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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 1-8007
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FREMONT GENERAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEVADA 95-2815260
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2020 SANTA MONICA BOULEVARD,
SANTA MONICA, CALIFORNIA 90404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 315-5500
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, $1.00 PAR VALUE
LIQUID YIELD OPTION(TM) NOTES DUE 2013 (ZERO COUPON-SUBORDINATED)
FREMONT GENERAL FINANCING I -- 9% TRUST ORIGINATED PREFERRED SECURITIES(SM)
(TITLE OF EACH CLASS)
NEW YORK STOCK EXCHANGE
(NAME OF EACH EXCHANGE ON WHICH REGISTERED)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 26, 1999:
COMMON STOCK, $1.00 PAR VALUE -- $989,835,000
The number of shares outstanding of each of the issuer's classes of common
stock as of February 26, 1999:
COMMON STOCK, $1.00 PAR VALUE -- 70,056,000 SHARES
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the proxy statement for the 1999 annual meeting of stockholders
are incorporated by reference into Part III of this report.
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FREMONT GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 23
Item 3. Legal Proceedings........................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......... 23
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 24
Item 6. Selected Financial Data..................................... 25
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 27
Item 7(a). Quantitative and Qualitative Disclosures About Market
Risk........................................................ 47
Item 8. Financial Statements and Supplementary Data (Index to
Consolidated Financial Statements and Financial Statement
Schedules on Page 54)....................................... 47
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 47
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 48
Item 11. Executive Compensation...................................... 48
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 48
Item 13. Certain Relationships and Related Transactions.............. 48
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 49
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ITEM 1. BUSINESS
The following business section contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange 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
"Item 1. Business" section and elsewhere in this Form 10-K including, but not
limited to, "Competition," "Loss and Loss Adjustment Expense Reserves,"
"Analysis of Loss and Loss Adjustment Expense Development," "Investment
Portfolio," "Competition and Economic Conditions," "Discontinued Operations,"
"Regulation," and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
GENERAL
Fremont General Corporation is an insurance and financial services holding
company operating select businesses nationally in niche markets. The reported
assets of Fremont General Corporation and its subsidiaries ("Fremont" or "the
Company") as of December 31, 1998 were $7.4 billion, with 1998 pre-tax earnings
of $196.7 million. Fremont'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. The Company's business strategy
also includes growing its business through new business development and
acquisitions. The Company's stock is traded on the New York Stock Exchange under
the symbol "FMT".
The Company's businesses are managed within two reportable segments:
property and casualty insurance and financial services. These segments offer two
basic financial products; policies of insurance (property and casualty
insurance), and loans (financial services). They are managed separately and use
different pricing, distribution, and operating methods. Fremont evaluates the
performance of its reportable segments based on income before taxes using
accounting policies which are the same as those described in the summary of
significant accounting policies. (See Note A of Notes to Consolidated Financial
Statements.) Additionally, there are certain corporate revenues and expenses,
comprised primarily of investment income, interest expense and certain general
and administrative expenses, that Fremont does not allocate to its segments.
Substantially all of Fremont's property and casualty insurance operation is
represented by the underwriting of workers' compensation insurance policies,
which are distributed primarily through non-exclusive independent insurance
agents and brokers nationwide. The Company's property and casualty segment
posted income before taxes of $169.2 million, $144.7 million and $117.6 million
for the years ended December 31, 1998, 1997 and 1996, respectively, on revenues
of $729.7 million, $738.1 million and $596.8 million for the same respective
periods. Fremont's financial services operation consists of operating units that
conduct collateralized lending activities on a national basis. Lending
activities include: commercial and residential real estate lending; commercial
working capital lines of credit ("commercial finance"); the Company's interest
in large commercial loans originated and serviced by other financial
institutions ("syndicated loans"); and insurance premium financing. The
financial services business is developed through the Company's own marketing
representatives and referrals from various financial intermediaries and
financial institutions. Fremont's financial services operation earned $55.5
million, $42.3 million and $36.6 million in income before taxes for the years
ended December 31, 1998, 1997 and 1996, respectively, on revenues of $305.9
million, $235.5 million and $197.6 million for the same respective periods. (See
Note O of Notes to Consolidated Financial Statements.)
Fremont's workers' compensation insurance business currently has major
market positions in California, Illinois, Arizona, Idaho, Alaska, Indiana,
Montana, Utah and Wisconsin. At December 31, 1998, the Company had premiums
inforce in thirty-nine states and the District of Columbia. The Company would
have ranked as the seventh largest writer, in direct premiums, of workers'
compensation insurance in the United States for the year ended December 31,
1997, according to A.M. Best, if the results of Fremont's September 1, 1998
acquisition of UNICARE Specialty Services, Inc. ("Unicare") were included. For
the years ended December 31, 1998, 1997, and 1996, the Company had workers'
compensation insurance net premiums earned of $551 million, $571 million, and
$457 million, respectively. Over the last four years, the Company has focused on
creating a broad national platform upon which to build its business, while
providing geographic
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diversity to mitigate potential fluctuations in earnings from cyclical downturns
in various regional economies. (See "Property and Casualty Insurance Operation"
and Note B of Notes to Consolidated Financial Statements.) A.M. Best rates the
Company's workers' compensation insurance subsidiaries on a consolidated basis
as "A-" (Excellent); this rating was reaffirmed on October 21, 1998. An "A-"
rating is A.M. Best's fourth highest rating category out of fifteen rating
categories ranging from "A++" (Superior) to "F" (In Liquidation).
Fremont's financial services operation originates loans on a national
basis. The Company also purchases pools of loans from time to time that meet our
new loan origination underwriting guidelines. Fremont's lending is done
primarily on a senior and secured basis and it seeks to minimize its credit
exposure through conservative loan underwriting and a comprehensive system of
collateral monitoring. The Company continues to focus on loan origination by
broadening its existing distribution channels and creating new distribution
channels. The outstanding loan portfolio of Fremont's financial services
operation has grown from $1.5 billion at December 31, 1994 to $3.0 billion at
December 31, 1998. (See "Financial Services Operation.")
By engaging in geographically diverse businesses nationwide, the Company
believes it has achieved stability and provided opportunities for growth in its
operating results. Since the year ended December 31, 1994 to the year ended
December 31, 1998, the Company's income before taxes grew at a compound annual
rate of approximately 25% to $196.7 million for 1998. The Company's book value
increased from $351.0 million at December 31, 1994 to $950.9 million at December
31, 1998.
Management believes that ownership of Fremont's Common Stock by employees
has been an important element in the Company's success by enabling the Company
to attract and retain the best available personnel for positions of substantial
responsibility and to provide additional incentive and motivation to such
individuals to promote the success of the Company. As of December 31, 1998,
officers and directors of the Company, their families and the Company's benefit
plans beneficially owned approximately 28% of the Company's outstanding Common
Stock.
Fremont General Corporation, a Nevada corporation, was incorporated in
1972. Its corporate office is located at 2020 Santa Monica Boulevard, Suite 600,
Santa Monica, California 90404 and its phone number is (310)315-5500.
PROPERTY AND CASUALTY INSURANCE OPERATION
Fremont Compensation Insurance Group, through its subsidiaries ("Fremont
Compensation"), primarily underwrites workers' compensation insurance, and had
premiums inforce in thirty-nine states and the District of Columbia as of
December 31, 1998. Over the last four years, the Company's focus on creating a
broad national platform through acquisitions and new business development has
resulted in Fremont Compensation becoming one of the largest workers'
compensation insurers in the United States. The Company continues to underwrite
a significant amount of premium in California and Illinois. Using the Company's
estimated annual premiums on policies in effect at December 31, 1998, 1997 and
1996 (referred to as "inforce premium"), the percentage of the Company's inforce
premium in California and Illinois totaled 65%, 61%, and 75%, respectively.
Fremont also maintains leading market positions in Alaska, Arizona, Idaho,
Indiana, Montana, Utah and Wisconsin. The Company believes this geographic
diversity has mitigated potential fluctuations in earnings from cyclical
downturns in various regional economies. A.M. Best rates the Company's workers'
compensation insurance subsidiaries on a consolidated basis as "A-" (Excellent).
Workers' compensation insurance is a government-mandated ("statutory")
system which requires every employer to either purchase insurance or self-insure
in order to provide its employees with medical care and other specified benefits
for work-related injuries or illnesses. Compensation is payable regardless of
which party was at fault. Most employers provide for this potential liability by
purchasing workers' compensation insurance from insurance carriers. There are
four types of benefits payable under workers' compensation policies: medical
benefits, vocational rehabilitation benefits, disability benefits and death
benefits. The amounts of disability and death benefits payable for claims are
established by statute, vocational rehabilitation benefits are provided with
certain limitations in some jurisdictions, including California, and no dollar
limitation is set forth for medical benefits. (See "Regulation -- Insurance
Regulation.")
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Premiums. Workers' compensation insurance premiums are based upon the
policyholder's payroll and the nature of their business and may be affected
significantly by changes in general economic conditions which impact employment
and wage levels, as well as by government regulation. Insurance premiums are
also subject to supervision and regulation by the state insurance authority in
each state. Most of the states in which Fremont does business, including
California and Illinois, operate under an open rating system. In an open rating
system, workers' compensation insurers 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 premium rates.
Illinois has been operating under an open rating system since 1982. California
adopted an open rating system effective January 1, 1995 through the repeal of
the minimum rate law. 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. (See "Regulation -- Insurance Regulation.") The repeal of the minimum
rate law resulted in lower premiums and lower profitability on the Company's
California workers' compensation insurance policies due to increased price
competition. (See "Competition.")
Underwriting and Loss Control. Prior to insuring a workers' compensation
account, Fremont's underwriting department reviews the employer's prior loss
experience, safety record, credit history, operations, geographic location and
employment classifications. The Company generally avoids industries and
businesses involving hazardous conditions or high exposure to multiple injuries
resulting from a single occurrence. Fremont targets accounts that appear to have
a strong work ethic among employees, long-term employees, and a genuine interest
in the adoption of and adherence to loss control standards.
Fremont's loss control department participates in the initial underwriting
process and also provides on-going services to policyholders based on individual
needs and potential risk exposure. In the initial underwriting phase, the
underwriter will review both the loss experience and description of operations
and where there is a concern about the potential hazards or claim trends, a loss
control consultant will be requested to pre-screen the account prior to policy
issuance. This pre-screening process involves meeting with the employer's
management to assess the extent to which management is committed to safety in
the workplace, surveying the employer's operations, reviewing past loss patterns
and evaluating the safety program.
After the policy is issued, the loss control department will provide
service calls to the insured based on both regulatory requirements and specific
needs to assist the employer in developing and maintaining safety programs and
procedures, review periodic loss reports, identify weaknesses in the employer's
loss prevention procedures and assist in correcting these weaknesses. In some
states, loss control must target those employers who have a high claim
frequency, and provide specific services to assist in accident prevention.
Accident and claim records maintained by the Company are also reviewed by the
loss control department and service calls are initiated when adverse claim
trends develop. Any insured who requests loss control service is provided this
service free of charge. Accident prevention services include physical surveys
for hazard recognition, safety program evaluation, loss trend analysis and
employee training.
Policyholders' Dividends. Since 1995, Fremont's workers' compensation
insurance policies have been predominately written as non-participating and,
therefore, do not include provisions for the insurer to declare and pay
dividends to a policyholder after the expiration of the policy. Prior to 1995,
Fremont's California policies were predominately written as participating,
thereby obligating the Company to consider the payment of dividends to a
policyholder, based upon the policyholder's loss experience, the Company's
overall loss experience and competitive conditions. This shift in policy type is
due primarily to the increased competition in the California market which
resulted from the repeal of the minimum rate law, effective January 1, 1995.
(See "Premiums" and "Regulation -- Insurance Regulation.") This shift to
non-participating policies has continued and is a characteristic element of the
competitive environment.
Claims Administration. Fremont's policy is to settle valid claims promptly
and to work closely with policyholders to return injured workers to the job
quickly, while avoiding litigation if possible. Claims personnel communicate
frequently with policyholders, injured employees and medical providers. The Com-
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pany's policy is to control the number of cases assigned to its claims
personnel, to identify and investigate questionable claims and to produce early
and cost-effective case settlements of valid claims. As part of its "zero
tolerance" program, Fremont refuses to settle any claim that it believes to be
fraudulent. The Company, where permitted, utilizes its own non-lawyer hearing
representatives in most claims adjudicated administratively and has found this
practice to be significantly less expensive than using legal counsel.
Fremont provides rehabilitation programs for injured workers and
aggressively pursues the containment of medical costs through its subsidiary,
Fremont Health Corporation. This subsidiary provides services to the Company's
claims personnel which are designed to reduce medical costs and return injured
workers to the job quickly. Such services include integrated medical case
management; a network of directly-contracted group of preferred providers who
have unique experience in industrial medicine; a review of medical bills using
both internal and outsourced resources; medical peer review panels of
credentialed regional medical providers; and comprehensive return-to-work
programs designed to return injured workers back to work as quickly as medical
treatment standards permit. The integrated case management service involves
nurses employed by Fremont Health who work closely with the claims personnel to
provide prompt and aggressive medical treatment to mitigate the effects of the
workers' injuries.
Competition. The insurance industry is characterized by competition on the
basis of price and service. Prior to January 1, 1995, minimum premium rates were
prescribed for workers' compensation insurance in California by the Department
of Insurance, and competition for underwriting such insurance in California had
been based principally upon an insurance carrier's financial strength and
history of paying policyholders' dividends. Secondary considerations included
loss control and claims administration, the ability to respond promptly to
agents and brokers, and commission schedules for agents and brokers. The repeal
of the California minimum rate law, effective January 1, 1995, has resulted in
increased price competition which has adversely affected the Company's results
of operations for its workers' compensation insurance business in California.
(See "Regulation -- Insurance Regulation.") Beginning in 1997, however, Fremont
observed a moderation of price competition in California. Over the past several
years, the Company has also observed a reduction in the number of competitors
resulting from mergers and acquisitions of companies into other entities, as
well as from companies electing to discontinue the underwriting of workers'
compensation insurance. Fremont expanded its workers' compensation operation
through the acquisition on August 1, 1997 of Industrial Indemnity Holdings, Inc.
("Industrial"), which underwrites workers' compensation insurance in most
western states. Excluding California, these western states have collectively
exhibited relatively stable competitive environments. In Illinois, price
competition has also impacted the Company's results of operations. The advisory
premium rates in Illinois, which are established by the National Council on
Compensation Insurance and which workers' compensation insurance companies in
Illinois tend to follow, decreased 0.2%, 7.9%, and 10.0% effective January 1,
1999, 1998 and 1997, respectively. Beginning in the fourth quarter of 1997,
however, the Company observed some moderation of price competition in Illinois.
It is uncertain whether this moderation will continue. Although the acquisition
of Industrial, as well as the acquisition of Illinois-based Casualty Insurance
Company ("Casualty") on February 22, 1995, has provided Fremont with major
market positions in several states outside of California, based on the
competitive nature of the insurance industry and the inherent risks associated
with the Company entering into a new geographic market, there can be no
assurance that the Company will continue to maintain its market share in the
future. Furthermore, state regulatory changes could affect competition in the
states where the Company transacts insurance business. Although Fremont is one
of the largest writers of workers' compensation insurance in several states,
including California and Illinois, certain of the Company's competitors are
larger and have greater resources than the Company.
Marketing. Fremont markets its workers' compensation insurance products
through more than 2,700 non-exclusive independent insurance agents and brokers,
many of whom have been associated with Fremont for more than 15 years. At
December 31, 1998, the ten largest agents accounted for approximately 23% of the
Company's workers compensation insurance premiums. The largest producer
accounted for 4%.
Reinsurance Ceded. Reinsurance is ceded primarily to reduce the liability
on individual risks and to protect against catastrophic losses. Fremont follows
the industry practice of reinsuring a portion of its risks. For this coverage,
the Company pays the reinsurer a portion of the premiums received on all
policies.
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Fremont maintains excess of loss reinsurance treaties with various
reinsurers for each of its insurance lines. Under the current workers'
compensation reinsurance treaties, various reinsurers assume liability on that
portion of the loss that exceeds $50,000 per occurrence, up to a maximum of
$399,950,000 per occurrence. Prior to January 1, 1998, the Company's excess of
loss reinsurance for its workers' compensation insurance business assumed
liability on that portion of the loss that exceeded $1 million per occurrence,
up to a maximum of $399 million per occurrence. (See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Property and Casualty Insurance Operation -- Premiums.") For
medical malpractice insurance, excess of loss reinsurance covers claims and
losses above $1 million, up to a maximum of $5 million. On January 1, 1998, the
Company entered into reinsurance and assumption agreements with a reinsurer
whereby substantially all of the assets and liabilities related to the Company's
medical malpractice policies were ceded to a reinsurer. (See "Medical
Malpractice Insurance.") Although reinsurance makes the assuming reinsurer
liable to the insurer to the extent of the reinsurance ceded, it does not
legally discharge an insurer from its primary liability for the full amount of
the policy liability. All of the foregoing reinsurance is with non-affiliated
reinsurers. The Company believes that the terms of its reinsurance contracts are
consistent with industry practice and, based on its understanding of the
reinsurers' financial condition and reputations in the reinsurance marketplace,
that its reinsurers are financially sound. Fremont encounters disputes from time
to time with its reinsurers, which, if not settled, are typically resolved in
arbitration.
Most of Fremont's treaties are for annual terms. However, for the treaties
which became effective January 1, 1998 and under which the reinsurers assume
liability on that portion of the loss that exceeds $50,000 per occurrence, up to
a maximum of $950,000, the terms are for a period of two years, expiring January
1, 2000. In general, the reinsurance agreements are of the treaty variety and
cover all underwritten risks of types specified in the treaties. As of December
31, 1998, Great Southern Insurance Company, Reliance Insurance Company and
Constitution Reinsurance Corporation were the only reinsurers that accounted for
more than 10% of the Company's total reinsurance recoverables on paid and unpaid
losses.
Medical Malpractice Insurance. Fremont's medical malpractice insurance
operation underwrote primarily standard professional liability insurance on a
"claims made" basis, through non-exclusive independent brokers mainly in
California. On January 1, 1998, the Company entered into reinsurance and
assumption agreements with a reinsurer whereby substantially all of the assets
and liabilities related to the medical malpractice policies were ceded to the
reinsurer. These reinsurance agreements are part of several other agreements
which collectively resulted in the sale of Fremont's medical malpractice
operations effective January 1, 1998. The effect on operations from these
agreements was not material, and revenue and operating income from medical
malpractice operations were not significant in 1997 or 1996.
Operating Data. Set forth below is certain information pertaining to
Fremont's property and casualty insurance business as determined in accordance
with generally accepted accounting principles ("GAAP") for the years indicated.
(See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of certain of this information.)
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YEAR ENDED DECEMBER 31,
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1998 1997 1996 1995 1994
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(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
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Net premiums earned................. $552,078 $601,183 $486,860 $606,917 $433,584
Net investment income and
other(1).......................... 148,040 102,645 92,254 85,912 52,471
Underwriting profit (loss).......... 21,195 42,022 25,339 (2,820) 8,794
Income before taxes................. 169,235 144,667 117,593 83,092 61,265
Loss ratio........................ 60.8% 64.7% 68.9% 76.0% 63.1%
Expense ratio..................... 34.5% 27.5% 25.9% 24.5% 23.4%
Policyholders' dividend ratio..... 0.9% 0.8% -- -- 11.5%
-------- -------- -------- -------- --------
Total combined ratio...... 96.2% 93.0% 94.8% 100.5% 98.0%
======== ======== ======== ======== ========
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(1) Includes net realized investment gains (losses) and interest expense.
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Statutory Combined Ratio. The following table reflects the combined ratios
of Fremont's workers' compensation insurance business determined in accordance
with statutory accounting practices, together with the workers' compensation
industry-wide combined ratios after policyholders' dividends, as compiled by
A.M. Best, for the years indicated.
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YEAR ENDED DECEMBER 31,
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1998 1997 1996 1995 1994
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Workers' Compensation:
Company....................... 113.4%(2) 96.6%(3) 97.9% 100.1%(4) 98.5%
Industry(1)................... not available 100.8% 99.7% 97.0% 101.4%
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(1) Nationwide statutory combined ratio information for the workers'
compensation insurance industry for 1994 through 1997 is from A.M. Best's
Aggregates & Averages, Property-Casualty (1995 through 1998 editions).
(2) Includes the statutory results for Unicare for the period January 1, 1998
through August 31, 1998, which was prior to the Company's acquisition of
Unicare on September 1, 1998. The significant increase in the statutory
combined ratio in 1998 as compared to 1997 is due primarily to significant
increases in the liability for losses and LAE for Unicare, which occurred
prior to its acquisition by the Company.
(3) Includes the statutory results for Industrial for the period January 1, 1997
through July 31, 1997, which was prior to the Company's acquisition of
Industrial on August 1, 1997.
(4) Includes the statutory results for Casualty for the period January 1, 1995
through February 21, 1995, which was prior to the Company's acquisition of
Casualty on February 22, 1995.
Premium-to-Surplus Ratio. Regulatory authorities regard the
premium-to-surplus ratio as an important indicator of operating leverage. A
lower ratio indicates a greater ability on the part of the insurer to withstand
abnormal loss experience. Guidelines established by the National Association of
Insurance Commissioners ("NAIC") provide that a property and casualty insurer's
premium-to-surplus ratio is satisfactory if it is below 3 to 1.
The following table sets forth the Company's consolidated ratio of net
property and casualty premiums written during the period to policyholders'
surplus on a statutory basis at the end of the period, for the periods
indicated:
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YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998(1) 1997(2) 1996 1995(3) 1994
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(THOUSANDS OF DOLLARS, EXCEPT RATIOS)
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Net premiums written during the year........ $644,218 $820,532 $473,123 $683,711 $425,631
Policyholders' surplus at end of year....... 646,828 548,280 399,893 299,408 235,294
Ratio....................................... 1.0x 1.5x 1.2x 2.3x 1.8x
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(1) Includes net written premium for Unicare for the period January 1, 1998
through August 31, 1998, which was prior to the Company's acquisition of
Unicare on September 1, 1998.
(2) Includes net written premium for Industrial for the period January 1, 1997
through July 31, 1997, which was prior to the Company's acquisition of
Industrial on August 1, 1997.
(3) Includes net written premium for Casualty for the period January 1, 1995
through February 21, 1995, which was prior to the Company's acquisition of
Casualty on February 22, 1995.
Loss and Loss Adjustment Expense Reserves. In many cases, significant
periods of time, ranging up to several years or more, may elapse between the
occurrence of an insured loss, the reporting of the loss to the insurer, and the
insurer's payment of that loss. To recognize liabilities for future unpaid
losses, insurers establish reserves, which are balance sheet liabilities,
representing estimates of future amounts needed to pay claims with respect to
insured events that have occurred. Reserves are also established for loss
adjustment expense reserves ("LAE") representing the estimated expenses of
settling claims, including legal and other fees, and general expenses of
administering the claims adjustment process.
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Reserves for losses and LAE ("loss reserves") are based not only on
historical experience but also on management's judgment of the effects of
matters such as future economic and social forces likely to impact the insurer's
experience with the type of risk involved, circumstances surrounding individual
claims, and trends that may affect the probable number and nature of claims
arising from losses not yet reported. Consequently, loss reserves are inherently
subject to a number of highly variable circumstances.
Loss reserves are revalued periodically using a variety of actuarial and
statistical techniques for producing current estimates of expected claim costs.
Claim frequency and severity and other economic and social factors are
considered in the reevaluation process. A provision for inflation in the
calculation of estimated future claim costs is implicit since reliance is placed
on both actual historical data, which reflect past inflation, and on other
factors which are judged to be appropriate modifiers of past experience.
Adjustments to liabilities are reflected in operating results for the periods to
which they are made.
Reconciliation of Loss and Loss Adjustment Expense Reserves. The following
table shows the GAAP reconciliation of the estimated liability for losses and
LAE for Fremont's property and casualty insurance subsidiaries (excluding
discontinued operations) and the effect on income for each of the three years
indicated.
RECONCILIATION OF RESERVES FOR LOSSES AND LAE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
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(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Reserves for losses and LAE, net of reinsurance
recoverable, at beginning of year........................ $1,809,395 $1,010,886 $1,185,706
Incurred losses and LAE:
Provision for insured events of the current year, net of
reinsurance........................................... 348,897 441,524 334,657
Increase (decrease) in provision for insured events of
prior years, net of reinsurance....................... (13,447) (52,323) 750
---------- ---------- ----------
Total incurred losses and LAE.................... 335,450 389,201 335,407
Payments:
Losses and LAE, net of reinsurance, attributable to
insured events of:
Current year.......................................... (245,177) (253,323) (108,247)
Prior years........................................... (590,197) (386,469) (401,980)
---------- ---------- ----------
Total payments................................... (835,374) (639,792) (510,227)
---------- ---------- ----------
Subtotal......................................... 1,309,471 760,295 1,010,886
Liability for losses and LAE for companies acquired during
the year................................................. 287,645 1,049,100 --
---------- ---------- ----------
Reserves for losses and LAE, net of reinsurance
recoverable, at end of year.............................. 1,597,116 1,809,395 1,010,886
Reinsurance recoverable for losses and LAE, at end of
year..................................................... 701,002 353,928 245,459
---------- ---------- ----------
Reserves for losses and LAE, gross of reinsurance
recoverable, at end of year.............................. $2,298,118 $2,163,323 $1,256,345
========== ========== ==========
</TABLE>
Analysis of Loss and Loss Adjustment Expense Development. The following
table shows the cumulative amount paid against the previously recorded liability
at the end of each succeeding year and the cumulative development of the
estimated liability for the ten years ending December 31, 1998. Conditions and
trends that have affected the development of these reserves and payments in the
past will not necessarily recur in the future. Accordingly, management does not
believe that it is appropriate to use this cumulative history to project future
performance.
The re-estimated liability portion of the following table shows the year by
year development of the previously estimated liability at the end of each
succeeding year. The re-estimated liabilities are increased or
7
<PAGE> 10
decreased as more information becomes known about the frequency and severity of
claims for individual years. The increases or decreases are reflected in the
current year's operating earnings. Each column shows the reserve held at the
indicated calendar year-end and cumulative data on re-estimated liabilities for
the year and all prior years making up those calendar year end liabilities. The
effect on income of the charge (credit) during the current period (i.e., the
difference between the estimated liability at December 31 and the liability
estimated one year later) is shown in the previous table above for each of the
three most recent years as "Increase (decrease) in provision for insured events
of prior years."
8
<PAGE> 11
CHANGES IN HISTORICAL RESERVES FOR LOSS AND LAE FOR THE LAST TEN YEARS
GAAP BASIS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- -------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reserves for Loss and LAE,
net of reinsurance
recoverable.............. $406,823 $647,559 $652,284 $627,103 $633,394 $644,190 $610,510 $1,185,706
Net reserve re-estimated as
of:
One year later......... 396,091 636,039 624,953 668,107 629,268 626,956 611,892 1,186,456
Two years later........ 377,080 607,253 647,959 660,729 615,747 633,333 632,397 1,116,673
Three years later...... 356,961 607,492 638,879 651,482 621,348 641,166 644,485 1,116,103
Four years later....... 350,736 599,052 627,194 654,403 626,174 659,968 641,581
Five years later....... 375,550 593,527 631,165 659,050 685,517 656,549
Six years later........ 373,514 596,808 634,628 717,517 681,811
Seven years later...... 375,364 600,646 675,661 714,447
Eight years later...... 380,467 630,176 672,560
Nine years later....... 399,852 627,227
Ten years later........ 396,987
Net cumulative redundancy
(deficiency)............. 9,836 20,332 (20,276) (87,344) (48,417) (12,359) (31,071) 69,603
Cumulative amount of
reserve paid, net of
reserve recoveries,
through:
One year later......... 125,563 226,101 245,777 257,951 240,552 236,774 241,667 401,980
Two years later........ 211,529 374,876 403,105 419,638 402,048 392,237 397,640 662,943
Three years later...... 263,229 461,366 495,707 521,729 499,924 484,474 495,825 812,174
Four years later....... 291,817 514,890 550,404 583,013 558,935 545,574 548,109
Five years later....... 320,511 547,535 585,094 623,022 600,071 580,503
Six years later........ 339,998 567,871 608,802 652,990 624,813
Seven years later...... 351,805 583,580 629,321 670,625
Eight years later...... 362,802 597,623 641,031
Nine years later....... 373,790 605,926
Ten years later........ 379,801
Net reserve -- December 31..........................................................................................
Reinsurance recoverable.............................................................................................
Gross reserve -- December 31........................................................................................
Net re-estimated reserve............................................................................................
Re-estimated reinsurance recoverable................................................................................
Gross re-estimated reserve..........................................................................................
Gross cumulative redundancy (deficiency)............................................................................
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Reserves for Loss and LAE,
net of reinsurance
recoverable.............. $1,010,886 $1,809,395 $1,597,116
Net reserve re-estimated as
of:
One year later......... 958,563 1,795,948 --
Two years later........ 955,644
Three years later......
Four years later.......
Five years later.......
Six years later........
Seven years later......
Eight years later......
Nine years later.......
Ten years later........
Net cumulative redundancy
(deficiency)............. 55,242 13,447 --
Cumulative amount of
reserve paid, net of
reserve recoveries,
through:
One year later......... 386,469 590,197 --
Two years later........ 607,273
Three years later......
Four years later.......
Five years later.......
Six years later........
Seven years later......
Eight years later......
Nine years later.......
Ten years later........
---------- ---------- ----------
Net reserve -- December 31. $1,010,886 $1,809,395 $1,597,116
Reinsurance recoverable.... 245,459 353,928 701,002
---------- ---------- ----------
Gross reserve -- December 3 $1,256,345 $2,163,323 $2,298,118
========== ========== ==========
Net re-estimated reserve... $ 955,644 $1,795,950
Re-estimated reinsurance
recoverable.............. 269,925 423,308
---------- ----------
Gross re-estimated reserve. $1,225,569 $2,219,258
========== ==========
Gross cumulative redundancy
(deficiency)............. $ 30,776 $ (55,935)
========== ==========
</TABLE>
9
<PAGE> 12
The Company is required to maintain reserves to cover its estimated
ultimate liability for losses and LAE with respect to reported and unreported
claims incurred as of the end of each accounting period. These reserves do not
represent an exact calculation of liabilities, but rather are estimates
involving actuarial projections at a given time of what the Company expects the
ultimate settlement and administration of claims will cost based on facts and
circumstances then known, predictions of future events, estimates of future
trends in claims' frequency and severity and judicial theories of liability, as
well as other factors. The Company regularly reviews its reserving techniques,
overall reserve position and its reinsurance. In light of present facts and
current legal interpretations, management believes that adequate provision has
been made for loss reserves. In making this determination, management has
considered its claims experience to date, loss development history for prior
accident years, estimates of future trends of claims frequency and severity, and
various external factors such as judicial theories of liability. 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.
In 1998, Fremont decreased its losses and LAE reserves for 1997 and prior
accident years by $13.4 million. This decrease resulted primarily from the
combined effects of a decrease in 1997 and prior accident year losses and LAE
reserves under certain assigned risk plans that the Company is required to
participate in, and an increase in the discount established for certain accident
and health permanent disability and death reserves. (See
"Regulation -- Insurance Regulation" and Note A of Notes to Consolidated
Financial Statements.)
In 1997, Fremont decreased its losses and LAE reserves for 1996 and prior
accident years by $52.3 million. This reserve decrease relates primarily to loss
and LAE reserves on workers' compensation policies written in the Company's
mid-west region and represents the recognition of a decrease in the frequency of
reported claims on the 1996 and 1995 accident years. Additionally, the Company's
management believes that its implementation of more effective claims handling
procedures in the mid-west region has contributed to the reduction in LAE
reserves on the 1996 and prior accident years during calendar year 1997. Fremont
is not able to determine with certainty the specific cause or causes of
increases and decreases in claims experience that led to these changes in
reserves but has reached its own conclusion based on a review of its internal
data and a subjective evaluation of external factors. The following discussion
is a summary of the principal considerations that the Company evaluated in
determining workers' compensation insurance reserves adjustments in 1997.
The Company acquired Casualty on February 22, 1995. This acquisition
provided Fremont a significant presence in several mid-western states, primarily
Illinois. By the end of 1995, the Company observed a significant reduction in
the frequency of reported claims on the 1995 accident year as compared to
Casualty's historical experience prior to 1995. Also during 1995, Fremont had
been active in assimilating the operations of Casualty into its existing
operating environment, which included, among other things, implementing more
effective claims handling procedures. Therefore, the Company could not determine
with certainty whether or not the observed lower frequency in reported claims
was a one-time event occurring as a result of these changes in claims handling
procedures. In 1997, Fremont observed the continued trend in lower reported
claim experience on the 1996 and 1995 accident years, which also had been
confirmed in the industry through an evaluation of industry data. Appropriate
reserve adjustments were, therefore, made by the Company in recognition of this
confirmed trend in lower loss experience on the 1996 and 1995 accident years for
the mid-west region.
10
<PAGE> 13
INVESTMENT PORTFOLIO
Fremont manages its investments internally. The following portfolio
information reflects the Company's continuing operations.
The following table reflects the amortized cost and fair value of fixed
maturity investments and non-redeemable preferred equity securities by major
category, as well as the amortized cost and fair value of cash and short-term
investments on the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ ------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Available for sale:
United States Treasury securities and
obligations of other US government
agencies and corporations............ $ 87,615 $ 89,328 $ 165,847 $ 168,788
Obligations of states and
political subdivisions............... 240,067 247,222 99,876 101,899
Redeemable preferred stock.............. 38,035 38,306 27,618 28,350
Mortgage-backed securities.............. 355,747 369,246 560,015 575,360
Corporate securities
Banks................................ -- -- 9,374 9,573
Financial............................ 275,335 282,617 373,630 388,999
Transportation....................... 27,211 30,149 7,139 9,270
Industrial........................... 573,575 589,904 591,587 611,637
---------- ---------- ---------- ----------
Total........................... 1,597,585 1,646,772 1,835,086 1,893,876
Non-redeemable preferred stock.......... 489,714 500,376 356,223 378,832
---------- ---------- ---------- ----------
Total........................... $2,087,299 $2,147,148 $2,191,309 $2,272,708
========== ========== ========== ==========
Short-term investments.................... $ 222,719 $ 222,719 $ 164,626 $ 164,626
Cash...................................... 79,875 79,875 64,987 64,987
</TABLE>
As of December 31, 1998, substantially all of the investments in the
portfolio were rated investment grade by Standard and Poor's, Moody's, Duff and
Phelps and Fitch's rating services. Of these investments, 77% were rated A or
higher, 19% were rated BBB and 4% were rated BB. As of December 31, 1998, these
investment securities had an approximate fair value of $2.1 billion, which was
higher than amortized cost by approximately $60 million. Fremont does not
currently plan or intend to invest in securities rated below investment grade.
11
<PAGE> 14
The following table reflects average cash and average amortized cost of
investment assets of the Company for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C>
Average cash and investment assets:
Cash................................................. $ 87,125 $ 53,666 $ 40,467
Investment assets.................................... 2,345,464 1,970,602 1,752,181
---------- ---------- ----------
Total........................................ $2,432,589 $2,024,268 $1,792,648
========== ========== ==========
Investment yield earned on (excluding realized gains
and losses):
Cash and investment assets........................... 7.96% 7.48% 7.06%
Investment assets only............................... 8.25% 7.68% 7.22%
Investment yield earned on (including realized gains
and losses):
Cash and investment assets........................... 7.93% 7.38% 6.97%
Investment assets only............................... 8.23% 7.58% 7.13%
</TABLE>
Fremont has designated its entire portfolio as investments that would be
available for sale in response to changing market conditions, liquidity
requirements, interest rate movements and other investment factors. At December
31, 1998 and 1997, the Company held securities having an amortized cost of
$2.087 billion and $2.191 billion, respectively, as available for sale. (See
Notes A and C of Notes to Consolidated Financial Statements.)
The following table sets forth maturities in the fixed maturity investment
portfolio at December 31, 1998:
<TABLE>
<CAPTION>
AMORTIZED
COST PERCENTAGE
---------- ----------
(THOUSANDS OF DOLLARS,
EXCEPT PERCENTS)
<S> <C> <C>
One year or less............................................ $ 30,773 2%
Over 1 year through 5 years................................. 99,845 6
Over 5 years through 10 years............................... 611,549 39
Over 10 years............................................... 499,671 31
Mortgage-backed securities.................................. 355,747 22
---------- ---
Totals............................................ $1,597,585 100%
========== ===
</TABLE>
FINANCIAL SERVICES OPERATION
The operations of the financial services segment are consolidated within
Fremont General Credit Corporation, which is engaged in collateralized lending
to businesses and individuals. The Company's financial services loan portfolio
as of the dates indicated is summarized in the following table by loan type.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Commercial and residential real estate loans........... $2,110,545 $1,426,567 $1,113,950
Commercial finance loans............................... 485,508 400,475 429,217
Syndicated loans....................................... 360,150 146,790 128,959
Premium finance loans.................................. 58,319 54,257 53,661
---------- ---------- ----------
Loans receivable before allowance for possible loan
losses............................................... 3,014,522 2,028,089 1,725,787
Less allowance for possible loan losses................ (56,346) (44,402) (37,747)
---------- ---------- ----------
Loans receivable, net................................ $2,958,176 $1,983,687 $1,688,040
========== ========== ==========
</TABLE>
12
<PAGE> 15
Commercial and Residential Real Estate Lending
The real estate lending operations of Fremont currently consists of more
than 4,000 residential real estate accounts and 500 commercial real estate
accounts. The real estate lending activities are primarily conducted through a
California thrift and loan ("the thrift") and are financed mainly through
deposit accounts (53,000 accounts at December 31, 1998), which are insured by
the Federal Deposit Insurance Corporation ("FDIC"). (See "Regulation -- Thrift
and Loan Regulation.") The thrift's deposits are serviced through 14 branch
offices in California. (Fremont's insurance premium finance loans and certain of
its syndicated loans are also financed by the thrift. See "Syndicated Loans" and
"Insurance Premium Financing.") The loan portfolio of the real estate lending
operation has grown from $807.5 million at the end of 1994 to $2.1 billion at
the end of 1998, due primarily to increased loan originations and, to a lesser
extent, the purchase of loan portfolios from other financial institutions.
Loan Origination and Acquisition. Fremont originates real estate loans
nationwide through independent loan brokers, through its own marketing
representatives and through bulk purchase. (Bulk purchases totaled $116.2
million in 1998 and were immaterial in 1997 and 1996.) The Company originates
commercial real estate loans primarily for its own portfolio rather than for
resale to third parties. For residential real estate loans, Fremont has a
program, which began in 1995 and was expanded in 1997, of selling certain
residential real estate loans to other financial institutions. This allowed the
Company an opportunity to become more selective in its residential real estate
loan portfolio. Additionally, this program has allowed Fremont to offer a
broader range of residential real estate loans to its customers, primarily
through independent brokers. In 1998, $746.5 million of residential real estate
loans were sold for cash, all without recourse to the Company, to various other
entities. Due to market disruption and oversupply, Fremont 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 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 commercial real estate loan originations are primarily secured by first
deeds of trust on income-producing properties mainly in California and, to a
lesser degree, Illinois, Texas, and many other states. The real estate securing
these loans include a wide variety of property types including office, retail,
industrial and multi-family properties. Loans include short-term bridge
facilities for the rehabilitation and lease-up of existing properties, as well
as five to ten year permanent loans and single tenant loans. The majority of the
commercial real estate loans originated are adjustable rate loans and generally
range between $1 million to $15 million. As of December 31, 1998, the average
loan size was $2.8 million and the approximate average loan-to-value ratio was
65.7%, using the most current available appraised values and current balances
outstanding. The total amount of commercial real estate loans outstanding at
December 31, 1998 was $1.6 billion, or 51.8% of the Company's financial services
loan portfolio. Loans secured by commercial real estate are generally considered
to entail a higher level of risk than loans secured by residential real estate.
Although the properties securing Fremont's commercial real estate loans
generally have good operating histories, there can be no assurance that such
properties will continue to generate sufficient funds to allow their owners to
make full and timely mortgage loan payments. At December 31, 1998, the Company
had 13 non-performing commercial real estate loans totaling approximately $9.0
million and no commercial real estate owned.
Fremont also originates residential real estate loans secured by
single-family residences mainly in California, with smaller amounts originated
in Illinois, Washington, Utah, and many other states. At December 31, 1998,
single family residential real estate loans represented $549.4 million, or 18.2%
of Fremont's financial services loan portfolio. Substantially all of these loans
are secured by first deeds of trust. These loans generally have principal
amounts below $350,000, have maturities generally of thirty years and are
13
<PAGE> 16
approved in accordance with lending policies approved by the thrift's Board of
Directors, which include standards covering, among other things, collateral
value, loan to value and customer debt ratio. These loans generally are "hybrid"
loans which have a fixed rate of interest for an initial period after
origination, typically two to three years, and then the interest rate will be
adjusted to a rate equal to the sum of six month LIBOR and a margin as set forth
in the mortgage note. This interest rate will then be adjusted at each six-month
interval thereafter, subject to various lifetime and periodic rate caps and
floors. These loans have been originated using underwriting standards that are
less stringent than the Federal National Mortgage Association's guidelines and
are commonly known as "sub-prime" loans. To mitigate the higher potential for
credit losses that accompanies these types of borrowers, Fremont focuses on its
loan origination on the higher grades of loans in this category and attempts to
maintain underwriting standards that require conservative loan to collateral
valuations. At December 31, 1998, the average single-family loan amount was
$107,000, and the approximate average loan-to-value ratio was 75.5%, using
appraised values at the time of loan origination and current balances
outstanding. At December 31, 1998, Fremont had 109 non-performing residential
real estate loans totaling approximately $11.4 million and residential real
estate owned of approximately $3.8 million.
The total amount of commercial and residential real estate loans
outstanding on properties located outside of California at December 31, 1998 was
$328 million and $179 million, respectively. (See "Regulation -- Thrift and Loan
Regulation -- California Law.")
Funding Sources. The Company finances its real estate loans primarily
through funds from the thrift's depositors and its capital. Additional financing
is available to the thrift from the Federal Home Loan Bank of San Francisco
("FHLB"). Fremont offers certificates of deposit and installment investment
certificates (which are similar to passbook accounts and money market accounts)
insured by the FDIC to the legal maximum through its 14 branches in California.
The Company has typically offered higher interest rates to its depositors than
do most full service financial institutions. At the same time, it has minimized
the cost of maintaining these accounts by not offering non-interest bearing or
unlimited withdrawal transaction accounts or services such as checking, safe
deposit boxes, money orders, ATM access and other traditional retail services.
Fremont generally effects deposit withdrawals by issuing checks rather than
disbursing cash, which minimizes operating costs associated with handling and
storing cash. Deposits totaled $2.1 billion at December 31, 1998. The financing
by the FHLB became available to the thrift in January 1995. This financing is
available at varying rates and terms. As of December 31, 1998, $474 million was
available under the facility and $115 million was outstanding. The Company may
also, from time to time, securitize certain of its real estate loan assets. (See
"Loan Origination and Acquisition.")
The table below summarizes the Company's certificates of deposit as of
December 31, 1998 which are stated in amounts of $100,000 or more, by maturity
and by type.
<TABLE>
<CAPTION>
CERTIFICATES OF DEPOSIT $100,000 OR MORE, MATURING
---------------------------------------------------------------------
3 MONTHS OVER 3 THROUGH OVER 6 THROUGH OVER
OR LESS 6 MONTHS 12 MONTHS 12 MONTHS TOTAL
-------- -------------- -------------- --------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Retail......................... $45,644 $26,117 $19,866 $ 5,980 $ 97,607
IRA's.......................... 2,041 2,627 5,596 2,229 12,493
Brokered....................... 5,838 11,347 -- 77,407 94,592
------- ------- ------- ------- --------
Total................ $53,523 $40,091 $25,462 $85,616 $204,692
======= ======= ======= ======= ========
</TABLE>
Commercial Finance
Fremont provides working capital loans, primarily secured by accounts
receivable, inventory, machinery and equipment to small and middle market
companies on a nationwide basis. At December 31, 1998, commercial finance loans
represented $485.5 million, or 16.1% of the Company's financial services loan
portfolio. Loan originations are developed primarily by referrals from various
financial intermediaries and financial institutions. Commercial finance loans
made by the Company are primarily on a revolving short-term basis (generally two
or three years) and secured by assets which primarily include accounts
receivable, inventory, machinery and equipment and other types of collateral. In
addition, Fremont also makes term loans
14
<PAGE> 17
secured primarily by equipment and real estate. The term loans originated in
conjunction with revolving loans are cross-collateralized (i.e., the same
collateral is used to support both the term loans and all the related revolving
loans) and coterminous with the related revolving loan made to the same
borrower. The term to maturity for the term loans is generally five to seven
years; however, certain term loans are "balloon loans" that amortize over a
longer period and therefore do not amortize fully before their respective
maturities. As of December 31, 1998, the average outstanding commercial finance
loan balance was $2.0 million. Loans outstanding to a single borrower generally
range in size from $1 million to $5 million.
The major avenue of growth for the commercial finance operation remains the
establishment of new lending relationships. Fremont has a national presence with
regional offices in Santa Monica, Chicago, New York and Atlanta, as well as
several other marketing offices across the country. To provide a stable source
of funds to facilitate the continued expansion of its commercial finance lending
business, the Company, in 1993, established the Fremont Small Business Loan
Master Trust ("Fremont Trust"). The purpose of the Fremont Trust is to
securitize commercial finance loans originated by the Company (the "asset
securitization program"). The Fremont Trust is a master trust that can issue
multiple series of asset-backed certificates that represent undivided interests
in the Fremont Trust's assets (primarily commercial finance loans), which
Fremont will continue to service after securitization. As of December 31, 1998,
the Fremont Trust had an aggregate of $235 million in senior series of
certificates and an aggregate of $39 million in subordinated series of
certificates outstanding. The interest rate on the certificates, set monthly,
ranged from LIBOR plus 0.23% to LIBOR plus 0.95% at December 31, 1998. The
securities issued in this program have a scheduled maturity of two to four
years, but could mature earlier depending on fluctuations in the outstanding
balances of loans in the portfolio and other factors. As of December 31, 1998,
up to $265 million in additional publicly offered term asset-backed certificates
may be issued pursuant to a shelf registration statement to fund future growth
in the commercial finance loan portfolio. In December 1995, a commercial paper
facility was established as part of the asset securitization program. This
facility, which expires in December 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 December 31, 1998, $25 million in commercial
paper was outstanding under this facility. Commercial finance loans are also
financed under an unsecured revolving line of credit with a syndicated bank
group that presently permits borrowings of up to $438 million, which includes a
revolving credit facility of $350 million and a term loan of $88 million. The
revolving credit facility converts to a term loan in August 2000, with ultimate
maturity in June 2002. The term loan matures July 2001. The balance outstanding
at December 31, 1998 of the revolving credit facility and the term loan was $264
million and $88 million, respectively, with a weighted average interest rate of
5.74%. This credit line is primarily used to finance loans that are not included
in the Company's asset securitization program.
Fremont's commercial finance customer base consists primarily of small to
middle-market manufacturers and distributors that generally require financing
for working capital and debt restructuring. At December 31, 1998, the Company
had approximately 250 commercial finance loans outstanding in 35 states. At such
date, approximately 34.2% of total commercial finance loans outstanding were
made to companies based in California, and no other state accounted for more
than 6.5% of total commercial finance loans outstanding.
Commercial finance loans are asset-based revolving loans which permit a
company to borrow from the lender at any time during the term of the loan
agreement, up to the lesser of a maximum amount set forth in the loan agreement
or a percentage of the value of the collateral which primarily secures such
loans. Under an asset-based lending agreement, the borrower retains the credit
and collection risk with respect to the collateral in which the lender takes a
security interest. Cash collections are received as often as daily by or on
behalf of the borrower after the loan is initially made. These collections are
paid to the lender to reduce the loan balance.
While consideration is given to the net worth and profitability of a
client, asset-based loans are generally extended to borrowers who do not have
bank sources of credit readily available and are based on the estimated
liquidation value of the collateral pledged to secure the loan. The largest
percentage of realized losses has resulted from fraud or collateral
misrepresentations by the borrower. Fremont seeks to protect itself against this
risk through a comprehensive system of collateral monitoring and control.
Fremont's auditors perform auditing procedures of a borrower's books and records
and physically inspects the collateral prior to approval
15
<PAGE> 18
and funding, as well as approximately every 90 to 120 days during the term of
the loan. Over the past four years, the majority of Fremont's loans that have
been liquidated have been fully repaid, as the Company attempts to work closely
with the borrower through the liquidation to ensure repayment of the loan. The
Company seeks to limit its credit exposure by maintaining conservative
collateral valuations and perfection of its security interests.
Syndicated Loans
Fremont has interests in large syndicated loans which are originated and
serviced by other financial institutions. Syndicated loans generally carry lower
yields than the Company's commercial finance loans since the borrowers under
syndicated loans tend to be larger companies whose credit quality is generally
higher than borrowers under the Company's commercial finance loans. These loans
are senior obligations of the borrowers and are secured by various assets of the
borrower and, if applicable, its subsidiaries. The syndicated loans are variable
rate loans and are originated on both a revolving and fixed-term basis. The term
loans are generally issued with terms not in excess of ten years. The Company
finances these loans using thrift deposits, as well as financing through an
unsecured revolving line of credit with a syndicated bank group, which is also
used to finance Fremont's commercial finance loans that are not financed by the
Fremont Trust. (See "Commercial Finance.") The syndicated loan portfolio has
grown to $360.2 million at December 31, 1998, or 11.9% of the financial services
loan portfolio, from $146.8 million at December 31, 1997. This growth has been
achieved primarily from development of the customer base through referrals from
various financial institutions. As of December 31, 1998, the average outstanding
syndicated loan balance was $5.1 million. Loans outstanding to a single borrower
generally range in size from $5 million to $10 million.
Insurance Premium Financing
The Company finances property and casualty insurance premiums for small
businesses. Fremont funds this activity in the thrift, mainly through deposits.
This premium finance loan portfolio is collateralized by the unearned premiums
of the underlying insurance policies. At December 31, 1998, insurance premium
finance loans represented $58.3, million or 1.9% of Fremont's financial services
loan portfolio. (See "Regulation -- Thrift and Loan Regulation -- California
Law.")
Competition and Economic Conditions
During periods when economic conditions are unfavorable, Fremont'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
Fremont's finance receivables, which could adversely affect the Company's
results of operations and financial condition.
Fremont's financial services businesses maintain reserves for credit losses
on its portfolio of finance receivables in amounts that Fremont believes is
sufficient to provide adequate protection against potential losses. The Company
attempts to minimize the impact that adverse economic developments could have on
Fremont'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, Fremont'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 Fremont's ability to
realize the expected value of the collateral securing certain of its finance
receivables.
Fremont'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. Fremont primarily competes with banks,
mortgage, insurance, and
16
<PAGE> 19
finance companies, many of which are larger and have greater financial resources
than Fremont. The competitive forces of these markets could aversely affect the
Company's net finance income, loan origination volume or net credit losses.
LIFE INSURANCE
Prior to January 1, 1996, the Company offered life insurance products,
including annuities, credit life and disability insurance and term life
insurance for consumers, through a subsidiary. Effective December 31, 1995 and
January 1, 1996, the Company entered into reinsurance and assumption agreements
with a reinsurer whereby assets and liabilities related to certain life
insurance and annuity policies were ceded to the reinsurer. These reinsurance
agreements are part of several other agreements which have collectively resulted
in the substantial reduction of the Company's life insurance operations. The
Company continues to remain primarily obligated for approximately $128 million
in statutory reserve value of annuities which, at December 31, 1998, have been
fully co-insured with Great Southern Insurance Company. The effect on operations
from these agreements was not material, and revenue and operating income from
this subsidiary were not significant in 1998, 1997 or 1996.
DISCONTINUED OPERATIONS
Fremont's discontinued operations consist primarily of assumed treaty and
facultative reinsurance business that was discontinued between 1986 and 1991. In
1990, the Company established a management group to actively manage the
liquidation of this business. The liabilities associated with this business are
long term in duration and, therefore, the Company continues to be subject to
claims being reported. Claims under these reinsurance treaties include
professional liability, product liability and general liability which include
environmental claims.
The discontinued operations' assets at December 31, 1998 consisted of $186
million in cash and investment grade fixed income securities, reinsurance
recoverables of $50 million and other assets totaling $7 million. Fremont
estimates that the dedicated assets supporting these operations and all future
cash inflows will be adequate to fund future obligations. However, should those
assets ultimately prove to be insufficient, the Company believes that its
property and casualty subsidiaries would be able to provide whatever additional
funds might be needed to complete the liquidation without having a material
adverse effect on the Company's consolidated financial position or results of
operations. (See Note N of Notes to Consolidated Financial Statements.) The
discontinued operations have investment portfolios which resemble the portfolios
in the ongoing operations with regard to asset allocation, performance and
maturities.
REGULATION
Insurance Regulation
Fremont's workers' compensation insurance operations now have premiums
inforce in thirty-nine 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 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 investors or shareholders of an insurer.
The extent of such regulation varies, but generally derives from state statutes
that delegate regulatory, supervisory and administrative authority to state
insurance departments. Accordingly, the authority of the state insurance
departments includes the establishment of minimum solvency standards which must
be met and maintained by insurers, the licensing to do business of insurers and
agents, restrictions on investments by insurers, establishing premium rates for
certain property and casualty insurance, and life and disability insurance,
establishing the provisions which insurers must make for current losses and
future liabilities and the approval of policy forms. Additionally, most states
require issuers to participate in assigned risk plans which provide insurance
coverage to individuals or entities who are unable to obtain coverage from
existing insurers in those states. The net profit or loss incurred in the
administration of these plans is allocated back to participant insurers based on
the insurers' relative market share (i.e., insurance premiums) in each state.
State
17
<PAGE> 20
insurance departments also conduct periodic examinations of the affairs of
insurance companies and require the filing of annual and other reports relating
to the financial condition of insurance companies. Fremont's multistate
insurance operations require, and will continue to require, significant
resources of the Company in order to continue to comply with the regulations of
each state in which it transacts business.
Workers' Compensation Regulation. A significant portion of Fremont's
workers' compensation insurance premiums is derived from policies issued 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 premium rates. Before January 1, 1995, California operated under a
minimum rate law, whereby premium rates established by the California Department
of Insurance were the minimum rates which could be charged by an insurance
carrier. The repeal of the minimum rate law on January 1, 1995 resulted in lower
premiums and lower profitability in the Company's California workers'
compensation insurance business due to increased price competition. Fremont's
acquisition of Casualty, with policies written primarily outside of California,
lessened the impact of the repeal of the minimum rate law in 1995 by providing
geographic diversity, which mitigated the impact of these regulatory changes in
California.
Beginning in 1995, Fremont's policies were predominately written as
non-participating, which does not include provisions for policyholder dividend
consideration. Prior to January 1, 1995, the Company's policies, which were
written primarily in California, were primarily written as participating, which
obligated Fremont to consider policyholder dividend payments. This shift in
policy type is due primarily to the increased competition in the California
market which resulted from the repeal of the minimum rate law, effective January
1, 1995. The shift to non-participating policies has continued and is a
characteristic element of the competitive environment. In addition, Fremont's
subsidiaries are required, with respect to their workers' compensation line of
business, to maintain on deposit investments meeting specified standards that
have an aggregate market value equal to the Company's loss reserves.
Insurance Guaranty Association Laws. Under insolvency or guaranty fund laws
in most states in which the Company's insurance subsidiaries operate, insurers
doing business in those states can be assessed, up to the prescribed limits, for
losses incurred by policyholders as a result of the insolvency of other
insurance companies. The amount and timing of such assessments are beyond the
control of Fremont and generally have not had an adverse impact on Fremont's
earnings in years in which such assessments have been made. Premiums written
under workers' compensation policies are subject to assessment only with respect
to covered losses incurred by the insolvent insurer under workers' compensation
policies. The Company believes it does not face any material exposure to
guaranty fund assessments.
Holding Company Regulation. The Company is subject to the California
Insurance Holding Company System Regulatory Act (the "Holding Company Act").
This act, and similar laws in other states, require the Company to periodically
file information with the California Department of Insurance and other state
regulatory authorities, including information relating to its capital structure,
ownership, financial condition and general business operations. Certain
transactions between an insurance company and its affiliates, including sales,
loans or investments which in any twelve month period aggregate at least 5% of
its admitted assets or 25% of its statutory capital and surplus, also are
subject to prior approval by the Department of Insurance.
The Holding Company Act also provides that the acquisition or change of
"control" of a California domiciled insurance company or of any person who
controls such an insurance company cannot be consummated without the prior
approval of the Insurance Commissioner. In general, a presumption of "control"
arises from the ownership of voting securities and securities that are
convertible into voting securities, that in the aggregate, constitute 10% or
more of the voting securities of a California insurance company or of a person
that controls a California insurance company, such as Fremont General
Corporation. The Liquid Yield Option(TM) Notes ("LYONs") constitute a security
convertible into the voting Common Stock of the Company, and the shares of
Common Stock into which a holder's LYONs are convertible and
18
<PAGE> 21
any other securities convertible into Common Stock must be aggregated with any
other shares of Common Stock of the holder for purposes of determining the
percentage ownership. Additionally, the Company's 9% Trust Originated Preferred
Securities(SM), which were sold on March 1, 1996 by a wholly-owned subsidiary,
are a non-voting security and only represent an interest in the assets of this
subsidiary. A person seeking to acquire "control," directly or indirectly, of
Fremont must generally file with the Insurance Commissioner an application for
change of control containing certain information required by statute and
published regulations and provide a copy of the application to the Company. The
Holding Company Act also effectively restricts Fremont from consummating certain
reorganizations or mergers without prior regulatory approval.
The Holding Company Act also limits the ability of Fremont's insurance
subsidiaries to pay dividends to the Company. The act permits a property and
casualty insurance company to pay dividends in any year which, together with
other dividends or other distributions made within the preceding twelve months,
do not exceed the greater of 10% of its statutory surplus or 100% of its net
income as of the end of the preceding year, subject to certain limitations.
Larger dividends are payable only upon prior regulatory approval. Applicable
regulations further require that an insurer's statutory surplus following a
dividend or other distribution be reasonable in relation to its outstanding
liabilities and adequate to its financial needs. Based upon restrictions
presently in effect, the maximum amount available for payment of dividends by
the Company's property and casualty subsidiaries during 1999 without prior
regulatory approval is approximately $235.3 million. In addition, insurance
regulations require that the Department of Insurance be given fifteen days
advance notice of any dividend payment.
Other Regulations. The NAIC adopted a formula to calculate risk based
capital ("RBC") of property and casualty insurance companies for inclusion in
annual statements. The purpose of the RBC model is to help state regulatory
authorities monitor the capital adequacy of property and casualty insurance
companies by measuring several major areas of risk facing property and casualty
insurers including underwriting, credit and investment risks. Companies having
less statutory surplus than the RBC model calculates will be required to
adequately address these risk factors and will be subject to varying degrees of
regulatory intervention, depending on the level of capital inadequacy. As of
December 31, 1998 the Company's insurance subsidiaries engaged in continuing
operations exceed all RBC levels requiring any regulatory intervention.
Thrift and Loan Regulation
Fremont's thrift is subject to supervision and regulation by the Department
of Financial Institutions of the State of California (the "DFI") and, as an
insured institution, by the FDIC. None of the Company's subsidiaries are
regulated or supervised by the Office of Thrift Supervision, which regulates
savings and loan institutions. Fremont General Corporation is generally not
directly regulated or supervised by the DFI, the FDIC, the Federal Reserve Board
or any other bank regulatory authority, except with respect to guidelines
concerning its relationship with the thrift subsidiary. Such guidelines include
(i) general regulatory and enforcement authority of the DFI and the FDIC over
transactions and dealings between Fremont General Corporation and the thrift,
(ii) specific limitations regarding ownership of the capital stock of the parent
company of any thrift and loan company, and (iii) specific limitations regarding
the payment of dividends from the thrift as discussed below. The thrift is
examined on a regular basis by both agencies.
Federal and state regulations prescribe certain minimum capital
requirements and, while the thrift is currently in compliance with such
requirements, the Company could in the future be required to make additional
investments in the thrift in order to maintain compliance with such
requirements. Federal and state regulatory authorities have the power to
prohibit or limit the payment of dividends by the thrift. Fremont does not
believe that the restrictions on the thrift's ability to pay dividends imposed
by federal or state law will adversely affect the ability of Fremont General
Corporation to meet its obligations. Future changes in government regulation and
policy could adversely affect the thrift and loan industry, including the
Company's thrift.
California Law. The thrift and loan business conducted by Fremont's thrift
is governed by the California Industrial Loan Law and the rules and regulations
of the Commissioner of the DFI which, among other things, regulate the
collateral requirements and maximum maturities of the various types of loans
that are
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<PAGE> 22
permitted to be made by California-chartered industrial loan companies, i.e.,
industrial banks, thrift and loan, investment and loan, or premium financing
companies.
Subject to restrictions imposed by applicable California law, the thrift is
permitted to make secured and unsecured consumer and non-consumer loans. The
maximum term for repayment of loans made by thrift and loan companies is forty
years depending upon collateral and priority of secured position, except that
loans with repayment terms in excess of approximately thirty years may not in
the aggregate exceed 5% of total outstanding loans and obligations of the
thrift. Consumer loans secured by real property with terms in excess of three
years must be repayable in substantially equal periodic payments unless such
loans are covered under the Garn-St. Germain Depository Institutions Act of 1982
(primarily single-family residential loans). Non-consumer loans may be repayable
in unequal periodic payments during their respective terms. California law
limits lending activities outside of California by thrift and loan companies to
no more than 20% of total assets and upon application to and consent by the
Commissioner, 40% of total assets. Loans for purchase or refinance of single or
multi-family residential property, which are saleable in the secondary market,
evidenced by the Commissioner and held for 90 days or less, are exempt from the
out of state lending limits.
California law contains extensive requirements for the diversification of
the loan portfolios of thrift and loan companies. A thrift and loan with
outstanding investment certificates may not, among other things, make any one
loan secured primarily by improved real property which exceeds 20% of its
paid-up and unimpaired capital stock and surplus not available for dividends;
may not lend an amount in excess of 5% of its paid-up and unimpaired capital
stock and surplus not available for dividends upon the security of the stock of
any one corporation, which stock collateral may not be greater than 10% of the
stock of said corporation; may not make loans to, or hold the obligations of,
any one person as primary obligor in an aggregate principal amount exceeding 20%
of its paid-up and unimpaired capital stock and surplus not available for
dividends; and may, subject to certain exceptions, have no more than 70% of its
total assets in loans which have remaining terms to maturity in excess of seven
years and are secured solely or primarily by real property. Additionally, loans
having a principal balance in excess of $10,000 and secured primarily by real
property are limited to a maximum loan to value of 90%, with certain exceptions
which include: (i) government insured or guaranteed loans, (ii) loans made to
facilitate sale of real property owned resulting from foreclosure or deeds in
lieu thereof, (iii) restructured loans, (iv) loans saleable in the secondary
market, or (iv) loans held for less than 90 days. At December 31, 1998, the
thrift was in compliance with all of these requirements.
Effective January 1, 1999, the California legislature clarified the law and
expressly authorized a thrift and loan company to issue credit cards and to
acquire or hold obligations resulting from the use of credit cards. It was also
in that legislation that the words "industrial bank" were authorized to be used
in the name of a thrift and loan company and the Industrial Loan Law to be
referred to as the Industrial Banking Law.
A thrift and loan generally may not make any loans to, or hold an
obligation of, any of its directors or officers or any director or officer of
its holding company or affiliates, except in specified cases and subject to
regulation by the DFI. Further, a thrift and loan may not make any loan to, or
hold an obligation of, any of its shareholders or any shareholder of its holding
company or affiliates, except that this prohibition does not apply to persons
who own less than 10% of the stock of a holding company or affiliate which is
listed on a national securities exchange, such as Fremont General Corporation.
Any person who wishes to acquire (i) 10% or more of the voting securities of a
California thrift and loan company, or (ii) 10% or more of the voting securities
of a holding company of a California thrift and loan company, such as Fremont,
must obtain the prior approval of the DFI. The LYONs are not voting securities
of the Company, but the shares of Common Stock into which such LYONs are
convertible constitute voting securities of the Company. Additionally, Fremont's
9% Trust Originated Preferred Securities(SM), which were sold on March 1, 1996
by a wholly-owned subsidiary, are a non-voting security and only represent an
interest in the assets of this subsidiary. Fremont's thrift must also obtain
prior written approval from the DFI before it may open or relocate any branch or
loan production office or close a branch office.
The Industrial Loan Law prohibits an industrial loan company from having
deposits at any time in an aggregate sum in excess of 20 times the aggregate
amount of its paid-up unimpaired capital and amounts of its
20
<PAGE> 23
unimpaired surplus declared by its by-laws not to be available for cash
dividends. The Company's thrift currently has an authorized ratio of deposits to
such capital of 17 to 1.
Federal Law. The thrift's deposits are insured by the FDIC to the full
extent permitted by law. As an insurer of deposits, the FDIC issues regulations,
conducts examinations, requires the filing of reports and generally supervises
the operations of institutions to which it provides deposit insurance. Fremont's
thrift is subject to the rules and regulations of the FDIC to the same extent as
other financial institutions which are insured by that entity. The approval of
the FDIC is required prior to any merger, consolidation or change in control or
the establishment or relocation of any branch office of the thrift. This
supervision and regulation is intended primarily for the protection of the
insured deposit funds. Prior written notice to the FDIC is required to close a
branch office. No approval, however, is required to open, relocate, or close a
loan production office.
The thrift is subject to federal risk-based capital adequacy guidelines
which provide a measure of capital adequacy and are intended to reflect the
degree of risk associated with both on- and off-balance sheet items, including
residential real estate loans sold with recourse, legally binding loan
commitments and standby letters of credit. A financial institution's risk-based
capital ratio is calculated by dividing its qualifying capital by its
risk-weighted assets. Financial institutions are generally expected to meet a
minimum ratio of qualifying total capital to risk-weighted assets of 8%, of
which at least 4% of qualifying total capital must be in the form of core
capital ("Tier 1") -- common stock, noncumulative perpetual preferred stock,
minority interests in equity capital accounts of consolidated subsidiaries and
allowed mortgage servicing rights, less all intangible assets other than allowed
mortgage servicing rights and eligible purchased credit card relationships.
Supplementary capital ("Tier 2") consists of the allowance for loan and lease
losses up to 1.25% of risk-weighted assets, cumulative perpetual preferred
stock, long-term preferred stock (original maturity of at least 20 years),
perpetual preferred stock, hybrid capital instruments, term subordinated debt
and intermediate term preferred stock (original average maturity of five years
or more). The maximum amount of Tier 2 capital which may be recognized for
risk-based capital purposes is limited to 100% of Tier 1 capital (after any
deductions for disallowed intangibles). The aggregate amount of term
subordinated debt and intermediate term preferred stock that may be treated as
Tier 2 capital is limited to 50% of Tier 1 capital. Certain other limitations
and restrictions also apply. At December 31, 1997, the Tier 2 capital of the
thrift consisted of approximately $17.0 million of allowance for possible loan
losses. As of December 31, 1998, the thrift's allowance for possible loan losses
for Tier 2 capital increased to $25.5 million. The following table presents the
thrift's risk-based capital position at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
PERCENT OF PERCENT OF
RISK-WEIGHTED RISK-WEIGHTED
AMOUNT ASSETS AMOUNT ASSETS
---------- ------------- ---------- -------------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C>
Tier 1 capital............................. $ 186,520 9.17% $ 131,126 9.69%
Minimum requirement........................ 81,371 4.00 54,135 4.00
---------- ----- ---------- -----
Excess........................... $ 105,149 5.17% $ 76,991 5.69%
========== ===== ========== =====
Total capital.................... $ 212,048 10.42% $ 148,106 10.94%
Minimum requirement........................ 162,743 8.00 108,269 8.00
---------- ----- ---------- -----
Excess........................... $ 49,305 2.42% $ 39,837 2.94%
========== ===== ========== =====
Risk-weighted assets....................... $2,034,280 $1,353,366
========== ==========
</TABLE>
The FDIC has adopted a 3% minimum leverage ratio which is intended to
supplement risk-based capital requirements and to ensure that all financial
institutions continue to maintain a minimum level of core capital. A minimum
leverage ratio of 3% is required for institutions which have been determined to
be the highest of five categories used by regulators to rate financial
institutions. All other institutions (including the Company's thrift) will
likely be required to maintain leverage ratios of at least 1% to 2% above the 3%
minimum. It is improbable, however, that an institution with a 3% core
capital-to-total assets ratio would be rated in the highest category since a
strong capital position is so closely tied to the rating system. Therefore, the
"minimum" leverage ratio is, for all practical purposes, significantly above 3%.
The following table presents
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the thrift's leverage ratio (the ratio of Tier 1 capital to the quarterly
average total assets) at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
PERCENT OF PERCENT OF
AVERAGE TOTAL AVERAGE TOTAL
AMOUNT ASSETS AMOUNT ASSETS
---------- ------------- ---------- -------------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C>
Tier 1 capital............................... $ 186,520 8.81% $ 131,126 8.55%
Minimum requirement.......................... 63,510 3.00% 47,439 3.00%
---------- -------- ---------- --------
Excess............................. $ 123,010 5.81% $ 83,687 5.55%
========== ======== ========== ========
Average total assets for the quarter ended
December 31,............................... $2,117,009 $1,581,284
========== ==========
</TABLE>
The FDIC has designated Fremont's thrift as a "well-capitalized"
institution under the regulations promulgated under the Federal Deposit
Insurance Corporation Improvement Act of 1991. A "well-capitalized" institution
has a total risk-based capital ratio of at least 10%, has a Tier 1 risk-based
capital ratio of at least 6.0%, has a leverage ratio of at least 5.0% and is not
subject to any written agreement, order, capital directive or prompt corrective
action directive issued by the FDIC under Section 8 or Section 38 of the Federal
Deposit Insurance Act to meet and maintain a specific capital level for any
capital measure. The total risk-based capital ratio is the ratio of qualifying
total capital to risk-weighted assets and the Tier 1 risk-based capital ratio is
the ratio of Tier 1 capital to risk-weighted assets.
As a "well-capitalized" institution, the thrift's annual FDIC insurance
premiums currently are 1.2 cents per $100 of eligible domestic deposits in 1998.
The insurance premium payable is subject to semi-annual adjustment. The FDIC, by
the first day of the month preceding each semi-annual period, is required to
notify each insured institution of its assessment risk-classification upon which
the insurance premium assessment for the following period will be based. The
FDIC has the authority to assess to all insured institutions collectively,
additional premiums to cover losses and expenses associated with insuring
deposits maintained at financial institutions and for other purposes it deems
necessary.
Limitations on Dividends. Under California law, a thrift is not permitted
to declare dividends on its capital stock unless it has at least $750,000 of
unimpaired capital plus additional capital of $50,000 for each branch office
maintained. In addition, no distribution of dividends is permitted unless: (i)
such distribution would not exceed a thrift's retained earnings; (ii) any
payment would not result in violation of the approved maximum capital to thrift
investment certificate ratio; or (iii) in the alternative, after giving effect
to the distribution, the sum of a thrift and loan's qualified assets would be
not less than 125% of certain of its liabilities, or with certain exceptions,
current assets would be not less than current liabilities. In addition, a thrift
and loan is prohibited from paying dividends from that portion of capital which
its board of directors has declared restricted for dividend payment purposes. In
policy statements, the FDIC has advised insured institutions that the payment of
cash dividends in excess of current earnings from operations is inappropriate
and may be cause for supervisory action. Under the Financial Institutions
Supervisory Act and the Financial Institutions Reform, Recovery and Enforcement
Act of 1989, federal regulators also have authority to prohibit financial
institutions from engaging in business practices which are considered to be
unsafe or unsound. It is possible that, depending upon the financial condition
of the Company's thrift and other factors, such regulators could assert that the
payment of dividends in some circumstances might constitute unsafe or unsound
practices and could prohibit payment of dividends even though technically
permissible.
Fremont's thrift is also subject to federal consumer protection laws,
including the Truth In Savings Act, the Truth in Lending Act, the Community
Reinvestment Act and the Real Estate Settlement Procedures Act.
Commercial Finance
Fremont's commercial finance subsidiary is licensed by the California
Finance Lenders Law by the California Department of Financial Institutions as a
commercial finance lender and a personal property broker and holds certain other
licenses.
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<PAGE> 25
Intercompany Transactions
The payment of stockholders' dividends and the advancement of loans to
Fremont General Corporation by its subsidiaries are and may continue to be
subject to certain statutory and regulatory restrictions.
EMPLOYEES
At December 31, 1998, the Company had 3,320 employees, none of whom is
represented by a collective bargaining agreement. Fremont believes its relations
with employees are good.
ITEM 2. PROPERTIES
Substantially all facilities used by the Company are leased.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries and affiliates are parties to various
legal proceedings, which in some instances include claims for punitive damages,
most of which are considered routine and incidental to their business. Fremont
believes that ultimate resolution or settlement of such matters will not have a
material adverse effect on its consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 26
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange
("NYSE") under the trading symbol "FMT." The following table sets forth the high
and low sales prices of the Company's Common Stock adjusted retroactively for a
two-for-one stock split effected on December 10, 1998 as reported as composite
transactions on the NYSE and the cash dividends declared on the Company's Common
Stock during each quarter presented.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
------ ----- ----------
<S> <C> <C> <C>
1998
1st Quarter.................................... 31 1/16 24 5/32 $0.075
2nd Quarter.................................... 30 5/16 24 1/4 0.075
3rd Quarter.................................... 30 3/32 18 7/8 0.075
4th Quarter.................................... 25 11/16 18 0.080
------
Total................................ $0.305
======
1997
1st Quarter.................................... 16 5/16 14 $0.075
2nd Quarter.................................... 20 1/8 13 3/16 0.075
3rd Quarter.................................... 24 1/8 18 3/8 0.075
4th Quarter.................................... 27 21/32 21 5/32 0.075
------
Total................................ $0.300
======
</TABLE>
On December 31, 1998, the closing sale price of the Company's Common Stock
on the NYSE was $25.1875 per share. There were 1,454 stockholders of record as
of December 31, 1998.
The Company has paid cash dividends in every quarter since its initial
public offering in 1977. While the Company intends to continue to pay dividends,
the decision to do so is made quarterly by the Board of Directors and is
dependent on the earnings of the Company, management's assessment of future
capital needs, and other factors. As a holding company, Fremont General's
ability to pay dividends to its stockholders is partially dependent on dividends
from its subsidiaries. The ability of several of these subsidiaries to
distribute dividends is subject to regulation under California law. (See Note K
to Consolidated Financial Statements.)
24
<PAGE> 27
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998(1) 1997(2) 1996 1995(3) 1994
----------- --------- --------- --------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Property and casualty premiums earned.... $ 552,078 $601,183 $486,860 $606,917 $433,584
Loan interest............................ 234,828 194,412 163,765 162,992 113,382
Net investment income.................... 192,815 149,729 123,531 119,523 76,821
Realized investment gains (losses)....... (605) (1,964) (1,658) 1 (315)
Other revenue............................ 58,481 30,935 23,306 34,381 29,676
---------- -------- -------- -------- --------
Total revenues................... $1,037,597 $974,295 $795,804 $923,814 $653,148
========== ======== ======== ======== ========
Property and casualty income............. $ 169,235 $144,667 $117,593 $ 83,092 $ 61,265
Financial services income................ 55,506 42,286 36,589 35,737 28,014
Other interest and corporate expense..... (28,029) (28,060) (25,873) (18,502) (7,708)
---------- -------- -------- -------- --------
Income before taxes...................... 196,712 158,893 128,309 100,327 81,571
Income tax expense....................... (63,748) (50,601) (41,021) (32,305) (25,759)
---------- -------- -------- -------- --------
Net income............................... $ 132,964 $108,292 $ 87,288 $ 68,022 $ 55,812
========== ======== ======== ======== ========
GAAP RATIOS FOR PROPERTY AND CASUALTY
SUBSIDIARIES:
Loss ratio............................... 60.8% 64.7% 68.9% 76.0% 63.1%
Expense ratio............................ 34.5% 27.5% 25.9% 24.5% 23.4%
Policyholder dividends ratio............. 0.9% 0.8% -- -- 11.5%
---------- -------- -------- -------- --------
Combined ratio........................... 96.2% 93.0% 94.8% 100.5% 98.0%
========== ======== ======== ======== ========
PER SHARE DATA:
Cash dividends declared.................. $ 0.305 $ 0.30 $ 0.30 $ 0.252 $ 0.227
Stockholders' equity:
Including FASB 115(4)................. 13.60 12.04 9.95 9.81 6.91
Excluding FASB 115(4)................. 13.04 11.28 9.90 9.38 8.20
Net income:
Basic................................. 2.09 1.90 1.77 1.34 1.10
Diluted............................... 1.90 1.62 1.37 1.09 0.91
WEIGHTED AVERAGE SHARES USED TO CALCULATE
PER SHARE DATA:
Basic.................................... 63,529 57,059 49,315 50,782 50,609
Diluted.................................. 70,082 68,585 67,206 66,626 66,062
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1998(1) 1997(2) 1996 1995(3) 1994
---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets....................... $7,369,612 $6,090,627 $4,307,512 $4,477,399 $3,134,390
Fixed income and other
investments..................... 2,386,757 2,442,813 1,484,310 1,937,890 888,918
Loans receivable................... 2,958,176 1,983,687 1,688,040 1,499,043 1,440,774
Claims and policy liabilities...... 2,571,027 2,460,550 1,579,325 1,971,719 1,012,704
Short-term debt.................... 165,702 26,290 16,896 72,191 176,325
Long-term debt..................... 913,006 691,068 636,456 693,276 468,390
Trust Originated Preferred
Securities(SM)(5)............... 100,000 100,000 100,000 -- --
Stockholders' equity:
Including FASB 115(4)........... 950,912 832,815 559,117 498,090 351,013
Excluding FASB 115(4)........... 912,010 779,906 556,488 476,491 416,378
</TABLE>
- ---------------
(1) The Company acquired UNICARE Specialty Services, Inc. on September 1, 1998.
(2) The Company acquired Industrial Indemnity Holdings, Inc. on August 1, 1997.
(3) The Company acquired Casualty Insurance Company on February 22, 1995.
(4) Effective January 1994, FASB 115 changed the accounting treatment afforded
the Company's investment portfolio wherein unrealized gains and losses on
securities designated by the Company as available for sale are included net
of deferred taxes, as a component of stockholders' equity.
(5) Company-obligated mandatorily redeemable preferred securities of subsidiary
Trust holding solely Company junior subordinated debentures.
26
<PAGE> 29
ITEM 7. 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 Exchange 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 Form 10-K including, but not limited to "Item
1. Business."
GENERAL
Fremont General Corporation is an insurance and financial services holding
company operating select businesses nationally in niche markets. The reported
assets of Fremont General Corporation and its subsidiaries ("Fremont" or "the
Company") as of December 31, 1998 were $7.4 billion, with 1998 pre-tax earnings
of $196.7 million. Fremont'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. The Company's business strategy
also includes growing its business through new business development and
acquisitions. The Company's stock is traded on the New York Stock Exchange under
the symbol "FMT."
The Company's businesses are managed within two reportable segments:
property and casualty insurance and financial services. These segments offer two
basic financial products; policies of insurance (property and casualty
insurance), and loans (financial services). They are managed separately and use
different pricing, distribution, and operating methods. Fremont evaluates the
performance of its reportable segments based on income before taxes using
accounting policies which are the same as those described in the summary of
significant accounting policies. (See Note A of Notes to Consolidated Financial
Statements.) Additionally, there are certain corporate revenues and expenses,
comprised primarily of investment income, interest expense and certain general
and administrative expenses, that Fremont does not allocate to its segments.
Substantially all of Fremont's property and casualty insurance operations
are represented by the underwriting of workers' compensation insurance policies.
The Company began its workers' compensation insurance operation in 1959 and
continues to derive the majority of its revenues from this business. Fremont's
workers' compensation insurance business has grown through internal expansion,
as well as through the acquisition of other workers' compensation insurance
companies and currently has major market positions in California, Illinois,
Arizona, Idaho, Alaska, Indiana, Montana, Utah and Wisconsin. At December 31,
1998 the Company had premiums inforce in thirty-nine states and the District of
Columbia.
Consistent with its business strategy, the Company's workers' compensation
insurance business has grown dramatically since 1994 through acquisitions. On
September 1, 1998, Fremont acquired Unicare from Wellpoint Health Networks, Inc.
Unicare underwrites workers' compensation insurance primarily in California,
with a smaller presence in Georgia, Texas, and Indiana. On August 1, 1997, the
Company acquired Industrial from Talegen Holdings, Inc. ("Talegen"), a
subsidiary of Xerox Corporation. Industrial, which specializes in underwriting
workers' compensation insurance, has a strong presence in the western United
States dating back over seventy years. (See Note B of Notes to Consolidated
Financial Statements.) On February 22, 1995, the Company acquired Casualty, the
largest underwriter of workers' compensation insurance in Illinois, with
additional operations in several other mid-western states. Over the last four
years, the Company has focused on creating a broad national platform upon which
to build its business, while providing geographic diversity to mitigate
potential fluctuations in earnings from cyclical downturns in various regional
economies. (See "Results of Operations -- Property and Casualty Insurance
Operation.")
The operations of Fremont's financial services segment are consolidated
within Fremont General Credit Corporation ("FGCC"), which is engaged in
collateralized lending to businesses and individuals. Lending activities
include: commercial and residential real estate lending, commercial finance,
syndicated loans and insurance premium financing. Fremont's financial services
business is developed through the Company's own marketing representatives and
referrals from various financial intermediaries and financial institutions. The
Company's financial services loan portfolio has grown significantly from $1.5
billion at December 31, 1994 to $3.0 billion at December 31, 1998. (See
"Financial Services Operation.")
27
<PAGE> 30
The real estate lending operations of Fremont currently consists of more
than 4,000 residential real estate accounts and 500 commercial real estate
accounts. The real estate lending activities are primarily conducted through a
California thrift and loan ("the thrift") and are financed mainly through
deposit accounts (53,000 accounts at December 31, 1998), which are insured by
the Federal Deposit Insurance Corporation ("FDIC"). (See "Item 1.
Business -- Regulation -- Thrift and Loan Regulation.") The thrift's deposits
are serviced through 14 branch offices in California. (Fremont's insurance
premium finance loans and certain of its syndicated loans are also financed by
the thrift.) Fremont originates real estate loans nationwide through independent
loan brokers and through its own marketing representatives. For commercial real
estate loans, principal amounts primarily range between $1 million to $15
million and for residential real estate loans, principal amounts are generally
below $350,000. The residential real estate loans are originated using
underwriting standards that are less stringent than the Federal National
Mortgage Association's guidelines and are commonly known as "sub-prime" loans.
To mitigate the higher potential for credit losses that accompanies these types
of borrowers, Fremont focuses on its loan origination on the higher grades of
loans in this category and attempts to maintain underwriting standards that
require conservative loan to collateral valuations. The Company's operating
strategy is to grow its loan portfolio through origination of new loans and
acquisition of loan portfolios that meet its underwriting guidelines applied to
origination of new loans. The loan portfolio of the real estate lending
operation grew from $807.5 million at the end of 1994 to $2.1 billion at the end
of 1998, due primarily to increased loan originations and, to a lesser extent,
the purchase of loan portfolios from other financial institutions. (See "Item 1.
Business -- Financial Services Operation -- Commercial and Residential Real
Estate Lending.")
Fremont provides commercial finance loans, primarily secured by accounts
receivable, inventory, and machinery and equipment, to small and middle market
companies on a nationwide basis. The total commercial finance loan portfolio was
$485.5 million at December 31, 1998. Loan originations are developed primarily
by referrals from various financial intermediaries and financial institutions.
(See "Item 1. Business -- Financial Services Operation -- Commercial Finance.")
The lending market continues to be competitive for small to middle market
commercial borrowers. As a result, Fremont's commercial finance loans have
experienced decreasing yields.
Fremont has interests in large syndicated loans which are originated and
serviced by other financial institutions. Syndicated loans generally carry lower
yields than the Company's commercial finance loans since the borrowers under
syndicated loans tend to be larger companies whose credit quality is generally
higher than borrowers under the Company's commercial finance loans. These loans
are secured by various assets of the borrower and, if applicable, of its
subsidiaries. The syndicated loans are variable rate loans and are originated on
both a revolving and fixed-term basis. The term loans are generally issued with
terms not in excess of ten years. The Company finances these loans using thrift
deposits, as well as financing through an unsecured revolving line of credit
with a syndicated bank group, which is also used to finance Fremont's commercial
finance loans that are not financed under the Company's asset securitization
program. (See "Liquidity and Capital Resources.") The syndicated loan portfolio
has grown to $360.2 million at December 31, 1998 from $146.8 million at December
31, 1997. This growth has been achieved primarily from development of the
customer base through referrals from various financial institutions. (See "Item
1. Business -- Financial Services Operation -- Syndicated Loans.")
Fremont provides insurance premium finance loans, primarily to small
businesses, which finances property and casualty insurance premiums. These loans
are collateralized by the unearned premiums of the underlying insurance
policies. At December 31, 1998, the insurance premium finance loan portfolio
totaled $58.3 million.
The ability of the Company to continue to originate loans, and of borrowers
to repay outstanding loans, may be impaired by adverse changes in local,
regional, or national economic conditions. Such events could also significantly
reduce the demand for loans and impair the value of the underlying collateral.
If the collateral were to prove inadequate, Fremont's results of operations
could be adversely affected.
By engaging in several selected businesses nationwide which are
geographically diverse, Fremont believes it has achieved stability and provided
opportunities for growth in its operating results. Since the year ended
28
<PAGE> 31
December 31, 1994 to the year ended December 31, 1998, the Company's income
before taxes grew at a compound annual rate of approximately 25% to $196.7
million for 1998. Fremont's book value increased from $351.0 million at December
31, 1994 to $950.9 million at December 31, 1998.
Prior to January 1, 1996, the Company offered life insurance products,
including annuities, credit life and disability insurance and term life
insurance for consumers, through a subsidiary. On December 31, 1995 and on
January 1, 1996, the Company entered into reinsurance and assumption agreements
with a reinsurer whereby assets and liabilities related to certain life
insurance and annuity policies were ceded to the reinsurer. These reinsurance
agreements are part of several other agreements which have collectively resulted
in the substantial reduction of the Company's life insurance operations. The
Company continues to remain primarily obligated for approximately $128 million
of account value of annuities which, at December 31, 1998, have been fully
co-insured with Great Southern Insurance Company. The effect on operations from
these agreements was not material, and revenue and operating income from this
subsidiary were not significant in 1998, 1997 or 1996.
Between 1986 and 1991, Fremont discontinued its domestic treaty reinsurance
business, its other primary and excess property and casualty insurance
operations and the underwriting of all remaining assumed reinsurance. In 1990, a
single management group was put in charge of all discontinued operations, and it
is the intention of the Company to complete the liquidation of these operations
by the commutation of liabilities and as claims are paid. (See "Item 1.
Business -- Discontinued Operations" and Note N of Notes to Consolidated
Financial Statements.)
RESULTS OF OPERATIONS
Fremont has achieved growth in net income during the three years ended
December 31, 1998 by providing diverse insurance and financial services to
primarily small and medium-sized businesses nationwide. Higher revenues and net
income were also achieved through the acquisitions of Unicare, Industrial and
Casualty. The following table presents information for each of the three years
in the period ended December 31, 1998 with respect to the Company's core
business segments.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues:
Property and casualty........................... $ 729,728 $738,072 $596,841
Financial services.............................. 305,886 235,474 197,601
Unallocated corporate revenue................... 1,983 749 1,362
---------- -------- --------
Total................................... $1,037,597 $974,295 $795,804
========== ======== ========
Income (Loss) Before Taxes:
Property and casualty........................... $ 169,235 $144,667 $117,593
Financial services.............................. 55,506 42,286 36,589
Unallocated corporate loss...................... (28,029) (28,060) (25,873)
---------- -------- --------
Total................................... $ 196,712 $158,893 $128,309
========== ======== ========
</TABLE>
The Company generated revenues of $1.04 billion for 1998, as compared to
revenues of $974 million and $796 million for 1997 and 1996, respectively.
Higher revenues in 1998 as compared to 1997 resulted from higher financial
services revenues, offset partially by lower revenues in the property and
casualty segment. The lower property and casualty revenues were due primarily to
the net effects of higher workers' compensation insurance premiums and
investment income resulting from the acquisitions of Unicare on September 1,
1998 and Industrial on August 1, 1997, more than offset by additional ceded
reinsurance premiums which have the result of lowering premium revenues. These
additional ceded reinsurance premiums were due mainly to additional excess of
loss reinsurance purchased for Fremont's workers' compensation insurance
business which became effective January 1, 1998. The acquisition of Industrial
resulted in higher revenues in the property and casualty insurance segment in
1997 as compared to 1996. (See "Property and Casualty Insurance Opera-
29
<PAGE> 32
tion.") Higher revenues in the financial services segment in 1998 and 1997 as
compared to the respective prior year were achieved primarily from increased
loan interest revenues which resulted from significant growth in the average
financial services loan portfolio. Additionally, higher financial services
revenues in 1998 resulted from gains on sales of residential real estate loans.
(See "Financial Services Operation.") Realized investment losses were $0.6
million, $2.0 million, and $1.7 million for 1998, 1997 and 1996, respectively.
Fremont posted net income of $133.0 million or $1.90 diluted earnings per
share for 1998, as compared to $108.3 million or $1.62 diluted earnings per
share and $87.3 million or $1.37 diluted earnings per share for 1997 and 1996,
respectively. Income before taxes for 1998 was $196.7 million as compared to
$158.9 million and $128.3 million for 1997 and 1996, respectively, representing
an increase of 24% in 1998 and 1997.
The property and casualty insurance operation posted income before taxes of
$169.2 million for 1998, as compared to $144.7 million and $117.6 million for
1997 and 1996, respectively. The increase of 17% in income before taxes in 1998
as compared to 1997 is due primarily to the inclusion of a full year of
Industrial's operating results and lower losses incurred resulting from the
additional reinsurance purchased by the Company which became effective January
1, 1998. The increase in income before taxes of 23% in 1997 as compared to 1996
was due primarily to the recognition of continued lower claim frequency, mainly
in the mid-west region and the acquisition of Industrial. The combined ratio for
1998 was 96.2% as compared to 93.0% and 94.8% for 1997 and 1996, respectively.
Up until January 1, 1998 the Company maintained a small medical malpractice
insurance operation within the property and casualty insurance segment. On
January 1, 1998, the Company entered into reinsurance and assumption agreements
with a reinsurer whereby substantially all of the assets and liabilities related
to the medical malpractice policies were ceded to the reinsurer. These
reinsurance agreements are part of several other agreements which collectively
result in the sale of the Company's medical malpractice operations effective
January 1, 1998. The effect on the Company's results of operations from these
agreements was not material. Revenues from medical malpractice operations were
$32.6 million and $31.6 million for 1997 and 1996, respectively.
The financial services segment posted income before taxes of $55.5 million
for 1998, as compared to $42.3 million and $36.6 million for 1997 and 1996,
respectively. The 31% increase in 1998 is due mainly to the general growth in
the average financial services loan portfolio to $2.4 billion in 1998 from $1.9
billion in 1997, as well as gains on residential real estate loan sales. The 16%
increase in income before taxes in 1997 as compared to 1996 was due mainly to
the growth in the average financial services loan portfolio, as well as to
continued improvements in Fremont's loan charge-off experience. (See "Financial
Services Operation.")
Unallocated corporate revenues consisted primarily of investment income,
while unallocated corporate expenses consisted primarily of interest expense and
general and administrative expense. The unallocated corporate loss before income
taxes was $28.0 million, $28.1 million and $25.9 million for 1998, 1997 and
1996, respectively. The unallocated corporate loss before tax was flat in 1998
as compared to 1997 due primarily to the net effects of lower interest expense,
offset by higher general and administrative expenses. The increase in
unallocated corporate loss in 1997 as compared to 1996 was due primarily to
lower investment income and higher general and administrative expense.
Income tax expense of $63.7 million, $50.6 million and $41.0 million for
1998, 1997 and 1996, respectively, represents an effective tax rate of 32% each
year on pretax income of $196.7 million, $158.9 million and $128.3 million for
the corresponding periods. The Company's effective tax rates for all years
presented are lower than the enacted federal income tax rate of 35%, due
primarily to tax exempt investment income which reduces the Company's taxable
income.
30
<PAGE> 33
Property and Casualty Insurance Operation
The following table represents information with respect to Fremont's
property and casualty insurance operation:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues................................... $729,728 $738,072 $596,841
Expenses................................... 560,493 593,405 479,248
-------- -------- --------
Income Before Taxes........................ $169,235 $144,667 $117,593
======== ======== ========
</TABLE>
Revenues from the property and casualty insurance operation consists
primarily of workers' compensation insurance premiums earned and net investment
income. Expenses consist primarily of loss and loss adjustment expenses, policy
acquisition costs and other operating costs and expenses.
Premiums. Premiums earned from the Company's property and casualty
insurance operation were $552.1 million for 1998, as compared to $601.2 million
and $486.9 million for 1997 and 1996, respectively. The lower insurance premiums
in 1998 were due mainly to the offsetting effects of higher workers'
compensation insurance premiums resulting from the acquisitions of Unicare and
Industrial, more than offset by additional ceded reinsurance premiums. These
additional ceded reinsurance premiums were due primarily to additional excess of
loss reinsurance purchased for the Company's workers' compensation insurance
business, which became effective January 1, 1998. Fremont purchased the
additional reinsurance in an effort to further reduce the volatility of
operating results which occurs through fluctuations in loss costs. This
additional reinsurance reduced the point at which reinsurers assume liability
("attachment point") from $1 million per loss occurrence to $50,000 per loss
occurrence. The higher premiums in 1997 were due primarily to the acquisition of
Industrial. With this acquisition, Fremont further broadened the geographic
diversity of its premium writings to include a significant presence in certain
western states that the Company previously had little or no premium writings in
prior to the Industrial acquisition. (See "Item 1. Business -- Property and
Casualty Insurance Operation" and "Variability of Operating Results" and
"Workers' Compensation Regulation.")
Net Investment Income. Net investment income within the property and
casualty insurance operation was $178.3 million, $138.9 million and $111.6
million in 1998, 1997 and 1996, respectively. Significantly higher invested
assets, due primarily to the acquisitions of Unicare and Industrial, resulted in
increased investment income in 1998 as compared to 1997. The acquisition of
Industrial also was the main contributor to higher net investment income in 1997
as compared to 1996. (See "Item 1. Business -- Investment Portfolio.")
Loss and Loss Adjustment Expense. The property and casualty loss and loss
adjustment expenses ("LAE") were $335.5 million, $389.2 million and $335.4
million in 1998, 1997 and 1996, respectively. In addition, the ratio of these
losses and LAE to property and casualty insurance premiums earned ("loss ratio")
was 60.8%, 64.7% and 68.9% in 1998, 1997 and 1996, respectively. The decrease in
the loss ratio in 1998 as compared to 1997 is due predominately to the
additional reinsurance purchased by Fremont and which became effective January
1, 1998, offset partially by higher loss ratios in 1998 associated with
Industrial. (See "Item 1. Business -- Property and Casualty Insurance
Operation -- Reinsurance Ceded" and "Premiums.") The decrease in the loss ratio
in 1997 is due mainly to the recognition of a decrease in the frequency of
reported claims on the 1996 and 1995 accident years in the Company's mid-west
region, offset partially by higher loss ratios associated with Industrial on the
1997 accident year. Additionally, the Company's management believes that its
implementation of more effective claims handling procedures in the mid-west
region has contributed to the reduction in loss and loss adjustment expenses
during calendar year 1997 and relating to the 1996 and prior accident years. The
Company is not able to determine with certainty the specific cause or causes of
increases and decreases in reported claims experience, but has reached its own
conclusions based on a review of its internal data and a subjective evaluation
of external factors. (See "Item 1. Business -- Property and Casualty Insurance
Operation -- Loss and Loss Adjustment Expense Reserves.")
31
<PAGE> 34
The Company regularly reviews its reserving techniques, overall reserve
position and reinsurance. In light of present facts and current legal
interpretations, management believes that adequate provisions have been made for
loss reserves. In making this determination, management has considered its
claims experience to date, loss development history for prior accident years and
estimates of future trends of claims frequency and severity. However,
establishment of appropriate reserves is an inherently uncertain process, and
there can be no certainty that currently established reserves will prove
adequate in light of subsequent actual experience. Subsequent actual experience
has resulted, and could result, in loss reserves being too high or too low.
Future loss development could require reserves for prior periods to be
increased, which would adversely impact earnings in future periods.
Policy Acquisition Costs and Other Operating Costs and Expenses. The ratio
of policy acquisition costs and other operating costs and expenses to premiums
earned is referred to as the expense ratio, which was 34.5%, 27.5% and 25.9% in
1998, 1997 and 1996, respectively. The increase in this ratio in 1998 as
compared to 1997 is due mainly to a lower premium base in 1998 resulting from
the additional reinsurance purchased by Fremont that became effective January 1,
1998. (See "Premiums.") The increase in this ratio in 1997 is due primarily to
higher agents' commission costs and higher operating costs and expenses.
Dividends to Policyholders. The policyholder dividends ratio for the
Company's property and casualty insurance operation was 0.9% and 0.8% in 1998,
and 1997, respectively. There were no dividends accrued in 1996. The Company
believes that these ratios are low by industry standards. The low ratios are due
primarily to the type of workers' compensation insurance policies written by the
Company. Fremont's workers' compensation insurance policies are predominately
written as non-participating, which means that they do not include provisions
for dividend consideration. The dividends accrued in 1998 and 1997 were due
mainly to the acquisition of Industrial. (See "Item 1. Business -- Property and
Casualty Insurance Operation -- Policyholders' Dividends.")
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, Fremont'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
Fremont'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 acquisition of Industrial has mitigated the
adverse effects of this price competition in Illinois by providing Fremont 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.
Fremont'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'
32
<PAGE> 35
compensation insurance in the nation, certain of its competitors are larger and
have greater resources than Fremont. The Company cannot be certain that it will
continue to maintain its market share in the future.
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. Fremont'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 December 31, 1998, approximately 65% 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. (See "Item 1.
Business -- Regulation -- Insurance Regulation.")
Financial Services Operation
The financial services operation of FGCC is principally engaged in
commercial and residential real estate lending, commercial finance, syndicated
loans and insurance premium financing. Revenues consist principally of interest
income and, to a lesser extent, fees and other income.
The following table presents information with respect to Fremont's
financial services operation:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues........................................... $305,886 $235,474 $197,601
Expenses........................................... 250,380 193,188 161,012
-------- -------- --------
Income Before Taxes................................ $ 55,506 $ 42,286 $ 36,589
======== ======== ========
</TABLE>
Revenues increased 30% and 19% in 1998 and 1997, respectively, due
primarily to greater loan interest revenue attributable to growth in the average
financial services loan portfolio. The average financial services loan portfolio
grew in 1998 to $2.4 billion from $1.9 billion and $1.6 billion in 1997 and
1996, respectively. Additionally, higher revenues resulted in 1998 from
increased gains on residential real estate loan sales. These loan sales are
pursuant to a program, initiated by the Company in 1995 and expanded in 1997, of
selling certain residential real estate loans to other financial institutions.
This has allowed Fremont 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, Fremont 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
33
<PAGE> 36
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 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.
Income before taxes in the financial services operation was $55.5 million,
$42.3 million and $36.6 million for 1998, 1997 and 1996, respectively. The 31%
and 16% increases in income before taxes in 1998 and 1997 respectively, are
mainly due to the previously described growth in the average financial services
loan portfolio, as well as lower loan loss provisions relative to loans
receivable, which resulted from improved loan loss experience, partially offset
by increases in operating expenses. Additionally, in 1998 higher income before
taxes resulted from the increased gains on residential real estate loan sales.
The following table identifies the interest income, interest expense,
average interest-bearing assets and liabilities, and interest margins for
Fremont's financial services operation:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ ------------------------------ ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing assets(1):
Commercial real estate
loans...................... $1,220,115 $120,718 9.89% $ 954,181 $ 93,973 9.85% $ 749,912 $ 72,732 9.70%
Residential real estate
loans...................... 417,872 39,182 9.38 322,597 30,896 9.58 210,330 20,214 9.61
Commercial finance loans..... 416,264 45,700 10.98 436,528 49,255 11.28 446,124 51,368 11.51
Syndicated loans............. 249,440 22,170 8.89 144,981 14,155 9.76 138,385 13,534 9.78
Insurance premium finance
loans...................... 62,050 7,058 11.37 53,640 6,133 11.43 52,681 5,917 11.23
Investments.................. 235,397 12,716 5.40 183,842 10,186 5.54 198,419 10,538 5.31
---------- -------- ---------- -------- ---------- --------
Total interest bearing
assets..................... $2,601,138 $247,544 9.52% $2,095,769 $204,598 9.76% $1,795,851 $174,303 9.71%
========== ======== ========== ======== ========== ========
Interest bearing liabilities:
Time deposits................ $1,339,116 $ 76,215 5.69% $1,030,787 $ 60,055 5.83% $ 755,160 $ 43,351 5.74%
Savings deposits............. 388,355 20,245 5.21 268,344 13,610 5.07 247,648 12,268 4.95
Securitization obligation.... 287,386 17,588 6.12 301,545 18,551 6.15 295,827 18,035 6.10
Debt with banks.............. 268,834 17,170 6.39 216,869 14,406 6.64 243,292 15,703 6.45
Debt from affiliates......... 53,813 3,279 6.09 49,735 2,810 5.65 57,174 2,796 4.89
Other........................ 2,245 90 4.01 5,325 312 5.86 3,353 191 5.70
---------- -------- ---------- -------- ---------- --------
Total interest bearing
liabilities................ $2,339,749 $134,587 5.75% $1,872,605 $109,744 5.86% $1,602,454 $ 92,344 5.76%
========== ======== ========== ======== ========== ========
Net interest income............ $112,957 $ 94,854 $ 81,959
======== ======== ========
Net yield...................... 4.34% 4.53% 4.56%
</TABLE>
- ---------------
(1) Average loan balances include non-accrual loan balances.
The margin between the Company's interest income and expense ("net yield")
decreased in 1998 and 1997 as compared to the respective prior year, due mainly
to the offsetting effects of a decrease in the net yields on commercial finance
loans and increases in syndicated loans which generally carry lower net yields,
offset partially by an increase in the net yields on real estate loans. Net
yields decreased on commercial finance loans due primarily to a continuation of
the competitive environment. While the overall net yield on real estate loans
increased, this was the combined result of increases in the net yields on
commercial real estate loans, partially offset by decreases in the net yields on
residential real estate loans.
34
<PAGE> 37
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>
DECEMBER 31,
------------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
---------- ----- ---------- ----- ---------- -----
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C> <C>
Term loans:
Commercial and residential real
estate loans................... $2,110,301 70% $1,426,482 70% $1,113,950 65%
Commercial finance loans.......... 168,040 5 115,912 6 156,658 9
Syndicated loans.................. 168,170 6 42,101 2 13,438 1
Insurance premium finance loans... 58,563 2 54,342 3 53,661 3
---------- --- ---------- --- ---------- ---
Total term loans.......... 2,505,074 83 1,638,837 81 1,337,707 78
Revolving loans:
Commercial finance loans.......... 317,468 11 284,563 14 272,559 16
Syndicated loans.................. 191,980 6 104,689 5 115,521 6
---------- --- ---------- --- ---------- ---
Total revolving loans..... 509,448 17 389,252 19 388,080 22
---------- --- ---------- --- ---------- ---
Total loans............. 3,014,522 100 2,028,089 100 1,725,787 100
Less allowance for possible loan
losses............................ 56,346 2 44,402 2 37,747 2
---------- --- ---------- --- ---------- ---
Loans receivable.................. $2,958,176 98% $1,983,687 98% $1,688,040 98%
========== === ========== === ========== ===
</TABLE>
The following table illustrates the maturities of Fremont's loans
receivable:
<TABLE>
<CAPTION>
MATURITIES AT DECEMBER 31, 1998
---------------------------------------------
1 TO 24 25 TO 60 OVER 60
MONTHS MONTHS MONTHS TOTAL
---------- -------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Term loans -- variable rate............ $ 624,190 $806,181 $639,391 $2,069,762
Term loans -- fixed rate............... 134,201 85,062 216,049 435,312
Revolving loans -- variable rate....... 509,448 -- -- 509,448
---------- -------- -------- ----------
Total................................ $1,267,839 $891,243 $855,440 $3,014,522
========== ======== ======== ==========
</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 Fremont's exposure to regional economic
conditions. The total amount of commercial and residential real estate loans
outstanding on properties located outside of California at December 31, 1998 was
$328 million and $179 million, respectively.
During periods when economic conditions are unfavorable, Fremont'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
Fremont's finance receivables, which could adversely affect the Company's
results of operations and financial condition.
Fremont's financial services businesses maintain reserves for credit losses
on its portfolio of finance receivables in amounts that Fremont believes is
sufficient to provide adequate protection against potential losses. The Company
attempts to minimize the impact that adverse economic developments could have on
Fremont's finance 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
35
<PAGE> 38
that its level of reserves is sufficient to cover potential credit losses,
Fremont'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 Fremont's
ability to realize the expected value of the collateral securing certain of its
finance receivables.
Fremont'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. Fremont primarily competes with banks,
mortgage, insurance, and finance companies, many of which are larger and have
greater financial resources than Fremont. The competitive forces of these
markets could adversely affect the Company's net finance income, loan
origination volume or net credit losses.
36
<PAGE> 39
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>
DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C>
Non-accrual loans.......................................... $ 22,520 $ 31,525 $ 19,785
Accrual loans 90 days past due............................. 1,264 927 1,355
Real estate owned ("REO").................................. 4,918 9,571 10,016
---------- ---------- ----------
Total non-performing assets................................ $ 28,702 $ 42,023 $ 31,156
========== ========== ==========
Beginning allowance for possible loan losses............... $ 44,402 $ 37,747 $ 31,781
Provision for loan losses.................................. 11,059 12,319 13,885
Reserves established with portfolio acquisitions........... 3,465 -- 1,830
Charge-offs:
Commercial and residential real estate loans............. 1,238 2,752 5,667
Commercial finance loans................................. 2,049 3,384 5,401
Syndicated loans......................................... -- -- --
Insurance premium finance loans.......................... 132 822 74
---------- ---------- ----------
Total charge-offs........................................ 3,419 6,958 11,142
---------- ---------- ----------
Recoveries:
Commercial and residential real estate loans............. 695 1,246 1,352
Commercial finance loans................................. 116 12 20
Syndicated loans......................................... -- -- --
Insurance premium finance loans.......................... 28 36 21
---------- ---------- ----------
Total recoveries......................................... 839 1,294 1,393
---------- ---------- ----------
Net charge-offs............................................ 2,580 5,664 9,749
---------- ---------- ----------
Ending allowance for possible loan losses.................. $ 56,346 $ 44,402 $ 37,747
========== ========== ==========
Allocation of allowance for possible loan losses:
Commercial and residential real estate loans............. $ 40,097 $ 32,966 $ 24,759
Commercial finance loans................................. 8,983 7,723 8,595
Syndicated loans......................................... 6,798 3,338 3,338
Insurance premium finance loans.......................... 468 375 1,055
---------- ---------- ----------
Total allowance for possible loan losses................. $ 56,346 $ 44,402 $ 37,747
========== ========== ==========
Total loans receivable..................................... $3,014,522 $2,028,089 $1,725,787
Average total loans receivable............................. 2,365,741 1,906,448 1,594,918
Net charge-offs to average total loans receivable.......... 0.11% 0.30% 0.61%
Non-performing assets to total loans receivable............ 0.95% 2.07% 1.81%
Allowance for possible loan losses to total loans
receivable............................................... 1.87% 2.19% 2.19%
Allowance for possible loan losses to non-performing
assets................................................... 196.31% 105.66% 121.15%
Allowance for possible loan losses to non-accrual loans and
accrual loans 90 days past due........................... 236.91% 136.82% 178.56%
</TABLE>
Non-performing assets decreased to $28.7 million at December 31, 1998 from
$42.0 million at December 31, 1997, despite total loans receivable increasing to
$3.0 billion at December 31, 1998 from $2.0 billion at December 31, 1997. The
increase in non-performing assets in 1997 as compared to 1996 is generally
consistent with the increase in total loans receivable to $2.0 billion at
December 31, 1997 from $1.7 billion at December 31, 1996.
The lower provision for loan losses over the three years ended December 31,
1998 is due primarily to improved loan loss experience. Additionally, a lower
loan loss provision occurred in 1997 as the Company was adversely impacted in
1996 by a specific loan loss provision associated with one commercial finance
loan.
37
<PAGE> 40
Substantially all of the charge-offs on commercial finance loans in 1996 were
related to this loan. The Company's overall improved loan loss experience is
evidenced by the decreases in the ratio of net charge-offs to average total
loans receivable over the three years ended December 31, 1998, as well as the
decrease of the ratio of non-performing assets to total loans receivable from
1997 to 1998 in the preceding table. Additionally, the reductions in the
charge-off ratio occurred during a period in which loans receivable increased.
MARKET RISK
Fremont 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 operation,
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 operation 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 Fremont'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. (See "Item 1. Business -- Investment Portfolio.")
Fremont 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.
PROPERTY AND CASUALTY INSURANCE OPERATION -- INTEREST RATE RISK
The property and casualty insurance operation has exposure to changes in
long-term interest rates due mainly to the significant investment in the
available-for-sale investment portfolio. Fluctuations in these interest rates
affect the carrying value of the fixed rate investments resulting in
fluctuations in unrealized gains and losses on investments, which also affects
the Company's stockholders' equity. For an investment in a fixed rate bond, a
rise in market interest rates for bonds with a similar remaining term and face
amount will result in a decline in the fair value of the fixed rate bond. The
converse situation applies as well.
The following table presents principal cash flows of the investment
portfolio by expected maturity dates. The weighted-average interest rate is
based on expected maturities for fixed interest rate investments. For variable
interest rate investments, the weighted-average interest rate is based on
implied forward rates from appropriate annual spot rate observations as of the
reporting date.
PROPERTY AND CASUALTY INSURANCE OPERATION
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MATURING IN:
------------------------------------------------------------------------- FAIR VALUE AT
1999 2000 2001 2002 2003 THEREAFTER TOTAL 12/31/98
-------- ------- ------- ------ ------- ---------- ---------- -------------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate sensitive assets:
Securities available for sale:
Fixed interest rate
investments................... $232,072 $75,226 $27,393 $7,322 $28,954 $1,541,880 $1,912,847 $1,969,110
Weighted-average interest
rate........................ 7.80% 6.18% 5.58% 4.02% 7.81% 7.28% 7.27%
Variable interest rate
investments................... $ 1,211 $ 1,339 $ 1,477 $1,582 $52,101 $ 87,075 $ 144,785 $ 140,817
Weighted-average interest
rate........................ 7.23% 7.23% 7.23% 7.23% 6.55% 5.02% 5.66%
</TABLE>
38
<PAGE> 41
FINANCIAL SERVICES OPERATION -- INTEREST RATE RISK
Fremont's financial services operation is subject to interest rate risk
resulting from differences between the rates on, and repricing characteristics
of, interest-earning loans receivable and the rates on, and repricing
characteristics of, interest-bearing liabilities used to finance its loans such
as thrift deposits and debt. Interest rate gaps may arise when assets are funded
with liabilities having different repricing intervals or different market
indices to which the instruments' interest rate is tied and to this degree
earnings will be sensitive to interest rate changes. Additionally, interest rate
gaps could develop between the market rate and the interest rate on loans in the
Company's financial services loan portfolio, which could result in borrowers'
prepaying their loan obligations to Fremont. While the Company attempts to match
the characteristics of interest rate sensitive assets and liabilities to
minimize the effect of fluctuations in interest rates, Fremont does not
currently utilize derivative financial instruments to meet these objectives. For
the financial services operation, the expected maturity date does not
necessarily reflect the net market risk exposure because certain instruments are
subject to interest rate changes before expected maturity.
The following table provides information about the assets and liabilities
of the Company's financial services operation that are sensitive to changes in
interest rates. For loans, investments, thrift deposits and other liabilities
with contractual maturities, the table presents principal cash flows and related
weighted-average interest rates by contractual maturity, adjusted for estimated
loan prepayments based upon historical behaviors of its financial services loan
portfolio. Thrift deposits that have no contractual maturity are presented as
maturing in 1999.
FINANCIAL SERVICES OPERATION
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MATURING IN:
------------------------------------------------------------------------------- FAIR VALUE AT
1999 2000 2001 2002 2003 THEREAFTER TOTAL DECEMBER 31, 1998
---------- -------- -------- -------- ------- ---------- ---------- ------------------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate sensitive
assets:
Variable rate
Commercial real estate
loans............... $ 456,289 $373,563 $261,848 $129,556 $69,747 $28,171 $1,319,174 $1,319,517
Weighted-average
interest rate..... 9.04% 8.91% 9.02% 8.98% 8.96% 8.23% 8.97%
Residential real
estate loans........ $ 202,338 $127,644 $ 74,297 $ 43,093 $22,701 $21,893 $ 491,966 $ 513,344
Weighted-average
interest rate..... 9.55% 8.89% 8.43% 8.21% 8.26% 8.60% 8.99%
Commercial finance
loans............... $ 476,346 -- -- -- -- $ 9,162 $ 485,508 $ 485,508
Weighted-average
interest rate..... 10.60% -- -- -- -- 4.07% 10.17%
Syndicated loans...... $ 285,392 $ 5,832 $ 6,348 $ 6,909 $ 7,519 $48,822 $ 360,822 $ 360,822
Weighted-average
interest rate..... 8.44% 8.00% 8.00% 8.00% 8.00% 8.00% 8.35%
Investments........... $ 29,897 $ 8,202 $ 7,870 $ 5,525 $ 3,231 $ 3,737 $ 58,462 $ 58,462
Weighted-average
interest rate..... 5.41% 6.12% 6.12% 6.12% 6.12% 6.12% 5.75%
Fixed rate
Commercial real estate
loans............... $ 69,922 $ 49,617 $ 37,128 $ 22,600 $14,440 $62,404 $ 256,111 $ 257,532
Weighted-average
interest rate..... 9.32% 8.79% 9.53% 8.72% 8.33% 8.00% 8.82%
Residential real
estate loans........ $ 7,585 $ 6,948 $ 5,802 $ 4,845 $ 4,045 $20,212 $ 49,437 $ 51,482
Weighted-average
interest rate..... 10.41% 10.28% 10.30% 10.32% 10.35% 10.58% 10.44%
Premium finance and
other loans......... $ 58,225 -- -- -- -- -- $ 58,225 $ 58,225
Weighted-average
interest rate..... 11.73% -- -- -- -- -- 11.73%
Investments........... $ 70,204 -- -- -- $60,594 -- $ 130,798 $ 130,798
Weighted-average
interest rate..... 4.41% -- -- -- 4.87% -- 4.62%
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MATURING IN:
------------------------------------------------------------------------------- FAIR VALUE AT
1999 2000 2001 2002 2003 THEREAFTER TOTAL DECEMBER 31, 1998
---------- -------- -------- -------- ------- ---------- ---------- ------------------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate sensitive
liabilities:
Variable rate thrift
deposits.............. $ 504,543 -- -- -- -- -- $ 504,543 $ 504,543
Weighted-average
interest rate..... 5.21% -- -- -- -- -- 5.21%
Commercial paper.... $ 24,985 -- -- -- -- -- $ 24,985 $ 24,985
Weighted-average
interest rate... 5.30% -- -- -- -- -- 5.30%
Securitization
obligation........ $ 274,260 -- -- -- -- -- $ 274,260 $ 274,260
Weighted-average
interest rate..... 5.92% -- -- -- -- -- 5.92%
Debt with banks..... $ 351,500 -- -- -- -- -- $ 351,500 $ 351,500
Weighted-average
interest rate..... 5.74% -- -- -- -- -- 5.74%
Debt from
affiliates.......... $ 51,265 -- -- -- $20,000 -- $ 71,265 $ 71,265
Weighted-average
interest rate..... 6.47% -- -- -- 6.07% -- 6.36%
Fixed rate
Thrift deposits....... $1,410,847 $ 78,373 $ 36,924 $ 5,631 $52,355 $46,166 $1,630,296 $1,633,756
Weighted-average
interest rate..... 5.44% 5.54% 5.76% 6.09% 5.63% 5.86% 5.48%
Debt with Federal Home
Loan Bank........... $ 115,000 -- -- -- -- -- $ 115,000 $ 115,000
Weighted-average
interest rate..... 4.83% -- -- -- -- -- 4.83%
</TABLE>
FREMONT GENERAL CORPORATION (PARENT-ONLY) -- INTEREST RATE RISK
Fremont General Corporation is also subject to interest rate exposure
related to LIBOR and United States prime interest rates because of its long-term
debt and other obligations with both fixed and variable interest rates. For
fixed rate obligations, Fremont General Corporation runs the risk that if market
rates decline, the related required payments will exceed those based on the
current market rates. For obligations with variable interest rates, fluctuations
in the market rates will directly affect interest expense.
The following table provides information about interest rate sensitive
assets and liabilities of Fremont General Corporation. For short-term
investments with variable interest rates, the table presents principal cash
flows by expected maturity dates. The weighted-average interest rates are based
on implied forward rates as derived from appropriate annual spot rate
observations as of the reporting date.
FREMONT GENERAL CORPORATION (PARENT ONLY)
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MATURING IN:
------------------------------------------------------------------- FAIR VALUE AT
1999 2000 2001 2002 2003 THEREAFTER TOTAL DECEMBER 31, 1998
------- ------ ------ -------- ---- ---------- -------- -----------------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate sensitive assets:
Fixed interest rate short-term
investments...................... $18,894 -- -- -- -- -- $ 18,894 $ 18,894
Weighted-average interest rate... 5.56% -- -- -- -- -- 5.56%
Interest rate sensitive liabilities:
Fixed interest rate debt
borrowings....................... -- -- -- -- -- $ 13,527 $ 13,527 $ 11,938
Weighted-average interest rate... -- -- -- -- -- 5.00% 5.00%
Variable interest rate debt
borrowings....................... $ 717 $1,946 $1,946 $301,945 -- -- $306,554 $306,554
Weighted-average interest rate... 6.47% 6.47% 6.47% 5.76% -- -- 5.78%
Fixed interest rate
Company-obligated mandatorily
redeemable preferred securities
of subsidiary Trust holding
solely Company junior
subordinated debentures.......... -- -- -- -- -- $100,000 $100,000 $104,500
Weighted-average interest rate... -- -- -- -- -- 9.00% 9.00%
</TABLE>
40
<PAGE> 43
LIQUIDITY AND CAPITAL RESOURCES
The property and casualty insurance operation 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. The operation has several sources of funds to meet its
obligations, including cash flow from operations, recoveries from reinsurance
contracts and investment securities. By statute, the majority of the cash from
the operation is required to be invested in investment grade securities to
provide protection for policyholders. Fremont 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 $59.8 million and $81.4 million at December 31, 1998 and
1997, respectively.
The Company's thrift and loan subsidiary, which is 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 $2.13 billion at December 31, 1998 from $1.49 billion at
December 31, 1997. The thrift is also eligible for financing through the Federal
Home Loan Bank of San Francisco, which financing is available at varying rates
and terms. As of December 31, 1998, $474 million was available under the
facility of which $115 million was outstanding.
Fremont's commercial finance loans are funded 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 in
1993 to provide a stable and cost effective source of funds to facilitate the
expansion of this business. As of December 31, 1998, an aggregate of $235
million in senior series of certificates and an aggregate of $39 million in
subordinated series of certificates were outstanding. The interest rate on the
certificates, set monthly, ranged from LIBOR plus 0.23% to LIBOR plus 0.95% at
December 31, 1998. The securities issued in this program have a scheduled
maturity of two to four years, but could mature earlier depending on
fluctuations in the outstanding balances of loans in the portfolio and other
factors. As of December 31, 1998, up to $265 million in additional publicly
offered term asset-backed certificates may be issued pursuant to a shelf
registration statement to fund future growth in the commercial finance loan
portfolio. In February 1996, $135 million of the senior series certificates
("Series C") were issued. The proceeds were used, in conjunction with existing
cash, to retire $200 million in Series A certificates, which were outstanding as
of December 31, 1995. In 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 December 31, 1998, $25 million in commercial
paper was outstanding under this facility. Commercial finance loans are also
financed under an unsecured revolving line of credit with a syndicated bank
group that presently permits borrowings of up to $438 million, which includes a
revolving credit facility of $350 million and a term loan of $88 million. The
revolving credit facility converts to a term loan in August 2000, with ultimate
maturity in June 2002. The term loan matures July 2001. This facility is also
used to finance certain syndicated loans. The balance outstanding at December
31, 1998 of the revolving credit facility and the term loan was $264 million and
$88 million, respectively, with a weighted average interest rate of 5.74%. This
credit line is primarily used to finance assets which are not included in the
Company's asset securitization program. (See "Item 1. Business -- Financial
Services Operation -- Commercial Finance.")
As a holding company, Fremont General Corporation ("the holding company")
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
$20.9 million, $18.9 million and $15.8 million during 1998, 1997 and 1996,
respectively. Several of Fremont'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 holding company. The
holding 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 financial services
subsidiaries. The
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<PAGE> 44
maximum amount available for payment of dividends by the property and casualty
insurance subsidiaries at December 31, 1998 without prior regulatory approval is
approximately $235.3 million.
To facilitate general corporate operations, Fremont General Corporation
maintains a revolving line of credit with a syndicated bank group that currently
permits borrowings of up to $400 million, of which $300 million was outstanding
as of December 31, 1998. 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 and have not been registered under
the Securities Act; however, Fremont General Corporation intends to do so during
1999. 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 August 1, 1997, the Company completed the acquisition of Industrial
which resulted in the ultimate disbursement of funds totaling $434 million,
comprised of $355 million in purchase price, as adjusted pursuant to certain
audit and settlement provisions in the purchase agreement, $79 million in the
pay-off of an outstanding debt obligation that Industrial owed to Talegen, and
$9.5 million in costs incurred in connection with the acquisition. The
disbursement of cash used to fund the acquisition included $219 million in
borrowings under the Company's existing line of credit and the remainder from
internally generated funds. (See "General.")
During 1998, an aggregate $21.0 million principal amount at maturity of
Liquid Yield Option(TM) Notes due October 12, 2013 (Zero Coupon-Subordinated)
("LYONs") were converted into 809,000 shares of Fremont General Corporation'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 1997, an
aggregate $266.7 million principal amount at maturity of LYONs were converted
into 10.3 million shares of Fremont General Corporation's Common Stock. The
effect of the conversions was an increase in stockholders' equity and a decrease
in long-term debt of $117 million. During 1996, an aggregate $72.5 million
principal amount at maturity of LYONs were converted into 2.8 million shares of
Fremont General Corporation's Common Stock. The effect of the 1996 conversions
was an increase in stockholders' equity and a decrease in long-term debt of $31
million.
On March 1, 1996, Fremont General Financing I, a statutory business trust
(the "Trust") and consolidated wholly-owned subsidiary of the holding company,
sold $100 million of 9% Trust Originated Preferred Securities(SM) ("the
Preferred Securities") in a public offering. The Preferred Securities represent
preferred undivided beneficial interests in the assets of the Trust. The
proceeds from the sale of the Preferred Securities were invested in 9% Junior
Subordinated Debentures of the holding company ("the Junior Subordinated
Debentures"). The proceeds from the sale of the Junior Subordinated Debentures
were used to repay approximately $50 million in revolving bank line of credit
indebtedness, with the remainder used for general corporate purposes. The $100
million Junior Subordinated Debentures are the sole asset of the Trust. The
Preferred Securities will be redeemed upon maturity of the Junior Subordinated
Debentures in 2026, subject to the election available to Fremont General
Corporation to extend the maturity up to 2045, and they may be redeemed, in
whole or in part, at any time on or after March 31, 2001 and under certain
specified circumstances. The Junior Subordinated Debentures are subordinate and
junior to all senior indebtedness of the holding company. Payment of
distributions out of cash held by the Trust, and payments on liquidation of the
Trust or the redemption of the Preferred Securities are guaranteed by Fremont
General Corporation.
Net cash used in operating activities of continuing operations was $199.7
million, $18.0 million and $96.0 million for 1998, 1997 and 1996, respectively.
Net cash used in continuing operations increased in 1998 as compared to 1997,
due primarily to a higher reduction in claims and policy liabilities and an
increase in premiums receivable and agents' balances, offset partially by an
increase in net income and an increase in the provision for deferred income
taxes. The higher reduction in claims and policy liabilities is due mainly to an
increase in 1998 in reinsurance recoverables on unpaid losses resulting from the
additional excess of loss reinsurance purchased by Fremont and which became
effective January 1, 1998. (See "Results of Operations -- Property and Casualty
Insurance Operation -- Premiums.") Additionally, the higher provision for
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<PAGE> 45
deferred income taxes is due predominately to this higher reduction in claims
and policy liabilities. The decrease in net cash used in operating activities in
1997 as compared to 1996 was due primarily to an increase in net income and a
decrease in other assets and an increase in other liabilities. The significant
decrease in other assets was due mainly to a $45 million collection on a
policyholder receivable classified in other assets and the increase in other
liabilities was due mainly to increases in accrued federal income taxes payable.
Net cash provided by (used in) investing activities was $(721.4) million,
$(393.2) million and $229.8 million for 1998, 1997 and 1996, respectively. The
decrease in net cash provided by (used in) investing activities is due primarily
to increases in loan originations and bulk purchases funded, net of repayments
and a smaller decrease in short-term investments. This was partially offset by
increases in investment sales, maturities and calls, net of purchases and a
decrease in the purchase of subsidiaries. The increase in loan originations and
bulk purchases funded is consistent with the general growth in Fremont's
financial services loan portfolio. The decrease in the purchase of subsidiaries
occurs as the 1998 acquisition of Unicare at $110 million in purchase price was
smaller than the 1997 acquisition of Industrial. The decrease in net cash
provided by (used in) investing activities in 1997 as compared to 1996 was due
mainly to the August 1, 1997 acquisition of Industrial; an increase in
investment purchases, net of sales, maturities and short-term investment
activity; and an increase in loan originations, net of repayments. The increase
in loan originations is consistent with the general growth in the Company's
financial services' loan portfolio. The decrease in short-term investments was
due primarily to the investing of the acquired short-term investment portfolio
of Industrial into long-term investments.
Net cash provided by (used in) financing activities was $936.1 million,
$420.8 million, and $(118.0) million in 1998, 1997 and 1996, respectively. The
increase in net cash provided by (used in) financing activities in 1998 as
compared to 1997 is due mainly to increases in short-term and long-term debt
proceeds, net of repayments and an increase in thrift deposits. These increases
resulted primarily from the financing of the general growth of the Company's
financial services loan portfolio. Net cash provided by (used in) financing
activities increased in 1997 as compared to 1996, due primarily to an increase
in long-term debt proceeds, net of short-term and long-term repayments; an
increase in thrift deposits; and the payment in 1996 of $363.4 million in the
settlement of certain reinsurance and assumption agreements that substantially
reduced the Company's life insurance activities to an immaterial level. The
increase in long-term debt proceeds, net of repayments, was due mainly to $140
million in net additional borrowings used in conjunction with the acquisition of
Industrial. Partially offsetting these increases in financing activities were
decreases in annuity receipts, net of contract withdrawals, which is consistent
with the Company's substantial reduction in life insurance activities in 1996.
Additionally, the Company's financing activities in 1996 were significantly
impacted by the proceeds of $100 million from the sale of the Preferred
Securities, which were issued on March 1, 1996.
The amortized cost of Fremont's invested assets were $2.33 billion and
$2.36 billion at December 31, 1998 and 1997, respectively. The modest decrease
in invested assets is due mainly to the offsetting effects of higher ceded
reinsurance premium payments resulting from the additional excess of loss
reinsurance purchased by Fremont that became effective January 1, 1998, offset
partially by an increase in invested assets resulting from the acquisition of
Unicare.
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 Fremont's thrift was in compliance with these standards as of
December 31, 1998. (See "Item 1. Business -- Regulation -- Thrift and Loan
Regulation.") In December 1998, an additional $33 million was contributed to the
capital of this subsidiary in response to the growth in the thrift's loan
portfolio during 1998.
The Company believes that its existing cash, its bank lines of credit,
revenues from operations and other available sources of liquidity will be
sufficient to satisfy its liquidity needs for the next several years.
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<PAGE> 46
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. Fremont 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:
Office facilities and equipment -- Will the telephones, facsimile
machines, copy machines, elevators, air conditioning and heating systems,
and other utility systems used by Fremont in its leased and owned
facilities function properly in the year 2000 and beyond?
Key business partners, vendors, other suppliers -- Will Fremont'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 Fremont'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 January 31, 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. Fremont has evaluated representations rendered by these facility
owners for most of the Company's leased facilities. Based on the representations
received through January 31, 1999, Fremont anticipates no significant disruption
from these various facility-related systems due to the Year 2000 Problem.
Further, with respect to Fremont'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, Fremont 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:
Fremont 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
Fremont's operations. The Company
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<PAGE> 47
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 in early 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, Fremont 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 Fremont 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. Fremont
expects this process to be completed by June 30, 1999.
Customers:
In the financial services operation, Fremont'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 Fremont 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, which are comprised of approximately fifty loans as of January 31, 1999.
Fremont 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, Fremont does not anticipate
any significant impact to its financial services revenues due to the Year 2000
Problem. For Fremont'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 operation, Fremont 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. Fremont 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 January 31, 1999, significant Year 2000 compliance issues remain only
within Fremont's property and casualty insurance 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
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<PAGE> 48
application Systems for commercial finance lending and syndicated loans, 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. Fremont intends to install the
software upgrades and test these Systems to verify the vendors' representations.
The Company expects to complete these procedures by June 30, 1999.
With regard to the property and casualty insurance 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 January
31, 1999, Fremont 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, excluding
those Systems supporting recently acquired Industrial, will be Year 2000
compliant and tested by March 31, 1999. Industrial's Systems are expected to be
converted to Year 2000 compliant Systems by September 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 Fremont 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, Fremont believes that
its personnel, payroll, accounting, and treasury Systems are Year 2000
compliant. The Company intends to test these Systems by June 30, 1999 to verify
the vendors' representations.
In addition to its various application Systems, Fremont 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 is in the process of testing vendors' representations as to Year 2000
compliance of installed network software. These processes are anticipated to be
completed by March 31, 1999 with no significant Year 2000 Problems expected.
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 January 31, 1999, Fremont 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, Fremont 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 Fremont'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. Fremont 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 Fremont'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, Fremont 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
Fremont may experience unfavorable business factors and expenditures in excess
of
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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 Fremont. 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 Fremont's net
finance income, levels of non-performing assets and net charge-offs. Fremont'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 Fremont 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,
Fremont 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.")
ITEM 7.(A) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the subheadings "Market Risk," "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 Company's Management's Discussion
and Analysis is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements, including supplementary
data, are set forth in the "Index" on page 54 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the subheadings "Election of Directors,"
"Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the subheadings "Election of Directors,"
"Compensation of Directors," "Executive Officers," "Summary Compensation Table,"
"Summary Compensation Table -- Explanations," "Option Exercises and Year-End
Values," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values Table," "Long-Term Incentive Plans -- Awards in Last Fiscal Year,"
"Employment Agreements" and "Retirement and Other Benefit Plans, A-I" in the
Company's definitive Proxy Statement for the 1999 Annual Meeting of Stockholders
is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the subheading "Principal and Management
Stockholders" in the Company's definitive Proxy Statement for the 1999 Annual
Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information immediately following the captions "Election of Directors"
and "Employment Agreements" in the Company's definitive Proxy Statement for the
1999 Annual Meeting of Stockholders is incorporated herein by reference.
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<PAGE> 51
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)and (a)(2) and (d) FINANCIAL STATEMENTS AND SCHEDULES. Reference is made
to the "Index -- Consolidated Financial Statements and
Financial Statements Schedules -- Annual Report on
Form 10-K filed as part of this Annual Report."
(a)(3) and (c) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Stock Purchase Agreement by and among Talegen Holdings,
Inc., Fremont Indemnity Company and Fremont General
Corporation dated as of May 16, 1997 including exhibits
thereto. (Filed as Exhibit No. 2.1 to Current Report on Form
8-K, as of August 1, 1997, Commission File Number 1-8007,
and incorporated herein by reference.)
2.2 Tax Allocation and Indemnification Agreement, dated as of
May 16, 1997 by and among Xerox Financial Services, Inc.,
Talegen Holdings, Inc., Industrial Indemnity Holdings, Inc.,
Fremont General Corporation, and Fremont Indemnity
Corporation, a California corporation. (Filed as Exhibit No.
2.2 to Current Report on Form 8-K, as of August 1, 1997,
Commission File Number 1-8007, and incorporated herein by
reference.)
3.1 Restated Articles of Incorporation of Fremont General
Corporation. (Filed as Exhibit No. 3.1 to Quarterly Report
on Form 10-Q, for the period ended June 30, 1998, Commission
File Number 1-8007, and incorporated herein by reference.)
3.2 Certificate of Amendment of Articles of Incorporation of
Fremont General Corporation.
3.3 Amended and Restated By-Laws of Fremont General Corporation.
(Filed as Exhibit No. 3.3 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
4.1 Form of Stock Certificate for Common Stock of the
Registrant. (Filed as Exhibit No. (1) Form 8-A filed on
March 17, 1993, Commission File Number 1-8007, and
incorporated herein by reference.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013
between the Registrant and Bankers Trust Company. (Filed as
Exhibit No. 4.4 to Registration Statement on Form S-3 filed
on October 1, 1993, and incorporated herein by reference.)
4.3 Indenture among the Registrant, the Trust and First
Interstate Bank of California, a California banking
corporation, as trustee. (Filed as Exhibit No. 4.3 to Annual
Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein
by reference.)
4.4 Amended and Restated Declaration of Trust among the
Registrant, the Regular Trustees, The Chase Manhattan Bank
(USA), a Delaware banking corporation, as Delaware trustee,
and The Chase Manhattan Bank, N.A., a national banking
association, as Institutional Trustee. (Filed as Exhibit No.
4.5 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.5 Preferred Securities Guarantee Agreement between the
Registrant and The Chase Manhattan Bank, N.A., a national
banking association, as Preferred Guarantee Trustee. (Filed
as Exhibit No. 4.6 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
</TABLE>
49
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
4.6 Common Securities Guarantee Agreement by the Registrant.
(Filed as Exhibit No. 4.7 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
4.7 Form of Preferred Securities. (Included in Exhibit 4.5).
(Filed as Exhibit No. 4.8 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
4.8 Form of 9% Junior Subordinated Debenture. (Included in
Exhibit 4.3). (Filed as Exhibit No. 4.9 to Annual Report on
Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by
reference.)
4.9 Indenture dated as of March 1, 1999 between the Registrant
and The First National Bank of Chicago, as trustee.
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.
4.11 Form of Fremont General Corporation 7.70% Senior Notes due
2004.
4.12 Form of Fremont General Corporation 7.875% Senior Notes due
2004.
10.1(a) Fremont General Corporation Employee Stock Ownership Plan as
amended. (Filed as Exhibit No. 10.1 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by
reference.)
10.1(b) Amendment Number Two to the Fremont General Corporation
Employee Stock Ownership Plan. (Filed as Exhibit No. 10.1
(b) to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1997, Commission File Number 1-8007, and
incorporated herein by reference.)
10.1(c) Amendment Number Three to the Fremont General Corporation
Employee Stock Ownership Plan. (Filed as Exhibit No. 10.1(c)
to Quarterly Report on Form 10-Q, for the period ended
September 30, 1998, Commission File Number 1-8007, and
incorporated herein by reference.)
10.1(d) Amendment Number Four to the Fremont General Corporation
Employee Stock Ownership Plan.
10.2 Amended and Restated Trust Agreement for Fremont General
Corporation Employee Stock Ownership Plan. (Filed as Exhibit
No. 10.2 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.3(a) Fremont General Corporation and Affiliated Companies
Investment Incentive Plan. (Filed as Exhibit No. 10.3 to
Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.3(b) Amendments Number One, Two and Three to the Fremont General
Corporation and Affiliated Companies Investment Incentive
Plan. (Filed as Exhibit No. 10.3 (b) to Quarterly Report on
Form 10-Q, for the period ended September 30, 1997,
Commission File Number 1-8007, and incorporated herein by
reference.)
10.3(c) Amendment Number Four to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan. Filed as
Exhibit No. (10.3 to Annual Report on Form 10-K, for the
Fiscal Year Ended December 31, 1997, Commission File Number
1-8007, and incorporated herein by reference.)
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.3(d) Amendment Number Five to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan. (Filed as
Exhibit No. 10.3(d) to Quarterly Report on Form 10-Q, for
the period ended September 30, 1998, Commission File Number
1-8007, and incorporated herein by reference.)
10.4(a) Trust Agreement for Investment Incentive Plan. (Filed as
Exhibit No. (10)(xi) to Annual Report on Form 10-K, for the
Fiscal Year Ended December 31, 1993, Commission File Number
1-8007, and incorporated herein by reference.)
10.4(b) Amendment to Trust Agreement for Investment Incentive Plan.
(Filed as Exhibit No. 10.4 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
10.5 Supplemental Retirement Plan of the Company, as restated
January 1, 1997. (Filed as Exhibit No. 10.5 to Quarterly
Report on Form 10-Q, for the period ended September 30,
1997, Commission File Number 1-8007, and incorporated herein
by reference.)
10.5(b) Amendment Number Two to the Fremont General Corporation
Supplemental Retirement Plan of the Company.
10.6 Trust Agreement for Supplemental Retirement Plan of the
Company, as amended. (Filed as Exhibit No. 10.6 to Annual
Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein
by reference.)
10.7(a) Senior Supplemental Retirement Plan, as restated January 1,
1997. (Filed as Exhibit No. 10.7 to Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission
File Number 1-8007, and incorporated herein by reference).
10.7(b) First Amendment to the Fremont General Corporation Senior
Supplemental Retirement Plan.
10.8(a) Fremont General Corporation Excess Benefit Plan Restated
effective as of January 1, 1997 and First Amendment dated
December 21, 1998.
10.8(b) Trust Agreement for Excess Benefit Plan. (Filed as Exhibit
No. 10.8 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.9 Amended Non-Qualified Stock Option Plan of 1989 and related
agreements of the Company. (Filed as Exhibit No. 10.9 to
Annual Report on Form 10-K, for the fiscal year ended
December 31, 1996, Commission File Number 1-8007, and
incorporated herein by reference.)
10.10 1997 Stock Plan and related agreements. (Filed as Exhibit
No. 10.10 to Quarterly Report on Form 10-Q, for the period
ended June 30, 1997, Commission File Number 1-8007, and
incorporated herein by reference.)
10.11(a) Long-Term Incentive Compensation Plan of the
Company -- Senior Executive Plan. (Filed as Exhibit No.
10.10(a) on Form 10-Q for the period ended September 30,
1996, Commission File Number 1-8007, and incorporated herein
by reference.)
10.11(b) Long-Term Incentive Compensation Plan of the Company (Filed
as Exhibit No. 10.10 (b) on Form 10-Q for the period ended
September 30, 1996, Commission File Number 1-8007, and
incorporated herein by reference.)
</TABLE>
51
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.12 1995 Restricted Stock Award Plan As Amended and forms of
agreement thereunder. (Filed as Exhibit No. 4.1 to
Registration Statement on Form S-8/S-3 File No. 333-17525
which was filed on December 9, 1997, and incorporated herein
by reference.)
10.13 Fremont General Corporation Employee Benefits Trust
Agreement ("Grantor Trust") dated September 7, 1995 between
the Company and Merrill Lynch Trust Company of California.
(Filed as Exhibit No. 10.12 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
10.14(a) Employment Agreement between the Company and James A.
McIntyre dated January 1, 1994. (Filed as Exhibit No.
(10)(i) to Quarterly Report on Form 10-Q for the period
ended March 31, 1994, Commission File Number 1-8007, and
incorporated herein by reference.)
10.14(b) First Amendment to Employment Agreement between the Company
and James A. McIntyre dated August 1, 1996. (Filed as
Exhibit No. 10.10 to Quarterly Report on Form 10-Q, for the
period ended June 30, 1997, Commission File Number 1-8007,
and incorporated herein by reference.)
10.14(c) Second Amendment to Employment Agreement between the Company
and James A. McIntyre dated August 8, 1997. (Filed as
Exhibit No. 10.14 (c) to Quarterly Report on Form 10-Q, for
the period ended September 30, 1997, Commission File Number
1-8007, and incorporated herein by reference.)
10.15(a) Employment Agreement between the Company and Louis J.
Rampino dated February 8, 1996. (Filed as Exhibit No. 10.14
(a) to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.15(b) Employment Agreement between the Company and Wayne R. Bailey
dated February 8, 1996. (Filed as Exhibit No. 10.14 to
Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.16 Management Continuity Agreement between the Company and
Raymond G. Meyers dated February 8, 1996. (Filed as Exhibit
No. 10.15 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.17 1998 Management Incentive Compensation Plan of the Company.
(Filed as Exhibit No. 10.17 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1997, Commission File
Number 1-8007, and incorporated herein by reference.)
10.18 Continuing Compensation Plan for Retired Directors. (Filed
as Exhibit No. 10.17 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.19 Credit Agreement among Fremont General Corporation, Various
Lending Institutions and the Chase Manhattan Bank, N.A., As
Agent dated August 1, 1997. (Filed as Exhibit No. 10.20 to
Quarterly Report on Form 10-Q, for the period ended
September 30, 1997, Commission File Number 1-8007, and
incorporated herein by reference).
</TABLE>
52
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
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. (Filed as Exhibit No. (10)(viii) to
Quarterly Report on Form 10-Q for the period ended September
30, 1995, and incorporated herein by reference.)
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. (Filed as Exhibit No. 10.22(a) to
Quarterly Report on Form 10-Q/A Amendment No. 1, for the
period ended September 30, 1998, Commission File Number
1-8007, and incorporated herein by reference).
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. (Filed as
Exhibit No. 10.22(b) to Quarterly Report on Form 10-Q/A
Amendment No. 1, for the period ended September 30, 1998,
Commission File Number 1-8007, and incorporated herein by
reference).
21 Subsidiaries of the Company
23 Consent of Ernst & Young LLP Independent Auditors
27 Financial Data Schedule
</TABLE>
(b) REPORT ON FORM 8-K. None.
53
<PAGE> 56
FREMONT GENERAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
ANNUAL REPORT ON FORM 10-K
------------------------
INDEX
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Report of Independent Auditors.............................. 55
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... 56
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996....................... 57
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996....................... 58
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996........... 59
Notes to Consolidated Financial Statements................ 60
Schedules:
II -- Condensed Financial Information of Registrant...... 82
III -- Supplementary Insurance Information................ 85
IV -- Reinsurance........................................ 86
V -- Valuation and Qualifying Accounts................... 87
VI -- Supplemental Information Concerning
Property/Casualty Insurance Operations................. 88
</TABLE>
All other schedules are omitted because of the absence of conditions under
which they are required or because the necessary information is provided in the
consolidated financial statements or notes thereto.
54
<PAGE> 57
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Fremont General Corporation
We have audited the accompanying consolidated balance sheets of Fremont
General Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also included the financial statement schedules listed in the Index at Item
14(a). These financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Fremont
General Corporation and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Los Angeles, California
March 22, 1999
55
<PAGE> 58
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Securities available for sale at fair value:
Fixed maturity investments (cost: 1998 -- $1,597,585;
1997 -- $1,835,086)..................................... $1,646,772 $1,893,876
Non-redeemable preferred stock (cost: 1998 -- $489,714;
1997 -- $356,223)....................................... 500,376 378,832
---------- ----------
Total securities available for sale................ 2,147,148 2,272,708
Loans receivable............................................ 2,958,176 1,983,687
Short-term investments...................................... 222,719 164,626
Other investments........................................... 16,890 5,479
---------- ----------
TOTAL INVESTMENTS AND LOANS........................ 5,344,933 4,426,500
Cash........................................................ 79,875 64,987
Accrued investment income................................... 44,038 42,038
Premiums receivable and agents' balances.................... 184,355 146,144
Reinsurance recoverable on paid losses...................... 15,801 20,287
Reinsurance recoverable on unpaid losses.................... 829,002 522,928
Deferred policy acquisition costs........................... 44,996 38,014
Costs in excess of net assets acquired...................... 164,467 149,321
Deferred income taxes....................................... 145,410 148,757
Other assets................................................ 273,157 275,144
Assets held for discontinued operations..................... 243,578 256,507
---------- ----------
TOTAL ASSETS....................................... $7,369,612 $6,090,627
========== ==========
LIABILITIES
Claims and policy liabilities:
Losses and loss adjustment expenses....................... $2,298,118 $2,163,323
Life insurance benefits and liabilities................... 136,973 180,976
Unearned premiums......................................... 119,774 78,625
Dividends to policyholders................................ 16,162 37,626
---------- ----------
TOTAL CLAIMS AND POLICY LIABILITIES................ 2,571,027 2,460,550
Reinsurance premiums payable and funds withheld............. 46,124 13,049
Other liabilities........................................... 277,938 250,877
Thrift deposits............................................. 2,134,839 1,492,985
Short-term debt............................................. 165,702 26,290
Long-term debt.............................................. 913,006 691,068
Liabilities of discontinued operations...................... 210,064 222,993
---------- ----------
TOTAL LIABILITIES.................................. 6,318,700 5,157,812
Commitments and contingencies
Company-obligated mandatorily redeemable preferred
securities of subsidiary Trust holding solely Company
junior subordinated debentures............................ 100,000 100,000
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share -- Authorized:
150,000,000 shares;
Issued and outstanding: (1998 -- 69,939,000 and
1997 -- 34,571,000)..................................... 69,939 34,571
Additional paid-in capital.................................. 308,369 323,065
Retained earnings........................................... 620,612 508,533
Deferred compensation....................................... (86,910) (86,263)
Accumulated other comprehensive income...................... 38,902 52,909
---------- ----------
TOTAL STOCKHOLDERS' EQUITY......................... 950,912 832,815
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $7,369,612 $6,090,627
========== ==========
</TABLE>
See notes to consolidated financial statements.
56
<PAGE> 59
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
-------------- ------------ ------------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES
Property and casualty premiums earned..................... $ 552,078 $601,183 $486,860
Loan interest............................................. 234,828 194,412 163,765
Net investment income..................................... 192,815 149,729 123,531
Realized investment losses................................ (605) (1,964) (1,658)
Other revenue............................................. 58,481 30,935 23,306
---------- -------- --------
TOTAL REVENUES.................................. 1,037,597 974,295 795,804
EXPENSES
Losses and loss adjustment expenses....................... 335,450 389,201 335,407
Policy acquisition costs.................................. 123,393 115,899 96,177
Provision for loan losses................................. 11,059 12,319 13,885
Other operating costs and expenses........................ 205,481 150,847 107,260
Dividends to policyholders................................ 4,735 4,734 --
Interest expense.......................................... 160,767 142,402 114,766
---------- -------- --------
TOTAL EXPENSES.................................. 840,885 815,402 667,495
---------- -------- --------
Income before taxes....................................... 196,712 158,893 128,309
Income tax expense........................................ 63,748 50,601 41,021
---------- -------- --------
NET INCOME...................................... $ 132,964 $108,292 $ 87,288
========== ======== ========
PER SHARE DATA:
Net Income:
Basic................................................... $ 2.09 $ 1.90 $ 1.77
Diluted................................................. 1.90 1.62 1.37
</TABLE>
See notes to consolidated financial statements.
57
<PAGE> 60
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................................. $ 132,964 $ 108,292 $ 87,288
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............. (21,241) 1,194 4,043
Change in accrued investment income................... (1,871) 3,879 3,602
Change in claims and policy liabilities............... (412,526) (212,274) (211,482)
Amortization of policy acquisition costs.............. 123,393 115,899 96,177
Policy acquisition costs deferred..................... (130,214) (121,004) (93,478)
Provision for deferred income taxes................... 33,583 18,360 24,798
Provision for loan losses............................. 11,059 12,319 13,885
Depreciation and amortization......................... 40,318 33,524 26,592
Net amortization on fixed maturity investments........ (25,991) (20,250) (21,976)
Realized investment losses............................ 605 1,964 1,658
Change in other assets and liabilities................ 50,176 40,145 (27,116)
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES.............. (199,745) (17,952) (96,009)
INVESTING ACTIVITIES
Securities available for sale:
Purchases of securities............................... (1,122,255) (3,736,527) (1,527,408)
Sales of securities................................... 865,642 3,446,093 1,679,631
Securities matured or called.......................... 389,253 62,288 52,806
Decrease in short-term and other investments............ 275,197 469,559 239,684
Loan originations and bulk purchases funded............. (2,651,041) (980,837) (644,193)
Receipts from repayments and bulk sales of loans........ 1,665,493 672,871 441,311
Acquisition of companies, less cash acquired............ (109,989) (303,033) --
Purchases of property and equipment..................... (33,727) (23,617) (12,035)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES....................................... (721,427) (393,203) 229,796
FINANCING ACTIVITIES
Proceeds from short-term debt........................... 126,995 -- 14,929
Repayments of short-term debt........................... (13,300) (5,052) (72,191)
Proceeds from long-term debt............................ 298,000 274,260 79,058
Repayments of long-term debt............................ (41,228) (170,750) (111,004)
Net increase in thrift deposits......................... 641,854 378,633 188,040
Annuity contract receipts............................... 714 1,386 132,550
Annuity contract withdrawals............................ (47,288) (32,637) (44,184)
Settlement under life insurance reinsurance
agreements............................................ -- -- (363,415)
Proceeds from sale of Preferred Securities.............. -- -- 100,000
Dividends paid.......................................... (20,476) (17,838) (15,016)
Stock options exercised................................. 1,453 13,129 1,428
Increase in deferred compensation plans................. (10,664) (20,367) (28,163)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES....................................... 936,060 420,764 (117,968)
----------- ----------- -----------
INCREASE IN CASH........................................ 14,888 9,609 15,819
Cash at beginning of year............................. 64,987 55,378 39,559
----------- ----------- -----------
CASH AT END OF YEAR................................ $ 79,875 $ 64,987 $ 55,378
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
58
<PAGE> 61
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED DEFERRED COMPREHENSIVE
STOCK CAPITAL EARNINGS COMPENSATION INCOME TOTAL
------- ---------- -------- ------------ ------------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996..... $25,393 $110,103 $347,607 $ (6,612) $ 21,599 $498,090
Net income for 1996.......... -- -- 87,288 -- -- 87,288
Cash dividends to
stockholders.............. -- -- (15,759) -- -- (15,759)
Conversion of LYONs.......... 1,399 29,127 -- -- -- 30,526
Stock options exercised...... 57 (1,654) -- 3,025 -- 1,428
Shares issued or acquired for
employee benefit plans.... 1,244 31,291 -- (64,918) -- (32,383)
Amortization of restricted
stock..................... -- -- -- 5,277 -- 5,277
ESOP shares allocated less
additional shares
purchased................. -- 9 -- 4,210 -- 4,219
Other adjustments............ -- (424) -- (175) -- (599)
Net change in unrealized gain
(loss) on investments, net
of deferred taxes......... -- -- -- -- (18,970) (18,970)
------- -------- -------- -------- -------- --------
Balance at December 31, 1996... 28,093 168,452 419,136 (59,193) 2,629 559,117
Net income for 1997.......... -- -- 108,292 -- -- 108,292
Cash dividends to
stockholders.............. -- -- (18,895) -- -- (18,895)
Conversion of LYONs.......... 5,144 112,051 -- -- -- 117,195
Stock options exercised...... 1,334 21,158 -- 37 -- 22,529
Shares acquired or allocated
for employee benefit
plans..................... -- 8,234 -- (34,207) -- (25,973)
Amortization of restricted
stock..................... -- -- -- 7,536 -- 7,536
ESOP shares allocated........ -- 617 -- 7,043 -- 7,660
Other adjustments............ -- 12,553 -- (7,479) -- 5,074
Net change in unrealized gain
(loss) on investments, net
of deferred taxes......... -- -- -- -- 50,280 50,280
------- -------- -------- -------- -------- --------
Balance at December 31, 1997... 34,571 323,065 508,533 (86,263) 52,909 832,815
Net income for 1998.......... -- -- 132,964 -- -- 132,964
Cash dividends to
stockholders.............. -- -- (20,885) -- -- (20,885)
Two-for-one stock split...... 34,952 (34,952) -- -- -- --
Conversion of LYONs.......... 423 9,224 -- -- -- 9,647
Stock options exercised...... 52 1,557 -- 577 -- 2,186
Retirement of Common Stock... (59) (2,691) -- 2,750 -- --
Shares acquired or allocated
for employee benefit
plans..................... -- 10,157 -- (23,287) -- (13,130)
Amortization of restricted
stock..................... -- -- -- 9,592 -- 9,592
ESOP shares allocated........ -- 3,379 -- 3,906 -- 7,285
Other adjustments............ -- (1,370) -- 5,815 -- 4,445
Net change in unrealized gain
(loss) on investments, net
of deferred taxes......... -- -- -- -- (14,007) (14,007)
------- -------- -------- -------- -------- --------
Balance at December 31, 1998... $69,939 $308,369 $620,612 $(86,910) $ 38,902 $950,912
======= ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
59
<PAGE> 62
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Fremont General Corporation is a nationwide insurance and financial
services holding company operating select businesses in niche markets. The
insurance business of Fremont ("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; the Company's interest in large commercial loans originated and
serviced by other financial institutions ("syndicated loans"); commercial
working capital lines of credit ("commercial finance") and insurance premium
financing. Real estate lending represents over 68% of loan interest revenues
(1997 -- 64%; 1996 -- 56%) and represents both commercial and residential
lending secured by real estate located primarily in California. Syndicated and
commercial finance accounts for substantially all of the remaining loan interest
revenues and represents asset-based loans to companies nationwide (25% in
California), primarily secured by accounts receivable, inventory, and machinery
and equipment.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles which, as to the
subsidiary insurance companies, differ from statutory accounting practices
prescribed or permitted by regulatory authorities. The significant accounting
policies followed by the Company that materially affect financial reporting are
summarized below.
Consolidation: The consolidated financial statements include the accounts
and operations, after intercompany eliminations, of Fremont General Corporation
and all subsidiaries. (See Note N for the accounting treatment of discontinued
operations.)
Use of Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Investments: Fixed maturity investments represent bonds and redeemable
preferred stocks that mature more than one year after the purchase date.
Non-redeemable preferred stocks are equity securities, the majority of which do
not include adjustable dividend yield provisions.
Premiums and discounts on investments in securities are primarily amortized
using the interest method over the estimated lives of the investments. The
estimated lives of such investments are determined based upon the current
expectations of future cash flows. Adjustments for other-than-temporary market
declines are recorded when determination of loss is probable and is reflected
with a write-down of amortized cost to net realizable value. Short-term
investments are carried at cost, which approximates their fair value. Realized
investment gains and losses are included as a component of revenues based on
specific identification of the investment sold.
Loans: Loans are stated net of unearned income and allowance for possible
loan losses. The allowance is increased by provisions charged against operations
and reduced by loan amounts charged off by management. Allowances for credit
losses are based on discounted cash flows using the loans' effective interest
rate or the fair value of the collateral for collateral dependent loans. The
allowance is maintained at a level considered adequate to provide for inherent
losses on loans based on management's evaluation of the loan portfolio. While
management uses all available information to estimate the level of the allowance
for credit losses, future additions may be necessary based on changes in the
amounts and timing of future cash flows expected due to changes in collateral
values supporting loans, general economic conditions and borrowers' financial
conditions.
Management classifies loans as non-accrual when the collection of future
interest is not assured by the borrower's financial condition and the value of
underlying collateral and guarantees securing the loan. Subsequent collections
on non-accrual loans are applied as a reduction of principal. The Company's
charge-off policy is based on a monthly loan-by-loan review.
60
<PAGE> 63
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loans in process of foreclosure, repossessed assets, and in-substance
foreclosures are included in the financial statements at the lower of cost or
estimated realizable value (net of estimated costs to sell). Estimated
realizable values are based on management's evaluation of numerous factors,
including appraisals, sales of comparable assets and estimated market
conditions.
Furniture and Equipment: Furniture and equipment are included in other
assets and are stated at cost, less accumulated depreciation. Leasehold
improvements are amortized over the terms of the lease. Generally, depreciation
is computed by the straight-line method over periods ranging from two to twelve
years.
Premium Income: Revenues from property and casualty premiums are recognized
proportionately over the terms of the related policies. Direct property and
casualty premiums earned but not billed at the end of each accounting period are
estimated and accrued, and differences between such estimates and final billings
are included in current operations. Premiums receivable and agents' balances and
reinsurance recoverable on paid and unpaid losses include allowances for
doubtful accounts of $8,304,000 and $7,048,000 at December 31, 1998 and 1997,
respectively.
Losses and Loss Adjustment Expenses: The estimated liabilities for losses
and loss adjustment expenses include the accumulation of estimates for losses
and claims reported prior to the balance sheet dates, estimates (based primarily
on projections of historical developments) of claims incurred but not reported
and estimates of expenses for investigating and adjusting all incurred and
unadjusted claims. Amounts reported are estimates of the ultimate costs of
settlement, net of subrogation and salvage recoveries, which are necessarily
subject to the impact of future changes in economic and social conditions.
Management believes that, given the inherent variability in any such estimates,
the aggregate reserves are within a reasonable and acceptable range of adequacy.
Reserves are continually monitored and reviewed, and as settlements are made or
reserves adjusted, differences are included in current operations.
Included in the loss and loss adjustment expense liability recorded on the
consolidated balance sheet at December 31, 1998 and 1997 is $80,547,000 and
$87,013,000, respectively, of workers' compensation accident and health
permanent disability and death reserves which have been discounted at 5%. These
reserves arose from the acquisition in 1995 of Casualty Insurance Company
("Casualty"). The Company has continued the practice previously adopted by
Casualty of discounting permanent disability loss reserves for both statutory
accounting practices and generally accepted accounting principles.
Unearned Premiums: Property and casualty insurance unearned premiums are
calculated using the monthly pro rata basis.
Life Insurance Benefits and Liabilities: Policyholder contract liabilities
for universal life and investment-type products represent the premiums received
plus accumulated interest, less mortality and other administrative charges under
the contracts and before applicable surrender charges. Policy benefits and
claims that are charged to expense include benefit claims incurred in excess of
related policy account balances. (See Note F.)
Deferred Policy Acquisition Costs: Commissions, premium taxes and certain
sales and underwriting expenses are capitalized and amortized as premiums are
earned over the terms of the related property and casualty policies. Anticipated
investment income is considered in determining if premium deficiencies exist.
Dividends to Policyholders: Dividends, if applicable, to policyholders on
workers' compensation insurance contracts are accrued during the period in which
the related premiums are earned.
Thrift Deposits: Thrift deposits consist of certificates of deposit at the
Company's California thrift and loan subsidiary. Such balances are credited with
interest at rates ranging from 2.57% to 8.68% at December 31, 1998. The
estimated fair value of the thrift deposits was $2,138,300,000 at December 31,
1998.
Intangibles: The excess of the costs of acquisitions over net assets
acquired (net of accumulated amortization: 1998 -- $28,282,000;
1997 -- $21,125,000) is being amortized over various periods ranging
61
<PAGE> 64
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
primarily from 7 to 25 years, which represents the estimated life of the
intangible assets associated with such acquisitions. Additionally, the trade
names acquired in the acquisitions of Industrial Indemnity Holdings, Inc.
("Industrial") and Casualty (net of accumulated amortization:
1998 -- $3,635,000; 1997 -- $1,571,000) are being amortized over 40 years. (See
Note B regarding intangibles related to acquisitions.)
Credit Risk: Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments,
fixed maturity securities, preferred stocks, real estate and commercial finance
loans and reinsurance recoverables. The Company places its temporary cash
investments with high credit quality financial institutions and limits the
amounts of credit exposure to any one financial institution. Concentrations of
credit risk with respect to investments in fixed maturities, preferred stocks,
commercial finance loans and syndicated loans are limited due to the large
number of such investments and their distribution across many different
industries and geographic regions. Concentration of credit risk with respect to
thrift and loan finance receivables is limited due to the large number of
borrowers; however, the majority of the thrift and loan finance receivables are
from borrowers within the state of California. To minimize its exposure to
significant losses from reinsurance insolvencies, the Company evaluates the
financial condition of its reinsurers and monitors concentrations of credit risk
arising from similar geographic regions, activities, or economic characteristics
of the reinsurers. As of December 31, 1998, Great Southern Insurance Company,
Reliance Insurance Company and Constitution Reinsurance Corporation were the
only reinsurers that accounted for more than 10% of total reinsurance
recoverables on paid and unpaid losses. The remaining reinsurance recoverables
were spread over 205 reinsurers.
Fair Values of Financial Instruments: The Company uses various methods and
assumptions in estimating its fair value disclosures for financial instruments.
For fixed maturity investments and preferred stocks, fair values are determined
from certain valuation services, as well as from quoted market prices. Loans
receivable with variable rates, as well as thrift deposits for passbook and
money market type accounts, are deemed to be at fair value. The fair values of
thrift certificates of deposits, real estate loans and other fixed rate loans
are estimated using discounted cash flow analyses, using interest rates
currently being offered for similar accounts or loans to borrowers with similar
credit ratings.
For short-term debt, the carrying amount of the Company's borrowings
approximates fair value. The fair value of the Company's long-term debt and
mandatorily redeemable preferred securities of a subsidiary Trust is based on
quoted market prices for securities actively traded. For long-term debt not
actively traded, and for bank borrowings, the fair value is estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
62
<PAGE> 65
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1998 are summarized in the following table:
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Fixed maturity investments (Note C)......................... $1,646,772 $1,646,772
Non-redeemable preferred stock (Note C)..................... 500,376 500,376
Loans receivable (Note D)................................... 2,958,176 2,983,364
LIABILITIES
Thrift deposits (Note A).................................... 2,134,839 2,138,300
Short-term debt (Note H).................................... 165,702 165,702
Long-term debt (Note I)..................................... 913,006 918,535
Company-obligated mandatorily redeemable preferred
securities of subsidiary Trust holding solely Company
junior subordinated debentures (Note J)................... 100,000 104,500
</TABLE>
Insurance related financial instruments, other than those classified as
investment contracts, are exempt from fair value disclosure requirements. The
carrying amount of reinsurance paid recoverables approximates their fair value
as they are expected to be realized within one year.
Reclassifications: Certain 1997 and 1996 amounts have been reclassified to
conform to the 1998 presentation.
NOTE B -- ACQUISITION
On September 1, 1998, the Company completed the acquisition of Unicare
Specialty Services, Inc., ("Unicare") the workers' compensation insurance
subsidiary of WellPoint Health Networks Inc., one of the nation's largest
publicly traded managed care companies, for $110 million in cash. At acquisition
date, Unicare's assets approximated $425 million, including $348 million in
investment securities. Liabilities assumed approximated $332 million, including
$293 million of loss reserves. The purchase price included $17 million of costs
in excess of net assets acquired that is being amortized over 25 years.
Unicare's operating results are included in the Company's consolidated statement
of income from the date of acquisition. The impact of the Unicare acquisition on
the Company's results of operations for the year ended December 31, 1998 was not
material.
On August 1, 1997, the Company completed the acquisition of Industrial
Indemnity Holdings, Inc. ("Industrial") from Talegen Holdings, Inc., a
subsidiary of Xerox Corporation ("Talegen"). Industrial specializes in
underwriting workers' compensation insurance with a strong presence in the
western United States dating back over 70 years. The acquisition was treated as
a purchase for accounting purposes. The adjusted purchase price paid by the
Company consisted of $355 million in cash and $9.5 million in acquisition costs
bringing the total cost of the acquisition to $364.5 million. Additionally,
pursuant to the terms of the acquisition agreement, the Company paid off a $79
million outstanding debt obligation that Industrial owed to Talegen. The
purchase price included $92.7 million of costs in excess of net assets acquired
that is being amortized over 25 years and approximately $61.8 million of an
intangible asset for the trade name that is being amortized over 40 years.
The operating results of Industrial are included in the Company's
consolidated statement of income from the date of acquisition. The following
unaudited pro forma consolidated data present operating results of the Company
as if the acquisition of Industrial had occurred January 1, 1997 and 1996,
respectively. The pro
63
<PAGE> 66
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
forma results are not intended to be indicative of the consolidated results of
operations that would have been reported if the acquisition had occurred at the
dates indicated or of the consolidated results of future operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
-------- --------
(MILLIONS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues.................................................... $1,168 $1,100
Net income.................................................. 114 92
Per share data:
Net income
Basic..................................................... $ 2.00 $ 1.87
Diluted................................................... 1.71 1.44
</TABLE>
NOTE C -- INVESTMENTS
The amortized cost and fair values of the fixed maturity investments and
non-redeemable preferred stock by major category are summarized in the following
table:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
At December 31, 1998
United States Treasury securities and
obligations of other US government
agencies and corporations............... $ 87,615 $ 1,773 $ 60 $ 89,328
Obligations of states and political
subdivisions............................ 240,067 7,155 -- 247,222
Redeemable preferred stock................. 38,035 271 -- 38,306
Mortgage-backed securities................. 355,747 14,553 1,054 369,246
Corporate securities
Financial............................... 275,335 11,383 4,101 282,617
Transportation.......................... 27,211 2,938 -- 30,149
Industrial.............................. 573,575 34,751 18,422 589,904
---------- ------- ------- ----------
Total.............................. 1,597,585 72,824 23,637 1,646,772
Non-redeemable preferred stock............. 489,714 17,185 6,523 500,376
---------- ------- ------- ----------
Total.............................. $2,087,299 $90,009 $30,160 $2,147,148
========== ======= ======= ==========
</TABLE>
64
<PAGE> 67
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
At December 31, 1997
United States Treasury securities and
obligations of other US government
agencies and corporations............... $ 165,847 $ 2,972 $ 31 $ 168,788
Obligations of states and political
subdivisions............................ 99,876 2,023 -- 101,899
Redeemable preferred stock................. 27,618 732 -- 28,350
Mortgage-backed securities................. 560,015 15,356 11 575,360
Corporate securities
Banks................................... 9,374 199 -- 9,573
Financial............................... 373,630 16,939 1,570 388,999
Transportation.......................... 7,139 2,131 -- 9,270
Industrial.............................. 591,587 25,801 5,751 611,637
---------- ------- ------- ----------
Total.............................. 1,835,086 66,153 7,363 1,893,876
Non-redeemable preferred stock............. 356,223 22,758 149 378,832
---------- ------- ------- ----------
Total.............................. $2,191,309 $88,911 $ 7,512 $2,272,708
========== ======= ======= ==========
</TABLE>
The amortized cost and fair value of fixed maturity investments at December
31, 1998 by contractual maturity, are summarized in the following table:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
One year or less.......................................... $ 30,773 $ 30,816
Over 1 year through 5 years............................... 99,845 100,909
Over 5 years through 10 years............................. 611,549 626,000
Over 10 years............................................. 499,671 519,801
Mortgage-backed securities................................ 355,747 369,246
---------- ----------
Totals.......................................... $1,597,585 $1,646,772
========== ==========
</TABLE>
The contractual maturities in the foregoing table may differ from actual
maturities because certain borrowers have the right to sell or repay obligations
with or without call or prepayment penalties.
Proceeds from sales of securities and related realized gains and losses are
summarized in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Proceeds from sales............................. $865,642 $3,446,093 $1,679,631
Gross realized gains............................ 7,469 51,413 10,012
Gross realized losses........................... 8,074 53,377 11,670
</TABLE>
65
<PAGE> 68
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investment income by major category of investments is summarized in the
following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Fixed maturities................................... $144,158 $111,798 $ 85,352
Non-redeemable preferred stock..................... 34,976 29,343 25,545
Short-term......................................... 16,061 10,804 14,646
Other.............................................. 324 299 147
-------- -------- --------
195,519 152,244 125,690
Investment expenses................................ 2,704 2,515 2,159
-------- -------- --------
Net investment income.................... $192,815 $149,729 $123,531
======== ======== ========
</TABLE>
The Company relies on external rating agencies to establish quality ratings
for its investments. The Company only purchases securities that are rated
investment grade by at least one rating agency, but may hold investments that
are subsequently downgraded to non-investment grade. As of December 31, 1998,
all investments held by the Company are current as to principal and interest,
with no investment in default. Included in investments is $28,158,000 of fixed
maturity investments and $91,465,000 of non-redeemable preferred stock of
Citigroup Inc. and its subsidiaries, that in total exceeds 10% of stockholders'
equity at December 31, 1998. Using Standard and Poor's, Moody's, Duff and Phelps
and Fitch's rating services, the quality mix of the Company's investment
portfolio at December 31, 1998 is summarized in the following table:
<TABLE>
<S> <C>
AAA (including US government obligations)................... 32%
AA.......................................................... 15
A........................................................... 30
BBB......................................................... 19
BB.......................................................... 4
---
100%
===
</TABLE>
The par value of fixed maturity investments and cash totaling
$1,364,680,000 at December 31, 1998 were on deposit with regulatory authorities
in compliance with legal requirements related to the insurance operations.
The Company currently holds no derivative financial instruments.
NOTE D -- LOANS RECEIVABLE
Loans receivable consist of commercial and residential real estate loans,
syndicated loans, commercial finance loans and insurance premium notes
receivable. Commercial and residential real estate loans are secured by real
property. Syndicated loans represent the Company's interest in large commercial
loans originated and serviced by other financial institutions. Commercial
finance loans are asset-based loans that are secured by the borrowers' eligible
trade accounts receivable, inventory, machinery and equipment, and real estate.
Insurance premium notes receivable are collateralized by security interests in
return premiums.
Commercial and residential real estate loans have terms ranging from one to
thirty years. Finance charges are recognized as revenue over the life of the
loan using the interest method. Loan origination fees and the related costs are
deferred and amortized over the life of the loan using the interest method. The
loans are net of allowance for possible loan losses of $40,097,000 and
$32,966,000 at December 31, 1998, and 1997, respectively. Included in loans
receivable are real estate loans which have been placed on non-accrual status
totaling $20,851,000 and $24,139,000 at December 31, 1998 and 1997,
respectively. Real estate acquired in foreclosure, which is classified under
other assets, totaled $3,848,000 and $8,021,000 at December 31, 1998
66
<PAGE> 69
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 1997, respectively, and is recorded at the lower of the carrying value of
the loan or the estimated fair value less disposal costs.
Commercial finance loans are stated at the unpaid balance of cash advanced
net of allowance for possible loan losses of $8,983,000 and $7,723,000 at
December 31, 1998 and 1997, respectively. The amount of cash advanced under
these loans is based on stated percentages of the borrowers' eligible
collateral. Interest on the commercial loans is computed on the basis of daily
outstanding balances times the contractual interest rate and is reported as
earned income on the accrual method. Total loan balances on which income
recognition has been suspended were $1,669,000 (six loans) and $7,386,000 (seven
loans) at December 31, 1998 and 1997, respectively.
Syndicated loans are variable rate senior loans originated on both a
revolving and fixed-term basis, generally not in excess of ten years. These
loans are secured by various assets of the borrower, and, if applicable, of its
subsidiaries. The loans are net of allowance for possible loan losses of
$6,798,000 and $3,338,000 at December 31, 1998 and 1997, respectively. There
were no syndicated loans on non-accrual status at either December 31, 1998 or
1997.
Insurance premium notes receivable mature within one year. Interest income
on these notes is recognized using the rule-of-seventy-eight method which
results in approximately level interest rate yield over the life of the notes.
Activity in the allowance for possible loan losses is summarized in the
following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
------- ------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Balance, beginning of year........................... $44,402 $37,747 $ 31,781
Provision for loan losses............................ 11,059 12,319 13,885
Recoveries........................................... 839 1,294 1,394
Charge-offs.......................................... (3,419) (6,958) (11,143)
Reserves established with portfolio acquisitions..... 3,465 -- 1,830
------- ------- --------
Balance, end of year................................. $56,346 $44,402 $ 37,747
======= ======= ========
</TABLE>
At December 31, 1998, the recorded investment in loans that are considered
to be impaired was $22,520,000, all of which were on a non-accrual basis. The
Company's policy is to consider a loan impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. Evaluation of a loan's collectibility is based on the present value
of expected cash flows or the fair value of the collateral, if the loan is
collateral dependent. As a result of charge-offs, these impaired loans do not
necessarily have a related specific reserve for credit losses allocated to them.
However, $19,711,000 of loans considered impaired do have an allowance that
totaled $2,582,000. The average net investment in impaired loans was
$25,373,000, $27,391,000 and $26,833,000 for 1998, 1997 and 1996, respectively.
Interest income of $1,401,000 has been recognized on the cash basis of
accounting on loans classified as impaired during the year ended December 31,
1998.
67
<PAGE> 70
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts at December 31, 1998 and 1997 and estimated fair
values at December 31, 1998 of loans receivable are summarized in the following
table:
<TABLE>
<CAPTION>
1998 1997
------------------------ ----------
CARRYING ESTIMATED CARRYING
AMOUNT FAIR VALUE AMOUNT
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Commercial and residential real estate loans... $2,116,910 $2,142,098 $1,433,977
Commercial finance loans....................... 493,804 493,804 402,987
Syndicated loans............................... 362,238 362,238 147,885
Premium finance loans.......................... 58,225 58,225 54,257
---------- ---------- ----------
3,031,177 3,056,365 2,039,106
Purchase discount and deferred fees............ (16,655) (16,655) (11,017)
Allowance for possible loan losses............. (56,346) (56,346) (44,402)
---------- ---------- ----------
Loans receivable, net.......................... $2,958,176 $2,983,364 $1,983,687
========== ========== ==========
</TABLE>
NOTE E -- CLAIM LIABILITIES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The following table provides a reconciliation of the beginning and ending
reserve balances for the Company's claim liabilities for losses and loss
adjustment expenses ("LAE") on a net-of-reinsurance basis to the gross amounts
reported in the Company's consolidated balance sheets.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Reserves for losses and LAE, net of reinsurance
recoverable, at beginning of year.................... $1,809,395 $1,010,886 $1,185,706
Incurred losses and LAE:
Provision for insured events of the current year, net
of reinsurance.................................... 348,897 441,524 334,657
Increase (decrease) in provision for insured events
of prior years, net of reinsurance................ (13,447) (52,323) 750
---------- ---------- ----------
Total incurred losses and LAE..................... 335,450 389,201 335,407
Payments:
Losses and LAE, net of reinsurance, attributable to
insured events of:
Current year...................................... (245,177) (253,323) (108,247)
Prior years....................................... (590,197) (386,469) (401,980)
---------- ---------- ----------
Total payments.................................. (835,374) (639,792) (510,227)
---------- ---------- ----------
Subtotal..................................... 1,309,471 760,295 1,010,886
Liability for losses and LAE for companies acquired
during the year...................................... 287,645 1,049,100 --
---------- ---------- ----------
Reserves for losses and LAE, net of reinsurance
recoverable, at end of year.......................... 1,597,116 1,809,395 1,010,886
Reinsurance recoverable for losses and LAE, at end of
year................................................. 701,002 353,928 245,459
---------- ---------- ----------
Reserves for losses and LAE, gross of reinsurance
recoverable, at end of year.......................... $2,298,118 $2,163,323 $1,256,345
========== ========== ==========
</TABLE>
In 1998, Fremont decreased its losses and LAE reserves for 1997 and prior
accident years by $13.4 million. This decrease resulted primarily from the
combined effects of a decrease in 1997 and prior accident year losses and LAE
reserves under certain assigned risk plans that the Company is required to
68
<PAGE> 71
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
participate in, and an increase in the discount established for certain accident
and health permanent disability and death reserves. In 1997, the Company
decreased its losses and LAE reserves for 1996 and prior accident years by $52.3
million. This reserve decrease relates primarily to loss and LAE reserves on
workers' compensation policies written in the Company's mid-west region and
represents the recognition of a decrease in the frequency of reported claims on
the 1996 and 1995 accident years. Additionally, the Company's management
believes that its implementation of more effective claims handling procedures in
the mid-west region has contributed to the reduction in LAE reserves during
calendar year 1997 and relating to the 1996 and prior accident years. The
Company is not able to determine with certainty the specific cause or causes of
increases and decreases in claims experience that led to these changes in
reserves but has reached its own conclusion based on a review of its internal
data and a subjective evaluation of external factors. In 1996 there was
relatively insignificant aggregate development on prior accident years.
NOTE F -- REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that
may arise from catastrophes or other events that cause unfavorable underwriting
results by reinsuring certain levels of risk in various areas of exposure with
other insurance enterprises or reinsurers. Amounts recoverable from reinsurers
are estimated in a manner consistent with the claim liability associated with
the reinsured policy.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. The failure of reinsurers to honor their obligations could result
in losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition and economic
characteristics of its reinsurers to minimize its exposure to significant losses
from reinsurer insolvencies.
The effect of ceded reinsurance on property and casualty premiums are
summarized in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
-------- -------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Direct............................. $750,301 $717,021 $611,211 $591,506 $462,881 $470,111
Assumed............................ 11,848 13,040 19,647 23,650 18,839 25,075
Ceded.............................. 190,473 177,983 9,766 13,973 7,536 8,326
-------- -------- -------- -------- -------- --------
Net property and casualty
premiums...................... $571,676 $552,078 $621,092 $601,183 $474,184 $486,860
======== ======== ======== ======== ======== ========
</TABLE>
The effect of ceded reinsurance on losses and loss adjustment expenses was
a decrease in expenses of $371,378,000, $14,167,000 and $13,617,000 for the
three years ended December 31, 1998, 1997 and 1996, respectively.
The Company entered into reinsurance and assumption agreements with a
reinsurer whereby substantially all of the Company's universal life insurance
and annuity business was ceded to the reinsurer effective December 31, 1995, and
all the annuity business was ceded to the reinsurer effective January 1, 1996.
As a result of these agreements, the Company's life insurance operations have
been substantially reduced with no significant gain or loss recorded. Included
in life insurance benefits and liabilities and reinsurance recoverable on unpaid
losses in the accompanying balance sheet is approximately $128,000,000 related
to one of the reinsurance contracts that continues to be on a co-insurance
basis.
69
<PAGE> 72
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- INCOME TAXES
The major components of income tax expense are summarized in the following
table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Federal income tax
Current............................................. $27,314 $29,225 $13,233
Deferred............................................ 33,583 18,360 24,798
------- ------- -------
60,897 47,585 38,031
State income tax...................................... 2,851 3,016 2,990
------- ------- -------
Total income tax provision.......................... $63,748 $50,601 $41,021
======= ======= =======
</TABLE>
A reconciliation of the effective federal tax rates in the consolidated
statements of income with the prevailing federal income tax rate of 35% is
summarized in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Federal income tax at 35%............................. $68,849 $55,613 $44,908
Effects of:
Dividends received deduction........................ (8,857) (5,654) (6,238)
Dividends in stock-based deferred compensation...... (795) (785) (357)
Amortization of costs in excess of net assets
acquired......................................... 3,085 1,810 1,269
Reduction in prior years' tax liabilities........... -- (2,336) --
Other............................................... (1,385) (1,063) (1,551)
------- ------- -------
Federal income tax provision.......................... $60,897 $47,585 $38,031
======= ======= =======
</TABLE>
In 1997, the Company reversed $2,336,000 of a previously accrued amount as
a result of the expected favorable resolution of certain tax matters. Net
payments made (net cash received) for federal and state income taxes were
$187,540, $(7,876,000), and $778,000 for 1998, 1997 and 1996, respectively.
70
<PAGE> 73
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred income tax balance includes the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and for income tax purposes. The components of the Company's
deferred tax assets as of December 31, 1998 and 1997 are summarized in the
following table:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Discount on liabilities for losses and loss adjustment
expenses.................................................. $106,120 $116,350
Accrued expenses............................................ 29,256 30,152
Allowance for possible loan losses and other doubtful
accounts.................................................. 25,861 23,200
Employee benefit expenses................................... 19,171 18,352
Unearned premiums........................................... 12,424 11,365
Dividends to policyholders.................................. 3,099 9,374
Other, net.................................................. 3,345 1,448
-------- --------
Deferred income tax asset amounts...................... 199,276 210,241
Net unrealized gain on investments.......................... (20,947) (28,489)
Deferred policy acquisition costs........................... (15,568) (13,301)
Earned but unbilled premiums................................ (10,390) (12,294)
Deferred loan origination costs............................. (5,526) (6,113)
Accrual of market discount.................................. (1,435) (1,287)
-------- --------
Deferred income tax liability amounts.................. (53,866) (61,484)
-------- --------
Net deferred income tax asset.......................... $145,410 $148,757
======== ========
</TABLE>
The Company's principal deferred tax assets arise due to the discounting of
liabilities for losses and loss adjustment expenses ("loss reserves") which
delays a portion of the loss reserve deduction for income tax purposes, the
provision for doubtful loan accounts, the accrual of dividends to policyholders,
a portion of the unearned premiums, certain accrued expenses, and certain
employee benefit expenses.
In the Company's opinion, the deferred tax assets will be fully realized
and no valuation allowance is necessary because the Company has the ability to
generate sufficient future taxable income in both the insurance and financial
services segments to realize the tax benefits.
NOTE H -- SHORT-TERM DEBT
Short-term debt is summarized in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Federal Home Loan Board of San Francisco ("FHLB") borrowings
of a subsidiary (weighted average interest rate;
1998 -- 4.83%)............................................ $115,000 $ --
Asset backed commercial paper facility of a subsidiary,
maturity dates through January 4, 1999 (weighted average
interest rate, 1998 -- 5.30%; 1997 -- 6.57%).............. 24,985 12,990
Current portion of long-term debt........................... 25,717 13,300
-------- -------
$165,702 $26,290
======== =======
</TABLE>
At December 31, 1998, the thrift and loan subsidiary had a borrowing
capacity with the FHLB of $474 million. This subsidiary has pledged certain
loans to secure any borrowings which are available at varying rates and terms.
The commercial finance subsidiary has liquidity lines of credit totaling
$20,000,000. Interest
71
<PAGE> 74
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
is based on the prime lending rate. The lines are renewable annually, and there
were no outstanding advances under these lines of credit at December 31, 1998.
NOTE I -- LONG-TERM DEBT
Long-term debt is summarized in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Fremont General Corporation
$400 million Senior Credit Facility....................... $300,000 $240,000
Liquid Yield Option Notes due 2013, less discount
(1998 -- $7,118; 1997 -- $18,976)...................... 6,409 15,525
Note Payable due 2002..................................... 6,554 8,583
Subsidiaries:
$450 million Senior Credit Facility....................... 351,500 166,000
Variable Rate Asset Backed Certificates................... 274,260 274,260
-------- --------
938,723 704,368
Less current portion...................................... 25,717 13,300
-------- --------
$913,006 $691,068
======== ========
</TABLE>
In August 1997, the Company amended and restated an agreement on a
$400,000,000 Senior Credit Facility with several banks. Borrowings and
repayments are a minimum of $5,000,000 at the option of the Company until the
maturity date in August 2002. Interest is based on, at the Company's option, the
higher of the Federal Funds rate plus 1/2% or the banks' prime lending rate,
Eurodollar rates plus an applicable margin or by competitive bids by the banks.
All applicable margins are based on the Company's credit rating. The weighted
average interest rate at December 31, 1998 on the outstanding balance of
$300,000,000 was 5.76%. A facility fee ranging from .125% to .300%, dependent on
the Company's credit rating, is charged on the total facility. The facility fee
rate during 1998 was .175%. The stock of a subsidiary insurance holding company
has been pledged as collateral for this loan.
During July 1994, the Fremont General Employee Stock Ownership Plan
("ESOP") borrowed $11,000,000 (see Note L) from a bank due in seven equal annual
installments commencing on April 1, 1996. The maximum principal amount of this
loan was increased to $15 million in August, 1995 and the term was extended to
April 1, 2002. The Note Payable due 2002 is secured by certain shares of the
ESOP and the interest and principal payments are guaranteed by the Company.
Interest is based on, at the Company's option, the bank's prime lending rate,
LIBOR plus 1%, or an applicable certificate of deposit rate. The interest rate
at December 31, 1998 was 6.47% .
In 1993, the Company sold in a public offering an aggregate $373,750,000
principal amount at maturity of Liquid Yield Option Notes due October 12, 2013
(Zero Coupon-Subordinated) (the "LYONs") at an issue price of $372.42 for a
total net proceeds to the Company of approximately $135,000,000. The yield to
maturity is 5% with no periodic payments of interest. Each LYON is convertible
into 38.5735 shares of the Company's Common Stock and is non-callable for five
years. Holders converted aggregate principal amounts of $20,974,000,
$266,744,000 and $72,505,000 of LYONs into 809,000, 10,289,000 and 2,797,000
shares of the Company's Common Stock during 1998, 1997 and 1996, respectively.
The Variable Rate Asset Backed Certificates reflect the sale of
certificates pursuant to an asset securitization program established by the
commercial finance subsidiary of the Company in 1993. As of December 31, 1998,
an aggregate $235 million of senior series and $39 million of subordinated
series of term
72
<PAGE> 75
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
December 31, 1998. The securities issued in this program have a scheduled
maturity of two to four years but could mature earlier depending on fluctuations
in the outstanding balances of loans in the portfolio and other factors.
The commercial finance subsidiary also has an agreement for a committed
unsecured bank line of credit that presently permits borrowings of up to $438
million. The total commitment includes a revolving credit facility of $350
million expiring June 2002 and a term loan of $88 million maturing July 2001.
The balance outstanding at December 31, 1998 of the revolving credit facility
and the term loan was $264 million and $88 million, respectively, with a
weighted average interest rate of 5.74%.
The carrying amounts and the estimated fair values of long-term borrowings
at December 31, 1998 are summarized in the following table:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
$400 million Senior Credit Facility......................... $300,000 $300,000
LYONs....................................................... 6,409 11,938
Note Payable due 2002....................................... 6,554 6,554
$450 million Senior Credit Facility......................... 351,500 351,500
Variable Rate Asset Backed Certificates..................... 274,260 274,260
-------- --------
Total long-term borrowings........................ $938,723 $944,252
======== ========
</TABLE>
The aggregate amount of maturities on long-term debt and sinking fund
requirements are summarized in the following table (thousands of dollars):
<TABLE>
<S> <C>
1999.............................................. $ 25,717
2000.............................................. 270,446
2001.............................................. 158,946
2002.............................................. 477,205
2003.............................................. --
Thereafter........................................ 6,409
--------
$938,723
========
</TABLE>
Total interest payments on short-term and long-term debt were $151,411,000,
$125,048,000, and $101,515,000 in 1998, 1997 and 1996, respectively.
NOTE J -- COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY COMPANY JUNIOR SUBORDINATED DEBENTURES
In 1996, Fremont General Financing I, a statutory business trust (the
"Trust") and consolidated wholly-owned subsidiary of the Company, sold $100
million of 9% Trust Originated Preferred Securities(SM) ("the Preferred
Securities") in a public offering. The Preferred Securities represent preferred
undivided beneficial interests in the assets of the Trust. The proceeds from the
sale of the Preferred Securities were invested in 9% Junior Subordinated
Debentures of the Company ("the Junior Subordinated Debentures"). The Junior
Subordinated Debentures are the sole asset of the Trust.
The Preferred Securities will be redeemed upon maturity of the Junior
Subordinated Debentures in 2026, subject to the election available to the
Company to extend the maturity up to 2045, and they may be redeemed, in whole or
in part, at any time on or after March 31, 2001 and under certain specified
circumstances.
73
<PAGE> 76
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Junior Subordinated Debentures rank pari passu with the Company's
$13,527,000 million aggregate principal amount at maturity of LYONs due 2013,
and subordinate and junior to all senior indebtedness of the Company. (See Note
I.) Payment of distributions out of cash held by the Trust, and payments on
liquidation of the Trust or the redemption of the Preferred Securities are
guaranteed by the Company to the extent that the Trust has funds available to
make such payments. Trust distributions of $9,000,000 in 1998 and 1997,
respectively and $7,375,000 in 1996 were included in interest expense. The
Company has provided for back-up undertakings that, considered together,
constitute a full and unconditional guarantee by the Company of the Trust's
obligations under the Preferred Securities.
NOTE K -- STOCKHOLDERS' EQUITY AND RESTRICTIONS
The Company is authorized to issue up to 2,000,000 shares of $.01 par value
Preferred Stock; however, none has been issued to date.
On November 12, 1998, the Board of Directors approved a two-for-one stock
split of its Common Stock, payable December 10, 1998 to stockholders of record
on November 20, 1998.
During 1996, the Company issued 2,602,000 common shares with a fair value
of approximately $33 million to fund stock-based compensation programs. (See
Note L.)
Consolidated stockholders' equity is restricted by the provisions of
certain long-term debt agreements. At December 31, 1997, the most restrictive
loan covenants require the Company to maintain total stockholders' equity of at
least $475,000,000 before FASB 115 adjustments.
The Company has a stock option plan for the benefit of certain key members
of management. Under the plan, up to 5,362,000 shares are allocable to
participants. Options are granted at exercise prices not less than the fair
value of the stock on the date of grant. Grantees vest at the rate of 25% per
year beginning on the first anniversary of the grant and expire after ten years.
The Company has elected to continue following Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" for measuring
compensation cost and to adopt the additional disclosure provisions of FASB
Statement No. 123 ("FASB 123") "Accounting for Stock-Based Compensation." Pro
forma net income, basic and diluted earnings per share data for the year ended
December 31, 1998, calculated as if the recognition and measurement provisions
of FASB 123 had been adopted, would have been $131,679,000, $2.07 and $1.88,
respectively, compared to reported net income, basic and diluted earnings per
share of $132,964,000, $2.09 and $1.90, respectively. For the year ended
December 31, 1997, the pro forma effect would have increased compensation
expense by $1,127,000 and reduced both basic and diluted earnings per share by
$.02. For 1996, the pro forma effect would have increased compensation expense
with no effect on earnings per share. The pro forma effects are not likely to be
representative of the effects on reported net income for future years because
FASB 123 has not been applied to options granted prior to January 1, 1995.
The Black-Scholes option pricing method was used to value the options as of
the grant date with the following assumptions: risk-free interest rate of 5.68%;
expected life of 7 years; expected volatility of 23% and expected dividend yield
of 1.13%.
74
<PAGE> 77
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The stock option activity is summarized in the following table:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Outstanding at January 1, 1996....................... 3,600,084 $5.21
Exercised.......................................... (340,436) 4.01
Forfeited.......................................... (78,706) 7.08
----------
Outstanding at December 31, 1996..................... 3,180,942 5.29
Granted............................................ 1,692,000 14.90
Exercised.......................................... (2,670,194) 4.92
----------
Outstanding at December 31, 1997..................... 2,202,748 13.12
Exercised.......................................... (133,318) 10.90
Forfeited.......................................... (228,572) 14.08
----------
Outstanding at December 31, 1998..................... 1,840,858 13.16
==========
</TABLE>
The exercise prices of the option shares outstanding at December 31, 1998
range from $4.44 to $14.94. The weighted average remaining contractual life is
approximately five and one-half years for the 417,858 option shares that range
from $4.44 to $7.84 per share and eight years for the 1,423,000 option shares
that range from $14.00 to $14.94 per share.
The number of shares exercisable at the end of the year and related
weighted average exercise prices are summarized in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1998 1997 1996
-------- -------- ----------
<S> <C> <C> <C>
Shares exercisable................................ 757,482 320,178 2,716,318
Related weighted average exercise price........... $ 10.80 $ 7.14 $ 4.93
</TABLE>
The portion of the consolidated stockholders' equity represented by the
Company's investment in its insurance subsidiaries and its thrift and loan
subsidiary is subject to various laws and regulations, whereby amounts available
for payment of dividends are restricted. Retained earnings and additional
paid-in capital of the property and casualty companies currently available for
dividend distribution is $235,342,000. No dividends are currently available from
the thrift and loan subsidiary.
Net income and stockholders' equity of domestic insurance subsidiaries, as
filed with regulatory authorities on the basis of statutory accounting
practices, are summarized in the following table:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Statutory net income for the year.................. $100,780 $113,058 $122,988
Statutory stockholder's equity at year end......... 665,262 567,470 438,203
</TABLE>
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130 ("FASB 130"), "Reporting Comprehensive Income." This new
standard establishes new rules for the reporting of comprehensive income and its
components; however, the adoption of this standard had no impact on the
Company's net income or stockholders' equity. FASB 130 requires unrealized gains
or losses on the Company's securities available-for-sale to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to these requirements.
Reclassification adjustments avoid double counting in comprehensive income
items that are included in comprehensive income and net income in different
periods. The reclassification adjustment for the year ended December 31, 1998
represents net unrealized gains included in accumulated other comprehensive
income at December 31, 1997. Determination of reclassification adjustments for
1997 and 1996 was not practicable.
75
<PAGE> 78
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of total comprehensive income are summarized in the
following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net income................................................. $132,964 $108,292 $ 87,288
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)
(1998 -- $(4,738), 1997 -- $27,074 and
1996 -- $(10,215)).................................. (8,797) 50,280 (18,970)
Less: reclassification adjustment, net of tax
(1998 - $2,805)..................................... (5,210) -- --
-------- -------- --------
Other comprehensive income.......................... (14,007) 50,280 (18,970)
-------- -------- --------
Total comprehensive income................................. $118,957 $158,572 $ 68,318
======== ======== ========
</TABLE>
NOTE L -- EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) Plan and a leveraged Employee Stock Ownership
Plan ("ESOP"), both of which cover substantially all employees with at least one
year of service. Contribution expense for these plans amounted to $10,536,000,
$10,681,000, and $6,005,000 for 1998, 1997 and 1996, respectively, of which
$4,295,000, $5,844,000 and $3,115,000 related to the ESOP. Cash contributions to
the ESOP, which relate to 1998, 1997 and 1996, were $3,002,000, $2,028,000 and
$3,090,000, respectively. The contributions, which are generally discretionary,
are based on total compensation of the participants.
Shares pledged as collateral under a loan made to the ESOP by a bank (see
Note I) are reported as deferred compensation in the consolidated balance sheet.
The annual contributions made by the Company to the ESOP are used to repay the
loan. As the debt is repaid, shares are released from collateral and are
allocated to participants based on total compensation. Dividends received by the
ESOP on its pledged shares, amounting to $253,000, $325,000 and $391,000 in
1998, 1997 and 1996, respectively, were additionally used to service these
loans. Interest expense was $359,000, $467,000 and $392,000 for 1998, 1997 and
1996, respectively.
In May of 1996, an additional 682,000 shares of the Company's Common Stock
were acquired by the ESOP. Of the 4,813,000 total shares of Company stock owned
by the ESOP at December 31, 1998, 3,985,000 shares are allocated to participants
and 828,000 shares are not allocated to participants and are considered
unearned. Unearned shares acquired prior to January 1, 1993 (264,000 shares as
of December 31, 1998) continue to be accounted for in accordance with the
historical cost approach (AICPA Statement of Position 76-3). Unearned shares
acquired subsequent to December 31, 1992 (564,000 shares as of December 31,
1998) are accounted for in accordance with the current fair value approach
(AICPA Statement of Position 93-6) and are not considered outstanding for
earnings per share purposes. At December 31, 1998, the fair value of the
unearned shares accounted for under the current fair value approach was
$14,203,000.
During 1996, the Company adopted a Restricted Stock Award Plan ("RSAP") for
certain management level employees. The Company purchased an aggregate of
677,000 and 956,000 shares, at an aggregate cost of approximately $16 million
and $22 million, in 1998 and 1997, respectively, to fund this plan. During 1996,
the Company purchased an aggregate of 1,648,000 shares at an aggregate cost of
approximately $20 million and issued 2,489,000 shares with a fair value at the
date of award of approximately $33 million to fund this plan. Amounts awarded
under the RSAP are amortized over 10 years. Amortization expense for the RSAP
amounted to $9,592,000, $7,536,000 and $5,277,000 for 1998, 1997 and 1996,
respectively. Unamortized amounts are reported as deferred compensation in the
consolidated balance sheet.
76
<PAGE> 79
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a number of legal actions arising primarily
from claims made under insurance policies or in connection with previous
reinsurance agreements. Those actions have been considered in establishing the
Company's liabilities. Management and its legal counsel are of the opinion that
the settlement of those actions will not have a material effect on the Company's
financial position or results of operations.
An insurance subsidiary of the Company outsourced its data processing
operation to Electronic Data Systems in 1992. Under terms of the contract, this
subsidiary will pay a minimum $7,500,000 per year for a period of ten years,
until 2002.
Total rental expense for 1998, 1997 and 1996, was $16,110,000, $13,019,000,
and $11,120,000, respectively. The Company leases office facilities and certain
equipment under non-cancelable operating leases, the terms of which range from
one to ten years. Certain leases provide for an increase in the basic rental to
compensate the lessor for increases in operating and maintenance costs. The
leases also provide renewal options.
Under present leases, rental commitments are summarized in the following
table (thousands of dollars):
<TABLE>
<S> <C>
1999.............................................. $ 30,155
2000.............................................. 28,266
2001.............................................. 26,027
2002.............................................. 22,533
2003.............................................. 21,324
Thereafter........................................ 69,148
--------
$197,453
========
</TABLE>
NOTE N -- DISCONTINUED OPERATIONS
The Company discontinued all of its assumed reinsurance operations, as well
as certain other insurance operations, during the period 1986 to 1991. These
operations consisted primarily of facultative and treaty reinsurance covering
primary and excess property and casualty insurance coverages. All discontinued
insurance operations are accounted for using the liquidation basis of accounting
whereby all future cash inflows and outflows are considered in determining
whether dedicated assets are sufficient to meet all future obligations.
The Company determines the adequacy of the assets dedicated to fund the
liabilities of discontinued operations by: (i) estimating the ultimate remaining
liabilities; (ii) discounting these liabilities using estimates of payment
patterns and investment yields derived from the dedicated investment portfolio;
and (iii) comparing this discounted estimate of liabilities to the dedicated
assets.
The Company estimates that the dedicated assets (primarily cash, investment
securities and reinsurance recoverables) supporting these operations and all
future cash inflows will be adequate to fund future obligations. However, should
those assets ultimately prove to be insufficient, the Company believes that its
property and casualty subsidiaries would be able to provide whatever additional
funds might be needed to complete the liquidation without having a material
adverse effect on the Company's consolidated financial position or results of
operations.
77
<PAGE> 80
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A statement of financial condition of the discontinued operations is
summarized in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Assets
Cash and invested assets, at amortized cost............... $185,801 $196,945
Reinsurance recoverables.................................. 50,350 52,166
Other assets.............................................. 7,427 7,396
-------- --------
Total.................................................. $243,578 $256,507
======== ========
Liabilities
Reserves for loss and loss adjustment expenses............ $148,605 $159,595
Deferred income taxes..................................... 40,721 39,815
Reinsurance payable and funds withheld.................... 4,397 6,455
Other liabilities......................................... 16,341 17,128
-------- --------
Total.................................................. $210,064 $222,993
======== ========
</TABLE>
The amortized cost and fair value of cash and invested assets of the
discontinued operations as of December 31, 1998 are summarized in the following
table:
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Fixed maturities........................................... $124,384 $129,782
Non-redeemable preferred stock............................. 51,339 54,649
Cash and other invested assets............................. 10,078 10,078
-------- --------
Cash and invested assets................................. $185,801 $194,509
======== ========
</TABLE>
The average maturity of the fixed income portfolio was 5.44 years at
December 31, 1998. The quality mix of the fixed maturity portfolio as of
December 31, 1998 is summarized in the following table:
<TABLE>
<S> <C>
AAA (including US government obligations)................... 3%
AA.......................................................... 14
A........................................................... 23
BBB......................................................... 35
BB.......................................................... 25
---
100%
===
</TABLE>
At December 31, 1998, all investments included in discontinued operations
were current with respect to principal and interest. It is the Company's belief
that the carrying value of the investments will be fully realized.
78
<PAGE> 81
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE O -- OPERATIONS BY REPORTABLE SEGMENT
The Company's businesses are managed within two reportable segments:
property and casualty insurance 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.
The following data for the years ended December 31, 1998, 1997 and 1996
provide certain information necessary for reportable segment disclosure, as well
as a reconciliation to total consolidated financial information. For both the
property and casualty and financial services segments, interest revenue is
reported net of interest expense. This net interest revenue is used to assess
segment performance.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
REVENUES
Property and casualty.......................... $ 729,728 $ 738,072 $ 596,841
Financial services............................. 305,886 235,474 197,601
Unallocated corporate.......................... 1,983 749 1,362
---------- ---------- ----------
Total................................ 1,037,597 974,295 795,804
Intersegment:
Property and casualty........................ 1,227 1,235 1,204
Unallocated corporate........................ 36,073 25,643 17,672
---------- ---------- ----------
37,300 26,878 18,876
---------- ---------- ----------
Total revenue........................ 1,074,897 1,001,173 814,680
Reconciling items:
Intersegment revenues........................ (37,300) (26,878) (18,876)
---------- ---------- ----------
Total consolidated................... $1,037,597 $ 974,295 $ 795,804
========== ========== ==========
INCOME (LOSS) BEFORE INCOME TAXES
Property and casualty.......................... $ 169,235 $ 144,667 $ 117,593
Financial services............................. 55,506 42,286 36,589
Unallocated corporate.......................... (23,751) (23,782) (21,645)
---------- ---------- ----------
Total................................ 200,990 163,171 132,537
Reconciling items:
Intercompany dividends....................... (4,278) (4,278) (4,228)
---------- ---------- ----------
Total consolidated................... $ 196,712 $ 158,893 $ 128,309
========== ========== ==========
INTEREST REVENUE, NET OF INTEREST EXPENSE
Property and casualty.......................... $ 151,357 $ 107,165 $ 96,069
Financial services............................. 112,957 94,854 81,958
Unallocated corporate.......................... 1,545 (4,601) (8,100)
---------- ---------- ----------
Total................................ 265,859 197,418 169,927
Reconciling items:
Intersegment elimination..................... 3,721 6,836 4,762
========== ========== ==========
Total consolidated................... $ 269,580 $ 204,254 $ 174,689
========== ========== ==========
AMORTIZATION AND DEPRECIATION EXPENSE
Property and casualty.......................... $ 25,540 $ 16,377 $ 9,680
Financial services............................. 6,993 6,403 4,772
Unallocated corporate.......................... 7,785 10,744 12,140
========== ========== ==========
Total consolidated................... $ 40,318 $ 33,524 $ 26,592
========== ========== ==========
</TABLE>
79
<PAGE> 82
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
SEGMENT ASSETS
Property and casualty.......................... $3,826,885 $3,353,114 $1,890,695
Financial services............................. 3,258,522 2,436,976 2,122,077
Unallocated corporate.......................... 40,627 44,030 29,540
---------- ---------- ----------
7,126,034 5,834,120 4,042,312
Reconciling items:
Assets held for discontinued operations...... 243,578 256,507 265,200
---------- ---------- ----------
Total consolidated................... $7,369,612 $6,090,627 $4,307,512
========== ========== ==========
</TABLE>
NOTE P -- EARNINGS PER SHARE
Earnings per share have been computed based on the weighted average number
of shares adjusted retroactively for a two-for-one split of Common Stock
effected on December 10, 1998. The following table sets forth the computation of
basic and diluted earnings per share:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (numerator for basic earnings per share)........ $132,964 $108,292 $ 87,288
Effect of dilutive securities:
LYONs................................................. 327 2,527 4,547
-------- -------- --------
Income available to common stockholders after assumed
conversions (numerator for diluted earnings per share)... $133,291 $110,819 $ 91,835
======== ======== ========
Weighted-average shares (denominator for basic earnings per
share)................................................... 63,529 57,059 49,315
Effect of dilutive securities:
Restricted stock......................................... 4,729 3,804 2,272
Stock options............................................ 917 374 1,936
LYONs.................................................... 907 7,348 13,683
-------- -------- --------
Dilutive potential common shares........................... 6,553 11,526 17,891
Adjusted weighted-average shares and assumed conversions
(denominator for diluted earnings per share)............. 70,082 68,585 67,206
======== ======== ========
Basic earnings per share................................... $ 2.09 $ 1.90 $ 1.77
======== ======== ========
Diluted earnings per share................................. $ 1.90 $ 1.62 $ 1.37
======== ======== ========
</TABLE>
For additional disclosures regarding the LYONs, the stock options and
restricted stock see Notes I, K and L, respectively.
80
<PAGE> 83
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE Q -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1998
Revenues............................ $263,339 $238,351 $253,075 $282,832
Net income.......................... 31,652 32,583 34,187 34,542
Net income per share:
Basic............................. 0.50 0.51 0.53 0.54
Diluted........................... 0.45 0.47 0.49 0.49
1997
Revenues............................ $194,735 $206,155 $267,272 $306,133
Net income.......................... 24,359 24,938 28,819 30,176
Net income per share:
Basic............................. 0.47 0.45 0.48 0.50
Diluted........................... 0.37 0.37 0.43 0.44
</TABLE>
Net income and net income per share increased after the quarter ended June
30, 1997 due primarily to the acquisition of Industrial which was completed on
August 1, 1997. (See Note B.)
NOTE R --SUBSEQUENT EVENTS
On March 17, 1999, Fremont General Corporation ("the holding company")
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 and have not been registered under
the Securities Act; however, Fremont General Corporation intends to do so in
1999. Net proceeds from the notes were used to repay all indebtedness
outstanding under the holding company's bank line of credit and for general
corporate purposes, including working capital.
On March 23, 1999, the Company's thrift and loan subsidiary issued, through
the Fremont Home Loan Owner Trust 1999-1, approximately $415 million in notes
collateralized by a pool of the thrift and loan's 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.
81
<PAGE> 84
FREMONT GENERAL CORPORATION (PARENT COMPANY)
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Cash........................................................ $ 147 $ 889
Notes receivable from subsidiaries*......................... 345,532 301,609
Investment in subsidiaries*................................. 1,000,392 871,653
Short-term investments...................................... 18,894 15,419
Excess of cost of acquisition of subsidiaries over net
assets acquired........................................... -- 7,221
Other receivables from subsidiaries*........................ 17,348 7,588
Deferred income taxes....................................... 145,410 148,757
Other assets................................................ 22,239 27,592
---------- ----------
TOTAL ASSETS...................................... $1,549,962 $1,380,728
========== ==========
LIABILITIES
Accrued expenses and other liabilities...................... $ 34,004 $ 48,752
Amounts due to subsidiaries*................................ 148,990 131,960
Notes payable to subsidiary*................................ 103,093 103,093
Current portion of long-term debt........................... 717 800
Long-term debt.............................................. 312,246 263,308
---------- ----------
TOTAL LIABILITIES................................. 599,050 547,913
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred Stock, par value $.01 -- authorized 2,000,000
shares; none issued
Common Stock, par value $1 per share -- Authorized:
150,000,000
Issued and outstanding: (1998 -- 69,939,000 and
1997 -- 34,571,000).................................... 69,939 34,571
Additional paid-in capital.................................. 308,369 323,065
Retained earnings........................................... 620,612 508,533
Deferred compensation....................................... (86,910) (86,263)
Accumulated other comprehensive income...................... 38,902 52,909
---------- ----------
TOTAL STOCKHOLDERS' EQUITY........................ 950,912 832,815
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $1,549,962 $1,380,728
========== ==========
</TABLE>
- ---------------
* Eliminated in consolidation
See notes to condensed financial statements.
82
<PAGE> 85
FREMONT GENERAL CORPORATION (PARENT COMPANY)
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
INCOME
Interest income from subsidiaries*......................... $ 22,517 $ 12,086 $ 5,841
Dividends from consolidated subsidiaries*.................. 4,278 4,278 4,228
Net investment income...................................... 1,836 650 1,357
Realized investment gains (losses)......................... 8 34 (2)
Other income*.............................................. 8,139 11,180 8,997
-------- -------- --------
TOTAL INCOME..................................... 36,778 28,228 20,421
EXPENSES
Interest expense........................................... 18,086 12,615 12,151
Interest on notes payable to subsidiary*................... 9,278 9,278 7,603
General and administrative................................. 33,770 30,723 22,868
-------- -------- --------
TOTAL EXPENSES................................... 61,134 52,616 42,622
-------- -------- --------
(24,356) (24,388) (22,201)
Income tax benefit......................................... (13,694) (14,578) (12,213)
-------- -------- --------
Loss before equity in undistributed income of subsidiary
companies................................................ (10,662) (9,810) (9,988)
Equity in undistributed income of subsidiary companies..... 143,626 118,102 97,276
-------- -------- --------
NET INCOME....................................... $132,964 $108,292 $ 87,288
======== ======== ========
</TABLE>
- ---------------
* Eliminated in consolidation
See notes to condensed financial statements.
83
<PAGE> 86
FREMONT GENERAL CORPORATION (PARENT COMPANY)
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 132,964 $ 108,292 $ 87,288
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed income from continuing
operations of subsidiaries........................... (143,626) (118,102) (97,276)
Change in accrued investment income.................... 2 (3) 2
Change in amounts due to or from subsidiaries.......... (18,051) (76,761) (42,999)
Provision for deferred income taxes.................... 33,583 18,360 24,798
Provision for depreciation and amortization............ 7,562 10,744 12,145
Realized investment (gains) losses..................... (8) (34) 2
Change in other assets and liabilities................. 1,005 73,137 6,999
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) CONTINUING
OPERATIONS...................................... 13,431 15,633 (9,041)
Effect of discontinued operations......................... 3,252 (9,934) (3,161)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.... 16,683 5,699 (12,202)
INVESTING ACTIVITIES
Purchases of fixed maturity investments................... (44,653) (11,369) (6,315)
Sales of fixed maturity investments....................... -- 11,403 6,310
Fixed maturity investments matured or called.............. 44,884 -- --
Decrease (increase) in short-term and other investments... (3,476) (9,334) 2,469
Net decrease (increase) in credit lines with
subsidiaries........................................... (43,924) (221,391) 5,092
Purchase of and additional investments in subsidiaries.... (32) (10) (2,000)
Dividend from subsidiary.................................. -- 18,000 --
Purchase of property and equipment........................ (1,917) (1,658) (1,991)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.... (49,118) (214,359) 3,565
FINANCING ACTIVITIES
Repayment of short-term debt.............................. (800) (3,092) --
Proceeds from long-term debt.............................. 100,000 265,000 41,058
Repayment of long-term debt............................... (41,228) (35,000) (111,004)
Proceeds from notes due to subsidiaries................... -- -- 100,000
Dividends paid............................................ (20,476) (17,838) (15,016)
Stock options exercised................................... 1,453 13,129 1,428
Decrease (increase) in deferred compensation plans........ (7,256) (14,328) (6,455)
--------- --------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES.............................. 31,693 207,871 10,011
--------- --------- ---------
INCREASE (DECREASE) IN CASH.......................... (742) (789) 1,374
Cash at beginning of year................................. 889 1,678 304
--------- --------- ---------
CASH AT END OF YEAR.................................. $ 147 $ 889 $ 1,678
========= ========= =========
</TABLE>
See notes to condensed financial statements.
84
<PAGE> 87
FREMONT GENERAL CORPORATION (PARENT COMPANY)
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
In the parent company financial statements, the parent's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since date of acquisition. Parent company financial statements
should be read in conjunction with the Company's consolidated financial
statements.
NOTE 2 -- SUBSEQUENT EVENT
On March 17, 1999, the parent company 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 and have not been registered under the Securities Act; however, the
parent company intends to do so in 1999. Net proceeds from the notes were used
to repay all indebtedness outstanding under the parent company's bank line of
credit and for general corporate purposes, including working capital.
85
<PAGE> 88
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------------------- ------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H
-------- ----------- ------------ -------- ---------- -------- ---------- ------------
RESERVES
DEFERRED FOR CLAIMS, CLAIMS,
POLICY BENEFITS AND DIVIDENDS NET BENEFITS AND
ACQUISITION SETTLEMENT UNEARNED TO POLICY- PREMIUM INVESTMENT SETTLEMENT
SEGMENT COSTS EXPENSES PREMIUMS HOLDERS REVENUE INCOME EXPENSES
------- ----------- ------------ -------- ---------- -------- ---------- ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Life insurance..... $ 350 $ 136,973 $ -- $ -- 453 $ 713 $ --
Property and
casualty......... 44,646 2,298,118 119,774 16,162 552,078 178,263 335,450
------- ---------- -------- ------- -------- -------- --------
$44,996 $2,435,091 $119,774 $16,162 $552,531 $178,976 $335,450
======= ========== ======== ======= ======== ======== ========
1997
Life insurance..... $ 450 $ 180,976 $ -- $ -- $ 696 $ 1,690 $ --
Property and
casualty......... 37,564 2,163,323 78,625 37,626 601,183 138,894 389,201
------- ---------- -------- ------- -------- -------- --------
$38,014 $2,344,299 $78,625 $37,626 $601,879 $140,584 $389,201
======= ========== ======== ======= ======== ======== ========
1996
Life insurance..... $ 550 $ 202,465 $ -- $ -- $ 55 $ 2,989 $ --
Property and
casualty......... 25,001 1,256,345 87,422 33,093 486,860 111,637 335,407
------- ---------- -------- ------- -------- -------- --------
$25,551 $1,458,810 $87,422 $33,093 $486,915 $114,626 $335,407
======= ========== ======== ======= ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
COLUMN A COLUMN I COLUMN J COLUMN K
-------- ------------ --------- --------
AMORTIZATION
OF DEFERRED
POLICY OTHER NET
ACQUISITION OPERATING PREMIUMS
SEGMENT COSTS EXPENSES WRITTEN
------- ------------ --------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
1998
Life insurance..... $ -- $ 1,314 $ N/A
Property and
casualty......... 123,393 58,146 571,676
-------- ------- --------
$123,393 $59,460 $571,676
======== ======= ========
1997
Life insurance..... $ -- $ 3,093 $ N/A
Property and
casualty......... 115,899 43,551 621,092
-------- ------- --------
$115,899 $46,644 $621,092
======== ======= ========
1996
Life insurance..... $ -- $ 1,971 $ N/A
Property and
casualty......... 96,177 26,555 474,184
-------- ------- --------
$ 96,177 $28,526 $474,184
======== ======= ========
</TABLE>
86
<PAGE> 89
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
SCHEDULE IV -- REINSURANCE
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- --------- --------- -------- ----------
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------- --------- --------- -------- ----------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Life insurance in force*............ $107,094 $ 69,054 $ -- $ 38,040 0%
======== ======== ======= ========
Premium Revenue
Life insurance premiums........... $ 986 $ 533 $ -- $ 453 0%
Property and casualty............. 717,021 177,983 13,040 552,078 2%
-------- -------- ------- --------
$718,007 $178,516 $13,040 $552,531
======== ======== ======= ========
YEAR ENDED DECEMBER 31, 1997
Life insurance in force*............ $156,866 $100,910 $ -- $ 55,956 0%
======== ======== ======= ========
Premium Revenue
Life insurance premiums........... $ 2,479 $ 1,783 $ -- $ 696 0%
Property and casualty............. 591,505 13,972 23,650 601,183 4%
-------- -------- ------- --------
$593,984 $ 15,755 $23,650 $601,879
======== ======== ======= ========
YEAR ENDED DECEMBER 31, 1996
Life insurance in force*............ $324,368 $257,552 $ -- $ 66,816 0%
======== ======== ======= ========
Premium Revenue
Life insurance premiums........... $ 263 $ 208 $ -- $ 55 0%
Property and casualty............. 469,912 8,326 25,274 486,860 5%
-------- -------- ------- --------
$470,175 $ 8,534 $25,274 $486,915
======== ======== ======= ========
</TABLE>
- ---------------
* Balance at end of year.
Intercompany transactions have been eliminated.
87
<PAGE> 90
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
SCHEDULE V -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ----------------------- ---------- ----------
ADDITIONS
-----------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS DEDUCTIONS END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
----------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Deducted from asset accounts:
Allowance for possible loan
losses........................... $44,402 $11,059 $ 3,465(1) $ 2,580(2) $56,346
Premiums receivable and agents'
balances and reinsurance
recoverable...................... 7,048 1,256 -- -- 8,304
------- ------- -------- -------- -------
Totals........................ $51,450 $12,315 $ 3,465 $ 2,580 $64,650
======= ======= ======== ======== =======
YEAR ENDED DECEMBER 31, 1997
Deducted from asset accounts:
Allowance for possible loan
losses........................... $37,747 $12,319 $ -- $ 5,664(2) $44,402
Premiums receivable and agents'
balances and reinsurance
recoverable...................... 7,401 252 -- 605(2) 7,048
------- ------- -------- -------- -------
Totals........................ $45,148 $12,571 $ -- $ 6,269 $51,450
======= ======= ======== ======== =======
YEAR ENDED DECEMBER 31, 1996
Deducted from asset accounts:
Allowance for possible loan
losses........................... $31,781 $13,885 $ 1,830(1) $ 9,749(2) $37,747
Premiums receivable and agents'
balances and reinsurance
recoverable...................... 11,147 -- -- 3,746(2) 7,401
------- ------- -------- -------- -------
Totals........................ $42,928 $13,885 $ 1,830 $ 13,495 $45,148
======= ======= ======== ======== =======
</TABLE>
- ---------------
(1) Reserves established with company and portfolio acquisitions.
(2) Uncollectible accounts written off, net of recoveries and reclassifications.
88
<PAGE> 91
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
SCHEDULE VI -- SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY
INSURANCE OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------------- -------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H
-------- ----------- ----------- -------- -------- -------- ---------- -------------------
CLAIMS AND CLAIM
ADJUSTMENT
RESERVES EXPENSES INCURRED
FOR UNPAID DISCOUNT RELATED TO
DEFERRED CLAIMS IF ANY -------------------
POLICY AND CLAIM DEDUCTED NET (1) (2)
ACQUISITION ADJUSTMENT IN UNEARNED EARNED INVESTMENT CURRENT PRIOR
AFFILIATION WITH REGISTRANT COSTS EXPENSES COLUMN C PREMIUMS PREMIUMS INCOME YEAR YEARS
--------------------------- ----------- ----------- -------- -------- -------- ---------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fremont Compensation Insurance
Group and Consolidated
Subsidiaries
1998.......................... $44,646 $ 2,298,118 $25,908 $119,774 $552,078 $178,263 $348,897 $(13,447)
1997.......................... $37,564 $ 2,163,323 $19,782 $78,625 $601,183 $138,894 $441,524 $(52,323)
1996.......................... $25,001 $ 1,256,345 $22,658 $87,422 $486,860 $111,637 $334,657 $ 750
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
COLUMN A COLUMN I COLUMN J COLUMN K
-------- ----------- ---------- ----------
AMORTIZA-
TION OF PAID
DEFERRED CLAIMS
POLICY AND CLAIM NET
ACQUISITION ADJUSTMENT PREMIUMS
AFFILIATION WITH REGISTRANT COSTS EXPENSES WRITTEN
--------------------------- ----------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Fremont Compensation Insurance
Group and Consolidated
Subsidiaries
1998.......................... $123,393 $835,374 $571,676
1997.......................... $115,899 $639,792 $621,092
1996.......................... $ 96,177 $510,227 $474,184
</TABLE>
89
<PAGE> 92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 25th day of
March 1999.
FREMONT GENERAL CORPORATION
/s/ JOHN A. DONALDSON
By:
--------------------------------------
John A. Donaldson
Title: Senior Vice President,
Controller and
Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES A. MCINTYRE Chairman of the Board March 25, 1999
- --------------------------------------------- and Chief Executive Officer
James A. McIntyre (Principal Executive Officer)
/s/ LOUIS J. RAMPINO President, Chief Operating Officer March 25, 1999
- --------------------------------------------- and Director
Louis J. Rampino
/s/ WAYNE R. BAILEY Executive Vice President, Treasurer, March 25, 1999
- --------------------------------------------- Chief Financial Officer and Director
Wayne R. Bailey (Principal Financial Officer)
/s/ JOHN A. DONALDSON Senior Vice President, Controller and March 25, 1999
- --------------------------------------------- Chief Accounting Officer
John A. Donaldson (Principal Accounting Officer)
/s/ HOUSTON I. FLOURNOY Director March 25, 1999
- ---------------------------------------------
Houston I. Flournoy
/s/ C. DOUGLAS KRANWINKLE Director March 25, 1999
- ---------------------------------------------
C. Douglas Kranwinkle
/s/ DAVID W. MORRISROE Director March 25, 1999
- ---------------------------------------------
David W. Morrisroe
/s/ DICKINSON C. ROSS Director March 25, 1999
- ---------------------------------------------
Dickinson C. Ross
</TABLE>
90
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Stock Purchase Agreement by and among Talegen Holdings,
Inc., Fremont Indemnity Company and Fremont General
Corporation dated as of May 16, 1997 including exhibits
thereto. (Filed as Exhibit No. 2.1 to Current Report on Form
8-K, as of August 1, 1997, Commission File Number 1-8007,
and incorporated herein by reference.)
2.2 Tax Allocation and Indemnification Agreement, dated as of
May 16, 1997 by and among Xerox Financial Services, Inc.,
Talegen Holdings, Inc., Industrial Indemnity Holdings, Inc.,
Fremont General Corporation, and Fremont Indemnity
Corporation, a California corporation. (Filed as Exhibit No.
2.2 to Current Report on Form 8-K, as of August 1, 1997,
Commission File Number 1-8007, and incorporated herein by
reference.)
3.1 Restated Articles of Incorporation of Fremont General
Corporation. (Filed as Exhibit No. 3.1 to Quarterly Report
on Form 10-Q, for the period ended June 30, 1998, Commission
File Number 1-8007, and incorporated herein by reference.)
3.2 Certificate of Amendment of Articles of Incorporation of
Fremont General Corporation.
3.3 Amended and Restated By-Laws of Fremont General Corporation.
(Filed as Exhibit No. 3.3 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
4.1 Form of Stock Certificate for Common Stock of the
Registrant. (Filed as Exhibit No. (1) Form 8-A filed on
March 17, 1993, Commission File Number 1-8007, and
incorporated herein by reference.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013
between the Registrant and Bankers Trust Company. (Filed as
Exhibit No. 4.4 to Registration Statement on Form S-3 filed
on October 1, 1993, and incorporated herein by reference.)
4.3 Indenture among the Registrant, the Trust and First
Interstate Bank of California, a California banking
corporation, as trustee. (Filed as Exhibit No. 4.3 to Annual
Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein
by reference.)
4.4 Amended and Restated Declaration of Trust among the
Registrant, the Regular Trustees, The Chase Manhattan Bank
(USA), a Delaware banking corporation, as Delaware trustee,
and The Chase Manhattan Bank, N.A., a national banking
association, as Institutional Trustee. (Filed as Exhibit No.
4.5 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.5 Preferred Securities Guarantee Agreement between the
Registrant and The Chase Manhattan Bank, N.A., a national
banking association, as Preferred Guarantee Trustee. (Filed
as Exhibit No. 4.6 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
4.6 Common Securities Guarantee Agreement by the Registrant.
(Filed as Exhibit No. 4.7 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
4.7 Form of Preferred Securities. (Included in Exhibit 4.5).
(Filed as Exhibit No. 4.8 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
4.8 Form of 9% Junior Subordinated Debenture. (Included in
Exhibit 4.3). (Filed as Exhibit No. 4.9 to Annual Report on
Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by
reference.)
4.9 Indenture dated as of March 1, 1999 between the Registrant
and The First National Bank of Chicago, as trustee.
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.
4.11 Form of Fremont General Corporation 7.70% Senior Notes due
2004.
4.12 Form of Fremont General Corporation 7.875% Senior Notes due
2004.
10.1(a) Fremont General Corporation Employee Stock Ownership Plan as
amended. (Filed as Exhibit No. 10.1 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by
reference.)
10.1(b) Amendment Number Two to the Fremont General Corporation
Employee Stock Ownership Plan. (Filed as Exhibit No. 10.1
(b) to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1997, Commission File Number 1-8007, and
incorporated herein by reference.)
10.1(c) Amendment Number Three to the Fremont General Corporation
Employee Stock Ownership Plan. (Filed as Exhibit No. 10.1(c)
to Quarterly Report on Form 10-Q, for the period ended
September 30, 1998, Commission File Number 1-8007, and
incorporated herein by reference.)
10.1(d) Amendment Number Four to the Fremont General Corporation
Employee Stock Ownership Plan.
10.2 Amended and Restated Trust Agreement for Fremont General
Corporation Employee Stock Ownership Plan. (Filed as Exhibit
No. 10.2 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.3(a) Fremont General Corporation and Affiliated Companies
Investment Incentive Plan. (Filed as Exhibit No. 10.3 to
Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.3(b) Amendments Number One, Two and Three to the Fremont General
Corporation and Affiliated Companies Investment Incentive
Plan. (Filed as Exhibit No. 10.3 (b) to Quarterly Report on
Form 10-Q, for the period ended September 30, 1997,
Commission File Number 1-8007, and incorporated herein by
reference.)
10.3(c) Amendment Number Four to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan. Filed as
Exhibit No. (10.3 to Annual Report on Form 10-K, for the
Fiscal Year Ended December 31, 1997, Commission File Number
1-8007, and incorporated herein by reference.)
10.3(d) Amendment Number Five to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan. (Filed as
Exhibit No. 10.3(d) to Quarterly Report on Form 10-Q, for
the period ended September 30, 1998, Commission File Number
1-8007, and incorporated herein by reference.)
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.4(a) Trust Agreement for Investment Incentive Plan. (Filed as
Exhibit No. (10)(xi) to Annual Report on Form 10-K, for the
Fiscal Year Ended December 31, 1993, Commission File Number
1-8007, and incorporated herein by reference.)
10.4(b) Amendment to Trust Agreement for Investment Incentive Plan.
(Filed as Exhibit No. 10.4 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
10.5 Supplemental Retirement Plan of the Company, as restated
January 1, 1997. (Filed as Exhibit No. 10.5 to Quarterly
Report on Form 10-Q, for the period ended September 30,
1997, Commission File Number 1-8007, and incorporated herein
by reference.)
10.5(b) Amendment Number Two to the Fremont General Corporation
Supplemental Retirement Plan of the Company.
10.6 Trust Agreement for Supplemental Retirement Plan of the
Company, as amended. (Filed as Exhibit No. 10.6 to Annual
Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein
by reference.)
10.7(a) Senior Supplemental Retirement Plan, as restated January 1,
1997. (Filed as Exhibit No. 10.7 to Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission
File Number 1-8007, and incorporated herein by reference).
10.7(b) First Amendment to the Fremont General Corporation Senior
Supplemental Retirement Plan.
10.8(a) Fremont General Corporation Excess Benefit Plan Restated
effective as of January 1, 1997 and First Amendment dated
December 21, 1998.
10.8(b) Trust Agreement for Excess Benefit Plan. (Filed as Exhibit
No. 10.8 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.9 Amended Non-Qualified Stock Option Plan of 1989 and related
agreements of the Company. (Filed as Exhibit No. 10.9 to
Annual Report on Form 10-K, for the fiscal year ended
December 31, 1996, Commission File Number 1-8007, and
incorporated herein by reference.)
10.10 1997 Stock Plan and related agreements. (Filed as Exhibit
No. 10.10 to Quarterly Report on Form 10-Q, for the period
ended June 30, 1997, Commission File Number 1-8007, and
incorporated herein by reference.)
10.11(a) Long-Term Incentive Compensation Plan of the
Company -- Senior Executive Plan. (Filed as Exhibit No.
10.10(a) on Form 10-Q for the period ended September 30,
1996, Commission File Number 1-8007, and incorporated herein
by reference.)
10.11(b) Long-Term Incentive Compensation Plan of the Company (Filed
as Exhibit No. 10.10 (b) on Form 10-Q for the period ended
September 30, 1996, Commission File Number 1-8007, and
incorporated herein by reference.)
10.12 1995 Restricted Stock Award Plan As Amended and forms of
agreement thereunder. (Filed as Exhibit No. 4.1 to
Registration Statement on Form S-8/S-3 File No. 333-17525
which was filed on December 9, 1997, and incorporated herein
by reference.)
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.13 Fremont General Corporation Employee Benefits Trust
Agreement ("Grantor Trust") dated September 7, 1995 between
the Company and Merrill Lynch Trust Company of California.
(Filed as Exhibit No. 10.12 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
10.14(a) Employment Agreement between the Company and James A.
McIntyre dated January 1, 1994. (Filed as Exhibit No.
(10)(i) to Quarterly Report on Form 10-Q for the period
ended March 31, 1994, Commission File Number 1-8007, and
incorporated herein by reference.)
10.14(b) First Amendment to Employment Agreement between the Company
and James A. McIntyre dated August 1, 1996. (Filed as
Exhibit No. 10.10 to Quarterly Report on Form 10-Q, for the
period ended June 30, 1997, Commission File Number 1-8007,
and incorporated herein by reference.)
10.14(c) Second Amendment to Employment Agreement between the Company
and James A. McIntyre dated August 8, 1997. (Filed as
Exhibit No. 10.14 (c) to Quarterly Report on Form 10-Q, for
the period ended September 30, 1997, Commission File Number
1-8007, and incorporated herein by reference.)
10.15(a) Employment Agreement between the Company and Louis J.
Rampino dated February 8, 1996. (Filed as Exhibit No. 10.14
(a) to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.15(b) Employment Agreement between the Company and Wayne R. Bailey
dated February 8, 1996. (Filed as Exhibit No. 10.14 to
Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.16 Management Continuity Agreement between the Company and
Raymond G. Meyers dated February 8, 1996. (Filed as Exhibit
No. 10.15 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.17 1998 Management Incentive Compensation Plan of the Company.
(Filed as Exhibit No. 10.17 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1997, Commission File
Number 1-8007, and incorporated herein by reference.)
10.18 Continuing Compensation Plan for Retired Directors. (Filed
as Exhibit No. 10.17 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.19 Credit Agreement among Fremont General Corporation, Various
Lending Institutions and the Chase Manhattan Bank, N.A., As
Agent dated August 1, 1997. (Filed as Exhibit No. 10.20 to
Quarterly Report on Form 10-Q, for the period ended
September 30, 1997, Commission File Number 1-8007, and
incorporated herein by reference).
10.20 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. (Filed as Exhibit No. (10)(viii) to
Quarterly Report on Form 10-Q for the period ended September
30, 1995, and incorporated herein by reference.)
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
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. (Filed as Exhibit No. 10.22(a) to
Quarterly Report on Form 10-Q/A Amendment No. 1, for the
period ended September 30, 1998, Commission File Number
1-8007, and incorporated herein by reference).
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. (Filed as
Exhibit No. 10.22(b) to Quarterly Report on Form 10-Q/A
Amendment No. 1, for the period ended September 30, 1998,
Commission File Number 1-8007, and incorporated herein by
reference).
21 Subsidiaries of the Company
23 Consent of Ernst & Young LLP Independent Auditors
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF
THE ARTICLES OF INCORPORATION OF
FREMONT GENERAL CORPORATION
Louis J. Rampino and Marilyn I. Hauge hereby certify that:
1. They are the President and the Assistant Secretary, respectively, of
Fremont General Corporation, a Nevada corporation (the "Corporation").
2. Article Fourth of the Articles of Incorporation of the Corporation is
amended in its entirety to read as follows:
"FOURTH: This corporation is authorized to issue two classes of stock,
to be designated, respectively, "preferred stock" and "common stock";
the total number of shares shall be 152,000,000; the total number of
shares of preferred stock shall be 2,000,000, with a par value of $.01
per share and any of such shares of preferred stock may be with full or
limited voting powers or without voting powers and with such
designations, preferences and relative, participating, optional or other
special rights, or qualification, limitations or restrictions thereof,
as shall be stated and expressed in any resolution or resolutions
providing for the issue of such preferred stock adopted by the Board of
Directors of this corporation pursuant to the authority expressly vested
in it by this article FOURTH; the Board of Directors of this corporation
is hereby authorized and directed, from time to time, to determine
whether preferred stock may be issued, with full or limited voting
powers or without voting powers and with such designations, preferences
and relative, participating, optional or other special rights, or
qualifications, limitations or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions providing for the
issuance of such preferred stock adopted by the Board of Directors
pursuant to the authority expressly vested in it by the provisions of
this Article FOURTH; any preferred stock may be made subject to
redemption at such time or times and at such price or prices, and may be
issued in such series, with such designations, preferences, and
relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof as shall be stated
and expressed in the resolution or resolutions providing for the
issuance of such preferred stock adopted by the Board of Directors of
this corporation as hereinabove provided; the holders of preferred stock
of any class or series thereof shall be entitled to receive dividends at
such rates, on such conditions and at such times as shall be expressed
in
<PAGE> 2
Amendment of Articles of Incorporation
Page 2
the resolution or resolutions providing for the issuance of such
preferred stock adopted by the Board of Directors of this corporation as
hereinabove provided, payable in preference to, or in such relation to,
the dividends payable on any other class or classes of stock and
cumulative or non-cumulative as shall so be expressed; the holders of
preferred stock or any class or series thereof shall be entitled to such
rights upon the dissolution of or upon any distribution of the assets
of, this corporation as shall be stated and expressed in the resolution
or resolutions providing for the issue of such preferred stock adopted
by the Board of Directors of this corporation as hereinabove provided;
any preferred stock or any class or series thereof, if there are other
classes or series, may be made convertible into, or exchangeable for,
shares of any other class or classes or of any other series of the same
or any class or classes of stock of this corporation at such price or
prices or at such rates of exchange and with such adjustments as shall
be stated and expressed in the resolution or resolutions providing for
the issuance of such preferred stock adopted by the Board of Directors
as hereinabove provided; the total number of shares of common stock
shall be 150,000,000 and the par value of each share of common stock
shall be $1.00 per share; the common stock of this corporation shall be
non-assessable and shall be fully paid when issued.
Upon the effective time of the amendment of this Article FOURTH that
first includes authorization to issue not less than 150,000,000 shares
of common stock as hereinabove set forth, each one (1) issued and
outstanding share of common stock, $1.00 par value per share, shall be
thereby and thereupon split up and become two (2) shares of common
stock, $1.00 par value per share; provided, however that no fractional
shares or interests shall be issued and cash in lieu thereof shall be
paid. The effective time of such amendment shall be the close of
business on November 20, 1998. Certificates representing the additional
shares created by the split and any cash in lieu of fractional interests
in shares will be issued and distributed on December 10, 1998."
3. By resolution of the Board of Directors of the Corporation, unanimously
approved at a regular meeting of the Board held on November 12, 1998,
the foregoing amendment to the Articles of Incorporation was duly
adopted.
4. Pursuant to Section 78.207 of the General Corporation Law of Nevada, the
foregoing amendment did not require approval by the stockholders of the
Corporation.
<PAGE> 3
Amendment of Articles of Incorporation
Page 3
IN WITNESS WHEREOF, this Certificate of Amendment of Articles of
Incorporation of Fremont General Corporation has been executed this 24th day of
November, 1998.
- -------------------------------------
Louis J. Rampino, President
- -------------------------------------
Marilyn I. Hauge, Assistant Secretary
State of
----------------------------
County of
---------------------------
On before me,
----------------- --------------------------------------------,
Date (Name and Title of Officer (e.g."Jane Doe Notary
Public)
personally appeared
---------------------------------------------------------,
Name(s) of Signer(s)
personally known to me - OR - proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
-----------------------------------------
Signature of Notary Public
<PAGE> 1
EXHIBIT 4.9
FREMONT GENERAL CORPORATION,
Issuer
to
THE FIRST NATIONAL BANK OF CHICAGO,
Trustee
------------
INDENTURE
------------
Dated as of March 1, 1999
Debt Securities
<PAGE> 2
Reconciliation and tie between
Trust Indenture Act of 1939 (the "Trust Indenture Act")
and Indenture
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
--------------- -----------------
<S> <C>
Section 310(a)(1)...........................................................6.7
(a)(2).....................................................................6.7
(b)........................................................................6.8
Section 312(a)..............................................................7.1
(b)........................................................................7.2
(c)........................................................................7.2
Section 313(a)..............................................................7.3
(b)(2).....................................................................7.3
(c)........................................................................7.3
(d)........................................................................7.3
Section 314(a)..............................................................7.4
(c)(1).....................................................................1.2
(c)(2).....................................................................1.2
(e)........................................................................1.2
(f)........................................................................1.2
Section 316(a) (last sentence)..............................................1.1
(a)(1)(A)............................................................5.2, 5.12
(a)(1)(B).................................................................5.13
(b)........................................................................5.8
Section 317(a)(1)...........................................................5.3
(a)(2).....................................................................5.4
(b).......................................................................10.3
Section 318(a)..............................................................1.8
</TABLE>
- ------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
part of this Indenture.
<PAGE> 3
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
<TABLE>
<S> <C>
Section 1.1. Definitions....................................................................2
Act..................................................................................2
Additional Amounts...................................................................2
Affiliate............................................................................2
Authenticating Agent.................................................................3
Authorized Newspaper.................................................................3
Authorized Officer...................................................................3
Bearer Security......................................................................3
Board of Directors...................................................................3
Board Resolution.....................................................................3
Business Day.........................................................................3
Capital Stock........................................................................3
Chase Credit Agreement...............................................................3
Commission...........................................................................4
Common Stock.........................................................................4
Company..............................................................................4
Company Order........................................................................4
Company Request......................................................................4
Consolidated Net Tangible Assets.....................................................4
Conversion Event.....................................................................4
Corporate Trust Office...............................................................5
Corporation..........................................................................5
Coupon...............................................................................5
Currency.............................................................................5
CUSIP number.........................................................................5
Debt.................................................................................5
Defaulted Interest...................................................................5
Dollar or $..........................................................................6
ECU..................................................................................6
European Monetary System.............................................................6
European Union.......................................................................6
Event of Default.....................................................................6
FCIG.................................................................................6
Foreign Currency.....................................................................6
Government Obligations...............................................................6
Holder...............................................................................6
Indebtedness.........................................................................7
Indenture............................................................................7
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
Independent Public Accountants.......................................................7
Indexed Security.....................................................................7
Insurance Business...................................................................7
Insurance Subsidiaries...............................................................7
Interest.............................................................................7
Interest Payment Date................................................................7
Judgment Currency....................................................................7
Legal Holidays.......................................................................7
Lien.................................................................................8
Maturity.............................................................................8
New York Banking Day.................................................................8
Office...............................................................................8
Agency...............................................................................8
Officers' Certificate................................................................8
Opinion of Counsel...................................................................8
Original Issue Discount Security.....................................................8
Outstanding..........................................................................8
Paying Agent........................................................................10
Person..............................................................................10
Place of Payment....................................................................10
Predecessor Security................................................................10
Redemption Date.....................................................................10
Redemption Price....................................................................10
Registered Security.................................................................10
Regular Record Date.................................................................10
Regulated Insurance Subsidiary......................................................10
Required Currency...................................................................10
Responsible Officer.................................................................11
Security............................................................................11
Securities..........................................................................11
Security Register...................................................................11
Security Registrar..................................................................11
Senior Debt.........................................................................11
Significant Insurance Subsidiary....................................................11
Significant Subsidiary..............................................................11
Special Record Date.................................................................11
Stated Maturity.....................................................................11
Subsidiary..........................................................................11
TOPrS Trust.........................................................................11
Total Capitalization................................................................11
Trust Indenture Act.................................................................12
Trustee.............................................................................12
United States.......................................................................12
U.S. Depository.....................................................................12
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C>
Depository..........................................................................12
U.S. Alien..........................................................................12
Vice President......................................................................12
Voting Stock........................................................................12
Wholly-Owned Subsidiary.............................................................13
Section 1.2. Compliance Certificates and Opinions..........................................13
Section 1.3. Form of Documents Delivered to Trustee........................................13
Section 1.4. Acts of Holders...............................................................14
Section 1.5. Notices, etc. to Trustee and Company..........................................16
Section 1.6. Notice to Holders of Securities; Waiver.......................................16
Section 1.7. Language of Notices...........................................................17
Section 1.8. Conflict with Trust Indenture Act.............................................17
Section 1.9. Effect of Headings and Table of Contents......................................17
Section 1.10. Successors and Assigns........................................................18
Section 1.11. Separability Clause...........................................................18
Section 1.12. Benefits of Indenture.........................................................18
Section 1.13. Governing Law. ...............................................................18
Section 1.14. Legal Holidays................................................................18
Section 1.15. Counterparts..................................................................18
Section 1.16. Judgment Currency.............................................................19
Section 1.17. No Security Interest Created..................................................19
Section 1.18. Limitation on Individual Liability............................................19
ARTICLE 2
SECURITIES FORMS
Section 2.1. Forms Generally...............................................................20
Section 2.2. Form of Trustee's Certificate of Authentication...............................20
Section 2.3. Securities in Global Form.....................................................21
ARTICLE 3
THE SECURITIES
Section 3.1. Amount Unlimited; Issuable in Series..........................................21
Section 3.2. Currency; Denominations.......................................................25
Section 3.3. Execution, Authentication, Delivery and Dating................................25
Section 3.4. Temporary Securities..........................................................27
Section 3.5. Registration, Transfer and Exchange...........................................28
Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities..............................32
Section 3.7. Payment of Interest and Certain Additional Amounts; Rights to Interest and
Certain Additional Amounts Preserved..........................................33
Section 3.8. Persons Deemed Owners.........................................................34
Section 3.9. Cancellation..................................................................35
Section 3.10. Computation of Interest.......................................................35
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C>
ARTICLE 4
SATISFACTION AND DISCHARGE OF INDENTURE
Section 4.1. Satisfaction and Discharge....................................................35
Section 4.2. Defeasance and Covenant Defeasance............................................37
Section 4.3. Application of Trust Money....................................................41
ARTICLE 5
REMEDIES
Section 5.1. Events of Default.............................................................41
Section 5.2. Acceleration of Maturity; Rescission and Annulment............................43
Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee...............44
Section 5.4. Trustee May File Proofs of Claim..............................................45
Section 5.5. Trustee May Enforce Claims without Possession of Securities or Coupons........46
Section 5.6. Application of Money Collected................................................46
Section 5.7. Limitations on Suits..........................................................47
Section 5.8. Unconditional Right of Holders to Receive Principal and any Premium,
Interest and Additional Amounts...............................................47
Section 5.9. Restoration of Rights and Remedies............................................48
Section 5.10. Rights and Remedies Cumulative................................................48
Section 5.11. Delay or Omission Not Waiver..................................................48
Section 5.12. Control by Holders of Securities..............................................48
Section 5.13. Waiver of Past Defaults.......................................................49
Section 5.14. Waiver of Usury, Stay or Extension Laws.......................................49
Section 5.15. Undertaking for Costs.........................................................49
ARTICLE 6
THE TRUSTEE
Section 6.1. Certain Rights of Trustee.....................................................50
Section 6.2. Notice of Defaults............................................................51
Section 6.3. Not Responsible for Recitals or Issuance of Securities........................52
Section 6.4. May Hold Securities...........................................................52
Section 6.5. Money Held in Trust...........................................................52
Section 6.6. Compensation and Reimbursement................................................52
Section 6.7. Corporate Trustee Required; Eligibility.......................................53
Section 6.8. Resignation and Removal; Appointment of Successor.............................53
Section 6.9. Acceptance of Appointment by Successor........................................55
Section 6.10. Merger, Conversion, Consolidation or Succession to Business...................56
Section 6.11. Appointment of Authenticating Agent...........................................57
</TABLE>
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<TABLE>
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ARTICLE 7
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.....................58
Section 7.2. Preservation of Information; Communications to Holders........................59
Section 7.3. Reports by Trustee............................................................59
Section 7.4. Reports by Company; Rule 144A Information.....................................59
ARTICLE 8
CONSOLIDATION, MERGER AND SALES
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms..........................60
Section 8.2. Successor Person Substituted for Company......................................61
ARTICLE 9
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of Holders............................62
Section 9.2. Supplemental Indentures with Consent of Holders...............................63
Section 9.3. Execution of Supplemental Indentures..........................................64
Section 9.4. Effect of Supplemental Indentures.............................................64
Section 9.5. Reference in Securities to Supplemental Indentures............................65
Section 9.6. Conformity with Trust Indenture Act...........................................65
Section 9.7. Notice of Supplemental Indenture..............................................65
ARTICLE 10
COVENANTS
Section 10.1. Payment of Principal, any Premium, Interest and Additional Amounts............65
Section 10.2. Maintenance of Office or Agency...............................................65
Section 10.3. Money for Securities Payments to Be Held in Trust.............................67
Section 10.4. Additional Amounts............................................................68
Section 10.5. Limitation on Liens...........................................................69
Section 10.6. Limitation of Dividend and Other Payment Restrictions Affecting Significant
Insurance Subsidiaries........................................................70
Section 10.7. Limitation on the Issuance and Sale of Capital Stock of Significant
Insurance Subsidiaries........................................................71
Section 10.8. Corporate Existence...........................................................71
Section 10.9. Waiver of Certain Covenants...................................................71
Section 10.10. Company Statement as to Compliance; Notice of Certain Defaults................72
ARTICLE 11
REDEMPTION OF SECURITIES
Section 11.1. Applicability of Article......................................................72
</TABLE>
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<TABLE>
<S> <C>
Section 11.2. Election to Redeem; Notice to Trustee.........................................73
Section 11.3. Selection by Trustee of Securities to be Redeemed.............................73
Section 11.4. Notice of Redemption..........................................................73
Section 11.5. Deposit of Redemption Price...................................................75
Section 11.6. Securities Payable on Redemption Date.........................................75
Section 11.7. Securities Redeemed in Part...................................................76
ARTICLE 12
SINKING FUNDS
Section 12.1. Applicability of Article......................................................77
Section 12.2. Satisfaction of Sinking Fund Payments with Securities.........................77
Section 12.3. Redemption of Securities for Sinking Fund.....................................78
ARTICLE 13
REPAYMENT AT THE OPTION OF HOLDERS
Section 13.1. Applicability of Article......................................................78
ARTICLE 14
SECURITIES IN FOREIGN CURRENCIES
Section 14.1. Applicability of Article......................................................79
ARTICLE 15
MEETINGS OF HOLDERS OF SECURITIES
Section 15.1. Purposes for Which Meetings May Be Called.....................................79
Section 15.2. Call, Notice and Place of Meetings............................................79
Section 15.3. Persons Entitled to Vote at Meetings..........................................80
Section 15.4. Quorum; Action................................................................80
Section 15.5. Determination of Voting Rights; Conduct and Adjournment of Meetings...........81
Section 15.6. Counting Votes and Recording Action of Meetings...............................81
</TABLE>
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<PAGE> 9
INDENTURE, dated as of March 1, 1999 (the "Indenture"), between FREMONT
GENERAL CORPORATION, a corporation duly organized and existing under the laws of
the State of Nevada (hereinafter called the "Company"), having its principal
executive office located at 2020 Santa Monica Boulevard, Suite 600, Santa
Monica, California 90404, and THE FIRST NATIONAL BANK OF CHICAGO, a national
banking association duly organized and existing under the laws of the United
States of America (hereinafter called the "Trustee"), having its Corporate Trust
Office located at One First National Plaza, Suite 0126, Chicago, Illinois
60670-0126.
RECITALS
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its senior unsecured
debentures, notes or other evidences of indebtedness (hereinafter called the
"Securities"), unlimited as to principal amount, to bear such rates of interest,
to mature at such time or times, to be issued in one or more series and to have
such other provisions as shall be fixed as hereinafter provided.
The Company has duly authorized the execution and delivery of this
Indenture. All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
This Indenture is subject to the provisions of the Trust Indenture Act
of 1939, as amended, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder that are required to be part of this
Indenture and, to the extent applicable, shall be governed by such provisions.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders (as herein defined) thereof, it is mutually covenanted
and agreed, for the equal and proportionate benefit of all Holders of the
Securities or of any series thereof and any Coupons (as herein defined) as
follows:
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<PAGE> 10
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions.
Except as otherwise expressly provided in or pursuant to this Indenture
or unless the context otherwise requires, for all purposes of this Indenture:
(1) the terms defined in this Article have the meanings assigned to them
in this Article, and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles in
the United States of America and, except as otherwise herein expressly provided,
the terms "generally accepted accounting principles" or "GAAP" with respect to
any computation required or permitted hereunder shall mean such accounting
principles as are generally accepted in the United States of America at the date
or time of such computation;
(4) the words "herein", "hereof", "hereto" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision; and
(5) the word "or" is always used inclusively (for example, the phrase "A
or B" means "A or B or both", not "either A or B but not both").
Certain terms used principally in certain Articles hereof are defined in
those Articles.
"Act", when used with respect to any Holders, has the meaning specified
in Section 1.4.
"Additional Amounts" means any additional amounts which are required
hereby or by any Security, under circumstances specified herein or therein, to
be paid by the Company in respect of certain taxes, assessments or other
governmental charges imposed on Holders specified therein and which are owing to
such Holders.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
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<PAGE> 11
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have the meanings correlative to
the foregoing.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 6.11 to act on behalf of the Trustee to authenticate
Securities of one or more series.
"Authorized Newspaper" means a newspaper, in an official language of the
place of publication or in the English language, customarily published on each
day that is a Business Day in the place of publication, whether or not published
on days that are Legal Holidays in the place of publication, and of general
circulation in each place in connection with which the term is used or in the
financial community of each such place. Where successive publications are
required to be made in Authorized Newspapers, the successive publications may be
made in the same or in different newspapers in the same city meeting the
foregoing requirements and in each case on any day that is a Business Day in the
place of publication.
"Authorized Officer" means, when used with respect to the Company, the
Chairman of the Board of Directors, the President, Senior Vice President, any
Vice President, the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of the Company.
"Bearer Security" means any Security in the form established pursuant to
Section 2.1 which is payable to bearer.
"Board of Directors" means the board of directors of the Company or any
committee of that board duly authorized to act generally or in any particular
respect for the Company hereunder.
"Board Resolution" means a copy of one or more resolutions, certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, delivered to the Trustee.
"Business Day", with respect to any Place of Payment or other location,
means, unless otherwise specified with respect to any Securities pursuant to
Section 3.1, any day other than a Saturday, Sunday or other day on which banking
institutions in such Place of Payment or other location are authorized or
obligated by law, regulation or executive order to close.
"Capital Stock" means (i) with respect to any Person organized as a
corporation, any and all shares, interests, rights to purchase, warrants,
options, participations or other equivalents of or interest in (however
designated) corporate stock, and (ii) with respect to any Person that is not
organized as a corporation, the partnership, membership or other equity
interests or participations in such Person.
"Chase Credit Agreement" means the $400,000,000 Credit Agreement dated
as of August 1, 1997 among the Company, the lenders party thereto and The Chase
Manhattan Bank, as agent for such lenders, and any amendments, modifications,
supplements, extensions, renewals, replacements, refinancings or refundings
thereof.
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<PAGE> 12
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, as
amended, or, if at any time after the execution of this Indenture such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties at such time.
"Common Stock" includes any capital stock of any class of the Company
which has no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which is not subject to redemption by the Company.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person, and any other obligor upon the Securities.
"Company Order" or "Company Request" means, respectively, a written
order or request, as the case may be, signed in the name of the Company by the
Chairman of the Board of Directors, the President, a Senior Vice President or a
Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or
an Assistant Secretary, of the Company, and delivered to the Trustee.
"Consolidated Net Tangible Assets" means the total of all assets
reflected on a consolidated balance sheet of the Company and its consolidated
Subsidiaries, prepared in accordance with generally accepted accounting
principles, at their net book values (after deducting related depreciation,
depletion, amortization and all other valuation reserves which, in accordance
with such principles, should be set aside in connection with the business
conducted), but excluding goodwill, unamortized debt discount and all other like
intangible assets, all as determined in accordance with such principles, less
the aggregate of the current liabilities of the Company and its consolidated
Subsidiaries reflected on such balance sheet, all as determined in accordance
with such principles. For purposes of this definition, "current liabilities"
include all indebtedness for money borrowed, incurred, issued, assumed or
guaranteed by the Company and its consolidated Subsidiaries, and other payables
and accruals, in each case payable on demand or due within one year of the date
of determination of Consolidated Net Tangible Assets, but exclude any portion of
long-term debt maturing within one year of the date of such determination, all
as reflected on such consolidated balances sheet of the Company and its
consolidated Subsidiaries, prepared in accordance with generally accepted
accounting principles.
"Conversion Event" means the cessation of use of (i) a Foreign Currency
both by the government of the country or the confederation which issued such
Foreign Currency and for the settlement of transactions by a central bank or
other public institutions of or within the international banking community, (ii)
the ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Union or (iii) any
currency unit or composite currency other than the ECU for the purposes for
which it was established.
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<PAGE> 13
"Corporate Trust Office" means the principal corporate trust office of
the Trustee at which at any particular time its corporate trust business shall
be administered, which office at the date of original execution of this
Indenture is located at One First National Plaza, Suite 0126, Chicago, Illinois
60670-0126.
"Corporation" includes corporations and limited liability companies and,
except for purposes of Article Eight, associations, companies and business
trusts.
"Coupon" means any interest coupon appertaining to a Bearer Security.
"Currency", with respect to any payment, deposit or other transfer in
respect of the principal of or any premium or interest on or any Additional
Amounts with respect to any Security, means Dollars in which such payment,
deposit or other transfer is required to be made by or pursuant to the terms
hereof or such Security and, with respect to any other payment, deposit or
transfer pursuant to or contemplated by the terms hereof or such Security, means
Dollars.
"CUSIP number" means the alphanumeric designation assigned to a Security
by Standard & Poor's Corporation, CUSIP Service Bureau.
"Debt" means (a) any liability of the Company or any Subsidiary (1) for
borrowed money, or under any reimbursement obligation relating to a letter of
credit, or (2) evidenced by a bond, note, debenture or similar instrument, or
(3) for payment obligations arising under any conditional sale or other title
retention arrangement (including a purchase money obligation) given in
connection with the acquisition of any businesses, properties or assets of any
kind, or (4) consisting of the discounted rental stream properly classified in
accordance with generally accepted accounting principles on the balance sheet of
the Company or any Subsidiary, as lessee, as a capitalized lease obligation; (b)
any liability of others of a type described in the preceding clause (a) to the
extent that the Company or any Subsidiary has guaranteed or that is otherwise
legally obligated in respect thereof; and (c) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (a) and (b) above. "Debt" shall not be construed to
include (w) thrift deposits, (x) trade payables or credit on open account to
trade creditors incurred in the ordinary course of business, (y) obligations or
liabilities incurred in connection with the sale, transfer or other disposition
of property in connection with the securitization or other asset-based financing
thereof; provided, however, that any such sale, transfer or other disposition
shall be for valid consideration and shall not be to prefer, directly or
indirectly, any holder of any other obligation or Debt of the Company or any
Subsidiary of the Company as to any such other obligation or Debt that was
already outstanding and did not previously benefit from a Lien, or (z) any
contractual obligation, whether or not contingent, with respect to Debt of
another Person, to the extent made in the ordinary course of business in
connection with lending relationships between the Person and a Subsidiary of the
Company.
"Defaulted Interest" has the meaning specified in Section 3.7.
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<PAGE> 14
"Dollar" or "$" means a dollar or other equivalent unit of legal tender
for payment of public or private debts in the United States of America.
"ECU" means the European Currency Units any successor currency thereto,
or as defined and revised from time to time by the Council of the European
Community.
"European Monetary System" means the European Monetary System
established by the Resolution of December 5, 1978 of the Council of the European
Community.
"European Union" means the European Community, the European Coal and
Steel Community and the European Atomic Energy Community.
"Event of Default" has the meaning specified in Section 5.1.
"FCIG" means Fremont Compensation Insurance Group, Inc., a Delaware
corporation.
"Foreign Currency" means any currency, currency unit or composite
currency, including, without limitation, the ECU, issued by the government of
one or more countries other than the United States of America or by any
recognized confederation or association of such governments.
"Government Obligations" means securities which are (i) direct
obligations of the United States of America or the other government or
governments in the confederation which issued the Foreign Currency in which the
principal of or any premium or interest on such Security or any Additional
Amounts in respect thereof shall be payable, in each case where the payment or
payments thereunder are supported by the full faith and credit of such
government or governments or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America or such other government or governments, in each case where the timely
payment or payments thereunder are unconditionally guaranteed as a full faith
and credit obligation by the United States of America or such other government
or governments, and which, in the case of (i) or (ii), are not callable or
redeemable at the option of the issuer or issuers thereof, and shall also
include a depositary receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of or other amount with respect to any such Government Obligation
held by such custodian for the account of the holder of a depositary receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depositary
receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of or other
amount with respect to the Government Obligation evidenced by such depositary
receipt.
"Holder", in the case of any Registered Security, means the Person in
whose name such Security is registered in the Security Register and, in the case
of any Bearer Security, means the bearer thereof and, in the case of any Coupon,
means the bearer thereof.
6
<PAGE> 15
"Indebtedness", with respect to any Person, means indebtedness for
borrowed money or for the unpaid purchase price of real or personal property of,
or guaranteed by, such Person and computed in accordance with GAAP.
"Indenture" means this instrument as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof and, with respect to any
Security, by the terms and provisions of such Security and any Coupon
appertaining thereto established pursuant to Section 3.1 (as such terms and
provisions may be amended pursuant to the applicable provisions hereof).
"Independent Public Accountants" means accountants or a firm of
accountants that, with respect to the Company and any other obligor under the
Securities or the Coupons, are independent public accountants within the meaning
of the Securities Act of 1933, as amended, and the rules and regulations
promulgated by the Commission thereunder, who may be the independent public
accountants regularly retained by the Company or who may be other independent
public accountants. Such accountants or firm shall be entitled to rely upon any
Opinion of Counsel as to the interpretation of any legal matters relating to
this Indenture or certificates required to be provided hereunder.
"Indexed Security" means a Security the terms of which provide that the
principal amount thereof payable at Stated Maturity may be more or less than the
principal face amount thereof at original issuance.
"Insurance Business" means one or more aspects of the business of
selling, issuing or underwriting insurance or reinsurance.
"Insurance Subsidiaries" means (i) FCIG, (ii) each of FCIG's
Subsidiaries (whether currently in existence or created or acquired thereafter)
and (iii) each other Subsidiary of the Company created or acquired after the
date of this Indenture that engages in property and casualty insurance
operations, workers' compensation insurance operations or the activities of
which are limited to holding the stock or other securities of another Subsidiary
or Subsidiaries engaged in property and casualty insurance operations and/or
workers' compensation insurance.
"Interest", with respect to any Original Issue Discount Security which
by its terms bears interest only after Maturity, means interest payable after
Maturity and, when used with respect to a Security which provides for the
payment of Additional Amounts pursuant to Section 10.4, includes such Additional
Amounts.
"Interest Payment Date", with respect to any Security, means the Stated
Maturity of an installment of interest on such Security.
"Judgment Currency" has the meaning specified in Section 1.16.
"Legal Holidays" has the meaning specified in Section 1.14.
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<PAGE> 16
"Lien" means any lien, charge, claim, security interest, pledge,
hypothecation, right of another under any conditional sale or other title
retention agreement, or any other encumbrance affecting title to property.
Without limiting the generality of the foregoing, the sale of property used or
useful in the business of the seller with the intention of retaining the use
thereof under a lease, or other comparable arrangement commonly referred to as a
"sale and leaseback," shall be deemed to create a Lien on such property.
"Maturity", with respect to any Security, means the date on which the
principal of such Security or an installment of principal becomes due and
payable as provided in or pursuant to this Indenture, whether at the Stated
Maturity or by declaration of acceleration, notice of redemption or repurchase,
notice of option to elect repayment or otherwise, and includes the Redemption
Date.
"New York Banking Day" has the meaning specified in Section 1.16.
"Office" or "Agency" with respect to any Securities, means an office or
agency of the Company maintained or designated in a Place of Payment for such
Securities pursuant to Section 10.2 or any other office or agency of the Company
maintained or designated for such Securities pursuant to Section 10.2 or, to the
extent designated or required by Section 10.2 in lieu of such office or agency,
the Corporate Trust Office of the Trustee.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President, a Senior Vice President or a Vice President, and by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary
of the Company, that complies with the requirements of Section 314(e) of the
Trust Indenture Act and is delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be an
employee of or counsel for the Company or other counsel who shall be reasonably
acceptable to the Trustee, that, if required by the Trust Indenture Act,
complies with the requirements of Section 314(e) of the Trust Indenture Act.
"Original Issue Discount Security" means a Security issued pursuant to
this Indenture which provides for declaration of an amount less than the
principal face amount thereof to be due and payable upon acceleration pursuant
to Section 5.2.
"Outstanding", when used with respect to any Securities, means, as of
the date of determination, all such Securities theretofore authenticated and
delivered under this Indenture, except:
(a) any such Security theretofore cancelled by the Trustee or the
Security Registrar or delivered to the Trustee or the Security
Registrar for cancellation;
(b) any such Security for whose payment at the Maturity thereof
money in the necessary amount has been theretofore deposited
pursuant hereto (other than pursuant to Section 4.2 with the
Trustee or any Paying Agent (other
8
<PAGE> 17
than the Company) in trust or set aside and segregated in trust
by the Company (if the Company shall act as its own Paying
Agent) for the Holders of such Securities and any Coupons
appertaining thereto, provided that, if such Securities are to
be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory to
the Trustee has been made;
(c) any such Security with respect to which the Company has effected
defeasance pursuant to the terms hereof, except to the extent
provided in Section 4.2;
(d) any such Security which has been paid pursuant to Section 3.6 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, unless
there shall have been presented to the Trustee proof
satisfactory to it that such Security is held by a bona fide
purchaser in whose hands such Security is a valid obligation of
the Company; and
(e) any such Security converted or exchanged as contemplated by this
Indenture into Common Stock or other securities, if the terms of
such Security provide for such conversion or exchange pursuant
to Section 3.1;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or are present at
a meeting of Holders of Securities for quorum purposes, (i) the principal amount
of an Original Issue Discount Security that may be counted in making such
determination and that shall be deemed to be Outstanding for such purposes shall
be equal to the amount of the principal thereof that pursuant to the terms of
such Original Issue Discount Security would be declared (or shall have been
declared to be) due and payable upon a declaration of acceleration thereof
pursuant to Section 5.2 at the time of such determination, and (ii) the
principal amount of any Indexed Security that may be counted in making such
determination and that shall be deemed Outstanding for such purposes shall be
equal to the principal face amount of such Indexed Security at original
issuance, unless otherwise provided in or pursuant to this Indenture, and (iii)
the principal amount of a Security denominated in a Foreign Currency shall be
the Dollar equivalent, determined on the date of original issuance of such
Security, of the principal amount (or, in the case of an Original Issue Discount
Security, the Dollar equivalent on the date of original issuance of such
Security of the amount determined as provided in (i) above) of such Security,
and (iv) Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or such other obligor, shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in making any such determination or
relying upon any such request, demand, authorization, direction, notice, consent
or waiver, only Securities which a Responsible Officer of the Trustee actually
knows to be so owned shall be so disregarded. Securities so owned which shall
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee (A) the pledgee's right so
9
<PAGE> 18
to act with respect to such Securities and (B) that the pledgee is not the
Company or any other obligor upon the Securities or any Coupons appertaining
thereto or an Affiliate of the Company or such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of, or any premium or interest on, or any Additional Amounts with
respect to, any Security or any Coupon on behalf of the Company.
"Person" means any individual, Corporation, partnership, joint venture,
joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Place of Payment", with respect to any Security, means the place or
places where the principal of, or any premium or interest on, or any Additional
Amounts with respect to such Security are payable as provided in or pursuant to
this Indenture or such Security.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same Indebtedness as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 3.6 in exchange for or in
lieu of a lost, destroyed, mutilated or stolen Security or any Security to which
a mutilated, destroyed, lost or stolen Coupon appertains shall be deemed to
evidence the same Indebtedness as the lost, destroyed, mutilated or stolen
Security or the Security to which a mutilated, destroyed, lost or stolen Coupon
appertains.
"Redemption Date", with respect to any Security or portion thereof to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture or such Security.
"Redemption Price", with respect to any Security or portion thereof to
be redeemed, means the price at which it is to be redeemed as determined by or
pursuant to this Indenture or such Security.
"Registered Security" means any Security established pursuant to Section
2.1 which is registered in a Security Register.
"Regular Record Date" for the interest payable on any Registered
Security on any Interest Payment Date therefor means the date, if any, specified
in or pursuant to this Indenture or such Security as the "Regular Record Date".
"Regulated Insurance Subsidiary" means any Subsidiary of the Company,
whether now owned or hereafter acquired, that is authorized or admitted to carry
on or transact Insurance Business in any jurisdiction and is regulated by the
insurance department or similar regulatory authority of such jurisdiction.
"Required Currency" has the meaning specified in Section 1.16.
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<PAGE> 19
"Responsible Officer" means with respect to the Trustee any officer
assigned by the Trustee to administer corporate trust matters and also means,
with respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of his or her knowledge of and familiarity with
the particular subject.
"Security" or "Securities" means any note or notes, bond or bonds,
debenture or debentures, or any other evidences of Indebtedness, as the case may
be, authenticated and delivered under this Indenture; provided, however, that,
if at any time there is more than one Person acting as Trustee under this
Indenture, "Securities", with respect to any such Person, shall mean Securities
authenticated and delivered under this Indenture, exclusive, however, of
Securities of any series as to which such Person is not Trustee.
"Security Register" or "Security Registrar" have the respective meanings
specified in Section 3.5.
"Senior Debt" means the Debt of the Company, on a nonconsolidated basis,
that ranks equally with or senior to the Securities.
"Significant Insurance Subsidiary" means any Insurance Subsidiary that
is a Significant Subsidiary.
"Significant Subsidiary has the meanings ascribed to such term in Rule
1-02(w) of SEC Regulation S-X as in effect on the date hereof.
"Special Record Date" for the payment of any Defaulted Interest on any
Registered Security means a date fixed by the Company pursuant to Section 3.7.
"Stated Maturity", with respect to any Security or any installment of
principal thereof or interest thereon or any Additional Amounts with respect
thereto, means the date established by or pursuant to this Indenture or such
Security as the fixed date on which the principal of such Security or such
installment of principal or interest is, or such Additional Amounts are, due and
payable.
"Subsidiary" means any Corporation at least a majority of the Voting
Stock of which shall at the time be owned, directly or indirectly, by the
Company, or one or more Subsidiaries, or by the Company and one or more
Subsidiaries.
"TOPrS Trust" means a subsidiary trust holding solely the Company's
junior subordinated debentures or any other similar securities issued from time
to time, including the 9% Junior Subordinated Debentures due March 31, 2026 of
the Company.
"Total Capitalization" means the sum of (a) stockholders' equity of the
Company; (b) Senior Debt; (c) Debt of the Company, on a nonconsolidated basis,
that is subordinated to the Securities by its terms, in each case calculated in
accordance with generally accepted accounting principles applied on a consistent
basis with Company's financial reports; and (d) the 9% Junior
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Subordinated Debentures due March 31, 2026 of the Company issued in connection
with the mandatorily redeemable preferred securities of the TOPrS Trust or any
other similar securities issued from time to time after the date hereof.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended,
and any reference herein to the Trust Indenture Act or a particular provision
thereof shall mean such Act or provision, as the case may be, as amended or
replaced from time to time or as supplemented from time to time by rules or
regulations adopted by the Commission under or in furtherance of the purposes of
such Act or provision, as the case may be.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such with respect
to one or more series of Securities pursuant to the applicable provisions of
this Indenture, and thereafter "Trustee" shall mean each Person who is then a
Trustee hereunder; provided, however, that if at any time there is more than one
such Person, "Trustee" shall mean each such Person and as used with respect to
the Securities of any series shall mean the Trustee with respect to the
Securities of such series.
"United States", except as otherwise provided in or pursuant to this
Indenture or any Security, means the United States of America (including the
states thereof and the District of Columbia), its territories and possessions
and other areas subject to its jurisdiction.
"U.S. Depository" or "Depository" means, with respect to any Security
issuable or issued in the form of one or more global Securities, the Person
designated as U.S. Depository by the Company in or pursuant to this Indenture,
which Person must be, to the extent required by applicable law or regulation, a
clearing agency registered under the Securities Exchange Act of 1934, as
amended, and, if so provided with respect to any Security, any successor to such
Person. If at any time there is more than one such Person, "U.S. Depository"
shall mean, with respect to any Securities, the qualifying entity which has been
appointed with respect to such Securities.
"U.S. Alien", except as otherwise provided in or pursuant to this
Indenture or any Security, means any Person who, for United States Federal
income tax purposes, is a foreign corporation, a non-resident alien individual,
a non-resident alien fiduciary of a foreign estate or trust, or a foreign
partnership one or more of the members of which is, for United States Federal
income tax purposes, a foreign corporation, a non-resident alien individual or a
non-resident alien fiduciary of a foreign estate or trust.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "Vice President".
"Voting Stock" of any Person means stock of any class or classes
(however designated) having ordinary voting power for the election of a majority
of the members of the board of directors (or any governing body) of such Person,
other than Capital Stock having such power only by reason of the happening of a
contingency.
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"Wholly-Owned Subsidiary" of any Person means any Subsidiary of such
Person to the extent all of the capital stock or other ownership interests in
such Subsidiary, other than directors' or nominees' qualifying shares, is owned
directly or indirectly by such Person.
Section 1.2. Compliance Certificates and Opinions.
Except as otherwise expressly provided in this Indenture, upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that, in the opinion of such counsel, all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
or any of them is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or opinion
has read such condition or covenant and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such condition or covenant has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 1.3. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon an Opinion of Counsel, provided
that such officer, after reasonable inquiry, has no reason to believe and does
not believe that the Opinion of Counsel with respect to the matters upon which
his certificate or opinion is based is erroneous. Any such Opinion of Counsel
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may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company stating
that the information with respect to such factual matters is in the possession
of the Company, provided that such counsel, after reasonable inquiry, has no
reason to believe and does not believe that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture or any Security, they may, but need not, be
consolidated and form one instrument.
Section 1.4. Acts of Holders.
(1) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by or pursuant to this Indenture to be given or
taken by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing. If, but only if, Securities of a series are issuable as
Bearer Securities, any request, demand, authorization, direction, notice,
consent, waiver or other action provided in or pursuant to this Indenture to be
given or taken by Holders of Securities of such series may, alternatively, be
embodied in and evidenced by the record of Holders of Securities of such series
voting in favor thereof, either in person or by proxies duly appointed in
writing, at any meeting of Holders of Securities of such series duly called and
held in accordance with the provisions of Article Fifteen, or a combination of
such instruments and any such record. Except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
or record or both are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments and any such record
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or instruments
or so voting at any such meeting. Proof of execution of any such instrument or
of a writing appointing any such agent, or of the holding by any Person of a
Security, shall be sufficient for any purpose of this Indenture and (subject to
Section 315 of the Trust Indenture Act) conclusive in favor of the Trustee and
the Company and any agent of the Trustee or the Company, if made in the manner
provided in this Section. The record of any meeting of Holders of Securities
shall be proved in the manner provided in Section 15.6.
Without limiting the generality of this Section 1.4, unless otherwise
provided in or pursuant to this Indenture, a Holder, including a U.S. Depository
that is a Holder of a global Security, may make, give or take, by a proxy or
proxies duly appointed in writing, any request, demand, authorization,
direction, notice, consent, waiver or other Act provided in or pursuant to this
Indenture to be made, given or taken by Holders, and a U.S. Depository that is a
Holder of a global Security may provide its proxy or proxies to the beneficial
owners of interests in any such global Security through such U.S. Depository's
standing instructions and customary practices.
The Company shall fix a record date for the purpose of determining the
Persons who are beneficial owners of interest in any permanent global Security
held by a U.S. Depository entitled
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under the procedures of such U.S. Depository to make, give or take, by a proxy
or proxies duly appointed in writing, any request, demand, authorization,
direction, notice, consent, waiver or other Act provided in or pursuant to this
Indenture to be made, given or taken by Holders. If such a record date is fixed,
the Holders on such record date or their duly appointed proxy or proxies, and
only such Persons, shall be entitled to make, give or take such request, demand,
authorization, direction, notice, consent, waiver or other Act, whether or not
such Holders remain Holders after such record date. No such request, demand,
authorization, direction, notice, consent, waiver or other Act shall be valid or
effective if made, given or taken more than 90 days after such record date.
(2) The fact and date of the execution by any Person of any such
instrument or writing referred to in this Section 1.4 may be proved in any
reasonable manner; and the Trustee may in any instance reasonably require
further proof with respect to any of the matters referred to in this Section.
(3) The ownership, principal amount and serial numbers of Registered
Securities held by any Person, and the date of the commencement and the date of
the termination of holding the same, shall be proved by the Security Register.
(4) The ownership, principal amount and serial numbers of Bearer
Securities held by any Person, and the date of the commencement and the date of
the termination of holding the same, may be proved by the production of such
Bearer Securities or by a certificate executed, as depositary, by any trust
company, bank, banker or other depositary reasonably acceptable to the Company,
wherever situated, if such certificate shall be deemed by the Company and the
Trustee to be satisfactory, showing that at the date therein mentioned such
Person had on deposit with such depositary, or exhibited to it, the Bearer
Securities therein described; or such facts may be proved by the certificate or
affidavit of the Person holding such Bearer Securities, if such certificate or
affidavit is deemed by the Trustee to be satisfactory. The Trustee and the
Company may assume that such ownership of any Bearer Security continues until
(i) another certificate or affidavit bearing a later date issued in respect of
the same Bearer Security is produced, or (ii) such Bearer Security is produced
to the Trustee by some other Person, or (iii) such Bearer Security is
surrendered in exchange for a Registered Security, or (iv) such Bearer Security
is no longer Outstanding. The ownership, principal amount and serial numbers of
Bearer Securities held by the Person so executing such instrument or writing and
the date of the commencement and the date of the termination of holding the same
may also be proved in any other manner which the Company and the Trustee deem
sufficient.
(5) If the Company shall solicit from the Holders of any Registered
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may at its option (but is not obligated to), by
Board Resolution, fix in advance a record date for the determination of Holders
of Registered Securities entitled to give such request, demand, authorization,
direction, notice, consent, waiver or other Act. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or other
Act may be given before or after such record date, but only the Holders of
Registered Securities of record at the
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close of business on such record date shall be deemed to be Holders for the
purpose of determining whether Holders of the requisite proportion of
Outstanding Securities have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Securities shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
of Registered Securities shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than six months
after the record date.
(6) Any request, demand, authorization, direction, notice, consent,
waiver or other Act by the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done or suffered to be done by the Trustee, any Security
Registrar, any Paying Agent or the Company in reliance thereon, whether or not
notation of such Act is made upon such Security.
Section 1.5. Notices, etc. to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or other Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or with
the Trustee at its Corporate Trust Office, or
(2) the Company by the Trustee or any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to the
attention of its Treasurer, with a copy to the attention of its General Counsel,
at the address of its principal office specified in the first paragraph of this
instrument or at any other address previously furnished in writing to the
Trustee by the Company.
Section 1.6. Notice to Holders of Securities; Waiver.
Except as otherwise expressly provided in or pursuant to this Indenture,
where this Indenture provides for notice to Holders of Securities of any event,
(1) such notice shall be sufficiently given to Holders of Registered
Securities if in writing and mailed, first-class postage prepaid, to each Holder
of a Registered Security affected by such event, at his address as it appears in
the Security Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice; and
(2) such notice shall be sufficiently given to Holders of Bearer
Securities, if any, if published in an Authorized Newspaper in The City of New
York and, if such Securities are then listed on any stock exchange outside the
United States, in an Authorized Newspaper in such city as the Company shall
advise the Trustee that such stock exchange so requires, on a Business Day
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at least twice, the first such publication to be not earlier than the earliest
date and the second such publication not later than the latest date prescribed
for the giving of such notice.
In any case where notice to Holders of Registered Securities is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder of a Registered Security shall affect the
sufficiency of such notice with respect to other Holders of Registered
Securities or the sufficiency of any notice to Holders of Bearer Securities
given as provided herein. Any notice which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given or provided. In
the case by reason of the suspension of regular mail service or by reason of any
other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
In case by reason of the suspension of publication of any Authorized
Newspaper or Authorized Newspapers or by reason of any other cause it shall be
impracticable to publish any notice to Holders of Bearers Securities as provided
above, then such notification to Holders of Bearer Securities as shall be given
with the approval of the Trustee shall constitute sufficient notice to such
Holders for every purpose hereunder. Neither failure to give notice by
publication to Holders of Bearer Securities as provided above, nor any defect in
any notice so published, shall affect the sufficiency of any notice mailed to
Holders of Registered Securities as provided above.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders of Securities shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
Section 1.7. Language of Notices.
Any request, demand, authorization, direction, notice, consent, election
or waiver required or permitted under this Indenture shall be in the English
language, except that, if the Company so elects, any published notice may be in
an official language of the country of publication.
Section 1.8. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any duties
under any required provision of the Trust Indenture Act, such required provision
shall control.
Section 1.9. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
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Section 1.10. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
Section 1.11. Separability Clause.
In case any provision in this Indenture, any Security or any Coupon
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 1.12. Benefits of Indenture.
Nothing in this Indenture, any Security or any Coupon, express or
implied, shall give to any Person, other than the parties hereto, any Security
Registrar, any Paying Agent, any Authenticating Agent and their successors
hereunder and the Holders of Securities or Coupons, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
Section 1.13. Governing Law.
This Indenture, the Securities and any Coupons shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made or instruments entered into and, in each case, performed in said
state.
Section 1.14. Legal Holidays.
Unless otherwise specified in or pursuant to this Indenture or any
Securities, in any case where any Interest Payment Date, Stated Maturity or
Maturity of any Security, or the last date on which a Holder has the right to
convert or exchange Securities of a series that are convertible or exchangeable,
shall be a Legal Holiday at any Place of Payment, then (notwithstanding any
other provision of this Indenture, any Security or any Coupon other than a
provision in any Security or Coupon that specifically states that such provision
shall apply in lieu hereof) payment need not be made at such Place of Payment on
such date, and such Securities need not be converted or exchanged on such date
but such payment may be made, and such Securities may be converted or exchanged,
on the next succeeding day that is a Business Day at such Place of Payment with
the same force and effect as if made on the Interest Payment Date or at the
Stated Maturity or Maturity or on such last day for conversion or exchange, and
no interest shall accrue on the amount payable on such date or at such time for
the period from and after such Interest Payment Date, Stated Maturity, Maturity
or last day for conversion or exchange, as the case may be, to such next
succeeding Business Day.
Section 1.15. Counterparts.
This Indenture may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
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Section 1.16. Judgment Currency.
The Company agrees, to the fullest extent that it may effectively do so
under applicable law, that (a) if for the purpose of obtaining judgment in any
court it is necessary to convert the sum due in respect of the principal of, or
premium or interest, if any, or Additional Amounts on the Securities of any
series (the "Required Currency") into a currency in which a judgment will be
rendered (the "Judgment Currency"), the rate of exchange used shall be the rate
at which in accordance with normal banking procedures the Trustee could purchase
in The City of New York the requisite amount of the Required Currency with the
Judgment Currency on the New York Banking Day preceding the day on which a final
unappealable judgment is given and (b) its obligations under this Indenture to
make payments in the Required Currency (i) shall not be discharged or satisfied
by any tender, or any recovery pursuant to any judgment (whether or not entered
in accordance with clause (a)), in any currency other than the Required
Currency, except to the extent that such tender or recovery shall result in the
actual receipt, by the payee, of the full amount of the Required Currency
expressed to be payable in respect of such payments, (ii) shall be enforceable
as an alternative or additional cause of action for the purpose of recovering in
the Required Currency the amount, if any, by which such actual receipt shall
fall short of the full amount of the Required Currency so expressed to be
payable and (iii) shall not be affected by judgment being obtained for any other
sum due under this Indenture. For purposes of the foregoing, "New York Banking
Day" means any day except a Saturday, Sunday or a legal holiday in The City of
New York or a day on which banking institutions in The City of New York are
authorized or obligated by law, regulation or executive order to be closed.
Section 1.17. No Security Interest Created.
Subject to the provisions of Section 10.5, nothing in this Indenture or
in any Securities, express or implied, shall be construed to constitute a
security interest under the Uniform Commercial Code or similar legislation, as
now or hereafter enacted and in effect in any jurisdiction where property of the
Company or its Subsidiaries is or may be located.
Section 1.18. Limitation on Individual Liability.
No recourse under or upon any obligation, covenant or agreement
contained in this Indenture or in any Security, or for any claim based thereon
or otherwise in respect thereof, shall be had against any incorporator,
shareholder, officer or director, as such, past, present or future, of the
Company, either directly or through the Company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly understood that this Indenture and the
obligations issued hereunder are solely corporate obligations, and that no such
personal liability whatever shall attach to, or is or shall be incurred by, the
incorporators, shareholders, officers or directors, as such, of the Company, or
any of them, because of the creation of the indebtedness hereby authorized, or
under or by reason of the obligations, covenants or agreements contained in this
Indenture or in any Security or implied therefrom; and that any and all such
personal liability of every name and nature, either at common law or in equity
or by constitution or statute, of, and any and all such rights and claims
against,
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every such incorporator, shareholder, officer or director, as such, because of
the creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any
Security or implied therefrom, are hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issuance of such Security.
ARTICLE 2
SECURITIES FORMS
Section 2.1. Forms Generally.
Each Registered Security, Bearer Security, Coupon and temporary or
permanent global Security issued pursuant to this Indenture shall be in the form
established by or pursuant to a Board Resolution or in one or more indentures
supplemental hereto, shall have such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by or pursuant
to this Indenture or any indenture supplemental hereto and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Security or Coupon as evidenced by their execution of
such Security or Coupon.
Unless otherwise provided in or pursuant to this Indenture or any
Securities, the Securities shall be issuable in registered form without Coupons
and shall not be issuable upon the exercise of warrants.
Definitive Securities and definitive Coupons shall be printed,
lithographed or engraved or produced by any combination of these methods on a
steel engraved border or steel engraved borders or may be produced in any other
manner, all as determined by the officers of the Company executing such
Securities or Coupons, as evidenced by their execution of such Securities or
Coupons.
Section 2.2. Form of Trustee's Certificate of Authentication.
Subject to Section 6.11, the Trustee's certificate of authentication
shall be in substantially the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
[NAME OF TRUSTEE],
as Trustee
By
--------------------------------------
Authorized Officer
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Section 2.3. Securities in Global Form.
Unless otherwise provided in or pursuant to this Indenture or any
Securities, the Securities shall not be issuable in temporary or permanent
global form. If Securities of a series shall be issuable in global form, any
such Security may provide that it or any number of such Securities shall
represent the aggregate amount of all Outstanding Securities of such series (or
such lesser amount as is permitted by the terms thereof) from time to time
endorsed thereon and may also provide that the aggregate amount of Outstanding
Securities represented thereby may from time to time be increased or reduced to
reflect exchanges. Any endorsement of any Security in global form to reflect the
amount, or any increase or decrease in the amount, or changes in the rights of
Holders, of Outstanding Securities represented thereby shall be made in such
manner and by such Person or Persons as shall be specified therein or in the
Company Order to be delivered pursuant to Section 3.3 or 3.4 with respect
thereto. Subject to the provisions of Section 3.3 and, if applicable, Section
3.4, the Trustee shall deliver and redeliver, in each case at the Company's
expense, any Security in permanent global form in the manner and upon
instructions given by the Person or Persons specified therein or in the
applicable Company Order. If a Company Order pursuant to Section 3.3 or 3.4 has
been, or simultaneously is, delivered, any instructions by the Company with
respect to a Security in global form shall be in writing but need not be
accompanied by or contained in an Officers' Certificate and need not be
accompanied by an Opinion of Counsel.
Notwithstanding the provisions of Section 3.7, unless otherwise
specified in or pursuant to this Indenture or any Securities, payment of
principal of, any premium and interest on, and any Additional Amounts in respect
of, any Security in temporary or permanent global form shall be made to the
Person or Persons specified therein.
Notwithstanding the provisions of Section 3.8 and except as provided in
the preceding paragraph, the Company, the Trustee and any agent of the Company
or the Trustee shall treat as the Holder of such principal amount of Outstanding
Securities represented by a global Security (i) in the case of a global Security
in registered form, the Holder of such global Security in registered form, or
(ii) in the case of a global Security in bearer form, the Person or Persons
specified pursuant to Section 3.1.
ARTICLE 3
THE SECURITIES
Section 3.1. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited. The Securities may be issued in
one or more series.
With respect to any Securities to be authenticated and delivered
hereunder, there shall be established in or pursuant to a Board Resolution and
set forth in an Officers' Certificate, or established in one or more indentures
supplemental hereto,
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(1) the title of such Securities and the series in which such Securities
shall be included;
(2) any limit upon the aggregate principal amount of the Securities of
such title or the Securities of such series which may be authenticated and
delivered under this Indenture (except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Securities of such series pursuant to Section 3.4, 3.5, 3.6, 9.5 or 11.7,
upon repayment in part of any Registered Security of such series pursuant to
Article Thirteen, upon surrender in part of any Registered Security for
conversion into Common Stock or exchange for other securities pursuant to its
terms, or pursuant to or as contemplated by the terms of such Securities);
(3) if such Securities are to be issuable as Registered Securities, as
Bearer Securities or alternatively as Bearer Securities and Registered
Securities, and whether the Bearer Securities are to be issuable with Coupons,
without Coupons or both, and any restrictions applicable to the offer, sale or
delivery of the Bearer Securities and the terms, if any, upon which Bearer
Securities may be exchanged for Registered Securities and vice versa;
(4) if any of such Securities are to be issuable in global form, when
any of such Securities are to be issuable in global form and (i) whether such
Securities are to be issued in temporary or permanent global form or both, (ii)
whether beneficial owners of interests in any such global Security may exchange
such interests for Securities of the same series and of like tenor and of any
authorized form and denomination, and the circumstances under which any such
exchanges may occur, if other than in the manner specified in Section 3.5, and
(iii) the name of the Depository or the U.S. Depository, as the case may be,
with respect to any such global Security;
(5) if any of such Securities are to be issuable as Bearer Securities or
in global form, the date as of which any such Bearer Security or global Security
shall be dated (if other than the date of original issuance of the first of such
Securities to be issued);
(6) if any of such Securities are to be issuable as Bearer Securities,
whether interest in respect of any portion of a temporary Bearer Security in
global form payable in respect of an Interest Payment Date therefor prior to the
exchange, if any, of such temporary Bearer Security for definitive Securities
shall be paid to any clearing organization with respect to the portion of such
temporary Bearer Security held for its account and, in such event, the terms and
conditions (including any certification requirements) upon which any such
interest payment received by a clearing organization will be credited to the
Persons entitled to interest payable on such Interest Payment Date;
(7) the date or dates, or the method or methods, if any, by which such
date or dates shall be determined, on which the principal of such Securities is
payable;
(8) the rate or rates at which such Securities shall bear interest, if
any, or the method or methods, if any, by which such rate or rates are to be
determined, the date or dates, if any, from which such interest shall accrue or
the method or methods, if any, by which such date or dates are to be determined,
the Interest Payment Dates, if any, on which such interest shall be payable and
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the Regular Record Date, if any, for the interest payable on Registered
Securities on any Interest Payment Date, whether and under what circumstances
Additional Amounts on such Securities or any of them shall be payable, the
notice, if any, to Holders regarding the determination of interest on a floating
rate Security and the manner of giving such notice, and the basis upon which
interest shall be calculated if other than that of a 360-day year of twelve
30-day months;
(9) if in addition to or other than the Borough of Manhattan, The City
of New York, the place or places where the principal of, any premium and
interest on or any Additional Amounts with respect to such Securities shall be
payable, any of such Securities that are Registered Securities may be
surrendered for registration of transfer or exchange, any of such Securities may
be surrendered for conversion or exchange and notices or demands to or upon the
Company in respect of such Securities and this Indenture may be served, the
extent to which, or the manner in which, any interest payment or Additional
Amounts on a global Security on an Interest Payment Date, will be paid and the
manner in which any principal of or premium, if any, on any global Security will
be paid;
(10) whether any of such Securities are to be redeemable at the option
of the Company and, if so, the date or dates on which, the period or periods
within which, the price or prices at which and the other terms and conditions
upon which such Securities may be redeemed, in whole or in part, at the option
of the Company;
(11) whether the Company is obligated to redeem or purchase any of such
Securities pursuant to any sinking fund or analogous provision or at the option
of any Holder thereof and, if so, the date or dates on which, the period or
periods within which, the price or prices at which and the other terms and
conditions upon which such Securities shall be redeemed or purchased, in whole
or in part, pursuant to such obligation, and any provisions for the remarketing
of such Securities so redeemed or purchased;
(12) the denominations in which any of such Securities that are
Registered Securities shall be issuable if other than denominations of $1,000
and any integral multiple thereof, and the denominations in which any of such
Securities that are Bearer Securities shall be issuable if other than the
denomination of $5,000;
(13) whether the Securities of the series will be convertible into
shares of Common Stock and/or exchangeable for other securities, and if so, the
terms and conditions upon which such Securities will be so convertible or
exchangeable, and any deletions from or modifications or additions to this
Indenture to permit or to facilitate the issuance of such convertible or
exchangeable Securities or the administration thereof;
(14) if other than the principal amount thereof, the portion of the
principal amount of any of such Securities that shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 5.2 or
the method by which such portion is to be determined;
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(15) if other than Dollars, the Foreign Currency in which payment of the
principal of, any premium or interest on or any Additional Amounts with respect
to any of such Securities shall be payable;
(16) if the principal of, any premium or interest on or any Additional
Amounts with respect to any of such Securities are to be payable, at the
election of the Company or a Holder thereof or otherwise, in Dollars or in a
Foreign Currency other than that in which such Securities are stated to be
payable, the date or dates on which, the period or periods within which, and the
other terms and conditions upon which, such election may be made, and the time
and manner of determining the exchange rate between the Currency in which such
Securities are stated to be payable and the Currency in which such Securities or
any of them are to be paid pursuant to such election, and any deletions from or
modifications of or additions to the terms of this Indenture to provide for or
to facilitate the issuance of Securities denominated or payable, at the election
of the Company or a Holder thereof or otherwise, in a Foreign Currency;
(17) whether the amount of payments of principal of, any premium or
interest on or any Additional Amounts with respect to such Securities may be
determined with reference to an index, formula or other method or methods (which
index, formula or method or methods may be based, without limitation, on one or
more Currencies, commodities, equity securities, equity indices or other
indices), and, if so, the terms and conditions upon which and the manner in
which such amounts shall be determined and paid or payable;
(18) any deletions from, modifications of or additions to the Events of
Default or covenants of the Company with respect to any of such Securities,
whether or not such Events of Default or covenants are consistent with the
Events of Default or covenants set forth herein;
(19) whether either or both of Section 4.2(2) relating to defeasance or
Section 4.2(3) relating to covenant defeasance shall not be applicable to the
Securities of such series, or any covenants in addition to those specified in
Section 4.2(3) relating to the Securities of such series which shall be subject
to covenant of defeasance, and any deletions from, or modifications or additions
to, the provisions of Article Four in respect of the Securities of such series;
(20) whether any of such Securities are to be issuable upon the exercise
of warrants, and the time, manner and place for such Securities to be
authenticated and delivered;
(21) if any of such Securities are to be issuable in global form and are
to be issuable in definitive form (whether upon original issue or upon exchange
of a temporary Security) only upon receipt of certain certificates or other
documents or satisfaction of other conditions, then the form and terms of such
certificates, documents or conditions;
(22) if there is more than one Trustee, the identity of the Trustee and,
if not the Trustee, the identity of each Security Registrar, Paying Agent or
Authenticating Agent with respect to such Securities; and
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(23) any other terms of such Securities and any other deletions from or
modifications or additions to this Indenture in respect of such Securities.
All Securities of any one series and all Coupons, if any, appertaining
to Bearer Securities of such series shall be substantially identical except as
to Currency of payments due thereunder, denomination and the rate of interest
thereon, or method of determining the rate of interest, if any, Maturity, and
the date from which interest, if any, shall accrue and except as may otherwise
be provided by the Company in or pursuant to the Board Resolution and set forth
in the Officers' Certificate or in any indenture or indentures supplemental
hereto pertaining to such series of Securities. The terms of the Securities of
any series may provide, without limitation, that the Securities shall be
authenticated and delivered by the Trustee on original issue from time to time
upon written order of persons designated in the Officers' Certificate or
supplemental indenture and that such persons are authorized to determine,
consistent with such Officers' Certificate or any applicable supplemental
indenture, such terms and conditions of the Securities of such series as are
specified in such Officers' Certificate or supplemental indenture. All
Securities of any one series need not be issued at the same time and, unless
otherwise so provided, a series may be reopened for issuances of additional
Securities of such series or to establish additional terms of such series of
Securities.
If any of the terms of the Securities of any series shall be established
by action taken by or pursuant to a Board Resolution, the Board Resolution shall
be delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of such series.
Section 3.2. Currency; Denominations.
Unless otherwise provided in or pursuant to this Indenture, the
principal of, any premium and interest on and any Additional Amounts with
respect to the Securities shall be payable in Dollars. Unless otherwise provided
in or pursuant to this Indenture, Registered Securities denominated in Dollars
shall be issuable in registered form without Coupons in denominations of $1,000
and any integral multiple thereof, and the Bearer Securities denominated in
Dollars shall be issuable in the denomination of $5,000. Securities not
denominated in Dollars shall be issuable in such denominations as are
established with respect to such Securities in or pursuant to this Indenture.
Section 3.3. Execution, Authentication, Delivery and Dating.
Securities shall be executed on behalf of the Company by its Chairman of
the Board, a Vice Chairman, its President, its Treasurer, a Senior Vice
President or a Vice President under its corporate seal reproduced thereon and
attested by its Secretary or one of its Assistant Secretaries. Coupons shall be
executed on behalf of the Company by the Treasurer or any Assistant Treasurer of
the Company. The signature of any of these officers on the Securities or any
Coupons appertaining thereto may be manual or facsimile.
Securities and any Coupons appertaining thereto bearing the manual or
facsimile signatures of individuals who were at any time the proper officers of
the Company shall bind the
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Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities
and Coupons or did not hold such offices at the date of original issuance of
such Securities or Coupons.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities, together with any Coupons
appertaining thereto, executed by the Company, to the Trustee for authentication
and, provided that the Board Resolution and Officers' Certificate or
supplemental indenture or indentures with respect to such Securities referred to
in Section 3.1 and a Company Order for the authentication and delivery of such
Securities have been delivered to the Trustee, the Trustee in accordance with
the Company Order and subject to the provisions hereof and of such Securities
shall authenticate and deliver such Securities. In authenticating such
Securities, and accepting the additional responsibilities under this Indenture
in relation to such Securities and any Coupons appertaining thereto, the Trustee
shall be entitled to receive, and (subject to Sections 315(a) through 315(d) of
the Trust Indenture Act) shall be fully protected in relying upon,
(1) an Opinion of Counsel to the effect that:
(a) the form or forms and terms of such Securities and Coupons, if
any, have been established in conformity with the provisions of this
Indenture;
(b) all conditions precedent to the authentication and delivery of
such Securities and Coupons, if any, appertaining thereto, have been
complied with and that such Securities and Coupons, when completed by
appropriate insertions, executed under the Company's corporate seal and
attested by duly authorized officers of the Company, delivered by duly
authorized officers of the Company to the Trustee for authentication
pursuant to this Indenture, and authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute legally
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as enforcement thereof
may be subject to or limited by bankruptcy, insolvency, reorganization,
moratorium, arrangement, fraudulent conveyance, fraudulent transfer or
other similar laws relating to or affecting creditors' rights generally,
and subject to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and will
entitle the Holders thereof to the benefits of this Indenture; such
Opinion of Counsel need express no opinion as to the availability of
equitable remedies; and
(c) all laws and requirements in respect of the execution and
delivery by the Company of such Securities and Coupons, if any, have
been complied with;
and, to the extent that this Indenture is required to be qualified under the
Trust Indenture Act in connection with the issuance of such Securities, to the
further effect that:
(d) this Indenture has been qualified under the Trust Indenture Act;
and
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(2) an Officers' Certificate stating that all conditions precedent to
the execution, authentication and delivery of such Securities and Coupons, if
any, appertaining thereto, have been complied with and that, to the best
knowledge of the Persons executing such certificate, no event which is, or after
notice or lapse of time would become, an Event of Default with respect to any of
the Securities shall have occurred and be continuing.
If all the Securities of any series are not to be issued at one time, it
shall not be necessary to deliver an Opinion of Counsel and an Officers'
Certificate at the time of issuance of each Security, but such opinion and
certificate, with appropriate modifications, shall be delivered at or before the
time of issuance of the first Security of such series. After any such first
delivery, any separate written request by an Authorized Officer of the Company
that the Trustee authenticate and deliver Securities of such series for original
issue will be deemed to be a certification by the Company that all conditions
precedent provided for in this Indenture relating to authentication and delivery
of such Securities continue to have been complied with.
The Trustee shall not be required to authenticate or to cause an
Authenticating Agent to authenticate any Securities if the issue of such
Securities pursuant to this Indenture will affect the Trustee's own rights,
duties or immunities under the Securities and this Indenture or otherwise in a
manner which is not reasonably acceptable to the Trustee or if the Trustee,
being advised by counsel, determines that such action may not lawfully be taken.
Each Registered Security shall be dated the date of its authentication.
Each Bearer Security and any Bearer Security in global form shall be dated as of
the date specified in or pursuant to this Indenture.
No Security or Coupon appertaining thereto shall be entitled to any
benefit under this Indenture or be valid or obligatory for any purpose, unless
there appears on such Security a certificate of authentication substantially in
the form provided for in Section 2.2 or 6.11 executed by or on behalf of the
Trustee or by the Authenticating Agent by the manual signature of one of its
authorized officers. Such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder. Except as permitted by Section 3.6 or 3.7, the Trustee
shall not authenticate and deliver any Bearer Security unless all Coupons
appertaining thereto then matured have been detached and cancelled.
Section 3.4. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute and deliver to the Trustee and, upon Company Order, the Trustee shall
authenticate and deliver, in the manner provided in Section 3.3, temporary
Securities in lieu thereof which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued, in registered form or, if authorized in or pursuant to this
Indenture, in bearer form with one or more Coupons or without Coupons and with
such appropriate insertions, omissions, substitutions and other variations as
the officers of the Company executing such Securities may determine, as
conclusively evidenced by their execution of such Securities. Such temporary
Securities may be in global form.
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Except in the case of temporary Securities in global form, which shall
be exchanged in accordance with the provisions thereof, if temporary Securities
are issued, the Company shall cause definitive Securities to be prepared without
unreasonable delay. After the preparation of definitive Securities of the same
series and containing terms and provisions that are identical to those of any
temporary Securities, such temporary Securities shall be exchangeable for such
definitive Securities upon surrender of such temporary Securities at an Office
or Agency for such Securities, without charge to any Holder thereof. Upon
surrender for cancellation of any one or more temporary Securities (accompanied
by any unmatured Coupons appertaining thereto), the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Securities of authorized denominations of the same series
and containing identical terms and provisions; provided, however, that no
definitive Bearer Security, except as provided in or pursuant to this Indenture,
shall be delivered in exchange for a temporary Registered Security; and
provided, further, that a definitive Bearer Security shall be delivered in
exchange for a temporary Bearer Security only in compliance with the conditions
set forth in or pursuant to this Indenture. Unless otherwise provided in or
pursuant to this Indenture with respect to a temporary global Security, until so
exchanged the temporary Securities of any series shall in all respects be
entitled to the same benefits under this Indenture as definitive Securities of
such series.
Section 3.5. Registration, Transfer and Exchange.
With respect to the Registered Securities of each series, if any, the
Company shall cause to be kept a register (each such register being herein
sometimes referred to as the "Security Register") at an Office or Agency for
such series in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of the Registered
Securities of such series and of transfers of the Registered Securities of such
series. Such Office or Agency shall be the "Security Registrar" for that series
of Securities. Unless otherwise specified in or pursuant to this Indenture or
the Securities, the Trustee shall be the initial Security Registrar for each
series of Securities. The Company shall have the right to remove and replace
from time to time the Security Registrar for any series of Securities; provided
that no such removal or replacement shall be effective until a successor
Security Registrar with respect to such series of Securities shall have been
appointed by the Company and shall have accepted such appointment by the
Company. In the event that the Trustee shall not be or shall cease to be
Security Registrar with respect to a series of Securities, it shall have the
right to examine the Security Register for such series at all reasonable times.
There shall be only one Security Register for each series of Securities.
Upon surrender for registration of transfer of any Registered Security
of any series at any Office or Agency for such series, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Registered Securities of
the same series denominated as authorized in or pursuant to this Indenture, of a
like aggregate principal amount bearing a number not contemporaneously
outstanding and containing identical terms and provisions.
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At the option of the Holder, Registered Securities of any series may be
exchanged for other Registered Securities of the same series containing
identical terms and provisions, in any authorized denominations, and of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
any Office or Agency for such series. Whenever any Registered Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Registered Securities which the Holder making the
exchange is entitled to receive.
If provided in or pursuant to this Indenture, with respect to Securities
of any series, at the option of the Holder, Bearer Securities of such series may
be exchanged for Registered Securities of such series containing identical
terms, denominated as authorized in or pursuant to this Indenture and in the
same aggregate principal amount, upon surrender of the Bearer Securities to be
exchanged at any Office or Agency for such series, with all unmatured Coupons
and all matured Coupons in default thereto appertaining. If the Holder of a
Bearer Security is unable to produce any such unmatured Coupon or Coupons or
matured Coupon or Coupons in default, such exchange may be effected if the
Bearer Securities are accompanied by payment in funds acceptable to the Company
and the Trustee in an amount equal to the face amount of such missing Coupon or
Coupons, or the surrender of such missing Coupon or Coupons may be waived by the
Company and the Trustee if there is furnished to them such security or indemnity
as they may require to save each of them and any Paying Agent harmless. If
thereafter the Holder of such Bearer Security shall surrender to any Paying
Agent any such missing Coupon in respect of which such a payment shall have been
made, such Holder shall be entitled to receive the amount of such payment;
provided, however, that, except as otherwise provided in Section 10.2, interest
represented by Coupons shall be payable only upon presentation and surrender of
those Coupons at an Office or Agency for such series located outside the United
States. Notwithstanding the foregoing, in case a Bearer Security of any series
is surrendered at any such Office or Agency for such series in exchange for a
Registered Security of such series and like tenor after the close of business at
such Office or Agency on (i) any Regular Record Date and before the opening of
business at such Office or Agency on the next succeeding Interest Payment Date,
or (ii) any Special Record Date and before the opening of business at such
Office or Agency on the related date for payment of Defaulted Interest, such
Bearer Security shall be surrendered without the Coupon relating to such
Interest Payment Date or proposed date of payment, as the case may be (or, if
such Coupon is so surrendered with such Bearer Security, such Coupon shall be
returned to the Person so surrendering the Bearer Security), and interest or
Defaulted Interest, as the case may be, shall not be payable on such Interest
Payment Date or proposed date for payment, as the case may be, in respect of the
Registered Security issued in exchange for such Bearer Security, but shall be
payable only to the Holder of such Coupon when due in accordance with the
provisions of this Indenture.
If provided in or pursuant to this Indenture with respect to Securities
of any series, at the option of the Holder, Registered Securities of such series
may be exchanged for Bearer Securities upon such terms and conditions as may be
provided in or pursuant to this Indenture with respect to such series.
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Whenever any Securities are surrendered for exchange as contemplated by
the immediately preceding two paragraphs, the Company shall execute, and the
Trustee shall authenticate and deliver, the Securities which the Holder making
the exchange is entitled to receive.
Notwithstanding the foregoing, except as otherwise provided in or
pursuant to this Indenture, any global Security shall be exchangeable for
definitive Securities only if (i) the Depository is at any time unwilling,
unable to continue as depository or if the Depositary ceases to be eligible
under this Indenture and a successor depository is not appointed by the Company
within 90 days of the date the Company is so informed in writing, (ii) the
Company executes and delivers to the Trustee a Company Order to the effect that
such global Security shall be so exchangeable, or (iii) an Event of Default has
occurred and is continuing with respect to the Securities. If the beneficial
owners of interests in a global Security are entitled to exchange such interests
for definitive Securities as the result of an event described in clause (i),
(ii) or (iii) of the preceding sentence, then without unnecessary delay but in
any event not later than the earliest date on which such interests may be so
exchanged, the Company shall deliver to the Trustee definitive Securities in
such form and denominations as are required by or pursuant to this Indenture,
and of the same series, containing identical terms and in aggregate principal
amount equal to the principal amount of such global Security, executed by the
Company. On or after the earliest date on which such interests may be so
exchanged, such global Security shall be surrendered from time to time by the
U.S. Depository or such other Depository as shall be specified in the Company
Order with respect thereto, and in accordance with instructions given to the
Trustee and the U.S. Depository or such other Depository, as the case may be
(which instructions shall be in writing but need not be contained in or
accompanied by an Officers' Certificate or be accompanied by an Opinion of
Counsel), as shall be specified in the Company Order with respect thereto to the
Trustee, as the Company's agent for such purpose, to be exchanged, in whole or
in part, for definitive Securities as described above without charge. The
Trustee shall authenticate and make available for delivery, in exchange for each
portion of such surrendered global Security, a like aggregate principal amount
of definitive Securities of the same series of authorized denominations and of
like tenor as the portion of such global Security to be exchanged, which (unless
such Securities are not issuable both as Bearer Securities and as Registered
Securities, in which case the definitive Securities exchanged for the global
Security shall be issuable only in the form in which the Securities are
issuable, as provided in or pursuant to this Indenture) shall be in the form of
Bearer Securities or Registered Securities, or any combination thereof, as shall
be specified by the beneficial owner thereof, but subject to the satisfaction of
any certification or other requirements to the issuance of Bearer Securities;
provided, however, that no such exchanges may occur during a period beginning at
the opening of business 15 days before any selection of Securities of the same
series to be redeemed and ending on the relevant Redemption Date; and provided,
further, that (unless otherwise provided in or pursuant to this Indenture) no
Bearer Security delivered in exchange for a portion of a global Security shall
be mailed or otherwise delivered to any location in the United States. Promptly
following any such exchange in part, such global Security shall be returned by
the Trustee to such Depository or the U.S. Depository, as the case may be, or
such other Depository or U.S. Depository referred to above in accordance with
the instructions of the Company referred to above. If a Registered Security is
issued in exchange for any portion of a global Security after the close of
business at the Office or Agency for such Security where such
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<PAGE> 39
exchange occurs on or after (i) any Regular Record Date for such Security and
before the opening of business at such Office or Agency on the next succeeding
Interest Payment Date, or (ii) any Special Record Date for such Security and
before the opening of business at such Office or Agency on the related proposed
date for payment of interest or Defaulted Interest, as the case may be, interest
shall not be payable on such Interest Payment Date or proposed date for payment,
as the case may be, in respect of such Registered Security, but shall be payable
on such Interest Payment Date or proposed date for payment, as the case may be,
only to the Person to whom interest in respect of such portion of such global
Security shall be payable in accordance with the provisions of this Indenture.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company evidencing the same
debt and entitling the Holders thereof to the same benefits under this Indenture
as the Securities surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for registration of
transfer or for exchange or redemption shall (if so required by the Company or
the Security Registrar for such Security) be duly endorsed, or be accompanied by
a written instrument of transfer in form satisfactory to the Company and the
Security Registrar for such Security duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange, or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge and any other
expenses (including fees and expenses of the Trustee) that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 3.4, 9.5 or 11.7 not involving any transfer.
Except as otherwise provided in or pursuant to this Indenture, the
Company shall not be required (i) to issue, register the transfer of or exchange
any Securities during a period beginning at the opening of business 15 days
before the day of the selection for redemption of Securities of like tenor and
the same series under Section 11.3 and ending at the close of business on the
day of such selection, or (ii) to register the transfer of or exchange any
Registered Security so selected for redemption in whole or in part, except in
the case of any Security to be redeemed in part, the portion thereof not to be
redeemed, or (iii) to exchange any Bearer Security so selected for redemption
except, to the extent provided with respect to such Bearer Security, that such
Bearer Security may be exchanged for a Registered Security of like tenor and the
same series, provided that such Registered Security shall be immediately
surrendered for redemption with written instruction for payment consistent with
the provisions of this Indenture or (iv) to issue, register the transfer of or
exchange any Security which, in accordance with its terms, has been surrendered
for repayment at the option of the Holder, except the portion, if any, of such
Security not to be so repaid.
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Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security or a Security with a mutilated Coupon
appertaining to it is surrendered to the Trustee, subject to the provisions of
this Section 3.6, the Company shall execute and the Trustee shall authenticate
and deliver in exchange therefor a new Security of the same series containing
identical terms and of like principal amount and bearing a number not
contemporaneously outstanding, with Coupons appertaining thereto corresponding
to the Coupons, if any, appertaining to the surrendered Security.
If there be delivered to the Company and to the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security or Coupon,
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security or Coupon has been acquired by a
bona fide purchaser, the Company shall execute and, upon the Company's request
the Trustee shall authenticate and deliver, in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Security or in exchange for the
Security to which a destroyed, lost or stolen Coupon appertains with all
appurtenant Coupons not destroyed, lost or stolen, a new Security of the same
series containing identical terms and of like principal amount and bearing a
number not contemporaneously outstanding, with Coupons appertaining thereto
corresponding to the Coupons, if any, appertaining to such destroyed, lost or
stolen Security or to the Security to which such destroyed, lost or stolen
Coupon appertains.
Notwithstanding the foregoing provisions of this Section 3.6, in case
any mutilated, destroyed, lost or stolen Security or Coupon has become or is
about to become due and payable, the Company in its discretion may, instead of
issuing a new Security, pay such Security or Coupon; provided, however, that
payment of principal of, any premium or interest on or any Additional Amounts
with respect to any Bearer Securities shall, except as otherwise provided in
Section 10.2, be payable only at an Office or Agency for such Securities located
outside the United States and, unless otherwise provided in or pursuant to this
Indenture, any interest on Bearer Securities and any Additional Amounts with
respect to such interest shall be payable only upon presentation and surrender
of the Coupons appertaining thereto.
Upon the issuance of any new Security under this Section 3.6, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security, with any Coupons appertaining thereto issued
pursuant to this Section 3.6 in lieu of any destroyed, lost or stolen Security,
or in exchange for a Security to which a destroyed, lost or stolen Coupon
appertains shall constitute a separate obligation of the Company, whether or not
the destroyed, lost or stolen Security and Coupons appertaining thereto or the
destroyed, lost or stolen Coupon shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities of such series and any
Coupons, if any, duly issued hereunder.
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The provisions of this Section 3.6, as amended or supplemented pursuant
to this Indenture with respect to particular Securities or generally, shall be
exclusive and shall preclude (to the extent lawful) all other rights and
remedies with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities or Coupons.
Section 3.7. Payment of Interest and Certain Additional Amounts; Rights
to Interest and Certain Additional Amounts Preserved.
Unless otherwise provided in or pursuant to this Indenture, any interest
on and any Additional Amounts with respect to any Registered Security which
shall be payable, and are punctually paid or duly provided for, on any Interest
Payment Date shall be paid to the Person in whose name such Security (or one or
more Predecessor Securities) is registered as of the close of business on the
Regular Record Date for such interest.
Unless otherwise provided in or pursuant to this Indenture, any interest
on and any Additional Amounts with respect to any Registered Security which
shall be payable, but shall not be punctually paid or duly provided for, on any
Interest Payment Date for such Registered Security (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder thereof on the
relevant Regular Record Date by virtue of having been such Holder; and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Person in whose name such Registered Security (or a Predecessor Security
thereof) shall be registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be fixed by the Company
in the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on such Registered Security,
the Special Record Date therefor and the date of the proposed payment, and at
the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
on or prior to the date of the proposed payment, such money when so deposited to
be held in trust for the benefit of the Person entitled to such Defaulted
Interest as in this Clause provided. The Special Record Date for the payment of
such Defaulted Interest shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than 10 days after
notification to the Trustee of the proposed payment. The Trustee shall, in the
name and at the expense of the Company, cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to the Holder of such Registered Security (or a
Predecessor Security thereof) at his address as it appears in the Security
Register not less than 10 days prior to such Special Record Date. The Trustee
may, in its discretion, in the name and at the expense of the Company cause a
similar notice to be published at least once in an Authorized Newspaper of
general circulation in the Borough of Manhattan, The City of New York, but such
publication shall not be a condition precedent to the establishment of such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been mailed as aforesaid,
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such Defaulted Interest shall be paid to the Person in whose name such
Registered Security (or a Predecessor Security thereof) shall be registered at
the close of business on such Special Record Date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which such Security may be listed, and upon such notice as may be required by
such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this Clause, such payment shall be deemed
practicable by the Trustee.
Unless otherwise provided in or pursuant to this Indenture or the
Securities of any particular series pursuant to the provisions of this
Indenture, at the option of the Company, interest on Registered Securities that
bear interest may be paid by mailing a check to the address of the Person
entitled thereto as such address shall appear in the Security Register or by
transfer to an account maintained by the payee with a bank located in the United
States.
Subject to the foregoing provisions of this Section and Section 3.5,
each Security delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
In the case of any Registered Security of any series that is convertible
into shares of Common Stock or exchangeable for other securities, which
Registered Security is converted or exchanged after any Regular Record Date and
on or prior to the next succeeding Interest Payment Date (other than any
Registered Security with respect to which the Stated Maturity is prior to such
Interest Payment Date), interest with respect to which the Stated Maturity is on
such Interest Payment Date shall be payable on such Interest Payment Date
notwithstanding such conversion or exchange, and such interest (whether or not
punctually paid or duly provided for) shall be paid to the Person in whose name
that Registered Security (or one or more predecessor Registered Securities) is
registered at the close of business on such Regular Record Date. Except as
otherwise expressly provided in the immediately preceding sentence, in the case
of any Registered Security which is converted or exchanged, interest with
respect to which the Stated Maturity is after the date of conversion or exchange
of such Registered Security shall not be payable.
Section 3.8. Persons Deemed Owners.
Prior to due presentment of a Registered Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Registered Security is registered in the
Security Register as the owner of such Registered Security for the purpose of
receiving payment of principal of, any premium and (subject to Sections 3.5 and
3.7) interest on and any Additional Amounts with respect to such Registered
Security and for all other purposes whatsoever, whether or not any payment with
respect to such Registered Security shall be overdue, and none of the Company,
the Trustee or any agent of the Company or the Trustee shall be affected by
notice to the contrary.
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The Company, the Trustee and any agent of the Company or the Trustee may
treat the bearer of any Bearer Security or the bearer of any Coupon as the
absolute owner of such Security or Coupon for the purpose of receiving payment
thereof or on account thereof and for all other purposes whatsoever, whether or
not any payment with respect to such Security or Coupon shall be overdue, and
none of the Company, the Trustee or any agent of the Company or the Trustee
shall be affected by notice to the contrary.
No Holder of any beneficial interest in any global Security held on its
behalf by a Depository shall have any rights under this Indenture with respect
to such global Security, and such Depository may be treated by the Company, the
Trustee, and any agent of the Company or the Trustee as the owner of such global
Security for all purposes whatsoever. None of the Company, the Trustee, any
Paying Agent or the Security Registrar will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of a global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Section 3.9. Cancellation.
All Securities and Coupons surrendered for payment, redemption,
registration of transfer, exchange or conversion or for credit against any
sinking fund payment shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee, and any such Securities and Coupons, as well as
Securities and Coupons surrendered directly to the Trustee for any such purpose,
shall be cancelled promptly by the Trustee. The Company may at any time deliver
to the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be cancelled promptly by the
Trustee. No Securities shall be authenticated in lieu of or in exchange for any
Securities cancelled as provided in this Section, except as expressly permitted
by or pursuant to this Indenture. All cancelled Securities and Coupons held by
the Trustee shall be destroyed by the Trustee, unless by a Company Order the
Company directs their return to it.
Section 3.10. Computation of Interest.
Except as otherwise provided in or pursuant to this Indenture or in any
Security, interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
ARTICLE 4
SATISFACTION AND DISCHARGE OF INDENTURE
Section 4.1. Satisfaction and Discharge.
Upon the direction of the Company by a Company Order, this Indenture
shall cease to be of further effect with respect to any series of Securities
specified in such Company Order and any Coupons appertaining thereto, and the
Trustee, on receipt of a Company Order, at the expense of
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the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture as to such series, when
(1) either
(a) all Securities of such series theretofore authenticated and
delivered and all Coupons appertaining thereto (other than (i) Coupons
appertaining to Bearer Securities of such series surrendered in exchange
for Registered Securities of such series and maturing after such
exchange whose surrender is not required or has been waived as provided
in Section 3.5, (ii) Securities and Coupons of such series which have
been destroyed, lost or stolen and which have been replaced or paid as
provided in Section 3.6, (iii) Coupons appertaining to Securities of
such series called for redemption and maturing after the relevant
Redemption Date whose surrender has been waived as provided in Section
11.7, and (iv) Securities and Coupons of such series for whose payment
money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 10.3) have been delivered to the
Trustee for cancellation; or
(b) all Securities of such series and, in the case of (i) or (ii)
below, any Coupons appertaining thereto not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year, or
(iii) if redeemable at the option of the Company, are to be
called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited
or caused to be deposited with the Trustee as trust funds in trust for
such purpose, money in the Currency in which such Securities are payable
in an amount sufficient to pay and discharge the entire indebtedness on
such Securities and any Coupons appertaining thereto not theretofore
delivered to the Trustee for cancellation, including the principal of,
any premium and interest on, and any Additional Amounts with respect to
such Securities and any Coupons appertaining thereto, to the date of
such deposit (in the case of Securities which have become due and
payable) or to the Maturity thereof, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company with respect to the Outstanding Securities of such
series and any Coupons appertaining thereto; and
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(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture as to
such series have been complied with.
In the event there are Securities of two or more series hereunder, the
Trustee shall be required to execute an instrument acknowledging satisfaction
and discharge of this Indenture only if requested to do so with respect to
Securities of such series as to which it is Trustee and if the other conditions
thereto are met.
Notwithstanding the satisfaction and discharge of this Indenture with
respect to any series of Securities, the obligations of the Company to the
Trustee under Section 6.6 and, if money shall have been deposited with the
Trustee pursuant to subclause (b) of clause (1) of this Section, the obligations
of the Company and the Trustee with respect to the Securities of such series
under Sections 3.5, 3.6, 4.3, 10.2 and 10.3, with respect to the payment of
Additional Amounts, if any, with respect to such Securities as contemplated by
Section 10.4 (but only to the extent that the Additional Amounts payable with
respect to such Securities exceed the amount deposited in respect of such
Additional Amounts pursuant to Section 4.1(1)(b)), and with respect to any
rights to convert or exchange such Securities into Common Stock or other
securities shall survive.
Section 4.2. Defeasance and Covenant Defeasance.
(1) Unless pursuant to Section 3.1, either or both of (i) defeasance of
the Securities of or within a series under clause (2) of this Section 4.2 shall
not be applicable with respect to the Securities of such series or (ii) covenant
defeasance of the Securities of or within a series under clause (3) of this
Section 4.2 shall not be applicable with respect to the Securities of such
series, then such provisions, together with the other provisions of this Section
4.2 (with such modifications thereto as may be specified pursuant to Section 3.1
with respect to any Securities), shall be applicable to such Securities and any
Coupons appertaining thereto, and the Company may at its option by Board
Resolution, at any time, with respect to such Securities and any Coupons
appertaining thereto, elect to have Section 4.2(2) or Section 4.2(3) be applied
to such Outstanding Securities and any Coupons appertaining thereto upon
compliance with the conditions set forth below in this Section 4.2.
(2) Upon the Company's exercise of the above option applicable to this
Section 4.2(2) with respect to any Securities of or within a series, the Company
shall be deemed to have been discharged from its obligations with respect to
such Outstanding Securities and any Coupons appertaining thereto on the date the
conditions set forth in clause (4) of this Section 4.2 are satisfied
(hereinafter, "defeasance"). For this purpose, such defeasance means that the
Company shall be deemed to have paid and discharged the entire Indebtedness
represented by such Outstanding Securities and any Coupons appertaining thereto,
which shall thereafter be deemed to be "Outstanding" only for the purposes of
clause (5) of this Section 4.2 and the other Sections of this Indenture referred
to in clauses (i) and (ii) below, and to have satisfied all of its other
obligations under such Securities and any Coupons appertaining thereto and this
Indenture insofar as such Securities and any Coupons appertaining thereto are
concerned (and the Trustee, at the
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expense of the Company, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (i) the rights of Holders of such Outstanding
Securities and any Coupons appertaining thereto to receive, solely from the
trust fund described in clause (4) of this Section 4.2 and as more fully set
forth in such clause, payments in respect of the principal of (and premium, if
any) and interest, if any, on, and Additional Amounts, if any, with respect to,
such Securities and any Coupons appertaining thereto when such payments are due,
and any rights of such Holder to convert such Securities into Common Stock or
exchange such Securities for other securities, (ii) the obligations of the
Company and the Trustee with respect to such Securities under Sections 3.5, 3.6,
10.2 and 10.3 and with respect to the payment of Additional Amounts, if any, on
such Securities as contemplated by Section 10.4 (but only to the extent that the
Additional Amounts payable with respect to such Securities exceed the amount
deposited in respect of such Additional Amounts pursuant to Section 4.2(4)(a)
below), and with respect to any rights to convert such Securities into Common
Stock or exchange such Securities for other securities, (iii) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and (iv) this
Section 4.2. The Company may exercise its option under this Section 4.2(2)
notwithstanding the prior exercise of its option under clause (3) of this
Section 4.2 with respect to such Securities and any Coupons appertaining
thereto.
(3) Upon the Company's exercise of the option to have this Section
4.2(3) apply with respect to any Securities of or within a series, the Company
shall be released from its obligations under Section 10.5, 10.6, or 10.7 and, to
the extent specified pursuant to Section 3.1(19), any other covenant applicable
to such Securities, with respect to such Outstanding Securities and any Coupons
appertaining thereto on and after the date the conditions set forth in clause
(4) of this Section 4.2 are satisfied (hereinafter, "covenant defeasance"), and
such Securities and any Coupons appertaining thereto shall thereafter be deemed
to be not "Outstanding" for the purposes of any direction, waiver, consent or
declaration or Act of Holders (and the consequences of any thereof) in
connection with any such covenant, but shall continue to be deemed "Outstanding"
for all other purposes hereunder. For this purpose, such covenant defeasance
means that, with respect to such Outstanding Securities and any Coupons
appertaining thereto, the Company may omit to comply with, and shall have no
liability in respect of, any term, condition or limitation set forth in any such
Section or such other covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such Section or such other covenant or by
reason of reference in any such Section or such other covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a default or an Event of Default under Section 5.1(4) or 5.1(8) or
otherwise, as the case may be, but, except as specified above, the remainder of
this Indenture and such Securities and Coupons appertaining thereto shall be
unaffected thereby.
(4) The following shall be the conditions to application of clause (2)
or (3) of this Section 4.2 to any Outstanding Securities of or within a series
and any Coupons appertaining thereto:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the
requirements of Section 6.7 who shall agree to comply with the
provisions of this Section 4.2 applicable to it) as trust funds in
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trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Securities and any Coupons appertaining thereto, (1) an
amount in Dollars or in such Foreign Currency in which such Securities
and any Coupons appertaining thereto are then specified as payable at
Stated Maturity, or (2) Government Obligations applicable to such
Securities and Coupons appertaining thereto (determined on the basis of
the Currency in which such Securities and Coupons appertaining thereto
are then specified as payable at Stated Maturity) which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before
the due date of any payment of principal of (and premium, if any) and
interest, if any, on such Securities and any Coupons appertaining
thereto, money in an amount, or (3) a combination thereof, in any case,
in an amount, sufficient, without consideration of any reinvestment of
such principal and interest, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee (or other qualifying trustee)
to pay and discharge, (y) the principal of (and premium, if any) and
interest, if any, on such Outstanding Securities and any Coupons
appertaining thereto at the Stated Maturity of such principal or
installment of principal or premium or interest and (z) any mandatory
sinking fund payments or analogous payments applicable to such
Outstanding Securities and any Coupons appertaining thereto on the days
on which such payments are due and payable in accordance with the terms
of this Indenture and of such Securities and any Coupons appertaining
thereto.
(b) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a
party or by which it is bound.
(c) No Event of Default or event which with notice or lapse of time
or both would become an Event of Default with respect to such Securities
and any Coupons appertaining thereto shall have occurred and be
continuing on the date of establishment of such trust and, with respect
to defeasance only, at any time during the period ending on the 91st day
after the date of such deposit (it being understood that this condition
shall not be deemed satisfied until the expiration of such period).
(d) In the case of an election under clause (2) of this Section 4.2,
the Company shall have delivered to the Trustee an Opinion of Counsel
stating that (i) the Company has received from the Internal Revenue
Service a letter ruling, or there has been published by the Internal
Revenue Service a Revenue Ruling, or (ii) since the date of execution of
this Indenture, there has been a change in the applicable Federal income
tax law, in either case to the effect that, and based thereon such
opinion shall confirm that, the Holders of such Outstanding Securities
and any Coupons appertaining thereto will not recognize income, gain or
loss for Federal income tax purposes as a result of such defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
defeasance had not occurred.
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(e) In the case of an election under clause (3) of this Section 4.2,
the Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Holders of such Outstanding Securities and any
Coupons appertaining thereto will not recognize income, gain or loss for
Federal income tax purposes as a result of such covenant defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
covenant defeasance had not occurred.
(f) The Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that, after the 91st day after the date of
establishment of such trust, all money and Government Obligations (or
other property as may be provided pursuant to Section 3.1) (including
the proceeds thereof) deposited or caused to be deposited with the
Trustee (or other qualifying trustee) pursuant to this clause (4) to be
held in trust will not be subject to any case or proceeding (whether
voluntary or involuntary) in respect of the Company under any Federal or
State bankruptcy, insolvency, reorganization or other similar law, or
any decree or order for relief in respect of the Company issued in
connection therewith.
(g) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance or covenant defeasance under clause (2) or
(3) of this Section 4.2 (as the case may be) have been complied with.
(h) Notwithstanding any other provisions of this Section 4.2(4),
such defeasance or covenant defeasance shall be effected in compliance
with any additional or substitute terms, conditions or limitations which
may be imposed on the Company in connection therewith pursuant to
Section 3.1.
(5) Unless otherwise specified in or pursuant to this Indenture or any
Security, if, after a deposit referred to in Section 4.2(4)(a) has been made,
(a) the Holder of a Security in respect of which such deposit was made is
entitled to, and does, elect pursuant to Section 3.1 or the terms of such
Security to receive payment in a Currency other than that in which the deposit
pursuant to Section 4.2(4)(a) has been made in respect of such Security, or (b)
a Conversion Event occurs in respect of the Foreign Currency in which the
deposit pursuant to Section 4.2(4)(a) has been made, the indebtedness
represented by such Security and any Coupons appertaining thereto shall be
deemed to have been, and will be, fully discharged and satisfied through the
payment of the principal of (and premium, if any), and interest, if any, on, and
Additional Amounts, if any, with respect to, such Security as the same becomes
due out of the proceeds yielded by converting (from time to time as specified
below in the case of any such election) the amount or other property deposited
in respect of such Security into the Currency in which such Security becomes
payable as a result of such election or Conversion Event based on (x) in the
case of payments made pursuant to clause (a) above, the applicable market
exchange rate for such Currency in effect on the second Business Day prior to
each payment date, or (y) with respect to a Conversion Event, the applicable
market exchange rate for such Foreign Currency in effect (as nearly as feasible)
at the time of the Conversion Event. The Company shall pay and indemnify the
Trustee (or other qualifying trustee,
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collectively for purposes of Section 4.3, the "Trustee") against any tax, fee or
other charge, imposed on or assessed against the Government Obligations
deposited pursuant to this Section 4.2 or the principal or interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of such Outstanding Securities and any Coupons
appertaining thereto.
Anything in this Section 4.2 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or Government Obligations (or other property and any proceeds
therefrom) held by it as provided in clause (4) of this Section 4.2 which, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof which would then be required to be deposited to
effect a defeasance or covenant defeasance, as applicable, in accordance with
this Section 4.2.
Section 4.3. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all
money and Government Obligations (or other property as may be provided pursuant
to Section 3.1) (including the proceeds thereof) deposited with the Trustee
pursuant to Section 4.1 or 4.2 in respect of any Outstanding Securities of any
series and any Coupons appertaining thereto shall be held in trust and applied
by the Trustee, in accordance with the provisions of such Securities and any
Coupons appertaining thereto and this Indenture, to the payment, either directly
or through any Paying Agent (including the Company acting as its own Paying
Agent) as the Trustee may determine, to the Holders of such Securities and any
Coupons appertaining thereto of all sums due and to become due thereon in
respect of principal (and premium, if any) and interest and Additional Amounts,
if any; but such money and Government Obligations need not be segregated from
other funds except to the extent required by law.
ARTICLE 5
REMEDIES
Section 5.1. Events of Default.
"Event of Default", wherever used herein with respect to Securities of
any series means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body),
unless such event is specifically deleted or modified in or pursuant to the
supplemental indenture, Board Resolution or Officers' Certificate establishing
the terms of such Series pursuant to this Indenture:
(1) default in the payment of any interest on any Security of such
series, or any Additional Amounts payable with respect thereto, when such
interest becomes or such Additional Amounts become due and payable, and
continuance of such default for a period of 30 days;
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(2) default in the payment of the principal of or any premium on any
Security of such series, or any Additional Amounts payable with respect thereto,
when such principal or premium becomes or such Additional Amounts become due and
payable at their Maturity;
(3) default in the deposit of any sinking fund payment when and as due
by the terms of a Security of such series;
(4) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture or the Securities (other than a covenant or
warranty a default in the performance or the breach of which is elsewhere in
this Indenture specifically dealt with or which has been expressly included in
this Indenture solely for the benefit of a series of Securities other than such
series), and continuance of such default or breach for a period of 60 days after
there has been given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at last 25% in
principal amount of the Outstanding Securities of such series, a written notice
specifying such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default";
(5) if any event of default as defined in any mortgage, indenture or
instrument under which there may be issued, or by which there may be secured or
evidenced, any Debt of the Company or any of its Significant Subsidiaries,
whether such Debt now exists or shall hereafter be created, shall happen and
shall result in Debt in aggregate principal amount in excess of $25,000,000
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable, and such acceleration shall not be rescinded
or annulled within a period of 30 days after there shall have been given, by
registered or certified mail, to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in principal amount of the
outstanding Securities of such series then outstanding a written notice
specifying such default or breaches and requiring it to be remedied and stating
that such notice is a "Notice of Default" or other such notice as prescribed in
this Indenture;
(6) the Company or any of its Significant Subsidiaries shall fail within
60 days to pay, bond or otherwise discharge any uninsured judgment or court
order for the payment of money in excess of $25,000,000, which is not stayed on
appeal or is not otherwise being contested in good faith;
(7) the entry by a court having competent jurisdiction of:
(a) a decree or order for relief in respect of the Company or any of
its Significant Subsidiaries in an involuntary proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law
and such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days;
(b) a decree or order adjudging the Company or any of its
Significant Subsidiaries to be insolvent, or approving a petition
seeking reorganization, arrangement, adjustment or composition of the
Company or any of its Significant Subsidiaries and,
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except in the case of any Regulated Insurance Subsidiary such decree or
order shall remain unstayed and in effect for a period of 60 consecutive
days; or
(c) a final and non-appealable order appointing a custodian,
receiver, liquidator, assignee, trustee or other similar official of the
Company or any of its Significant Subsidiaries or of any substantial
part of the property of the Company or any of its Significant
Subsidiaries or ordering the winding up or liquidation of the affairs of
the Company;
(8) the commencement by the Company or any of its Significant
Subsidiaries of a voluntary proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law or of a voluntary proceeding
seeking to be adjudicated insolvent or the consent by the Company or any of its
Significant Subsidiaries to the entry of a decree or order for relief in an
involuntary proceeding under any applicable bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any insolvency
proceedings against it, or the filing by the Company or any of its Significant
Subsidiaries of a petition or answer or consent seeking reorganization,
arrangement, adjustment or composition of the Company or any of its Significant
Subsidiaries, as the case may be, or relief under any applicable law, or the
consent by the Company or any of its Significant Subsidiaries to the filing of
such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee or similar official of the Company or
any of its Significant Subsidiaries, as the case may be, or any substantial part
of the property of the Company, or any of its Significant Subsidiaries, as the
case may be, or the making by the Company or any of its Significant Subsidiaries
of an assignment for the benefit of creditors, or the taking of corporate action
by the Company or any of its Significant Subsidiaries in furtherance of any such
action; or
(9) any other Event of Default provided in or pursuant to this Indenture
with respect to Securities of such series.
Section 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any series at the
time Outstanding (other than an Event of Default with respect to the Company
specified in clause (7) or (8) of Section 5.1) occurs and is continuing, then
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities of such series may declare the principal of all the
Securities of such series, or such lesser amount as may be provided for in the
Securities of such series, to be due and payable immediately, by a notice in
writing to the Company (and to the Trustee if given by the Holders), and upon
any such declaration such principal or such lesser amount shall become
immediately due and payable.
If an Event of Default with respect to the Company specified in clause
(7) or (8) of Section 5.1 occurs, all unpaid principal of and accrued interest
on the Outstanding Securities of that series (or such lesser amount as may be
provided for in the Securities of such series) shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder of any Security of that series.
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At any time after a declaration of acceleration with respect to the
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of not less than a majority in principal amount of
the Outstanding Securities of such series, by written notice to the Company and
the Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum of money
sufficient to pay
(a) all overdue installments of any interest on and Additional
Amounts with respect to all Securities of such series and any Coupon
appertaining thereto,
(b) the principal of and any premium on any Securities of such
series which have become due otherwise than by such declaration of
acceleration and interest thereon and any Additional Amounts with
respect thereto at the rate or rates borne by or provided for in such
Securities,
(c) to the extent that payment of such interest or Additional
Amounts is lawful, interest upon overdue installments of any interest
and Additional Amounts at the rate or rates borne by or provided for in
such Securities, and
(d) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel and all other amounts due the Trustee
under Section 6.6; and
(2) all Events of Default with respect to Securities of such series,
other than the non-payment of the principal of, any premium and interest on, and
any Additional Amounts with respect to Securities of such series which shall
have become due solely by such declaration of acceleration, shall have been
cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(1) default is made in the payment of any installment of interest on or
any Additional Amounts with respect to any Security or any Coupon appertaining
thereto when such interest or Additional Amounts shall have become due and
payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of or any premium on
any Security or any Additional Amounts with respect thereto at their Maturity,
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the Company shall, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities and any Coupons appertaining thereto,
the whole amount of money then due and payable with respect to such Securities
and any Coupons appertaining thereto, with interest upon the overdue principal,
any premium and, to the extent that payment of such interest shall be legally
enforceable, upon any overdue installments of interest and Additional Amounts at
the rate or rates borne by or provided for in such Securities, and, in addition
thereto, such further amount of money as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and all other
amounts due to the Trustee under Section 6.6.
If the Company fails to pay the money it is required to pay the Trustee
pursuant to the preceding paragraph forthwith upon the demand of the Trustee,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the money so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities and any Coupons
appertaining thereto and collect the monies adjudged or decreed to be payable in
the manner provided by law out of the property of the Company or any other
obligor upon such Securities and any Coupons appertaining thereto, wherever
situated.
If an Event of Default with respect to Securities of any series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities of such series
and any Coupons appertaining thereto by such appropriate judicial proceedings as
the Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or such Securities or in aid of the exercise of any power granted
herein or therein, or to enforce any other proper remedy.
Section 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities of any series or the property of the Company or such other obligor or
their creditors, the Trustee (irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of any overdue principal, premium, interest or
Additional Amounts) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(1) to file and prove a claim for the whole amount, or such lesser
amount as may be provided for in the Securities of any applicable series, of the
principal and any premium, interest and Additional Amounts owing and unpaid in
respect of the Securities and any Coupons appertaining thereto and to file such
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
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expenses, disbursements and advances of the Trustee, its agents or counsel) and
of the Holders of Securities or any Coupons appertaining thereto allowed in such
judicial proceeding, and
(2) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder of Securities or any Coupons to make such payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders of Securities or any Coupons, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel and any other amounts due the
Trustee under Section 6.6.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
or any Coupon any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or Coupons or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder of a
Security or any Coupon in any such proceeding.
Section 5.5. Trustee May Enforce Claims without Possession of Securities
or Coupons.
All rights of action and claims under this Indenture or any of the
Securities or Coupons may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or Coupons or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery or judgment, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, shall be for the ratable benefit of each and every Holder of the
Securities or Coupons in respect of which such judgment has been recovered.
Section 5.6. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order with respect to the Securities of such series, at
the date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal, or any premium, interest or Additional Amounts,
upon presentation of the Securities or Coupons of the applicable series, or
both, as the case may be, and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 6.6;
SECOND: To the payment of the amounts then due and unpaid upon the
Securities and any Coupons of the applicable series for principal and
any premium, interest and Additional Amounts in respect of which or for
the benefit of which such money has been
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collected, ratably, without preference or priority of any kind,
according to the aggregate amounts due and payable on such Securities
and Coupons for principal and any premium, interest and Additional
Amounts, respectively;
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
Section 5.7. Limitations on Suits.
No Holder of any Security of any series or any Coupons appertaining
thereto shall have any right to institute any proceeding, judicial or otherwise,
with respect to this Indenture, or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of such series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of such series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee such indemnity as
is reasonably satisfactory to it against the costs, expenses and liabilities to
be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of such series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture or any Security to affect, disturb or prejudice the rights of
any other such Holders or Holders of Securities of any other series, or to
obtain or to seek to obtain priority or preference over any other Holders or to
enforce any right under this Indenture, except in the manner herein provided and
for the equal and ratable benefit of all such Holders.
Section 5.8. Unconditional Right of Holders to Receive Principal and any
Premium, Interest and Additional Amounts.
Notwithstanding any other provision in this Indenture, the Holder of any
Security or Coupon shall have the right, which is absolute and unconditional, to
receive payment of the principal of, any premium and (subject to Sections 3.5
and 3.7) interest on, and any Additional Amounts with respect to such Security
or payment of such Coupon, as the case may be, on the respective Stated Maturity
or Maturities therefor specified in such Security or Coupon (or, in the
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case of redemption, on the Redemption Date or, in the case of repayment at the
option of such Holder if provided in or pursuant to this Indenture, on the date
such repayment is due) and to institute suit for the enforcement of any such
payment, and such right shall not be impaired without the consent of such
Holder.
Section 5.9. Restoration of Rights and Remedies.
If the Trustee or any Holder of a Security or a Coupon has instituted
any proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Company, the Trustee and each such Holder shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and each such Holder shall continue as though no such proceeding had
been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities or Coupons in the last
paragraph of Section 3.6, no right or remedy herein conferred upon or reserved
to the Trustee or to each and every Holder of a Security or a Coupon is intended
to be exclusive of any other right or remedy, and every right and remedy, to the
extent permitted by law, shall be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not, to the extent permitted by law, prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security or
Coupon to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
or by law to the Trustee or to any Holder of a Security or a Coupon may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by such Holder, as the case may be.
Section 5.12. Control by Holders of Securities.
The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to the
Securities of such series and any Coupons appertaining thereto, provided that
(1) such direction shall not be in conflict with any rule of law or with
this Indenture or with the Securities of such series,
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(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) such direction is not unduly prejudicial to the rights of the other
Holders of Securities of such series not joining in such action.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series on behalf of the Holders of all the
Securities of such series and any Coupons appertaining thereto may waive any
past default hereunder with respect to such series and its consequences, except
a default
(1) in the payment of the principal of, any premium or interest on, or
any Additional Amounts with respect to, any Security of such series or any
Coupons appertaining thereto, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 5.14. Waiver of Usury, Stay or Extension Laws.
The Company covenants that (to the extent that it may lawfully do so) it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company expressly waives (to the
extent that it may lawfully do so) all benefit or advantage of any such law and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
Section 5.15. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of any
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit having due regard to the merits and good
faith of the claims or defenses made by such party litigant; but the provisions
of this Section 5.15 shall not apply to any suit instituted by the Trustee,
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to any suit instituted by any Holder, or group of Holders, holding in the
aggregate more than 10% in principal amount of Outstanding Securities of any
series, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest, if any, on or
Additional Amounts, if any, with respect to any Security on or after the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on or after the Redemption Date, and, in the case of repayment, on
or after the date for repayment) or for the enforcement of the right, if any, to
convert or exchange any Security into Common Stock or other securities in
accordance with its terms.
ARTICLE 6
THE TRUSTEE
Section 6.1. Certain Rights of Trustee.
Subject to Sections 315(a) through 315(d) of the Trust Indenture Act:
(1) the Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, coupon or other paper or document reasonably believed by it to
be genuine and to have been signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or a Company Order (in each case,
other than delivery of any Security, together with any Coupons appertaining
thereto, to the Trustee for authentication and delivery pursuant to Section 3.3
which shall be sufficiently evidenced as provided therein) and any resolution of
the Board of Directors may be sufficiently evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
shall be herein specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by or pursuant to this Indenture at the request or
direction of any of the Holders of Securities of any series or any Coupons
appertaining thereto pursuant to this Indenture, unless such Holders shall have
offered to the Trustee such security or indemnity as is reasonably satisfactory
to it against the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction;
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(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
coupon or other paper or document, but the Trustee, in its discretion, may but
shall not be obligated to make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine, during
business hours and upon reasonable notice, the books, records and premises of
the Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(8) the Trustee shall not be liable for any action taken or error of
judgment made in good faith by a Responsible Officer or Responsible Officers of
the Trustee, unless it shall be proved that the Trustee was negligent, acted in
bad faith or engaged in willful misconduct;
(9) the Authenticating Agent, Paying Agent, and Security Registrar shall
have the same protections as the Trustee set forth hereunder; and
(10) the Trustee shall not be liable with respect to any action taken,
suffered or omitted to be taken by it in good faith in accordance with an Act of
the Holders hereunder, and, to the extent not so provided herein, with respect
to any act requiring the Trustee to exercise its own discretion, relating to the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee, under
this Indenture or any Securities, unless it shall be proved that, in connection
with any such action taken, suffered or omitted or any such act, the Trustee was
negligent, acted in bad faith or engaged in willful misconduct.
Section 6.2. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder with
respect to the Securities of any series, the Trustee shall transmit by mail to
all Holders of Securities of such series entitled to receive reports pursuant to
Section 7.3(3), notice of such default hereunder actually known to a Responsible
Officer of the Trustee, unless such default shall have been cured or waived;
provided, however, that, except in the case of a default in the payment of the
principal of (or premium, if any), or interest, if any, on, or Additional
Amounts or any sinking fund or purchase fund installment with respect to, any
Security of such series, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determine that the withholding of such notice is in the best interest of
the Holders of Securities and Coupons of such series; and provided, further,
that in the case of any default of the character specified in Section 5.1(5)
with respect to Securities of such series, no such notice to Holders shall be
given until at least 30 days after the occurrence thereof. For the purpose of
this Section, the term "default"
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means any event which is, or after notice or lapse of time or both would become,
an Event of Default with respect to Securities of such series.
Section 6.3. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificate of authentication, and in any Coupons shall be taken as
the statements of the Company and neither the Trustee nor any Authenticating
Agent assumes any responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities or the Coupons, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Securities
and perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1, if necessary, supplied to the Company are
true and accurate, subject to the qualifications set forth therein. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of the Securities or the proceeds thereof.
Section 6.4. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other Person that may be an agent of the Trustee or the
Company, in its individual or any other capacity, may become the owner or
pledgee of Securities or Coupons and, subject to Sections 310(b) and 311 of the
Trust Indenture Act, may otherwise deal with the Company with the same rights it
would have if it were not the Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other Person.
Section 6.5. Money Held in Trust.
Except as provided in Section 4.3 and Section 10.3, money held by the
Trustee in trust hereunder need not be segregated from other funds except to the
extent required by law and shall be held uninvested. The Trustee shall be under
no liability for interest on any money received by it hereunder except as
otherwise agreed to in writing with the Company.
Section 6.6. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by the Trustee hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture or arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such
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expense, disbursement or advance as may be attributable to the Trustee's
negligence or bad faith; and
(3) to indemnify the Trustee and its agents, officers, directors and
employees for, and to hold them harmless against, any loss, liability or expense
incurred without negligence or bad faith on their part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending themselves against any
claim or liability in connection with the exercise or performance of any of
their powers or duties hereunder, except to the extent that any such loss,
liability or expense was due to the Trustee's negligence or bad faith.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Securities of any
series upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of, and premium or
interest on or any Additional Amounts with respect to Securities or any Coupons
appertaining thereto.
To the extent permitted by law, any compensation or expense incurred by
the Trustee after a default specified in or pursuant to Section 5.1 is intended
to constitute an expense of administration under any then applicable bankruptcy
or insolvency law. "Trustee" for purposes of this Section 6.6 shall include any
predecessor Trustee but the negligence or bad faith of any Trustee shall not
affect the rights of any other Trustee under this Section 6.6.
The provisions of this Section 6.6 shall survive the satisfaction and
discharge of this Indenture or the earlier resignation or removal of the Trustee
and shall apply with equal force and effect to the Trustee in its capacity as
Authenticating Agent, Paying Agent or Security Registrar.
Section 6.7. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder that is a Corporation
organized and doing business under the laws of the United States of America, any
state thereof or the District of Columbia, that is eligible under Section
310(a)(1) of the Trust Indenture Act to act as trustee under an indenture
qualified under the Trust Indenture Act and that has a combined capital and
surplus (computed in accordance with Section 310(a)(2) of the Trust Indenture
Act) of at least $50,000,000, and that is subject to supervision or examination
by Federal or state authority. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
Section 6.8. Resignation and Removal; Appointment of Successor.
(1) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee pursuant to Section 6.9.
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(2) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 6.9 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to such
series.
(3) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series, delivered to the Trustee and the
Company.
(4) If at any time:
(a) the Trustee shall fail to comply with the obligations imposed
upon it under Section 310(b) of the Trust Indenture Act with respect to
Securities of any series after written request therefor by the Company
or any Holder of a Security of such series who has been a bona fide
Holder of a Security of such series for at least six months, or
(b) the Trustee shall cease to be eligible under Section 6.7 and
shall fail to resign after written request therefor by the Company or
any such Holder, or
(c) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by or pursuant to a Board Resolution,
may remove the Trustee with respect to all Securities or the Securities of such
series, or (ii) subject to Section 315(e) of the Trust Indenture Act, any Holder
of a Security who has been a bona fide Holder of a Security of such series for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee with
respect to all Securities of such series and the appointment of a successor
Trustee or Trustees.
(5) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, with
respect to the Securities of one or more series, the Company, by or pursuant to
a Board Resolution, shall promptly appoint a successor Trustee or Trustees with
respect to the Securities of such series (it being understood that any such
successor Trustee may be appointed with respect to the Securities of one or more
or all of such series and that at any time there shall be only one Trustee with
respect to the Securities of any particular series) and shall comply with the
applicable requirements of Section 6.9. If, within one year after such
resignation, removal or incapacity, or the occurrence of such vacancy, a
successor Trustee with respect to the Securities of any series shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment in accordance with the applicable requirements of Section
6.9, become the successor Trustee with respect to the Securities of such series
and to that extent
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supersede the successor Trustee appointed by the Company. If no successor
Trustee with respect to the Securities of any series shall have been so
appointed by the Company or the Holders of Securities and accepted appointment
in the manner required by Section 6.9, any Holder of a Security who has been a
bona fide Holder of a Security of such series for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Securities of such series.
(6) The Company shall give notice of each resignation and each removal
of the Trustee with respect to the Securities of any series and each appointment
of a successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Registered Securities, if any, of such series as their names and
addresses appear in the Security Register and, if Securities of such series are
issued as Bearer Securities, by publishing notice of such event once in an
Authorized Newspaper in each Place of Payment located outside the United States.
Each notice shall include the name of the successor Trustee with respect to the
Securities of such series and the address of its Corporate Trust Office.
(7) In no event shall any retiring Trustee be liable for the acts or
omissions of any successor Trustee hereunder.
Section 6.9. Acceptance of Appointment by Successor.
(1) Upon the appointment hereunder of any successor Trustee with respect
to all Securities, such successor Trustee so appointed shall execute,
acknowledge and deliver to the Company and the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties hereunder of the retiring Trustee; but, on the request
of the Company or such successor Trustee, such retiring Trustee, upon payment of
its charges, shall execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and,
subject to Section 10.3, shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee
hereunder, subject nevertheless to its claim, if any, provided for in Section
6.6.
(2) Upon the appointment hereunder of any successor Trustee with respect
to the Securities of one or more (but not all) series, the Company, the retiring
Trustee and such successor Trustee shall execute and deliver an indenture
supplemental hereto wherein each successor Trustee shall accept such appointment
and which (1) shall contain such provisions as shall be necessary or desirable
to transfer and confirm to, and to vest in, such successor Trustee all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates, (2) if the retiring Trustee is not retiring with respect to all
Securities, shall contain such provisions as shall be deemed necessary or
desirable to confirm that all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series as to
which the retiring Trustee is not retiring shall continue to be vested in the
retiring Trustee, and (3) shall add to or change any of the provisions of this
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Indenture as shall be necessary to provide for or facilitate the administration
of the trusts hereunder by more than one Trustee, it being understood that
nothing herein or in such supplemental indenture shall constitute such Trustees
co-trustees of the same trust, that each such Trustee shall be trustee of a
trust or trusts hereunder separate and apart from any trust or trusts hereunder
administered by any other such Trustee and that no Trustee shall be responsible
for any notice given to, or received by, or any act or failure to act on the
part of any other Trustee hereunder, and, upon the execution and delivery of
such supplemental indenture, the resignation or removal of the retiring Trustee
shall become effective to the extent provided therein, such retiring Trustee
shall have no further responsibility for the exercise of rights and powers or
for the performance of the duties and obligations vested in the Trustee under
this Indenture with respect to the Securities of that or those series to which
the appointment of such successor Trustee relates other than as hereinafter
expressly set forth, and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates; but, on
request of the Company or such successor Trustee, such retiring Trustee, upon
payment of its charges with respect to the Securities of that or those series to
which the appointment of such successor Trustee relates and subject to Section
10.3 shall duly assign, transfer and deliver to such successor Trustee, to the
extent contemplated by such supplemental indenture, the property and money held
by such retiring Trustee hereunder with respect to the Securities of that or
those series to which the appointment of such successor Trustee relates, subject
to its claim, if any, provided for in Section 6.6.
(3) Upon request of any Person appointed hereunder as a successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts referred to in paragraph (1) or (2) of this Section, as the
case may be.
(4) No Person shall accept its appointment hereunder as a successor
Trustee unless at the time of such acceptance such successor Person shall be
qualified and eligible under this Article.
Section 6.10. Merger, Conversion, Consolidation or Succession to
Business.
Any Corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any Corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
Corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated
but not delivered by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
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Section 6.11. Appointment of Authenticating Agent.
The Trustee may appoint one or more Authenticating Agents acceptable to
the Company with respect to one or more series of Securities which shall be
authorized to act on behalf of the Trustee to authenticate Securities of that or
those series issued upon original issue, exchange, registration of transfer,
partial redemption or partial repayment or pursuant to Section 3.6, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent.
Each Authenticating Agent must be acceptable to the Company and, except
as provided in or pursuant to this Indenture, shall at all times be a
corporation that would be permitted by the Trust Indenture Act to act as trustee
under an indenture qualified under the Trust Indenture Act, is authorized under
applicable law and by its charter to act as an Authenticating Agent and has a
combined capital and surplus (computed in accordance with Section 310(a)(2) of
the Trust Indenture Act) of at least $50,000,000. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect specified in this Section.
Any Corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any Corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any Corporation succeeding to all or substantially all of
the corporate agency or corporate trust business of an Authenticating Agent,
shall be the successor of such Authenticating Agent hereunder, provided such
Corporation shall be otherwise eligible under this Section, without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall (i) mail written notice
of such appointment by first-class mail, postage prepaid, to all Holders of
Registered Securities, if any, of the series with respect to which such
Authenticating Agent shall serve, as their names and addresses appear in the
Security Register, and (ii) if Securities of the series are issued as Bearer
Securities, publish notice of such appointment at least once in an Authorized
Newspaper in the place where such successor Authenticating Agent has its
principal office if such office is located outside the United States. Any
successor Authenticating Agent, upon acceptance of its appointment hereunder,
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if
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originally named as an Authenticating Agent. No successor Authenticating Agent
shall be appointed unless eligible under the provisions of this Section.
The Company agrees to pay each Authenticating Agent from time to time
reasonable compensation for its services under this Section. If the Trustee
makes such payments, it shall be entitled to be reimbursed for such payments,
subject to the provisions of Section 6.6.
The provisions of Sections 3.8, 6.3 and 6.4 shall be applicable to each
Authenticating Agent.
If an Authenticating Agent is appointed with respect to one or more
series of Securities pursuant to this Section, the Securities of such series may
have endorsed thereon, in addition to or in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
This is one of the Securities of the series designated
herein referred to in the within-mentioned Indenture.
[NAME OF TRUSTEE],
as Trustee
By
-----------------------------------------
as Authenticating Agent
By
-----------------------------------------
Authorized Officer
If all of the Securities of any series may not be originally issued at
one time, and if the Trustee does not have an office capable of authenticating
Securities upon original issuance located in a Place of Payment where the
Company wishes to have Securities of such series authenticated upon original
issuance, the Trustee, if so requested in writing (which writing need not be
accompanied by or contained in an Officers' Certificate by the Company), shall
appoint in accordance with this Section an Authenticating Agent having an office
in a Place of Payment designated by the Company with respect to such series of
Securities.
ARTICLE 7
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of
Holders.
In accordance with Section 312(a) of the Trust Indenture Act, the
Company shall furnish or cause to be furnished to the Trustee
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(1) semi-annually with respect to Securities of each series not later
than March 1 and September 1 of the year or upon such other dates as are set
forth in or pursuant to the Board Resolution or indenture supplemental hereto
authorizing such series, a list, in each case in such form as the Trustee may
reasonably require, of the names and addresses of Holders as of the applicable
date, and
(2) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished,
provided, however, that so long as the Trustee is the Security Registrar no such
list shall be required to be furnished.
Section 7.2. Preservation of Information; Communications to Holders.
The Trustee shall comply with the obligations imposed upon it pursuant
to Section 312 of the Trust Indenture Act.
Every Holder of Securities or Coupons, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company, the
Trustee, any Paying Agent or any Security Registrar shall be held accountable by
reason of the disclosure of any such information as to the names and addresses
of the Holders of Securities in accordance with Section 312(c) of the Trust
Indenture Act, regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of mailing any
material pursuant to a request made under Section 312(b) of the Trust Indenture
Act.
Section 7.3. Reports by Trustee.
(1) Within 60 days after March 1 of each year commencing with the first
March 1 following the first issuance of Securities pursuant to Section 3.1, if
required by Section 313(a) of the Trust Indenture Act, the Trustee shall
transmit, pursuant to Section 313(c) of the Trust Indenture Act, a brief report
dated as of such March 1 with respect to any of the events specified in said
Section 313(a) which may have occurred since the later of the immediately
preceding March 1 and the date of this Indenture.
(2) The Trustee shall transmit the reports required by Section 313(a) of
the Trust Indenture Act at the times specified therein.
(3) Reports pursuant to this Section shall be transmitted in the manner
and to the Persons required by Sections 313(c) and 313(d) of the Trust Indenture
Act.
Section 7.4. Reports by Company; Rule 144A Information.
The Company, pursuant to Section 314(a) of the Trust Indenture Act,
shall:
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(1) file with the Trustee, within 15 days after the Company is required
to file the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) which the Company may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934,
as amended; or, if the Company is not required to file information, documents or
reports pursuant to either of said Sections, then it shall file with the Trustee
and the Commission, in accordance with rules and regulations prescribed from
time to time by the Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant to Section 13
of the Securities Exchange Act of 1934, as amended, in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company,
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations;
(3) transmit within 30 days after the filing thereof with the Trustee,
in the manner and to the extent provided in Section 313(c) of the Trust
Indenture Act, such summaries of any information, documents and reports required
to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as
may be required by rules and regulations prescribed from time to time by the
Commission; and
(4) unless the Company furnishes information to the Commission pursuant
to Section 13 or 15(d) of the Exchange Act, the Company shall promptly furnish
or cause to be furnished such information as is specified pursuant to Rule
144A(d)(4) under the Securities Act (or any successor provision thereto) to such
Holder or to a prospective purchaser of a Security who is designated by such
Holder and is a qualified institutional buyer (as defined in Rule 144A under the
Securities Act), upon the request or such Holder or prospective purchaser, in
order to permit compliance by such Holder with Rule 144A under the Securities
Act.
ARTICLE 8
CONSOLIDATION, MERGER AND SALES
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person
(whether or not affiliated with the Company), or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to any
other Person (whether or not affiliated with the Company), and the Company shall
not permit any other Person (whether or not affiliated with the Company) to
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to the
Company, unless:
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(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance or transfer, or which leases, the properties and assets of the
Company as an entirety or substantially as an entirety shall be a Corporation
organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall expressly assume, by an indenture
(or indentures, if at such time there is more than one Trustee) supplemental
hereto, executed by the successor Person and delivered to the Trustee the due
and punctual payment of the principal of, any premium and interest on and any
Additional Amounts with respect to all the Securities and the performance of
every obligation in this Indenture and the Outstanding Securities on the part of
the Company to be performed or observed and shall provide for conversion or
exchange rights in accordance with the provisions of the Securities of any
series that are convertible or exchangeable into Common Stock or other
securities;
(2) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or a Subsidiary as a
result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default or event which,
after notice or lapse of time, or both, would become an Event of Default, shall
have occurred and be continuing; and
(3) either the Company or the successor Person shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with this Article and that all conditions
precedent herein provided for relating to such transaction have been complied
with.
Section 8.2. Successor Person Substituted for Company.
Upon any consolidation by the Company with or merger of the Company into
any other Person or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety to any Person in accordance
with Section 8.1, the successor Person formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; and thereafter, except in
the case of a lease, the predecessor Person shall be released from all
obligations and covenants under this Indenture, the Securities and the Coupons.
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ARTICLE 9
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of Holders.
Without the consent of any Holders of Securities or Coupons, the Company
(when authorized by or pursuant to a Board Resolution) and the Trustee, at any
time and from time to time, may enter into one or more indentures supplemental
hereto, for any of the following purposes:
(1) to evidence the succession of another Person to the Company, and the
assumption by any such successor of the covenants of the Company contained
herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (as shall be specified in such
supplemental indenture or indentures) or to surrender any right or power herein
conferred upon the Company; or
(3) to add to or change any of the provisions of this Indenture to
provide that Bearer Securities may be registrable as to principal, to change or
eliminate any restrictions on the payment of principal of, any premium or
interest on or any Additional Amounts with respect to Securities, to permit
Bearer Securities to be issued in exchange for Registered Securities, to permit
Bearer Securities to be exchanged for Bearer Securities of other authorized
denominations or to permit or facilitate the issuance of Securities in
uncertificated form, provided any such action shall not adversely affect the
interests of the Holders of Outstanding Securities of any series or any Coupons
appertaining thereto in any material respect; or
(4) to establish the form or terms of Securities of any series and any
Coupons appertaining thereto as permitted by Sections 2.1 and 3.1; or
(5) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities of one or more series and
to add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section 6.9;
or
(6) to cure any ambiguity or to correct or supplement any provision
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions with respect to matters or questions arising
under this Indenture which shall not adversely affect the interests of the
Holders of Securities of any series then Outstanding or any Coupons appertaining
thereto in any material respect; or
(7) to add to, delete from or revise the conditions, limitations and
restrictions on the authorized amount, terms or purposes of issue,
authentication and delivery of Securities, as herein set forth; or
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(8) to add any additional Events of Default with respect to all or any
series of Securities (as shall be specified in such supplemental indenture); or
(9) to supplement any of the provisions of this Indenture to such extent
as shall be necessary to permit or facilitate the defeasance and discharge of
any series of Securities pursuant to Article Four, provided that any such action
shall not adversely affect the interests of any Holder of an Outstanding
Security of such series and any Coupons appertaining thereto or any other
Outstanding Security or Coupon in any material respect; or
(10) to secure the Securities pursuant to Section 10.5, 10.6 or
otherwise; or
(11) to make provisions with respect to conversion or exchange rights of
Holders of Securities of any series; or
(12) to amend or supplement any provision contained herein or in any
supplemental indenture, provided that no such amendment or supplement shall
materially adversely affect the interests of the Holders of any Securities then
Outstanding.
Section 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company (when authorized by or pursuant to a Company's Board
Resolution) and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of Securities of such series
under this Indenture or of the Securities of such series; provided, however,
that no such supplemental indenture, without the consent of the Holder of each
Outstanding Security affected thereby, shall
(1) change the Stated Maturity of the principal of, or any premium or
installment of interest on or any Additional Amounts with respect to, any
Security, or reduce the principal amount thereof or the rate (or modify the
calculation of such rate) of interest thereon or any Additional Amounts with
respect thereto, or any premium payable upon the redemption thereof or
otherwise, or change the obligation of the Company to pay Additional Amounts
pursuant to Section 10.4 (except as contemplated by Section 8.1(1) and permitted
by Section 9.1(1)), or reduce the amount of the principal of an Original Issue
Discount Security that would be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2 or the amount
thereof provable in bankruptcy pursuant to Section 5.4, change the redemption
provisions or adversely affect the right of repayment at the option of any
Holder as contemplated by Article Thirteen, or change the Place of Payment,
Currency in which the principal of, any premium or interest on, or any
Additional Amounts with respect to any Security is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption Date
or, in the case of repayment at the option of the Holder, on or after the date
for repayment), or
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(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
reduce the requirements of Section 15.4 for quorum or voting, or
(3) modify any of the provisions of this Section, Section 5.13 or
Section 10.9, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby, or
(4) make any change that adversely affects the right to convert or
exchange any Security into or for Common Stock or other securities in accordance
with its terms.
A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture which shall have been included expressly and
solely for the benefit of one or more particular series of Securities, or which
modifies the rights of the Holders of Securities of such series with respect to
such covenant or other provision, shall be deemed not to affect the rights under
this Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders of Securities under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Section 9.3. Execution of Supplemental Indentures.
As a condition to executing, or accepting the additional trusts created
by, any supplemental indenture permitted by this Article or the modifications
thereby of the trust created by this Indenture, the Trustee shall be provided,
and (subject to Section 315 of the Trust Indenture Act) shall be fully protected
in relying upon, an Opinion of Counsel stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture and an
Officers' Certificate stating that all conditions precedent to the execution of
such supplemental indenture have been fulfilled. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of a Security theretofore or thereafter authenticated and delivered hereunder
and of any Coupon appertaining thereto shall be bound thereby.
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Section 9.5. Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution
of any supplemental indenture pursuant to this Article may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series.
Section 9.6. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.7. Notice of Supplemental Indenture.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to Section 9.2, the Company shall transmit to
the Holders of Outstanding Securities of any series affected thereby a notice
setting forth the substance of such supplemental indenture.
ARTICLE 10
COVENANTS
Section 10.1. Payment of Principal, any Premium, Interest and Additional
Amounts.
The Company covenants and agrees for the benefit of the Holders of the
Securities of each series that it will duly and punctually pay the principal of,
any premium and interest on and any Additional Amounts with respect to the
Securities of such series in accordance with the terms thereof, any Coupons
appertaining thereto and this Indenture. Any interest due on any Bearer Security
on or before the Maturity thereof, and any Additional Amounts payable with
respect to such interest, shall be payable only upon presentation and surrender
of the Coupons appertaining thereto for such interest as they severally mature.
Section 10.2. Maintenance of Office or Agency.
The Company shall maintain in each Place of Payment for any series of
Securities an Office or Agency where Securities of such series (but not Bearer
Securities, except as otherwise provided below, unless such Place of Payment is
located outside the United States) may be presented or surrendered for payment,
where Securities of such series may be surrendered for registration of transfer
or exchange, where Securities of such series that are convertible or
exchangeable may be surrendered for conversion or exchange, and where notices
and demands to or upon the Company in respect of the Securities of such series
relating thereto and this Indenture
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may be served. If Securities of a series are issuable as Bearer Securities, the
Company shall maintain, subject to any laws or regulations applicable thereto,
an Office or Agency in a Place of Payment for such series which is located
outside the United States where Securities of such series and any Coupons
appertaining thereto may be presented and surrendered for payment; provided,
however, that if the Securities of such series are listed on The Stock Exchange
of the United Kingdom and the Republic of Ireland or the Luxembourg Stock
Exchange or any other stock exchange located outside the United States and such
stock exchange shall so require, the Company shall maintain a Paying Agent in
London, Luxembourg or any other required city located outside the United States,
as the case may be, so long as the Securities of such series are listed on such
exchange. The Company will give prompt written notice to the Trustee of the
location, and any change in the location, of such Office or Agency. If at any
time the Company shall fail to maintain any such required Office or Agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, except that Bearer Securities of such series and any
Coupons appertaining thereto may be presented and surrendered for payment at the
place specified for the purpose with respect to such Securities as provided in
or pursuant to this Indenture, and the Company hereby appoints the Trustee as
its agent to receive all such presentations, surrenders, notices and demands.
Except as otherwise provided in or pursuant to this Indenture, no
payment of principal, premium, interest or Additional Amounts with respect to
Bearer Securities shall be made at any Office or Agency in the United States or
by check mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States; provided, however, if
amounts owing with respect to any Bearer Securities shall be payable in Dollars,
payment of principal of, any premium or interest on and any Additional Amounts
with respect to any such Security may be made at the Corporate Trust Office of
the Trustee or any Office or Agency designated by the Company in the Borough of
Manhattan, The City of New York, if (but only if) payment of the full amount of
such principal, premium, interest or Additional Amounts at all offices outside
the United States maintained for such purpose by the Company in accordance with
this Indenture is illegal or effectively precluded by exchange controls or other
similar restrictions.
The Company may also from time to time designate one or more other
Offices or Agencies where the Securities of one or more series may be presented
or surrendered for any or all such purposes and may from time to time rescind
such designations; provided, however, that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an Office
or Agency in each Place of Payment for Securities of any series for such
purposes. The Company shall give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other Office or Agency. Unless otherwise provided in or pursuant to this
Indenture, the Company hereby designates as the Place of Payment for each series
of Securities the Borough of Manhattan, The City of New York, and initially
appoints the corporate trust office of the Trustee located at 14 Wall Street,
8th Floor, New York, New York 10005, as the Office or Agency of the Company in
the Borough of Manhattan, The City of New York for such purpose. The Company may
subsequently appoint a different Office or Agency in the Borough of Manhattan,
The City of New York for the Securities of any series.
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Section 10.3. Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with
respect to any series of Securities, it shall, on or before each due date of the
principal of, any premium or interest on or Additional Amounts with respect to
any of the Securities of such series, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum in the currency or currencies,
currency unit or units or composite currency or currencies in which the
Securities of such series are payable (except as otherwise specified pursuant to
Section 3.1 for the Securities of such series) sufficient to pay the principal
or any premium, interest or Additional Amounts so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
shall promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series
of Securities, it shall, on or prior to each due date of the principal of, any
premium or interest on or any Additional Amounts with respect to any Securities
of such series, deposit with any Paying Agent a sum (in the currency or
currencies, currency unit or units or composite currency or currencies described
in the preceding paragraph) sufficient to pay the principal or any premium,
interest or Additional Amounts so becoming due, such sum to be held in trust for
the benefit of the Persons entitled thereto, and (unless such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of its action or
failure so to act.
The Company shall cause each Paying Agent for any series of Securities
other than the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent shall:
(1) hold all sums held by it for the payment of the principal of, any
premium or interest on or any Additional Amounts with respect to Securities of
such series in trust for the benefit of the Persons entitled thereto until such
sums shall be paid to such Persons or otherwise disposed of as provided in or
pursuant to this Indenture;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities of such series) in the making of any payment of
principal, any premium or interest on or any Additional Amounts with respect to
the Securities of such series; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same terms as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
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Except as otherwise provided herein or pursuant hereto, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of, any premium or interest on or any
Additional Amounts with respect to any Security of any series or any Coupon
appertaining thereto and remaining unclaimed for two years after such principal
or any such premium or interest or any such Additional Amounts shall have become
due and payable shall be paid to the Company on Company Request, or (if then
held by the Company) shall be discharged from such trust; and the Holder of such
Security or any Coupon appertaining thereto shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in an Authorized Newspaper in each Place of Payment for such
series or to be mailed to Holders of Registered Securities of such series, or
both, notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication
or mailing nor shall it be later than two years after such principal and any
premium or interest or Additional Amounts shall have become due and payable, any
unclaimed balance of such money then remaining will be repaid to the Company.
Section 10.4. Additional Amounts.
If any Securities of a series provide for the payment of Additional
Amounts, the Company agrees to pay to the Holder of any such Security or any
Coupon appertaining thereto Additional Amounts as provided in or pursuant to
this Indenture or such Securities. Whenever in this Indenture there is
mentioned, in any context, the payment of the principal of or any premium or
interest on, or in respect of, any Security of any series or any Coupon or the
net proceeds received on the sale or exchange of any Security of any series,
such mention shall be deemed to include mention of the payment of Additional
Amounts provided by the terms of such series established hereby or pursuant
hereto to the extent that, in such context, Additional Amounts are, were or
would be payable in respect thereof pursuant to such terms, and express mention
of the payment of Additional Amounts (if applicable) in any provision hereof
shall not be construed as excluding the payment of Additional Amounts in those
provisions hereof where such express mention is not made.
Except as otherwise provided in or pursuant to this Indenture or the
Securities of the applicable series, if the Securities of a series provide for
the payment of Additional Amounts, at least 10 days prior to the first Interest
Payment Date with respect to such series of Securities (or if the Securities of
such series shall not bear interest prior to Maturity, the first day on which a
payment of principal is made), and at least 10 days prior to each date of
payment of principal or interest if there has been any change with respect to
the matters set forth in the below-mentioned Officers' Certificate, the Company
shall furnish to the Trustee and the principal Paying Agent or Paying Agents, if
other than the Trustee, an Officers' Certificate instructing the Trustee and
such Paying Agent or Paying Agents whether such payment of principal of and
premium, if any, or interest on the Securities of such series shall be made to
Holders of Securities of such series or the
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Coupons appertaining thereto who are United States Aliens without withholding
for or on account of any tax, assessment or other governmental charge described
in the Securities of such series. If any such withholding shall be required,
then such Officers' Certificate shall specify by country the amount, if any,
required to be withheld on such payments to such Holders of Securities or
Coupons, and the Company agrees to pay to the Trustee or such Paying Agent the
Additional Amounts required by the terms of such Securities. The Company
covenants to indemnify the Trustee and any Paying Agent for, and to hold them
harmless against, any loss, liability or expense reasonably incurred without
negligence or bad faith on their part arising out of or in connection with
actions taken or omitted by any of them in reliance on any Officers' Certificate
furnished pursuant to this Section.
Section 10.5. Limitation on Liens.
The Company covenants and agrees for the benefit of each series of
Securities, other than any series established in or pursuant to a Board
Resolution or in one or more indentures supplemental hereto which specifically
provides otherwise, that for so long as the Securities of any applicable series
are outstanding, the Company will not, and will not permit any Significant
Subsidiary to, create, assume, incur or suffer to exist upon any property of the
Company or any Significant Subsidiaries of the Company any Liens to secure Debt,
without making effective provision whereby the applicable series of Securities
then outstanding shall be secured equally and ratably with (or prior to) such
other Debt, so long as such other Debt remains secured. This limitation shall
not apply to:
(1) Liens securing Debt for borrowed money, including purchase money
Debt, that is incurred to finance the acquisition, construction or improvement
of the property subject to such Lien either before or within 90 days after such
acquisition, construction or improvement; provided that the principal amount of
such Debt does not exceed 100% of the fair market value of the property subject
to such Lien;
(2) Liens securing Debt on property or shares of stock of a corporation
at the time the same becomes a Subsidiary of the Company or merges into or
consolidates with the Company or a Subsidiary of the Company; provided that such
Liens may not be assumed or permitted to exist if they are incurred in
anticipation of such corporation becoming a Subsidiary of the Company or of such
merger or consolidation;
(3) Liens securing Debt on property at the time the Company or a
Subsidiary of the Company acquires such property; provided that such Liens may
not extend to any other property of the Company or a Subsidiary of the Company
at the time such Liens are assumed;
(4) Liens in favor of the Company or any Subsidiary of the Company;
(5) Liens directly or indirectly in favor of, or required by,
governmental authorities, including Liens securing Debt owed by any Subsidiary
of the Company to the Federal Home Loan Bank of San Francisco or other
governmental authorities, and Liens related to appeal bonds, judgments, actions
at law or in equity and similar matters;
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(6) Renewals, continuations, assignments and/or extensions of Liens
described in clauses (1) through (5) above, provided however, that (a) such
renewal, continuation, assignment and/or extension shall be limited to all or a
part of the same property or shares of stock that secured the Lien, renewal,
continuation, assignment and/or extension and (b) the Debt secured by such Lien
at such time is not so increased;
(7) Liens existing on the date of issuance of any applicable series of
Securities issued pursuant to this Indenture, and renewals, continuations,
assignments and/or extensions thereof; provided, however, that (a) such renewal,
continuation, assignment and/or extension shall be limited to all or a part of
the same property or shares of stock that secured the Lien, renewal,
continuation, assignment and/or extension and (b) the Debt secured by such Lien
at such time is not so increased; and provided further that without making
effective provision whereby the applicable series of such Securities then
outstanding shall be secured equally and ratably with (or prior to) the Debt of
the Company under the Chase Credit Agreement, the Company shall not incur
additional Debt under the Chase Credit Agreement at any time that both (a) the
Lien securing the Debt of the Company under the Chase Credit Agreement on the
capital stock of FCIG remains in effect and (b) after giving effect to the
incurrence of such Debt, the ratio of Senior Debt to Total Capitalization of the
Company, on a nonconsolidated basis, would exceed 0.32 to 1.0; or
(8) Liens not covered by clauses (1) through (7) securing Debt of the
Company or any of its Significant Subsidiaries, provided that the aggregate
principal amount of such Debt immediately after giving effect to the occurrence
thereof does not exceed 10% of Consolidated Net Tangible Assets.
Section 10.6. Limitation of Dividend and Other Payment Restrictions
Affecting Significant Insurance Subsidiaries.
The Company covenants and agrees for the benefit of each series of
Securities, other than any series established in or pursuant to a Board
Resolution or in one or more indentures supplemental hereto which specifically
provides otherwise, that for so long as any applicable series of Securities is
outstanding, the Company will not, and will not permit any Subsidiary of the
Company to create, cause or suffer to exist any encumbrance or restriction on
the ability of any Significant Insurance Subsidiary of the Company to (i) pay
dividends or make other distributions on its Capital Stock owned by the Company
or any Insurance Subsidiary of the Company; (ii) pay Debt or other obligations
owed to the Company or any Insurance Subsidiary of the Company; (iii) make loans
or advances to the Company or any Insurance Subsidiary of the Company; or (iv)
transfer any of its properties or assets to the Company or any Insurance
Subsidiary of the Company.
The foregoing provisions shall not restrict any encumbrances or
restrictions (i) existing on March 17, 1999 and in any renewals of the
agreements containing such restrictions; provided that the encumbrances and
restrictions in any such renewals are no less favorable in any material respect
to the holders of the Securities of any series; (ii) existing under or by reason
of applicable law, rule or regulation, or any agreement or understanding with
any governmental entity that has
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jurisdiction over the Company or any of its Subsidiaries; (iii) existing with
respect to any Person, property or assets acquired, existing at the time of such
acquisition and not incurred in contemplation thereof; (iv) in the case of
clause (iv) of the immediately preceding paragraph, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of any property or assets of the Company
or any Insurance Subsidiary of the Company not otherwise prohibited by this
Indenture and relating solely to such assets or (C) arising or agreed to in the
ordinary course of business, not relating to any Debt, and that do not detract
from the value of property or assets of the Company or any Insurance Subsidiary
of the Company in any manner material to the Company or such Insurance
Subsidiary; (v) with respect to an Insurance Subsidiary of the Company and
imposed pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or property and
assets of, such Insurance Subsidiary; (vi) existing under customary
non-assignment provisions entered into in the ordinary course of business and
consistent with past practice; and (vii) existing under purchase money
obligations for property acquired in the ordinary course of business, so long as
the incurrence of such obligations is permitted under this Indenture.
Section 10.7. Limitation on the Issuance and Sale of Capital Stock of
Significant Insurance Subsidiaries.
The Company covenants and agrees for the benefit of each series of
Securities, other than any series established in or pursuant to a Board
Resolution or in one or more indentures supplemental hereto which specifically
provides otherwise, that for so long as any applicable series of Securities are
outstanding, the Company will not sell, and will not permit any Subsidiary of
the Company, directly or indirectly, to issue or sell any shares of Capital
Stock of a Significant Insurance Subsidiary of the Company except: (i) to the
Company or a Wholly-Owned Subsidiary of the Company and (ii) issuance of
director's qualifying shares or sales to non-U.S. nationals of shares of Capital
Stock of non-U.S. Subsidiaries, to the extent required by applicable law or
regulatory authority.
Section 10.8. Corporate Existence.
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and that of each Subsidiary and their respective rights (charter and
statutory) and franchises; provided, however, that the foregoing shall not
obligate the Company or any Subsidiary to preserve any such right or franchise
if the Company or any Subsidiary shall determine that the preservation thereof
is no longer desirable in the conduct of its business or the business of such
Subsidiary and that the loss thereof is not disadvantageous in any material
respect to any Holder.
Section 10.9. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Sections 10.5, 10.6, 10.7 or 10.8 with
respect to the Securities of any series if before the time for such compliance
the Holders of at least a majority in principal amount of the
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Outstanding Securities of such series, by Act of such Holders, either shall
waive such compliance in such instance or generally shall have waived compliance
with such term, provision or condition, but no such waiver shall extend to or
affect such term, provision or condition except to the extent so expressly
waived, and, until such waiver shall become effective, the obligations of the
Company and the duties of the Trustee in respect of any such term, provision or
condition shall remain in full force and effect.
Section 10.10. Company Statement as to Compliance; Notice of Certain
Defaults.
(1) The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year, a written statement (which need not be contained in or
accompanied by an Officers' Certificate) signed by the principal executive
officer, the principal financial officer or the principal accounting officer of
the Company, stating that
(a) a review of the activities of the Company during such year and
of its performance under this Indenture has been made under his or her
supervision, and
(b) to the best of his or her knowledge, based on such review, (a)
the Company has complied with all the conditions and covenants imposed
on it under this Indenture throughout such year, or, if there has been a
default in the fulfillment of any such condition or covenant, specifying
each such default known to him or her and the nature and status thereof,
and (b) no event has occurred and is continuing which is, or after
notice or lapse of time or both would become, an Event of Default, or,
if such an event has occurred and is continuing, specifying each such
event known to him and the nature and status thereof.
(2) The Company shall deliver to the Trustee, within five days after the
occurrence thereof, written notice of any Event of Default or any event which
after notice or lapse of time or both would become an Event of Default pursuant
to clause (4) of Section 5.1.
(3) The Trustee shall have no duty to monitor the Company's compliance
with the covenants contained in this Article 10 other than as specifically set
forth in this Section 10.10.
ARTICLE 11
REDEMPTION OF SECURITIES
Section 11.1. Applicability of Article.
Redemption of Securities of any series at the option of the Company as
permitted or required by the terms of such Securities shall be made in
accordance with the terms of such Securities and (except as otherwise provided
herein or pursuant hereto) this Article.
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Section 11.2. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced
by or pursuant to a Board Resolution. In case of any redemption at the election
of the Company of (a) less than all of the Securities of any series or (b) all
of the Securities of any series, with the same issue date, interest rate or
formula, Stated Maturity and other terms, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities of such series to be redeemed.
Section 11.3. Selection by Trustee of Securities to be Redeemed.
If less than all of the Securities of any series with the same issue
date, interest rate or formula, Stated Maturity and other terms are to be
redeemed, the particular Securities to be redeemed shall be selected not more
than 60 days prior to the Redemption Date by the Trustee from the Outstanding
Securities of such series not previously called for redemption, by such method
as the Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions of the principal amount of Registered
Securities of such series; provided, however, that no such partial redemption
shall reduce the portion of the principal amount of a Registered Security of
such series not redeemed to less than the minimum denomination for a Security of
such series established herein or pursuant hereto.
The Trustee shall promptly notify the Company and the Security Registrar
(if other than itself) in writing of the Securities selected for redemption and,
in the case of any Securities selected for partial redemption, the principal
amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal of such Securities which has been or is to be redeemed.
Unless otherwise specified in or pursuant to this Indenture or the
Securities of any series, if any Security selected for partial redemption is
converted into Common Stock or exchanged for other securities in part before
termination of the conversion or exchange right with respect to the portion of
the Security so selected, the converted portion of such Security shall be deemed
(so far as may be) to be the portion selected for redemption. Securities which
have been converted or exchanged during a selection of Securities to be redeemed
shall be treated by the Trustee as Outstanding for the purpose of such
selection.
Section 11.4. Notice of Redemption.
Notice of redemption shall be given in the manner provided in Section
1.6, not less than 30 nor more than 60 days prior to the Redemption Date, unless
a shorter period is specified in the Securities to be redeemed, to the Holders
of Securities to be redeemed. Failure to give notice by mailing in the manner
herein provided to the Holder of any Registered Securities designated for
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redemption as a whole or in part, or any defect in the notice to any such
Holder, shall not affect the validity of the proceedings for the redemption of
any other Securities or portion thereof.
Any notice that is mailed to the Holder of any Registered Securities in
the manner herein provided shall be conclusively presumed to have been duly
given, whether or not such Holder receives the notice.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all Outstanding Securities of any series are to be
redeemed, the identification (and, in the case of partial redemption, the
principal amount) of the particular Security or Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the Holder of such Security will receive,
without charge, a new Security or Securities of authorized denominations for the
principal amount thereof remaining unredeemed,
(5) that, on the Redemption Date, the Redemption Price shall become due
and payable upon each such Security or portion thereof to be redeemed, and, if
applicable, that interest thereon shall cease to accrue on and after said date,
(6) the place or places where such Securities, together (in the case of
Bearer Securities) with all Coupons appertaining thereto, if any, maturing after
the Redemption Date, are to be surrendered for payment of the Redemption Price
and any accrued interest and Additional Amounts pertaining thereto,
(7) that the redemption is for a sinking fund, if such is the case,
(8) that, unless otherwise specified in such notice, Bearer Securities
of any series, if any, surrendered for redemption must be accompanied by all
Coupons maturing subsequent to the date fixed for redemption or the amount of
any such missing Coupon or Coupons will be deducted from the Redemption Price,
unless security or indemnity satisfactory to the Company, the Trustee and any
Paying Agent is furnished,
(9) if Bearer Securities of any series are to be redeemed and no
Registered Securities of such series are to be redeemed, and if such Bearer
Securities may be exchanged for Registered Securities not subject to redemption
on the Redemption Date pursuant to Section 3.5 or otherwise, the last date, as
determined by the Company, on which such exchanges may be made,
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(10) in the case of Securities of any series that are convertible into
Common Stock or exchangeable for other securities, the conversion or exchange
price or rate, the date or dates on which the right to convert or exchange the
principal of the Securities of such series to be redeemed will commence or
terminate and the place or places where such Securities may be surrendered for
conversion or exchange, and
(11) the CUSIP number or the Euroclear or the Cedel reference numbers of
such Securities, if any (or any other numbers used by a Depository to identify
such Securities).
A notice of redemption published as contemplated by Section 1.6 need not
identify particular Registered Securities to be redeemed.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
Section 11.5. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit, with
respect to the Securities of any series called for redemption pursuant to
Section 11.4, with the Trustee or with a Paying Agent (or, if the Company is
acting as its own Paying Agent, segregate and hold in trust as provided in
Section 10.3) an amount of money in the applicable Currency sufficient to pay
the Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date, unless otherwise specified pursuant to Section 3.1 or in the
Securities of such series) any accrued interest on and Additional Amounts with
respect thereto, all such Securities or portions thereof which are to be
redeemed on that date.
Section 11.6. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest and the Coupons for such
interest appertaining to any Bearer Securities so to be redeemed, except to the
extent provided below, shall be void. Upon surrender of any such Security for
redemption in accordance with said notice, together with all Coupons, if any,
appertaining thereto maturing after the Redemption Date, such Security shall be
paid by the Company at the Redemption Price, together with any accrued interest
and Additional Amounts to the Redemption Date; provided, however, that, except
as otherwise provided in or pursuant to this Indenture or the Bearer Securities
of such series, installments of interest on Bearer Securities whose Stated
Maturity is on or prior to the Redemption Date shall be payable only upon
presentation and surrender of Coupons for such interest (at an Office or Agency
located outside the United States except as otherwise provided in Section 10.2),
and provided, further, that, except as otherwise specified in or pursuant to
this Indenture or the Registered Securities of such series, installments of
interest on Registered Securities whose Stated Maturity is on or prior to the
Redemption Date shall be payable to the
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Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the Regular Record Dates therefor according to
their terms and the provisions of Section 3.7.
If any Bearer Security surrendered for redemption shall not be
accompanied by all appurtenant Coupons maturing after the Redemption Date, such
Security may be paid after deducting from the Redemption Price an amount equal
to the face amount of all such missing Coupons, or the surrender of such missing
Coupon or Coupons may be waived by the Company and the Trustee if there be
furnished to them such security or indemnity as they may require to save each of
them and any Paying Agent harmless. If thereafter the Holder of such Security
shall surrender to the Trustee or any Paying Agent any such missing Coupon in
respect of which a deduction shall have been made from the Redemption Price,
such Holder shall be entitled to receive the amount so deducted; provided,
however, that any interest or Additional Amounts represented by Coupons shall be
payable only upon presentation and surrender of those Coupons at an Office or
Agency for such Security located outside of the United States except as
otherwise provided in Section 10.2.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and any premium, until paid,
shall bear interest from the Redemption Date at the rate prescribed therefor in
the Security.
Section 11.7. Securities Redeemed in Part.
Any Registered Security which is to be redeemed only in part shall be
surrendered at any Office or Agency for such Security (with, if the Company or
the Trustee so requires, due endorsement by, or a written instrument of transfer
in form satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing) and the Company shall
execute and the Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Registered Security or Securities of the
same series, containing identical terms and provisions, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered. If a Security in global form is so surrendered, the Company shall
execute, and the Trustee shall authenticate and deliver to the U.S. Depository
or other Depository for such Security in global form as shall be specified in
the Company Order with respect thereto to the Trustee, without service charge, a
new Security in global form in a denomination equal to and in exchange for the
unredeemed portion of the principal of the Security in global form so
surrendered.
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ARTICLE 12
SINKING FUNDS
Section 12.1. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund
for the retirement of Securities of a series, except as otherwise permitted or
required in or pursuant to this Indenture or any Security of such series issued
pursuant to this Indenture.
The minimum amount of any sinking fund payment provided for by the terms
of Securities of any series is herein referred to as a "mandatory sinking fund
payment", and any payment in excess of such minimum amount provided for by the
terms of Securities of such series is herein referred to as an "optional sinking
fund payment". If provided for by the terms of Securities of any series, the
cash amount of any sinking fund payment may be subject to reduction as provided
in Section 12.2. Each sinking fund payment shall be applied to the redemption of
Securities of any series as provided for by the terms of Securities of such
series and this Indenture.
Section 12.2. Satisfaction of Sinking Fund Payments with Securities.
The Company may, in satisfaction of all or any part of any sinking fund
payment with respect to the Securities of any series to be made pursuant to the
terms of such Securities (1) deliver Outstanding Securities of such series
(other than any of such Securities previously called for redemption or any of
such Securities in respect of which cash shall have been released to the
Company), together in the case of any Bearer Securities of such series with all
unmatured Coupons appertaining thereto, and (2) apply as a credit Securities of
such series which have been redeemed either at the election of the Company
pursuant to the terms of such series of Securities or through the application of
permitted optional sinking fund payments pursuant to the terms of such
Securities, provided that such series of Securities have not been previously so
credited. Such Securities shall be received and credited for such purpose by the
Trustee at the Redemption Price specified in such Securities for redemption
through operation of the sinking fund and the amount of such sinking fund
payment shall be reduced accordingly. If, as a result of the delivery or credit
of Securities of any series in lieu of cash payments pursuant to this Section
12.2, the principal amount of Securities of such series to be redeemed in order
to satisfy the remaining sinking fund payment shall be less than $100,000, the
Trustee need not call Securities of such series for redemption, except upon
Company Request, and such cash payment shall be held by the Trustee or a Paying
Agent and applied to the next succeeding sinking fund payment, provided,
however, that the Trustee or such Paying Agent shall at the request of the
Company from time to time pay over and deliver to the Company any cash payment
so being held by the Trustee or such Paying Agent upon delivery by the Company
to the Trustee of Securities of that series purchased by the Company having an
unpaid principal amount equal to the cash payment requested to be released to
the Company.
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Section 12.3. Redemption of Securities for Sinking Fund.
Not less than 75 days prior to each sinking fund payment date for any
series of Securities, the Company shall deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing mandatory sinking fund
payment for that series pursuant to the terms of that series, the portion
thereof, if any, which is to be satisfied by payment of cash and the portion
thereof, if any, which is to be satisfied by delivering and crediting of
Securities of that series pursuant to Section 12.2, and the optional amount, if
any, to be added in cash to the next ensuing mandatory sinking fund payment, and
will also deliver to the Trustee any Securities to be so credited and not
theretofore delivered. If such Officers' Certificate shall specify an optional
amount to be added in cash to the next ensuing mandatory sinking fund payment,
the Company shall thereupon be obligated to pay the amount therein specified.
Not less than 60 days before each such sinking fund payment date the Trustee
shall select the Securities to be redeemed upon such sinking fund payment date
in the manner specified in Section 11.3 and cause notice of the redemption
thereof to be given in the name of and at the expense of the Company in the
manner provided in Section 11.4. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Sections 11.6 and 11.7.
ARTICLE 13
REPAYMENT AT THE OPTION OF HOLDERS
Section 13.1. Applicability of Article.
Securities of any series which are repayable at the option of the
Holders thereof before their Stated Maturity shall be repaid in accordance with
the terms of the Securities of such series. The repayment of any principal
amount of Securities pursuant to such option of the Holder to require repayment
of Securities before their Stated Maturity, for purposes of Section 3.9, shall
not operate as a payment, redemption or satisfaction of the Indebtedness
represented by such Securities unless and until the Company, at its option,
shall deliver or surrender the same to the Trustee with a directive that such
Securities be cancelled. Notwithstanding anything to the contrary contained in
this Section 13.1, in connection with any repayment of Securities, the Company
may arrange for the purchase of any Securities by an agreement with one or more
investment bankers or other purchasers to purchase such Securities by paying to
the Holders of such Securities on or before the close of business on the
repayment date an amount not less than the repayment price payable by the
Company on repayment of such Securities, and the obligation of the Company to
pay the repayment price of such Securities shall be satisfied and discharged to
the extent such payment is so paid by such purchasers.
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<PAGE> 87
ARTICLE 14
SECURITIES IN FOREIGN CURRENCIES
Section 14.1. Applicability of Article.
Whenever this Indenture provides for (i) any action by, or the
determination of any of the rights of, Holders of Securities of any series in
which not all of such Securities are denominated in the same Currency, or (ii)
any distribution to Holders of Securities, in the absence of any provision to
the contrary in the form of Security of any particular series or pursuant to
this Indenture or the Securities, any amount in respect of any Security
denominated in a Currency other than Dollars shall be treated for any such
action or distribution as that amount of Dollars that could be obtained for such
amount on such reasonable basis of exchange and as of the record date with
respect to Registered Securities of such series (if any) for such action,
determination of rights or distribution (or, if there shall be no applicable
record date, such other date reasonably proximate to the date of such action,
determination of rights or distribution) as the Company may specify in a written
notice to the Trustee.
ARTICLE 15
MEETINGS OF HOLDERS OF SECURITIES
Section 15.1. Purposes for Which Meetings May Be Called.
A meeting of Holders of Securities of any series may be called at any
time and from time to time pursuant to this Article to make, give or take any
request, demand, authorization, direction, notice, consent, waiver or other Act
provided by this Indenture to be made, given or taken by Holders of Securities
of such series.
Section 15.2. Call, Notice and Place of Meetings.
(1) The Trustee may at any time call a meeting of Holders of Securities
of any series for any purpose specified in Section 15.1, to be held at such time
and at such place in the Borough of Manhattan, The City of New York, or, if
Securities of such series have been issued in whole or in part as Bearer
Securities, in London or in such place outside the United States as the Trustee
shall determine. Notice of every meeting of Holders of Securities of any series,
setting forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting, shall be given, in the manner
provided in Section 1.6, not less than 21 nor more than 180 days prior to the
date fixed for the meeting.
(2) In case at any time the Company (by or pursuant to a Board
Resolution) or the Holders of at least 10% in principal amount of the
Outstanding Securities of any series shall have requested the Trustee to call a
meeting of the Holders of Securities of such series for any purpose specified in
Section 15.1, by written request setting forth in reasonable detail the action
proposed to be taken at the meeting, and the Trustee shall not have mailed
notice of or made the first
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publication of the notice of such meeting within 21 days after receipt of such
request (whichever shall be required pursuant to Section 1.6) or shall not
thereafter proceed to cause the meeting to be held as provided herein, then the
Company or the Holders of Securities of such series in the amount above
specified, as the case may be, may determine the time and the place in the
Borough of Manhattan, The City of New York, or, if Securities of such series are
to be issued as Bearer Securities, in London for such meeting and may call such
meeting for such purposes by giving notice thereof as provided in clause (1) of
this Section.
Section 15.3. Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of Holders of Securities of any
series, a Person shall be (1) a Holder of one or more Outstanding Securities of
such series, or (2) a Person appointed by an instrument in writing as proxy for
a Holder or Holders of one or more Outstanding Securities of such series by such
Holder or Holders. The only Persons who shall be entitled to be present or to
speak at any meeting of Holders of Securities of any series shall be the Persons
entitled to vote at such meeting and their counsel, any representatives of the
Trustee and its counsel and any representatives of the Company and its counsel.
Section 15.4. Quorum; Action.
The Persons entitled to vote a majority in principal amount of the
Outstanding Securities of a series shall constitute a quorum for any meeting of
Holders of Securities of such series. In the absence of a quorum within 30
minutes after the time appointed for any such meeting, the meeting shall, if
convened at the request of Holders of Securities of such series, be dissolved.
In any other case the meeting may be adjourned for a period of not less than 10
days as determined by the chairman of the meeting prior to the adjournment of
such meeting. In the absence of a quorum at any reconvened meeting, such
reconvened meeting may be further adjourned for a period of not less than 10
days as determined by the chairman of the meeting prior to the adjournment of
such reconvened meeting. Notice of the reconvening of any adjourned meeting
shall be given as provided in Section 15.2(1), except that such notice need be
given only once not less than five days prior to the date on which the meeting
is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting
shall state expressly the percentage, as provided above, of the principal amount
of the Outstanding Securities of such series which shall constitute a quorum.
Except as limited by the proviso to Section 9.2, any resolution
presented to a meeting or adjourned meeting duly reconvened at which a quorum is
present as aforesaid may be adopted only by the affirmative vote of the Holders
of a majority in principal amount of the Outstanding Securities of that series;
provided, however, that, except as limited by the proviso to Section 9.2, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other Act which this Indenture expressly provides may
be made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Securities of a series
may be adopted at a meeting or an adjourned meeting duly reconvened and at which
a quorum is present as aforesaid by the affirmative vote of the Holders of such
specified percentage in principal amount of the Outstanding Securities of such
series.
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Any resolution passed or decision taken at any meeting of Holders of
Securities of any series duly held in accordance with this Section shall be
binding on all the Holders of Securities of such series and the Coupons
appertaining thereto, whether or not such Holders were present or represented at
the meeting.
Section 15.5. Determination of Voting Rights; Conduct and Adjournment of
Meetings.
(1) Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Holders of Securities of such series in regard to proof of the holding of
Securities of such series and of the appointment of proxies and in regard to the
appointment and duties of inspectors of votes, the submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall deem appropriate.
Except as otherwise permitted or required by any such regulations, the holding
of Securities shall be proved in the manner specified in Section 1.4 and the
appointment of any proxy shall be proved in the manner specified in Section 1.4
or by having the signature of the person executing the proxy witnessed or
guaranteed by any trust company, bank or banker authorized by Section 1.4 to
certify to the holding of Bearer Securities. Such regulations may provide that
written instruments appointing proxies, regular on their face, may be presumed
valid and genuine without the proof specified in Section 1.4 or other proof.
(2) The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Holders of Securities as provided in Section 15.2(2), in which
case the Company or the Holders of Securities of the series calling the meeting,
as the case may be, shall in like manner appoint a temporary chairman. A
permanent chairman and a permanent secretary of the meeting shall be elected by
vote of the Persons entitled to vote a majority in principal amount of the
Outstanding Securities of such series represented at the meeting.
(3) At any meeting, each Holder of a Security of such series or proxy
shall be entitled to one vote for each $1,000 principal amount of Securities of
such series held or represented by him; provided, however, that no vote shall be
cast or counted at any meeting in respect of any Security challenged as not
Outstanding and ruled by the chairman of the meeting to be not Outstanding. The
chairman of the meeting shall have no right to vote, except as a Holder of a
Security of such series or proxy.
(4) Any meeting of Holders of Securities of any series duly called
pursuant to Section 15.2 at which a quorum is present may be adjourned from time
to time by Persons entitled to vote a majority in principal amount of the
Outstanding Securities of such series represented at the meeting; and the
meeting may be held as so adjourned without further notice.
Section 15.6. Counting Votes and Recording Action of Meetings.
The vote upon any resolution submitted to any meeting of Holders of
Securities of any series shall be by written ballots on which shall be
subscribed the signatures of the Holders of
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Securities of such series or of their representatives by proxy and the principal
amounts and serial numbers of the Outstanding Securities of such series held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the secretary of the meeting
their verified written reports in triplicate of all votes cast at the meeting. A
record, at least in triplicate, of the proceedings of each meeting of Holders of
Securities of any series shall be prepared by the secretary of the meeting and
there shall be attached to said record the original reports of the inspectors of
votes on any vote by ballot taken thereat and affidavits by one or more persons
having knowledge of the facts setting forth a copy of the notice of the meeting
and showing that said notice was given as provided in Section 15.2 and, if
applicable, Section 15.4. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed, all
as of the day and year first above written.
[SEAL] FREMONT GENERAL CORPORATION
as Issuer
Attest:
By
-----------------------------------
Name:
Title:
[SEAL] THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
Attest:
By
-----------------------------------
Name:
Title:
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<PAGE> 92
STATE OF ____________ )
: SS.:
COUNTY OF ___________ )
On the _____ day of _____________, 1999, before me personally came
_________________________, to me known, who, being by me duly sworn, did depose
and say that he is a _______________________________________________ of FREMONT
GENERAL CORPORATION, a Nevada corporation, one of the persons described in and
who executed the foregoing instrument; that he knows the seal of said
Corporation; that the seal affixed to said instrument is such Corporation's
seal; that it was so affixed by authority of the Board of Directors of said
Corporation; and that he signed his name thereto by like authority.
_________________________________________
Notary Public
[NOTARIAL SEAL]
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<PAGE> 93
STATE OF ILLINOIS )
: SS.:
COUNTY OF COOK )
On the _____ day of March 1999, before me personally came
_______________________ , to me known, who, being by me duly sworn, did depose
and say that he or she is a ________________________________________________ of
THE FIRST NATIONAL BANK OF CHICAGO, a national banking association organized and
existing under the laws of the United States, one of the persons described in
and who executed the foregoing instrument; that he or she knows the seal of said
Corporation; that the seal affixed to said instrument is such Corporation's
seal; that it was so affixed by authority of the Board of Directors of said
Corporation; and that he or she signed his or her name thereto by like
authority.
_________________________________________
Notary Public
[NOTARIAL SEAL]
85
<PAGE> 1
EXHIBIT 4.10
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of March 17, 1999
among
Fremont General Corporation
and
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Credit Suisse First Boston Corporation,
Goldman, Sachs & Co.,
and
Warburg Dillon Read LLC
-------------------
================================================================================
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into this 17th day of March, 1999, among Fremont General Corporation, a
Nevada corporation (the "Company"), and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Credit Suisse First Boston Corporation, Goldman, Sachs & Co. and
Warburg Dillon Read LLC (the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated
March 11th, 1999 (the "Purchase Agreement"), between the Company and the Initial
Purchasers, which provides for the sale by the Company to the Initial Purchasers
of an aggregate of $200 million principal amount of the Company's 7.70% Senior
Notes due 2004 (the "Notes Due 2004") and an aggregate of $225 million principal
amount of the Company's 7.875% Senior Notes due 2009 (the "Notes Due 2009" and,
together with the Notes Due 2004, the "Securities"). In order to induce the
Initial Purchasers to enter into the Purchase Agreement, the Company has agreed
to provide to the Initial Purchasers and their direct and indirect transferees
the registration rights set forth in this Agreement. The execution and delivery
of this Agreement is a condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
time to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Closing Date" shall mean the Closing Time as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble and
shall also include the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any
other depositary appointed by the Company, provided, however, that such
depositary must have an address in the Borough of Manhattan, in The City
of New York.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2.1
hereof.
"Exchange Offer Registration" shall mean a registration under the
1933 Act effected pursuant to Section 2.1 hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form), and
<PAGE> 3
all amendments and supplements to such registration statement, including
the Prospectus contained therein, all exhibits thereto and all documents
incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in Section 2.1
hereof.
"Exchange Securities" shall mean the 7.70% Senior Notes due 2004,
Series B and the 7.875% Senior Notes due 2009, Series B, issued by the
Company under the Indenture containing terms identical to the Securities
in all material respects (except for references to certain interest rate
provisions, restrictions on transfers and restrictive legends), to be
offered to Holders of Securities in exchange for Registrable Securities
pursuant to the Exchange Offer.
"Holder" shall mean the Initial Purchasers, for so long as it
owns any Registrable Securities, and each of its successors, assigns and
direct and indirect transferees who become registered owners of
Registrable Securities under the Indenture.
"Indenture" mean the Indenture relating to the Securities, dated
as of March 1, 1999, between the Company and The First National Bank of
Chicago, as trustee, as the same may be amended, supplemented, waived or
otherwise modified from time to time in accordance with the terms
thereof.
"Initial Purchasers" shall have the meaning set forth in the
preamble.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of Outstanding (as defined in the Indenture)
Registrable Securities; provided that whenever the consent or approval
of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or any
Affiliate (as defined in the Indenture) of the Company shall be
disregarded in determining whether such consent or approval was given by
the Holders of such required percentage amount.
"Participating Broker-Dealer" shall mean Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Credit Suisse First Boston Corporation,
Goldman, Sachs & Co. and Warburg Dillon Read LLC and any other
broker-dealer which makes a market in the Securities and exchanges
Registrable Securities in the Exchange Offer for Exchange Securities.
"Person" shall mean an individual, partnership (general or
limited), corporation, limited liability company, trust or incorporated
organization, or a government or agency or political subdivision
thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus
as amended or supplemented by any prospectus supplement, including any
such prospectus supplement with respect to the terms of the offering of
any portion of the Registrable Securities covered by a Shelf
Registration Statement, and by all other amendments and supplements
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<PAGE> 4
to a prospectus, including post-effective amendments, and in each case
including all material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble.
"Registrable Securities" shall mean the Securities of any Holder;
provided, however, that such Securities shall cease to be Registrable
Securities when (i) a Registration Statement with respect to such
Securities shall have been declared effective under the 1933 Act and
such Securities shall have been disposed of pursuant to such
Registration Statement, (ii) such Securities can be sold to the public
pursuant to Rule 144 (or any similar provision then in force, but not
Rule 144A) under the 1933 Act, (iii) such Securities shall have ceased
to be outstanding or (iv) the Exchange Offer is consummated (except in
the case of Securities purchased from the Company and continued to be
held by the Initial Purchasers).
"Registration Expenses" shall mean any and all expenses incident
to performance of or compliance by the Company with this Agreement,
including without limitation: (i) all SEC, stock exchange or National
Association of Securities Dealers, Inc. (the "NASD") registration and
filing fees, including, if applicable, the reasonable fees and expenses
of any "qualified independent underwriter" (and its counsel) that is
required to be retained by any holder of Registrable Securities in
accordance with the rules and regulations of the NASD, (ii) all
reasonable fees and expenses incurred in connection with compliance with
state securities or blue sky laws and compliance with the rules of the
NASD (including reasonable fees and disbursements of counsel for any
underwriters or Holders in connection with blue sky qualification of any
of the Exchange Securities or Registrable Securities and any filings
with the NASD), (iii) all expenses of any Persons in preparing or
assisting in preparing, word processing, printing and distributing any
Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements, securities sales agreements and
other documents relating to the performance of and compliance with this
Agreement, (iv) all fees and expenses incurred in connection with the
listing, if any, of any of the Registrable Securities on any securities
exchange or exchanges, (v) all rating agency fees, (vi) the fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance
and compliance, (vii) the fees and expenses of the Trustee, and any
escrow agent or custodian, (viii) the reasonable fees and expenses of
the Initial Purchasers in connection with the Exchange Offer, including
the reasonable fees and expenses of counsel to the Initial Purchasers in
connection therewith, and (ix) any reasonable fees and disbursements of
the underwriters customarily required to be paid by issuers or sellers
of securities and the reasonable fees and expenses of any special
experts retained by the Company in connection with any Registration
Statement, but excluding underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of
Registrable Securities by a Holder, it being understood that in no event
shall the Company be liable for the fees and expenses of more than one
counsel (in addition to any local counsel) in connection with
registration pursuant to either Section 2.1 or 2.2.
3
<PAGE> 5
"Registration Statement" shall mean any registration statement of
the Company which covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement, and all
amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"SEC" shall mean the Securities and Exchange Commission or any
successor agency or government body performing the functions currently
performed by the United States Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant
to Section 2.2 hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2.2 of
this Agreement which covers all of the Registrable Securities on an
appropriate form under Rule 415 under the 1933 Act, or any similar rule
that may be adopted by the SEC, and all amendments and supplements to
such registration statement, including post-effective amendments, in
each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"Trustee" shall mean the trustee with respect to the Securities
under the Indenture.
2. Registration Under the 1933 Act.
2.1. Exchange Offer. The Company shall (A) prepare and, as soon
as practicable but not later than 90 calendar days following the Closing Date,
file with the SEC an Exchange Offer Registration Statement on an appropriate
form under the 1933 Act with respect to a proposed Exchange Offer and the
issuance and delivery to the Holders, in exchange for the Registrable
Securities, a like principal amount of Exchange Securities, (B) use its
reasonable best efforts to cause the Exchange Offer Registration Statement to be
declared effective under the 1933 Act not later than 150 calendar days following
the Closing Date, (C) use its reasonable best efforts to keep the Exchange Offer
Registration Statement effective until the closing of the Exchange Offer and (D)
use its reasonable best efforts to cause the Exchange Offer to be consummated
within 180 calendar days following the Closing Date. The Exchange Securities
will be issued under the Indenture. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Exchange Offer,
it being the objective of such Exchange Offer to enable each Holder eligible and
electing to exchange Registrable Securities for Exchange Securities (assuming
that such Holder (a) is not an affiliate of the Company within the meaning of
Rule 405 under the 1933 Act, (b) is not a broker-dealer tendering Registrable
Securities acquired directly from the Company for its own account, (c) acquired
the Exchange Securities in the ordinary course of such Holder's business and (d)
has no arrangements or understandings with any person to participate in the
Exchange Offer for the purpose of distributing the Exchange Securities) to
transfer such Exchange Securities from and after their receipt without any
limitations or restrictions under the 1933 Act and without material
4
<PAGE> 6
restrictions under the Securities laws of a substantial proportion of the
several states of the United States.
In connection with the Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the Prospectus forming part of
the Exchange Offer Registration Statement together with an appropriate
letter of transmittal and related documents;
(b) keep the Exchange Offer open for acceptance for a period of
not less than 30 calendar days after the date notice thereof is mailed
to the Holders (or longer if required by applicable law) (such period
referred to herein as the "Exchange Period");
(c) utilize the services of the Depositary for the Exchange
Offer;
(d) permit Holders to withdraw tendered Registrable Securities at
any time prior to 5:00 p.m. (Eastern Time) on the last business day of
the Exchange Period, by sending to the institution specified in the
notice, a telegram, telex, facsimile transmission or letter setting
forth the name of such Holder, the principal, the principal amount of
Registrable Securities delivered for exchange, and a statement that such
Holder is withdrawing his election to have such Securities exchanged;
(e) notify each Holder that any Registrable Security not tendered
will remain outstanding and continue to accrue interest, but will not
retain any rights under this Agreement (except in the case of the
Initial Purchasers and Participating Broker-Dealers as provided herein);
and
(f) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer, the
Company shall:
(i) accept for exchange all Registrable Securities duly
tendered and not validly withdrawn pursuant to the Exchange Offer
in accordance with the terms of the Exchange Offer Registration
Statement and the letter of transmittal which shall be an exhibit
thereto;
(ii) deliver to the Trustee for cancellation all Registrable
Securities so accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Securities to each Holder of Registrable Securities so
accepted for exchange in a principal amount equal to the
principal amount of the Registrable Securities of such Holder so
accepted for exchange.
Interest on each Exchange Securities will accrue from the most
recent interest payment date to which interest has been paid on the Registrable
Securities surrendered in exchange therefor or, if no interest has been paid on
the Registrable Securities, from the date of
5
<PAGE> 7
original issuance. The Exchange Offer shall not be subject to any conditions,
other than (i) that the Exchange Offer, or the making of any exchange by a
Holder, does not violate applicable law or any applicable interpretation of the
staff of the SEC, (ii) the due tendering of Registrable Securities in accordance
with the Exchange Offer, (iii) that each Holder of Registrable Securities
exchanged in the Exchange Offer shall have represented that all Exchange
Securities to be received by it shall be acquired in the ordinary course of its
business and that at the time of the consummation of the Exchange Offer it shall
have no arrangement or understanding with any person to participate in the
distribution (within the meaning of the 1933 Act) of the Exchange Securities and
shall have made such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to render the use of Form
S-4 or other appropriate form under the 1933 Act available and (iv) that no
action or proceeding shall have been instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the Company's judgment, would reasonably be expected to impair the ability of
the Company to proceed with the Exchange Offer. The Company shall inform the
Initial Purchasers of the names and addresses of the Holders to whom the
Exchange Offer is made, and the Initial Purchasers shall have the right to
contact such Holders and otherwise facilitate the tender of Registrable
Securities in the Exchange Offer.
2.2. Shelf Registration. (i) If, because of any changes in law,
SEC rules or regulations or applicable interpretations thereof by the staff of
the SEC, the Company is not permitted to effect the Exchange Offer as
contemplated by Section 2.1 hereof, (ii) if for any other reason (A) the
Exchange Offer Registration Statement is not declared effective within 150
calendar days following the Closing Date or (B) the Exchange Offer is not
consummated within 180 calendar days after the Closing Date, (iii) upon the
written request of the Initial Purchasers with respect to any Registrable
Securities which it acquired directly from the Company or (iv) upon the written
request of any Holder that either (A) is not permitted pursuant to applicable
law, SEC rules and regulations or applicable interpretations thereof by the
staff of the SEC to participate in the Exchange Offer or (B) participates in the
Exchange Offer and does not receive fully tradable Exchange Securities pursuant
to the Exchange Offer, then in case of each of clauses (i) through (iv) the
Company shall, at its cost:
(a) As promptly as practicable, file with the SEC, and thereafter
shall use its reasonable best efforts to cause to be declared effective
as promptly as practicable but no later than 150 calendar days after the
Closing Date, a Shelf Registration Statement relating to the offer and
sale of the Registrable Securities by the Holders from time to time in
accordance with the methods of distribution elected by the Majority
Holders participating in the Shelf Registration and set forth in such
Shelf Registration Statement.
(b) Use its reasonable best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be usable by Holders for a period
ending on the earliest of (i) two years from the date the Registrable
Securities were originally issued by the Company, (ii) the date on which
the Registrable Securities become eligible for resale without volume
limitations pursuant to Rule 144 under the 1933 Act, or (iii) for such
shorter period that will terminate when all Registrable Securities
covered by the Shelf Registration Statement have been sold pursuant to
the Shelf Registration Statement or cease to be outstanding or otherwise
to be Registrable Securities.
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<PAGE> 8
(c) Notwithstanding any other provisions hereof, use its best
efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any
supplement thereto complies in all material respects with the 1933 Act
and the rules and regulations thereunder, (ii) any Shelf Registration
Statement and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) any Prospectus forming part
of any Shelf Registration Statement, and any supplement to such
Prospectus (as amended or supplemented from time to time), does not
include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements, in light of the
circumstances under which they were made, not misleading.
The Company further agrees, if necessary, to supplement or amend
the Shelf Registration Statement, as required by Section 3(b) below, and to
furnish to the Holders of Registrable Securities copies of any such supplement
or amendment promptly as reasonably practicable after its being used or filed
with the SEC.
2.3. Expenses. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2.1 or 2.2. Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.
2.4. Effectiveness. (a) The Company will be deemed not to have
used its reasonable best efforts to cause the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, to become, or
to remain, effective during the requisite period if the Company voluntarily
takes any action that would, or omits to take any action which omission would,
result in any such Registration Statement not being declared effective or in the
holders of Registrable Securities covered thereby not being able to exchange or
offer and sell such Registrable Securities that during that period as and to the
extent contemplated hereby, unless such action is required by applicable law.
(b) An Exchange Offer Registration Statement pursuant to Section
2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that if, after it has been declared effective, the
offering of Registrable Securities pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume.
2.5. Interest. The Securities will provide that in the event that
(i) the Exchange Offer Registration Statement is not filed with the Commission
on or prior to the 90th calendar day following the Closing Date, (ii) the
Exchange Offer Registration Statement has not been declared effective on or
prior to the 150th calendar day following the Closing Date, (iii) the Exchange
Offer is not consummated or, if required, a Shelf Registration Statement is not
declared effective, in either case, on or prior to the earlier of (x) the 30th
day following the date on which the Exchange Offer Registration Statement is
declared effective and (y) the 180th
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<PAGE> 9
calendar day following the Closing Date or (iv) the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective or usable
(each such event referred to in clauses (i) through (iv) above, a "Registration
Default"), then the interest rate borne by the Securities shall be increased by
one-quarter of one percent (0.25%) per annum immediately upon the occurrence of
each Registration Default, which rate will increase by one-quarter of one
percent (0.25%) per annum at the beginning of each 90-day period (or portion
thereof) that such additional interest continues to accrue under any such
circumstance; provided that the aggregate amount of any such increase in the
interest rate on the Securities shall not exceed one percent (1.00%) per annum
until such Registration Default has been cured; and provided, further, that if
the Exchange Offer Registration Statement is not declared effective on or prior
to the 150th day following the Closing Date and the Company shall request
holders of Notes to provide the information called for by the Registration
Rights Agreement for inclusion in the Shelf Registration Statement, then Notes
owned by holders who do not deliver such information to the Company or who do
not provide comments on the Shelf Registration Statement when required pursuant
to the Registration Rights Agreement will not be entitled to any such increase
in the interest rate for any day after the 180th day following the Closing Date.
Upon (v) the filing of the Exchange Offer Registration Statement after the
90-day period described in clause (i) above, (w) the effectiveness of the
Exchange Offer Registration Statement after the 150-day period described in
clause (ii) above, (x) the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement, as the case may be, after the
30-day or the 180-day period, as the case may be, described in clause (iii)
above, (y) the cure of any Registration Default described in clause (iv) above,
or (z) the date on which all Registrable Securities are saleable pursuant to
Rule 144(k) under the 1933 Act (or any successor provision) the interest rate
borne by the Securities from the date of such filing, effectiveness,
consummation or cure, as the case may be, will be reduced to the original
interest rate if the Company is otherwise in compliance with this paragraph;
provided, however, that if, after any such reduction in interest rate, a
different event specified in clause (i),(ii), (iii) or (iv) above occurs, the
interest rate will again be increased pursuant to the foregoing provisions.
3. Registration Procedures. In connection with the obligations of
the Company with respect to Registration Statements pursuant to Sections 2.1 and
2.2 hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement,
within the relevant time period specified in Section 2, on the
appropriate form under the 1933 Act, which form (i) shall be selected by
the Company, (ii) shall in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling
Holders thereof, (iii) shall comply as to form in all material respects
with the requirements of the applicable form and include or incorporate
by reference all financial statements required by the SEC to be filed
therewith or incorporated by reference therein, and (iv) shall comply in
all respects with the requirements of Regulation S-T under the
Securities Act, and use its best efforts to cause such Registration
Statement to become effective and remain effective in accordance with
Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary under applicable law to keep such Registration Statement
effective for the applicable period; and cause each
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<PAGE> 10
Prospectus to be supplemented by any required prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 under the 1933 Act
and comply with the provisions of the 1933 Act applicable to them with
respect to the disposition of all securities covered by each
Registration Statement during the applicable period in accordance with
the intended method or methods of distribution by the selling Holders
thereof;
(c) in the case of a Shelf Registration, (i) notify each Holder
of Registrable Securities, at least five business days prior to filing,
that a Shelf Registration Statement with respect to the Registrable
Securities is being filed and advising such Holders that the
distribution of Registrable Securities will be made in accordance with
the method selected by the Majority Holders participating in the Shelf
Registration; (ii) furnish to each Holder of Registrable Securities and
to each underwriter of an underwritten offering of Registrable
Securities, if any, without charge, as many copies of each Prospectus,
including each preliminary Prospectus, and any amendment or supplement
thereto and such other documents as such Holder or underwriter may
reasonably request, including financial statements and schedules and, if
the Holder so requests, all exhibits in order to facilitate the public
sale or other disposition of the Registrable Securities; and (iii)
hereby consent to the use of the Prospectus or any amendment or
supplement thereto by each of the selling Holders of Registrable
Securities in connection with the offering and sale of the Registrable
Securities covered by the Prospectus or any amendment or supplement
thereto;
(d) use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of
such jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement and each underwriter of an underwritten offering
of Registrable Securities shall reasonably request by the time the
applicable Registration Statement is declared effective by the SEC, and
do any and all other acts and things which may be reasonably necessary
or advisable to enable each such Holder and underwriter to consummate
the disposition in each such jurisdiction of such Registrable Securities
owned by such Holder; provided, however, that the Company shall not be
required to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be required
to qualify but for this Section 3(d), or (ii) take any action which
would subject it to general service of process or taxation in any such
jurisdiction where it is not then so subject;
(e) notify promptly each Holder of Registrable Securities under a
Shelf Registration or any Participating Broker-Dealer who has notified
the Company that it is utilizing the Exchange Offer Registration
Statement as provided in paragraph (f) below, and, if requested by such
Holder or Participating Broker-Dealer, confirm such advice in writing
promptly (i) when a Registration Statement has become effective and when
any post-effective amendments and supplements thereto become effective,
(ii) of any request by the SEC or any state securities authority for
post-effective amendments and supplements to a Registration Statement
and Prospectus or for addition information after the Registration
Statement has become effective, (iii) of the issuance by the SEC or any
state securities authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) in case of a Shelf
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<PAGE> 11
Registration, if, between the effective date of a Registration Statement
and the closing of any sale of Registrable Securities covered thereby,
the representations and warranties of the Company contained in any
underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and correct
in all material respects, (v) of the happening of any event or the
discovery of any facts during the period a Shelf Registration Statement
is effective which makes any statement made in such Registration
Statement or related Prospectus untrue in any material respect or which
requires the making of any changes in such Registration Statement or
Prospectus in order to make the statements therein not misleading and
(vi) of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Registrable Securities or the
Exchange Securities, as the case may be, for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose;
(f) (A) in the case of the Exchange Offer Registration Statement
(i) include in the Exchange Offer Registration Statement a
section entitled "Plan of Distribution" which section shall
include all information that the Initial Purchasers may
reasonably request, and which shall contain a summary
statement of the positions taken or policies made by the
staff of the SEC with respect to the potential "underwriter"
status of any broker-dealer that holds Registrable Securities
acquired for its own account as a result of market-making
activities or other trading activities and that will be the
beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) of Exchange Securities to be received by such
broker-dealer in the Exchange Offer, whether such positions
or policies have been publicly disseminated by the staff of
the SEC or such positions or policies, in the reasonable
judgment of the Initial Purchasers and their counsel,
represent the prevailing views of the staff of the SEC,
including a statement that any such broker-dealer who
receives Exchange Securities for Registrable Securities
pursuant to the Exchange Offer may be deemed a statutory
underwriter and must deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of
such Exchange Securities, (ii) furnish to each Participating
Broker-Dealer who has delivered to the Company the notice
referred to in Section 3(e), without charge, as many copies
of each Prospectus included in the Exchange Offer
Registration Statement, including any preliminary prospectus,
and any amendment or supplement thereto, as such
Participating Broker-Dealer may reasonably request, (iii)
hereby consent to the use of the Prospectus forming part of
the Exchange Offer Registration Statement or any amendment or
supplement thereto, by any person subject to the prospectus
delivery requirement of the SEC, including all Participating
Broker-Dealers, in connection with the sale or transfer of
the Exchange Securities covered by the Prospectus or any
amendment or supplement thereto, and (iv) include in the
transmittal letter or similar documentation to be executed by
an exchange offeree in order to participate in the Exchange
Offer (x) the following provision:
"if the exchange offeree is a broker-dealer holding
Registrable Securities acquired for its own account as a
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<PAGE> 12
result of market-making activities or other trading
activities, it will deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale
of Exchange Securities received in respect of such
Registrable Securities pursuant to the Exchange Offer;"
and
(y) a statement to the effect that by a broker-dealer making
the acknowledgment described in clause (x) and by delivering a
Prospectus in connection with the exchange of Registrable
Securities, the broker-dealer will not be deemed to admit that
it is an underwriter within the meaning of the 1933 Act; and
(B) in the case of any Exchange Offer Registration Statement, the
Company agrees to deliver to the Participating Broker-Dealers
upon the effectiveness of the Exchange Offer Registration
Statement (i) an opinion of counsel or opinions of counsel
substantially in the form attached hereto as Exhibit A, (ii) an
officers' certificate substantially in the form customarily
delivered in a public offering of debt securities and (iii) a
comfort letter or comfort letters in customary form if permitted
by Statement on Auditing Standards No. 72 of the American
Institute of Certified Public Accounts ("SAS 72"), or if such a
comfort letter is not permitted by SAS 72, an agreed upon
procedures letter in customary form at least as broad in scope
and coverage as the comfort letter or comfort letters delivered
to the Initial Purchasers in connection with the initial sale of
the Securities to the Initial Purchasers;
(g) (i) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (ii) in the case of a Shelf Registration, furnish
counsel for the Holders of Registrable Securities copies of any comment
letters received from the SEC or any other request by the SEC or any
state securities authority for amendments or supplements to a
Registration Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment;
(i) in the case of a Shelf Registration, furnish to each Holder
of Registrable Securities, and each underwriter, if any, without charge,
at least one conformed copy of each Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules (without documents incorporated therein by reference and all
exhibits thereto, unless requested);
(j) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends; and
enable such Registrable Securities to be in such denominations
(consistent with the provisions of the Indenture) and registered in such
names as the selling Holders or the underwriters, if any, may reasonably
request at least three business days prior to the closing of any sale of
Registrable Securities;
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<PAGE> 13
(k) in the case of a Shelf Registration, upon the occurrence of
any event or the discovery of any facts, each as contemplated by
Sections 3(e)(v) and 3(e)(vi) hereof, use its best efforts to prepare a
supplement or post-effective amendment to the Registration Statement or
the related Prospectus or any document incorporated therein by reference
or file any other required document so that, as thereafter delivered to
the purchasers of the Registrable Securities or Participating
Broker-Dealers, such Prospectus will not contain at the time of such
delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or will remain
so qualified;
(l) in the case of a Shelf Registration, a reasonable time prior
to the filing of any Registration Statement, any Prospectus, an
amendment to a Registration Statement or amendment or supplement to a
Prospectus or any document which is to be incorporated by reference into
a Registration Statement or a Prospectus after initial filing of a
Registration Statement, provide copies of such document to the Initial
Purchasers on behalf of such Holders; and make representatives of the
Company as shall be reasonably requested by the Holders of Registrable
Securities, or the Initial Purchasers on behalf of such Holders,
available for discussion of such document;
(m) obtain a CUSIP number of all Exchange Securities or
Registrable Securities, as the case may be, not later than the effective
date of a Registration Statement, and provide the Trustee with printed
certificates for the Exchange Securities or the Registrable Securities,
as the case may be, in a form eligible for deposit with the Depositary;
(n) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939 (the "TIA") in connection with the registration of
the Exchange Securities or Registrable Securities, as the case may be,
(ii) cooperate with the Trustee and the Holders to effect such changes
to the Indenture as may be required for the Indenture to be so qualified
in accordance with the terms of the TIA and (iii) execute, and use its
best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(o) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and
appropriate actions in order to expedite or facilitate the disposition
of such Registrable Securities and in such connection whether or not an
underwriting agreement is entered into and whether or not the
registration is an underwritten registration:
(i) make such representations and warranties to the Holders
of such Registrable Securities and the underwriters, if any, in
form, substances and scope as are customarily made by issuers to
underwriters in similar underwritten offerings as may be
reasonably requested by them;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably
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<PAGE> 14
satisfactory to the managing underwriters, if any, and the
holders of a majority in principal amount of the Registrable
Securities being sold) addressed to each selling Holder and the
underwriters, if any, covering the matters customarily covered in
opinions requested in sales of securities or underwritten
offerings and such other matters as may be reasonably requested
by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed
to the underwriters, if any, and use reasonable efforts to have
such letter addressed to the selling Holders of Registrable
Securities (to the extent consistent with SAS 72), such letters
to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to underwriters in
connection with similar underwritten offerings;
(iv) enter into a securities sales agreement with the Holders
and an agent of the Holders providing for, among other things,
the appointment of such agent for the selling Holders for the
purpose of soliciting purchases of Registrable Securities, which
agreement shall be in form, substances and scope customary for
similar offerings;
(v) if an underwriting agreement in entered into, cause the
same to set forth indemnification provisions and procedures
substantially equivalent to the indemnification provisions and
procedures set forth in Section 4 hereof with respect to the
underwriters and all other parties to be indemnified pursuant to
said Section or, at the request of any underwriters, in the form
customarily provided to such underwriters in similar types of
transactions; and
(vi) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings to the Holders of a majority in principal amount of the
Registrable Securities being sold and the managing underwriters,
if any.
The above shall be done at (i) the effectiveness of such Registration
Statement (and each post-effective amendment thereof) and (ii) each
closing under any underwriting or similar agreement as and to the extent
required thereunder;
(p) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable
Securities and any underwriters participating in any disposition
pursuant to a Shelf Registration Statement and any counsel or accountant
retained by such Holders or underwriters, all financial and other
records, pertinent corporate documents and properties of the Company
reasonably requested by any such persons and use its reasonable best
efforts to cause the respective officers, directors, employees, and any
other agents of the Company to supply all information reasonably
requested by any such representative, underwriter, special counsel or
accountant in connection with a Registration Statement, and make such
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<PAGE> 15
representatives of the Company available for discussion of such
documents as shall be reasonably requested by the Initial Purchasers;
(q) (i) in the case of an Exchange Offer Registration Statement, a
reasonable time prior to the filing of any Exchange Offer
Registration Statement, any Prospectus forming a part thereof, any
amendment to an Exchange Offer Registration Statement or amendment
or supplement to such Prospectus, provide copies of such document to
the Initial Purchasers and make such changes in any such document
prior to the filing thereof as the Initial Purchasers may reasonably
request and, except as otherwise required by applicable law, not
file any such document in a form to which the Initial Purchasers on
behalf of the Holders of Registrable Securities shall reasonably
object, and make the representatives of the Company available for
discussion of such documents as shall be reasonably requested by the
Initial Purchasers; and
(ii) in the case of a Shelf Registration, a reasonable time
prior to filing any Shelf Registration Statement, any Prospectus
forming a part thereof, any amendment to such Shelf Registration
Statement or amendment or supplement to such Prospectus, provide
copies of such document to the Holders of Registrable Securities, to
the Initial Purchasers, to counsel on behalf of the Holders and to
the underwriter or underwriters of an underwritten offering of
Registrable Securities, if any, make such changes in any such
document prior to the filing thereof as the Initial Purchasers, the
counsel to the Holders or the underwriter or underwriters reasonably
request and not file any such document in a form to which the
Majority Holders or the Initial Purchasers on behalf of the Holders
of Registrable Securities or any underwriter may reasonably object
and make the representatives of the Company available for discussion
of such document as shall be reasonably requested by the Holders of
Registrable Securities, the Initial Purchasers on behalf of such
Holders, or any underwriter.
(r) in the case of a Shelf Registration, use its reasonable best
efforts to cause all Registrable Securities to be listed on any
securities exchange on which similar debt securities issued by the
Company are then listed if requested by the Majority Holders, or if
requested by the underwriter or underwriters of an underwritten offering
of Registrable Securities, if any;
(s) in the case of a Shelf Registration, use its reasonable best
efforts to cause the Registrable Securities to be rated by the
appropriate rating agencies, if so requested by the Majority Holders, or
if requested by the underwriter or underwriters of an underwritten
offering of Registrable Securities, if any;
(t) otherwise to comply with all applicable rules and regulations of
the SEC and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering at least 12
months which shall satisfy the provisions of Section 11(a) of the 1933
Act and Rule 158 thereunder;
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<PAGE> 16
(u) cooperate and assist in any filings required to be made with the
NASD and, in the case of a Shelf Registration, in the performance of any
due diligence investigation by any underwriter and its counsel
(including any "qualified independent underwriter" that is required to
be retained in accordance with the rules and regulations of the NASD);
and
(v) upon consummation of an Exchange Offer, obtain a customary
opinion of counsel to the Company addressed to the Trustee for the
benefit of all Holders of Registrable Securities participating in the
Exchange Offer, and which includes an opinion that (i) the Company has
duly authorized, executed and delivered the Exchange Securities and the
related indenture, and (ii) each of the Exchange Securities and related
indenture constitute a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its
respective terms (with customary exceptions).
In the case of a Shelf Registration Statement, the Company may
(as a condition to such Holder's participation in the Shelf Registration)
require each Holder of Registrable Securities to furnish to the Company such
information regarding the Holder and the proposed distribution by such Holder of
such Registrable Securities as the Company may from time to time reasonably
request in writing for use in connection with any Shelf Registration Statement
or Prospectus included therein, including, without limitation, information
specified in item 507 of Regulation S-K under the 1933 Act. Each Holder as to
which any Shelf Registration is being effected agrees to furnish promptly to the
Company all information required to be disclosed with respect to such Holder in
order to make any information with respect to such Holder previously furnished
to the Company by such Holder not materially misleading.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
or the discovery of any facts, each of the kind described in Section 3(e)(v)
hereof, such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to a Registration Statement until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
3(k) hereof, and, if so directed by the Company, such Holder will deliver to the
Company (at its expense) all copies in such Holder's possession, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
If any of the Registrable Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
underwriter or underwriters and manager or managers that will manage such
offering will be selected by the Majority Holders of such Registrable Securities
included in such offering and shall be acceptable to the Company. No Holder of
Registrable Securities may participate in any underwritten registration
hereunder unless such Holder (a) agrees to sell such Holder's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the persons entitled hereunder to approve such arrangements and (b) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
agreement.
4. Indemnification; Contribution. (a) The Company agrees to
indemnify and hold harmless the Initial Purchasers, each Holder, each
Participating Broker-Dealer, each Person
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<PAGE> 17
who participates as an underwriter (any such Person being an "Underwriter") and
each Person, if any, who controls any Holder or Underwriter within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment or supplement thereto) pursuant
to which Exchange Securities or Registrable Securities were registered
under the 1933 Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission; provided that (subject to
Section 4(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by any
indemnified party as provided herein), reasonably incurred in
investigating, preparing to defend or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchasers, such Holder or Underwriter expressly for use in a
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto); and provided further that the Company will not
be liable to an Underwriter with respect to any Prospectus to the extent that
the Company shall sustain the burden of proving that any such loss, liability,
claim, damage or expense resulted from the fact that such Underwriter, in
contravention of a requirement of this Agreement or applicable law, sold
Securities to a person to whom such Underwriter failed to send or give a copy of
the Prospectus, as then amended or supplemented, but excluding documents
incorporated or deemed to be incorporated by reference, if (i) the Company has
previously furnished copies thereof (sufficiently in advance of such sale) to
the Underwriter and the loss, liability, claim, damage or
16
<PAGE> 18
expenses of such Underwriter resulted from an untrue statement or omission of a
material fact contained in or omitted from a Prospectus which was later
corrected in a Prospectus and such Prospectus was required by law to be
delivered at or prior to the written confirmation of sale to such person and
(ii) such failure to give or send such Prospectus to the party or parties
asserting such loss, liability, claim, damage or expense would have constituted
the sole defense to the claim asserted by such person.
(b) Each Holder severally, but not jointly, agrees to indemnify
and hold harmless the Company, the Initial Purchasers, each Underwriter and the
other selling Holders, and each of their respective directors and officers, and
each Person, if any, who controls the Company, the Initial Purchasers, any
Underwriter or any other selling Holder within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act, against any and all loss, liability,
claim, damage and expense described in the indemnity contained in Section 4(a)
hereof, as incurred, but only with respect to untrue statements or omissions, or
alleged untrue statements or omissions, made in the Shelf Registration Statement
(or any amendment thereto) or any Prospectus included therein (or any amendment
or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company expressly for use in the Shelf Registration
Statement (or any amendment thereto) or such Prospectus (or any amendment or
supplement thereto); provided, however, that no such Holder shall be liable for
any claims hereunder in excess of the amount of net proceeds received by such
Holder from the sale of Registrable Securities pursuant to such Shelf
Registration Statement.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action or proceeding
commenced against it in respect of which indemnity may be sought hereunder, but
failure to so notify an indemnifying party shall not relieve such indemnifying
party from any liability hereunder to the extent it is not materially prejudiced
as a result thereof and in any event shall not relieve it from any liability
which it may have otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the defense of such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying party or parties be liable
for the fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action of separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 4 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section
17
<PAGE> 19
4(a)(ii) effected without its written consent if (i) such settlement is entered
into more than 60 days after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall have received notice of the terms of
such settlement at least 45 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in this Section 4 is for
any reason unavailable to or insufficient to hold harmless an indemnified party
in respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand, the
Holders on another hand, and the Initial Purchasers on another hand, from the
offering of the Securities, the Exchange Securities and the Registrable
Securities (taken together) included in such offering or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand, the
Holders on another hand and the Initial Purchasers on another hand in connection
with the statements or omissions which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.
The relative benefits received by the Company from the offering
of the Securities, the Exchange Securities and the Registrable Securities (taken
together) included in such offering shall in each case be deemed to include the
proceeds received by the Company in connection with the offering of the
Securities pursuant to the Purchase Agreement. The parties hereto agree that any
underwriting discount or commission or reimbursement of fees paid to the Initial
Purchasers pursuant to the Purchase Agreement shall not be deemed to be a
benefit received by the Initial Purchasers in connection with the offering of
the Exchange Securities or Registrable Securities included in such offering.
The relative fault of the Company on the one hand, the Holders on
another hand, and the Initial Purchasers on another hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company, the Holders or the Initial
Purchasers and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the Holders and the Initial Purchasers agree that it
would not be just and equitable if contribution pursuant to this Section 4 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this
Section 4. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
4 shall be deemed to include any legal and other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency of
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
18
<PAGE> 20
Notwithstanding the provisions of this Section 4, the Initial
Purchasers shall not be required to contribute any amount in excess of the
amount by which the total price at which the Securities sold by it were offered
exceeds the amount of any damages which such Initial Purchasers have otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4, each person, if any, who controls
an Initial Purchasers or Holder within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act shall have the same rights to contribution as such
Initial Purchasers or Holder, and each director of the Company, and each person,
if any, who controls the Company within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act shall have the same rights to contribution as
the Company.
5. Miscellaneous.
5.1. Rule 144 and Rule 144A. For so long as the Company is
subject to the reporting requirements of Section 13 or 15 of the 1934 Act, the
Company covenants that it will file the reports required to be filed by it under
the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder. If the Company ceases to be so
required to file such reports, the Company covenants that it will upon the
request of any Holder of Registrable Securities (a) make publicly available such
information as is necessary to permit sales pursuant to Rule 144 under the 1933
Act, (b) deliver such information to a prospective purchaser as is necessary to
permit sales pursuant to Rule 144A under the 1933 Act, and (c) take such further
action that is reasonable in the circumstances, in each case, to the extent
required from time to time to enable such Holder to sell its Registrable
Securities without registration under the 1933 Act within the limitation of the
exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be
amended from time to time, (ii) Rule 144A under the 1933 Act, as such Rule may
be amended from time to time, or (iii) any similar rules or regulations
hereafter adopted by the SEC. Upon the request of any Holder of Registrable
Securities, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.
5.2. No Inconsistent Agreements. The Company has not entered into
and the Company will not after the date of this Agreement enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with the rights granted to the Holders of the Company's other issued
and outstanding securities under any such agreements.
5.3. Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers of consents to departures form the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of
19
<PAGE> 21
the outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or departure.
5.4. Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (a) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 5.4, which address initially is the address set forth in the Purchase
Agreement with respect to the Initial Purchasers; and (b) if to the Company
initially at the Company's address set forth in the Purchase Agreement, and
thereafter at such other address of which notice is given in accordance with the
provisions of this Section 5.4.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; two business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the person given the same to the Trustee
under the Indenture, at the address specified in such Indenture.
5.5. Successor and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Purchase Agreement. If any transferee of any
Holder shall acquire Registrable Securities, in any manner, whether by operation
of law or otherwise, such Registrable Securities shall be held subject to all of
the terms of this Agreement, and by taking any holding such Registrable
Securities such person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Agreement, including
the restrictions on resale set forth in this Agreement and, if applicable, the
Purchase Agreement, and such person shall be entitled to receive the benefits
hereof.
5.6. Third Party Beneficiaries. The Initial Purchasers (even if
the Initial Purchasers are not Holders of Registrable Securities) shall be a
third party beneficiary to the agreements made hereunder between the Company, on
the one hand, and the Holders, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
Each Holder of Registrable Securities shall be a third party beneficiary to the
agreements made hereunder between the Company, on the one hand, and the Initial
Purchasers, on the other hand, and shall have the right to enforce such
agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights hereunder.
5.7. Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed
20
<PAGE> 22
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
5.8. Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
5.9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.10. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
21
<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
FREMONT GENERAL CORPORATION
By:
-----------------------------------------
Name:
Title:
Confirmed and accepted as
of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
GOLDMAN, SACHS & CO.
WARBURG DILLON READ LLC
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
-----------------------------------------
Authorized Signatory
22
<PAGE> 24
Exhibit A
Form of Opinion of Counsel
We are of the opinion that the Exchange Offer Registration
Statement and the Prospectus (other than the financial statements, notes or
schedules thereto and other financial data and supplemental schedules included
or incorporated by reference therein or omitted therefrom and the Form T-1, as
to which we need express no opinion), comply as to form in all material respects
with the requirements of the 1933 Act and the applicable rules and regulations
promulgated under the 1933 Act.
In addition, we have participated in conferences with officers
and other representatives of the Company, representatives of the independent
public accountants of the Company and representatives of the Initial Purchasers,
at which the contents of the Registration Statement and the Prospectus and
related matters were discussed and, although we are not passing upon, and do not
assume any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus and have
not made any independent check or verification thereof, during the course of
such participation, no facts came to our attention that caused us to believe
that the Registration Statement or any amendment thereto, at the time the
Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or that the Prospectus or any amendment or supplement thereto, at the time the
Prospectus was issued, at the time any such amended or supplemented Prospectus
was issued or at the Closing Time, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading; it being understood that we express no belief with respect
to the financial statements and schedules and other financial data included in
the Registration Statement and the Prospectus.
23
<PAGE> 1
EXHIBIT 4.11
Form of 7.70% Senior Notes due 2004
(Fremont General Corporation)
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY (AS
DEFINED IN THE INDENTURE) OR A NOMINEE THEREOF. THIS GLOBAL SECURITY IS
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY
OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS
DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY OTHER SECURITIES LAWS, AND MAY NOT BE OFFERED OR
SOLD IN VIOLATION OF THE SECURITIES ACT OR SUCH OTHER SECURITIES LAWS. THIS NOTE
MAY BE TRANSFERRED ONLY IN PRINCIPAL AMOUNTS OF $1,000 AND INTEGRAL MULTIPLES
THEREOF. THE HOLDER HEREOF, BY PURCHASING OR ACCEPTING THIS NOTE, AGREES FOR THE
BENEFIT OF FREMONT GENERAL CORPORATION (THE "COMPANY") THAT THIS NOTE MAY BE
RESOLD OR OTHERWISE TRANSFERRED ONLY (1) TO THE COMPANY, MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED, CREDIT SUISSE FIRST BOSTON CORPORATION, GOLDMAN,
SACHS & CO. OR WARBURG DILLON READ LLC (THE "INITIAL PURCHASERS"), OR BY,
THROUGH, OR IN A TRANSACTION APPROVED BY, THE INITIAL PURCHASERS, (2) SO LONG AS
THIS NOTE IS ELIGIBLE FOR RESALE
<PAGE> 2
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER, AS DEFINED IN
RULE 144A (A "QIB"), THAT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT OR AS A
FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS MUST ALSO BE QIBS) AND TO WHOM
NOTICE IS GIVEN THAT THE RESALE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT (IF AVAILABLE), (4) TO AN INSTITUTIONAL INVESTOR THAT
QUALIFIES AS AN ACCREDITED INVESTOR, AS DEFINED IN RULE 501(a)(1), (2), (3) OR
(7) UNDER THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR"), THAT IS
ACQUIRING A MINIMUM OF $100,000 AGGREGATE PRINCIPAL AMOUNT OF NOTES FOR ITS OWN
ACCOUNT OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS MUST ALSO BE
INSTITUTIONAL ACCREDITED INVESTORS UNLESS SUCH TRANSFEREE IS A BANK ACTING IN
ITS FIDUCIARY CAPACITY) FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, (5) TO AN INSTITUTIONAL ACCREDITED INVESTOR
ACQUIRING A MINIMUM OF $100,000 AGGREGATE PRINCIPAL AMOUNT OF NOTES IN AN
OFFSHORE TRANSACTION PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY
REGULATION S UNDER THE SECURITIES ACT OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION; PROVIDED THAT THE AGREEMENT OF THE HOLDER HEREOF IS SUBJECT TO ANY
REQUIREMENT OF LAW THAT THE DISPOSITION OF THE HOLDER'S PROPERTY SHALL AT ALL
TIMES BE AND REMAIN WITHIN ITS CONTROL. WITH RESPECT TO ANY RESALE OR OTHER
TRANSFER OF THIS NOTE, IF IN CERTIFICATED FORM, DESCRIBED IN CLAUSE (2), (4) OR
(5) ABOVE, THE TRUSTEE, WILL REQUIRE THE SUBMISSION TO IT OF A DULY COMPLETED
BOND POWER IN THE FORM ATTACHED TO THE OFFERING MEMORANDUM RELATING TO THIS NOTE
AS ANNEX A; PROVIDED THAT THE FOREGOING SUBMISSION SHALL NOT BE REQUIRED IF THIS
LEGEND HAS BEEN REMOVED IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THE
INDENTURE.
BY PURCHASING OR ACCEPTING THIS NOTE, THE HOLDER HEREOF REPRESENTS AND AGREES
FOR THE BENEFIT OF THE COMPANY (1) IT IS (A) A QIB ACQUIRING THIS NOTE FOR ITS
OWN ACCOUNT OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS MUST ALSO BE
QIBS) AND IT IS AWARE THAT THE RESALE OR OTHER TRANSFER TO IT IS BEING MADE IN
RELIANCE ON RULE 144A OR (B) AN INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING A
MINIMUM OF $100,000 AGGREGATE PRINCIPAL AMOUNT OF NOTES (Y) FOR ITS OWN ACCOUNT
OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS MUST ALSO BE INSTITUTIONAL
ACCREDITED INVESTORS UNLESS SUCH HOLDER IS A BANK ACTING IN ITS FIDUCIARY
CAPACITY) FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT OR (Z) IN AN OFFSHORE TRANSACTION PURSUANT TO AN
2
<PAGE> 3
EXEMPTION FROM REGISTRATION PROVIDED BY REGULATION S UNDER THE SECURITIES ACT
AND, IN EACH CASE, THAT IT IS ABLE TO BEAR THE ECONOMIC RISK OF AN INVESTMENT IN
THIS NOTE AND HAS SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS
MATTERS AS TO BE CAPABLE OF EVALUATING THE MERITS AND RISKS OF ACQUIRING THIS
NOTE AND (2) IT WILL NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE AND
OTHER TRANSFER RESTRICTIONS REFERRED TO ABOVE AND THAT THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT, THAT SUCH PURCHASER SHALL BE DEEMED TO HAVE
REPRESENTED AS TO THE MATTERS IN CLAUSE (1) OF THIS SENTENCE AND THAT SUCH
PURCHASER SHALL BE DEEMED TO HAVE AGREED TO NOTIFY ITS SUBSEQUENT TRANSFEREES AS
TO THE FOREGOING.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO BE BOUND BY THE
PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT RELATING TO ALL OF THE NOTES.
No. $___________
CUSIP No. 356609AA5
FREMONT GENERAL CORPORATION
7.70% Senior Notes due 2004
Fremont General Corporation, a Nevada corporation (hereinafter called
the "Company", which term includes any successor corporation under the Indenture
referred to below), for value received, hereby promises to pay to Cede & Co. or
registered assigns, the principal sum of ____________________ ($___________) on
March 17, 2004, and to pay interest thereon from March 17, 1999 or from the most
recent date to which interest has been paid or duly provided for, semiannually
on March 17 and September 17 in each year (each, an "Interest Payment Date"),
commencing September 17, 1999, at the rate of 7.70% per annum, until the
principal hereof is paid or duly made available for payment. Interest on this
Note shall be calculated on the basis of a 360-day year consisting of twelve
30-day months. The interest so payable and punctually paid or duly provided for
on any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Note (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the March 2 or September 2 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest which is payable, but is not punctually paid or duly provided for, on
any Interest Payment Date shall forthwith cease to be payable to the registered
Holder hereof on the relevant Regular Record Date by virtue of having been such
Holder, and may be paid to the Person in whose name this Note (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Company, notice whereof shall be given to the Holders of Notes of this series
not less than 30 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities
3
<PAGE> 4
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in such Indenture.
The Holder of this Note is entitled to the benefits of the Registration
Rights Agreement dated as of March 17, 1999 between the Company and the Initial
Purchaser named therein (as the same may be amended from time to time, the
"Registration Rights Agreement"). In the event that (a) the Exchange Offer
Registration Statement (as such term is defined in the Registration Rights
Agreement) is not filed with the Securities and Exchange Commission (the
"Commission") on or prior to the 90th calendar day following the Original Issue
Date, (b) the Exchange Offer Registration Statement is not declared effective on
or prior to the 150th calendar day following the Original Issue Date, (c) the
Exchange Offer (as such term is defined in the Registration Rights Agreement) is
not consummated or a Shelf Registration Statement (as such term is defined in
the Registration Rights Agreement) with respect to the Notes is not declared
effective on or prior to the earlier of (x) the 30th day following the date on
which the Exchange Offer Registration Statement is declared effective and (y)
the 180th day following the Original Issue Date or (d) the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable (each such event referred to in clauses (a) through (d), a
"Registration Default") then the interest rate borne by the Notes shall be
increased by one-quarter of one percent (0.25%) per annum immediately upon the
occurrence of each Registration Default, which rate will increase by one-quarter
of one percent (0.25%) per annum at the beginning of each 90-day period (or
portion thereof) that such additional interest continues to accrue under any
circumstance; provided that the aggregate amount of any such increase in the
interest rate on the Notes pursuant to the foregoing provisions shall in no
event exceed one percent (1.00%) per annum; and provided, further, that if the
Exchange Offer Registration Statement is not declared effective on or prior to
the 150th day following the Original Issue Date, and this Note is owned by a
Person (as defined in the Registration Rights Agreement) who does not comply in
all material respects with its obligations under the third to the last paragraph
of Section 3 of the Registration Rights Agreement, this Note will not be
entitled to any such increase in the interest rate for any day after the 180th
day following the Original Issue Date. Upon (i) the filing of the Exchange Offer
Registration Statement after the 90th day described in clause (a) above, (ii)
the effectiveness of the Exchange Offer Registration Statement after the 150th
day described in clause (b) above, (iii) the consummation of the Exchange Offer
or the effectiveness of the Shelf Registration Statement, as the case may be,
after the earlier of the 30th day and the 180th day described in clause (c)
above, (iv) the cure of any Registration Default described in clause (d) above,
or (v) the date on which all Registrable Securities are saleable pursuant to
Rule 144(k) under the Securities Act (or any successor provision) the interest
rate borne by this Note from the date of such filing, effectiveness or
consummation, as the case may be, will be reduced to 7.70% per annum. The
Company shall promptly provide the Trustee with notice of any change in the
interest rate borne by this Note; provided, however, that if, after any such
reduction in interest rate, a different event specified in clause (a), (b), (c)
or (d) occurs, the interest rate will again be increased pursuant to the
foregoing provisions.
Payment of the principal of and the interest on this Note will be made
at the office or agency of the Company maintained for that purpose in The
Borough of Manhattan, The City of New York, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that, at the option of the
Company, interest may be paid by check mailed to the address of the Person
entitled thereto as
4
<PAGE> 5
such address shall appear in the Security Register; provided, further, that
payment to the Depository Trust Company or any successor depository ("DTC") may
be made by wire transfer to the account designated by DTC or such successor
depository in writing.
This Note is one of a duly authorized issue of securities of the Company
(herein called the "Notes") issued and to be issued in one or more series under
an Indenture dated as of March 1, 1999 (herein called, together with all
indentures supplemental thereto, the "Indenture") between the Company and The
First National Bank of Chicago, as Trustee (herein called the "Trustee", which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties and immunities thereunder
of the Company, the Trustee and the Holders of the Notes, and of the terms upon
which the Notes are, and are to be, authenticated and delivered. This Note is
one of the series designated on the face hereof, limited (subject to exceptions
provided in the Indenture) to the aggregate principal amount specified in the
Officers' Certificate dated March 17, 1999 establishing the terms of the Notes
pursuant to the Indenture.
This Note is redeemable at the option of the Company, in whole at any
time or in part from time to time, at a redemption price equal to the greater of
(i) 100% of the principal amount of this Note to be redeemed and (ii) the sum,
as determined by the Independent Investment Banker (as defined below), of the
present values of the principal amount of this Note to be redeemed and the
remaining scheduled payments of interest on the principal amount of this Note to
be redeemed from the redemption date to March 17, 2004 (the "Remaining Term"),
in each case, discounted from their respective scheduled payment dates to the
redemption date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate (as defined below) plus,
accrued but unpaid interest thereon to the redemption date.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, calculated on the third Business Day preceding such
redemption date using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date, plus 50 basis points.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable to
the Remaining Term that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the Remaining Term.
"Comparable Treasury Price" means, with respect to any redemption date,
the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or if the Trustee obtains fewer than four such Reference Treasury
Dealer Quotations, the average of all such Reference Treasury Dealer Quotations.
"Independent Investment Banker" means one of the Reference Treasury
Dealers appointed by the Trustee after consultation with the Company.
5
<PAGE> 6
"Reference Treasury Dealer" means each of Merrill Lynch Government
Securities Inc., Credit Suisse First Boston Corporation, Goldman, Sachs & Co.
and Warburg Dillon Read LLC, their affiliates, their respective successors and
any other primary U.S. Government securities dealer in New York City (each a
"Primary Treasury Dealer") selected by the Company in addition to, or in
substitution for, such firm; provided, however, that if any of the foregoing
shall cease to be a Primary Treasury Dealer, the Company will substitute another
Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third Business Day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to the Holder hereof at its address as
such address shall appear in the Security Register of the Company. Unless the
Company defaults in payment of the redemption price and accrued interest on and
after the redemption date, interest will cease to accrue on the principal amount
of this Note called for redemption.
Except as provided above, this Note is not redeemable by the Company
prior to maturity and is not subject to any sinking fund.
If an Event of Default with respect to the Notes shall occur and be
continuing, the principal of the Notes may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series issued
under the Indenture at any time by the Company and the Trustee with the consent
of the Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding of each series affected thereby. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities of any series at the
time Outstanding, on behalf of the Holders of all Securities of such series, to
waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Notes
issued upon the registration of transfer hereof or in exchange herefor or in
lieu hereof, whether or not notation of such consent or waiver is made upon this
Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note,
at the times, place and rate, and in the coin or currency, herein and in the
Indenture prescribed.
6
<PAGE> 7
As provided in the Indenture and subject to certain limitations set
forth therein and in this Note, the transfer of this Note may be registered on
the Security Register upon surrender of this Note for registration of transfer
at the office or agency of the Company maintained for the purpose in any place
where the principal of and interest on this Note are payable, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or by his
attorney duly authorized in writing, and thereupon one or more new Notes of this
series and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons in the
denominations specified in the Officers' Certificate dated March 17, 1999
establishing the terms of the Notes, all as more fully provided in the Indenture
and such Officers' Certificate. As provided in the Indenture and in such
Officers' Certificate, and subject to certain limitations set forth in the
Indenture, such Officers' Certificate and in this Note, the Notes are
exchangeable for a like aggregate principal amount of Notes of this series in
different authorized denominations, as requested by the Holders surrendering the
same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith, other than in
certain cases provided in the Indenture.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture contains provisions whereby (i) the Company may be
discharged from its obligations with respect to the Notes (subject to certain
exceptions) or (ii) the Company may be released from its obligation under
specified covenants and agreements in the Indenture, in each case if the Company
irrevocably deposits with the Trustee money or U.S. Government Obligations
sufficient to pay and discharge the entire indebtedness on all Notes of this
series, and satisfies certain other conditions, all as more fully provided in
the Indenture.
This Note shall be governed by and construed in accordance with the laws
of the State of New York.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
7
<PAGE> 8
Unless the certificate of authentication hereon has been executed by or
on behalf of the Trustee under the Indenture by the manual signature of one of
its authorized signatories, this Note shall not be entitled to any benefits
under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: March 17, 1999
[Seal] FREMONT GENERAL CORPORATION
Attest: By:
Name: Name:
Title: Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO
as Trustee
By:
Authorized Signatory
8
<PAGE> 9
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ____ Custodian ____
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of survivorship Under Uniform Gifts
to Minors
and not as tenants in common Act__________________
(State)
Additional abbreviations may also be used though not in the above
list.
FOR VALUE RECEIVED, the undersigned registered holder hereby sell(s), assign(s)
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------------------
- ---------------------------------------------------
- -------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- -------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
- -------------------------------------------------------------------------------
to transfer said Note on the books of the Company with full power of
substitution in the premises.
9
<PAGE> 10
Dated:
Notice: The signature to this assignment must correspond with the
name as it appears upon the face of the within Note in every
particular, without alteration or enlargement or any change
whatever.
10
<PAGE> 11
BOND POWER
TO BE COMPLETED AND DELIVERED WITH THIS NOTE TO THE TRUSTEE IF
THE UNDERSIGNED HOLDER WISHES TO SELL, ASSIGN AND TRANSFER THIS NOTE:
In connection with the resale or other transfer of the Note occurring
prior to the time the legend originally set forth on the face of this Note (or
one or more predecessor Notes) restricting resales and other transfers thereof
has been removed in accordance with the procedures set forth in the Indenture
(other than a resale or other transfer made to the Company or to, by, through,
or in a transaction approved by the Initial Purchasers), the undersigned Holder
certifies that, without utilizing any general solicitation or general
advertising:
[CHECK ONE]
[ ] (a) Such Note is being transferred by the undersigned Holder to a
"qualified institutional buyer," as defined in Rule 144A under the
Securities Act of 1933, as amended, pursuant to the exemption from
registration under the Securities Act of 1933, as amended, provided by
Rule 144A thereunder.
or
[ ] (b) Such Note is being transferred by the undersigned Holder to an
institutional investor which is an "accredited investor," as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as
amended, and that the undersigned Holder has been advised by the
prospective transferee that such transferee will hold such Note for its
own account, or as a fiduciary or agent for others (which others are
also institutional accredited investors, unless such transferee is a
bank acting in its fiduciary capacity), for investment purposes and not
for distribution, subject to any requirement of law that the disposition
of such transferee's property shall at all times be and remain within
its control. The Notes are being transferred in a minimum aggregate
principal amount of $100,000.
or
[ ] (c) Such Note is being transferred by the undersigned Holder to an
institutional investor which is an "accredited investor," as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as
amended, in an "offshore transaction," as defined in Regulation S under
the Securities Act of 1933, as amended, pursuant to the exemption from
registration under the Securities Act of 1933, as amended, provided by
Regulation S thereunder. The Notes are being transferred in a minimum
aggregate principal amount of $100,000.
If none of the foregoing boxes are checked, then, so long as this Note shall
bear a legend on the face thereof restricting resales and other transfers
thereof (except in the case of a resale or other transfer made to the Company or
to, by, through, or in a transaction approved by, the Initial Purchasers), the
Trustee shall not be obligated to register such Note in the name of any person
11
<PAGE> 12
other than the Holder thereof and until the conditions to any such transfer of
registration set forth in this Note and in the Indenture shall have been
satisfied.
Dated:
------------------------ -----------------------------------------
[Type or print name of Holder]
By:
--------------------------------------
The signature of the Holder must
correspond with the name as written upon
the face of this Note in every particular,
without alteration or enlargement or any
change whatsoever.
TO BE COMPLETED BY TRANSFEREE
IF (a) ABOVE IS CHECKED:
The undersigned transferee represents and warrants that (i) it is a
"qualified institutional buyer," as defined in Rule 144A under the Securities
Act of 1933, as amended, (ii) this instrument has been executed on behalf of the
undersigned transferee by one of its executive officers and (iii) it is aware
that the Holder of this Note is relying upon the undersigned transferee's
foregoing representations in order to claim the exemption from registration
provided by Rule 144A. The undersigned transferee acknowledges and agrees that
this Note has not been registered under the Securities Act of 1933, as amended,
and may not be transferred except in accordance with the resale and other
transfer restrictions set forth in the legend on the face hereof.
Dated:
------------------------ -----------------------------------------
[Type or print name of transferee]
By:
--------------------------------------
Executive Officer
TO BE COMPLETED BY TRANSFEREE
IF (b) ABOVE IS CHECKED:
The undersigned transferee represents and warrants that it is an
institutional investor and an "accredited investor," as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended, and
that this instrument has been executed on behalf of the undersigned transferee
by one of its executive officers. The undersigned transferee undertakes to hold
this Note acquired from the Holder hereof for its own account, or as a fiduciary
or agent for others (which others are also institutional accredited investors,
unless such transferee is a bank acting in its fiduciary capacity), for
investment purposes and not for distribution, subject to any requirement of law
that the disposition of the undersigned transferee's property shall at all times
be and remain within its control. The undersigned acknowledges and agrees that
this Note has
12
<PAGE> 13
not been registered under the Securities Act of 1933, as amended, and may not be
transferred except in accordance with the resale and other transfer restrictions
set forth in the legend on the face hereof. The Notes are being acquired in a
minimum aggregate principal amount of $100,000.
Dated:
------------------------ -----------------------------------------
[Type or print name of transferee]
By:
--------------------------------------
Executive Officer
TO BE COMPLETED BY TRANSFEREE
IF (c) ABOVE IS CHECKED:
The undersigned transferee represents and warrants that it is an
institutional investor and an "accredited investor," as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended, and
that this instrument has been executed on behalf of the undersigned transferee
by one of its executive officers. In addition, the undersigned transferee
represents and warrants that it is not a U.S. person (as defined in Regulation S
under the Securities Act of 1933, as amended) and it is acquiring this Note from
the Holder hereof in an "offshore transaction" (as defined in Regulation S)
pursuant to the exemption from registration under the Securities Act of 1933, as
amended, provided by Regulation S thereunder. The undersigned transferee
acknowledges and agrees that this Note has not been registered under the
Securities Act of 1933, as amended, and may not be transferred except in
accordance with the resale and other transfer restrictions set forth in the
legend on the face hereof. The Notes are being acquired in a minimum aggregate
principal amount of $100,000.
Dated:
------------------------ -----------------------------------------
[Type or print name of transferee]
By:
-------------------------------------
Executive Officer
13
<PAGE> 1
EXHIBIT 4.12
(Fremont General Corporation)
Form of 7.875% Senior Notes due 2009
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY (AS
DEFINED IN THE INDENTURE) OR A NOMINEE THEREOF. THIS GLOBAL SECURITY IS
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY
OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS
DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY OTHER SECURITIES LAWS, AND MAY NOT BE OFFERED OR
SOLD IN VIOLATION OF THE SECURITIES ACT OR SUCH OTHER SECURITIES LAWS. THIS NOTE
MAY BE TRANSFERRED ONLY IN PRINCIPAL AMOUNTS OF $1,000 AND INTEGRAL MULTIPLES
THEREOF. THE HOLDER HEREOF, BY PURCHASING OR ACCEPTING THIS NOTE, AGREES FOR THE
BENEFIT OF FREMONT GENERAL CORPORATION (THE "COMPANY") THAT THIS NOTE MAY BE
RESOLD OR OTHERWISE TRANSFERRED ONLY (1) TO THE COMPANY, MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED, CREDIT SUISSE FIRST BOSTON CORPORATION, GOLDMAN,
SACHS & CO. OR WARBURG DILLON READ LLC (THE "INITIAL PURCHASERS"), OR BY,
THROUGH, OR IN A TRANSACTION APPROVED BY, THE INITIAL PURCHASERS, (2) SO LONG AS
THIS NOTE IS ELIGIBLE FOR RESALE
<PAGE> 2
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER, AS DEFINED IN
RULE 144A (A "QIB"), THAT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT OR AS A
FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS MUST ALSO BE QIBS) AND TO WHOM
NOTICE IS GIVEN THAT THE RESALE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT (IF AVAILABLE), (4) TO AN INSTITUTIONAL INVESTOR THAT
QUALIFIES AS AN ACCREDITED INVESTOR, AS DEFINED IN RULE 501(a)(1), (2), (3) OR
(7) UNDER THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR"), THAT IS
ACQUIRING A MINIMUM OF $100,000 AGGREGATE PRINCIPAL AMOUNT OF NOTES FOR ITS OWN
ACCOUNT OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS MUST ALSO BE
INSTITUTIONAL ACCREDITED INVESTORS UNLESS SUCH TRANSFEREE IS A BANK ACTING IN
ITS FIDUCIARY CAPACITY) FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, (5) TO AN INSTITUTIONAL ACCREDITED INVESTOR
ACQUIRING A MINIMUM OF $100,000 AGGREGATE PRINCIPAL AMOUNT OF NOTES IN AN
OFFSHORE TRANSACTION PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY
REGULATION S UNDER THE SECURITIES ACT OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION; PROVIDED THAT THE AGREEMENT OF THE HOLDER HEREOF IS SUBJECT TO ANY
REQUIREMENT OF LAW THAT THE DISPOSITION OF THE HOLDER'S PROPERTY SHALL AT ALL
TIMES BE AND REMAIN WITHIN ITS CONTROL. WITH RESPECT TO ANY RESALE OR OTHER
TRANSFER OF THIS NOTE, IF IN CERTIFICATED FORM, DESCRIBED IN CLAUSE (2), (4) OR
(5) ABOVE, THE TRUSTEE, WILL REQUIRE THE SUBMISSION TO IT OF A DULY COMPLETED
BOND POWER IN THE FORM ATTACHED TO THE OFFERING MEMORANDUM RELATING TO THIS NOTE
AS ANNEX A; PROVIDED THAT THE FOREGOING SUBMISSION SHALL NOT BE REQUIRED IF THIS
LEGEND HAS BEEN REMOVED IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THE
INDENTURE.
BY PURCHASING OR ACCEPTING THIS NOTE, THE HOLDER HEREOF REPRESENTS AND AGREES
FOR THE BENEFIT OF THE COMPANY (1) IT IS (A) A QIB ACQUIRING THIS NOTE FOR ITS
OWN ACCOUNT OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS MUST ALSO BE
QIBS) AND IT IS AWARE THAT THE RESALE OR OTHER TRANSFER TO IT IS BEING MADE IN
RELIANCE ON RULE 144A OR (B) AN INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING A
MINIMUM OF $100,000 AGGREGATE PRINCIPAL AMOUNT OF NOTES (Y) FOR ITS OWN ACCOUNT
OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS MUST ALSO BE INSTITUTIONAL
ACCREDITED INVESTORS UNLESS SUCH HOLDER IS A BANK ACTING IN ITS FIDUCIARY
CAPACITY) FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT OR (Z) IN AN OFFSHORE TRANSACTION PURSUANT TO AN
2
<PAGE> 3
EXEMPTION FROM REGISTRATION PROVIDED BY REGULATION S UNDER THE SECURITIES ACT
AND, IN EACH CASE, THAT IT IS ABLE TO BEAR THE ECONOMIC RISK OF AN INVESTMENT IN
THIS NOTE AND HAS SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS
MATTERS AS TO BE CAPABLE OF EVALUATING THE MERITS AND RISKS OF ACQUIRING THIS
NOTE AND (2) IT WILL NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE AND
OTHER TRANSFER RESTRICTIONS REFERRED TO ABOVE AND THAT THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT, THAT SUCH PURCHASER SHALL BE DEEMED TO HAVE
REPRESENTED AS TO THE MATTERS IN CLAUSE (1) OF THIS SENTENCE AND THAT SUCH
PURCHASER SHALL BE DEEMED TO HAVE AGREED TO NOTIFY ITS SUBSEQUENT TRANSFEREES AS
TO THE FOREGOING.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO BE BOUND BY THE
PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT RELATING TO ALL OF THE NOTES.
No. $___________
CUSIP No. 356609AD9
FREMONT GENERAL CORPORATION
7.875% Senior Notes due 2009
Fremont General Corporation, a Nevada corporation (hereinafter called
the "Company", which term includes any successor corporation under the Indenture
referred to below), for value received, hereby promises to pay to Cede & Co. or
registered assigns, the principal sum of ____________________ ($___________) on
March 17, 2009, and to pay interest thereon from March 17, 1999 or from the most
recent date to which interest has been paid or duly provided for, semiannually
on March 17 and September 17 in each year (each, an "Interest Payment Date"),
commencing September 17, 1999, at the rate of 7.875% per annum, until the
principal hereof is paid or duly made available for payment. Interest on this
Note shall be calculated on the basis of a 360-day year consisting of twelve
30-day months. The interest so payable and punctually paid or duly provided for
on any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Note (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the March 2 or September 2 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest which is payable, but is not punctually paid or duly provided for, on
any Interest Payment Date shall forthwith cease to be payable to the registered
Holder hereof on the relevant Regular Record Date by virtue of having been such
Holder, and may be paid to the Person in whose name this Note (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Company, notice whereof shall be given to the Holders of Notes of this series
not less than 30 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities
3
<PAGE> 4
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in such Indenture.
The Holder of this Note is entitled to the benefits of the Registration
Rights Agreement dated as of March 17, 1999 between the Company and the Initial
Purchaser named therein (as the same may be amended from time to time, the
"Registration Rights Agreement"). In the event that (a) the Exchange Offer
Registration Statement (as such term is defined in the Registration Rights
Agreement) is not filed with the Securities and Exchange Commission (the
"Commission") on or prior to the 90th calendar day following the Original Issue
Date, (b) the Exchange Offer Registration Statement is not declared effective on
or prior to the 150th calendar day following the Original Issue Date, (c) the
Exchange Offer (as such term is defined in the Registration Rights Agreement) is
not consummated or a Shelf Registration Statement (as such term is defined in
the Registration Rights Agreement) with respect to the Notes is not declared
effective on or prior to the earlier of (x) the 30th day following the date on
which the Exchange Offer Registration Statement is declared effective and (y)
the 180th day following the Original Issue Date or (d) the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable (each such event referred to in clauses (a) through (d), a
"Registration Default") then the interest rate borne by the Notes shall be
increased by one-quarter of one percent (0.25%) per annum immediately upon the
occurrence of each Registration Default, which rate will increase by one-quarter
of one percent (0.25%) per annum at the beginning of each 90-day period (or
portion thereof) that such additional interest continues to accrue under any
circumstance; provided that the aggregate amount of any such increase in the
interest rate on the Notes pursuant to the foregoing provisions shall in no
event exceed one percent (1.00%) per annum; and provided, further, that if the
Exchange Offer Registration Statement is not declared effective on or prior to
the 150th day following the Original Issue Date, and this Note is owned by a
Person (as defined in the Registration Rights Agreement) who does not comply in
all material respects with its obligations under the third to the last paragraph
of Section 3 of the Registration Rights Agreement, this Note will not be
entitled to any such increase in the interest rate for any day after the 180th
day following the Original Issue Date. Upon (i) the filing of the Exchange Offer
Registration Statement after the 90th day described in clause (a) above, (ii)
the effectiveness of the Exchange Offer Registration Statement after the 150th
day described in clause (b) above, (iii) the consummation of the Exchange Offer
or the effectiveness of the Shelf Registration Statement, as the case may be,
after the earlier of the 30th day and the 180th day described in clause (c)
above, (iv) the cure of any Registration Default described in clause (d) above,
or (v) the date on which all Registrable Securities are saleable pursuant to
Rule 144(k) under the Securities Act (or any successor provision) the interest
rate borne by this Note from the date of such filing, effectiveness or
consummation, as the case may be, will be reduced to 7.875% per annum. The
Company shall promptly provide the Trustee with notice of any change in the
interest rate borne by this Note; provided, however, that if, after any such
reduction in interest rate, a different event specified in clause (a), (b), (c)
or (d) occurs, the interest rate will again be increased pursuant to the
foregoing provisions.
Payment of the principal of and the interest on this Note will be made
at the office or agency of the Company maintained for that purpose in The
Borough of Manhattan, The City of New York, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that, at the option of the
Company, interest may be paid by check mailed to the address of the Person
entitled thereto as
4
<PAGE> 5
such address shall appear in the Security Register; provided, further, that
payment to the Depository Trust Company or any successor depository ("DTC") may
be made by wire transfer to the account designated by DTC or such successor
depository in writing.
This Note is one of a duly authorized issue of securities of the Company
(herein called the "Notes") issued and to be issued in one or more series under
an Indenture dated as of March 1, 1999 (herein called, together with all
indentures supplemental thereto, the "Indenture") between the Company and The
First National Bank of Chicago, as Trustee (herein called the "Trustee", which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties and immunities thereunder
of the Company, the Trustee and the Holders of the Notes, and of the terms upon
which the Notes are, and are to be, authenticated and delivered. This Note is
one of the series designated on the face hereof, limited (subject to exceptions
provided in the Indenture) to the aggregate principal amount specified in the
Officers' Certificate dated March 17, 1999 establishing the terms of the Notes
pursuant to the Indenture.
This Note is redeemable at the option of the Company, in whole at any
time or in part from time to time, at a redemption price equal to the greater of
(i) 100% of the principal amount of this Note to be redeemed and (ii) the sum,
as determined by the Independent Investment Banker (as defined below), of the
present values of the principal amount of this Note to be redeemed and the
remaining scheduled payments of interest on the principal amount of this Note to
be redeemed from the redemption date to March 17, 2009 (the "Remaining Term"),
in each case, discounted from their respective scheduled payment dates to the
redemption date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate (as defined below) plus,
accrued but unpaid interest thereon to the redemption date.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, calculated on the third Business Day preceding such
redemption date using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date, plus 50 basis points.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable to
the Remaining Term that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the Remaining Term.
"Comparable Treasury Price" means, with respect to any redemption date,
the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or if the Trustee obtains fewer than four such Reference Treasury
Dealer Quotations, the average of all such Reference Treasury Dealer Quotations.
"Independent Investment Banker" means one of the Reference Treasury
Dealers appointed by the Trustee after consultation with the Company.
5
<PAGE> 6
"Reference Treasury Dealer" means each of Merrill Lynch Government
Securities Inc., Credit Suisse First Boston Corporation, Goldman, Sachs & Co.
and Warburg Dillon Read LLC, their affiliates, their respective successors and
any other primary U.S. Government securities dealer in New York City (each a
"Primary Treasury Dealer") selected by the Company in addition to, or in
substitution for, such firm; provided, however, that if any of the foregoing
shall cease to be a Primary Treasury Dealer, the Company will substitute another
Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third Business Day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to the Holder hereof at its address as
such address shall appear in the Security Register of the Company. Unless the
Company defaults in payment of the redemption price and accrued interest on and
after the redemption date, interest will cease to accrue on the principal amount
of this Note called for redemption.
Except as provided above, this Note is not redeemable by the Company
prior to maturity and is not subject to any sinking fund.
If an Event of Default with respect to the Notes shall occur and be
continuing, the principal of the Notes may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series issued
under the Indenture at any time by the Company and the Trustee with the consent
of the Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding of each series affected thereby. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities of any series at the
time Outstanding, on behalf of the Holders of all Securities of such series, to
waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Notes
issued upon the registration of transfer hereof or in exchange herefor or in
lieu hereof, whether or not notation of such consent or waiver is made upon this
Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note,
at the times, place and rate, and in the coin or currency, herein and in the
Indenture prescribed.
6
<PAGE> 7
As provided in the Indenture and subject to certain limitations set
forth therein and in this Note, the transfer of this Note may be registered on
the Security Register upon surrender of this Note for registration of transfer
at the office or agency of the Company maintained for the purpose in any place
where the principal of and interest on this Note are payable, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or by his
attorney duly authorized in writing, and thereupon one or more new Notes of this
series and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons in the
denominations specified in the Officers' Certificate dated March 17, 1999
establishing the terms of the Notes, all as more fully provided in the Indenture
and such Officers' Certificate. As provided in the Indenture and in such
Officers' Certificate, and subject to certain limitations set forth in the
Indenture, such Officers' Certificate and in this Note, the Notes are
exchangeable for a like aggregate principal amount of Notes of this series in
different authorized denominations, as requested by the Holders surrendering the
same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith, other than in
certain cases provided in the Indenture.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture contains provisions whereby (i) the Company may be
discharged from its obligations with respect to the Notes (subject to certain
exceptions) or (ii) the Company may be released from its obligation under
specified covenants and agreements in the Indenture, in each case if the Company
irrevocably deposits with the Trustee money or U.S. Government Obligations
sufficient to pay and discharge the entire indebtedness on all Notes of this
series, and satisfies certain other conditions, all as more fully provided in
the Indenture.
This Note shall be governed by and construed in accordance with the laws
of the State of New York.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
7
<PAGE> 8
Unless the certificate of authentication hereon has been executed by or
on behalf of the Trustee under the Indenture by the manual signature of one of
its authorized signatories, this Note shall not be entitled to any benefits
under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: March 17, 1999
[Seal] FREMONT GENERAL CORPORATION
Attest: By:
Name: Name:
Title: Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO
as Trustee
By:
Authorized Signatory
8
<PAGE> 9
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ___ Custodian ___
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of survivorship Under Uniform Gifts to
Minors and not as tenants in common Act_________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, the undersigned registered holder hereby sell(s), assign(s)
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------------------
- ---------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
- --------------------------------------------------------------------------------
to transfer said Note on the books of the Company with full power of
substitution in the premises.
9
<PAGE> 10
Dated:
Notice: The signature to this assignment must correspond with the name
as it appears upon the face of the within Note in every particular,
without alteration or enlargement or any change whatever.
10
<PAGE> 11
BOND POWER
TO BE COMPLETED AND DELIVERED WITH THIS NOTE TO THE TRUSTEE IF THE UNDERSIGNED
HOLDER WISHES TO SELL, ASSIGN AND TRANSFER THIS NOTE:
In connection with the resale or other transfer of the Note occurring
prior to the time the legend originally set forth on the face of this Note (or
one or more predecessor Notes) restricting resales and other transfers thereof
has been removed in accordance with the procedures set forth in the Indenture
(other than a resale or other transfer made to the Company or to, by, through,
or in a transaction approved by the Initial Purchasers), the undersigned Holder
certifies that, without utilizing any general solicitation or general
advertising:
[CHECK ONE]
[ ] (a) Such Note is being transferred by the undersigned Holder to a
"qualified institutional buyer," as defined in Rule 144A under the
Securities Act of 1933, as amended, pursuant to the exemption from
registration under the Securities Act of 1933, as amended, provided by
Rule 144A thereunder.
or
[ ] (b) Such Note is being transferred by the undersigned Holder to an
institutional investor which is an "accredited investor," as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as
amended, and that the undersigned Holder has been advised by the
prospective transferee that such transferee will hold such Note for its
own account, or as a fiduciary or agent for others (which others are
also institutional accredited investors, unless such transferee is a
bank acting in its fiduciary capacity), for investment purposes and not
for distribution, subject to any requirement of law that the disposition
of such transferee's property shall at all times be and remain within
its control. The Notes are being transferred in a minimum aggregate
principal amount of $100,000.
or
[ ] (c) Such Note is being transferred by the undersigned Holder to an
institutional investor which is an "accredited investor," as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as
amended, in an "offshore transaction," as defined in Regulation S under
the Securities Act of 1933, as amended, pursuant to the exemption from
registration under the Securities Act of 1933, as amended, provided by
Regulation S thereunder. The Notes are being transferred in a minimum
aggregate principal amount of $100,000.
If none of the foregoing boxes are checked, then, so long as this Note shall
bear a legend on the face thereof restricting resales and other transfers
thereof (except in the case of a resale or other transfer made to the Company or
to, by, through, or in a transaction approved by, the Initial Purchasers), the
Trustee shall not be obligated to register such Note in the name of any person
11
<PAGE> 12
other than the Holder thereof and until the conditions to any such transfer of
registration set forth in this Note and in the Indenture shall have been
satisfied.
Dated:
------------------------ -----------------------------------------
[Type or print name of Holder]
By:
--------------------------------------
The signature of the Holder must
correspond with the name as written upon
the face of this Note in every particular,
without alteration or enlargement or any
change whatsoever.
TO BE COMPLETED BY TRANSFEREE
IF (a) ABOVE IS CHECKED:
The undersigned transferee represents and warrants that (i) it is a
"qualified institutional buyer," as defined in Rule 144A under the Securities
Act of 1933, as amended, (ii) this instrument has been executed on behalf of the
undersigned transferee by one of its executive officers and (iii) it is aware
that the Holder of this Note is relying upon the undersigned transferee's
foregoing representations in order to claim the exemption from registration
provided by Rule 144A. The undersigned transferee acknowledges and agrees that
this Note has not been registered under the Securities Act of 1933, as amended,
and may not be transferred except in accordance with the resale and other
transfer restrictions set forth in the legend on the face hereof.
Dated:
------------------------ -----------------------------------------
[Type or print name of transferee]
By:
--------------------------------------
Executive Officer
TO BE COMPLETED BY TRANSFEREE
IF (b) ABOVE IS CHECKED:
The undersigned transferee represents and warrants that it is an
institutional investor and an "accredited investor," as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended, and
that this instrument has been executed on behalf of the undersigned transferee
by one of its executive officers. The undersigned transferee undertakes to hold
this Note acquired from the Holder hereof for its own account, or as a fiduciary
or agent for others (which others are also institutional accredited investors,
unless such transferee is a bank acting in its fiduciary capacity), for
investment purposes and not for distribution, subject to any requirement of law
that the disposition of the undersigned transferee's property shall at all times
be and remain within its control. The undersigned acknowledges and agrees that
this Note has
12
<PAGE> 13
not been registered under the Securities Act of 1933, as amended, and may not be
transferred except in accordance with the resale and other transfer restrictions
set forth in the legend on the face hereof. The Notes are being acquired in a
minimum aggregate principal amount of $100,000.
Dated:
------------------------ -----------------------------------------
[Type or print name of transferee]
By:
--------------------------------------
Executive Officer
TO BE COMPLETED BY TRANSFEREE
IF (c) ABOVE IS CHECKED:
The undersigned transferee represents and warrants that it is an
institutional investor and an "accredited investor," as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended, and
that this instrument has been executed on behalf of the undersigned transferee
by one of its executive officers. In addition, the undersigned transferee
represents and warrants that it is not a U.S. person (as defined in Regulation S
under the Securities Act of 1933, as amended) and it is acquiring this Note from
the Holder hereof in an "offshore transaction" (as defined in Regulation S)
pursuant to the exemption from registration under the Securities Act of 1933, as
amended, provided by Regulation S thereunder. The undersigned transferee
acknowledges and agrees that this Note has not been registered under the
Securities Act of 1933, as amended, and may not be transferred except in
accordance with the resale and other transfer restrictions set forth in the
legend on the face hereof. The Notes are being acquired in a minimum aggregate
principal amount of $100,000.
Dated:
------------------------ -----------------------------------------
[Type or print name of transferee]
By:
--------------------------------------
Executive Officer
13
<PAGE> 1
EXHIBIT 10.1(d)
AMENDMENT NUMBER FOUR
TO THE
FREMONT GENERAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
Effective September 1, 1998, the Fremont General Corporation Employee Stock
Ownership Plan (the "ESOP") is amended to provide that:
FIRST: With respect to former employees of Unicare Specialty Services, Inc.
("Unicare") who became Employees of Fremont General Corporation or one of its
Affiliated Companies (collectively, the "Employer") following acquisition of
Unicare by the Employer (the "Acquisition Date"), service with Unicare prior to
the Acquisition Date shall be counted for eligibility and vesting purposes under
the ESOP.
SECOND: For purposes of allocation under the ESOP in accordance with Section
4.2(c) for the ESOP Plan Year ending December 31, 1998:
(a) a former Unicare employee who is eligible to participate in the
ESOP shall be given credit for Hours of Service completed prior
to the Acquisition Date; and
(b) the Compensation of a former Unicare employee who is eligible to
participate in the ESOP shall be limited to Compensation paid by
the Employer for the period beginning with the Acquisition Date
and ending on December 31, 1998.
THIRD: Nothing in this amendment shall result in the reduction of the accrued
benefit of any Participant.
Fremont General Corporation
Dated: , 1999 By:
----------- --------------------------------------
Raymond G. Meyers
Senior Vice President
<PAGE> 1
EXHIBIT 10.5(b)
AMENDMENT NUMBER TWO
TO THE
FREMONT GENERAL CORPORATION
SUPPLEMENTAL RETIREMENT PLAN
Effective January 1, 1998, the Fremont General Corporation Supplemental
Retirement Plan, (the "Supplemental Plan") originally effective September 30,
1990 and last restated, in its entirety, effective January 1, 1997, is amended
as follows:
FIRST: Paragraph (g) of Section 2.1 of the Supplemental Plan is hereby
amended in its entirety to read as follows:
"(g) Compensation means all of an Employee's W-2 wages as defined in
Section 3401(a) of the Code for the purposes of income tax
withholding at the source but determined without regard to any
rules that limit the remuneration included in wages based on
the nature or location of the employment or the services
performed (such as the exception for agricultural labor in
Section 3401(a)(2) of the Code). Notwithstanding the foregoing,
Compensation shall not include FICA paid by the Employer with
respect to nonqualified deferred compensation or retirement
plans, Rideshare payments, relocation payments, Excess/SRP
distributions, amounts realized from the exercise of
nonqualified stock options or when restricted stock held by an
employee is no longer subject to substantial risk of
forfeiture, meals, moving expense payments, fringe car
payments, referral awards, parking, recognition awards and
nonperformance based bonuses including holiday
<PAGE> 2
bonuses, hiring bonuses and travel incentive bonuses.
Compensation shall include only that Compensation which is
actually paid to, or accrued on behalf of, a Participant during
the Plan Year, Compensation shall also include any amount which
is contributed by the Employer pursuant to a salary reduction
agreement and which is not includable in the gross income of
the Participant under Sections 125, 402(e)(3), 402(h) or 403(b)
of the Code."
SECOND: Paragraph (1) of Section 2.1 of the Supplemental Plan is hereby
amended in its entirety to read as follows:
"(1) "ESOP Excess Contributions" shall mean Company contributions to
the Supplemental Plan pursuant to Paragraph 4.1(c) that are
intended to compensate Participants for benefits lost under the
ESOP as a result of the application of Sections 415 and
401(a)(17) of the Code. For each Participant, the ESOP Excess
Contribution shall be based on the difference between the value
(as a percentage of Compensation) of Employer Stock allocated
to the accounts of ESOP Participants whose ESOP Benefit is not
limited by Section 415 or Section 401(a)(17) of the Code, and
the value (as a percentage of Compensation) of Employer Stock
allocated to the accounts of ESOP Participants who also are
Participants in the Supplemental Plan and whose ESOP benefit is
limited by Section 415 or Section 401(a)(17) of the Code,
reduced, however, by that portion of such difference allocated
to a
-2-
<PAGE> 3
Participant's account under the Fremont General Corporation
Excess Benefit Plan."
THIRD: The following subparagraph (c) is hereby added to Section 3.1 of
the Supplemental Plan:
"(c) Notwithstanding anything to the contrary in this instrument,
any employee (i) whose base salary plus auto allowance is equal
to or greater than the amount defined in Section 414(q) of the
Code, as adjusted, and (ii) who would be eligible to receive an
ESOP Excess Contribution if he or she were a Participant under
this Supplemental Plan, but who does not otherwise satisfy the
definition of a "Management Employee" under paragraph (o) of
Section 2.1 above, shall Participate in the Supplemental Plan
as of the first day of the Plan Year in which the requirements
of (i) and (ii) above of this paragraph are met.
Notwithstanding any of the foregoing to the contrary, such
"Special SRP Participant" shall be entitled to receive an ESOP
Excess Contribution pursuant to Section 4.1(c) below; provided,
however, and solely with respect to a Special SRP Participant,
the ESOP Excess Contribution shall be determined in accordance
with Section 2.1(l) above, but shall be limited to that portion
of such ESOP Excess Contribution attributable to benefits lost
under the ESOP as a result of Section 415(d) of the Code. A
Special Participant shall not be entitled to make a Deferral
Contribution or to receive any other
-3-
<PAGE> 4
contributions under Sections 3.2, 3.3, and 4.1 below, but shall
be deemed a "Participant" for all other purposes under the
Supplemental Plan."
DATED: DECEMBER 21, 1998
FREMONT GENERAL CORPORATION
BY
-----------------------------------------
-4-
<PAGE> 1
EXHIBIT 10.7(b)
FIRST AMENDMENT
TO THE
FREMONT GENERAL CORPORATION
SENIOR SUPPLEMENTAL RETIREMENT PLAN
Effective January 1, 1998, the Fremont General Corporation Senior
Supplemental Retirement Plan, (the "Senior Supplemental Plan") originally
effective September 30, 1990 and last restated, in its entirety, effective
January 1, 1997, is amended as follows:
FIRST: Paragraph (g) of Section 2.1 of the Senior Supplemental Plan is
hereby amended in its entirety to read as follows:
"(g) Compensation means all of an Employee's W-2 wages as defined
in Section 3401(a) of the Code for the purposes of income
tax withholding at the source but determined without regard
to any rules that limit the remuneration included in wages
based on the nature or location of the employment or the
services performed (such as the exception for agricultural
labor in Section 3401(a)(2) of the Code). Notwithstanding
the foregoing, Compensation shall not include FICA paid by
the Employer with respect to nonqualified deferred
compensation or retirement plans, Rideshare payments,
relocation payments, Excess/SRP distributions, amounts
realized from the exercise of nonqualified stock options or
when restricted stock held by an employee is no longer
subject to substantial risk of forfeiture, meals, moving
expense payments, fringe car payments, referral awards,
<PAGE> 2
parking, recognition awards and nonperformance based bonuses
including holiday bonuses, hiring bonuses and travel
incentive bonuses. Compensation shall include only that
Compensation which is actually paid to, or accrued on behalf
of, a Participant during the Plan Year, Compensation shall
also include any amount which is contributed by the Employer
pursuant to a salary reduction agreement and which is not
includeable in the gross income of the Participant under
Sections 125, 402(e)(3), 402(h) or 403(b) of the Code."
SECOND: Paragraph (l) of Section 2.1 of the Senior Supplemental Plan
is hereby amended in its entirety to read as follows:
"(l) "ESOP Excess Contributions" shall mean Company contributions
to the Senior Supplemental Plan pursuant to Paragraph 4.1(c)
that are intended to compensate Participants for benefits
lost under the ESOP as a result of the application of
Sections 415 and 401(a)(17) of the Code. For each
Participant, the ESOP Excess Contribution shall be based on
the difference between the value (as a percentage of
Compensation) of Employer Stock allocated to the accounts of
ESOP Participants whose ESOP Benefit is not limited by
Section 415 or Section 401(a)(17) of the Code, and the value
(as a percentage of Compensation) of Employer Stock allocated
to the accounts of ESOP Participants who are also
Participants in the Senior Supplemental
-2-
<PAGE> 3
Plan and whose ESOP benefit is limited by Section 415 or
Section 401(a)(17) of the Code, reduced, however, by that
portion of such difference allocated to a Participant's account
under the Fremont General Corporation Excess Benefit Plan."
DATED: DECEMBER 21, 1998
FREMONT GENERAL CORPORATION
BY
--------------------------
-3-
<PAGE> 1
EXHIBIT 10.8(a)
FREMONT GENERAL CORPORATION
EXCESS BENEFIT PLAN
RESTATED EFFECTIVE AS OF JANUARY 1, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 - ESTABLISHMENT AND PURPOSE............................................................1
1.1 Establishment of Plan.............................................................1
1.2 Purpose of Plan...................................................................1
1.3 Application of Plan...............................................................1
ARTICLE 2 - DEFINITIONS..........................................................................2
2.1 Definitions.......................................................................2
(a) "Account"..................................................................2
(b) "Administrative Committee" ................................................2
(c) "Affiliate" ...............................................................2
(d) "Beneficiary" .............................................................2
(e) "Board of Directors" ......................................................2
(f) "Code".....................................................................2
(g) "Compensation".............................................................2
(h) "Employer".................................................................2
(i) "Employer Stock............................................................2
(j) "ESOP".....................................................................2
(k) "Investment Incentive Plan"................................................3
(l) "Participant"..............................................................3
(m) "Plan Year"................................................................3
(n) "Retire" and "Retirement"..................................................3
2.2 Gender and Name...................................................................3
ARTICLE 3 - ELIGIBILITY AND PARTICIPATION........................................................4
ARTICLE 4 - BENEFITS.............................................................................5
4.1 Allocations.......................................................................5
4.2 Contributions.....................................................................5
4.3 Maintenance of Accounts...........................................................5
4.4 Vesting and Forfeiture............................................................5
4.5 Payment. .........................................................................6
4.6 Death.............................................................................6
4.7 Voting of Employer Stock..........................................................6
ARTICLE 5 - ADMINISTRATION.......................................................................7
5.1 Administrative Committee..........................................................7
5.2 Uniform Rules.....................................................................7
5.3 Notice of Address.................................................................7
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
5.4 Records...........................................................................7
ARTICLE 6 - AMENDMENT AND TERMINATION............................................................8
6.1 Amendment and Termination.........................................................8
6.2 Reorganization of Employer........................................................8
6.3 Protected Benefits................................................................8
ARTICLE 7 - GENERAL PROVISIONS...................................................................9
7.1 Nonassignability..................................................................9
7.2 Employment Rights.................................................................9
7.3 Illegality of Particular Provision................................................9
7.4 Applicable Laws...................................................................9
</TABLE>
-ii-
<PAGE> 4
FREMONT GENERAL CORPORATION
EXCESS BENEFIT PLAN
ARTICLE 1.
ESTABLISHMENT AND PURPOSE
1.1 Establishment of Plan. FREMONT GENERAL CORPORATION (the "Company")
adopted the FREMONT GENERAL CORPORATION EXCESS BENEFIT PLAN (the "Plan"),
effective January 1, 1990, for eligible employees of the Company and selected
subsidiaries. The Company now wishes to restate the Plan in its entirety,
effective as of January 1, 1995. The Plan is intended to be exempt from Title 1
of the Employee Retirement Income Security Act of 1974, as amended, and is
intended to be maintained as an "excess benefit plan."
1.2 Purpose of Plan. It is the purpose of this Plan to provide eligible
employees with benefits in excess of the limitations on contributions imposed by
Section 415 of the Code with respect to qualified plans maintained by the
Company.
1.3 Application of Plan. The terms of this Plan are applicable to
eligible employees employed by the Company on or after January 1, 1990, with
respect to their Compensation and service on and after that date.
<PAGE> 5
ARTICLE 2.
DEFINITIONS
2.1 Definitions. Whenever used in the Plan, the following terms shall
have the respective meanings set forth below, unless a different meaning is
required by the context in which the word is used, and when the defined meaning
is intended, the term is capitalized:
(a) "Account" shall mean the Account or Accounts that the
Committee shall maintain for a Participant under this Plan.
(b) "Administrative Committee" shall mean the committee with
authority to administer the Plan as provided under Paragraph 5.1.
(c) "Affiliate" shall mean any corporation which is controlled by
or under common control with the Company within the meaning of Section 414 of
the Code.
(d) "Beneficiary" shall mean, with respect to a Participant, the
beneficiary specified under the ESOP to receive benefits in the event of the
Participant's death.
(e) "Board of Directors" shall mean the Board of Directors of the
Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(g) "Compensation" shall mean all of a Participant's Code Section
3401(a) [W-2] wages; wages as defined in Section 3401(a) of the Code for the
purposes of income tax withholding at the source but determined without regard
to any rules that limit the remuneration included in wages based on the nature
or location of the employment or the services performed (such as the exception
for agricultural labor in Section 3401(a)(2) of the Code). Compensation shall
include only that compensation which is actually paid to the Participant during
the Plan Year. Notwithstanding the foregoing, Compensation shall include any
amount which is contributed by the Employer pursuant to a salary reduction
agreement and which is not includable in the gross income of the Employee under
Sections 125, 402(a)(8), 402(h) or 403(b) of the Code.
(h) "Employer" shall mean the Company and any Affiliate which is
designated by the Board of Directors and which approves adoption of this Plan by
appropriate corporate action.
(i) "Employer Stock" shall mean the common stock of Fremont
General Corporation.
(j) "ESOP" shall mean the FREMONT GENERAL CORPORATION EMPLOYEE
STOCK OWNERSHIP PLAN, as amended from time to time, or any successor plan.
(k) "Investment Incentive Plan" shall mean the FREMONT GENERAL
-2-
<PAGE> 6
CORPORATION INVESTMENT INCENTIVE PLAN, as amended from time to time, or any
successor plan.
(l) "Participant" shall mean a person meeting the requirements
set forth in Article 3 to participate in the Plan.
(m) "Plan Year" shall mean the calendar year.
(n) "Retire" and "Retirement" shall mean a Participant's
termination of employment after becoming eligible for "Retirement" as defined in
the ESOP.
2.2 Gender and Name. Except when otherwise indicated by the context, any
masculine terminology used herein shall also include the feminine, and the use
of any term herein in the singular may also include the plural.
-3-
<PAGE> 7
ARTICLE 3.
ELIGIBILITY AND PARTICIPATION
Any employee eligible to participate in the ESOP or the Investment
Incentive Plan and who, for a given plan year of the ESOP, would be ineligible
to receive the maximum employer contribution under Section 4.5 of the ESOP due
to the limitations imposed by Section 415 of the Code shall become a Participant
in this Plan effective January 1 of such plan year.
-4-
<PAGE> 8
ARTICLE 4.
BENEFITS
4.1 Allocations. A credit shall be made as of the last day of the Plan
Year to a contingent account for each Participant. The amount to be allocated
shall equal the sum which would be allocated to the Account of the Participant
for the plan year under Section 4.2 of the ESOP if the Participant were not
subject to the limitations of Section 415 of the Code, and shall include any
Special Allocation (as that term is defined in Section 1.24 of the ESOP) made
under Section 4.2 of the ESOP.
4.2 Contributions. For Participants covered under this Plan,
contributions under the ESOP are allocated as of the end of the ESOP Plan Year,
and only to the extent allowable under the limitations of the Code. The amounts
contingently credited under Paragraph 4.1 for a Plan Year to a Participant shall
be reduced by the amount actually allocated to his or her Account under the
ESOP, and any remaining amount shall be credited to his or her Account under
this Plan. At the end of each Plan Year, the Employer shall make a contribution
in the form of either (a) Employer Stock, or (b) cash which is to be used to
acquire Employer Stock to a grantor trust or similar arrangement to fund
benefits hereunder in an amount which shall equal such remaining amounts
allocated to Participants hereunder. The Employer shall also contribute and
credit to each Participant's Account earnings on contingent allocations under
Paragraph 4.1 for the Plan Year as if such contingent allocations shared in
earnings at the rate and in the manner described in Paragraph 4.3.
4.3 Maintenance of Accounts.
(a) The Employer shall establish and maintain, in the name of
each Participant, an individual Account which shall consist of all amounts
credited to the Participant. Accounts are valued daily to reflect any increase
or decrease in the Participant's individual Account. As of December 31st of each
Plan Year the Administrative Committee shall add to the Account of each
Participant, any allocation to which the Participant is entitled for such Plan
Year.
(b) The individual Account of each Participant shall represent a
liability, payable when due under this Plan, out of the general assets of the
Employer, or from the assets of any trust, custodial account or escrow
arrangement which the Employer may establish for the purpose of assuring
availability of funds sufficient to pay benefits under this Plan. The money in
any such trust or Account shall at all times remain the property of the
Employer, and neither this Plan nor any Participant shall have any beneficial
ownership interest in the assets thereof. No property or assets of the Employer
shall be pledged, encumbered, or otherwise subjected to a lien or security
interest for payment of benefits hereunder. Accounting for this Plan shall be
based on generally accepted accounting principles.
4.4 Vesting and Forfeiture. All benefits under this Plan shall be
contingent and forfeitable, and each Participant shall have a vested interest in
any benefit under this Plan in accordance with the vesting provisions set forth
in Section 5.1 of the ESOP. A person who
-5-
<PAGE> 9
terminates employment with the Employer for any reason prior to becoming fully
vested hereunder shall be entitled to receive his or her vested Account balance.
4.5 Payment. Every Participant who Retires or terminates employment
shall have his or her vested Account distributed to him or her in a single-sum
payment. The Employer shall submit distribution requests to the Trustee or
custodian of the Account at the end of each regular pay period. Within five (5)
business days of receipt of the distribution request the Participant's vested
Account will be terminated. The Participant's final benefit shall be established
at the time his or her vested Account is terminated within this five (5)
business day period without regard to any prior valuation(s). The Participant
shall receive his or her final benefit distribution as soon thereafter as is
administratively feasible, subject to applicable tax withholding.
4.6 Death. The Account of a Participant who dies while employed by an
Employer shall be paid in a single-sum to the Participant's Beneficiary as soon
as administratively feasibly following the death of the Participant. If a
Participant dies after Retirement or termination of employment, then his
surviving Beneficiary shall be paid the amount in the Participant's Account in a
single-sum. Distributions under this Paragraph shall be made in accordance with
the provisions outlined in Paragraph 4.5 above.
4.7 Voting of Employer Stock. A Participant may direct the Trustee as to
the manner in which Employer Stock allocated to his or her Account shall be
voted. Before each meeting of the Employer's shareholders, the Trustee shall
deliver to each Participant a copy of any proxy solicitation materials together
with a form by which the Participant may instruct the Trustee how to vote the
Employer Stock allocated to the Participant's Account. The Trustee shall vote
Employer Stock through proxy in accordance with instructions received from the
Participants. The Trustee shall vote Employer Stock which has not been allocated
to a Participant or which is held in a suspense account in accordance with the
direction of the Committee, or, in the absence of a direction of the Committee,
in direct proportion to the instructions to vote received from the Participants.
The Trustee shall vote allocated Employer Stock for which instructions are not
received from the Participants in direct proportion to the instructions to vote
received from Participants.
-6-
<PAGE> 10
ARTICLE 5.
ADMINISTRATION
5.1 Administrative Committee. This Plan shall be administered by the
Administrative Committee, whose members shall be the same persons who are the
Plan Committee of the ESOP. The interpretation and construction by the
Administrative Committee of any provisions of this Plan shall be final unless
otherwise determined by the Board. Subject to the Board, the Administrative
Committee is authorized to interpret the Plan, to prescribe, amend, and rescind
rules and regulations relating to it, and to make all other determinations
necessary for its administration, including but not limited to calculating
amounts allocable to Participants, maintaining and adjusting accounts, and
delegating responsibility for performance of administrative functions of the
Plan to such officers of the Employer, including Participants, as the
Administrative Committee shall in its discretion deem appropriate.
5.2 Uniform Rules. In administering the Plan, the Administrative
Committee will apply uniform rules to all Participants similarly situated.
5.3 Notice of Address. Any payment to a Participant or Beneficiary, at
the last known post office address submitted to the Employer, shall constitute a
complete acquittance and discharge of the Employer and any director or officer
with respect thereto. Neither the Employer nor any director or officer shall
have any duty or obligation to search for or ascertain the whereabouts of any
Participant or his or her Beneficiary.
5.4 Records. The records of the Administrative Committee with respect to
the Plan shall be conclusive on all Participants, all Beneficiaries, and all
other persons whomsoever.
-7-
<PAGE> 11
ARTICLE 6.
AMENDMENT AND TERMINATION
6.1 Amendment and Termination. The Company reserves the right to amend,
modify, or terminate the Plan at any time by action of its Board, provided that
no amendment shall reduce the dollar amount credited to a Participant's Account
and any such termination or amendment shall apply uniformly to all Participants.
The Administrative Committee in its discretion may amend the Plan if it finds
that such amendment does not significantly increase or decrease benefits or
costs.
6.2 Reorganization of Employer. In the event of a merger or
consolidation of the Employer, or the transfer of substantially all of the
assets of the Employer to another corporation, such continuing, resulting or
transferee corporation shall have the right to continue and carry on the Plan
and to assume all liabilities of the Employer hereunder without obtaining the
consent of any Participant or Beneficiary. If such successor shall assume the
liabilities of the Employer hereunder, then the Employer shall be relieved of
all such liability, and no Participant or Beneficiary shall have the right to
assert any claim against the Employer for benefits under or in connection with
this Plan.
6.3 Protected Benefits. If the Plan is terminated or amended so as to
prevent further earnings adjustments, or if liabilities accrued hereunder up to
the date of an event specified in Paragraph 6.2 are not assumed by the successor
to the Employer, then the amount credited to the Account of each Participant, or
Beneficiary (whether or not vested) shall be paid to such Participant or
Beneficiary in a single-sum on the last day of the second month following the
month in which the amendment or termination occurs.
-8-
<PAGE> 12
ARTICLE 7.
GENERAL PROVISIONS
7.1 NONASSIGNABILITY. BENEFITS UNDER THE PLAN ARE NOT IN ANY WAY SUBJECT
TO THE DEBTS OR OTHER OBLIGATIONS OF THE PERSONS ENTITLED THERETO AND MAY NOT
VOLUNTARILY OR INVOLUNTARILY BE SOLD, TRANSFERRED, OR ASSIGNED. ANY VOLUNTARY
ATTEMPT TO SELL, ANTICIPATE, ASSIGN, OR ENCUMBER BENEFITS UNDER THIS PLAN SHALL
OPERATE TO CANCEL THE BENEFIT OR THE BALANCE OF A PARTICIPANT'S ACCOUNT AS OF
THE DATE OF SUCH ATTEMPT AND TO RELIEVE THE EMPLOYER FROM ANY FUTURE LIABILITY
TO PAY OR DISTRIBUTE ANY BENEFIT WITH RESPECT TO SUCH CANCELED AMOUNT.
7.2 EMPLOYMENT RIGHTS. THE ESTABLISHMENT OF THE PLAN SHALL NOT BE
CONSTRUED AS CONFERRING ANY LEGAL RIGHTS UPON ANY PARTICIPANT OR ANY OTHER
PERSON FOR A CONTINUATION OF EMPLOYMENT, NOR SHALL IT INTERFERE WITH THE RIGHTS
OF THE EMPLOYER TO DISCHARGE ANY PERSON OR TREAT HIM WITHOUT REGARD TO THE
EFFECT WHICH SUCH TREATMENT MIGHT HAVE UPON HIM UNDER THIS PLAN.
7.3 ILLEGALITY OF PARTICULAR PROVISION. IF ANY PARTICULAR PROVISION OF
THIS PLAN SHALL BE FOUND TO BE ILLEGAL OR UNENFORCEABLE, SUCH PROVISION SHALL
NOT AFFECT ANY OTHER PROVISION, BUT THE PLAN SHALL BE CONSTRUED IN ALL RESPECTS
AS IF SUCH INVALID PROVISION WERE OMITTED.
7.4 APPLICABLE LAWS. THE PLAN SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAWS OF THE STATE OF CALIFORNIA.
IN WITNESS WHEREOF, FREMONT GENERAL CORPORATION HAS CAUSED THIS
INSTRUMENT TO BE EXECUTED BY ITS DULY AUTHORIZED OFFICERS ON , 1996,
EFFECTIVE AS OF JANUARY 1, 1997.
FREMONT GENERAL CORPORATION,
A NEVADA CORPORATION
BY :
-----------------------------------------
APPROVED AS TO FORM
ATTORNEY FOR EMPLOYER
-9-
<PAGE> 13
FIRST AMENDMENT
TO THE
FREMONT GENERAL CORPORATION
EXCESS BENEFIT PLAN
Effective January 1, 1998, the Fremont General Corporation Excess
Benefit Plan, (the "Excess Benefit Plan") originally effective January 1, 1990
and last restated, in its entirety, effective January 1, 1995, is amended as
follows:
Paragraph (g) of Section 2.1 of the Supplemental Plan is hereby amended
in its entirety to read as follows:
"(g) Compensation means all of an Employee's W-2 wages as
defined in Section 3401(a) of the Code for the purposes
of income tax withholding at the source but determined
without regard to any rules that limit the remuneration
included in wages based on the nature or location of
the employment or the services performed (such as the
exception for agricultural labor in Section 3401(a)(2)
of the Code). Notwithstanding the foregoing,
Compensation shall not include FICA paid by the
Employer with respect to nonqualified deferred
compensation or retirement plans, Rideshare payments,
relocation payments, Excess/SRP distributions, amounts
realized from the exercise of nonqualified stock
options or when restricted stock held by an employee is
no longer subject to substantial risk of forfeiture,
meals, moving expense payments, fringe car payments,
referral awards, parking, recognition awards
<PAGE> 14
and nonperformance based bonuses including holiday
bonuses, hiring bonuses and travel incentive bonuses.
Compensation shall include only that Compensation which
is actually paid to, or accrued on behalf of, a
Participant during the Plan Year, Compensation shall
also include any amount which is contributed by the
Employer pursuant to a salary reduction agreement and
which is not includeable in the gross income of the
Participant under Sections 125, 402(e)(3), 402(h) or
403(b) of the Code."
DATED: DECEMBER 21, 1998
FREMONT GENERAL CORPORATION
BY
-----------------------------------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF FREMONT GENERAL CORPORATION
Each of the subsidiary companies does business under its incorporated name.
1. Domestic Subsidiaries
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- ---- ----------------------
<S> <C>
Casualty Insurance Co. Illinois
(Being renamed Fremont Casualty Insurance Co.)
Comstock Insurance Company California
Employers First Insurance Co. California
(Being renamed Fremont Employers Insurance)
Fremont Compensation Insurance Group, Inc. California
Fremont Financial Corporation California
Fremont Funding, Inc. Delaware
Fremont General Credit Corporation California
Fremont Health Corporation California
Fremont Indemnity Company California
Fremont Investment and Loan California
Fremont Life Insurance Company California
Fremont Pacific Insurance Company California
Fremont Premium Finance Corporation California
Fremont VFC Funding Corporation Delaware
Industrial Indemnity Co. California
(Being renamed Fremont Industrial Indemnity Co.
Industrial Indemnity Co. of the Northwest Washington
(Being renamed Fremont Indemnity Co. of the Northwest)
Industrial Indemnity Insurance Services, Inc. California
Investors Bancor California
Menlo Life Insurance Company Arizona
Unicare General Insurance Agency, Inc. California
(Being renamed Fremont General Insurance Agency, Inc.)
Unicare Workers' Compensation Insurance Co. California
(Being renamed Fremont Compensation Insurance Co.)
</TABLE>
2. Domestic Subsidiaries
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- ---- ----------------------
<S> <C>
Fremont Reinsurance Company, Ltd. (Bermuda) Bermuda
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in; the Registration Statement on
Form S-8 pertaining to the Fremont General Corporation and affiliated companies
Investment Incentive Program, the Registration Statement on Form S-8 pertaining
to the Fremont General Corporation Supplemental Retirement Plan and Fremont
General Corporation Senior Supplemental Retirement Plan, the Registration
Statement on Form S-8 pertaining to the Fremont General Corporation
non-qualified Stock Option Plan of 1989, the Registration Statement on Form
S-8/S-3 as amended pertaining to the Fremont General Corporation 1995 Restricted
Stock Award Plan, and the Registration Statement on Form S-8 pertaining to the
Fremont General Corporation 1997 Stock Plan of our report dated March 22, 1999
with respect to the consolidated financial statements and schedules of Fremont
General Corporation included in this Annual Report (Form 10-K) for the year
ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 1,646,772
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 500,376
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 5,344,933<F1>
<CASH> 79,875
<RECOVER-REINSURE> 15,801
<DEFERRED-ACQUISITION> 44,996
<TOTAL-ASSETS> 7,369,612
<POLICY-LOSSES> 2,435,091
<UNEARNED-PREMIUMS> 119,774
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 16,162
<NOTES-PAYABLE> 1,078,708
100,000
0
<COMMON> 69,939
<OTHER-SE> 880,973<F2>
<TOTAL-LIABILITY-AND-EQUITY> 7,369,612
552,078
<INVESTMENT-INCOME> 192,815
<INVESTMENT-GAINS> (605)
<OTHER-INCOME> 293,309<F3>
<BENEFITS> 335,450
<UNDERWRITING-AMORTIZATION> 123,393
<UNDERWRITING-OTHER> 67,305
<INCOME-PRETAX> 196,712
<INCOME-TAX> 63,748
<INCOME-CONTINUING> 132,964
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,964
<EPS-PRIMARY> 2.09<F4>
<EPS-DILUTED> 1.90<F5>
<RESERVE-OPEN> 1,809,395<F6>
<PROVISION-CURRENT> 348,897
<PROVISION-PRIOR> (13,447)
<PAYMENTS-CURRENT> (245,177)
<PAYMENTS-PRIOR> (590,197)
<RESERVE-CLOSE> 1,597,116<F7>
<CUMULATIVE-DEFICIENCY> 13,447<F8>
<FN>
<F1>Includes Loans receivable, Short-term and Other investments.
<F2>Sum of Additional paid-in-capital, Retained earnings, Deferred
Compensation and Accumulated other comprehensive income.
<F3>Includes Loan interest and Other revenue.
<F4>Basic earnings per share.
<F5>Diluted earnings per share
<F6>Net of reinsurance recoverable
<F7>Net of reinsurance recoverable. On September 1, 1998, the Company acquired
Unicare Specialty Services, Inc. with reserves of $287,645.
<F8>Redundancy
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 1,807,965
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 388,889
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,529,960<F1>
<CASH> 33,407
<RECOVER-REINSURE> 11,926
<DEFERRED-ACQUISITION> 38,344
<TOTAL-ASSETS> 6,207,054
<POLICY-LOSSES> 2,313,215
<UNEARNED-PREMIUMS> 81,842
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 33,189
<NOTES-PAYABLE> 755,991
100,000
0
<COMMON> 34,766
<OTHER-SE> 830,184<F2>
<TOTAL-LIABILITY-AND-EQUITY> 6,207,054
154,162
<INVESTMENT-INCOME> 46,978
<INVESTMENT-GAINS> (458)
<OTHER-INCOME> 62,657<F3>
<BENEFITS> 103,256
<UNDERWRITING-AMORTIZATION> 25,715
<UNDERWRITING-OTHER> 18,903
<INCOME-PRETAX> 47,133
<INCOME-TAX> 15,481
<INCOME-CONTINUING> 31,652
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,652
<EPS-PRIMARY> 0.50<F4><F5>
<EPS-DILUTED> 0.45<F5><F6>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes Loans receivable, Short-term and Other investments.
<F2>Sum of Additional paid-in-capital, Retained earnings, Deferred
Compensation and Accumulated other comprehensive income.
<F3>Includes Loan interest and Other revenue.
<F4>Basic earnings per share.
<F5>Adjusted retroactively for a two-for-one split of Common Stock effected on
December 10, 1998.
<F6>Diluted earnings per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 1,677,797
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 434,539
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,587,560<F1>
<CASH> 104,367
<RECOVER-REINSURE> 22,147
<DEFERRED-ACQUISITION> 38,956
<TOTAL-ASSETS> 6,421,387
<POLICY-LOSSES> 2,277,697
<UNEARNED-PREMIUMS> 80,929
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 27,781
<NOTES-PAYABLE> 851,156
100,000
0
<COMMON> 34,855
<OTHER-SE> 861,422<F2>
<TOTAL-LIABILITY-AND-EQUITY> 6,421,387
273,530
<INVESTMENT-INCOME> 94,931
<INVESTMENT-GAINS> (924)
<OTHER-INCOME> 134,153<F3>
<BENEFITS> 173,489
<UNDERWRITING-AMORTIZATION> 58,353
<UNDERWRITING-OTHER> 29,507
<INCOME-PRETAX> 95,317
<INCOME-TAX> 31,082
<INCOME-CONTINUING> 64,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,235
<EPS-PRIMARY> 1.01<F4><F5>
<EPS-DILUTED> 0.92<F5><F6>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes Loans receivable, Short-term and Other investments.
<F2>Sum of Additional paid-in-capital, Retained earnings, Deferred
Compensation and Accumulated other comprehensive income.
<F3>Includes Loan interest and Other revenue.
<F4>Basic earnings per share.
<F5>Adjusted retroactively for a two-for-one split of Common Stock effected on
December 10, 1998.
<F6>Diluted earnings per share
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 1,618,654
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 504,647
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,939,809<F1>
<CASH> 152,991
<RECOVER-REINSURE> 24,788
<DEFERRED-ACQUISITION> 40,267
<TOTAL-ASSETS> 6,976,653
<POLICY-LOSSES> 2,503,932
<UNEARNED-PREMIUMS> 101,396
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 22,685
<NOTES-PAYABLE> 950,585
100,000
0
<COMMON> 34,816
<OTHER-SE> 868,772<F2>
<TOTAL-LIABILITY-AND-EQUITY> 6,976,653
399,045
<INVESTMENT-INCOME> 144,166
<INVESTMENT-GAINS> (1,063)
<OTHER-INCOME> 212,617<F3>
<BENEFITS> 244,843
<UNDERWRITING-AMORTIZATION> 88,093
<UNDERWRITING-OTHER> 47,232
<INCOME-PRETAX> 145,915
<INCOME-TAX> 47,493
<INCOME-CONTINUING> 98,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,422
<EPS-PRIMARY> 1.54<F4><F5>
<EPS-DILUTED> 1.41<F5><F6>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes Loans receivable, Short-term and Other investments.
<F2>Sum of Additional paid-in-capital, Retained earnings, Deferred
Compensation and Accumulated other comprehensive income.
<F3>Includes Loan interest and Other revenue.
<F4>Basic earnings per share.
<F5>Adjusted retroactively for a two-for-one split of Common Stock effected on
December 10, 1998.
<F6>Diluted earnings per share
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000038984
<NAME> FREMONT GENERAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 1,893,876
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 378,832
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,426,500<F1>
<CASH> 64,987
<RECOVER-REINSURE> 20,287
<DEFERRED-ACQUISITION> 38,014
<TOTAL-ASSETS> 6,090,627
<POLICY-LOSSES> 2,344,299
<UNEARNED-PREMIUMS> 78,625
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 37,626
<NOTES-PAYABLE> 717,358
100,000
0
<COMMON> 34,571
<OTHER-SE> 798,244<F2>
<TOTAL-LIABILITY-AND-EQUITY> 6,090,627
601,183
<INVESTMENT-INCOME> 149,729
<INVESTMENT-GAINS> (1,964)
<OTHER-INCOME> 225,347<F3>
<BENEFITS> 389,201
<UNDERWRITING-AMORTIZATION> 115,899
<UNDERWRITING-OTHER> 49,327
<INCOME-PRETAX> 158,893
<INCOME-TAX> 50,601
<INCOME-CONTINUING> 108,292
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108,292
<EPS-PRIMARY> 1.90<F4><F5>
<EPS-DILUTED> 1.62<F5><F6>
<RESERVE-OPEN> 1,010,886<F7>
<PROVISION-CURRENT> 441,524
<PROVISION-PRIOR> (52,323)
<PAYMENTS-CURRENT> (253,323)
<PAYMENTS-PRIOR> (386,469)
<RESERVE-CLOSE> 1,809,395<F8>
<CUMULATIVE-DEFICIENCY> (52,323)<F9>
<FN>
<F1>Includes loans receivable, short-term and other investments.
<F2>Sum of Additional paid-in capital, Retained earnings, Deferred Compensation and
Net unrealized gain on investments, net of deferred taxes.
<F3>Includes Loan interest and Other revenue.
<F4>Basic earnings per share.
<F5>Adjusted retroactively for a two-for-one split of Common Stock effected on
December 10, 1998.
<F6>Diluted earnings per share.
<F7>Net of reinsurance recoverable.
<F8>Net of reinsurance recoverable. On August 1, 1997, the Company acquired
Industrial Indemnity Holdings, Inc with reserves of $1,049,100.
<F9>(Redundancy)
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000038984
<NAME> FREMONT GENERAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 1,021,261
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 380,845
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,370,490<F1>
<CASH> 50,843
<RECOVER-REINSURE> 11,702
<DEFERRED-ACQUISITION> 26,466
<TOTAL-ASSETS> 4,501,580
<POLICY-LOSSES> 1,402,827
<UNEARNED-PREMIUMS> 93,973
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 30,456
<NOTES-PAYABLE> 823,524
100,000
0
<COMMON> 29,419
<OTHER-SE> 539,952<F2>
<TOTAL-LIABILITY-AND-EQUITY> 4,501,580
115,228
<INVESTMENT-INCOME> 29,777
<INVESTMENT-GAINS> (531)
<OTHER-INCOME> 50,261<F3>
<BENEFITS> 73,097
<UNDERWRITING-AMORTIZATION> 23,511
<UNDERWRITING-OTHER> 6,849
<INCOME-PRETAX> 35,822
<INCOME-TAX> 11,463
<INCOME-CONTINUING> 24,359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,359
<EPS-PRIMARY> 0.47<F4><F5>
<EPS-DILUTED> 0.37<F5><F6>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes loans receivable, short-term and other investments.
<F2>Sum of Additional paid-in-capital, Retained earnings, Deferred Compensation and
Net unrealized gain (loss) on investments.
<F3>Includes Loan interest and other revenue.
<F4>Basic earnings per share.
<F5>Adjusted retroactively for a two-for-one split of Common Stock effected on
December 10, 1998.
<F6>Diluted earnings per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000038984
<NAME> FREMONT GENERAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 1,114,922
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 406,271
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,579,455<F1>
<CASH> 32,092
<RECOVER-REINSURE> 13,410
<DEFERRED-ACQUISITION> 28,078
<TOTAL-ASSETS> 4,721,266
<POLICY-LOSSES> 1,385,638
<UNEARNED-PREMIUMS> 103,190
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 28,211
<NOTES-PAYABLE> 805,196
100,000
0
<COMMON> 32,649
<OTHER-SE> 656,431<F2>
<TOTAL-LIABILITY-AND-EQUITY> 4,721,266
236,030
<INVESTMENT-INCOME> 61,045
<INVESTMENT-GAINS> (1,029)
<OTHER-INCOME> 104,844<F3>
<BENEFITS> 149,277
<UNDERWRITING-AMORTIZATION> 48,782
<UNDERWRITING-OTHER> 17,063
<INCOME-PRETAX> 71,964
<INCOME-TAX> 22,667
<INCOME-CONTINUING> 49,297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,297
<EPS-PRIMARY> 0.91<F4><F5>
<EPS-DILUTED> 0.75<F5><F6>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes loans receivable, short-term and other investments.
<F2>Sum of Additional paid-in-capital, Retained earnings, Deferred Compensation and
Net unrealized gain (loss) on investments.
<F3>Includes Loan interest and Other revenue.
<F4>Basic earnings per share.
<F5>Adjusted retroactively for a two-for-one split of Common Stock effected on
December 10, 1998.
<F6>Diluted earnings per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000038984
<NAME> FREMONT GENERAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 2,253,593
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 367,330
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,750,914<F1>
<CASH> 65,028
<RECOVER-REINSURE> 25,675
<DEFERRED-ACQUISITION> 34,626
<TOTAL-ASSETS> 6,497,853
<POLICY-LOSSES> 2,412,705
<UNEARNED-PREMIUMS> 153,551
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 59,436
<NOTES-PAYABLE> 1,162,662
100,000
0
<COMMON> 33,013
<OTHER-SE> 721,551<F2>
<TOTAL-LIABILITY-AND-EQUITY> 6,497,853
404,466
<INVESTMENT-INCOME> 103,739
<INVESTMENT-GAINS> (1,485)
<OTHER-INCOME> 161,442<F3>
<BENEFITS> 254,369
<UNDERWRITING-AMORTIZATION> 82,889
<UNDERWRITING-OTHER> 33,531
<INCOME-PRETAX> 114,190
<INCOME-TAX> 36,074
<INCOME-CONTINUING> 78,116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,116
<EPS-PRIMARY> 1.40<F4><F5>
<EPS-DILUTED> 1.17<F5><F6>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes loans receivable, short-term and other investments.
<F2>Sum of Additional paid-in-capital, Retained earnings, Deferred Compensation and
Net unrealized gain (loss) on investments.
<F3>Includes Loan interest and Other revenue.
<F4>Basic earnings per share.
<F5>Adjusted retroactively for a two-for-one split of Common Stock effected on
December 10, 1998.
<F6>Diluted earnings per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000038984
<NAME> FREMONT GENERAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 1,005,147
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 354,958
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,172,350<F1>
<CASH> 55,378
<RECOVER-REINSURE> 13,173
<DEFERRED-ACQUISITION> 25,551
<TOTAL-ASSETS> 4,307,512
<POLICY-LOSSES> 1,458,810
<UNEARNED-PREMIUMS> 87,422
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 33,093
<NOTES-PAYABLE> 653,352
100,000
0
<COMMON> 28,093
<OTHER-SE> 531,024<F2>
<TOTAL-LIABILITY-AND-EQUITY> 4,307,512
486,860
<INVESTMENT-INCOME> 123,531
<INVESTMENT-GAINS> (1,658)
<OTHER-INCOME> 187,071<F3>
<BENEFITS> 335,407
<UNDERWRITING-AMORTIZATION> 96,177
<UNDERWRITING-OTHER> 29,937
<INCOME-PRETAX> 128,309
<INCOME-TAX> 41,021
<INCOME-CONTINUING> 87,288
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,288
<EPS-PRIMARY> 1.77<F4><F5>
<EPS-DILUTED> 1.37<F5><F6>
<RESERVE-OPEN> 1,185,706<F7>
<PROVISION-CURRENT> 334,657
<PROVISION-PRIOR> 750
<PAYMENTS-CURRENT> 108,247
<PAYMENTS-PRIOR> 401,980
<RESERVE-CLOSE> 1,010,886<F7>
<CUMULATIVE-DEFICIENCY> 750
<FN>
<F1>Includes loans receivable, short-term and other investments.
<F2>Sum of Additional paid-in capital, Retained earnings, Deferred Compensation and
Net unrealized gain on investments.
<F3>Includes loan interest and other revenue.
<F4>Basic earnings per share.
<F5>Adjusted retroactively for a two-for-one split of Common Stock effected on
December 10, 1998.
<F6>Diluted earnings per share.
<F7>Reserve for Losses and LAE, net of reinsurance recoverable.
</FN>
</TABLE>
