computer hardware. Accordingly, the risk of a significant disruption to the
Company's operations due to a supplier's inability to resolve its Year 2000
Problems is considered minimal since the Company could select an alternate
supplier. (With regard to computer software, refer to the separate discussion on
the Company's internal computer systems.) In an effort to identify which
suppliers may have Year 2000 compliance difficulties, the Company has identified
its more significant suppliers/vendors and has been surveying them as to their
Year 2000 compliance status. The results of these surveys will be evaluated and
appropriate contingency plans will be developed if considered necessary. The
Company expects this process to be completed by June 30, 1999.
20
<PAGE>
CUSTOMERS:
In the financial services operation, the Company's revenues could be
impacted should a customer/borrower be unable to pay interest and/or principal
when due because of the customers' inability to resolve its Year 2000 Problems.
Regarding commercial and residential real estate loans, the risk of a
significant impact to operating results is considered minimal since the Company
would utilize the collateral securing existing loans to mitigate any loan
losses. Additionally for commercial real estate loans, the borrower's Year 2000
risk is further limited by the multiple tenant nature of most of the properties
under collateral. The Company has focused its attention on those commercial
properties that are single tenant. The Company has been surveying these
customers to determine their Year 2000 compliance. For commercial finance loans,
the Company has been surveying its entire customer base to ascertain whether or
not any significant Year 2000 issues exist with existing borrowers. With regard
to new loan customers, the Company has adopted additional review procedures for
both real estate and commercial finance loans to determine the extent of an
applicant's Year 2000 compliance. Based on the results obtained to date, the
Company does not anticipate any significant impact to its financial services
revenues due to the Year 2000 Problem. For the Company's thrift deposits, the
Company's effort to mitigate the risk of significant depositor withdrawals has
been pursued through an educational program, as recommended by the FDIC, aimed
at informing current and prospective depositors as to the thrift's Year 2000
compliance efforts and results.
In its property and casualty insurance services operation, the Company has
determined the extent of procedures to employ in ascertaining the potential
impact to its insurance premium revenues resulting from an insured's or agent's
inability to resolve their Year 2000 Problems. The procedures primarily relate
to surveying the Company's major insureds and agents as to the extent of any
Year 2000 Problems which would significantly impact their operations. The
Company anticipates completing these procedures by June 30, 1999 and will
develop appropriate contingency plans should a significant Year 2000 Problem be
identified from these surveys.
INTERNAL COMPUTER SYSTEMS:
As of May 12, 1999, significant Year 2000 compliance issues remain only
within the Company's property and casualty insurance services operation. The
Company's computer-based systems ("Systems") supporting the financial services
operation, administrative systems (personnel, payroll and accounting) and
treasury systems (cash management and investment portfolio management) have all
been rendered substantially Year 2000 compliant.
Within the financial services segment, substantially all operations utilize
application Systems that are vendor supported. For commercial and residential
real estate lending, all current application Systems are substantially Year 2000
compliant. Additionally, these application Systems have been tested internally
to validate their Year 2000 compliance, with no significant errors identified or
left unresolved. Similarly, the application Systems for commercial finance
lending, while substantially compliant in their present form, will be fully
compliant after upgrading to the current version of the software, which is
already available and installed at several of the vendor's clients. The Company
has installed the software upgrade and will test these Systems to verify the
vendors' representations. The Company expects to complete these procedures by
September 30, 1999. For syndicated loans, the Company has migrated to new
software which has been certified by the vendor as Year 2000 compliant. Testing
of the vendor's representations will be completed by September 30, 1999.
With regard to the property and casualty insurance services 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
May 12, 1999, the Company believes that its Systems that support its California
operations are Year 2000 compliant (including testing), and the Company
estimates that the Systems that support its non-California operations will be
Year 2000 compliant and tested by June 30, 1999. The property and casualty
insurance operation will be moving onto new Systems that will, after full
implementation, be the workers' compensation operation's new nationwide claims
and policy handling platform. The costs to be incurred by the Company in
completing these Year 2000 initiatives are not expected to have a material
impact on the Company's results of operations (1998 costs of approximately $4.5
million).
Regarding administrative and back-office operations, the Company believes
that its personnel, payroll, accounting, and treasury Systems are Year 2000
compliant. The Company intends to test these Systems by September 30, 1999 to
verify the vendors' representations.
21
<PAGE>
In addition to its various application Systems, the Company maintains
several PC-based client/server network infrastructures. The majority of these
installations were established within the past five years. Substantially all of
these networks use the most current versions of network operating and data
transmission software, all of which are believed to be Year 2000 compliant. The
Company has tested the vendors' representations as to Year 2000 compliance of
installed network software with no significant errors identified or left
unresolved. Additionally, the Company has inventoried all of its PC hardware.
Substantially all of the PC hardware is believed to be Year 2000 compliant and
the Company anticipates that any non-compliant PC hardware will be rendered Year
2000 compliant by June 30, 1999.
Management of the Company continues to monitor the progress of its Year
2000 compliance initiatives and will continue to allocate resources necessary to
resolve significant Year 2000 Problems as they are identified. Based on the
progress of the work performed through May 12, 1999, the Company anticipates
that its office facilities and equipment; key business partners, vendors and
other suppliers; major customers; and internal computer systems will be
substantially Year 2000 compliant before December 31, 1999. For all mission
critical Systems, the Company is developing appropriate contingency plans in the
event an unanticipated Year 2000 Problem occurs. These plans are expected to be
completed by September 30, 1999.
RISK FACTORS:
Due to the dependence of the Company's insurance services and financial
services businesses on computer technology to operate its businesses, and the
dependence of the insurance and financial services industries on computer
technology, the nature and impact of Year 2000 processing failures on the
Company's businesses could be material. The Company believes its mission
critical Systems will be substantially Year 2000 compliant by September 30,
1999. The Company cannot assure you that its Year 2000 compliance efforts will
be completed in a timely manner or that the Company's Year 2000 compliance
efforts will be successful even if these compliance efforts are completed in a
timely manner. It is difficult to predict with certainty what will happen in
connection with the Year 2000 Problem after December 31, 1999. Despite the
Company's best efforts to mitigate and remediate its Year 2000 Problem, if key
business partners, vendors and other suppliers, facility owners, or customers
have over-estimated their own Year 2000 readiness, or been less than truthful or
forthcoming in their Year 2000 readiness disclosure, the Company will be forced
to implement certain of its contingency plans, and may be jeopardized with
respect to its own Year 2000 compliance status. In this scenario, it is possible
that the Company may experience unfavorable business factors and expenditures in
excess of budget which could result in a negative effect on results of
operations in one or all of the Company's businesses, depending upon the
specific nature of the problem or problems.
Worst-case scenarios (events the Company does not anticipate will occur)
might involve the inability of several of the Company's workers' compensation
insurance operation's major insureds, and/or agents, to resolve their respective
Year 2000 Problem. If this were to occur, effects could include the loss of
business that might be material to the Company. Furthermore, negative economic
conditions precipitated by the Year 2000 Problem could adversely impact the
financial services operation's ability to originate loans or maintain credit
quality at previously attained levels and could negatively affect the Company's
net finance income, levels of non-performing assets and net charge-offs. The
Company's operations are highly dependent on the ability of its banking business
partners to process its financial transactions. If the Company's key banking
business partners, as well as the banking industry in general, fail to resolve
their respective Year 2000 Problems, if any, serious consequences to the Company
could result including the disruption to its normal pattern of cash flows, or
increased risk for possible legal actions for breach of contract or other harm.
These consequences could adversely affect the Company's results of operations
and financial condition. While the Company does not anticipate any of these
scenarios to occur, in making its own Year 2000 Readiness Disclosure statements,
the Company has relied upon the honesty and forthrightness of its key business
partners, vendors and other suppliers, facility owners and customers in making
their respective Year 2000 readiness representations to the Company.
Readers are cautioned that forward-looking statements contained in this
Year 2000 Readiness Disclosure section should be read in conjunction with the
Company's cautionary statements at the beginning of this section. (See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.")
22
<PAGE>
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.
23
<PAGE>
PART II - OTHER INFORMATION
Item 1: Legal Proceedings.
None.
Item 2: Changes in Securities and Use of Proceeds.
None.
Item 3: Defaults Upon Senior Securities.
None.
Item 4: Submission of Matters to a Vote of Security Holders.
None.
Item 5: Other Information.
None.
Item 6: Exhibits, 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.
(Incorporated by reference to Exhibit 2.1 to the Registrant's
Report on Form 8-K, as of August 1, 1997, Commission File
Number 1-8007.)
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. (Incorporated by reference to Exhibit
2.2 to the Registrant's Report on Form 8-K, as of August 1,
1997, Commission File Number 1-8007.)
3.1 Restated Articles of Incorporation of Fremont General
Corporation. (Incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q, for the period
ended June 30, 1998, Commission File Number 1-8007.)
3.2 Certificate of Amendment of Articles of Incorporation of
Fremont General Corporation. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-K,
for the fiscal year ended December 31, 1998, Commission File
Number 1-8007.)
3.3 Amended and Restated By-Laws of Fremont General Corporation.
(Incorporated by reference to Exhibit 3.3 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
4.1 Form of Stock Certificate for Common Stock of the Registrant.
(Incorporated by reference to Exhibit (1) to the Registrant's
Form 8-A filed on March 17, 1993, Commission File Number
1-8007.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013
between the Registrant and Bankers Trust Company.
(Incorporated by reference to Exhibit 4.4 to Registration
Statement on Form S-3 filed on October 1, 1993.)
24
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
4.3 Indenture among the Registrant, the Trust and First Interstate
Bank of California, a California banking corporation, as
trustee. (Incorporated by reference to Exhibit 4.3 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
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. (Incorporated by
reference to Exhibit 4.5 to the Registrant's Annual Report on
Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
4.5 Preferred Securities Guarantee Agreement between the
Registrant and The Chase Manhattan Bank, N.A., a national
banking association, as Preferred Guarantee Trustee.
(Incorporated by reference to Exhibit 4.6 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
4.6 Common Securities Guarantee Agreement by the Registrant.
(Incorporated by reference to Exhibit 4.7 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
4.7 Form of Preferred Securities. (Included in Exhibit 4.5).
(Incorporated by reference to Exhibit 4.8 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
4.8 Form of 9% Junior Subordinated Debenture. (Included in Exhibit
4.3). (Incorporated by reference to Exhibit 4.9 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
4.9 Indenture dated as of March 1, 1999 between the Registrant and
The First National Bank of Chicago, as trustee. (Incorporated
by reference to Exhibit 4.9 to the Registrant's Annual Report
on Form 10-K, for the fiscal year ended December 31, 1998,
Commission File Number 1-8007.)
4.10 Registration Rights Agreement among the Registrant and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse
First Boston Corporation, Goldman, Sachs & Co., and Warburg
Dillon Read LLC. (Incorporated by reference to Exhibit 4.10 to
the Registrant's Annual Report on Form 10-K, for the fiscal
year ended December 31, 1998, Commission File Number 1-8007.)
4.11 Form of Fremont General Corporation 7.70% Senior Notes due
2004. (Incorporated by reference to Exhibit 4.11 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1998, Commission File Number 1-8007.)
4.12 Form of Fremont General Corporation 7.875% Senior Notes due
2009. (Incorporated by reference to Exhibit 4.12 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1998, Commission File Number 1-8007.)
4.13 Form of Registrant's Series B 7.70% Senior Note due 2004.
(Incorporated by reference to Exhibit 4.3 to the Registrant's
Registration Statement on Form S-4 filed on April 26, 1999.)
4.14 Form of Registrant's Series B 7.875% Senior Note due 2009.
(Incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-4 filed on April 26, 1999.)
25
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
10.1(a) Fremont General Corporation Employee Stock Ownership Plan.
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
10.1(b) Amendment Number One to the Fremont General Corporation
Employee Stock Ownership Plan.
10.1(c) Amendment Number Two to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1 (b) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1997, Commission
File Number 1-8007.)
10.1(d) Amendment Number Three to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1(c) to the Registrant's Quarterly Report on form
10-Q, for the period ended September 30, 1998, Commission File
Number 1-8007.)
10.1(e) Amendment Number Four to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1(d) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1998, Commission
File Number 1-8007.)
10.2 Restated Trust Agreement for Fremont General Corporation
Employee Stock Ownership Plan. and amendment (Incorporated by
reference to Exhibit 10.2 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007.)
10.3(a) Fremont General Corporation and Affiliated Companies
Investment Incentive Plan. (Incorporated by reference to
Exhibit 10.3 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007.)
10.3(b) Amendments Number One, Two and Three to the Fremont General
Corporation and Affiliated Companies Investment Incentive
Plan. (Incorporated by reference to Exhibit 10.3 (b) to the
Registrant's Quarterly Report on form 10-Q, for the period
ended September 30, 1997, Commission File Number 1-8007)
10.3(c) Amendment Number Four to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan. (Incorporated
by reference to Exhibit 10.3 to the Registrant's Annual Report
on Form 10-K, for the Fiscal Year Ended December 31, 1997,
Commission File Number 1-8007.)
10.3(d) Amendment Number Five to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan. (Incorporated
by reference to Exhibit 10.3(d) to the Registrant's Quarterly
Report on form 10-Q, for the period ended September 30, 1998,
Commission File Number 1-8007.)
10.4(a) Fremont General Corporation Investment Incentive Program
Trust. (Incorporated by reference to Exhibit (10)(xi) to the
Registrant's Annual Report on Form 10-K, for the Fiscal Year
Ended December 31, 1993, Commission File Number 1-8007.)
10.4(b) Amendment to the Fremont General Corporation Investment
Incentive Program Trust. (Incorporated by reference to Exhibit
10.4 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007.)
10.5(a) Fremont General Corporation Supplemental Retirement Plan, as
restated January 1, 1997. (Incorporated by reference to
Exhibit 10.5 to the Registrant's Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission File
Number 1-8007.)
26
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
10.5(b) Amendment Number One to the Fremont General Corporation
Supplemental Retirement Plan. (Incorporated by reference to
Exhibit 10.5 to the Registrant's Quarterly Report onForm 10-Q,
for the period ended March 31, 1998, Commission File Number
1-8007.)
10.5(c) Amendment Number Two to the Fremont General Corporation
Supplemental Retirement Plan of the Company. (Incorporated by
reference to Exhibit 10.5 (b) to the Registrant's Annual
Report on Form 10-K, for the fiscal year ended December 31,
1998, Commission File Number 1-8007.)
10.6 Trust Agreement for Fremont General Corporation Supplemental
Retirement Plan and Fremont General Corporation Senior
Supplemental Retirement Plan and amendment. (Incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on
Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
10.7(a) Fremont General Corporation Senior Supplemental Retirement
Plan, as restated January 1, 1997. (Incorporated by reference
to Exhibit 10.7 to the Registrant's Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission File
Number 1-8007.)
10.7(b) First Amendment to the Fremont General Corporation Senior
Supplemental Retirement Plan. (Incorporated by reference to
Exhibit 10.7 (b) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1998, Commission
File Number 1-8007.)
10.8(a) Fremont General Corporation Excess Benefit Plan Restated
effective as of January 1, 1997 and First Amendment dated
December 21, 1998. (Incorporated by reference to Exhibit 10.8
(a) to the Registrant's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1998, Commission File Number
1-8007.)
10.8(b) Amendment to Excess Benefit Plan of Fremont General
Corporation. (Incorporated by reference to Exhibit 10.8 to
the Registrant's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File
Number 1-8007.)
10.8(c) Trust Agreement for Fremont General Corporation Excess Benefit
Plan. (Incorporated by reference to Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
10.9 Amended Non-Qualified Stock Option Plan of 1989 and related
agreements of the Company. (Incorporated by reference to
Exhibit 10.9 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1996, Commission File Number 1-8007.)
10.10 1997 Stock Plan and related agreements. (Incorporated by
reference to Exhibit 10.10 to Quarterly Report on Form 10-Q,
for the period ended June 30, 1997, Commission File Number
1-8007.)
10.11(a) Long-Term Incentive Compensation Plan of the Company - Senior
Executive Plan. (Incorporated by reference to Exhibit 10.10
(a) on Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1996, Commission File Number
1-8007.)
27
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
10.11(b) Long-Term Incentive Compensation Plan of the Company
(Incorporated by reference to Exhibit 10.10 (b) on
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1996, Commission File Number 1-8007.)
10.12 1995 Restricted Stock Award Plan As Amended and forms of
agreement thereunder. (Incorporated by reference to Exhibit
4.1 to Registration Statement on Registrant's Form S-8/S-3
File 333-17525 which was filed on December 9, 1997.)
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. (Incorporated
by reference to Exhibit 10.12 to the Registrant's Annual
Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007.)
10.14(a) Employment Agreement between the Company and James A. McIntyre
dated January 1, 1994. (Incorporated by reference to Exhibit
(10)(i) to the Registrant's Quarterly Report on Form 10-Q for
the period ended March 31, 1994, Commission File Number
1-8007.)
10.14(b) First Amendment to Employment Agreement between the Company
and James A. McIntyre dated August 1, 1996. (Incorporated by
reference to Exhibit 10.10 to the Registrant's Quarterly
Report on Form 10-Q, for the period ended June 30, 1997,
Commission File Number 1-8007.)
10.14(c) Second Amendment to Employment Agreement between the Company
and James A. McIntyre dated August 8, 1997. (Incorporated by
reference to Exhibit 10.14 (c) to the Registrant's Quarterly
Report on Form 10-Q, for the period ended September 30, 1997,
Commission File Number 1-8007 Incorporated by reference to.)
10.15(a) Employment Agreement between the Company and Louis J. Rampino
dated February 8, 1996. (Incorporated by reference to Exhibit
10.14 (a) to the Registrant's Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007.)
10.15(b) Employment Agreement between the Company and Wayne R. Bailey
dated February 8, 1996. (Incorporated by reference to Exhibit
10.14 to the Registrant's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007.)
10.16 Management Continuity Agreement between the Company and
Raymond G. Meyers dated February 8, 1996. (Incorporated by
reference to Exhibit 10.15 to the Registrant's Annual Report
on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
10.17 1999 Management Incentive Compensation Plan of the Company.
10.18 Continuing Compensation Plan for Retired Directors.
(Incorporated by reference to Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
10.19 Credit Agreement among Fremont General Corporation, Various
Lending Institutions and the Chase Manhattan Bank, N.A., As
Agent dated August 1, 1997. (Incorporated by reference to
Exhibit 10.20 to the Registrant's Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission File
Number 1-8007.)
28
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
10.20 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. (Incorporated by reference to Exhibit (10)(viii) to
the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1995.)
10.21(a) Second Amended and Restated Credit Agreement among Fremont
Financial Corporation, Various Lending Institutions, Wells
Fargo Bank N.A. and Fleet Bank National Association as
Co-Agents, and The Chase Manhattan Bank as Agent, dated as of
June 23, 1997. (Incorporated by reference to Exhibit 10.22 (a)
to the Registrant's Quarterly Report on Form 10-Q/A Amendment
1, for the period ended September 30, 1998, Commission File
Number 1-8007.)
10.21(b) First Amendment and Consent dated as of October 21, 1997, to
the Second Amended and Restated Credit Agreement among Fremont
Financial Corporation, Various Lending Institutions, Wells
Fargo Bank N.A. and Fleet Bank National Association as
Co-Agents, and The Chase Manhattan Bank as Agent.
(Incorporated by reference to Exhibit 10.22 (b) to the
Registrant's Quarterly Report on Form 10-Q/A Amendment No. 1,
for the period ended September 30, 1998, Commission File
Number 1-8007).
27 Financial Data Schedule
(b) Report on Form 8-K. None.
29
<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: May 14, 1999 /s/ LOUIS J. RAMPINO
------------------------------
Louis J. Rampino, President,
Chief Operating Officer and
Director
Date: May 14, 1999 /s/ JOHN A. DONALDSON
------------------------------
John A. Donaldson, Senior Vice
President, Controller and
Chief Accounting Officer
30
<PAGE>
EXHIBIT INDEX
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.
(Incorporated by reference to Exhibit 2.1 to the Registrant's
Report on Form 8-K, as of August 1, 1997, Commission File
Number 1-8007.)
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. (Incorporated by reference to Exhibit
2.2 to the Registrant's Report on Form 8-K, as of August 1,
1997, Commission File Number 1-8007.)
3.1 Restated Articles of Incorporation of Fremont General
Corporation. (Incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q, for the period
ended June 30, 1998, Commission File Number 1-8007.)
3.2 Certificate of Amendment of Articles of Incorporation of
Fremont General Corporation. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-K,
for the fiscal year ended December 31, 1998, Commission File
Number 1-8007.)
3.3 Amended and Restated By-Laws of Fremont General Corporation.
(Incorporated by reference to Exhibit 3.3 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
4.1 Form of Stock Certificate for Common Stock of the Registrant.
(Incorporated by reference to Exhibit (1) to the Registrant's
Form 8-A filed on March 17, 1993, Commission File Number
1-8007.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013
between the Registrant and Bankers Trust Company.
(Incorporated by reference to Exhibit 4.4 to Registration
Statement on Form S-3 filed on October 1, 1993.)
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
4.3 Indenture among the Registrant, the Trust and First Interstate
Bank of California, a California banking corporation, as
trustee. (Incorporated by reference to Exhibit 4.3 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
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. (Incorporated by
reference to Exhibit 4.5 to the Registrant's Annual Report on
Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
4.5 Preferred Securities Guarantee Agreement between the
Registrant and The Chase Manhattan Bank, N.A., a national
banking association, as Preferred Guarantee Trustee.
(Incorporated by reference to Exhibit 4.6 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
4.6 Common Securities Guarantee Agreement by the Registrant.
(Incorporated by reference to Exhibit 4.7 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
4.7 Form of Preferred Securities. (Included in Exhibit 4.5).
(Incorporated by reference to Exhibit 4.8 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
4.8 Form of 9% Junior Subordinated Debenture. (Included in Exhibit
4.3). (Incorporated by reference to Exhibit 4.9 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
4.9 Indenture dated as of March 1, 1999 between the Registrant and
The First National Bank of Chicago, as trustee. (Incorporated
by reference to Exhibit 4.9 to the Registrant's Annual Report
on Form 10-K, for the fiscal year ended December 31, 1998,
Commission File Number 1-8007.)
4.10 Registration Rights Agreement among the Registrant and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse
First Boston Corporation, Goldman, Sachs & Co., and Warburg
Dillon Read LLC. (Incorporated by reference to Exhibit 4.10 to
the Registrant's Annual Report on Form 10-K, for the fiscal
year ended December 31, 1998, Commission File Number 1-8007.)
4.11 Form of Fremont General Corporation 7.70% Senior Notes due
2004. (Incorporated by reference to Exhibit 4.11 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1998, Commission File Number 1-8007.)
4.12 Form of Fremont General Corporation 7.875% Senior Notes due
2009. (Incorporated by reference to Exhibit 4.12 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1998, Commission File Number 1-8007.)
4.13 Form of Registrant's Series B 7.70% Senior Note due 2004.
(Incorporated by reference to Exhibit 4.3 to the Registrant's
Registration Statement on Form S-4 filed on April 26, 1999.)
4.14 Form of Registrant's Series B 7.875% Senior Note due 2009.
(Incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-4 filed on April 26, 1999.)
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
10.1(a) Fremont General Corporation Employee Stock Ownership Plan.
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
10.1(b) Amendment Number One to the Fremont General Corporation
Employee Stock Ownership Plan.
10.1(c) Amendment Number Two to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1 (b) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1997, Commission
File Number 1-8007.)
10.1(d) Amendment Number Three to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1(c) to the Registrant's Quarterly Report on form
10-Q, for the period ended September 30, 1998, Commission File
Number 1-8007.)
10.1(e) Amendment Number Four to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1(d) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1998, Commission
File Number 1-8007.)
10.2 Restated Trust Agreement for Fremont General Corporation
Employee Stock Ownership Plan. and amendment (Incorporated by
reference to Exhibit 10.2 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007.)
10.3(a) Fremont General Corporation and Affiliated Companies
Investment Incentive Plan. (Incorporated by reference to
Exhibit 10.3 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007.)
10.3(b) Amendments Number One, Two and Three to the Fremont General
Corporation and Affiliated Companies Investment Incentive
Plan. (Incorporated by reference to Exhibit 10.3 (b) to the
Registrant's Quarterly Report on form 10-Q, for the period
ended September 30, 1997, Commission File Number 1-8007)
10.3(c) Amendment Number Four to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan. (Incorporated
by reference to Exhibit 10.3 to the Registrant's Annual Report
on Form 10-K, for the Fiscal Year Ended December 31, 1997,
Commission File Number 1-8007.)
10.3(d) Amendment Number Five to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan. (Incorporated
by reference to Exhibit 10.3(d) to the Registrant's Quarterly
Report on form 10-Q, for the period ended September 30, 1998,
Commission File Number 1-8007.)
10.4(a) Fremont General Corporation Investment Incentive Program
Trust. (Incorporated by reference to Exhibit (10)(xi) to the
Registrant's Annual Report on Form 10-K, for the Fiscal Year
Ended December 31, 1993, Commission File Number 1-8007.)
10.4(b) Amendment to the Fremont General Corporation Investment
Incentive Program Trust. (Incorporated by reference to Exhibit
10.4 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007.)
10.5(a) Fremont General Corporation Supplemental Retirement Plan, as
restated January 1, 1997. (Incorporated by reference to
Exhibit 10.5 to the Registrant's Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission File
Number 1-8007.)
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
10.5(b) Amendment Number One to the Fremont General Corporation
Supplemental Retirement Plan. (Incorporated by reference to
Exhibit 10.5 to the Registrant's Quarterly Report onForm 10-Q,
for the period ended March 31, 1998, Commission File Number
1-8007.)
10.5(c) Amendment Number Two to the Fremont General Corporation
Supplemental Retirement Plan of the Company. (Incorporated by
reference to Exhibit 10.5 (b) to the Registrant's Annual
Report on Form 10-K, for the fiscal year ended December 31,
1998, Commission File Number 1-8007.)
10.6 Trust Agreement for Fremont General Corporation Supplemental
Retirement Plan and Fremont General Corporation Senior
Supplemental Retirement Plan and amendment. (Incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on
Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
10.7(a) Fremont General Corporation Senior Supplemental Retirement
Plan, as restated January 1, 1997. (Incorporated by reference
to Exhibit 10.7 to the Registrant's Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission File
Number 1-8007.)
10.7(b) First Amendment to the Fremont General Corporation Senior
Supplemental Retirement Plan. (Incorporated by reference to
Exhibit 10.7 (b) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1998, Commission
File Number 1-8007.)
10.8(a) Fremont General Corporation Excess Benefit Plan Restated
effective as of January 1, 1997 and First Amendment dated
December 21, 1998. (Incorporated by reference to Exhibit 10.8
(a) to the Registrant's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1998, Commission File Number
1-8007.)
10.8(b) Amendment to Excess Benefit Plan of Fremont General
Corporation. (Incorporated by reference to Exhibit 10.8 to
the Registrant's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File
Number 1-8007.)
10.8(c) Trust Agreement for Fremont General Corporation Excess Benefit
Plan. (Incorporated by reference to Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
10.9 Amended Non-Qualified Stock Option Plan of 1989 and related
agreements of the Company. (Incorporated by reference to
Exhibit 10.9 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1996, Commission File Number 1-8007.)
10.10 1997 Stock Plan and related agreements. (Incorporated by
reference to Exhibit 10.10 to Quarterly Report on Form 10-Q,
for the period ended June 30, 1997, Commission File Number
1-8007.)
10.11(a) Long-Term Incentive Compensation Plan of the Company - Senior
Executive Plan. (Incorporated by reference to Exhibit 10.10
(a) on Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1996, Commission File Number
1-8007.)
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
10.11(b) Long-Term Incentive Compensation Plan of the Company
(Incorporated by reference to Exhibit 10.10 (b) on
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1996, Commission File Number 1-8007.)
10.12 1995 Restricted Stock Award Plan As Amended and forms of
agreement thereunder. (Incorporated by reference to Exhibit
4.1 to Registration Statement on Registrant's Form S-8/S-3
File 333-17525 which was filed on December 9, 1997.)
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. (Incorporated
by reference to Exhibit 10.12 to the Registrant's Annual
Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007.)
10.14(a) Employment Agreement between the Company and James A. McIntyre
dated January 1, 1994. (Incorporated by reference to Exhibit
(10)(i) to the Registrant's Quarterly Report on Form 10-Q for
the period ended March 31, 1994, Commission File Number
1-8007.)
10.14(b) First Amendment to Employment Agreement between the Company
and James A. McIntyre dated August 1, 1996. (Incorporated by
reference to Exhibit 10.10 to the Registrant's Quarterly
Report on Form 10-Q, for the period ended June 30, 1997,
Commission File Number 1-8007.)
10.14(c) Second Amendment to Employment Agreement between the Company
and James A. McIntyre dated August 8, 1997. (Incorporated by
reference to Exhibit 10.14 (c) to the Registrant's Quarterly
Report on Form 10-Q, for the period ended September 30, 1997,
Commission File Number 1-8007 Incorporated by reference to.)
10.15(a) Employment Agreement between the Company and Louis J. Rampino
dated February 8, 1996. (Incorporated by reference to Exhibit
10.14 (a) to the Registrant's Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007.)
10.15(b) Employment Agreement between the Company and Wayne R. Bailey
dated February 8, 1996. (Incorporated by reference to Exhibit
10.14 to the Registrant's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007.)
10.16 Management Continuity Agreement between the Company and
Raymond G. Meyers dated February 8, 1996. (Incorporated by
reference to Exhibit 10.15 to the Registrant's Annual Report
on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
10.17 1999 Management Incentive Compensation Plan of the Company.
10.18 Continuing Compensation Plan for Retired Directors.
(Incorporated by reference to Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
10.19 Credit Agreement among Fremont General Corporation, Various
Lending Institutions and the Chase Manhattan Bank, N.A., As
Agent dated August 1, 1997. (Incorporated by reference to
Exhibit 10.20 to the Registrant's Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission File
Number 1-8007.)
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
10.20 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. (Incorporated by reference to Exhibit (10)(viii) to
the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1995.)
10.21(a) Second Amended and Restated Credit Agreement among Fremont
Financial Corporation, Various Lending Institutions, Wells
Fargo Bank N.A. and Fleet Bank National Association as
Co-Agents, and The Chase Manhattan Bank as Agent, dated as of
June 23, 1997. (Incorporated by reference to Exhibit 10.22 (a)
to the Registrant's Quarterly Report on Form 10-Q/A Amendment
1, for the period ended September 30, 1998, Commission File
Number 1-8007.)
10.21(b) First Amendment and Consent dated as of October 21, 1997, to
the Second Amended and Restated Credit Agreement among Fremont
Financial Corporation, Various Lending Institutions, Wells
Fargo Bank N.A. and Fleet Bank National Association as
Co-Agents, and The Chase Manhattan Bank as Agent.
(Incorporated by reference to Exhibit 10.22 (b) to the
Registrant's Quarterly Report on Form 10-Q/A Amendment No. 1,
for the period ended September 30, 1998, Commission File
Number 1-8007).
27 Financial Data Schedule
AMENDMENT NUMBER ONE
TO THE
FREMONT GENERAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of January 1, 1995, except as otherwise provided, the
Fremont General Corporation Employee Stock Ownership Plan is hereby amended, as
follows:
FIRST: Section 2.1 is restated in its entirety, as follows:
"2.1 PARTICIPATION
(a) Each Employee, except Employees employed by an Affiliated
Company which is not a Participating Employer, Leased Employees,
Temporary Employees, and Union Employees may commence participation in
the Plan on the Entry Date following his or her completion of one (1)
Year of Service.
(b) For purposes of this Section, the following definitions shall
apply:
(i) TEMPORARY EMPLOYEES - Employees hired on a
temporary or seasonal basis who is classified as
such in the records of the Employer.
(ii) UNION EMPLOYEES - Employees included in a unit of
Employees covered by a collective bargaining
agreement between the Employer and Employee
representatives, if retirement benefits were the
subject of good faith bargaining and if two
percent or less of the Employees who are covered
pursuant to that agreement are professionals as
defined in Treasury Regulations Section
1.410(b)-9. For this purpose, the term "Employee
representatives" does not include any organization
more than half of whose members are Employees who
are owners, officers or executives of the
Employer."
SECOND: Paragraph (a) of Section 13.4 is amended in its entirety, to read as
follows:
"(a) For any Plan Year in which the Plan is Top-Heavy, the
following vesting schedule shall apply to any Employer contributions
made for that Plan Year:
YEARS OF SERVICE VESTED PERCENTAGE
Less than 1 year 0%
1 but less than 2 10%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 years or more 100%
<PAGE>
The Top-Heavy vesting schedule shall also apply to any subsequent
Plan Years unless the Employer amends the Plan to provide for a vesting
schedule which is more rapid than the one in this Section."
THIRD: Exhibit A, the list of Participating Employers, is amended, effective
as of February 22, 1995, is amended to include the following:
"8. Casualty Insurance Company
a. Workers' Compensation and Indemnity Company of California"
Dated: July 12, 1995 FREMONT GENERAL CORPORATION
By: /s/ RAYMOND G. MEYERS
-----------------------
RAYMOND G. MEYERS
MANAGEMENT INCENTIVE COMPENSATION PLAN
FREMONT GENERAL CORPORATION & AFFILIATED COMPANIES
PLAN OBJECTIVES
- Attract and retain key employees.
- Encourage, reinforce, and reward key employees for achieving or
exceeding specific annual pretax earnings goals.
- Uphold our long standing belief that our actions speak louder
than words, and our results speak for themselves.
The details of how you can be substantially rewarded for your
contribution to Fremont General Corporation and its affiliated companies (the
"Company") are described in this booklet. Please carefully read the following
pages as they outline the Plan.
ELIGIBILITY
- The Plan year runs from January 1 through December 31.
Participants must be actively employed by the Company and in good
standing at the end of the Plan year.
- Participants must be actively employed in an eligible position as
of June 30 for full participation in that year's Plan. Exceptions
must be approved by the Senior Vice President and Chief
Administrative Officer of Fremont General Corporation.
- Participants must achieve an individual performance rating of
"satisfactory" or better to be eligible.
- Participants must be employed and in good standing by the Company
at the time the bonus is paid.
DETERMINATION OF FUND
The bonus fund for Fremont General Corporation and its affiliated
companies is determined by the degree to which each company achieves its pretax
earnings goal established in the annual business plan. Funding of the Plan will
commence at 80% achievement of pretax earnings targets to a maximum of 120%. The
bonus fund is increased as participants become eligible during the Plan year, or
reduced as participants become ineligible for the Plan.
<PAGE>
BONUS OPPORTUNITIES
"Target" bonus is expressed as a percentage of annualized base salary.
The personalized statement in this booklet illustrates the range (minimum,
target, and maximum) of bonus opportunity for the Plan year.
Bonuses are paid in the first quarter following the close of the Plan
year. Bonuses are subject to all applicable tax withholding and reporting
requirements then in effect.
GENERAL PROVISIONS
NEW HIRES/PROMOTIONS
New hires and promotions occurring during the Plan year must meet the
eligibility criteria to be considered an eligible participant.
TRANSFERS
In the event of a transfer, bonuses will be allocated to the Company
where the participant was employed the majority of the Plan year.
LEAVES OF ABSENCE
Bonuses are calculated based on the number of months the participant
worked in an eligible position. Participants on leaves of absence that extend
beyond ninety (90) days during the Plan year will not be eligible for full
participation. Participants on leaves of absence in excess of six (6) months
during the Plan year will be disqualified from any participation in that year's
bonus.
CORRECTIVE ACTION OR REMEDIAL PROCEDURES
If a participant engages in conduct which results in remedial procedures
and/or corrective action at or before the time a bonus is paid, or the employee
is otherwise not in good standing with the Company at such time, then,
notwithstanding any other provisions of this Plan, all or part of any unpaid
bonus may be reduced or eliminated at the sole discretion of the Company.
RETIREMENT/DISABILITY/DEATH
If a participant terminates employment for reasons of retirement,
disability, or death, the bonus will be prorated based on the number of months
the participant worked in an eligible position.
TERMINATION
Termination of employment, for the purposes of this Plan, shall mean the
day the participant leaves the job, which may or may not be the last day on the
Company's payroll.
<PAGE>
PLAN PARTICIPATION
Participation in the Plan with respect to a certain plan year is not in
and of itself to be construed as evidence of a right to participate in any
subsequent plan year. For each successive plan year, participation shall be
confirmed only by properly approved designation of the Employee as a
participant.
PLAN CHANGES AND INTERPRETATION
The Company reserves the right at its sole and absolute discretion to
revise, supplement, or discontinue all or part of this Plan at any time without
notice. All decisions of the Company in regard to interpretation and application
of the Plan shall be final and not subject for appeal or review. Furthermore,
the Plan does not constitute a contract of employment or other contractual
arrangement and nothing contained herein, nor any modifications subsequently
adopted, shall be construed to limit the rights the Company has to terminate the
Employee's employment, including the Company's right to terminate at will or
without cause or notice.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000038984
<NAME> FREMONT GENERAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 1,666,595
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 464,378
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 5,884,844<F1>
<CASH> 61,931
<RECOVER-REINSURE> 20,269
<DEFERRED-ACQUISITION> 52,662
<TOTAL-ASSETS> 8,013,319
<POLICY-LOSSES> 2,395,641
<UNEARNED-PREMIUMS> 144,335
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 14,212
<NOTES-PAYABLE> 1,430,486
100,000
0
<COMMON> 70,056
<OTHER-SE> 898,737<F2>
<TOTAL-LIABILITY-AND-EQUITY> 8,013,319
170,343
<INVESTMENT-INCOME> 45,320
<INVESTMENT-GAINS> 25
<OTHER-INCOME> 83,091<F3>
<BENEFITS> 97,541
<UNDERWRITING-AMORTIZATION> 43,122
<UNDERWRITING-OTHER> 17,053
<INCOME-PRETAX> 51,211
<INCOME-TAX> 16,900
<INCOME-CONTINUING> 34,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,311
<EPS-PRIMARY> 0.51<F4>
<EPS-DILUTED> 0.49<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, Loans held for sale, 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>
