<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 0-15196
US FACILITIES CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<C> <S>
DELAWARE 33-0097221
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
650 TOWN CENTER DRIVE, SUITE 1600,
COSTA MESA, CA. 92626
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: 714-549-1600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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TITLE OF SECURITIES EXCHANGES ON WHICH REGISTERED
------------------- -----------------------------
<C> <S>
Common Stock, par value $.01 per share New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
</TABLE>
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 [_]
Aggregate Market Value of Voting Stock held by non-affiliates of the
Registrant as of March 21, 1997: $109,866,435 (5,425,503 shares at the closing
price of $20.25 per share). For this purpose, all shares held by officers and
directors of the Registrant are considered to be held by affiliates, but
neither the Registrant nor such persons concede that they are affiliates of
the Registrant.
Number of Shares of Common Stock of the Registrant outstanding as of March
21, 1997: 5,960,148
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1996 Annual Report to Stockholders are
incorporated by reference into Part II of this Form 10-K. Portions of the
Registrant's definitive Proxy Statement to be filed within 120 days after
December 31, 1996, are incorporated by reference into Part III of this Form
10-K.
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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
<PAGE>
PART 1
ITEM 1. BUSINESS
GENERAL INFORMATION
The Registrant, US Facilities Corporation (the "Company"), is a Delaware
holding company formed in 1982 which, through its subsidiaries, operates as a
specialty insurance group. The Company's two principal operating units are
USBenefits Insurance Services, Inc. ("USBenefits") and USF RE INSURANCE
COMPANY ("USF RE"). USBenefits underwrites, manages and markets medical stop-
loss and provider excess coverages nationwide for The Continental Insurance
Company ("Continental"), one of the CNA Insurance Companies ("CNA"), an
unaffiliated insurance company, in exchange for management fees. Medical stop-
loss insurance protects self-insured employers against the risk of exposure to
excessive losses by limiting their liability to a predetermined amount. Self-
insured plans permit employers to design employee benefit coverages structured
to meet their specific needs, allow employers to exercise more control over
their health insurance costs, and provide health coverages that might not
otherwise be available. Provider excess coverage limits the financial risks
healthcare providers face from medical plans that prepay the providers fixed
sums per plan participant (capitated fees) or provide specified rates for
services. USBenefits also markets other employee benefits related products on
behalf of several national life insurance companies.
USF RE is a property/casualty reinsurance company whose primary business is
the reinsurance of 50% of the medical lines coverages underwritten by
USBenefits for Continental and the reinsurance of property/casualty accounts
produced by independent sources. Its subsidiary, USF Insurance Company
("USFIC"), writes excess and surplus lines insurance on a direct basis through
independent excess and surplus lines brokers.
FINANCIAL INFORMATION RELATING TO BUSINESS SEGMENTS
The Company's operations are classified into two business segments: (1)
medical lines (which include the revenues from commissions and fees of the
Company, and from reinsurance of 50% of its medical lines business); and (2)
property/casualty reinsurance and insurance underwriting. The medical lines
segment produced 70%, 73% and 80%, and the property/casualty segment produced
29%, 26% and 20% of the Company's consolidated revenues for 1996, 1995 and
1994, respectively.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" and also "Note 9" of Notes to CONSOLIDATED FINANCIAL
STATEMENTS," incorporated herein by reference from the Company's 1996 Annual
Report to Stockholders under Items 7 and 8 hereof, respectively.
MEDICAL LINES
GENERAL
Since 1980, USBenefits has had a mutually exclusive agreement to underwrite
and manage medical lines coverages for Continental or its predecessor. Such
agreement provides that USBenefits is responsible for designing medical lines
products, marketing the products, underwriting risks, collecting premiums,
administering coverage agreements, investigating and settling claims and
making claim payments within specified limits. While USBenefits participates
in the setting of rates and underwriting standards, which are the ultimate
responsibility of Continental, it does not insure any risks in its role as
underwriting manager; all insurance risks are borne by Continental and its
reinsurers, including USF RE. See "BUSINESS--MEDICAL LINES--MEDICAL LINES
REINSURANCE".
Under its current management agreement with Continental, USBenefits is paid
management fees for its services which are a percentage of premiums collected.
The management agreement may be terminated by either
1
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party at any December 31 upon 90 days prior notice, and can also be terminated
upon the occurrence of certain events. The management agreement provides that
during its term and for a period ranging from 12 to 18 months following
termination, Continental will not solicit or take away USBenefits' customers,
and that upon termination USBenefits has the right to the expirations and
renewals of the medical lines business. The Company believes that these
provisions permit USBenefits to move the medical lines business to another
insurance company if its relationship with Continental were to terminate.
Alternatively, USBenefits could write medical lines coverages on a direct
basis through its affiliate, USF RE, which is currently licensed to issue such
coverage in 42 states and the District of Columbia.
USBenefits also markets various employee benefits insurance products on
behalf of several large national life insurance companies. Other than
Continental, no one insurance company, third party administrator ("TPA") or
insurance producer accounts for 10% or more of USBenefits' revenues.
During 1995 the Company determined that its medical bill review business was
no longer viable and terminated its operations in May. Consolidated pre-tax
results for 1995 and 1994 include losses from this bill review operation of
$1,156,000 and $1,137,000, respectively.
MARKETING
USBenefits markets and distributes its medical lines products through a
network of TPAs, insurance agents, brokers and consultants (collectively
"Producers"). Producers have non-exclusive arrangements with USBenefits that
enable them to submit requests for coverage quotations on behalf of their
clients. Continental may pay a fee or commission to Producers for placing the
coverage, the amount of which is based on a percentage of the premium written
and is negotiated on a case-by-case basis. Additionally, USBenefits may pay an
annual production bonus to Producers based on the amount of new business and
rate of retention of accounts during the calendar year. USBenefits markets its
products to a variety of employers, including both large and small employee
groups.
PRODUCTS
Medical Stop-Loss. USBenefits offers two types of medical stop-loss
products: specific excess and aggregate excess. Employers can elect to
purchase specific excess coverage only, or a combination of specific and
aggregate coverage. USBenefits does not offer aggregate coverage separately.
Generally, self-insured employers purchase a combination of specific and
aggregate medical stop-loss coverage in order to minimize their exposure.
Medical stop-loss coverage is written on a basic form which can be
customized to meet the employer's individual needs and ability to retain risk.
Medical stop-loss coverage indemnifies only the employer for its obligations
under its self-insured plan of medical benefits; no plan participant or
beneficiary is covered by the medical stop-loss policy.
Provider Excess. In 1994 USBenefits commenced the marketing, underwriting
and managing of a provider excess product on behalf of Continental. This
product limits the exposure which providers of medical services incur when
they enter into capitated fee arrangements; it protects these providers from
excessive losses that can arise when expenses exceed a predetermined level.
Continental pays USBenefits management fees for its services, which are a
percentage of premiums collected.
UNDERWRITING MANAGEMENT
Under its agreement with Continental, USBenefits, with the assistance of USF
RE, provides the services necessary to underwrite and service the medical
lines business, including, but not limited to: (i) selecting Producers; (ii)
accepting medical lines risks and issuing coverage agreements on behalf of
Continental within mutually agreed upon underwriting and pricing guidelines;
and (iii) processing claims for reimbursement under policies on behalf of
Continental.
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MEDICAL LINES REINSURANCE
USF RE reinsures a portion of the medical lines business underwritten by
USBenefits. Under the reinsurance agreement with Continental, USF RE is
responsible for 50% of Continental's liability under such contracts issued
through USBenefits. Continental's liability under medical stop-loss contracts
varies per account, but in no event can exceed $2,000,000 lifetime per
individual self-insured plan participant or $2,000,000 in the aggregate per
agreement year for each self-insured employer account. Continental's liability
under provider capitation contracts generally is limited to a maximum of
$1,000,000 per individual participant and up to a maximum of $5,000,000 for
all participants. In addition, USF RE is responsible for a proportionate share
of loss adjustment expenses and any liability incurred by Continental for
extra-contractual or punitive damages.
The amount of premium ceded by Continental to USF RE under the reinsurance
agreement is equal to a proportionate share of the original gross premiums
written by Continental, less a ceding commission paid by USF RE to Continental
which covers Continental's costs of acquiring and servicing such business.
PROPERTY/CASUALTY UNDERWRITING
GENERAL
USF RE underwrites property/casualty reinsurance which it secures from
numerous reinsurance intermediaries and directly from unaffiliated insurance
companies. USF RE is licensed to write various lines of insurance in 47
states, the District of Columbia and Puerto Rico. USF RE and USFIC both carry
an A (Excellent) rating from A.M. Best Company. During the third quarter of
1995, USF RE ceased writing plate glass insurance, which accounted for 3% and
5%, of USF RE's premiums earned in 1995 and 1994, respectively.
PROPERTY/CASUALTY REINSURANCE
Gross premiums written by the Company's property/casualty segment were
$65,850,000 in 1996, an increase of 29% as compared to 1995 premiums written
of $50,915,000, which was an increase of 42% over $35,760,000 in premiums
written during 1994. The ceding companies of one client organization accounted
for a total of 23%, 27% and 17% of gross premiums written in the
property/casualty segment in 1996, 1995 and 1994, respectively.
General. USF RE offers a variety of reinsurance coverages in selected
property/casualty lines. In general, reinsurance coverage is provided on the
basis of the underwriter's evaluation of the acceptability of the risk to be
assumed, the adequacy of the premium, the potential exposure of the line of
business to be underwritten, the quality of the primary insurers' operations
and the ceding commission. USF RE's property/casualty premiums are generated
from writing facultative and treaty reinsurance. Facultative is the
reinsurance of one account at a time, while reinsurance treaties cover a
portion of all policies written by another insurer in a particular risk
category.
Product Lines. USF RE concentrates its casualty writings on three principal
lines: general liability, commercial automobile liability and products
liability. USF RE provides casualty reinsurance for primary as well as excess
policies, with the majority of its writing in low excess layers. USF RE
provides a broad range of reinsurance coverages for most types of property
exposures, subject to adequate underwriting information and proper rates and
forms. All Risk and Difference in Conditions coverages respresent the majority
of property premiums written; other coverages include fire and extended
coverage, as well as allied lines and inland marine.
Retrocessions. USF RE has entered into retrocession (reinsurance) agreements
which mitigate USF RE's exposure to losses and therefore allow it to increase
the limits it can offer on each property/casualty account. Other retrocession
agreements protect against catastrophic losses. Management believes this
coverage is adequate to protect the Company from excessive catastrophic
losses.
3
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USF RE evaluates the financial condition of potential retrocessionaires to
determine whether to cede retrocessional coverage to such companies. USF RE's
retrocession agreements are placed with unaffiliated companies which
management believes to be financially secure and experienced in this type of
business. Reinsurance recoverables are monitored continually, and any
retrocessionaire not qualified in USF RE's state of domicile, Massachusetts,
is requested to post security in the amount of its estimated liability to USF
RE.
Surplus Lines. USFIC, a Pennsylvania domiciled insurance company, is
eligible to offer surplus lines coverages in 33 states, the District of
Columbia and the U.S. Virgin Islands and is also licensed as an admitted
insurer in New York and Florida. Since acquiring USFIC in 1991, USF RE has
increased USFIC's policyholders' surplus to over $16,000,000 at December 31,
1996. USFIC's business consists primarily of writing commercial property/
casualty coverages on a surplus lines basis. USFIC's operations contributed
13%, 13% and 8% of the property/casualty underwriting segment's premiums
earned in 1996, 1995 and 1994, respectively.
STATUTORY FINANCIAL INFORMATION
COMBINED RATIO
The statutory combined ratio is the traditional indicator of the potential
underwriting profitability of an insurance company's business. It reflects the
percentage of losses and loss adjustment expenses incurred to earned premiums
(the "loss ratio") plus the percentage of production and servicing expenses to
net written premiums (the "underwriting expense ratio"). The table below sets
forth USF RE's consolidated loss ratio, underwriting expense ratio and
combined ratio determined in accordance with statutory accounting practices
("SAP") for the years indicated. Management believes that USF RE's combined
ratio is generally better than the combined ratio for the reinsurance industry
as a whole and is well within the requirements of regulatory agencies.
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<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
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<S> <C> <C> <C>
Loss ratio......................................... 71.0 67.6 69.1
Underwriting expense ratio......................... 31.4 32.1 34.7
-------- ------- --------
Combined ratio..................................... 102.4 99.7 103.8
======== ======= ========
</TABLE>
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
Insurance and reinsurance companies are required to maintain reserves for
losses and loss adjustment expenses ("LAE") which are intended to cover the
ultimate cost of settling all losses incurred and unpaid, including an
estimate of those not yet reported to the insurer, in order to properly match
the expected losses incurred to the related earned premium.
Reserves for medical stop-loss reinsurance are established on the basis of
the most widely used techniques for determining loss reserves for this line of
business, such as trended cost per covered person and loss payment pattern
analysis. Property/casualty loss reserves are determined by customary industry
methods of evaluating reported claims on the basis of the type of loss
involved, knowledge of the circumstances surrounding the claim, policy
provisions relating to the type of loss, and by estimating the cost of
unreported claims on the basis of statistical information for occurrences
which have not yet been reported to the carrier.
Reserves are adjusted from time to time based on monitoring by the insurer.
USF RE conducts, on a quarterly basis, an in-depth analysis of its incurred
but not reported losses and bulk reserves relative to recent experience and
trends, and adjusts such reserves upward or downward as necessary to maintain
the reserves at a level which USF RE deems to be sufficient to provide for all
claims incurred through the reporting date. Such reserves are regularly
reviewed by USF RE's independent actuaries.
4
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Loss reserve estimates are not precise because they are based on predictions
of future events, as well as other variable factors, including changes in the
legal system which can affect the results of litigated claims. Reserves for
losses and LAE are estimates only. It is possible that an insurer's ultimate
liability may be greater or less than such estimates. At USF RE, no explicit
provisions are made for inflation, but inflationary trends are considered when
setting reserves. USF RE does not discount its reserves to their present
value. USF RE has no known pre-1986 environmental or asbestos exposures.
The loss settlement period for certain types of insurance claims, such as
casualty reinsurance, may be many years, and during such time it often becomes
necessary to adjust the estimate of liability on a claim either upward or
downward. In the last few years various factors (including escalation of
repair costs, the size and unpredictability of jury awards and inflation) have
necessitated periodic upward adjustments in reserves by most property/casualty
insurers, including USF RE. Due to USF RE's size, should any future
adjustments of its reserves become necessary, such adjustments could have a
proportionately greater impact upon its reported earnings and surplus than
they would have upon the earnings and surplus of a much larger insurance
company.
LAE reserves are intended to cover the ultimate cost of investigating and
settling all losses. LAE reserves are estimated throughout each year based on
historical data and factors similar to those used in estimating loss reserves,
and are adjusted from time to time as management deems appropriate.
In 1987, USF RE established a liability for uncollectible reinsurance
related to adverse development in its discontinued general liability and
special multiple peril ("GL/SMP") liability lines of business to recognize
that certain amounts would not be recoverable from a former reinsurer. Under
generally accepted accounting principles ("GAAP"), that provision was recorded
as additional loss and LAE reserves, and has been adjusted periodically as
claims develop. USF RE has not experienced any other material unrecoverable
reinsurance.
The following table reconciles USF RE's consolidated reserve for losses and
LAE from SAP to amounts based on GAAP:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
1996 1995 1994
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(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Statutory loss and LAE reserves..................... $72,385 $62,420 $56,304
Reserves ceded to reinsurers........................ 22,265 16,426 13,292
Provision for uncollectible reinsurance............. 18 48 51
------- ------- -------
GAAP loss and LAE reserves.......................... $94,668 $78,894 $69,647
======= ======= =======
</TABLE>
Except for the foregoing, there is no difference in USF RE's reserves for
losses and LAE whether determined in accordance with GAAP or SAP.
5
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The table below provides a reconciliation of beginning and ending
consolidated statutory liability balances as of December 31, 1996, 1995 and
1994. Management will continue to evaluate and monitor reserves on all of its
businesses, and management believes that USF RE's consolidated reserves at
December 31, 1996 are adequate to cover the ultimate cost of settlement of all
losses incurred through that date.
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1996 1995 1994
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(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Reserves for losses and LAE at beginning of
period....................................... $62,420 $56,304 $51,358
Incurred losses and LAE:
Provision for losses and LAE for claims oc-
curring in the current
year........................................ 83,485 74,935 61,941
Increase in estimated losses and LAE for
claims occurring in prior years............. 4,688 2,808 2,425
Payments:
Losses and LAE payments for claims occurring
during:
The current year............................ (43,287) (39,511) (33,345)
Prior years................................. (34,921) (32,116) (26,075)
-------- -------- --------
Reserve for losses and LAE at end of period. $72,385 $62,420 $56,304
======== ======== ========
</TABLE>
The table on the following page presents the development of USF RE's
consolidated statutory balance sheet liability for losses and LAE for 1986
through 1996. The top line of the table shows the estimated liability for
unpaid losses and LAE recorded at December 31 for each of the indicated years.
This liability represents the estimated amount of losses and LAE for claims
arising in all years that are unpaid at the balance sheet date, including
losses that had been incurred but not yet reported. Insurance and reinsurance
companies establish reserves for losses incurred, but not yet paid, in order
to match such losses with the related premiums earned. The process of
establishing loss reserves is subject to uncertainties that are a normal,
recurring aspect of the insurance business which requires the use of informed
judgments and estimates. Estimating loss reserves is a process where many
factors can ultimately affect the final settlement of a claim and, therefore,
the ultimate reserve that is needed. In addition, time can be a critical part
of reserving determinations, since the longer the span between the incidence
of a loss and the payment or settlement of the claim, the more variable the
ultimate settlement amounts may be. In 1996, changes in the payment patterns
experienced within the Company's medical lines segment produced adjustments to
factors applied to actuarial models resulting in increases in estimated losses
and LAE for claims occurring in prior years. Loss and loss adjustment expense
reserve development is reviewed on a regular basis, incorporating analyses of
current trends, market changes in the Company's business segments and
historical experience to analyze the Company's actuarial assumptions. As
additional experience and other data become available, the Company's actuarial
estimates may be revised and impact earnings.
The upper portion of the table shows the re-estimated amount of the
previously recorded liability based on experience as of the end of each
succeeding year. The estimate is increased or decreased as more information
becomes known about the frequency and severity of claims for individual years.
The material increase in loss reserves beginning in 1986 is primarily
attributable to USF RE's commencement of and, thereafter, significant growth
in its reinsurance business. The cumulative redundancy or deficiency
represents the total change in reserves from the original balance sheet date
to December 31, 1996, and is a measure of the accuracy of the original
estimate. The significant deficiencies shown for years 1986 and 1987 are
related to the aforementioned discontinued GL/SMP lines of business. Such
increases related to losses incurred in 1983 through 1984, and therefore
affect reserve amounts in all years from 1986 through 1996.
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The lower portion of the table shows the cumulative amount paid with respect
to the previously recorded liability as of the end of each succeeding year, and
a reconciliation of the gross and net amounts for the latest three years.
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<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Liability for
Losses/LAE--
End of Year............ $6,462 $8,623 $17,660 $28,697 $35,975 $36,481 $45,483 $51,358 $56,304 $62,420 $72,385
Net Liability re-
estimated as of:
1 year later............ 8,736 11,143 17,003 29,715 33,871 37,528 47,119 53,783 59,112 67,108
2 years later........... 10,233 11,622 17,752 29,619 32,720 36,381 47,482 52,625 56,601
3 years later........... 10,788 12,370 18,290 29,694 31,654 36,037 46,786 50,185
4 years later........... 11,299 12,717 18,294 28,581 30,222 34,529 42,785
5 years later........... 11,702 12,154 18,063 27,392 29,610 31,614
6 years later........... 11,091 12,288 17,994 26,815 27,111
7 years later........... 11,205 12,326 17,707 25,647
8 years later........... 11,244 12,314 17,496
9 years later........... 11,222 12,271
10 years later.......... 11,189
Net Cumulative
redundancy/(deficiency). (4,727) (3,648) 164 3,050 8,864 4,867 2,698 1,172 (297) (4,688)
Cumulative %............ (73)% (42)% 1% 11% 25% 13% 6% 2% (1)% (8)%
Paid (cumulative) as of:
1 year later............ 5,616 6,988 9,373 14,255 13,918 14,516 22,190 26,075 32,115 34,921
2 years later........... 6,734 8,424 11,676 18,265 17,497 17,832 26,374 33,952 38,884
3 years later........... 7,881 9,638 14,959 21,095 19,946 20,164 31,747 38,488
4 years later........... 8,766 11,472 15,693 21,833 21,276 24,004 34,347
5 years later........... 10,509 11,741 15,927 22,653 22,868 25,672
6 years later........... 10,732 11,920 16,606 23,480 23,281
7 years later........... 10,899 12,028 16,122 23,606
8 years later........... 10,998 12,042 16,170
9 years later........... 11,012 12,091
10 years later.......... 11,061
</TABLE>
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Gross Liability--End of Year.............. 51,803 58,542 69,597 78,846 94,650
Reinsurance Recoverable................... 6,320 7,184 13,293 16,426 22,265
Net Liability--End of Year................ 45,483 51,358 56,304 62,420 72,385
Gross Re-Estimated Liability-Latest....... 49,646 58,558 72,011 84,666
Re-Estimated Recoverable-Latest........... 6,861 8,373 15,410 17,558
Net Re-Estimated Liability-Latest......... 42,785 50,185 56,601 67,108
Gross Cumulative Deficiency............... 2,157 (16) (2,414) (5,820)
</TABLE>
INVESTMENTS
For information, see "Note 1 (c) and Note 2 of Notes to Consolidated
Financial Statements," incorporated by reference from the Company's Annual
Report to Stockholders under Item 8 herein.
7
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COMPETITION
The insurance and reinsurance industries are highly competitive and consist
of a large number of companies, many of which have financial resources,
employees, facilities and experience substantially in excess of those of the
Company.
MEDICAL LINES
The medical lines business is highly competitive and involves a diversified
field of participants from small, start-up operations to large, well-
established organizations such as USBenefits. In the past few years there has
been significant growth in the number of medical lines providers. Currently
the Company believes that there are over 200 providers of medical stop-loss
coverage, as compared to approximately 120 providers in 1990. Based on its
over-15 years of experience in the medical stop-loss business, the Company
believes that it is the largest single issuer of medical stop-loss coverage in
the United States. However, other large and established companies offer
medical lines products and services similar to those offered by USBenefits.
USBenefits currently relies primarily on its long-standing relationships
with independent TPAs as a source of business, as well as newer relationships
with insurance agents, brokers and consultants. USBenefits must compete for
its business by offering competitively priced products, providing high
quality, timely services and paying commissions which are competitive.
USBenefits believes that the financial strength of Continental and its A-
(Excellent) rating from A.M. Best Company are positive factors in USBenefits'
competitive position.
PROPERTY/CASUALTY REINSURANCE
Competition in the reinsurance business is based on many factors, including
a reinsurer's perceived overall financial strength, premiums charged, A.M.
Best Company rating, services offered, claims handling, experience in the
lines of business written and the number of jurisdictions in which a reinsurer
is authorized to do business. During 1996 surplus capacity in the industry
caused changes in demand and rates in the various sectors of the reinsurance
marketplace. Although these factors result in highly competitive market
conditions, the combination of increasing surplus levels, strict underwriting
standards and A (Excellent) rating from A.M. Best Company provide a strong
position for USF RE to continue property/casualty growth.
The reinsurance market has two basic segments: reinsurers that primarily
obtain their business directly from ceding insurance companies, and those that
primarily obtain business through reinsurance intermediaries. USF RE obtains
the majority of its property/casualty business through reinsurance
intermediaries. USF RE's competition in this field includes numerous major
international and domestic insurance and reinsurance companies and
underwriting syndicates.
SURPLUS LINES
Competition in the surplus lines area involves the same factors and
considerations as with any insurance operation: the financial strength of the
carrier, the premiums charged, the A.M. Best Company rating, the services
offered, the timeliness of claims handling, experience in the lines of
business written, relationships with brokers and the number of jurisdictions
in which the carrier is authorized to do business.
8
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REGULATION
GENERAL
Insurance and reinsurance companies are subject to primary regulation and
supervision by the insurance departments of their states of domicile, as well
as by agencies of other states where they are licensed or authorized to
transact business. Such regulation and supervision is designed primarily to
protect policyholders, not stockholders. Although the extent of such
regulation varies from state to state, in general the insurance laws of states
provide such supervisory agencies with broad administrative powers. These
powers include the granting and revocation of licenses to transact business,
the licensing of agents, the approval of policy forms and rates, the
determination of reserve requirements, the monitoring of financial stability,
the form and content of required financial statements, and the type and
character of investments. Further, the National Association of Insurance
Commissioners ("NAIC") has proposed a variety of model laws and regulations
affecting insurance companies generally, including laws and regulations
relating to solvency standards for all insurance companies. Certain of these
model laws and regulations have been adopted by various states and others are
being considered for adoption.
USF RE and USFIC are required to file detailed annual financial and other
reports with the appropriate insurance regulatory agency in each state in
which they are admitted or authorized to do business. Their business and
accounts are subject to examination by such agencies at any time, and the laws
of Massachusetts and Pennsylvania and other states require periodic
examination of USF RE and USFIC. USF RE was examined by the Division of
Insurance of the Commonwealth of Massachusetts during 1993 for the four-year
period ended December 31, 1992. USFIC was examined by the Insurance Department
of the Commonwealth of Pennsylvania during 1993 for the three-year period
ended December 31, 1992. The final reports of these examinations did not
indicate any concerns of a material nature or which were significant to USF
RE's or USFIC's surplus as regards policyholders.
PROPERTY/CASUALTY
Historically the property/casualty reinsurance business had not been subject
to extensive regulation. However, reinsurance is now under closer scrutiny by
state agencies, as evidenced by the promulgation by the NAIC of several model
laws and regulations. Additionally, legislative initiatives are being
considered at the federal level to regulate the solvency of insurance and
reinsurance companies. Management expects this trend toward greater regulation
of the insurance and reinsurance industries to continue. At this time
management cannot anticipate what impact, if any, such regulation would have
on the Company's operations.
USFIC is required by state laws governing surplus lines to be eligible to
write business as a surplus lines insurer in each state in which its products
are sold. Eligibility is based on a number of considerations, including size,
financial condition, experience in the insurer's state of domicile, expertise
of management and plan of operations. The writing of surplus lines is
constrained by laws that require that the business can be written in a state
only if coverage for the risk is not available from an insurer admitted in
such state. Furthermore, the business can only be written through a licensed
excess and surplus lines broker.
MEDICAL LINES
State regulation of self-insured medical plans is preempted by the Employee
Retirement Income Security Act of 1974 ("ERISA"). However, as medical stop-
loss has grown in importance, states have attempted to circumvent ERISA's
preemption by seeking to assert their regulatory authority over insurance
companies writing medical stop-loss coverages and related service providers,
such as USBenefits.
The NAIC has adopted a model Managing General Agents Law, the substance of
which has been enacted in 49 states and the District of Columbia. This model
law requires the licensing of managing general agents that
9
<PAGE>
perform certain functions on behalf of insurance companies, such as
underwriting together with claims settlement and payment. It also imposes
certain requirements with respect to the content of agreements between
insurance companies and managing general agents. USBenefits is licensed or
registered as a managing general agent or third party administrator in various
states. It is also licensed directly, or through one or more of its employees,
in 47 states as an accident and health insurance agent and in 36 states as a
property/casualty insurance agent.
STATE INSURANCE HOLDING COMPANY LAWS
The Company, its stockholders, and its insurance company subsidiaries are
subject to the Insurance Holding Company Acts of the Commonwealth of
Massachusetts where USF RE is domiciled, the State of California where USF RE
has been deemed to be "commercially domiciled" and the Commonwealth of
Pennsylvania where USFIC is domiciled. Generally these Insurance Holding
Company Acts prohibit any person from acquiring "control" of a domestic
insurer, or of a company controlling a domestic insurer, without prior
approval of the insurance commissioner of such insurer's state of domicile.
Control is presumed to exist through ownership or the right to acquire 10% or
more of the stock of the insurer; but this presumption may be rebutted. These
Insurance Holding Company Acts require holding companies and their insurance
subsidiaries to register and file on a regular basis reports which include
information concerning their capital structure, ownership and financial
condition. Certain transactions between members of the holding company group
are subject to fairness and reasonableness standards, and notice of such
transactions must be given to the Commissioners of Insurance of Massachusetts
and Pennsylvania 30 days prior to entering into such transactions, during
which time the Commissioners of these states may indicate their disapproval.
Further, the California Holding Company Act requires approval of material
transactions of an extraordinary type.
The amount of dividends which USF RE is permitted to pay the Company is
limited by the insurance laws of Massachusetts and California. USF RE must
give notice to the Massachusetts and California Insurance Commissioners of all
dividends and other distributions to stockholders within five business days
after they are declared, and may not pay such dividends until ten business
days after receipt by both Commissioners of the required notices. Following
such dividends or distributions, USF RE's surplus to policyholders must be
reasonable in relation to its outstanding liabilities and adequate for its
financial needs. In addition, USF RE may not pay any "extraordinary" dividend
or distribution until 30 days after the Massachusetts and California Insurance
Commissioners have received notice of such dividend or distribution, and until
both Commissioners have either (i) not disapproved such payment within such
30-day period, or (ii) approved such payment within such 30-day period. For
1997, the amount which may be paid in dividends by USF RE without prior
regulatory approval is $10,988,000. The amount of dividends which USFIC may
pay to USF RE is subject to similar restrictions under the laws of
Pennsylvania. Since being acquired by the Company, neither USF RE nor USFIC
has paid any dividends. Further, under changes adopted during the latter part
of 1996, USF RE may no longer continue to be "commercially domiciled" in
California as of 1997.
LEGISLATIVE AND REGULATORY DEVELOPMENTS
As noted in prior filings with the Securities and Exchange Commission by the
Company, various Federal and state healthcare legislative and regulatory
proposals which could impact the financing and delivery of healthcare have
been considered. The 104th Congress enacted certain of those proposals, some
of which cover self-insured medical benefit plans. Management cannot predict
at this time what impact, if any, these enactments would have on the Company's
medical lines business. However, based on management's review of the latest
information received, management believes that these enactments will not have
an adverse impact on the Company's business.
Some of the statements included within this Item 1 and Management's
Discussion and Analysis of Financial Condition and Results of Operations as
well as in the Consolidated Financial Statements and related Notes
(incorporated herein by reference from the Company's 1996 Annual Report to
Stockholders under items 7 and 8 hereof, respectively) may be considered to be
forward looking statements (as that term is defined in the Private Securities
Litigation Reform Act of 1995), and which are subject to certain risks and
uncertainties. Among those
10
<PAGE>
factors which could cause the actual results to differ materially from those
suggested by such statements are: catastrophe losses in the Company's
insurance lines or a material aggregation of losses; changes in federal or
state law affecting an employer's ability to self-insure; the availability of
adequate retrocessional insurance coverage at appropriate prices; a downturn
in the general economy; the effects of competitive market pressures within the
medical stop-loss or property/casualty marketplaces; the effect of changes
required by generally accepted accounting practices or statutory accounting
practices; and other risks which are described from time to time in the
Company's filings with the Securities and Exchange Commission.
EMPLOYEES
As of March 21, 1997 the Company had 183 full-time employees. No employees
are represented by labor unions, and management considers its employee
relations to be excellent.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David L. Cargile........ 51 Chairman, President and Chief Executive Officer
Howard S. Singer........ 51 Executive Vice President-Corporate Finance and Investor Relations
John T. Grush........... 48 Senior Vice President
Mark Burke.............. 52 Senior Vice President, Chief Financial Officer and Treasurer
Jose A. Velasco......... 42 Senior Vice President, Secretary and General Counsel
Craig J. Kelbel......... 43 Senior Vice President
</TABLE>
All executive officers have been employed by the Company for more than five
years. There are no family relationships among any of the executive officers
of the Company. There have been no events under bankruptcy or insolvency laws,
no criminal proceedings and no judgments or injunctions material to the
evaluation of the ability and integrity of any executive officer during the
past five years.
ITEM 2. PROPERTIES
The principal executive offices of the Company and its subsidiaries are
located in 40,281 square feet of leased office space at 650 Town Center Drive,
Costa Mesa, California. The lease on this facility was renewed for the period
from October 1, 1995 through March 31, 2007, with a five-year option to
extend. Additional offices are maintained in leased premises in Chicago,
Illinois; Philadelphia, Pennsylvania; Atlanta, Georgia; Tulsa, Oklahoma; Troy,
Michigan and Phoenix, Arizona.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is a party to legal proceedings incidental to
its business, none of which individually or in the aggregate is considered by
the Company to be material to its financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitaion
of proxies or otherwise.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company paid quarterly cash dividends of $.06 and $.05 per share in 1996
and 1995, respectively. In addition, material appearing under the captions
"Stockholder Information" and "Stock Price Information" in the 1996 Annual
Report to Stockholders of US Facilities Corporation (the "Annual Report") is
hereby incorporated by this reference.
On May 22, 1996, the Company sold 10,000 shares of common stock to Howard S.
Singer, an officer and director of the Company, for $5.04 per share, and on
September 13, 1996 sold 10,000 shares for $11.88 per share and 10,000 shares
for $13.00 per share. Such shares were acquired upon exercise of stock options
purchased in 1991 by a corporation controlled by Mr. Singer. These shares were
issued in reliance upon the exemption from registration afforded by Section
4(2) of the Securities act of 1933, as amended. Mr. Singer executed an
Investment Representation certifying that he acquired the shares for his own
account, for investment purposes and not with a view to the resale thereof.
ITEM 6. SELECTED FINANCIAL DATA
Material appearing under the caption "Selected Financial Data" in the
Company's Annual Report is hereby incorporated by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Material appearing under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Company's Annual
Report is hereby incorporated by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Material appearing under the captions "Report on Consolidated Financial
Statements" and "Independent Auditors' Report" and contained in the Company's
Consolidated Financial Statements and Notes thereto in the Company's Annual
Report is hereby incorporated by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors and executive officers of the Registrant
as required by Items 401 and 405 of Regulation S-K is set forth in Part I of
this Form 10-K under the caption "EXECUTIVE OFFICERS OF THE COMPANY" and under
the caption "ELECTION OF DIRECTORS" in the Company's definitive Proxy
Statement for the Company's 1997 Annual Meeting of Stockholders scheduled to
be held on May 14, 1997, and which will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 1996 (the
"Proxy Statement"), and is hereby incorporated by this reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is set forth under
the caption "COMPENSATION OF EXECUTIVE OFFICERS," "COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION," and "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in the Company's Proxy
Statement, and is hereby incorporated by this reference.
12
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is set forth under
the captions "SECURITY OWNERSHIP OF MANAGEMENT" and "SECURITY OWNERSHIP OF
CERTAIN OTHER STOCKHOLDERS" in the Company's Proxy Statement, and is hereby
incorporated by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions as
required by Item 404 of Regulation S-K is set forth in the Company's Proxy
Statement under the captions "COMPENSATION OF EXECUTIVE OFFICERS" and "RELATED
TRANSACTIONS," and is hereby incorporated by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
(i) The following is a list of financial statements, together with
reports thereon, filed as part of this Form 10-K, all of which have been
incorporated herein by reference to the material in the Company's Annual
Report as described under Item 8 of this Form 10-K:
Report on Consolidated Financial Statements
Consolidated Income Statements--Years ended December 31, 1996, 1995 and
1994
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity-- at December 31, 1994,
1995, and 1996
Consolidated Statements of Cash Flows--Years ended December 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
(ii) The following is a list of financial statement schedules filed with
this Form 10-K:
Index to Schedules
Independent Auditors' Report
Schedule I--Summary of Investments
Schedule II--Condensed Financial Information of Registrant
Schedule III--Supplementary Insurance Information
Schedule IV--Reinsurance
All other schedules to the Consolidated Financial Statements required by
Article 7 of Regulation S-X are not required under the related instructions
or are inapplicable and therefore have been omitted.
(iii) The following is a list of exhibits required to be filed as part of
this Form 10-K by Item 601 of Regulation S-K:
<TABLE>
<C> <S>
3.1, 4.1 Restated Certificate of Incorporation, as amended, as presently in
effect. Filed as Exhibits 3.1 and 3.1.1 to the Company's Form S-1
Registration Statement declared effective by the Securities and
Exchange Commission ("Commission") on October 31, 1986 (the "S-1
Registration Statement"), and incorporated herein by this reference;
and as Exhibit 3 to the Company's Current Report on Form 8-K dated
May 24, 1990, and incorporated herein by this reference.
3.2, 4.2 Bylaws of the Company, as amended, as presently in effect. Filed as
Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 (the "June 1994 Form 10-Q"), and
incorporated herein by this reference.
4.3* Stock Certificate of the Company (complying with New York Stock
Exchange requirements).
</TABLE>
13
<PAGE>
<TABLE>
<C> <S>
4.4 Rights Agreement. Filed as Exhibit 2 to the Company's Current
Report on Form 8-K dated May 24, 1990, and incorporated herein by
this reference.
4.5 First Amendment to Rights Agreement. Filed as Exhibit 1 to the
Company's Current Report on Form 8-K dated January 16, 1992, and
incorporated herein by this reference.
4.6 Second Amendment to Rights Agreement. Filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated April 29, 1994, and
incorporated herein by this reference.
4.7 Third Amendment to Rights Agreement. Filed as Exhibit 4 to the
Company's Current Report on Form 8-K dated September 28, 1995, and
incorporated herein by this reference.
9 Not applicable.
10 Material Contracts.
10.1 Agreement of Employment between the Company and David L. Cargile
dated August 4, 1994, and Amendment to Agreement of Employment
dated July 21, 1995. Filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994 (the "September 1994 Form 10-Q") and as Exhibit 10.4(i) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 Form 10-K"), respectively, and
incorporated herein by this reference.
10.2* Agreement of Employment between the Company and David L. Cargile
effective as of November 1, 1996.
10.3* Agreement of Employment between the Company and Howard S. Singer
effective as of November 1, 1996.
10.4* Agreement of Employment between the Company and Craig J. Kelbel
effective as of November 1, 1996.
10.5(i) Severance Agreement dated May 24, 1994 between the Company and
Howard S. Singer. Filed as Exhibit 10.2 to the Company's June 1994
Form 10-Q, and incorporated herein by this reference.
10.5(ii) Severance Agreement dated May 24, 1994 between the Company and
David L. Cargile. Filed as Exhibit 10.3 to the Company's June 1994
Form 10-Q, and incorporated herein by this reference.
10.5(iii) Severance Agreement dated May 24, 1994 between the Company and
John T. Grush. Filed as Exhibit 10.4 to the Company's June 1994
Form 10-Q, and incorporated herein by this reference.
10.5(iv) Severance Agreement dated May 24, 1994 between the Company and
Mark Burke. Filed as Exhibit 10.5 to the Company's June 1994 Form
10-Q, and incorporated herein by this reference.
10.5(v) Severance Agreement dated May 24, 1994 between the Company and
Jose A. Velasco. Filed as Exhibit 10.6 to the Company's June 1994
Form 10-Q, and incorporated herein by this reference.
10.5(vi) Severance Agreement dated May 24, 1994 between the Company and
Craig J. Kelbel. Filed as Exhibit 10.14(v) to the Company's 1995
Form 10-K, and incorporated herein by this reference.
10.5(vii)* Amendment dated December 4, 1996 to Severance Agreement between
the Company and David L. Cargile.
10.5(viii)* Amendment dated December 4, 1996 to Severance Agreement between
the Company and Howard S. Singer.
10.5(ix)* Amendment dated December 4, 1996 to Severance Agreement between
the Company and John T. Grush.
10.5(x)* Amendment dated December 4, 1996 to Severance Agreement between
the Company and Craig J. Kelbel.
10.5(xi)* Amendment dated December 4, 1996 to Severance Agreement between
the Company and Mark Burke.
</TABLE>
14
<PAGE>
<TABLE>
<C> <S>
10.5(xii)* Amendment dated December 4, 1996 to Severance Agreement between
the Company and Jose A. Velasco.
10.6(i) Lease Agreement dated May 28, 1985 between Center Tower Associates
and US Benefits, Inc. Filed as Exhibit 10.13 to the Company's S-1
Registration Statement, and incorporated herein by this reference.
10.6(ii) First Amendment dated November 24, 1986 to Lease Agreement between
Center Tower Associates and the Company as assignee of US
Benefits, Inc. Filed as Exhibit 10.26 to the Company's Form S-2
Registration Statement declared effective by the Commission on
December 4, 1991 ( the "S-2 Registration Statement"), and
incorporated herein by this reference.
10.6(iii) Second Amendment dated July 8, 1992 to Lease Agreement between
Center Tower Associates and the Company. Filed as Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1992, and incorporated herein by this reference.
10.6(iv) Third Amendment dated May 4,1993 to Lease Agreement between Center
Tower Associates and the Company. Filed as Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993 ( the "1993 Form 10-K"), and incorporated herein by this
reference.
10.6(v) Fourth and Fifth Amendments dated August 29, 1994 and October 1,
1995, respectively, to Lease Agreement between Center Tower
Associates and the Company. Filed as Exhibit 10.18(i) to the
Company's 1995 Form 10-K, and incorporated herein by this
reference.
10.7(i) Management Agreement No. 1 dated October 3, 1994 (with Addenda)
between The Continental Insurance Company and USBenefits Insurance
Services, Inc. Filed as Exhibit 10.1 to the Company's September
1994 Form 10-Q, and incorporated herein by this reference.
10.7(ii) Additional Addenda to Management Agreement No.1 between The
Continental Insurance Company and USBenefits Insurance Services,
Inc. Filed as Exhibit 10.19(i) to the Company's 1995 Form 10-K and
incorporated herein by this reference.
10.8(i) Quota Share Retrocession Agreement dated July 11, 1986 between The
Continental Insurance Company, as successor to Harbor Insurance
Company by assumption, and USF RE INSURANCE COMPANY, as amended.
Filed as Exhibit 10.47 to the Company's S-2 Registration
Statement, and incorporated herein by this reference.
10.8(ii) Amendment dated January 16, 1991 to Quota Share Retrocession
Agreement between The Continental Insurance Company and USF RE
INSURANCE COMPANY. Filed as Exhibit 10.21 to the Company's 1993
Form 10-K, and incorporated herein by this reference.
10.8(iii) Amendment dated October 3, 1994 to Quota Share Retrocession
Agreement between The Continental Insurance Company and USF RE
INSURANCE COMPANY. Filed as Exhibit 10.21(i) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994,
and incorporated herein by this reference.
10.9(i) Credit Agreement dated as of December 20, 1994 between the Company
and Fleet National Bank of Connecticut (formerly known as Shawmut
Bank Connecticut, N.A.), including Revolving Note and Pledge
Agreement. Filed as Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995, and
incorporated herein by this reference.
10.9(ii) First and Second Amendments to the Credit Agreement between the
Company and Fleet National Bank of Connecticut. Filed as Exhibit
10.1 to the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996 and September 30, 1996,
respectively, and incorporated herein by this reference.
10.10(i) US Facilities Corporation Amended 1988 Employee Stock Option Plan.
Filed as Appendix 3 to the Company's Preliminary Proxy Statement
for the May 14, 1997 Annual Meeting of Stockholders, which was
filed with the Commission on March 11, 1997, and incorporated
herein by this reference.
</TABLE>
15
<PAGE>
<TABLE>
<C> <S>
10.11 US Facilities Corporation Amended and Restated 1991 Employee Stock
Option Plan. Filed as Appendix 2 to the Company's Preliminary Proxy
Statement for the May 14, 1997 Annual Meeting of Stockholders,
which was filed with the Commission on March 11, 1997, and
incorporated herein by this reference.
10.12 Form of Stock Option Agreement under the US Facilities Corporation
Amended and Restated 1991 Employee Stock Option Plan. Filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 (the "June 1996 Form 10-Q"), and
incorporated herein by this reference
10.20(i) US Facilities Corporation 1988 Directors Stock Option Plan. Filed
as Exhibit B to the Company's Proxy Statement for the May 25, 1988
Annual Meeting of Stockholders, and incorporated herein by this
reference.
10.20(ii) US Facilities Corporation 1991 Directors Stock Option Plan Amended
and Restated. Filed as Exhibit B to the Company's Proxy Statement
for the May 22, 1996 Annual Meeting of Stockholders, and
incorporated herein by this reference.
10.20(iii) Form of Stock Option Agreement under the US Facilities Corporation
1991 Directors Stock Option Plan Amended and Restated. Filed as
Exhibit 10.2 to the Company's June 1996 Form 10-Q, and incorporated
herein by this reference
10.21 US Facilities Corporation Amended Incentive Compensation Program.
Filed as Exhibit 10.26 to the Company's 1995 Form 10-K, and
incorporated herein by this reference.
10.22 US Facilities Corporation 1997 Long-Term Incentive-Performance Unit
Plan, including form of Plan Agreement. Filed as Appendix 1 to the
Company's Preliminary Proxy Statement for the May 14, 1997 Annual
Meeting of Stockholders, which was filed with the Commission on
March 11, 1997, and incorporated herein by this reference.
10.23* US Facilities Corporation Non-Qualified Deferred Compensation Plan,
including form of Plan Agreement.
11* The US Facilities Corporation and Subsidiaries Computation of
Earnings Per Share.
12 Not applicable.
13* US Facilities Corporation 1996 Annual Report to Stockholders (filed
with the Commission only to the extent it is specifically
incorporated by reference in this Form 10-K).
18 Not applicable.
19 Not applicable.
21* Subsidiaries of US Facilities Corporation.
22 Not applicable.
23* Independent Auditors' Consent dated March 26, 1997.
24 Not applicable.
27* Financial Data Schedules
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1996.
- --------
* Describes a document filed with the Annual Report on Form 10-K for the year
ended December 31, 1996.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 1997 US FACILITIES CORPORATION
By /s/ DAVID L. CARGILE
------------------------------
David L. Cargile
Chairman of the Board
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MARK BURKE
- ----------------------------------------
Mark Burke Senior Vice President, Chief
Financial Officer and
Treasurer (Principal
Financial and Accounting
Officer) March 26, 1997
/s/ DAVID L. CARGILE
- ----------------------------------------
David L. Cargile Chairman of the Board, Chief
Executive Officer and
President (Principal
Executive Officer) March 26, 1997
/s/ JOHN F. KOOKEN
- ----------------------------------------
John F. Kooken Director March 26, 1997
/s/ L. STEVEN MEDGYESY
- ----------------------------------------
L. Steven Medgyesy Director March 26, 1997
/s/ BERNARD H. ROSS
- ----------------------------------------
Bernard H. Ross Director March 26, 1997
/s/ CHARLES L. SCHULTZ
- ----------------------------------------
Charles L. Schultz Director March 26, 1997
/s/ HOWARD S. SINGER
- ----------------------------------------
Howard S. Singer Director and Executive Vice
President-Corporate Finance
and Investor Relations March 26, 1997
/s/ KENNETH C. TYLER
- ----------------------------------------
Kenneth C. Tyler Director March 26, 1997
</TABLE>
17
<PAGE>
INDEX TO SCHEDULES
Independent Auditors' Report
<TABLE>
<S> <C>
Summary of Investments........................................... Schedule I
Condensed Financial Information of Registrant.................... Schedule II
Supplementary Insurance Information.............................. Schedule III
Reinsurance...................................................... Schedule IV
</TABLE>
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Under date of February 4, 1997, we reported on the consolidated balance
sheets of US Facilities Corporation and Subsidiaries as of December 31, 1996
and 1995, and the related consolidated income statements, statements of
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996 as contained in the 1996 Annual Report to
Stockholders. These consolidated financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K for the year
1996. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedules as listed in the accompanying index. These consolidated
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statement schedules based on our audits.
In our opinion, such schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/KPMG PEAT MARWICK LLP
Los Angeles, California
February 4, 1997
19
<PAGE>
US FACILITIES CORPORATION AND SUBSIDIARIES
SCHEDULE I-SUMMARY OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
AMOUNT AT
WHICH SHOWN
ON BALANCE
COST(1) VALUE(1) SHEET(1)
--------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States Government agencies and author-
ities....................................... $ 13,265 $ 13,421 $ 13,421
States, municipalities and political subdivi-
sions....................................... 89,996 93,265 93,265
Foreign governments.......................... 529 554 554
All other corporate bonds.................... 46,884 48,240 48,240
--------- -------- --------
Total fixed maturities...................... 150,674 155,480 155,480
Equity securities:
Preferred stocks:
Industrial and miscellaneous................ 250 256 256
Common stocks:
Industrial and miscellaneous................ 16,046 20,114 20,114
--------- -------- --------
Total....................................... 16,296 20,370 20,370
Other invested assets......................... 863 863 863
Short-term investments........................ 17,639 17,639 17,639
--------- -------- --------
Total investments............................. $185,472 $194,352 $194,352
========= ======== ========
</TABLE>
(1) Cost represents the amortized cost of investments to the Company. Value
represents current market value. Amount at which investments are shown on the
balance sheet represents current market value as required by SFAS No. 115.
20
<PAGE>
US FACILITIES CORPORATION AND SUBSIDIARIES
SCHEDULE II-CONDENSED INCOME STATEMENTS
US FACILITIES CORPORATION
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Dividends from subsidiaries......................... $ 4,000 $ 6,000 $2,500
Other............................................... 58 49 13
------- ------- ------
Total revenues..................................... 4,058 6,049 2,513
Operating expenses:
Other general and administrative.................... 896 1,723 648
Restructuring....................................... -- -- 654
Interest............................................ 2,610 2,259 48
------- ------- ------
Total operating expenses........................... 3,506 3,982 1,350
Other expenses:
Unusual charges related to unsolicited takeover
proposal........................................... -- -- 2,029
------- ------- ------
Income (loss) before income taxes.................... 552 2,067 (866)
Income tax benefits................................. (1,652) (2,324) (1,008)
------- ------- ------
Income before equity in earnings of subsidiaries..... 2,204 4,391 142
Equity in earnings of subsidiaries.................. 12,816 9,463 6,096
------- ------- ------
Net income........................................... $15,020 $13,854 $6,238
======= ======= ======
</TABLE>
21
<PAGE>
US FACILITIES CORPORATION AND SUBSIDIARIES
SCHEDULE II-CONDENSED BALANCE SHEETS
US FACILITIES CORPORATION
(PARENT COMPANY ONLY)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash......................................................... $ 641 $ 815
Investment in and due from affiliates........................ 134,838 122,049
Other assets................................................. 3,889 2,425
-------- --------
Total assets................................................. $139,368 $125,289
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Note payabable.............................................. $ 35,000 $ 35,000
Accounts payable and accrued expenses....................... 2,004 2,228
-------- --------
Total liabilities........................................... 37,004 37,228
Stockholders' equity:
Common stock................................................ 61 61
Paid-in capital............................................. 45,503 44,489
Net unrealized investment gain.............................. 5,860 7,211
Retained earnings........................................... 52,883 39,273
-------- --------
104,307 91,034
Less treasury stock, at cost................................ (1,943) (2,973)
-------- --------
Total stockholders' equity.................................. 102,364 88,061
-------- --------
Total liabilities and stockholders' equity.................. $139,368 $125,289
======== ========
</TABLE>
22
<PAGE>
US FACILITIES CORPORATION AND SUBSIDIARIES
US FACILITIES CORPORATION
(PARENT COMPANY ONLY)
SCHEDULE II-CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $15,020 $13,854 $ 6,238
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Increase (decrease) in accounts payable and
accrued expenses................................ (224) (359) 666
Increase in other assets......................... (1,464) (690) (406)
Equity in income of and change in due from
affiliates...................................... (14,140) (15,310) (5,602)
------- ------- --------
Net cash provided by (used in) operating
activities........................................ (808) (2,505) 896
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable....................... -- 10,000 25,000
Proceeds from issuance of common stock........... 2,044 2,405 1,588
Dividends Paid................................... (1,410) (1,125) --
Purchase of 498,000 shares of treasury stock..... -- -- (5,000)
------- ------- --------
Net cash provided by financing activities....... 634 11,280 21,588
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investment in affiliates.............. -- (10,500) (20,000)
------- ------- --------
Net (decrease) increase in cash................... (174) (1,725) 2,484
Cash at beginning of year......................... 815 2,540 56
------- ------- --------
Cash at end of year............................... $ 641 $ 815 $ 2,540
======= ======= ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest.......................................... $ 2,498 $ 2,187 $ 19
Income taxes...................................... $ 4,771 $ 5,217 $1,350
</TABLE>
23
<PAGE>
US FACILITIES CORPORATION AND SUBSIDIARIES
SCHEDULE III-SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
FUTURE POLICY BENEFITS, AMORTIZATION
DEFERRED BENEFITS, CLAIMS, OF DEFERRED
POLICY LOSSES, NET LOSSES AND POLICY OTHER NET
ACQUISITION CLAIMS AND UNEARNED PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
COSTS LOSS EXPENSES PREMIUMS REVENUE INCOME EXPENSES COSTS EXPENSES WRITTEN
SEGMENT ----------- ------------- ----------- ----------- ---------- ---------- ------------ --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Medical lines..... $ -- 17,400 -- 84,179 3,312 58,095 28,526 10,111 84,179
Property/casualty. 3,644 77,250 22,936 39,945 6,777 30,078 8,653 3,988 43,799
------- ------ ---------- ----------- ------ ------ ------ ------ -------
Total............. $ 3,644 94,650 22,936 124,124 10,089 88,173 37,179 14,099 127,978
======= ====== ========== =========== ====== ====== ====== ====== =======
1995
Medical lines..... $ -- 17,947 -- 81,546 3,269 54,563 27,069 12,025 81,546
Property/casualty. 2,830 60,947 17,705 33,425 5,872 23,180 8,895 3,304 35,350
------- ------ ---------- ----------- ------ ------ ------ ------ -------
Total............. $ 2,830 78,894 17,705 114,971 9,141 77,743 35,964 15,329 116,896
======= ====== ========== =========== ====== ====== ====== ====== =======
1994
Medical lines..... $ -- 18,113 -- 72,517 2,273 48,356 23,647 13,772 72,517
Property/casualty. 3,047 51,534 14,613 20,752 3,677 16,010 7,694 2,499 23,865
------- ------ ---------- ----------- ------ ------ ------ ------ -------
Total............. $ 3,047 69,647 14,613 93,269 5,950 64,366 31,341 16,271 96,382
======= ====== ========== =========== ====== ====== ====== ====== =======
</TABLE>
24
<PAGE>
US FACILITIES CORPORATION AND SUBSIDIARIES
SCHEDULE IV-REINSURANCE
USF RE INSURANCE COMPANY AND SUBSIDIARY
(WHOLLY-OWNED SUBSIDIARIES OF US FACILITIES CORPORATION)
<TABLE>
<CAPTION>
INSURANCE PREMIUMS EARNED 1996 1995 1994
- ------------------------- -------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Gross amount (direct)................................ $10,279 $12,218 $9,386
Ceded to other companies............................. 20,869 14,398 10,690
Assumed from other companies......................... 134,714 117,151 94,573
Net amount........................................... 124,124 114,971 93,269
Percentage of amount assumed to net.................. 108.5% 101.9% 101.4%
</TABLE>
25
<PAGE>
EXHIBIT 4.3
COMMON STOCK PAR VALUE
$.01
[VINGETTE WITH HUMAN FIGURE]
NUMBER SHARES
[LOGO US FACILITIES CORPORATION]
INCORPORATED UNDER THE LAWS OF THE CUSIP 911822 10 4
STATE OF DELAWARE SEE REVERSE FOR CERTAIN
DEFINITIONS
This Certifies that
[STOCKHOLDER NAME]
SPECIMEN
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
US Facilities Corporation (hereinafter called the "Corporation"), transferable
only on the books of the Corporation upon the surrender of this certificate
properly endorsed. This certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar. Witness the facsimile and of
the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
/s/ JOSE A. VELASCO [SEAL of US FACILITIES CORPORATION] /s/ DAVID L. CARGILE
Secretary Chairman of the Board
TRANSFERABLE IN THE CITY OF NEW YORK, NEW YORK
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
US FACILITIES CORPORATION
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. ANY SUCH REQUEST MAY BE MADE TO THE EXECUTIVE OFFICE OF THE
CORPORATION.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF TRAN MIN ACT -____________Custodian______________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Transfers to Minors Act
JT TEN - as joint tenants with right -----------------------------------
of survivorship and not as (State)
tenants in common
UNIF GIFT MIN ACT -_____________Custodian_____________
(Cust) (Minor)
under Uniform Gifts to Minors Act
___________________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,__________________________hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
______________________________________________________________________________
______________________________________________________________________________
________________________________________________________________________Shares
of the common capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint____________________________________________
______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated:____________________________________
_____________________________________
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of this
certificate in every particular, with-
out alteration or enlargement or any
change whatever.
SIGNATURE(S) GUARANTEED:
By_______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (Banks,
Stockbrokers, Savings and Loan Associations
and Credit Unions) WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 10.2
Agreement of Employment
Between
David L. Cargile
And
US Facilities Corporation
---------------
This Agreement is made at Costa Mesa, California, and shall be
effective as of the 1st day of November, 1996, between US Facilities
Corporation, a Delaware corporation (the "Company"), and David L. Cargile (the
"Executive"). In consideration of the respective promises and mutual covenants
and agreements of the parties which are set forth herein, and intending to be
legally bound thereby, the parties hereby agree as set forth below.
Section 1. Employment
The Company hereby agrees to employ the Executive and the Executive
hereby agrees to be employed by and to serve the Company on the terms and
conditions as set forth in this Agreement.
Section 2. Period of Employment
This Agreement will commence and be effective as of November 1, 1996,
and shall expire and terminate as of October 31, 2000.
Section 3. Position and Duties
The Executive shall serve the Company as its President and Chief
Executive Officer, with all the duties, responsibilities, authority, rights and
privileges which normally attach to those offices, and with such powers that are
consistent with such positions, including full responsibility for the day-to-day
management of the Company's business operations; and shall have such additional
duties, powers, responsibilities and authority as may be delegated or assigned
to Executive from time to time by the Company's Board of Directors.
Section 4. Devotion of Time and Best Efforts
Executive agrees that during the period of his employment he will
devote the substantial portion of his working and productive time, attention,
energies, abilities, skill and efforts to the business affairs of the Company;
and he will diligently exert his best efforts to the promotion, development and
best interest of the Company and its affiliates (including all subsidiaries),
and
-1-
<PAGE>
will faithfully and diligently perform all of the duties incident to his
positions. It is recognized by the Company that Executive, during his employment
period, may have certain personal business activities and enterprises, and the
Company accepts that a relatively minor portion of any given business day may be
spent by Executive attending to such personal business affairs. The Company
acknowledges that such activities will not interfere with the performance of
Executive's duties under this Agreement; and Executive agrees that he will spend
such time in the daily performance of his duties under this Agreement as an
executive in the same industry with similar positions and responsibilities would
spend on behalf of his employer; provided, however, during the term of his
employment Executive, as hereinafter set forth, will not, directly or
indirectly, promote, participate or engage in any activities, whether as a
partner, employee, creditor, shareholder or otherwise, in any business which
shall in any way be competitive or constitute a conflict of interest with the
Company's business.
Section 5. Place of Performance
Executive's duties and responsibilities shall be performed primarily at
the Company's corporate headquarters in Costa Mesa, California, except for such
travel as may be required to be undertaken on behalf of the Company's business.
The Company may not relocate the Executive for purposes of his employment under
this Agreement without the express agreement by the Executive to such
relocation.
Section 6. Compensation Payable to Executive
6.01 Salary Payments: In consideration of Executive's services, the
Company shall pay to the Executive a salary at the rate of not less than Four
Hundred Twenty Thousand Dollars ($420,000) per annum, in equal installments as
nearly as practicable, on the fifteenth (15th) and the last day of each month in
arrears, or otherwise in conformity with the Company's prevailing payroll
practices and policies which are in effect from time to time. At least once each
year, at some date prior to each anniversary date of this Agreement, the Board
of Directors shall review the annual salary being paid to Executive which is
then in effect under this Agreement, and determine whether any increase thereto
may be appropriate. The amount of annual salary being paid to the Executive by
the Company may be adjusted upward as hereinabove provided, and such adjustment
shall not require a written amendment to this Agreement, nor shall such upward
salary adjustment affect any other provisions of this Agreement, which shall
remain in effect
-2-
<PAGE>
unless changed by a written amendment hereto; provided, further, that any
reference in this Agreement to amounts payable to Executive pursuant to this
Section 6.01 shall refer to the annual salary payable to Executive as then in
effect, whether or not adjusted pursuant to a written amendment to this
Agreement. It is specifically agreed to that Executive's salary shall not be
decreased at any time during the term of this Agreement. Compensation of the
Executive by salary payments shall not be deemed to be exclusive, and shall not
prevent Executive from participating in other bonus, compensation, incentive or
benefit plans of the Company. The salary payments hereunder shall not in any way
limit or reduce any other obligation of the Company under this Agreement.
6.02 Discretionary Bonus Payments: In addition to the amount of salary
payment set forth in Section 6.01 above and Executive's participation in Company
benefit plans as provided for in Section 7.01 below, the Executive may be paid a
bonus in such amount as the Board of Directors deems to be appropriate. Any
bonus due to the Executive under this Section 6.02 will be payable to the
Executive by the Company within thirty (30) days following the declaration
thereof by the Company's Board of Directors, unless the Company and the
Executive mutually agree otherwise.
Section 7. Additional Benefits
7.01 General: During the period of his employment, Executive shall be
entitled to receive all other benefits of employment generally available to the
Company's senior executive officers, and shall have the same rights and
privileges to participate in any employee benefits as any other employee of the
Company. Specifically, nothing contained in this Agreement is intended to or
shall be deemed to be granted to Executive in lieu of whatever rights and
privileges which Executive may be entitled to receive as a regular employee and
as the senior executive officer of the Company. Such general employment benefits
include but are not limited to the Company's group medical, hospital, life and
disability insurance plans, the Company's pension, retirement, stock option and
salary incentive plans, the Company's long-term and short-term bonus and
incentive plans, as well as other forms of compensation arrangements which may
now be in effect or which may hereafter be adopted by the Company during the
period of Executive's employment. In addition, Executive shall be entitled to an
annual paid vacation and to such amount of paid sick leave in accordance with
the Company's policies on these matters
-3-
<PAGE>
for senior executives, so that Executive's normal salary then in effect shall
continue to be paid to him during such vacation and sick leave periods.
7.02 Company Automobile: During the period of Executive's employment,
the Company shall furnish an automobile to Executive of a type and model to be
selected by Executive for his use in connection with the Company's business, the
full price or the monthly rental or other expense of which shall be paid for by
the Company. The Company shall provide insurance coverage with respect to said
automobile, as well as costs for its operation and maintenance. Executive agrees
that he will be responsible for any federal or state income taxes that may be
incurred by Executive to the extent applicable which result from Executive's use
of such automobile, as reflected on Executive's W-2 Form from the Company.
7.03 Expense Reimbursement: The Company agrees that during the period
of employment described in this Agreement, Executive is authorized to incur
ordinary and necessary expenses in connection with the promotion, operation and
furtherance of the business affairs of the Company, including expenses incurred
for purposes of entertainment, professional memberships, dues and subscriptions,
travel, as well as educational/professional meetings as shall, in Executive's
judgment, be required for the effective and efficient performance of the
Executive's duties. In accordance with normal Company policy, Executive shall
also be permitted to use credit cards issued in the Company's name for such
business expenses and to take an advance monetary allowance prior to any such
expenditure. However, any business expenditures and expenses which are paid in
the first instance by the Executive shall be reimbursed to the Executive by the
Company upon presentation by the Executive to the Company, not less often than
monthly, of an itemized account of such expenditures, together with receipts and
vouchers. At Executive's option, all travel by Executive for Company purposes
shall be of such class and all hotels shall be of such quality in compliance
with the Company's policy on this matter for its senior executives.
7.04 Club Membership: During the period of Executive's employment, the
Company shall provide for Executive's membership in various clubs, the selection
of which shall be subject to approval by the Board of Directors, through the
payment of the monthly and annual dues as well as the initial membership fee
required for such membership. In addition, the
-4-
<PAGE>
Executive shall have the right to incur monthly charges, and the Company will
pay such monthly charges for entertainment at the said clubs when such
entertainment is for and on behalf of the Company.
7.05 Indemnification:
(a) Maximum Permitted Plus Insurance: The Company shall, to
the maximum extent permitted by law, indemnify and hold Executive harmless
against expenses, including reasonable attorneys' fees, judgments, fines,
settlements and other amounts actually incurred in connection with any
proceeding arising by reason of Executive's employment by the Company. The
Company shall advance to Executive any expenses incurred in defending such
proceeding, to the maximum extent permitted by law. In addition, the Company
shall make every reasonable effort to secure and maintain directors and officers
liability insurance on behalf of the Executive against any liability asserted
against or incurred by Executive arising out of his employment by the Company.
Such insurance shall not discharge the Company from its obligation to provide
the Executive with the maximum indemnification permitted by law.
(b) No Decrease and Continuing Effect: The Company agrees that
the rights, benefits and the protections now afforded to officers and directors
of the Company, whether through the Company's Certificate of Incorporation or
its Bylaws, or by resolutions of its Board of Directors, operation of law or by
any other source (i) shall not be diminished (but may be expanded) during the
Executive's term of employment under this Agreement; and (ii) shall be continued
to be kept in full force and effect after the Executive's employment has
terminated for such additional period of time as may be necessary until any
cause of action for which indemnification would otherwise be available is barred
by the applicable statute of limitations.
7.06 Estate Planning Reimbursement: Recognizing the importance to the
Company of Executive's peace of mind, so that Executive's major efforts will be
more directly focused toward those business affairs of the Company which require
his attention, the Company agrees that during the term of employment described
in this Agreement it will reimburse to the Executive any and all costs or
expenses, of whatever nature, incurred by Executive, including professional fees
of attorneys, accountants and banking or similar institutions, which arise from
or in connection with Executive's estate planning and the estate planning of his
immediate family
-5-
<PAGE>
members. For purposes of such reimbursement, estate planning shall include, but
not be limited to, the establishment of inter vivos or testamentary trusts, the
preparation of a Last Will and Testament, or similar testamentary arrangements,
and any and all other documents required in connection with the above. The
amount to be reimbursed to Executive under this Section 7.06 for estate planning
expenses shall be subject to approval by the Board of Directors of the Company
only if such amount exceeds $22,500.00 over a four (4) year period.
7.07 Relocation and Loan Arrangements.
(a) Pursuant to the July 21, 1995 amendment to the prior
(August 4, 1994) Employment Agreement between the Company and Executive, which
amendment relates to Executive's agreement to relocate at the request of the
Company his family from Atlanta, Georgia, to the Southern California (Orange
County) area, the Company provided a loan (the "Loan") to Executive as partial
financing for the purchase by Executive of a new residence in Orange County,
which Loan is secured by a trust deed on Executive's Orange County residence.
(See Exhibit A attached hereto.)
(b) The Loan is a non-transferable loan with a fixed monthly
payment thereon for the first five years which equals the monthly principal and
interest payments of the mortgage loan on Executive's former Atlanta residence.
All Loan payments are being applied to interest during the first five years.
Following the expiration of such five-year period, or at such time as the unpaid
principal balance shall be reduced below the former balance of Executive's
former Atlanta mortgage loan, the Loan shall be converted to a fully amortizing
15-year loan at a fixed interest rate equal to the lower of either (i) the fixed
rate on Executive's former Atlanta mortgage loan, or (ii) the lowest rate paid
by the Company for funds which the Company is then borrowing. The Loan shall
become due upon the earlier sale of the Orange County residence by Executive or
one year after the termination of Executive's employment with the Company for
any reason. Executive hereby certifies to the Company that Executive reasonably
expects to be entitled to and will itemize deductions for federal income tax
purposes for each year that the Loan is outstanding.
(c) At the end of each calendar month or portion thereof
during which Executive is employed by the Company (to a maximum of sixty (60)
months) following the closing date
-6-
<PAGE>
of the acquisition of his Orange County residence, Executive shall receive a
credit of $6,920 on the unpaid principal balance of the Loan. In addition,
should Executive die or become disabled (as defined in Section 8.02 of this
Agreement) while employed by the Company or should Executive be terminated by
the Company, he or his heirs shall be entitled at such time to the maximum sixty
(60) month credit on the unpaid principal balance of the Loan, notwithstanding
that his actual employment period was less.
(d) While the Loan is outstanding and Executive is employed by
the Company, the Company agrees to provide monthly to Executive as additional
compensation an amount equal to the additional state income taxes, net of any
federal tax benefit, that are incurred by Executive as a result of the taxation
of his income during the year (or a pro rata portion of such income if Executive
is not employed by the Company for the whole year) as a California resident as
contrasted with the taxation of such income as a Georgia resident. Furthermore,
the Company agrees to provide to Executive as additional compensation an amount
equal to the additional federal and state income taxes incurred by Executive due
to the applicable credits as described above against the unpaid Loan balance.
Such additional amount as set forth in this Section 7.07(d) shall be "grossed-
up" to reflect the additional federal and state tax impact of such additional
compensation and of any imputed income resulting from the interest rate on the
Loan and the Company's payment of Executive's moving expenses.
Section 8. Death or Disability
8.01 Payment: In the event of the death or disability (as hereinafter
defined) of Executive during the period of Executive's employment, the Company
will pay to the Executive, or to the Executive's estate, or to any other person
whom the Executive shall have designated by written notice to the Company for
that purpose, a sum equal to the amount of compensation or other payments
remaining due to Executive under Section 6 for the remainder of the full term of
this Agreement as set forth in Section 2 hereof, and any amount due to Executive
under Section 7 of this Agreement; provided, however, that there shall be a
minimum payment under this Section 8.01 equal to one (1) year's salary in the
event that death or disability of Executive occurs when Executive has less than
a one (1) year period remaining until the expiration of the term of this
Agreement, as set forth in Section 2 hereof. Any amounts payable hereunder shall
be made in accordance with the Company's normal payroll policies and procedures.
-7-
<PAGE>
8.02 Definition of "Disability": The term "disability" in this
Agreement for purposes of this section shall mean the inability of the Executive
to perform the normal functions, duties and responsibilities as required for his
position under this Agreement due to his incapacity, whether such incapacity
arises from physical or mental illness or injury. In order to determine any
issue relating to the question of disability, the Company shall have the right
to require that Executive submit to a medical examination by a licensed
physician who shall be mutually agreed upon and selected by the Executive and
the Company. The Company shall also have the right to carry disability insurance
on the Executive to provide for its obligations under this Section 8.
Section 9. Termination
9.01 Termination for Cause:
(a) Definition of Cause: At any time during the period covered
by this Agreement the Company may terminate the Executive from his employment
under this Agreement for cause. The term "cause" in this Agreement for purposes
of termination shall include, but not be limited to: (i) the commission by
Executive of any act of fraud or material dishonesty with respect to the
financial or monetary aspects of the business, as determined by an independent
national accounting firm selected by mutual agreement of the Company and
Executive; or (ii) a final conviction of a felony involving moral turpitude in
either a state or federal court proceeding; or (iii) the intentional and willful
breach of the terms of this Agreement, including the failure of Executive to
diligently and faithfully perform his duties under this Agreement or as
instructed by the Board of Directors of the Company, after reasonable notice to
and discussion with Executive; or (iv) intentionally acting in a manner or
intentionally engaging in activities which place Executive in a direct or
indirect conflicting position with the interests of the Company and which could
have a material adverse effect on the Company, after reasonable notice to and
discussion with Executive.
(b) Payment When Terminated For Cause: In the event of
termination of Executive for cause, the Company will pay to the Executive the
accrued but unpaid salary compensation due to Executive under Section 6.01, the
unpaid reimbursement expenses due to Executive under Section 7.03 and the
accrued vacation days due to Executive under Section 7.01 of this Agreement to
the date of such termination. Such payment shall be made to Executive either in
single lump sum or as is mutually agreed upon between Executive and the Company.
-8-
<PAGE>
9.02 Involuntary Termination (Without Cause):
(a) Payment: During the period of Executive's employment, the
Company shall have the right to terminate the Executive involuntarily and
without any cause or any reason by paying to the Executive one hundred fifty
percent (150%) of all amounts which would be due and payable to the Executive
pursuant to the compensation provisions set forth in Section 6.01 of this
Agreement for the remainder of the term as set forth in Section 2 of this
Agreement. In addition to the salary provisions of Section 6.01, such payment
shall include any amounts due to Executive under the provisions of Section 7
hereof, such as amounts due for expense reimbursement or for accrued vacation
time. Any and all monetary amounts payable to the Executive under this Section 9
shall be paid in the manner selected by the Executive, at his sole discretion.
(b) Transfer of Automobile: In the event of termination under
this Section 9.02, the automobile then being used by Executive shall be
transferred to him (the title to which automobile shall be free and clear of all
liens) at no cost to Executive.
9.03 Piggyback Registration Rights:
(a) General: In the event that the Company exercises its right
of involuntary termination of Executive as set forth in Section 9.02 hereof, the
Executive shall have the following registration rights. Subject to Subsection
(b) below, if at any time and from time to time until Executive no longer owns
shares of the Company's Common Stock, the Company proposes to register any of
its securities under the Securities Act of 1933, as amended (the "Securities
Act"), in connection with the public offering of its securities solely for cash
on a form that would also permit the registration of the shares of the Company's
Common Stock owned by Executive, the Company shall, on the first occasion after
it exercises its right of involuntary termination of Executive, promptly give
Executive written notice of its determination to register its securities. Upon
the written request of Executive given within thirty (30) days after receipt by
Executive of such notice from the Company, the Company shall use its best
efforts to cause to be registered under the Securities Act as a part of the
Company's registration statement all of the Common Stock of Executive that
Executive has requested be registered by the Company. In addition, the Company
further agrees to do the following:
-9-
<PAGE>
(i) Furnish to the Executive such copies of each preliminary and final
prospectus and other documents as may be necessary or reasonably requested by
Executive to facilitate the public offering of Executive's Common Stock;
(ii) Use its best efforts to register or qualify Executive's Common Stock
covered by said registration statement under applicable securities or "Blue Sky"
laws of such jurisdictions as Executive may reasonably request;
(iii) Furnish to the Executive an appropriate opinion of counsel for the
Company and a "comfort" letter signed by the Company's independent accountant
who examined and reported on the Company's financial statements included in the
registration statement;
(iv) Permit Executive or his counsel to inspect and copy such corporate
records and documents as may be requested by them;
(v) Furnish to Executive or his counsel any and all correspondence
relating to the public offering, whether dealing with the Securities and
Exchange Commission, state securities commissions or the National Association of
Securities Dealers;
(vi) Pay all costs and expenses of the said registration statement
described in this Section 9.03, whether printing, legal, accounting, state and
federal regulatory filing fees, as well as Executive's attorneys' fees, but not
any portion of the underwriter's commissions or discount attributable to
Executive's Common Stock being sold under said registration statement; and
(vii) Promptly notify the Executive in the event that any
prospectus included in the said registration statement described in this Section
9.03 includes a misstatement of a material fact or omits to state any material
fact required to be stated therein, or necessary in order to make the statements
therein not misleading in the light of the circumstances then existing.
(b) Restrictions on Registration: In connection with any
registration rights offered to Executive under this Section 9.03, the Company
shall not be required to include any of Executive's Common Stock in such
registration statement unless Executive accepts the terms
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of the underwriting as agreed to by the Company and the underwriters who are
selected by the Company to distribute the Company's securities. Further, if the
total amount of securities to be included in such offering exceeds the amount of
securities that the underwriter reasonably believes to be compatible with the
success of the Company's underwriting, the Company shall only be required to
include in the registration statement so many of the shares of the Executive's
Common Stock as the underwriters' reasonably believe will not jeopardize the
success of the Company's offering; provided, however, that the shares owned by
selling shareholders which are included in the registration statement shall be a
number apportioned pro rata among all selling shareholders who have similar
registration rights, with respect to the number of shares requested by each to
be included in such registration statement.
(c) Indemnification of Executive: In connection with the
registration rights granted to Executive under this Section 9.03, and to the
extent permitted by law, the Company will indemnify and hold Executive harmless
against any losses, claims, damages or liabilities, including attorneys' fees,
judgments, fines, settlements and other amounts actually incurred, to or for
which Executive may become subject under the Securities Act arising out of any
untrue or alleged untrue statements of material facts contained in the
registration statement or which arise from or are based upon the omission or
alleged omission to state therein any material fact required to be stated
therein, or necessary to make the statements therein not misleading, to the
extent that such untrue statements or alleged untrue statements or omission or
alleged omission made in such registration statement were made in reliance upon
and in conformity with written information furnished by the Company especially
for use in connection with such registration statement.
(d) Indemnification of the Company: In connection with the
registration rights granted to Executive under this Section 9.03, and to the
extent permitted by law, the Executive will indemnify and hold the Company
harmless against any losses, claims, damages or liabilities to which the Company
may become subject under the Securities Act arising out of any untrue or alleged
untrue statements of material facts contained in the registration statement or
which arise from or are based upon the omission or alleged omission to state
therein any material fact required to be stated therein, or necessary to make
the statements therein not misleading, to the
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extent that such untrue statements or alleged untrue statements or omission or
alleged omission made in such registration statement were made in reliance upon
and in conformity with written information furnished by the Executive to the
Company especially for use in connection with such registration statement.
Section 10. Covenant of Non-Competition
Executive agrees that for the period commencing from the date of his
employment under this Agreement and continuing for the full period of such
employment, he shall not directly or indirectly be involved in, or shall have an
interest in, any person, firm, corporation or business, whether as an employee,
officer, director, agent, shareholder or otherwise (except as a minority
shareholder of a publicly held corporation) that is engaged in any business in
which the Company is engaged or which places Executive in a position which may
constitute a conflict between the interests of the Executive and the interests
of the Company during the period of his employment under this Agreement;
provided, however, the prohibitions and restrictions set forth in this section
shall not apply to or in any way limit a relationship, involvement or interest
in any firm, corporation or business which in the ordinary course of its
business activities does not have more than ten percent (10%) of its annual
gross income derived from the business activities in which the Company is
engaged during the period of Executive's employment under this Agreement.
Section 11. Settlement of Disputes
(a) Any controversy or dispute between the parties to this Agreement
involving the construction, interpretation, application or performance of the
terms, covenants or conditions of this Agreement or in any way arising under
this Agreement shall, on demand of one of the parties by written notice hereto
served on the other in the manner prescribed in Section 16 hereof, be determined
pursuant to the general reference provisions of California Code of Civil
Procedure ("CCP") ss.638(1), et seq., by a retired or former judge of the
Superior Court for the County of Orange, State of California. The parties intend
this general reference provision to be specifically enforceable in accordance
with said ss.638(1).
(b) The reference may be commenced by any party hereto by the filing in
the Superior Court of the State of California for the County of Orange of a
petition or a motion for a general
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reference. The petition and any opposition or response thereto shall recite in a
clear and meaningful manner the factual basis of the controversy between the
parties and identify the issues to be submitted to the referee for decision.
(c) The petition or motion shall designate as a sole referee a retired
judge from the Orange County, California, Judicial Arbitration & Mediation
Services ("JAMS") panel acceptable to that party. If the parties to the
reference proceeding are unable to agree upon a referee, the Presiding Judge or
any judge of the Orange County Superior Court to whom the matter is assigned
shall appoint a retired or former Orange County Superior Court Judge from the
JAMS panel as the referee.
(d) The parties acknowledge that the terms of this Section 11 are
specifically enforceable and that the decision by the referee is tantamount to a
judgment by a trial court (CCP ss.644) and is subject to review in accordance
with CCP ss.645, and that any judgment rendered in the trial court is appealable
in the same manner as any other trial court judgment.
Section 12. Setoff
The Company agrees that its obligation to the Executive, whether to pay
the Executive the compensation as provided in Section 6 of this Agreement, to
provide Executive with the benefits set forth in Section 7 of this Agreement, or
otherwise, shall not be subject at any time to any setoff, reduction, mitigation
or diminishment as a result of any alleged claims which the Company believes it
has against Executive, or for any other reason whatsoever.
Section 13. Covenant of Good Faith
The parties to this Agreement covenant that they enter into this
Agreement and undertake the obligations of this Agreement in good faith. No
party will do anything to interfere with the rights of any other party to obtain
the advantages extended to that party by this Agreement. The parties agree that
a breach of this covenant shall create a liability against the party in breach
for consequential damages as though the breach were a tort, in addition to
liability for other contractual damages.
Section 14. Nonassignability
This Agreement is a personal service contract and the rights and duties
of the parties hereunder shall not be assignable, except in accordance with the
provisions of Section 15 of this
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Agreement. Any attempted assignment or transfer not permitted by the terms
of Section 15 shall be void and of no force and effect.
Section 15. Successors and Assigns
15.01 Of the Company: If the Company shall at any time be merged or
consolidated into or with any other corporation, or if substantially all of the
assets of the Company are transferred to another corporation or party, the
provisions of this Agreement shall be binding upon and inure to the benefit of
the entity or successors resulting from such merger or consolidation or to which
such assets shall be transferred; and this provision shall apply in such events.
15.02 Of Executive: To the extent applicable, this Agreement shall be
binding on the devises, heirs, next of kin, executors and administrators of the
Executive.
Section 16. Notice
16.01 Method of Notice: All notices, demands or other communications
required or desired to be given hereunder by any party shall be in writing and
shall be validly given or made to the other parties if served personally on such
other parties or if deposited in the United States mail, certified or
registered, postage prepaid, return receipt requested. If such notice, demand or
other communication be served personally, service shall be deemed made at the
time of such personal service. If such notice, demand or other communication be
given by mail, such notice shall be conclusively deemed given forty-eight (48)
hours after the deposit thereof in the United States mail, addressed to the
party to whom such notice, demand or other communication is to be given as
hereinafter provided.
16.02 Addresses: Notice shall be given to the Company at the following
address:
US Facilities Corporation
650 Town Center Drive, Suite 1600
Costa Mesa, California 92626
Attention: Jose A. Velasco, Senior
Vice President, Secretary and General Counsel
Notice shall be given to the Executive at the following address:
David L. Cargile
26231 Mount Diablo Road
Laguna Hills, California 92653
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Any party hereto may change his address for purposes of receiving notices,
demands or other communications as herein provided by a written notice given in
the manner aforesaid to the other party hereto.
Section 17. Applicable Governing Law
The parties hereto specifically concur that this Agreement, having been
executed and delivered in the State of California between US Facilities
Corporation, whose principal offices are in the State of California, and
Executive David L. Cargile, a resident of the State of California, shall be
construed in accordance with the laws of the State of California; and the
validity, interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of California, including its laws and
decisions relating to conflict of laws.
Section 18. Severability/Captions
Every provision in this Agreement is intended to be severable. If any
term or provision hereof is illegal or invalid, for any reason whatsoever, such
illegality or invalidity shall not affect the validity of the remainder hereof.
The captions or headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret, define or
limit the scope, extent or intent of this Agreement or any provisions hereof.
Section 19. Amendments/Waivers
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing after
approval by the Company's Board of Directors and signed by Executive and an
officer of the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
Section 20. Entire Agreement/Severance Agreement
20.01 Employment Agreement: Except as set forth in Section 20.02 below,
this Agreement expresses the entire agreement of the parties hereto, and
supersedes all prior promises, representations, understandings, arrangements and
agreements between these parties with respect to the subject matter herein,
specifically including any prior Employment Agreement between the Executive and
the Company, and any amendments and corrections to
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such prior Employment Agreement. The parties hereto further acknowledge and
agree that neither of them has made any representation to induce the execution
and delivery of this Agreement, except those as specifically set forth herein.
20.02 Severance Agreement: Notwithstanding anything set forth in
Subsection 20.01 above or in any Severance Agreement with Executive which would
appear to be to the contrary, if Executive and the Company have entered into a
Severance Agreement which is in effect at the time of Executive's termination,
then in that event the Company and Executive hereby agree that Executive shall
be entitled to receive upon Executive's termination either (i) the salary and
bonus termination payments as provided for in this Employment Agreement, or (ii)
the salary and bonus termination payments as provided for in any Severance
Agreement between Executive and the Company, whichever salary and bonus
termination payment is the greater; but under no conditions shall Executive be
entitled to receive upon termination the salary and bonus termination payments
under a Severance Agreement and the salary and bonus termination payments under
this Employment Agreement.
Section 21. Signatures
In Witness Whereof, the Company has authorized that this Agreement be
executed, and when the Company's duly authorized officers and the Executive have
signed this Agreement in the places indicated below, this Agreement shall be
effective as of November 1, 1996.
Company: US Facilities Corporation
By /s/ JOSE A. VELASCO
-------------------------------------
Jose A. Velasco
Senior Vice President,
Secretary and General Counsel
Executive:
/s/ DAVID L. CARGILE
-------------------------------------
David L. Cargile
Witness:
/s/ MARK BURKE
- ---------------------------------
Mark Burke
Senior Vice President, Treasurer
and Chief Financial Officer
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Amendment No. 1
To The Promissory Note Dated July 24, 1995
In the Amount of $649,000
Executed By David L. Cargile and Ann M. Cargile
In Favor of US Facilities Corporation
------------------
In connection with the July 21, 1995 amendment to the August 4, 1994
Agreement of Employment between US Facilities Corporation, a Delaware
Corporation (the "Company" or "Lender"), and David L. Cargile (the "Executive"),
the Company loaned $649,000 to David L. Cargile and Ann M. Cargile, husband and
wife ("Borrower"). This loan was evidenced by a Promissory Note dated July 24,
1995 and secured by a Deed of Trust of even date therewith given by Borrower.
Effective as of November 1, 1996, the Company and Executive entered into a
new Agreement of Employment, the terms of which new Agreement of Employment
require that the July 24, 1995 Promissory Note be amended in the manner as
hereinafter set forth.
Now, Therefore, section 1. PAYMENTS, B. Months 61 through 240 is hereby
amended in its entirety to read in full as follows:
"1. PAYMENTS
* * * *
"B. Months 61 through 240. Commencing on the earlier of the
Early Change Date or the 61st Payment Date (collectively
hereinafter referred to as the 'Payment Change Date'), and
continuing on each Payment Date following and including the
Payment Change Date through the Maturity Date, the monthly
payment amount due hereunder shall be adjusted to be the amount
that will amortize fully the entire principal balance of the
Note then outstanding along with all accrued but unpaid interest
then outstanding in approximately equal monthly installments of
principal and interest over the period commencing on the Payment
Change Date and ending on the date which is one hundred eighty
(180) months after the Payment Change Date with interest
commencing at the Payment Change Date on the unpaid principal
and interest balance at the
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lower of either (i) Nine and Three-Quarters Percent (9.75%) per
annum or (ii) that interest rate which is the lowest rate paid
by the Lender for funds which the Lender is borrowing from its
principal lending source at the Payment Change Date. The
interest rate that is applicable at the Payment Change Date
shall continue to be the interest rate until the date on which
this Note is paid in full. On or before thirty (30) days prior
to the Payment Change Date, Lender shall notify Borrower of the
amount thereafter due per month, provided that Lender's failure
to so notify Borrower shall not relieve Borrower of its
obligations to continue to make payments hereunder. Borrower
shall pay such amount on the Payment Change Date and on each
Payment Date thereafter until the date this Note is paid in
full."
Except as modified by this Amendment No. 1, the terms and provisions of
the July 24, 1995 Promissory Note Secured by Deed of Trust shall remain in full
force and effect as provided therein.
This Amendment was executed by Borrower on this 1st day of November, 1996,
as set forth below.
BORROWER:
/s/ DAVID L. CARGILE
----------------------
David L. Cargile
/s/ ANN M. CARGILE
----------------------
Ann M. Cargile
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EXHIBIT 10.3
Agreement of Employment
Between
Howard S. Singer
And
US Facilities Corporation
---------------
This Agreement is made at Costa Mesa, California, and shall be
effective as of the 1st day of November, 1996, between US Facilities
Corporation, a Delaware corporation (the "Company"), and Howard S. Singer (the
"Executive"). In consideration of the respective promises and mutual covenants
and agreements of the parties which are set forth herein, and intending to be
legally bound thereby, the parties hereby agree as set forth below.
Section 1. Employment
The Company hereby agrees to employ the Executive and the Executive
hereby agrees to be employed by and to serve the Company on the terms and
conditions as set forth in this Agreement.
Section 2. Period of Employment
This Agreement will commence and be effective as of November 1, 1996,
and shall expire and terminate as of October 31, 2000.
Section 3. Position and Duties
The Executive shall serve the Company as its Executive Vice President--
Corporate Finance and Investor Relations, with all the duties, responsibilities,
authority, rights and privileges which normally attach to those offices, and
with such powers that are consistent with such positions; and shall have such
additional duties, powers, responsibilities and authority as may be delegated or
assigned to Executive from time to time by the Company's Chief Executive
Officer. Executive's services shall be performed on behalf of the Company in
consonance with the Company's Certificate of Incorporation and its Bylaws, and
Executive shall be subject at all times to the supervision, direction and
control of the Company's Chief Executive Officer and its Board of Directors.
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Section 4. Devotion of Time and Best Efforts
Executive agrees that during the period of his employment he will
devote the substantial portion of his working and productive time, attention,
energies, abilities, skill and efforts to the business affairs of the Company;
and he will diligently exert his best efforts to the promotion, development and
best interest of the Company and its affiliates (including all subsidiaries),
and will faithfully and diligently perform all of the duties incident to his
positions. It is recognized by the Company that Executive, during his employment
period, may have certain personal business activities and enterprises, and the
Company accepts that a relatively minor portion of any given business day may be
spent by Executive attending to such personal business affairs. The Company
acknowledges that such activities will not interfere with the performance of
Executive's duties under this Agreement; and Executive agrees that he will spend
such time in the daily performance of his duties under this Agreement as an
executive in the same industry with similar positions and responsibilities would
spend on behalf of his employer; provided, however, during the term of his
employment Executive, as hereinafter set forth, will not, directly or
indirectly, promote, participate or engage in any activities, whether as a
partner, employee, creditor, shareholder or otherwise, in any business which
shall in any way be competitive or constitute a conflict of interest with the
Company's business.
Section 5. Place of Performance
Executive's duties and responsibilities shall be performed primarily at
the Company's offices in the area of Chicago, Illinois, except for such travel
as may be required to be undertaken on behalf of the Company's business. The
Company may not relocate the Executive for purposes of his employment under this
Agreement without the express agreement by the Executive to such relocation.
Section 6. Compensation Payable to Executive
6.01 Salary Payments: In consideration of Executive's services, the
Company shall pay to the Executive a salary at the rate of not less than Two
Hundred Twenty-Seven Thousand Two Hundred Seventy Dollars ($227,270) per annum,
in equal installments as nearly as practicable, on the fifteenth (15th) and the
last day of each month in arrears, or otherwise in conformity with the Company's
prevailing payroll practices and policies which are in effect from time to time.
At least once each year, at some date prior to each anniversary date of this
Agreement, the Chief
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Executive Officer shall (i) review the annual salary being paid to Executive
which is then in effect, (ii) determine whether any increase thereto may be
appropriate and (iii) recommend any such adjustment to the Compensation
Committee of the Board of Directors. The amount of annual salary being paid to
the Executive by the Company may be adjusted upward as hereinabove provided, and
such adjustment shall not require a written amendment to this Agreement, nor
shall such upward salary adjustment affect any other provisions of this
Agreement, which shall remain in effect unless changed by a written amendment
hereto; provided, further, that any reference in this Agreement to amounts
payable to Executive pursuant to this Section 6.01 shall refer to the annual
salary payable to Executive as then in effect, whether or not adjusted pursuant
to a written amendment to this Agreement. It is specifically agreed to that
Executive's salary shall not be decreased at any time during the term of this
Agreement. Compensation of the Executive by salary payments shall not be deemed
to be exclusive, and shall not prevent Executive from participating in other
bonus, compensation, incentive or benefit plans of the Company. The salary
payments hereunder shall not in any way limit or reduce any other obligation of
the Company under this Agreement.
6.02 Discretionary Bonus Payments: In addition to the amount of salary
payment set forth in Section 6.01 above and Executive's participation in Company
benefit plans as provided for in Section 7.01 below, the Executive may be paid a
bonus. Such bonus shall be in an amount as recommended by the Chief Executive
Officer and as approved by the Compensation Committee of the Board of Directors.
Any bonus due to the Executive under this Section 6.02 will be payable to the
Executive by the Company within thirty (30) days following the declaration
thereof by the Company's Board of Directors, unless the Company and the
Executive mutually agree otherwise.
Section 7. Additional Benefits
7.01 General: During the period of his employment, Executive shall be
entitled to receive all other benefits of employment generally available to the
Company's senior executive officers, and shall have the same rights and
privileges to participate in any employee benefits as any other employee of the
Company. Specifically, nothing contained in this Agreement is intended to or
shall be deemed to be granted to Executive in lieu of whatever rights and
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privileges which Executive may be entitled to receive as a regular employee and
as a senior executive officer of the Company. Such general employment benefits
include but are not limited to the Company's group medical, hospital, life and
disability insurance plans, the Company's pension, retirement, stock option and
salary incentive plans, the Company's long-term and short-term bonus and
incentive plans, as well as other forms of compensation arrangements which may
now be in effect or which may hereafter be adopted by the Company during the
period of Executive's employment. In addition, Executive shall be entitled to an
annual paid vacation and to such amount of paid sick leave in accordance with
the Company's policies on these matters for senior executives, so that
Executive's normal salary then in effect shall continue to be paid to him during
such vacation and sick leave periods.
7.02 Company Automobile: During the period of Executive's employment,
the Company shall furnish an automobile to Executive of a type to be mutually
agreed upon by Executive and the Company's Chief Executive Officer for
Executive's use in connection with the Company's business, the full price or the
monthly rental or other expense of which shall be paid for by the Company. The
Company shall provide insurance coverage with respect to said automobile, as
well as costs for its operation and maintenance. Executive agrees that he will
be responsible for any federal or state income taxes that may be incurred by
Executive to the extent applicable which result from Executive's use of such
automobile, as reflected on Executive's W- 2 Form from the Company.
7.03 Expense Reimbursement: The Company agrees that during the period
of employment described in this Agreement, Executive is authorized to incur
ordinary and necessary expenses in connection with the promotion, operation and
furtherance of the business affairs of the Company, including expenses incurred
for purposes of entertainment, professional memberships, dues and subscriptions,
travel, as well as educational/professional meetings as shall, in Executive's
judgment, be required for the effective and efficient performance of the
Executive's duties. In accordance with normal Company policy, Executive shall
also be permitted to use credit cards issued in the Company's name for such
business expenses and to take an advance monetary allowance prior to any such
expenditure. However, any business expenditures and expenses which are paid in
the first instance by the Executive shall be
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reimbursed to the Executive by the Company upon presentation by the Executive to
the Company, not less often than monthly, of an itemized account of such
expenditures, together with receipts and vouchers. At Executive's option, all
travel by Executive for Company purposes shall be of such class and all hotels
shall be of such quality in compliance with the Company's policy on this matter
for its senior executives.
7.04 Club Membership: Subject to approval by the Company's Chief
Executive Officer, during the period of Executive's employment, the Company
shall provide for Executive's membership in various clubs through the payment of
the monthly and annual dues as well as the initial membership fee required for
such membership. In addition, the Executive shall have the right to incur
monthly charges, and the Company will pay such monthly charges for entertainment
at the said clubs when such entertainment is for and on behalf of the Company.
7.05 Indemnification:
(a) Maximum Permitted Plus Insurance: The Company shall, to
the maximum extent permitted by law, indemnify and hold Executive harmless
against expenses, including reasonable attorneys' fees, judgments, fines,
settlements and other amounts actually incurred in connection with any
proceeding arising by reason of Executive's employment by the Company. The
Company shall advance to Executive any expenses incurred in defending such
proceeding, to the maximum extent permitted by law. In addition, the Company
shall make every reasonable effort to secure and maintain directors and officers
liability insurance on behalf of the Executive against any liability asserted
against or incurred by Executive arising out of his employment by the Company.
Such insurance shall not discharge the Company from its obligation to provide
the Executive with the maximum indemnification permitted by law.
(b) No Decrease and Continuing Effect: The Company agrees that
the rights, benefits and the protections now afforded to officers and directors
of the Company, whether through the Company's Certificate of Incorporation or
its Bylaws, or by resolutions of its Board of Directors, operation of law or by
any other source (i) shall not be diminished (but may be expanded) during the
Executive's term of employment under this Agreement; and (ii) shall be continued
to be kept in full force and effect after the Executive's employment has
terminated for
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such additional period of time as may be necessary until any cause of action for
which indemnification would otherwise be available is barred by the applicable
statute of limitations.
7.06 Estate Planning Reimbursement: Recognizing the importance to the
Company of Executive's peace of mind, so that Executive's major efforts will be
more directly focused toward those business affairs of the Company which require
his attention, the Company agrees that during the term of employment described
in this Agreement it will reimburse to the Executive the expense incurred by
Executive arising from or in connection with Executive's estate planning. For
purposes of such reimbursement, estate planning shall include, but not be
limited to, the establishment of inter vivos or testamentary trusts, the
preparation of a Last Will and Testament, or similar testamentary arrangements,
and any and all other documents required in connection with the above. The
amount to be reimbursed to Executive under this Section 7.06 for estate planning
expenses shall be subject to approval by the Chief Executive Officer of the
Company.
Section 8. Death or Disability
8.01 Payment: In the event of the death or disability (as hereinafter
defined) of Executive during the period of Executive's employment, the Company
will pay to the Executive, or to the Executive's estate, or to any other person
whom the Executive shall have designated by written notice to the Company for
that purpose, a sum equal to the amount of compensation or other payments
remaining due to Executive under Section 6 for a period of one (1) year under
this Agreement and due to Executive under Section 7 of this Agreement. Any
amounts payable hereunder shall be made in accordance with the Company's normal
payroll policies and procedures.
8.02 Definition of "Disability": The term "disability" in this
Agreement for purposes of this section shall mean the inability of the Executive
to perform the normal functions, duties and responsibilities as required for his
position under this Agreement due to his incapacity, whether such incapacity
arises from physical or mental illness or injury. In order to determine any
issue relating to the question of disability, the Company shall have the right
to require that Executive submit to a medical examination by a licensed
physician who shall be mutually agreed
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upon and selected by the Executive and the Company. The Company shall also have
the right to carry disability insurance on the Executive to provide for its
obligations under this Section 8.
Section 9. Termination
9.01 Termination for Cause:
(a) Definition of Cause: At any time during the period covered
by this Agreement the Company may terminate the Executive from his employment
under this Agreement for cause. The term "cause" in this Agreement for purposes
of termination shall include, but not be limited to: (i) the commission by
Executive of any act of fraud or material dishonesty with respect to the
financial or monetary aspects of the business, as determined by an independent
national accounting firm selected by mutual agreement of the Company and
Executive; or (ii) a final conviction of a felony involving moral turpitude in
either a state or federal court proceeding; or (iii) the intentional and willful
breach of the terms of this Agreement, including the failure of Executive to
diligently and faithfully perform his duties under this Agreement or as
instructed by the Board of Directors of the Company, after reasonable notice to
and discussion with Executive; or (iv) intentionally acting in a manner or
intentionally engaging in activities which place Executive in a direct or
indirect conflicting position with the interests of the Company and which could
have a material adverse effect on the Company, after reasonable notice to and
discussion with Executive.
(b) Payment When Terminated For Cause: In the event of
termination of Executive for cause, the Company will pay to the Executive the
accrued but unpaid salary compensation due to Executive under Section 6.01, the
unpaid reimbursement expenses due to Executive under Section 7.03 and the
accrued vacation days due to Executive under Section 7.01 of this Agreement to
the date of such termination. Such payment shall be made to Executive either in
a lump sum or in accordance with the Company's normal payroll policies and
procedures, as determined by the Company in its sole discretion.
9.02 Involuntary Termination (Without Cause):
(a) Payment: During the period of Executive's employment, the
Company shall have the right to terminate the Executive involuntarily and
without any cause or any reason by paying to the Executive one hundred fifty
percent (150%) of all amounts which would be due
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and payable to the Executive pursuant to the compensation provisions set forth
in Section 6.01 of this Agreement for the remainder of the term as set forth in
Section 2 of this Agreement. In addition to the salary provisions of Section
6.01, such payment shall include any amounts due to Executive under the
provisions of Section 7 hereof, such as amounts due for expense reimbursement or
for accrued vacation time. Any and all monetary amounts payable to the Executive
under this Section 9 shall be paid in the manner selected by the Executive, at
his sole discretion.
(b) Transfer of Automobile: In the event of termination under
this Section 9.02, the automobile then being used by Executive shall be
transferred to him (the title to which automobile shall be free and clear of all
liens) at no cost to Executive.
9.03 Piggyback Registration Rights:
(a) General: In the event that the Company exercises its right
of involuntary termination of Executive as set forth in Section 9.02 hereof, the
Executive shall have the following registration rights. Subject to Subsection
(b) below, if at any time and from time to time until Executive no longer owns
shares of the Company's Common Stock, the Company proposes to register any of
its securities under the Securities Act of 1933, as amended (the "Securities
Act"), in connection with the public offering of its securities solely for cash
on a form that would also permit the registration of the shares of the Company's
Common Stock owned by Executive, the Company shall, on the first occasion after
it exercises its right of involuntary termination of Executive, promptly give
Executive written notice of its determination to register its securities. Upon
the written request of Executive given within thirty (30) days after receipt by
Executive of such notice from the Company, the Company shall use its best
efforts to cause to be registered under the Securities Act as a part of the
Company's registration statement all of the Common Stock of Executive that
Executive has requested be registered by the Company. In addition, the Company
further agrees to do the following:
(i) Furnish to the Executive such copies of each preliminary and final
prospectus and other documents as may be necessary or reasonably requested by
Executive to facilitate the public offering of Executive's Common Stock;
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(ii) Use its best efforts to register or qualify Executive's
Common Stock covered by said registration statement under applicable securities
or "Blue Sky" laws of such jurisdictions as Executive may reasonably request;
(iii) Furnish to the Executive an appropriate opinion of
counsel for the Company and a "comfort" letter signed by the Company's
independent accountant who examined and reported on the Company's financial
statements included in the registration statement;
(iv) Permit Executive or his counsel to inspect and copy such
corporate records and documents as may be requested by them; (v) Furnish to
Executive or his counsel any and all correspondence relating to the public
offering, whether dealing with the Securities and Exchange Commission, state
securities commissions or the National Association of Securities Dealers;
(vi) Pay all costs and expenses of the said registration statement
described in this Section 9.03, whether printing, legal, accounting, state and
federal regulatory filing fees, as well as Executive's attorneys' fees, but not
any portion of the underwriter's commissions or discount attributable to
Executive's Common Stock being sold under said registration statement; and
(vii) Promptly notify the Executive in the event that any
prospectus included in the said registration statement described in this Section
9.03 includes a misstatement of a material fact or omits to state any material
fact required to be stated therein, or necessary in order to make the statements
therein not misleading in the light of the circumstances then existing.
(b) Restrictions on Registration: In connection with any
registration rights offered to Executive under this Section 9.03, the Company
shall not be required to include any of Executive's Common Stock in such
registration statement unless Executive accepts the terms of the underwriting as
agreed to by the Company and the underwriters who are selected by the Company to
distribute the Company's securities. Further, if the total amount of securities
to be included in such offering exceeds the amount of securities that the
underwriter reasonably
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believes to be compatible with the success of the Company's underwriting, the
Company shall only be required to include in the registration statement so many
of the shares of the Executive's Common Stock as the underwriters' reasonably
believe will not jeopardize the success of the Company's offering; provided,
however, that the shares owned by selling shareholders which are included in the
registration statement shall be a number apportioned pro rata among all selling
shareholders who have similar registration rights, with respect to the number of
shares requested by each to be included in such registration statement.
(c) Indemnification of Executive: In connection with the
registration rights granted to Executive under this Section 9.03, and to the
extent permitted by law, the Company will indemnify and hold Executive harmless
against any losses, claims, damages or liabilities, including attorneys' fees,
judgments, fines, settlements and other amounts actually incurred, to or for
which Executive may become subject under the Securities Act arising out of any
untrue or alleged untrue statements of material facts contained in the
registration statement or which arise from or are based upon the omission or
alleged omission to state therein any material fact required to be stated
therein, or necessary to make the statements therein not misleading, to the
extent that such untrue statements or alleged untrue statements or omission or
alleged omission made in such registration statement were made in reliance upon
and in conformity with written information furnished by the Company especially
for use in connection with such registration statement.
(d) Indemnification of the Company: In connection with the
registration rights granted to Executive under this Section 9.03, and to the
extent permitted by law, the Executive will indemnify and hold the Company
harmless against any losses, claims, damages or liabilities to which the Company
may become subject under the Securities Act arising out of any untrue or alleged
untrue statements of material facts contained in the registration statement or
which arise from or are based upon the omission or alleged omission to state
therein any material fact required to be stated therein, or necessary to make
the statements therein not misleading, to the extent that such untrue statements
or alleged untrue statements or omission or alleged omission made in such
registration statement were made in reliance upon and in conformity with written
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information furnished by the Executive to the Company especially for use in
connection with such registration statement.
Section 10. Covenant of Non-Competition
Executive agrees that for the period commencing from the date of his
employment under this Agreement and continuing for the full period of such
employment, he shall not directly or indirectly be involved in, or shall have an
interest in, any person, firm, corporation or business, whether as an employee,
officer, director, agent, shareholder or otherwise (except as a minority
shareholder of a publicly held corporation) that is engaged in any business in
which the Company is engaged or which places Executive in a position which may
constitute a conflict between the interests of the Executive and the interests
of the Company during the period of his employment under this Agreement;
provided, however, the prohibitions and restrictions set forth in this section
shall not apply to or in any way limit a relationship, involvement or interest
in any firm, corporation or business which in the ordinary course of its
business activities does not have more than ten percent (10%) of its annual
gross income derived from the business activities in which the Company is
engaged during the period of Executive's employment under this Agreement.
Section 11. Settlement of Disputes
(a) Any controversy or dispute between the parties to this Agreement
involving the construction, interpretation, application or performance of the
terms, covenants or conditions of this Agreement or in any way arising under
this Agreement shall, on demand of one of the parties by written notice hereto
served on the other in the manner prescribed in Section 16 hereof, be determined
pursuant to the general reference provisions of California Code of Civil
Procedure ("CCP") ss.638(1), et seq., by a retired or former judge of the
Superior Court for the County of Orange, State of California. The parties intend
this general reference provision to be specifically enforceable in accordance
with said ss.638(1).
(b) The reference may be commenced by any party hereto by the filing in
the Superior Court of the State of California for the County of Orange of a
petition or a motion for a general reference. The petition and any opposition or
response thereto shall recite in a clear and
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meaningful manner the factual basis of the controversy between the parties and
identify the issues to be submitted to the referee for decision.
(c) The petition or motion shall designate as a sole referee a retired
judge from the Orange County, California, Judicial Arbitration & Mediation
Services ("JAMS") panel acceptable to that party. If the parties to the
reference proceeding are unable to agree upon a referee, the Presiding Judge or
any judge of the Orange County Superior Court to whom the matter is assigned
shall appoint a retired or former Orange County Superior Court Judge from the
JAMS panel as the referee.
(d) The parties acknowledge that the terms of this Section 11 are
specifically enforceable and that the decision by the referee is tantamount to a
judgment by a trial court (CCP ss.644) and is subject to review in accordance
with CCP ss.645, and that any judgment rendered in the trial court is appealable
in the same manner as any other trial court judgment.
Section 12. Setoff
The Company agrees that its obligation to the Executive, whether to pay
the Executive the compensation as provided in Section 6 of this Agreement, to
provide Executive with the benefits set forth in Section 7 of this Agreement, or
otherwise, shall not be subject at any time to any setoff, reduction, mitigation
or diminishment as a result of any alleged claims which the Company believes it
has against Executive, or for any other reason whatsoever.
Section 13. Covenant of Good Faith
The parties to this Agreement covenant that they enter into this
Agreement and undertake the obligations of this Agreement in good faith. No
party will do anything to interfere with the rights of any other party to obtain
the advantages extended to that party by this Agreement. The parties agree that
a breach of this covenant shall create a liability against the party in breach
for consequential damages as though the breach were a tort, in addition to
liability for other contractual damages.
Section 14. Nonassignability
This Agreement is a personal service contract and the rights and duties
of the parties hereunder shall not be assignable, except in accordance with the
provisions of Section 15 of this
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Agreement. Any attempted assignment or transfer not permitted by the terms
of Section 15 shall be void and of no force and effect.
Section 15. Successors and Assigns
15.01 Of the Company: If the Company shall at any time be merged or
consolidated into or with any other corporation, or if substantially all of the
assets of the Company are transferred to another corporation or party, the
provisions of this Agreement shall be binding upon and inure to the benefit of
the entity or successors resulting from such merger or consolidation or to which
such assets shall be transferred; and this provision shall apply in such events.
15.02 Of Executive: To the extent applicable, this Agreement shall be
binding on the devises, heirs, next of kin, executors and administrators of the
Executive.
Section 16. Notice
16.01 Method of Notice: All notices, demands or other communications
required or desired to be given hereunder by any party shall be in writing and
shall be validly given or made to the other parties if served personally on such
other parties or if deposited in the United States mail, certified or
registered, postage prepaid, return receipt requested. If such notice, demand or
other communication be served personally, service shall be deemed made at the
time of such personal service. If such notice, demand or other communication be
given by mail, such notice shall be conclusively deemed given forty-eight (48)
hours after the deposit thereof in the United States mail, addressed to the
party to whom such notice, demand or other communication is to be given as
hereinafter provided.
16.02 Addresses: Notice shall be given to the Company at the following
address:
US Facilities Corporation
650 Town Center Drive, Suite 1600
Costa Mesa, California 92626
Attention: David L. Cargile,
President and Chief Executive Officer
Notice shall be given to the Executive at the following address:
Howard S. Singer
2956 Techny Road
Northbrook, Illinois 60062
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Any party hereto may change his address for purposes of receiving notices,
demands or other communications as herein provided by a written notice given in
the manner aforesaid to the other party hereto.
Section 17. Applicable Governing Law
The parties hereto specifically concur that this Agreement, having been
executed and delivered in the State of California with US Facilities
Corporation, whose principal offices are in the State of California, shall be
construed in accordance with the laws of the State of California; and the
validity, interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of California, including its laws and
decisions relating to conflict of laws.
Section 18. Severability/Captions
Every provision in this Agreement is intended to be severable. If any
term or provision hereof is illegal or invalid, for any reason whatsoever, such
illegality or invalidity shall not affect the validity of the remainder hereof.
The captions or headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret, define or
limit the scope, extent or intent of this Agreement or any provisions hereof.
Section 19. Amendments/Waivers
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing after
approval by the Company's Board of Directors and signed by Executive and an
officer of the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
Section 20. Entire Agreement/Severance Agreement
20.01 Employment Agreement: Except as set forth in Section 20.02 below,
this Agreement expresses the entire agreement of the parties hereto, and
supersedes all prior promises, representations, understandings, arrangements and
agreements between these parties with respect to the subject matter herein,
specifically including any prior Employment Agreement between the Executive and
the Company, and any amendments and corrections to
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such prior Employment Agreement. The parties hereto further acknowledge and
agree that neither of them has made any representation to induce the execution
and delivery of this Agreement, except those as specifically set forth herein.
20.02 Severance Agreement: Notwithstanding anything set forth in
Subsection 20.01 above or in any Severance Agreement with Executive which would
appear to be to the contrary, if Executive and the Company have entered into a
Severance Agreement which is in effect at the time of Executive's termination,
then in that event the Company and Executive hereby agree that Executive shall
be entitled to receive upon Executive's termination either (i) the salary and
bonus termination payments as provided for in this Employment Agreement, or (ii)
the salary and bonus termination payments as provided for in any Severance
Agreement between Executive and the Company, whichever salary and bonus
termination payment is the greater; but under no conditions shall Executive be
entitled to receive upon termination the salary and bonus termination payments
under a Severance Agreement and the salary and bonus termination payments under
this Employment Agreement.
Section 21. Signatures
In Witness Whereof, the Company has authorized that this Agreement be
executed, and when the Company's duly authorized officers and the Executive have
signed this Agreement in the places indicated below, this Agreement shall be
effective as of November 1, 1996.
Company: US Facilities Corporation
By /s/ DAVID L. CARGILE
-------------------------------------
David L. Cargile
President and Chief Executive Officer
Executive:
/s/ HOWARD S. SINGER
-------------------------------------
Howard S. Singer
Witness:
/s/ JOSE A. VELASCO
- ------------------------------------
Jose A. Velasco
Senior Vice President, Secretary
and General Counsel
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EXHIBIT 10.4
Agreement of Employment
Between
Craig J. Kelbel
And
US Facilities Corporation
---------------
This Agreement is made at Costa Mesa, California, and shall be
effective as of the 1st day of November, 1996, between US Facilities
Corporation, a Delaware corporation (the "Company"), and Craig J. Kelbel (the
"Executive"). In consideration of the respective promises and mutual covenants
and agreements of the parties which are set forth herein, and intending to be
legally bound thereby, the parties hereby agree as set forth below.
Section 1. Employment
The Company hereby agrees to employ the Executive and the Executive
hereby agrees to be employed by and to serve the Company on the terms and
conditions as set forth in this Agreement.
Section 2. Period of Employment
This Agreement will commence and be effective as of November 1, 1996,
and shall expire and terminate as of October 31, 1999.
Section 3. Position and Duties
The Executive shall serve the Company as a Senior Vice President and as
the President and Chief Operating Officer of its USBenefits Insurance Services,
Inc. subsidiary ("USB"), with the duties, responsibilities, authority, rights
and privileges which normally attach to those offices; and shall have such
additional duties, powers, responsibilities and authority as may be delegated or
assigned to Executive from time to time by the Company's Chief Executive
Officer. Executive's services shall be performed on behalf of the Company in
consonance with the Company's Certificate of Incorporation and its Bylaws, and
Executive shall be subject at all times to the supervision, direction and
control of the Company's Chief Executive Officer and its Board of Directors.
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Section 4. Devotion of Time and Best Efforts
Executive agrees that during the period of his employment he will
devote the substantial portion of his working and productive time, attention,
energies, abilities, skill and efforts to the business affairs of the Company;
and he will diligently exert his best efforts to the promotion, development and
best interest of the Company and its affiliates (including all subsidiaries),
and will faithfully and diligently perform all of the duties incident to his
positions. It is recognized by the Company that Executive, during his employment
period, may have certain personal business activities and enterprises, and the
Company accepts that a relatively minor portion of any given business day may be
spent by Executive attending to such personal business affairs. The Company
acknowledges that such activities will not interfere with the performance of
Executive's duties under this Agreement; and Executive agrees that he will spend
such time in the daily performance of his duties under this Agreement as an
executive in the same industry with similar positions and responsibilities would
spend on behalf of his employer; provided, however, during the term of his
employment Executive, as hereinafter set forth, will not, directly or
indirectly, promote, participate or engage in any activities, whether as a
partner, employee, creditor, shareholder or otherwise, in any business which
shall in any way be competitive or constitute a conflict of interest with the
Company's business.
Section 5. Place of Performance
Executive's duties and responsibilities shall be performed primarily at
the Company's offices in Costa Mesa, California, except for such travel as may
be required to be undertaken on behalf of the Company's business. The Company
may not relocate the Executive for purposes of his employment under this
Agreement without the express agreement by the Executive to such relocation.
Section 6. Salary Compensation Payable to Executive
In consideration of Executive's services, the Company shall pay to the
Executive a salary at the rate of not less than Two Hundred Thirty-One Thousand
Five Hundred Twenty-Nine Dollars and Ninety-Two Cents ($231,529.92) per annum,
in equal installments as nearly as practicable, on the fifteenth (15th) and the
last day of each month in arrears, or otherwise in conformity with the Company's
prevailing payroll practices and policies which are in effect from time to time.
At least once each year, at some date prior to each anniversary date of this
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Agreement, the Chief Executive Officer shall (i) review the annual salary being
paid to Executive which is then in effect, (ii) determine whether any increase
thereto may be appropriate and (iii) recommend any such adjustment to the
Compensation Committee of the Board of Directors. The amount of annual salary
being paid to the Executive by the Company may be adjusted upward as hereinabove
provided, and such adjustment shall not require a written amendment to this
Agreement, nor shall such upward salary adjustment affect any other provisions
of this Agreement, which shall remain in effect unless changed by a written
amendment hereto; provided, further, that any reference in this Agreement to
amounts payable to Executive pursuant to this Section 6 shall refer to the
annual salary payable to Executive as then in effect, whether or not adjusted
pursuant to a written amendment to this Agreement. It is specifically agreed to
that Executive's salary shall not be decreased at any time during the term of
this Agreement. Compensation of the Executive by salary payments shall not be
deemed to be exclusive, and shall not prevent Executive from participating in
other bonus, compensation, incentive or benefit plans of the Company. The salary
payments hereunder shall not in any way limit or reduce any other obligation of
the Company under this Agreement.
Section 7. Additional Benefits
7.01 General: During the period of his employment, Executive shall be
entitled to receive all other benefits of employment generally available to the
Company's senior executive officers, and shall have the same rights and
privileges to participate in any employee benefits as any other employee of the
Company. Specifically, nothing contained in this Agreement is intended to or
shall be deemed to be granted to Executive in lieu of whatever rights and
privileges which Executive may be entitled to receive as a regular employee and
as a senior executive officer of the Company. Such general employment benefits
include but are not limited to the Company's group medical, hospital, life and
disability insurance plans, the Company's pension, retirement, stock option and
salary incentive plans, the Company's long-term and short-term bonus and
incentive plans, as well as other forms of compensation arrangements which may
now be in effect or which may hereafter be adopted by the Company during the
period of Executive's employment. In addition, Executive shall be entitled to an
annual paid vacation and to such amount of paid sick leave in accordance with
the Company's policies on these matters
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for senior executives, so that Executive's normal salary then in effect shall
continue to be paid to him during such vacation and sick leave periods.
7.02 Company Automobile or Car Allowance: During the period of
Executive's employment, the Company will either (i) furnish an automobile to
Executive of a type to be mutually agreed upon by Executive and the Company's
Chief Executive Officer, which automobile shall be for Executive's use in
connection with the Company's business, and for which the Company shall provide
insurance coverage as well as costs for its operation and maintenance; or (ii)
grant to Executive a monthly automobile allowance in an amount to be mutually
agreed upon by Executive and the Company's Chief Executive Officer, which
allowance will be used to provide an automobile of a type to be mutually upon by
Executive and the Company's Chief Executive Officer, and which allowance shall
be used by Executive to pay for insurance coverage as well as all costs for the
automobile's operation and maintenance. Executive agrees that he will be
responsible for any federal or state income taxes that may be incurred by
Executive to the extent applicable which result from Executive's use of such
automobile, as reflected on Executive's W-2 Form from the Company.
7.03 Expense Reimbursement: The Company agrees that during the period
of employment described in this Agreement, Executive is authorized to incur
ordinary and necessary expenses in connection with the promotion, operation and
furtherance of the business affairs of the Company, including expenses incurred
for purposes of entertainment, professional memberships, dues and subscriptions,
travel, as well as educational/professional meetings as shall, in Executive's
judgment, be required for the effective and efficient performance of the
Executive's duties. In accordance with normal Company policy, Executive shall
also be permitted to use credit cards issued in the Company's name for such
business expenses and to take an advance monetary allowance prior to any such
expenditure. However, any business expenditures and expenses which are paid in
the first instance by the Executive shall be reimbursed to the Executive by the
Company upon presentation by the Executive to the Company, not less often than
monthly, of an itemized account of such expenditures, together with receipts and
vouchers. All travel by Executive for Company purposes shall be of such class
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and all hotels shall be of such quality in compliance with the Company's policy
on this matter for its senior executives.
7.04 Club Membership: Subject to approval by the Company's Chief
Executive Officer, during the period of Executive's employment, the Company
shall provide for Executive's membership in various clubs through the payment of
the monthly and annual dues as well as the initial membership fee required for
such membership. In addition, the Executive shall have the right to incur
monthly charges, and the Company will pay such monthly charges for entertainment
at the said clubs when such entertainment is for and on behalf of the Company.
7.05 Indemnification:
(a) Maximum Permitted Plus Insurance: The Company shall, to
the maximum extent permitted by law, indemnify and hold Executive harmless
against expenses, including reasonable attorneys' fees, judgments, fines,
settlements and other amounts actually incurred in connection with any
proceeding arising by reason of Executive's employment by the Company. The
Company shall advance to Executive any expenses incurred in defending such
proceeding, to the maximum extent permitted by law. In addition, the Company
shall make every reasonable effort to secure and maintain directors and officers
liability insurance on behalf of the Executive against any liability asserted
against or incurred by Executive arising out of his employment by the Company.
Such insurance shall not discharge the Company from its obligation to provide
the Executive with the maximum indemnification permitted by law.
(b) No Decrease and Continuing Effect: The Company agrees that
the rights, benefits and the protections now afforded to officers and directors
of the Company, whether through the Company's Certificate of Incorporation or
its Bylaws, or by resolutions of its Board of Directors, operation of law or by
any other source (i) shall not be diminished (but may be expanded) during the
Executive's term of employment under this Agreement; and (ii) shall be continued
to be kept in full force and effect after the Executive's employment has
terminated for such additional period of time as may be necessary until any
cause of action for which indemnification would otherwise be available is barred
by the applicable statute of limitations.
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7.06 Estate Planning Reimbursement: Recognizing the importance to the
Company of Executive's peace of mind, so that Executive's major efforts will be
more directly focused toward those business affairs of the Company which require
his attention, the Company agrees that during the term of employment described
in this Agreement it will reimburse to the Executive the expense incurred by
Executive arising from or in connection with Executive's estate planning. For
purposes of such reimbursement, estate planning shall include, but not be
limited to, the establishment of inter vivos or testamentary trusts, the
preparation of a Last Will and Testament, or similar testamentary arrangements,
and any and all other documents required in connection with the above. Any
amount to be reimbursed to Executive under this Section 7.06 for estate planning
expenses which exceeds $5,000 shall be subject to approval by the Chief
Executive Officer of the Company.
Section 8. Death or Disability
8.01 Payment: In the event of the death or disability (as hereinafter
defined) of Executive during the period of Executive's employment, the Company
will pay to the Executive, or to the Executive's estate, or to any other person
whom the Executive shall have designated by written notice to the Company for
that purpose, a sum equal to the amount of compensation or other payments
remaining due to Executive under Section 6 for a period of one (1) year under
this Agreement and due to Executive under Section 7 of this Agreement. Any
amounts payable hereunder shall be made in accordance with the Company's normal
payroll policies and procedures.
8.02 Definition of "Disability": The term "disability" in this
Agreement for purposes of this section shall mean the inability of the Executive
to perform the normal functions, duties and responsibilities as required for his
position under this Agreement due to his incapacity, whether such incapacity
arises from physical or mental illness or injury. In order to determine any
issue relating to the question of disability, the Company shall have the right
to require that Executive submit to a medical examination by a licensed
physician who shall be mutually agreed upon and selected by the Executive and
the Company. The Company shall also have the right to carry disability insurance
on the Executive to provide for its obligations under this Section 8.
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Section 9. Termination
9.01 Termination for Cause:
(a) Definition of Cause: At any time during the period covered
by this Agreement the Company may terminate the Executive from his employment
under this Agreement for cause. The term "cause" in this Agreement for purposes
of termination shall include, but not be limited to: (i) the commission by
Executive of any act of fraud or material dishonesty with respect to the
financial or monetary aspects of the business, as determined by an independent
national accounting firm selected by mutual agreement of the Company and
Executive; or (ii) a final conviction of a felony involving moral turpitude in
either a state or federal court proceeding; or (iii) the intentional and willful
breach of the terms of this Agreement, including the failure of Executive to
diligently and faithfully perform his duties under this Agreement or as
instructed by the Board of Directors of the Company, after reasonable notice to
and discussion with Executive; or (iv) intentionally acting in a manner or
intentionally engaging in activities which place Executive in a direct or
indirect conflicting position with the interests of the Company and which could
have a material adverse effect on the Company, after reasonable notice to and
discussion with Executive.
(b) Payment When Terminated For Cause: In the event of
termination of Executive for cause, the Company will pay to the Executive the
accrued but unpaid salary compensation due to Executive under Section 6, the
unpaid reimbursement expenses due to Executive under Section 7.03 and the
accrued vacation days due to Executive under Section 7.01 of this Agreement to
the date of such termination. Such payment shall be made to Executive either in
a lump sum or in accordance with the Company's normal payroll policies and
procedures, as determined by the Company in its sole discretion.
9.02 Involuntary Termination (Without Cause): During the period of
Executive's employment, the Company shall have the right to terminate the
Executive involuntarily and without any cause or any reason by paying to the
Executive one hundred percent (100%) of all amounts which would be due and
payable to the Executive pursuant to the compensation provisions set forth in
Section 6 of this Agreement for the remainder of the term as set forth in
Section 2 of this Agreement. In addition to the salary provisions of Section 6,
such payment shall include any amounts due to Executive under the provisions of
Section 7 hereof, such as
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amounts due for expense reimbursement or for accrued vacation time. Any and all
monetary amounts payable to the Executive under this Section 9 shall be paid in
the manner selected by the Executive, at his sole discretion.
Section 10. Covenants
10.01 Covenants of Executive:
(a) Noncompetition: Executive agrees that for the period
commencing from the date of his employment under this Agreement and continuing
for the period of such employment and for a period of eighteen (18) months after
termination of such employment, he shall not directly or indirectly be involved
in, or shall have an interest in, any person, firm, corporation or business,
whether as an employee, officer, director, agent, shareholder or otherwise
(except as a minority shareholder of a publicly held corporation) that is
engaged in any business in which the Company is engaged or which places
Executive in a position which may constitute a conflict between the interests of
the Executive and the interests of the Company; provided, however, the
prohibitions and restrictions set forth in this section shall not apply to or in
any way limit a relationship, involvement or interest in any firm, corporation
or business which in the ordinary course of its business activities does not
have more than ten percent (10%) of its annual gross income derived from the
business activities in which the Company is engaged during the period of
Executive's employment under this Agreement.
(b) Nonsolicitation: Executive covenants that for a period of
eighteen (18) months after the termination of Executive's employment with the
Company, Executive shall not, directly or indirectly (meaning, for purposes
hereof, through another person or entity acting on Executive's behalf), as an
employee, agent, salesperson, consultant or member of any person, corporation,
firm or otherwise, (i) call upon or solicit any persons, firms, corporations or
otherwise who are clients or customers of the Company; (ii) solicit any employee
or agent of the Company or make such other contact with the employees or agents
of the Company, the result of which contact will or may yield a termination of
the employment or agency relationship of such employees or agents from the
Company.
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(c) Confidentiality: Executive acknowledges that he has been
exposed to or has had access to, and will continue to have access to,
confidential information regarding the business of the Company, including, but
not limited to, trade secrets and proprietary information, all of which are
proprietary assets of the Company, and which give the Company an advantage in
the marketplace against its competitors. Executive covenants that for a period
of eighteen (18) months after termination of Executive's employment with the
Company, Executive will hold and keep secret such proprietary information, and
shall not directly or indirectly disclose or divulge any proprietary information
to any person, firm or corporation unless prior written approval for such
disclosure is given to Executive by the Company.
(d) Protection of Company: Executive acknowledges that
compliance with the restrictive covenants set forth in this Section 10 are
necessary to protect the business, goodwill and proprietary information of the
Company, and that a breach of these restrictions will irreparably and
continually damage the Company for which money damages may not be adequate.
Consequently, Executive agrees that in the event he breaches or threatens to
breach any of these covenants, the Company shall be entitled to both (i) a
temporary, preliminary or permanent injunction in order to prevent the
continuation of such harm and (ii) money damages insofar as they can be
determined.
10.02 Severability of Covenants: The unenforceability (or the
modification to conform with such laws and public policies) of any provision of
these covenants shall not render unenforceable or impair the remainder of the
covenants. Accordingly, if any provisions of these covenants shall be determined
to be invalid or unenforceable, either in whole or in part, these covenants
shall be amended to delete or modify, as necessary, the offending provisions or
offending portions of said provisions, and to alter the balance of these
covenants in order to render the same valid and enforceable. Without limiting
the generality of the foregoing, the Executive agrees that if these covenants
are deemed by a court or other body having jurisdiction to be unreasonably
broad, there shall be automatically substituted such area of coverage as such
court or other body having jurisdiction deems to be reasonable and sufficient to
protect the Company's interests herein.
-9-
<PAGE>
10.03 Survival of Covenants: The covenants set forth in this Section 10
shall survive the termination of this Agreement, and shall continue for a period
of eighteen (18) months after the termination of Executive's employment with the
Company.
Section 11. Settlement of Disputes
(a) Any controversy or dispute between the parties to this Agreement
involving the construction, interpretation, application or performance of the
terms, covenants or conditions of this Agreement or in any way arising under
this Agreement shall, on demand of one of the parties by written notice hereto
served on the other in the manner prescribed in Section 16 hereof, be determined
pursuant to the general reference provisions of California Code of Civil
Procedure ("CCP") ss.638(1), et seq., by a retired or former judge of the
Superior Court for the County of Orange, State of California. The parties intend
this general reference provision to be specifically enforceable in accordance
with said ss.638(1).
(b) The reference may be commenced by any party hereto by the filing in
the Superior Court of the State of California for the County of Orange of a
petition or a motion for a general reference. The petition and any opposition or
response thereto shall recite in a clear and meaningful manner the factual basis
of the controversy between the parties and identify the issues to be submitted
to the referee for decision.
(c) The petition or motion shall designate as a sole referee a retired
judge from the Orange County, California, Judicial Arbitration & Mediation
Services ("JAMS") panel acceptable to that party. If the parties to the
reference proceeding are unable to agree upon a referee, the Presiding Judge or
any judge of the Orange County Superior Court to whom the matter is assigned
shall appoint a retired or former Orange County Superior Court Judge from the
JAMS panel as the referee.
(d) The parties acknowledge that the terms of this Section 11 are
specifically enforceable and that the decision by the referee is tantamount to a
judgment by a trial court (CCP ss.644) and is subject to review in accordance
with CCP ss.645, and that any judgment rendered in the trial court is appealable
in the same manner as any other trial court judgment.
-10-
<PAGE>
Section 12. Setoff
The Company agrees that its obligation to the Executive, whether to pay
the Executive the compensation as provided in Section 6 of this Agreement, to
provide Executive with the benefits set forth in Section 7 of this Agreement, or
otherwise, shall not be subject at any time to any setoff, reduction, mitigation
or diminishment as a result of any alleged claims which the Company believes it
has against Executive, or for any other reason whatsoever.
Section 13. Covenant of Good Faith
The parties to this Agreement covenant that they enter into this
Agreement and undertake the obligations of this Agreement in good faith. No
party will do anything to interfere with the rights of any other party to obtain
the advantages extended to that party by this Agreement. The parties agree that
a breach of this covenant shall create a liability against the party in breach
for consequential damages as though the breach were a tort, in addition to
liability for other contractual damages.
Section 14. Nonassignability
This Agreement is a personal service contract and the rights and duties
of the parties hereunder shall not be assignable, except in accordance with the
provisions of Section 15 of this Agreement. Any attempted assignment or transfer
not permitted by the terms of Section 15 shall be void and of no force and
effect.
Section 15. Successors and Assigns
15.01 Of the Company: If the Company shall at any time be merged or
consolidated into or with any other corporation, or if substantially all of the
assets of the Company are transferred to another corporation or party, the
provisions of this Agreement shall be binding upon and inure to the benefit of
the entity or successors resulting from such merger or consolidation or to which
such assets shall be transferred; and this provision shall apply in such events.
15.02 Of Executive: To the extent applicable, this Agreement shall be
binding on the devises, heirs, next of kin, executors and administrators of the
Executive.
Section 16. Notice
16.01 Method of Notice: All notices, demands or other communications
required or desired to be given hereunder by any party shall be in writing and
shall be validly given or made
-11-
<PAGE>
to the other parties if served personally on such other parties or if deposited
in the United States mail, certified or registered, postage prepaid, return
receipt requested. If such notice, demand or other communication be served
personally, service shall be deemed made at the time of such personal service.
If such notice, demand or other communication be given by mail, such notice
shall be conclusively deemed given forty-eight (48) hours after the deposit
thereof in the United States mail, addressed to the party to whom such notice,
demand or other communication is to be given as hereinafter provided.
16.02 Addresses: Notice shall be given to the Company at the following
address:
US Facilities Corporation
650 Town Center Drive, Suite 1600
Costa Mesa, California 92626
Attention: David L. Cargile,
President and Chief Executive Officer
Notice shall be given to the Executive at the following address:
Craig J. Kelbel
56 Prairie Falcon
Aliso Viejo, California 92656
Any party hereto may change his address for purposes of receiving notices,
demands or other communications as herein provided by a written notice given in
the manner aforesaid to the other party hereto.
Section 17. Applicable Governing Law
The parties hereto specifically concur that this Agreement, having been
executed and delivered in the State of California between US Facilities
Corporation, whose principal offices are in the State of California, and Craig
J. Kelbel, a resident of the State of California, shall be construed in
accordance with the laws of the State of California; and the validity,
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California, including its laws and decisions
relating to conflict of laws.
Section 18. Severability/Captions
Every provision in this Agreement is intended to be severable. If any
term or provision hereof is illegal or invalid, for any reason whatsoever, such
illegality or invalidity shall not affect the validity of the remainder hereof.
The captions or headings in this Agreement are
-12-
<PAGE>
inserted for convenience and identification only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provisions hereof.
Section 19. Amendments/Waivers
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing after
approval by the Company's Board of Directors and signed by Executive and an
officer of the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
Section 20. Entire Agreement/Severance Agreement
20.01 Employment Agreement: Except as set forth in Section 20.02
below, this Agreement expresses the entire agreement of the parties hereto, and
supersedes all prior promises, representations, understandings, arrangements and
agreements between these parties with respect to the subject matter herein,
specifically including any prior Employment Agreement between the Executive and
the Company, and any amendments and corrections to such prior Employment
Agreement. The parties hereto further acknowledge and agree that neither of them
has made any representation to induce the execution and delivery of this
Agreement, except those as specifically set forth herein.
20.02 Severance Agreement: Notwithstanding anything set forth in
Subsection 20.01 above or in any Severance Agreement with Executive which would
appear to be to the contrary, if Executive and the Company have entered into a
Severance Agreement which is in effect at the time of Executive's termination,
then in that event the Company and Executive hereby agree that Executive shall
be entitled to receive upon Executive's termination either (i) the salary and
bonus termination payments as provided for in this Employment Agreement, or (ii)
the salary and bonus termination payments as provided for in any Severance
Agreement between Executive and the Company, whichever salary and bonus
termination payment is the greater; but under no conditions shall Executive be
entitled to receive upon termination the salary and bonus termination payments
under a Severance Agreement and the salary and bonus termination payments under
this Employment Agreement.
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<PAGE>
Section 21. Signatures
In Witness Whereof, the Company has authorized that this Agreement be
executed, and when the Company's duly authorized officers and the Executive have
signed this Agreement in the places as indicated below, this Agreement shall be
effective as of November 1, 1996.
<TABLE>
<S> <C>
Company: US Facilities Corporation
By /s/ DAVID L. CARGILE
-------------------------------------
David L. Cargile
President and Chief Executive Officer
Executive:
/s/ CRAIG J. KELBEL
-------------------------------------
Craig J. Kelbel
Witness:
/s/ JOSE A. VELASCO
- ------------------------------------
Jose A. Velasco
Senior Vice President, Secretary
and General Counsel
</TABLE>
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<PAGE>
EXHIBIT 10.5 (vii)
Amendment No. 1
To Severance Agreement
Between
US Facilities Ccorporation
And
David L. Cargile
---------------
Whereas, US Facilities Corporation, a Delaware corporation (the
"Company"), and David L. Cargile (the "Executive") entered into a Severance
Agreement dated May 24, 1994 with respect to the termination of Executive's
employment with the Company (the "Agreement"); and
Whereas, the Company and the Executive desire to amend Section 4(e) to
clarify the definition of events which constitute a "Change in Control" for
purposes of this Agreement and to amend Section 5(a) which defines the
obligations of the Company regarding salary and bonus termination payments to
Executive;
Now, Therefore, in consideration of the Company's agreement to continue
the employment of Executive for a period of a minimum of six (6) months from the
date of this Amendment and the payment to Executive of $1.00 and other good and
valuable consideration, receipt of which is hereby acknowledged, the Company and
the Executive hereby agree to enter into this Amendment to the Agreement as
follows:
1. Section 4(e) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 4(e), which shall read in full as follows:
(e) For purposes of this Agreement, a "Change in Control" shall
mean the occurrence, after the Effective Date hereof, of any of the
following events if such events are not approved by the Board of Directors
of the Company prior to their occurrence;
-1-
<PAGE>
(i) At any time during the term of this Agreement, any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") and the regulations
of the Securities and Exchange Commission (the "SEC") thereunder, each as
in effect on the Effective Date of this Agreement (including any such
persons that may be deemed to be acting in concert with respect to the
Company or the acquisition, ownership or voting of Company securities)
becomes, directly or indirectly, the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act and the regulations of the SEC
thereunder, each as in effect on the Effective Date of this Agreement) of
outstanding securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding securities. For
purposes of this subsection (i) of Section 4(e) of the Agreement, a person
becomes, directly or indirectly, the beneficial owner of outstanding
securities of the Company representing 10% or more of the combined voting
power of the Company's outstanding securities when such person, together
with all affiliates and associates of such person, acquires beneficial
ownership of, in the aggregate, a number of voting shares of the Company
equal to 1% or more of the voting shares then outstanding, and thereupon
or thereafter beneficially owns (as defined in the aforenoted Rule 13d-3
under the Exchange Act) 10% or more of the voting shares of the Company
then outstanding; provided, however, that the concept of any person
becoming the owner of 10% or more of the combined voting shares shall not
include: (A) the Company, any wholly owned subsidiary of the Company, any
employee benefit plan of the Company or of a subsidiary of the Company, or
any person holding voting shares for or pursuant to the terms of any such
employee benefit plan; or (B) any person if such person would not
otherwise be a 10% stockholder but for a reduction in the number of
outstanding voting shares resulting from a stock repurchase program or
other similar plan instituted by the Company or from a self-tender offer
of the Company, which plan or tender offer commenced on or after the
Effective Date of this Agreement; provided, however, that the concept of
becoming the owner of 10% or more of the combined voting shares shall
include such beneficial owner after the first date upon which (x) such
person, since the date of commencement of such plan or tender offer, shall
have acquired beneficial ownership of, in the aggregate, a number of
voting shares of the Company equal to 1% or more of the voting shares then
outstanding, and (y) such person, together with all affiliates and
associates of such person, shall beneficially own 10% or more of the
voting shares of the Company then outstanding. In calculating the
percentage of the person for purposes of this subsection, voting shares
that are beneficially owned by such person shall be deemed outstanding,
and voting shares that are not beneficially owned by such person and that
are subject to issuance upon the exercise or conversion of outstanding
conversion rights, exchange rights, rights (other than rights), warrants
or options shall not be deemed outstanding. Any determination made by the
directors as to whether any person is or is not a 10% stockholder for
purposes of this subsection shall be conclusive and binding upon the
Company and upon all stockholders;
-2-
<PAGE>
(ii) At any time during the term of this Agreement the
composition of the Board of Directors of the Company is changed such that
persons who were directors of the Company as of the Effective Date, or
persons nominated or elected as directors by a majority of such persons
who were directors as of the Effective Date, do not continue to comprise a
majority of the members of such Board of Directors of the Company;
(iii) At any time during the term of this Agreement the
stockholders of the Company approve a merger or consolidation of the
Company with, or a reorganization transaction involving the Company and,
any other entity, other than a merger, consolidation or reorganization
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation; or
(iv) At any time during the term of this Agreement the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of more
than 50% of its consolidated assets.
2. Section 5(a) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 5(a), which shall read in full as follows:
(a) Salary and Bonus: Subject to the limitations set forth in
Section 7 hereof, the Company shall pay to the Executive that amount which
is equal to his regular base salary, at the rate then in effect, for a
period of three (3) years, plus a bonus in an amount which shall be equal
to one-and-one-half (1 1/2) times the largest cash bonus actually received
by Executive during his term of employment with the Company; provided,
however, that if Executive shall have entered into an Employment Agreement
with the Company which is in effect at the time of Executive's
termination, then and in that event the Company and Executive agree that
upon Executive's termination Executive shall be entitled to receive either
(i) the salary and bonus termination payments under this Section 5(a), or
(ii) the salary and bonus terminations payments provided for in such
Employment Agreement, whichever salary and bonus termination payment is
the greater; but under no conditions shall Executive be entitled to
receive upon termination both the salary and bonus termination payments
under this Severance Agreement and the salary and bonus termination
payments under any such Employment Agreement.
-3-
<PAGE>
3. This Amendment shall be retroactive and shall be considered and deemed
to have been in effect as of May 24, 1994, the Effective Date of the Agreement,
which is the date when it was entered into by the parties hereto.
4. Apart from this Amendment, the terms of the Agreement as entered into
on May 24, 1994 shall otherwise in all respects remain as originally written to
the extent that such terms do not conflict with or are inconsistent with this
Amendment.
In Witness Whereof, this Amendment No. 1 has been executed by a duly
authorized officer of the Company and by the Executive as of the 4th day of
December, 1996.
<TABLE>
<S> <C>
Company: US Facilities Corporation
By /s/ JOSE A. VELASCO
----------------------------------------
Jose A. Velasco
Senior Vice President, Secretary
and General Counsel
Executive: /s/ DAVID L. CARGILE
-----------------------------------------
David L. Cargile
</TABLE>
-4-
<PAGE>
EXHIBIT 10.5 (viii)
Amendment No. 1
To Severance Agreement
Between
US Facilities Corporation
And
Howard S. Singer
----------------
Whereas, US Facilities Corporation, a Delaware corporation (the
"Company"), and Howard S. Singer (the "Executive") entered into a Severance
Agreement dated May 24, 1994 with respect to the termination of Executive's
employment with the Company (the "Agreement"); and
Whereas, the Company and the Executive desire to amend Section 4(e) to
clarify the definition of events which constitute a "Change in Control" for
purposes of this Agreement and to amend Section 5(a) which defines the
obligations of the Company regarding salary and bonus termination payments to
Executive;
Now, Therefore, in consideration of the Company's agreement to continue
the employment of Executive for a period of a minimum of six (6) months from the
date of this Amendment and the payment to Executive of $1.00 and other good and
valuable consideration, receipt of which is hereby acknowledged, the Company and
the Executive hereby agree to enter into this Amendment to the Agreement as
follows:
1. Section 4(e) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 4(e), which shall read in full as follows:
(e) For purposes of this Agreement, a "Change in Control" shall
mean the occurrence, after the Effective Date hereof, of any of the
following events if such events are not approved by the Board of Directors
of the Company prior to their occurrence;
-1-
<PAGE>
(i) At any time during the term of this Agreement, any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") and the regulations
of the Securities and Exchange Commission (the "SEC") thereunder, each as
in effect on the Effective Date of this Agreement (including any such
persons that may be deemed to be acting in concert with respect to the
Company or the acquisition, ownership or voting of Company securities)
becomes, directly or indirectly, the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act and the regulations of the SEC
thereunder, each as in effect on the Effective Date of this Agreement) of
outstanding securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding securities. For
purposes of this subsection (i) of Section 4(e) of the Agreement, a person
becomes, directly or indirectly, the beneficial owner of outstanding
securities of the Company representing 10% or more of the combined voting
power of the Company's outstanding securities when such person, together
with all affiliates and associates of such person, acquires beneficial
ownership of, in the aggregate, a number of voting shares of the Company
equal to 1% or more of the voting shares then outstanding, and thereupon
or thereafter beneficially owns (as defined in the aforenoted Rule 13d-3
under the Exchange Act) 10% or more of the voting shares of the Company
then outstanding; provided, however, that the concept of any person
becoming the owner of 10% or more of the combined voting shares shall not
include: (A) the Company, any wholly owned subsidiary of the Company, any
employee benefit plan of the Company or of a subsidiary of the Company, or
any person holding voting shares for or pursuant to the terms of any such
employee benefit plan; or (B) any person if such person would not
otherwise be a 10% stockholder but for a reduction in the number of
outstanding voting shares resulting from a stock repurchase program or
other similar plan instituted by the Company or from a self-tender offer
of the Company, which plan or tender offer commenced on or after the
Effective Date of this Agreement; provided, however, that the concept of
becoming the owner of 10% or more of the combined voting shares shall
include such beneficial owner after the first date upon which (x) such
person, since the date of commencement of such plan or tender offer, shall
have acquired beneficial ownership of, in the aggregate, a number of
voting shares of the Company equal to 1% or more of the voting shares then
outstanding, and (y) such person, together with all affiliates and
associates of such person, shall beneficially own 10% or more of the
voting shares of the Company then outstanding. In calculating the
percentage of the person for purposes of this subsection, voting shares
that are beneficially owned by such person shall be deemed outstanding,
and voting shares that are not beneficially owned by such person and that
are subject to issuance upon the exercise or conversion of outstanding
conversion rights, exchange rights, rights (other than rights), warrants
or options shall not be deemed outstanding. Any determination made by the
directors as to whether any person is or is not a 10% stockholder for
purposes of this subsection shall be conclusive and binding upon the
Company and upon all stockholders;
-2-
<PAGE>
(ii) At any time during the term of this Agreement the
composition of the Board of Directors of the Company is changed such that
persons who were directors of the Company as of the Effective Date, or
persons nominated or elected as directors by a majority of such persons
who were directors as of the Effective Date, do not continue to comprise a
majority of the members of such Board of Directors of the Company;
(iii) At any time during the term of this Agreement the
stockholders of the Company approve a merger or consolidation of the
Company with, or a reorganization transaction involving the Company and,
any other entity, other than a merger, consolidation or reorganization
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation; or
(iv) At any time during the term of this Agreement the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of more
than 50% of its consolidated assets.
2. Section 5(a) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 5(a), which shall read in full as follows:
(a) Salary and Bonus: Subject to the limitations set forth in
Section 7 hereof, the Company shall pay to the Executive that amount which
is equal to his regular base salary, at the rate then in effect, for a
period of two (2) years, plus a bonus in an amount which shall be equal to
the largest cash bonus actually received by Executive during his term of
employment with the Company; provided, however, that if Executive shall
have entered into an Employment Agreement with the Company which is in
effect at the time of Executive's termination, then and in that event the
Company and Executive agree that upon Executive's termination Executive
shall be entitled to receive either (i) the salary and bonus termination
payments under this Section 5(a), or (ii) the salary and bonus
terminations payments provided for in such Employment Agreement, whichever
salary and bonus termination payment is the greater; but under no
conditions shall Executive be entitled to receive upon termination both
the salary and bonus termination payments under this Severance Agreement
and the salary and bonus termination payments under any such Employment
Agreement.
-3-
<PAGE>
3. This Amendment shall be retroactive and shall be considered and deemed
to have been in effect as of May 24, 1994, the Effective Date of the Agreement,
which is the date when it was entered into by the parties hereto.
4. Apart from this Amendment, the terms of the Agreement as entered into
on May 24, 1994 shall otherwise in all respects remain as originally written to
the extent that such terms do not conflict with or are inconsistent with this
Amendment.
In Witness Whereof, this Amendment No. 1 has been executed by a duly
authorized officer of the Company and by the Executive as of the 4th day of
December, 1996.
<TABLE>
<S> <C>
Company: US Facilities Corporation
By /s/ DAVID L. CARGILE
----------------------------------------
David L. Cargile
President and Chief Executive Officer
Executive: /s/ HOWARD S. SINGER
-------------------------------------------
Howard S. Singer
</TABLE>
-4-
<PAGE>
EXHIBIT 10.5(ix)
Amendment No. 1
To Severance Agreement
Between
US Facilities Corporation
And
John T. Grush
---------------
Whereas, US Facilities Corporation, a Delaware corporation (the
"Company"), and John T. Grush (the "Executive") entered into a Severance
Agreement dated May 24, 1994 with respect to the termination of Executive's
employment with the Company (the "Agreement"); and
Whereas, the Company and the Executive desire to amend Section 4(e) to
clarify the definition of events which constitute a "Change in Control" for
purposes of this Agreement and to amend Section 5(a) which defines the
obligations of the Company regarding salary and bonus termination payments to
Executive;
Now, Therefore, in consideration of the Company's agreement to continue
the employment of Executive for a period of a minimum of six (6) months from the
date of this Amendment and the payment to Executive of $1.00 and other good and
valuable consideration, receipt of which is hereby acknowledged, the Company and
the Executive hereby agree to enter into this Amendment to the Agreement as
follows:
1. Section 4(e) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 4(e), which shall read in full as follows:
(e) For purposes of this Agreement, a "Change in Control" shall
mean the occurrence, after the Effective Date hereof, of any of the
following events if such events are not approved by the Board of Directors
of the Company prior to their occurrence;
-1-
<PAGE>
(i) At any time during the term of this Agreement, any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") and the regulations
of the Securities and Exchange Commission (the "SEC") thereunder, each as
in effect on the Effective Date of this Agreement (including any such
persons that may be deemed to be acting in concert with respect to the
Company or the acquisition, ownership or voting of Company securities)
becomes, directly or indirectly, the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act and the regulations of the SEC
thereunder, each as in effect on the Effective Date of this Agreement) of
outstanding securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding securities. For
purposes of this subsection (i) of Section 4(e) of the Agreement, a person
becomes, directly or indirectly, the beneficial owner of outstanding
securities of the Company representing 10% or more of the combined voting
power of the Company's outstanding securities when such person, together
with all affiliates and associates of such person, acquires beneficial
ownership of, in the aggregate, a number of voting shares of the Company
equal to 1% or more of the voting shares then outstanding, and thereupon
or thereafter beneficially owns (as defined in the aforenoted Rule 13d-3
under the Exchange Act) 10% or more of the voting shares of the Company
then outstanding; provided, however, that the concept of any person
becoming the owner of 10% or more of the combined voting shares shall not
include: (A) the Company, any wholly owned subsidiary of the Company, any
employee benefit plan of the Company or of a subsidiary of the Company, or
any person holding voting shares for or pursuant to the terms of any such
employee benefit plan; or (B) any person if such person would not
otherwise be a 10% stockholder but for a reduction in the number of
outstanding voting shares resulting from a stock repurchase program or
other similar plan instituted by the Company or from a self-tender offer
of the Company, which plan or tender offer commenced on or after the
Effective Date of this Agreement; provided, however, that the concept of
becoming the owner of 10% or more of the combined voting shares shall
include such beneficial owner after the first date upon which (x) such
person, since the date of commencement of such plan or tender offer, shall
have acquired beneficial ownership of, in the aggregate, a number of
voting shares of the Company equal to 1% or more of the voting shares then
outstanding, and (y) such person, together with all affiliates and
associates of such person, shall beneficially own 10% or more of the
voting shares of the Company then outstanding. In calculating the
percentage of the person for purposes of this subsection, voting shares
that are beneficially owned by such person shall be deemed outstanding,
and voting shares that are not beneficially owned by such person and that
are subject to issuance upon the exercise or conversion of outstanding
conversion rights, exchange rights, rights (other than rights), warrants
or options shall not be deemed outstanding. Any determination made by the
directors as to whether any person is or is not a 10% stockholder for
purposes of this subsection shall be conclusive and binding upon the
Company and upon all stockholders;
-2-
<PAGE>
(ii) At any time during the term of this Agreement the
composition of the Board of Directors of the Company is changed such that
persons who were directors of the Company as of the Effective Date, or
persons nominated or elected as directors by a majority of such persons
who were directors as of the Effective Date, do not continue to comprise a
majority of the members of such Board of Directors of the Company;
(iii) At any time during the term of this Agreement the
stockholders of the Company approve a merger or consolidation of the
Company with, or a reorganization transaction involving the Company and,
any other entity, other than a merger, consolidation or reorganization
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation; or
(iv) At any time during the term of this Agreement the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of more
than 50% of its consolidated assets.
2. Section 5(a) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 5(a), which shall read in full as follows:
(a) Salary and Bonus: Subject to the limitations set forth in
Section 7 hereof, the Company shall pay to the Executive that amount which
is equal to his regular base salary, at the rate then in effect, for a
period of two (2) years, plus a bonus in an amount which shall be equal to
the largest cash bonus actually received by Executive during his term of
employment with the Company; provided, however, that if Executive shall
have entered into an Employment Agreement with the Company which is in
effect at the time of Executive's termination, then and in that event the
Company and Executive agree that upon Executive's termination Executive
shall be entitled to receive either (i) the salary and bonus termination
payments under this Section 5(a), or (ii) the salary and bonus
terminations payments provided for in such Employment Agreement, whichever
salary and bonus termination payment is the greater; but under no
conditions shall Executive be entitled to receive upon termination both
the salary and bonus termination payments under this Severance Agreement
and the salary and bonus termination payments under any such Employment
Agreement.
-3-
<PAGE>
3. This Amendment shall be retroactive and shall be considered and deemed
to have been in effect as of May 24, 1994, the Effective Date of the Agreement,
which is the date when it was entered into by the parties hereto.
4. Apart from this Amendment, the terms of the Agreement as entered into
on May 24, 1994 shall otherwise in all respects remain as originally written to
the extent that such terms do not conflict with or are inconsistent with this
Amendment.
In Witness Whereof, this Amendment No. 1 has been executed by a duly
authorized officer of the Company and by the Executive as of the 4th day of
December, 1996.
<TABLE>
<S> <C>
Company: US Facilities Corporation
By /s/ DAVID L. CARGILE
-----------------------
David L. Cargile
President and Chief Executive Officer
Executive:
/s/ JOHN T. GRUSH
-------------------------------------
John T. Grush
</TABLE>
-4-
<PAGE>
EXHIBIT 10.5(x)
Amendment No. 1
To Severance Agreement
Between
US Facilities Corporation
And
Craig J. Kelbel
---------------
Whereas, US Facilities Corporation, a Delaware corporation (the
"Company"), and Craig J. Kelbel (the "Executive") entered into a Severance
Agreement dated May 24, 1994 with respect to the termination of Executive's
employment with the Company (the "Agreement"); and
Whereas, the Company and the Executive desire to amend Section 4(e) to
clarify the definition of events which constitute a "Change in Control" for
purposes of this Agreement and to amend Section 5(a) which defines the
obligations of the Company regarding salary and bonus termination payments to
Executive;
Now, Therefore, in consideration of the Company's agreement to continue
the employment of Executive for a period of a minimum of six (6) months from the
date of this Amendment and the payment to Executive of $1.00 and other good and
valuable consideration, receipt of which is hereby acknowledged, the Company and
the Executive hereby agree to enter into this Amendment to the Agreement as
follows:
1. Section 4(e) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 4(e), which shall read in full as follows:
(e) For purposes of this Agreement, a "Change in Control" shall
mean the occurrence, after the Effective Date hereof, of any of the
following events if such events are not approved by the Board of Directors
of the Company prior to their occurrence;
-1-
<PAGE>
(i) At any time during the term of this Agreement, any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") and the regulations
of the Securities and Exchange Commission (the "SEC") thereunder, each as
in effect on the Effective Date of this Agreement (including any such
persons that may be deemed to be acting in concert with respect to the
Company or the acquisition, ownership or voting of Company securities)
becomes, directly or indirectly, the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act and the regulations of the SEC
thereunder, each as in effect on the Effective Date of this Agreement) of
outstanding securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding securities. For
purposes of this subsection (i) of Section 4(e) of the Agreement, a person
becomes, directly or indirectly, the beneficial owner of outstanding
securities of the Company representing 10% or more of the combined voting
power of the Company's outstanding securities when such person, together
with all affiliates and associates of such person, acquires beneficial
ownership of, in the aggregate, a number of voting shares of the Company
equal to 1% or more of the voting shares then outstanding, and thereupon
or thereafter beneficially owns (as defined in the aforenoted Rule 13d-3
under the Exchange Act) 10% or more of the voting shares of the Company
then outstanding; provided, however, that the concept of any person
becoming the owner of 10% or more of the combined voting shares shall not
include: (A) the Company, any wholly owned subsidiary of the Company, any
employee benefit plan of the Company or of a subsidiary of the Company, or
any person holding voting shares for or pursuant to the terms of any such
employee benefit plan; or (B) any person if such person would not
otherwise be a 10% stockholder but for a reduction in the number of
outstanding voting shares resulting from a stock repurchase program or
other similar plan instituted by the Company or from a self-tender offer
of the Company, which plan or tender offer commenced on or after the
Effective Date of this Agreement; provided, however, that the concept of
becoming the owner of 10% or more of the combined voting shares shall
include such beneficial owner after the first date upon which (x) such
person, since the date of commencement of such plan or tender offer, shall
have acquired beneficial ownership of, in the aggregate, a number of
voting shares of the Company equal to 1% or more of the voting shares then
outstanding, and (y) such person, together with all affiliates and
associates of such person, shall beneficially own 10% or more of the
voting shares of the Company then outstanding. In calculating the
percentage of the person for purposes of this subsection, voting shares
that are beneficially owned by such person shall be deemed outstanding,
and voting shares that are not beneficially owned by such person and that
are subject to issuance upon the exercise or conversion of outstanding
conversion rights, exchange rights, rights (other than rights), warrants
or options shall not be deemed outstanding. Any determination made by the
directors as to whether any person is or is not a 10% stockholder for
purposes of this subsection shall be conclusive and binding upon the
Company and upon all stockholders;
-2-
<PAGE>
(ii) At any time during the term of this Agreement the
composition of the Board of Directors of the Company is changed such that
persons who were directors of the Company as of the Effective Date, or
persons nominated or elected as directors by a majority of such persons
who were directors as of the Effective Date, do not continue to comprise a
majority of the members of such Board of Directors of the Company;
(iii) At any time during the term of this Agreement the
stockholders of the Company approve a merger or consolidation of the
Company with, or a reorganization transaction involving the Company and,
any other entity, other than a merger, consolidation or reorganization
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation; or
(iv) At any time during the term of this Agreement the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of more
than 50% of its consolidated assets.
2. Section 5(a) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 5(a), which shall read in full as follows:
(a) Salary and Bonus: Subject to the limitations set forth in
Section 7 hereof, the Company shall pay to the Executive that amount which
is equal to his regular base salary, at the rate then in effect, for a
period of two (2) years, plus a bonus in an amount which shall be equal to
the largest cash bonus actually received by Executive during his term of
employment with the Company; provided, however, that if Executive shall
have entered into an Employment Agreement with the Company which is in
effect at the time of Executive's termination, then and in that event the
Company and Executive agree that upon Executive's termination Executive
shall be entitled to receive either (i) the salary and bonus termination
payments under this Section 5(a), or (ii) the salary and bonus
terminations payments provided for in such Employment Agreement, whichever
salary and bonus termination payment is the greater; but under no
conditions shall Executive be entitled to receive upon termination both
the salary and bonus termination payments under this Severance Agreement
and the salary and bonus termination payments under any such Employment
Agreement.
-3-
<PAGE>
3. This Amendment shall be retroactive and shall be considered and deemed
to have been in effect as of May 24, 1994, the Effective Date of the Agreement,
which is the date when it was entered into by the parties hereto.
4. Apart from this Amendment, the terms of the Agreement as entered into
on May 24, 1994 shall otherwise in all respects remain as originally written to
the extent that such terms do not conflict with or are inconsistent with this
Amendment.
In Witness Whereof, this Amendment No. 1 has been executed by a duly
authorized officer of the Company and by the Executive as of the 4th day of
December, 1996.
<TABLE>
<S> <C>
Company: US Facilities Corporation
By /s/ DAVID L. CARGILE
----------------------------------------
David L. Cargile
President and Chief Executive Officer
Executive: /s/ CRAIG J. KELBEL
----------------------------------------
Craig J. Kelbel
</TABLE>
-4-
<PAGE>
EXHIBIT 10.5 (xi)
Amendment No. 1
To Severance Agreement
Between
US Facilities Corporation
And
Mark Burke
---------------
Whereas, US Facilities Corporation, a Delaware corporation (the
"Company"), and Mark Burke (hereinafter referred to as "Executive") entered into
a Severance Agreement dated May 24, 1994 with respect to the termination of
Executive's employment with the Company (the "Agreement"); and
Whereas, the Company and the Executive desire to amend Section 4(e) to
clarify the definition of events which constitute a "Change in Control" for
purposes of this Agreement and to amend Section 5(a) which defines the
obligations of the Company regarding salary and bonus termination payments to
Executive;
Now, Therefore, in consideration of the Company's agreement to continue
the employment of Executive for a period of a minimum of six (6) months from the
date of this Amendment and the payment to Executive of $1.00 and other good and
valuable consideration, receipt of which is hereby acknowledged, the Company and
the Executive hereby agree to enter into this Amendment to the Agreement as
follows:
1. Section 4(e) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 4(e), which shall read in full as follows:
(e) For purposes of this Agreement, a "Change in Control" shall
mean the occurrence, after the Effective Date hereof, of any of the
following events if such events are not approved by the Board of Directors
of the Company prior to their occurrence;
-1-
<PAGE>
(i) At any time during the term of this Agreement, any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") and the regulations
of the Securities and Exchange Commission (the "SEC") thereunder, each as
in effect on the Effective Date of this Agreement (including any such
persons that may be deemed to be acting in concert with respect to the
Company or the acquisition, ownership or voting of Company securities)
becomes, directly or indirectly, the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act and the regulations of the SEC
thereunder, each as in effect on the Effective Date of this Agreement) of
outstanding securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding securities. For
purposes of this subsection (i) of Section 4(e) of the Agreement, a person
becomes, directly or indirectly, the beneficial owner of outstanding
securities of the Company representing 10% or more of the combined voting
power of the Company's outstanding securities when such person, together
with all affiliates and associates of such person, acquires beneficial
ownership of, in the aggregate, a number of voting shares of the Company
equal to 1% or more of the voting shares then outstanding, and thereupon
or thereafter beneficially owns (as defined in the aforenoted Rule 13d-3
under the Exchange Act) 10% or more of the voting shares of the Company
then outstanding; provided, however, that the concept of any person
becoming the owner of 10% or more of the combined voting shares shall not
include: (A) the Company, any wholly owned subsidiary of the Company, any
employee benefit plan of the Company or of a subsidiary of the Company, or
any person holding voting shares for or pursuant to the terms of any such
employee benefit plan; or (B) any person if such person would not
otherwise be a 10% stockholder but for a reduction in the number of
outstanding voting shares resulting from a stock repurchase program or
other similar plan instituted by the Company or from a self-tender offer
of the Company, which plan or tender offer commenced on or after the
Effective Date of this Agreement; provided, however, that the concept of
becoming the owner of 10% or more of the combined voting shares shall
include such beneficial owner after the first date upon which (x) such
person, since the date of commencement of such plan or tender offer, shall
have acquired beneficial ownership of, in the aggregate, a number of
voting shares of the Company equal to 1% or more of the voting shares then
outstanding, and (y) such person, together with all affiliates and
associates of such person, shall beneficially own 10% or more of the
voting shares of the Company then outstanding. In calculating the
percentage of the person for purposes of this subsection, voting shares
that are beneficially owned by such person shall be deemed outstanding,
and voting shares that are not beneficially owned by such person and that
are subject to issuance upon the exercise or conversion of outstanding
conversion rights, exchange rights, rights (other than rights), warrants
or options shall not be deemed outstanding. Any determination made by the
directors as to whether any person is or is not a 10% stockholder for
purposes of this subsection shall be conclusive and binding upon the
Company and upon all stockholders;
-2-
<PAGE>
(ii) At any time during the term of this Agreement the
composition of the Board of Directors of the Company is changed such that
persons who were directors of the Company as of the Effective Date, or
persons nominated or elected as directors by a majority of such persons
who were directors as of the Effective Date, do not continue to comprise a
majority of the members of such Board of Directors of the Company;
(iii) At any time during the term of this Agreement the
stockholders of the Company approve a merger or consolidation of the
Company with, or a reorganization transaction involving the Company and,
any other entity, other than a merger, consolidation or reorganization
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation; or
(iv) At any time during the term of this Agreement the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of more
than 50% of its consolidated assets.
2. Section 5(a) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 5(a), which shall read in full as follows:
(a) Salary and Bonus: Subject to the limitations set forth in
Section 7 hereof, the Company shall pay to the Executive that amount which
is equal to his regular base salary, at the rate then in effect, for a
period of two (2) years, plus a bonus in an amount which shall be equal to
the largest cash bonus actually received by Executive during his term of
employment with the Company; provided, however, that if Executive shall
have entered into an Employment Agreement with the Company which is in
effect at the time of Executive's termination, then and in that event the
Company and Executive agree that upon Executive's termination Executive
shall be entitled to receive either (i) the salary and bonus termination
payments under this Section 5(a), or (ii) the salary and bonus
terminations payments provided for in such Employment Agreement, whichever
salary and bonus termination payment is the greater; but under no
conditions shall Executive be entitled to receive upon termination both
the salary and bonus termination payments under this Severance Agreement
and the salary and bonus termination payments under any such Employment
Agreement.
-3-
<PAGE>
3. This Amendment shall be retroactive and shall be considered and deemed
to have been in effect as of May 24, 1994, the Effective Date of the Agreement,
which is the date when it was entered into by the parties hereto.
4. Apart from this Amendment, the terms of the Agreement as entered into
on May 24, 1994 shall otherwise in all respects remain as originally written to
the extent that such terms do not conflict with or are inconsistent with this
Amendment.
In Witness Whereof, this Amendment No. 1 has been executed by a duly
authorized officer of the Company and by the Executive as of the 4th day of
December, 1996.
<TABLE>
<S> <C>
Company: US Facilities Corporation
By /s/ DAVID L. CARGILE
-------------------------------------
David L. Cargile
President and Chief Executive Officer
Executive: /s/ MARK BURKE
----------------
Mark Burke
</TABLE>
-4-
<PAGE>
EXHIBIT 10.5(xii)
Amendment No. 1
To Severance Agreement
Between
US Facilities Corporation
And
Jose A. Velasco
---------------
Whereas, US Facilities Corporation, a Delaware corporation (the
"Company"), and Jose A. Velasco (the "Executive") entered into a Severance
Agreement dated May 24, 1994 with respect to the termination of Executive's
employment with the Company (the "Agreement"); and
Whereas, the Company and the Executive desire to amend Section 4(e) to
clarify the definition of events which constitute a "Change in Control" for
purposes of this Agreement and to amend Section 5(a) which defines the
obligations of the Company regarding salary and bonus termination payments to
Executive;
Now, Therefore, in consideration of the Company's agreement to continue
the employment of Executive for a period of a minimum of six (6) months from the
date of this Amendment and the payment to Executive of $1.00 and other good and
valuable consideration, receipt of which is hereby acknowledged, the Company and
the Executive hereby agree to enter into this Amendment to the Agreement as
follows:
1. Section 4(e) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 4(e), which shall read in full as follows:
(e) For purposes of this Agreement, a "Change in Control" shall
mean the occurrence, after the Effective Date hereof, of any of the
following events if such events are not approved by the Board of Directors
of the Company prior to their occurrence;
-1-
<PAGE>
(i) At any time during the term of this Agreement, any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") and the regulations
of the Securities and Exchange Commission (the "SEC") thereunder, each as
in effect on the Effective Date of this Agreement (including any such
persons that may be deemed to be acting in concert with respect to the
Company or the acquisition, ownership or voting of Company securities)
becomes, directly or indirectly, the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act and the regulations of the SEC
thereunder, each as in effect on the Effective Date of this Agreement) of
outstanding securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding securities. For
purposes of this subsection (i) of Section 4(e) of the Agreement, a person
becomes, directly or indirectly, the beneficial owner of outstanding
securities of the Company representing 10% or more of the combined voting
power of the Company's outstanding securities when such person, together
with all affiliates and associates of such person, acquires beneficial
ownership of, in the aggregate, a number of voting shares of the Company
equal to 1% or more of the voting shares then outstanding, and thereupon
or thereafter beneficially owns (as defined in the aforenoted Rule 13d-3
under the Exchange Act) 10% or more of the voting shares of the Company
then outstanding; provided, however, that the concept of any person
becoming the owner of 10% or more of the combined voting shares shall not
include: (A) the Company, any wholly owned subsidiary of the Company, any
employee benefit plan of the Company or of a subsidiary of the Company, or
any person holding voting shares for or pursuant to the terms of any such
employee benefit plan; or (B) any person if such person would not
otherwise be a 10% stockholder but for a reduction in the number of
outstanding voting shares resulting from a stock repurchase program or
other similar plan instituted by the Company or from a self-tender offer
of the Company, which plan or tender offer commenced on or after the
Effective Date of this Agreement; provided, however, that the concept of
becoming the owner of 10% or more of the combined voting shares shall
include such beneficial owner after the first date upon which (x) such
person, since the date of commencement of such plan or tender offer, shall
have acquired beneficial ownership of, in the aggregate, a number of
voting shares of the Company equal to 1% or more of the voting shares then
outstanding, and (y) such person, together with all affiliates and
associates of such person, shall beneficially own 10% or more of the
voting shares of the Company then outstanding. In calculating the
percentage of the person for purposes of this subsection, voting shares
that are beneficially owned by such person shall be deemed outstanding,
and voting shares that are not beneficially owned by such person and that
are subject to issuance upon the exercise or conversion of outstanding
conversion rights, exchange rights, rights (other than rights), warrants
or options shall not be deemed outstanding. Any determination made by the
directors as to whether any person is or is not a 10% stockholder for
purposes of this subsection shall be conclusive and binding upon the
Company and upon all stockholders;
-2-
<PAGE>
(ii) At any time during the term of this Agreement the
composition of the Board of Directors of the Company is changed such that
persons who were directors of the Company as of the Effective Date, or
persons nominated or elected as directors by a majority of such persons
who were directors as of the Effective Date, do not continue to comprise a
majority of the members of such Board of Directors of the Company;
(iii) At any time during the term of this Agreement the
stockholders of the Company approve a merger or consolidation of the
Company with, or a reorganization transaction involving the Company and,
any other entity, other than a merger, consolidation or reorganization
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation; or
(iv) At any time during the term of this Agreement the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of more
than 50% of its consolidated assets.
2. Section 5(a) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 5(a), which shall read in full as follows:
(a) Salary and Bonus: Subject to the limitations set forth in
Section 7 hereof, the Company shall pay to the Executive that amount which
is equal to his regular base salary, at the rate then in effect, for a
period of two (2) years, plus a bonus in an amount which shall be equal to
the largest cash bonus actually received by Executive during his term of
employment with the Company; provided, however, that if Executive shall
have entered into an Employment Agreement with the Company which is in
effect at the time of Executive's termination, then and in that event the
Company and Executive agree that upon Executive's termination Executive
shall be entitled to receive either (i) the salary and bonus termination
payments under this Section 5(a), or (ii) the salary and bonus
terminations payments provided for in such Employment Agreement, whichever
salary and bonus termination payment is the greater; but under no
conditions shall Executive be entitled to receive upon termination both
the salary and bonus termination payments under this Severance Agreement
and the salary and bonus termination payments under any such Employment
Agreement.
-3-
<PAGE>
3. This Amendment shall be retroactive and shall be considered and deemed
to have been in effect as of May 24, 1994, the Effective Date of the Agreement,
which is the date when it was entered into by the parties hereto.
4. Apart from this Amendment, the terms of the Agreement as entered into
on May 24, 1994 shall otherwise in all respects remain as originally written to
the extent that such terms do not conflict with or are inconsistent with this
Amendment.
In Witness Whereof, this Amendment No. 1 has been executed by a duly
authorized officer of the Company and by the Executive as of the 4th day of
December, 1996.
<TABLE>
<S> <C>
Company: US Facilities Corporation
By /s/ DAVID L. CARGILE
----------------------------------------
David L. Cargile
President and Chief Executive Officer
Executive: /s/ JOSE A. VELASCO
-------------------------------------------
Jose A. Velasco
</TABLE>
-4-
<PAGE>
EXHIBIT 10.23
[LOGO]
US FACILITIES CORPORATION
NON-QUALIFIED DEFERRED COMPENSATION PLAN
EXECUTIVE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
-------- ----
<S> <C>
1 DEFINITIONS................................................................ 1
2 ELIGIBILITY................................................................ 5
2.1 Selection by Committee of the Board of Directors................... 5
2.2 Deferred Compensation Plan Agreement............................... 5
3 DEFERRALS AND CONTRIBUTIONS................................................ 5
3.1 Annual Bonus Deferrals............................................. 5
3.2 401(k) Excess Salary Deferrals..................................... 5
3.3 Company Matching Contributions for 401(k) Excess Salary Deferrals.. 5
3.4 Long Term Incentive Plan........................................... 6
3.5 Vesting............................................................ 6
3.6 Time of Deferral................................................... 7
3.7 Investment Rate.................................................... 7
3.8 Interest Crediting................................................. 7
4 DISTRIBUTION OF BENEFITS................................................... 7
4.1 Amount of Distribution and Satisfaction of Company's
Obligation......................................................... 7
4.2 Time of Distribution............................................... 7
4.3 Premature Distribution............................................. 7
4.4 Method of Distribution............................................. 8
5 BENEFICIARY BENEFIT........................................................ 8
5.1 Pre-retirement Survivor Benefit.................................... 8
5.2 Eligibility Requirements for Survivor Benefit...................... 8
5.3 Payment of Survivor Benefit........................................ 8
6 BENEFICIARY................................................................ 8
6.1 Beneficiary Designation............................................ 8
6.2 Change of Beneficiary Designation.................................. 8
6.3 No Beneficiary Designation......................................... 8
6.4 Effect of Payment.................................................. 8
7 LEAVE OF ABSENCE........................................................... 9
7.1 Paid Leave of Absence.............................................. 9
7.2 Unpaid Leave of Absence............................................ 9
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE PAGE
-------- ----
<S> <C>
8 TERMINATION, AMENDMENT OR MODIFICATION................................... 9
8.1 Termination...................................................... 9
8.2 Amendment........................................................ 9
8.3 Change in Control................................................ 9
9 MISCELLANEOUS............................................................ 9
9.1 Unsecured General Creditor....................................... 9
9.2 ERISA Provisions................................................. 9
9.3 Nonassignability................................................. 10
9.4 Not a Contract of Employment..................................... 10
9.5 Cooperation...................................................... 10
9.6 Terms............................................................ 10
9.7 Captions......................................................... 10
9.8 Governing Law.................................................... 10
9.9 Validity......................................................... 10
9.10 Notice.......................................................... 10
9.11 Successors...................................................... 11
9.12 Incompetent..................................................... 11
10 ADMINISTRATION.......................................................... 11
10.1 Committee Duties................................................ 11
10.2 Agents.......................................................... 11
10.3 Binding Effect of Decisions..................................... 11
10.4 Indemnity of Committee.......................................... 11
10.5 Company Information............................................. 12
10.6 Change in Payments.............................................. 12
</TABLE>
iii
<PAGE>
[LOGO]
US FACILITIES CORPORATION
NON-QUALIFIED
DEFERRED COMPENSATION PLAN
EXECUTIVE PLAN
PURPOSE
This US Facilities Corporation Non-Qualified Deferred Compensation Plan -
Executive Plan is adopted by US Facilities Corporation as of January 1, 1997 to
provide specified benefits to a select group of key executive employees who
contribute materially to the success of the Company and its subsidiaries.
ARTICLE 1
DEFINITIONS
For purposes hereof, the following phrases or terms shall have the
following indicated meanings:
1.1 "Beneficiary" shall mean the person or entity designated by the
Participant to receive any benefits payable under this Plan upon the
death of a Participant.
1.2 "Board of Directors" shall mean the Board of Directors of US
Facilities Corporation.
1.3 "Change in Control" shall mean the following and shall be deemed to
occur if any of the following events occur:
(i) Any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding voting securities;
(ii) Individuals who, as of the date of the Plan,
constituted the Board of Directors ("Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that
any person becoming a director subsequent
1
<PAGE>
to such date whose election, or nomination for election by the
Company's stockholders, is approved by a vote of at least a majority
of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of
the office is in connection with an actual or threatened election
contest relating to the election of the directors of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) shall, for the purposes of the Plan, be considered
as though such person were a member of the Incumbent Board;
(iii) The stockholders of the Company approve a merger or
consolidation with any other corporation, other than
(A) a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of another entity) more than
50% of the combined voting power of the voting securities of the
Company or such other entity outstanding immediately after such merger
or consolidation, or
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
person acquired 50% or more of the combined voting power of the
Company's then outstanding voting securities; or
(iv) The stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
other disposition by the Company of all or substantially all of the
Company's assets.
Notwithstanding the preceding provisions of this Section 1.3, a Change
in Control shall not be deemed to have occurred (1) if the "person"
described in clause (i) of the preceding provisions of this Section
1.3 above (1) is an underwriter or underwriting syndicate that has
acquired the ownership of 50% or more of the combined voting power of
the Company's then outstanding voting securities solely in connection
with a public offering of the Company's securities; (2) is the
Company, any wholly owned subsidiary of the Company, any employee
benefit plan of the Company or of a subsidiary of the Company, or any
person holding voting shares for or pursuant to the terms of any such
employee benefit plan; or (3) would not otherwise be a beneficial
owner of 25% or more of the combined voting power of the Company's
then outstanding voting securities but for a reduction in the number
of outstanding voting securities resulting from a stock repurchase
program or other similar plan of the Company or from a self tender
offer of the Company, which plan or tender offer commenced on or after
the date hereof; provided, however, that the term "person" shall
include such person from and after the first date upon which (A) such
person, since the date of the commencement of such plan or tender
offer, shall have acquired beneficial ownership of, in the aggregate,
a number of voting securities of the Company
2
<PAGE>
equal to 1% or more of the voting securities of the Company then
outstanding, and (B) such person, together with all affiliates and
associates of such person, shall beneficially own 25% or more the
voting securities of the Company then outstanding.
In calculating the percentage of the person for purposes of this
subsection, voting shares that are beneficially owned by such person
shall be deemed outstanding, and voting shares that are not
beneficially owned by such person and that are subject to issuance
upon the exercise or conversion of outstanding conversion rights,
exchange rights, rights (other than rights), warrants or options shall
not be deemed outstanding. Any determination made by the Committee as
to whether any person is or is not a 25% stockholder for purposes of
this subsection shall be conclusive and binding upon the Company and
upon all stockholders.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as from time to
time amended.
1.5 "Committee" shall mean the Compensation Committee appointed by the
Board of Directors to manage and administer the Plan in accordance
with its provisions pursuant to Article 10.
1.6 "Company" shall mean US Facilities Corporation, its successors and
assigns as applicable.
1.7 "Compensation" shall mean compensation as the term is defined in the
Qualified Plan.
1.8 "DCP Account" shall mean an individual account comprised of a
Participant's Deferral Amounts and interest credited thereon. A DCP
Account shall be maintained for each Participant. A Participant's DCP
Account shall be only a bookkeeping entry and shall be utilized solely
as a device for the measurement and determination of the amounts to be
paid to the Participant pursuant to this Plan. A Participant's DCP
Account(s) shall not constitute or be treated as a trust fund.
1.9 "Deferred Compensation Plan Agreement" shall mean the form of written
agreement, as amended from time to time, which is entered into by and
between the Company and a Participant.
1.10 "Deferral Amount" shall mean the amount of Compensation deferred by a
Participant at the Time of Deferral pursuant to the election in the
Deferred Compensation Plan Agreement.
1.11 "Disability" or "Disabled" shall be defined in the same manner as
defined in the Company's Long Term Disability Plan in effect at the
time that the Participant makes a disability claim.
3
<PAGE>
1.12 "Distribution Event" shall be the earliest of the following to occur:
(a) a Participant's death, Disability, Retirement or Termination of
Employment, (b) the date the Participant elects to receive a Short-
Term Payout under the applicable Deferred Compensation Plan Agreement,
or (c) in the sole discretion of the Committee, in the event of a
Medical Financial Emergency.
1.13 "Executives" shall mean those persons in the regular full-time
employment of the Company who are key employees selected for
participation in the Plan by the Committee.
1.14 "Investment Rate" shall mean the rate of earnings on deferrals as
determined by the Board of Directors from time to time and shall not
be changed once determined for a Plan Year.
1.15 "Long-Term Incentive Plan" shall mean the US Facilities Corporation
1997 Long-Term Incentive - Performance Unit Plan as in effect from
time to time.
1.16 "Medical Financial Emergency" shall mean an unexpected need for cash
arising from an illness of the Participant or members of the
Participant's immediate family.
1.17 "Participant" shall mean any Executive who is eligible to participate
and elects to participate in the Plan by executing a Deferred
Compensation Plan Agreement.
1.18 "Plan" shall mean the US Facilities Corporation Non-Qualified
Deferred Compensation Plan - Executive Plan which shall be evidenced
by this instrument and by each Deferred Compensation Plan Agreement,
as amended from time to time.
1.19 "Plan Anniversary Date" shall be the first day of the Plan Year.
1.20 "Plan Year" shall mean the calendar year.
1.21 "Qualified Plan" shall mean the US Facilities Corporation Employees'
Savings Plan.
1.22 "Retirement" and "Retire" shall mean severance from employment with
the Company at or after the attainment of age sixty-five (65).
1.23 "Short-Term Payout" shall mean the period elected in a Participant's
Deferred Compensation Plan Agreement, which shall equal or exceed five
(5) Plan Years.
1.24 "Termination of Employment" shall mean the ceasing of employment with
the Company, voluntarily or involuntarily, for any reason other than
Retirement, Disability or Death.
4
<PAGE>
1.25 "Time of Deferral" shall mean the time the Participant must elect to
defer compensation.
1.26 "Years of Service" shall mean all periods of employment with the
Company.
ARTICLE 2
ELIGIBILITY
2.1 Selection by Committee of the Board of Directors. The Committee shall
-------------------------------------------------
have the sole discretion to determine the Executives who are key
employees eligible to become Participants in accordance with the
purpose of the Plan.
2.2 Deferred Compensation Plan Agreement. As a condition of
-------------------------------------
participation, each prospective Participant shall complete, execute,
and return a Deferred Compensation Plan Agreement to the Committee
prior to the applicable Time of Deferral.
ARTICLE 3
DEFERRALS AND CONTRIBUTIONS
3.1 Annual Bonus Deferrals. Participants may defer no less than ten
-----------------------
percent (10%) and no more than fifty percent (50%) per Plan Year of
annual bonus awards, if any, paid to Participants under the US
Facilities Corporation Incentive Compensation Program or any successor
cash bonus program.
3.2 401(k) Excess Salary Deferrals. Participants may elect to defer a
-------------------------------
percentage of their Compensation to the extent the Participants are
constrained in the Qualified Plan by the limitation on includable
compensation under Code Section 401(a)(17) or the limitation on
elective deferrals under Code Section 402(g). This election shall be
irrevocable and shall be made on annual basis prior to the Plan Year
to which it relates. The deferrals made pursuant to the election will
be made into the Plan only after the Participant has maximized
deferrals into the Qualified Plan. The amount of deferrals made
pursuant to this Section 3.2, when aggregated with amounts deferred
into the Qualified Plan, may not exceed the maximum percentage of
Compensation allowed to be deferred under the Qualified Plan
(notwithstanding limitations imposed by the Code). Moreover, to the
extent that deferrals into the Qualified Plan are constrained at the
end of a Qualified Plan year as a result of the non-discrimination
testing under Code Sections 401(k)(3) and 401(m)(2) (ADP/ACP testing),
such deferrals must be refunded to the Participant and may not be
deferred or any other way contributed to this Plan.
WITHHOLDING OF 401(K) EXCESS SALARY DEFERRALS. The Participant's
401(k) excess salary deferrals shall be withheld from the
Participant's Compensation in equal amounts over the portion of the
Plan Year for which 401(k) excess salary deferrals are made.
5
<PAGE>
3.3 Company Matching Contributions for 401(k) Excess Salary Deferrals.
------------------------------------------------------------------
The Company will make a matching contribution to the Plan with respect
to a Participant's 401(k) excess salary deferrals. This matching
contribution will be made only after the Participant has maximized
deferrals into the Qualified Plan. The matching contribution, if any,
will be a percentage, set by the Board of Directors of the 401(k)
excess salary deferrals each Participant has elected to defer in the
Participant's Deferred Compensation Plan Agreement. This matching
contribution, when aggregated with the Company's matching
contributions to the Qualified Plan, shall not exceed 6% of the
Participant's compensation (notwithstanding limitations imposed by the
Code).
3.4 Long Term Incentive Plan. Payouts (as defined in the Long-Term
-------------------------
Incentive Plan) under the Long Term Incentive Plan will automatically
be deferred into the Plan. Deferrals shall be deemed made as of the
Plan Anniversary Date following the end of the Performance Period (as
defined in the Long-Term Incentive Plan) for which the Payouts are
earned.
3.5 Vesting
-------
ANNUAL BONUS DEFERRALS. Participants shall at all times be 100%
-----------------------
vested in their annual bonus award deferrals.
401(K) EXCESS SALARY DEFERRALS. Participants shall at all times be
100% vested in their 401(k) excess salary deferrals.
COMPANY MATCHING CONTRIBUTIONS FOR 401(K) EXCESS SALARY DEFERRALS.
Participants shall be vested in their Company Matching Contributions
for 401(k) excess salary deferrals in accordance with the following
schedule:
<TABLE>
<CAPTION>
Percent of
Years of Service Nonforfeitable Interest
---------------------------------------------------------------------------------
<S> <C>
Less than 1 . . . . . . . . . . . . . . . . . . . . . . . . . . 0%
1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%
3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20%
4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40%
5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60%
6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80%
7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
</TABLE>
In any event, Participants shall be vested in their Company Matching
Contributions for 401(k) Excess Salary Deferrals upon the first of the
following events to occur: (1) Retirement, (2) death, or (3)
Disability.
6
<PAGE>
LONG TERM INCENTIVE PLAN PAYOUT DEFERRALS. Participants shall vest in
their Long Term Incentive Plan Payout Deferrals over a two year period
which shall commence as of the date the Payouts are deferred into the
Plan, as follows:
<TABLE>
<CAPTION>
PERCENT OF
YEARS NONFORFEITABLE INTEREST
-----------------------------------------------------------------------------------
<S> <C>
Less than 1 . . . . . . . . . . . . . . . . . . . . . . . . . . 0%
1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50%
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
</TABLE>
In any event, Participants shall be vested in their Long Term
Incentive Plan Payouts upon the first of the following events to
occur: (1) Retirement, (2) death, (3) Disability, or (4) Involuntary
Termination of Employment, at the discretion of the Committee.
3.6 Time of Deferral. For the first year the Plan is implemented,
-----------------
Participants may elect to defer Compensation no later than December
31, 1996 for services to be performed in 1997. Furthermore, except as
otherwise provided above, a newly eligible participant may elect,
within thirty (30) days after becoming eligible, to defer Compensation
for services to be performed after the election. In all other cases,
the Participant must elect to defer Compensation on or before December
31 prior to the Plan Year for which the services are to be performed.
3.7 Investment Rate. The Investment Rate for each Plan Year shall be
----------------
established from time to time by the Board of Directors.
3.8 Interest Crediting. Interest shall be credited to the DCP Account on
-------------------
the quarterly average of the DCP Account balance on the last day of
each quarter of a Plan year. Upon a Distribution Event, interest will
be credited until the benefits are actually distributed to the
Participant or the Participant's Beneficiary.
ARTICLE 4
DISTRIBUTION OF BENEFITS
4.1 Amount of Distribution and Satisfaction of Company's Obligation. Upon
----------------------------------------------------------------
the occurrence of a Distribution Event, the Participant shall receive
the vested portion of his or her DCP Account as set forth in this
Article 4. This distribution shall constitute complete satisfaction
of the Company's obligation to the Participant and no other amounts
shall be due or payable under the Plan.
4.2 Time of Distribution. A Participant's DCP Account will be distributed
---------------------
no later than ninety (90) days following a Distribution Event.
7
<PAGE>
4.3 Premature Distribution. Premature distribution shall occur in the
-----------------------
event of an unforseeable Medical Financial Emergency, subject to
approval of the Compensation Committee.
4.4 Method of Distribution. Benefits distributed shall be paid in a lump
-----------------------
sum. Another manner of benefit payment may be authorized by the
Committee in its sole discretion.
ARTICLE 5
BENEFICIARY BENEFIT
5.1 Pre-retirement Survivor Benefit. If a Participant dies before
--------------------------------
Retirement, the Company will pay a survivor benefit to the Beneficiary
of the Participant. Such benefit will be equal to the total vested
DCP Account as of the date of death, plus interest thereon until the
benefits are actually distributed to the Participant's beneficiary.
5.2 Eligibility Requirements for Survivor Benefit. The obligation of the
----------------------------------------------
Company to pay any benefits to any Beneficiary shall exist only if
proof of death, in such form as determined acceptable by the
Committee, is furnished.
5.3 Payment of Survivor Benefit. A survivor benefit shall be paid in a
----------------------------
lump sum. The payment shall be paid within 90 days of proof of the
Participant's death.
ARTICLE 6
BENEFICIARY
6.1 Beneficiary Designation. Each Participant shall have the right, at
------------------------
any time, to designate any person or persons as a Beneficiary (both
primary as well as secondary) to whom benefits under this Plan shall
be paid in the event of the Participant's death prior to complete
distribution to the Participant of the benefits due under the Plan. A
Beneficiary designation shall be made by written instrument filed with
the Committee and shall become effective only when received, accepted
and acknowledged in writing by the Committee.
6.2 Change of Beneficiary Designation. Any Beneficiary designation may be
----------------------------------
changed by a Participant at any time by the filing in writing of such
change on a form prescribed by the Committee. The filing of a new
Beneficiary designation form will cancel all Beneficiary designations
previously filed. The Committee shall be entitled to rely on the last
designation filed by the Participant prior to the Participant's death.
6.3 No Beneficiary Designation. If a Participant fails to designate a
---------------------------
Beneficiary as provided above, or if all Beneficiaries predecease the
Participant or die prior to complete distribution of the Participant's
benefits, then the Participant's Beneficiary shall be deemed to be the
surviving spouse. If the participant has no
8
<PAGE>
surviving spouse, the benefits remaining under the Plan shall be
payable to the Participant's estate.
6.4 Effect of Payment. The payment of benefits under the Plan to the
------------------
Beneficiary shall completely discharge the Company's obligations under
this Plan.
ARTICLE 7
LEAVE OF ABSENCE
7.1 Paid Leave of Absence. If a Participant is authorized by the Company
----------------------
for any reason to take a paid leave of absence from the employment of
the Company, the applicable Deferred Compensation Plan Agreement shall
remain in full force and effect during such leave of absence.
7.2 Unpaid Leave of Absence. If a participant is authorized by the
------------------------
Company for any reason to take an unpaid leave of absence from the
employment of the Company, the Participant's Deferred Compensation
Plan Agreement shall be suspended until the earlier of the date the
leave of absence expires or the Participant's employment resumes.
ARTICLE 8
TERMINATION, AMENDMENT OR MODIFICATION
8.1 Termination. The Company reserves the right to discontinue future
------------
deferrals under the Plan at any time and further reserves the right to
terminate the Plan and distribute all Participants' DCP Accounts
(which in the case of such distribution upon plan termination shall be
deemed 100% vested).
8.2 Amendment. The Company may, at any time, amend or modify the Plan in
----------
whole or in part, provided, however, that no amendment or modification
shall be effective to decrease or restrict any DCP Account in
existence at the time the amendment or modification is made. The
amendment or modification of the Plan shall not affect any Participant
or Beneficiary who has become entitled to the payment of benefits
under the Plan as of the date of the amendment or modification.
8.3 Change in Control. In the event a Change in Control, Participants
------------------
shall be 100% vested in all benefits with interest credited at the
Investment Rate on the Participants' DCP Accounts through the date of
distribution.
ARTICLE 9
MISCELLANEOUS
9.1 Unsecured General Creditor. The Company's obligation under the Plan
---------------------------
shall be merely that of an unfunded and unsecured promise of the
Company to pay money in the future. Under this Plan, Participants and
their Beneficiaries, heirs, successors and assigns shall have no legal
or equitable rights, interest or claims in
9
<PAGE>
any property or assets of the Company other than as an unsecured
general creditor. Nothing in this Plan shall cause the Plan's assets
to be anything but the general, unpledged, unrestricted assets of the
Company.
9.2 ERISA Provisions. This Plan is designed to provide deferred
-----------------
compensation for only the key employees of the Company. To that end,
the Committee may immediately distribute the account balance to any
employee who at any time is determined or reasonably believed, based
on a judicial or administrative determination or an opinion of
counsel, not to qualify as a "management" or "highly compensated"
employee. In addition, it is the intention of the parties that the
arrangements be unfunded for tax purposes. This Plan is not subject
to the Employment Retirement Income Security Act of 1974, as amended
(ERISA.)
9.3 Nonassignability. Neither a Participant nor any Beneficiary shall
-----------------
have any right to commute, sell, assign, transfer, pledge, mortgage,
or otherwise encumber, transfer, hypothecate or convey in advance of
actual receipt, the amounts, if any, payable hereunder, or any part
thereof. No part of the amounts payable shall, prior to actual
payment, be subject to seizure or sequestration for the payment of any
debts, judgments, alimony or separate maintenance owned by a
Participant or any Beneficiary, nor be transferable by operation of
law in the event of a Participant's or any Beneficiary's bankruptcy or
insolvency.
9.4 Not a Contract of Employment. The terms and conditions of this Plan
-----------------------------
shall not be deemed to constitute a contract of employment between the
Company and the Participant, and the Participant (or the Participant's
Beneficiary) shall have no rights against the Company except as may
otherwise be specifically provided herein. Moreover, nothing in this
Plan shall be deemed to give a Participant the right to be retained in
the service of the Company or to interfere with the right of the
Company to discipline or discharge the Participant at any time.
9.5 Cooperation. A Participant will cooperate with the Company by
------------
furnishing any and all information requested by the Company.
9.6 Terms. Whenever any words are used herein in the masculine, they
------
shall be construed as though they were used in the feminine in all
cases where they would so apply; and wherever any words are used
herein in the singular or in the plural, they shall be construed as
though they were used in the plural or the singular, as the case may
be, in all cases where they would so apply.
9.7 Captions. The captions of the articles, Sections and paragraphs of
---------
this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
9.8 Governing Law. The provisions of this Plan shall be construed and
--------------
interpreted according to the laws of the State of California.
10
<PAGE>
9.9 Validity. In case any provision of this Plan shall be illegal or
---------
invalid for any reason, said illegality or invalidity shall not affect
the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal and invalid provision had never been
inserted herein.
9.10 Notice. Any notice or filing required or permitted to be given to
-------
the Company shall be sufficient if in writing and hand delivered or
sent by U.S. mail, postage prepaid, or Federal Express or any other
recognized courier service to the principal office of the Company
directed to the attention of the Company's Vice President of Human
Resources. Any notice to the Participant must be in writing and is
effective when hand delivered or sent by U.S. mail, postage prepaid,
or Federal Express or any other recognized courier service to the
Participant or his personal representatives at his her last address on
record with the Company.
9.11 Successors. The provisions of this Plan shall bind and inure to the
-----------
benefit of the Company and its successors and assigns. The term
successors as used herein shall include any corporate or other
business entity which shall, whether by merger, consolidation,
purchase or otherwise acquire all or substantially all of the business
and assets of the Company, and successors of any such corporation or
other business entity.
9.12 Incompetent. In the event that it shall be found upon evidence
------------
satisfactory to the Committee that any Participant or Beneficiary to
whom a benefit is payable under this Plan is unable to care for his
affairs because of illness or accident, any payment due (unless prior
claim therefore shall have been made by a duly authorized guardian or
other legal representative) may be paid, upon appropriate
indemnification of the Committee, to the spouse of such person or the
person deemed by the Committee to have incurred expenses for such
Participant. Any such payment shall be a payment for the account of
the Participant and shall be a complete discharge of any liability of
the Plan for such payment amount.
ARTICLE 10
ADMINISTRATION
10.1 Committee Duties. The Plan shall be administered by the Committee
-----------------
which shall consist of persons appointed by the Board of Directors.
Members of the Committee may not be Participants under this Plan. The
Committee shall have the authority to interpret and enforce all
appropriate rules and regulations for the administration of this Plan
and decide or resolve any and all questions including interpretations
of this Plan, as may arise in connection with the Plan.
10.2 Agents. In the administration of this Plan, the Committee may, from
-------
time to time, employ agents and delegate to them such administrative
duties as it sees fit and may from time to time consult with counsel
who may be counsel to the Company.
11
<PAGE>
10.3 Binding Effect of Decisions. The decision or action of the Committee
----------------------------
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the
rules and regulations promulgated hereunder shall be final and
conclusive and binding upon all persons having any interest in the
Plan.
10.4 Indemnity of Committee. The Company shall indemnify and hold
-----------------------
harmless the members of the Committee against any and all claims,
losses, damages, expenses or liabilities arising from any action or
failure to act with respect to this Plan, except in the case of
willful misconduct by the Committee or any of its members.
10.5 Company Information. To enable the Committee to perform its
--------------------
functions, the Company shall supply full and timely information to the
Committee on all matters relating to the Participants' Compensation,
the date and circumstances of the Retirement, Disability, death or
Termination of Employment of all Participants, and such other
pertinent information as the Committee may reasonably require.
10.6 Change in Payments. The Committee shall have the power, in its sole
-------------------
discretion, to change the manner and time of payments to be made to a
Participant or Beneficiary from that which would be otherwise payable
to such person, if requested to do so by such Participant or
Beneficiary.
IN WITNESS WHEREOF the Company has signed this Plan Document this _____ day
of December,1996.
Company:
US Facilities Corporation
By:____________________________
Title:_________________________
12
<PAGE>
================================================================================
US FACILITIES EXECUTIVE DEFERRED COMPENSATION PLAN
DEFERRED COMPENSATION PLAN AGREEMENT
================================================================================
This Deferred Compensation Plan Agreement is entered into this ___________ day
of ____________________, 19_____, between the US Facilities Corporation,
hereafter referred to as the "Company," and __________________________________,
hereafter referred to as the "Participant."
WHEREAS, the Participant is a key employee of the Company, and
WHEREAS, the Company has adopted the US Facilities Executive Deferred
Compensation Plan (the "Plan") and the Participant has been offered the
opportunity to participate;
(Please Choose A or B and Complete C and D)
[_] A. WAIVER OF DEFERRAL ELECTION. I irrevocably elect not to participate in
----------------------------
the Plan for the specified year. Notwithstanding this waiver, my Long
Term Incentive - Performance Unit Plan award shall automatically be
deferred into the Plan.
______________________________________________ ________________________
Signature of Participant Date Signed
[_] B. DEFERRAL ELECTION. I elect to Participate in the Plan for the 1997
-----------------
Plan year and duly authorize the Company to make the appropriate
deductions from my compensation, as specified below.
- --------------------------------------------------------------------------------
1) ANNUAL BONUS AWARD DEFERRAL [_] I elect to defer __________% of my
1997 Annual Incentive Plan award (a
minimum of 10% and a maximum of 50% of
the award).
2) 401(k) EXCESS SALARY DEFERRAL [_] Pursuant to Section 3.2 of the Plan, I
elect to defer __________% of my
Compensation to the extent I am
constrained in the US Facilities
Corporation Employees' Savings Plan by
the limitation on includable
compensation under Code Section
401(a)(17) or the limitation on
elective deferrals under Code Section
- --------------------------------------------------------------------------------
13
<PAGE>
- -------------------------------------------------------------------------------
402(g).
- -------------------------------------------------------------------------------
C. ELECTION OF SHORT - TERM PAYOUT (please select one option)
[_] I elect not to receive a Short-Term Payout of my 19_____ Plan
Year Deferral Amount.
[_] I elect to receive to a Short-Term Payout of my 19_____ Plan
Year Deferral Amount, with interest thereon, payable in _____________,
20____ (no less than five (5) Plan Years) in accordance with the terms of
the Plan.
D. BENEFICIARY ELECTION. The benefits payable under the Plan in the event of
---------------------
the death of the undersigned Participant prior to Separation from Service shall
be paid as follows:
(a) PRIMARY BENEFICIARY:____________________________________________
RELATIONSHIP: _________________________________________________
(b) SECONDARY BENEFICIARY:__________________________________________
RELATIONSHIP: __________________________________________________
(c) The Primary Beneficiary [_] shall [_] shall not have undersigned
Participant, to the right, surviving the change the designation of
Secondary Beneficiary.
(d) This designation may be amended or revoked by the Participant through
delivery of a similar designation to the Plan Committee. The last
designation so delivered to shall control.
NOW THEREFORE, it is mutually agreed that:
1. The Plan, a copy of which is attached, is hereby incorporated into and
made a part of this Deferred Compensation Plan Agreement as though set
forth in full herein. The parties shall be bound by, and have the benefit
of, each and every provision of the Plan. The Deferred Compensation Plan
Agreement shall inure to the benefit of, and be binding upon, the Company,
its successors and assigns, and the Participant and Beneficiaries.
2. The Company, as of ________________________, hereby agrees to defer
__________% of the Participant's Annual Incentive Plan award at the
election of the Participant, as designated above.
3. The Company, as of ________________________, hereby agrees to defer the
Participants 401(k) Excess Salary Deferrals, at the election of the
Participant as designated above.
14
<PAGE>
4. The Company, as of ________________________, hereby agrees, pursuant to
Section 3.3 of the Plan, to make a matching contribution on the
Participants 401(k) Excess Salary Deferrals, as designated by the
Participant above.
5. Investment Rate: The Investment Rate for 1997 will be ______________.
---------------
6. Regulatory Risk: All amounts deferred under the Plan are viewed as
---------------
ordinary liabilities under applicable law. The liabilities under the Plan
would generally be payable on a basis equal to unsecured creditors. This
Plan is subject to Federal regulations limiting executive compensation as
in effect from time to time.
7 Assignability: Except to the extent that this provision may be contrary
-------------
to applicable law, no assignment, pledge, collateralization, or attachment
of any of the deferrals hereunder hall be valid or recognized by the
Company.
8 Employment Rights: This agreement creates no right in the Participant
-----------------
to continue in the Company's employ for any specific length of time, nor
does it create any other rights in the Participant or obligations on the
part of the Company, except those set forth in this Deferred Compensation
Plan Agreement.
9 Law Governing: This Deferred Compensation Plan Agreement shall be
-------------
governed by the laws of the State of California.
IN WITNESS WHEREOF, the Company and the Participant have executed this Deferred
Compensation Plan Agreement as of the date written above.
By: __________________________________________
US Facilities Corporation
__________________________________________
Title
__________________________________________
Participant (Print Name)
__________________________________________
15
<PAGE>
EXHIBIT 11
US FACILITIES CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
The computation of per share income is based upon the weighted average
number of common and common equivalent shares outstanding during each year ended
December 31, as follows:
<TABLE>
<CAPTION>
(000 omitted, except for per share data)
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net income......................................................................... $15,020 $13,854 $6,238
======= ======= ======
Weighted average shares outstanding during the period............................... 5,866 5,602 5,810
Common stock equivalent shares...................................................... 109 126 196
------- ------- ------
Common and common stock equivalent shares outstanding
for purposes of calculating income per share....................................... 5,975 5,728 6,006
Incremental shares to reflect full dilution......................................... 21 87 -
------- ------- ------
Total shares for purpose of calculating fully diluted
income per share................................................................... 5,996 5,815 6,006
======= ======= ======
Primary net income per share........................................................ $ 2.51 $ 2.42 $ 1.04
Fully diluted net income per share.................................................. $ 2.51 $ 2.38 $ 1.04
======= ======= ======
</TABLE>
<PAGE>
EXHIBIT 13
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[Dollars in thousands, except per share data]
INCOME STATEMENT DATA:
REVENUES:
Premiums earned $124,124 $114,971 $ 93,269 $ 83,206 $ 59,732
Commissions and fees 26,722 25,994 23,583 21,736 18,403
Investment income 12,273 10,212 5,959 7,037 6,187
---------------------------------------------------------
Total revenues $163,119 $151,177 $122,811 $111,979 $ 84,322
=========================================================
Income before income taxes $ 20,162 $ 18,159 $ 7,382 $ 8,407 $ 6,222
Net income 15,020 13,854 6,238 6,767 4,641
=========================================================
PER SHARE:
Net income $ 2.51 $ 2.42 $ 1.04 $ 1.14 $ .78
=========================================================
Cash dividends paid $ .24 $ .20 $ -- $ -- $ --
=========================================================
BALANCE SHEET DATA:
Total assets $288,743 $249,872 $199,737 $154,723 $133,567
---------------------------------------------------------
Notes payable 35,000 35,000 25,000 -- 1,600
---------------------------------------------------------
Stockholders' equity 102,364 88,061 63,079 63,333 55,915
---------------------------------------------------------
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS OPERATIONS
US Facilities Corporation (Company) conducts business primarily in two
segments:
Medical lines includes medical stop-loss and provider excess coverages
underwritten by the Company's subsidiary, USBenefits Insurance Services, Inc.
(USBenefits) on behalf of The Continental Insurance Company (Continental), one
of the CNA Insurance Companies, and reinsurance of 50% of such business by the
Company's USF RE INSURANCE COMPANY (USF RE) subsidiary. USBenefits is the
managing general underwriter for medical lines coverages issued by Continental.
Medical stop-loss coverage is a form of insurance that protects employers that
self-insure their employee healthcare plans by limiting their exposure from the
risk of loss to a pre-established amount. Provider excess coverage limits the
financial risks healthcare providers face from medical plans that prepay the
providers fixed sums per plan participant (capitated fees) or provide specified
rates for services. USBenefits also markets other employee benefits related
products on behalf of several national life insurance companies. Medical lines
products are marketed through a network of unaffiliated third party
administrators, insurance agents, brokers and consultants (Producers). Producers
have non-exclusive arrangements with USBenefits that enable them to submit
requests for coverage quotations.
Substantially all commissions and fees and approximately 67%, 71% and 79% of
premiums earned for 1996, 1995 and 1994, respectively, resulted from the
management agreement between USBenefits and Continental and the reinsurance
agreement between USF RE and Continental related to the medical lines business.
Property/Casualty reinsurance and insurance underwriting is conducted by USF RE
and its wholly-owned subsidiary USF Insurance Company (USFIC). These
subsidiaries both carry an A (Excellent) rating from A.M. Best Company.
Insurance companies purchase reinsurance in order to control and manage the risk
they accept when they issue policies. USF RE assumes facultative and treaty
reinsurance from unaffiliated insurance companies, primarily through reinsurance
intermediaries. Facultative is reinsurance of one risk at a time. Reinsurance
treaties cover a portion of all risk written or assumed by another insurer in a
particular class or classes of business. USF RE concentrates its casualty
writings in general liability, commercial auto liability and products liability.
It also provides a broad range of coverages for most types of property
exposures. USFIC writes surplus lines insurance on commercial property/casualty
risks which are marketed through independent excess and surplus lines brokers.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated Results
The table below presents certain consolidated financial information regarding
the Company's operations.
<TABLE>
<CAPTION>
Year ended December 31, 1996 Change 1995 Change 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[Dollars in thousands]
REVENUES:
Insurance revenues $150,846 7 % $140,965 21 % $116,852
Net Investment income 10,147 10 % 9,190 54 % 5,950
Realized investment gain 2,126 108 % 1,022 -- 9
------------------------------------------------------
Total revenues 163,119 8 % 151,177 23 % 122,811
------------------------------------------------------
EXPENSES:
Insurance expenses 127,962 10 % 116,661 22 % 95,765
General and administrative 14,995 (8)% 16,357 (4)% 16,981
Unusual charges -- -- -- -- 2,683
------------------------------------------------------
Total expenses 142,957 7 % 133,018 15 % 115,429
------------------------------------------------------
Income before income taxes 20,162 11 % 18,159 146 % 7,382
Income tax expense 5,142 19 % 4,305 276 % 1,144
------------------------------------------------------
Net income $ 15,020 8 % $ 13,854 122 % $ 6,238
======================================================
</TABLE>
Increases in revenues between the periods presented reflect the Company's
diversification in two distinct business segments. In 1996, the Company was able
to balance greater competitive pressure in medical lines by capturing broader
opportunities in property/casualty. Revenue changes between 1995 and 1994 are a
result of expansion in each business segment, reflecting growth of medical lines
premiums and the Company's success in increasing its property/casualty business
as discussed below.
Returns on invested assets are an integral element of results from operations.
Underwriting cash flows, which consist of premiums collected over losses and
expenses paid, and investment cash flows, which consist of income from existing
investments and proceeds from sales and maturities of investments, provide the
funds used to build the investment portfolio. The portfolio is managed based
upon Company guidelines which incorporate a variety of factors including the
relationship of invested assets to liabilities, total return, business needs,
regulatory requirements and tax considerations. Increases in net investment
income result primarily from higher levels of invested assets in 1996 and 1995
due to higher production levels in each business segment. Increases in realized
gains between years are a result of continuous evaluation of the investment
portfolio to enhance and maintain yields and total return consistent with the
Company's investment guidelines.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Insurance expenses are comprised of losses and loss adjustment expenses incurred
and policy acquisition expenses. Insurance and reinsurance companies establish
reserves for losses incurred, but not yet paid, in order to match such losses
with the related premiums earned. The process of establishing loss reserves is
subject to uncertainties that are a normal, recurring aspect of the insurance
business which requires the use of informed judgments and estimates. The Company
reviews loss and loss adjustment expense reserve development on a regular basis,
incorporating analysis of current trends, market changes in the Company's
business segments and historical experience to analyze the Company's actuarial
assumptions. As additional experience and other data become available, the
Company's actuarial estimates may be revised. Such revisions may impact
earnings. Policy acquisition expenses vary on the basis of market conditions and
mix of business.
The Company's cost control programs, begun in 1994, continued to favorably
impact operations and resulted in a decrease in general and administrative
expenses to 9% of revenues in 1996, compared to 11% of revenues in 1995 and 14%
of revenues in 1994.
The increase in 1996 net income as compared to 1995 resulted from the increases
in revenues and an 8% decrease in consolidated general and administrative (G&A)
expenses, as the Company continued to increase productivity and control expenses
in relation to revenues, offset in part by higher claims cost in the medical
lines segment. The increase in 1995 net income as compared to 1994 reflected
improvements resulting from increased marketing efforts and the effect of the
Company's cost control programs. Pre-tax income for 1995 was reduced by $695,000
in connection with the March 1995 resignation of the Company's former Chief
Executive Officer.
In 1994, several events affected the Company's results. In April 1994, the
Company became the target of an unsolicited takeover proposal and was involved
in a proxy contest. The expenses of responding to the issues raised by these
events reduced the Company's 1994 pre-tax income by $2,029,000. The Company also
posted a restructuring charge during the second quarter of 1994 arising from the
closings of branch marketing offices and reductions in personnel, which
decreased pre-tax income for the year by $654,000. No similar events transpired
during 1996 or 1995. Pre-tax income for 1994 was also reduced by $2,100,000 due
to claims incurred as a result of the Northridge, California earthquake in
January 1994. In 1996 and 1995, the Company did not incur significant claims
from natural disasters.
Income taxes as a percentage of pre-tax income fluctuate depending on the
proportion of tax exempt investment income to total pre-tax income and the
proportion of total income subject to state income taxes.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS SEGMENTS
The following tables present pre-tax operating information by business segment
and holding company operations (including realized gains) for the years ended
December 31, 1996, 1995 and 1994.
MEDICAL LINES
<TABLE>
<CAPTION>
Year ended December 31, 1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[Dollars in thousands]
Gross premiums written $ 84,179 3% $ 81,546 12% $72,517
Net premiums written 84,179 3% 81,546 12% 72,517
---------------------------------------------------
REVENUES:
Premiums earned 84,179 3% 81,546 12% 72,517
Commissions and fees 26,722 3% 25,994 10% 23,583
Net investment income 3,312 1% 3,269 44% 2,273
---------------------------------------------------
Total revenues 114,213 3% 110,809 13% 98,373
---------------------------------------------------
EXPENSES:
Losses and loss adjustment 58,095 6% 54,563 13% 48,356
Policy acquisition 28,526 5% 27,069 14% 23,647
General and administrative 10,111 (16%) 12,025 (13%) 13,772
---------------------------------------------------
Total expenses 96,732 3% 93,657 9% 85,775
---------------------------------------------------
Income before income taxes $ 17,481 2% $ 17,152 36% $12,598
===================================================
</TABLE>
Throughout 1996, the Company has maintained its long-term focus on adherence to
underwriting standards balanced against continued competitive pressures in the
medical lines segment. Medical lines production increased by 3% in 1996 over
1995 and 12% in 1995 over 1994, which generated the increases in premiums earned
and substantially all of the commission and fee revenues. The increase in
medical lines production during such periods was primarily due to controlled
growth of the provider excess line in 1996, a substantial increase in new
medical stop-loss business in 1995 and strong retention of in-force accounts
combined with modest rate increases during the periods presented.
Loss and loss adjustment expenses in 1996 as compared to 1995 reflect changes in
the cost of healthcare which were not fully offset by corresponding increases in
premium rates, as well as the effect of higher formula reserves incurred in 1996
in connection with greater volume in the provider excess line.
Policy acquisition expenses vary due to the mix of business and market
conditions. Increases in such expenses between periods presented are a result of
the growth of the provider excess business and higher production levels during
the periods presented.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The segment information presented in the table above includes losses before
income tax of $1,156,000 and $1,137,000 for the years ended December 31, 1995
and 1994, respectively, from the Company's medical bill review operations which
were closed effective May 31, 1995.
PROPERTY/CASUALTY
<TABLE>
<CAPTION>
Year ended December 31, 1996 Change 1995 Change 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[Dollars in thousands]
Gross premiums written $65,850 29% $50,915 42% $35,760
Net premiums written 43,799 24% 35,350 48% 23,865
-------------------------------------------------
REVENUES:
Premiums earned 39,945 19% 33,425 61% 20,752
Net investment income 6,777 15% 5,872 60% 3,677
-------------------------------------------------
Total revenues 46,722 19% 39,297 61% 24,429
-------------------------------------------------
EXPENSES:
Losses and loss adjustment 30,078 30% 23,180 45% 16,010
Policy acquisition 8,653 (3%) 8,895 16% 7,694
General and administrative 3,988 21% 3,304 32% 2,499
-------------------------------------------------
Total expenses 42,719 21% 35,379 35% 26,203
-------------------------------------------------
Income (loss) before
income taxes $ 4,003 2% $ 3,918 - $(1,774)
=================================================
</TABLE>
USF RE entered the property/casualty reinsurance market in 1987, and continues
to be in a growth mode. Statutory policyholders' surplus has increased from
$30,555,000 at December 31,1986 to $109,880,000 at December 31, 1996. In
December 1996, A.M. Best Company upgraded its rating of USFRE and USFIC to "A"
(Excellent). Although market conditions remain highly competitive, the
combination of increasing surplus levels, strict underwriting standards and "A"
(Excellent) rating from A.M. Best Company provides a strong position for USF RE
to continue property/casualty growth.
Changes in the relationship between gross and net premiums written were due to
changes in the Company's ceded reinsurance programs. Some retrocession
(reinsurance) agreements mitigate an insurance company's exposure to losses and,
therefore, allow increases in the limits which can be offered on each account.
Other retrocession agreements protect against catastrophic losses. Management
believes its retrocessional coverage is adequate to protect the Company from
excessive catastrophic losses. The strength of these programs was evident in
1996, which represented the fourth largest insured catastrophe year since such
records have been kept. During 1996, the Company did not incur any significant
losses due to natural disasters.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company evaluates the financial condition of potential retrocessionaires to
determine whether to cede coverage to such companies. Retrocession agreements
are placed with unaffiliated companies which management believes to be
financially secure and experienced in this type of business. Reinsurance
recoverables are monitored continually, and any retrocessionaire not qualified
in USF RE's or USFIC's states of domicile is required to post security in the
amount of its estimated liability.
Fluctuations in losses and loss adjustment expenses and policy acquisition
expenses generally result from growth in premiums and changes in the mix of
business. Increases in losses and loss adjustment expenses in 1996 as compared
to 1995 reflect the Company's continued growth in casualty lines which are
generally reserved at a higher formula loss ratio than property lines, offset in
part by the 1995 withdrawal from the plate glass business, which generally
carried a lower loss ratio and higher acquisition expenses. The plate glass
business accounted for 3% and 5% of premiums earned in 1995 and 1994,
respectively. Shifts in policy acquisition expenses between periods presented
result from changes in the mix of business and modification of retrocessional
arrangements, in addition to the aforementioned withdrawal from the plate glass
insurance business. Also, the property/casualty segment incurred higher losses
in 1994 principally due to claims resulting from the Northridge, California
earthquake.
HOLDING COMPANY
<TABLE>
<CAPTION>
Year ended December 31, 1996 Change 1995 Change 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[Dollars in thousands]
REVENUES:
Investment income $ 58 18 % $ 49 -- --
Realized gains 2,126 108 % 1,022 -- 9
---------------------------------------------------
Total revenues 2,184 104 % 1,071 -- 9
---------------------------------------------------
EXPENSES:
General and administrative 896 (13)% 1,028 45 % 710
Expenses related to unsolicited
takeover proposal -- -- -- -- 2,029
Restructuring -- -- -- -- 654
Other -- -- 695 -- --
Interest 2,610 15 % 2,259 -- 58
---------------------------------------------------
Total expenses 3,506 (12)% 3,982 15 % 3,451
---------------------------------------------------
Loss before income taxes $(1,322) (55)% $(2,911) (16)% $(3,442)
===================================================
</TABLE>
Interest expense increased in 1996 as a result of a $25,000,000 bank loan funded
in December 1994, which increased to $35,000,000 in November, 1995.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACCOUNTING POLICIES
See Footnote 1 to the Company's Consolidated Financial Statements appearing
elsewhere in this Annual Report for information regarding significant accounting
policies.
INFLATION
The healthcare marketplace has long been subject to the effects of the increases
in costs of services. Such inflation in the costs of healthcare tends to
generate increases in premiums for medical lines coverage, resulting not only in
greater revenues but also higher claim payments.
Inflation can negatively impact insurance and reinsurance operations by causing
higher claims settlements than may have originally been estimated, while not
necessarily allowing an immediate increase in premiums to a level necessary to
maintain profit margins. Historically, the Company has not provided explicitly
for inflation, but trends are considered when setting underwriting terms and
claim reserves. Such reserves are subjected to a continual internal and external
review process to assess their adequacy and are adjusted as deemed appropriate.
Overall economic trends also affect interest rates, which in turn affect
investment income and the market value of the Company's investment portfolio.
LIQUIDITY AND CAPITAL RESOURCES
The Company utilizes cash from operations and maturing investments to meet its
insurance obligations to policyholders and claimants, as well as to meet
operating costs. Primary sources of cash from operations include premium
collections, commissions and fees and investment income. The principal uses of
cash from operations are for premium payments to insurance companies, payments
of claims under USF RE's and USFIC's reinsurance and insurance contracts, and
operating expenses such as salaries, commissions, taxes and general overhead.
The Company secured a $25,000,000 bank loan in December 1994 which was increased
to $35,000,000 in November 1995. Of this amount, the Company contributed
$30,500,000 to the surplus of its insurance group to support additional growth.
The Credit Agreement with the Company's lender contains certain covenants,
restrictions and dividend payment limitations with which the Company was in
compliance at December 31, 1996. See Footnote 5 to the Company's Consolidated
Financial Statements appearing elsewhere in this Annual Report.
The Company anticipates that it will continue to generate sufficient cash flow
from operations to cover its short-term (1-18 months) and long-term (18 months
to 3 years) liquidity needs. While the Company currently has no
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
immediate plans for significant capital outlays, from time to time it
contemplates acquisition opportunities that complement its business operations.
The Company currently invests primarily in the highest grades of bonds,
equities, certificates of deposit and short-term instruments. At yearend 1996,
99% of the fixed income securities were rated A or better. All such securities
are carried at quoted market values at the latest balance sheet date. The
Company does not invest in real estate, derivatives or high yield bonds.
USF RE is restricted in the annual amount of dividends which it may pay to the
Company without receiving prior approval from the Massachusetts and California
Commissioners of Insurance. For 1997 the amount which may be paid without
approval is $10,988,000. Since its acquisition by the Company in 1983, USF RE
has not paid any dividends.
Application of the National Association of Insurance Commissioners risk-based
capital (RBC) requirements for property and casualty insurance entities to USF
RE's and USFIC's statutory financial information indicates that presently they
substantially exceed the capital level required under the RBC requirements.
LEGISLATIVE AND REGULATORY DEVELOPMENTS
As noted in prior filings with the Securities and Exchange Commission by the
Company, various federal and state healthcare legislative and regulatory
proposals which could impact the financing and delivery of healthcare have been
considered. The 104th Congress enacted certain of those proposals. Certain of
these enactments cover self-insured benefit plans. Management cannot predict at
this time what impact, if any, these enactments would have on the Company's
medical lines business. However, based on its review of the latest information
management has received, management believes that these enactments will not have
an adverse impact on the Company's business.
Some of the statements included within Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial
Statements and related Notes may be considered to be forward looking statements
(as that term is defined in the Private Securities Litigation Reform Act of
1995), which are subject to certain risks and uncertainties. Among those factors
which could cause the actual results to differ materially from those suggested
by such statements are: catastrophe losses in the Company's insurance lines or a
material aggregation of losses; changes in federal or state law affecting an
employer's ability to self-insure; availability of adequate retrocessional
insurance coverage at appropriate prices; a downturn in the general
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
economy; the effects of competitive market pressures within the stop-loss or
property/casualty marketplaces; the effect of changes required by generally
accepted accounting practices or statutory accounting practices; and other risks
which are described from time to time in the Company's filings with the
Securities and Exchange Commission.
31
<PAGE>
FINANCIAL STATEMENTS
<PAGE>
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements were prepared by the Company,
which is responsible for their integrity and objectivity. The statements have
been prepared in conformity with generally accepted accounting principles,
appropriate in the circumstances, and necessarily include some amounts that are
based upon the Company's best estimates and judgment. Financial information
presented elsewhere in this Annual Report is consistent with these accompanying
consolidated financial statements.
The accounting systems and controls of the Company are designed to provide
assurance that transactions are executed in accordance with management's
authorization, that the financial records are reliable for preparing financial
statements and maintaining accountability for assets, and that assets are
safeguarded against losses from unauthorized use or disposition.
The Company's consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, whose audits thereon were
made in accordance with generally accepted auditing standards and included a
review of internal accounting controls to the extent necessary to design audit
procedures aimed at gathering sufficient evidence to assess their opinion on the
fairness or presentation of the consolidated financial statements. The auditors
have full access to each member of management in conducting their audits, and
their report is contained elsewhere in this Annual Report.
The Audit Committee of the Board of Directors, comprised solely of
non-employee, independent directors meets regularly with management and the
independent auditors to review the work and procedures of each. The independent
auditors have free access to the Audit Committee, without management being
present, to discuss the results of their work and their opinions on the adequacy
of the Company's accounting controls and the quality of the Company's financial
reporting. The Board of Directors, upon the recommendation of the Audit
Committee, appoints the independent auditors, subject to annual stockholder
approval.
<TABLE>
<S> <C>
/s/ DAVID L. CARGILE /s/ MARK BURKE
David L. Cargile Mark Burke
Chairman of the Board, President Senior Vice President, Treasurer
and Chief Executive Officer and Chief Financial Officer
</TABLE>
33
<PAGE>
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
[Dollars in thousands, except per share data]
REVENUES:
Premiums earned $124,124 $114,971 $ 93,269
Commissions and fees 26,722 25,994 23,583
Net investment income 10,147 9,190 5,950
Realized investment gains 2,126 1,022 9
--------------------------------
Total revenues 163,119 151,177 122,811
--------------------------------
OPERATING EXPENSES:
Losses and loss adjustment
expenses incurred 88,173 77,743 64,366
Policy acquisition expenses 37,179 35,964 31,341
General and administrative expenses 14,995 16,357 16,981
Other expense -- 695 --
Interest expense 2,610 2,259 58
--------------------------------
142,957 133,018 112,746
Unusual charges:
Expenses related to unsolicited
takeover proposal -- -- 2,029
Restructuring expenses -- -- 654
--------------------------------
Total operating expenses 142,957 133,018 115,429
--------------------------------
INCOME BEFORE INCOME TAXES 20,162 18,159 7,382
Income tax expense 5,142 4,305 1,144
--------------------------------
NET INCOME $ 15,020 $ 13,854 $ 6,238
================================
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ 2.51 $ 2.42 $ 1.04
================================
</TABLE>
See accompanying notes to consolidated financial statements
34
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
[Dollars in thousands]
ASSETS
Investments:
Bonds, available for sale, at market (amortized cost
$150,674 in 1996 and $127,577 in 1995) $155,480 $136,746
Equity securities at market
(cost $16,296 in 1996 and $14,935 in 1995) 20,370 16,691
Short-term and other investments, at cost
which approximates market 18,502 16,821
--------------------
Total investments 194,352 170,258
Cash and invested cash 11,132 8,165
Restricted cash and short-term investments 23,771 24,036
Accrued investment income 2,653 2,414
Receivables:
Reinsurance losses and reserves 23,975 18,597
Premiums 16,841 14,065
Prepaid reinsurance premiums 6,495 5,117
Deferred policy acquisition costs 3,644 2,830
Other assets 5,880 4,390
--------------------
Total assets $288,743 $249,872
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Insurance liabilities:
Amounts due insurance companies $ 27,148 $ 25,712
Losses and loss adjustment expenses 94,669 78,894
Unearned premiums 22,936 17,705
Note payable 35,000 35,000
Accounts payable and accrued expenses 6,626 4,500
--------------------
Total liabilities 186,379 161,811
--------------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 20,000,000 shares
authorized; 6,153,000 shares issued in 1996
and 6,074,000 issued in 1995, including 193,000
and 296,000 shares held in treasury in 1996 and
1995, respectively. 61 61
Paid in capital 45,503 44,489
Net unrealized investment gain 5,860 7,211
Retained earnings 52,883 39,273
--------------------
104,307 91,034
Less treasury stock, at cost (1,943) (2,973)
--------------------
Total stockholders' equity 102,364 88,061
--------------------
Commitments and contingencies
Total liabilities and stockholders' equity $288,743 $249,872
====================
</TABLE>
See accompanying notes to consolidated financial statements
35
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Investment Total
Common Paid in Gain Retained Treasury Stockholders'
Stock Capital (Loss) Earnings Stock Equity
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
[Dollars in thousands]
Balance at January 1, 1994 $ 59 $ 43,156 $ 443 $ 20,306 $ (631) $ 63,333
Effect of adoption of SFAS
No. 115, January 1, 1994 -- -- 3,338 -- -- 3,338
Net income -- -- -- 6,238 -- 6,238
Exercise of stock options
(171,000 shares) -- 1,105 -- -- 483 1,588
Unrealized investment
loss, net -- -- (6,913) -- -- (6,918)
Purchase of 498,000 shares
of common stock -- -- -- -- (5,000) (5,000)
------------------------------------------------------------------------
Balance at December 31, 1994 59 44,261 (2,637) 26,544 (5,148) 63,079
Net income -- -- -- 13,854 -- 13,854
Exercise of stock options
(280,700 shares) 2 228 -- -- 2,175 2,405
Dividends paid (.20 per share) -- -- -- (1,125) -- (1.125)
Unrealized investment gain, net -- -- 9,848 -- -- 9,848
------------------------------------------------------------------------
Balance at December 31, 1995 61 44,489 7,211 89,273 (2,973) 88,061
Net income -- -- -- 15,020 -- 15,020
Exercise of stock options
(185,500) -- 1,014 -- -- 1,030 2,044
Dividends paid
(.24 per share) -- -- -- (1,410) -- (1,410)
Unrealized investment loss, net -- -- (1,351) -- -- (1,351)
------------------------------------------------------------------------
Balance at December 31, 1996 $ 61 $45,503 $5,860 $52,883 $(1,943) $102,364
========================================================================
</TABLE>
See accompanying notes to consolidated financial statements
36
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
[Dollars in thousands]
Cash Flows From Operating Activities:
Net income $ 15,020 $ 13,854 $ 6,288
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of deferred policy
acquisition costs 37,179 34,281 30,032
Deferred policy acquisition costs (37,993) (34,064) (30,612)
Realized investment gains (2,126) (1,022) (9)
Increase in premiums receivable (2,776) (4,631) (1,351)
Increase in reinsurance receivables (5,378) (4,296) (6,283)
Increase in losses and loss adjustment
expenses 15,775 9,247 10,877
Increase in unearned premiums 5,231 3,092 4,322
Other, net 2,095 (990) 2,949
Depreciation and amortization 502 445 464
Net transfers to restricted cash and
short-term investments 265 (2,696) (158)
------------------------------------
Net cash provided by operating activities 27,794 13,220 16,469
------------------------------------
Cash Flows From Investing Activities:
Purchases of bonds (46,453) (102,339) (30,129)
Purchases of equity securities (6,544) (12,790) (7,061)
Proceeds from sales and maturities
of investment securities 31,455 86,587 22,673
Net sales (purchases) of short-term
investments (1,681) 7,886 (21,586)
Purchases of property and equipment (2,288) (181) (303)
------------------------------------
Net cash used in investing activities (25,461) (20,837) (36,406)
------------------------------------
Cash Flows From Financing Activities:
Proceeds from note payable -- 10,000 25,000
Purchase of treasury stock -- -- (5,000)
Dividends paid (1,410) (1,125) --
Proceeds from issuance of common stock 2,044 2,405 1,588
------------------------------------
Net cash provided by financing activities 634 11,280 21,588
------------------------------------
Net increase in cash and invested cash: 2,967 3,663 1,651
Cash and invested cash at beginning of 8,165 4,502 2,851
year ------------------------------------
Cash and invested cash at end of year $ 11,132 $ 8,165 $ 4,502
====================================
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for:
Interest $ 2,498 $ 2,187 $ 19
Income taxes 4,771 5,217 1,350
===================================
</TABLE>
See accompanying notes to consolidated financial statements
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
[A] ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of US Facilities
Corporation, a Delaware corporation (Company), and its wholly owned
subsidiaries. The Company's USBenefits Insurance Services, Inc. subsidiary is
the managing general underwriter and marketing organization for medical lines
coverages issued by The Continental Insurance Company (Continental), one of the
CNA Insurance Companies. The Company's USF RE INSURANCE COMPANY and USF
Insurance Company subsidiaries write property/casualty reinsurance and
insurance. All significant intercompany balances and transactions have been
eliminated in consolidation.
[B] RECOGNITION OF REVENUE
Management fees and brokerage commissions are primarily recognized as of the
effective date of the underlying insurance coverage. Insurance and reinsurance
premiums are generally recognized as revenues over the terms of the related
policies on a pro-rata basis, and are reported net of ceded earned premiums.
Substantially all commissions and fees and approximately 67%, 71% and 79% of
premiums earned for 1996, 1995 and 1994 respectively, result from contracts
between subsidiaries of the Company and Continental. Such contracts may be
terminated as of any year-end.
[C] INVESTMENTS
Securities are purchased to support the investment strategies of the Company,
which are based on many factors including, but not limited to, total rate of
return, maturity, credit risk, tax considerations, regulatory requirements and
market economics. The Company has the ability to hold all bonds to maturity.
However, securities in the portfolio may be sold from time to time based upon
the Company's investment strategies and market opportunities. Bonds and equity
securities are held as "available for sale" and carried at market value as of
the balance sheet date. Market values are principally obtained from a national
quotation service. Declines in the market value of any security below cost,
which are deemed other than temporary, will be charged to earnings. Unrealized
gains and losses net of income taxes are reported as a separate component of
stockholders' equity. Market values of bonds are primarily a function of current
interest rates, and vary from period to period. Realized gains or losses on
sales of investments are computed on a specific identification basis.
[D] SHORT-TERM AND OTHER INVESTMENTS, CASH AND INVESTED CASH
Short-term and other investments are principally money market mutual funds. Cash
and invested cash consists of bank deposits and money market mutual funds.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Premiums collected but not yet remitted to insurance companies are restricted by
law as to use. Such amounts are reported as restricted cash and short-term
investments, which at December 31, 1996 and 1995 consisted primarily of money
market mutual funds, tax-free auction rate preferred stocks which are redeemable
at par value every 7 - 270 days, and U.S. Government obligations.
[E] POLICY ACQUISITION COSTS
The insurers' costs of acquiring new business are deferred to the extent
estimated to be recoverable from future income, including investment income, and
amortized to operations ratably over the terms of the related policies.
Acquisition costs include commissions, premium taxes and certain underwriting
expenses related to production of insurance and reinsurance business.
[F] LOSSES AND LOSS ADJUSTMENT EXPENSES
The liability for losses is determined on the basis of claim adjusters' and
ceding reinsurers' reports and other estimates, including those for incurred but
not reported losses. The liability for loss adjustment expenses (LAE) is
established by estimating future expenses to be incurred in the settlement of
claims provided for in the liability for losses. Both estimates are dependent
upon future events, the outcomes of which can be affected by economic, legal,
political and social factors. The Company does not discount estimated future
expenses to their present values.
Management believes that the liability for losses and loss adjustment expenses
at December 31, 1996 is adequate to cover the ultimate liability; however, such
estimates may be more or less than the amount ultimately paid when the claims
are settled.
[G] REINSURANCE
Reinsurance receivables (including amounts related to claims incurred, both
reported and not reported) and prepaid reinsurance premiums are reported as
assets. In the normal course of business, the Company seeks to reduce losses
that may arise from events which may cause unfavorable underwriting results by
reinsuring certain levels of risk with other insurance companies. Amounts
recoverable from reinsurers are estimated in a manner consistent with the claim
liability associated with the reinsured policy. However, such estimates may be
more or less than the amount ultimately collected when claims are settled.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[H] DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided on the straight-line basis over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the lesser of the lease terms or useful lives of the
improvements. Intangibles are amortized over their estimated useful lives of
predominantly forty years.
[I] INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial reporting basis
and the tax basis of the Company's assets and liabilities, as well as expected
benefits of utilizing net operating loss carryforwards. The impact on deferred
taxes of changes in tax rates and laws, if any, are applied to the years during
which temporary differences are expected to be settled, and reflected in the
financial statements in the period of enactment.
[J] INCOME PER COMMON SHARE
The computation of per share data is based upon 5,975,000, 5,728,000 and
6,006,000 weighted average shares outstanding during the years ended December
31, 1996, 1995 and 1994, respectively. Common stock equivalents, consisting of
outstanding stock options, have been included in the computation of primary
income per share, which approximated fully diluted income per share.
[K] STOCK-BASED COMPENSATION
Effective December 31, 1996, the Company adopted the disclosure-only provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation". Management has
elected to continue use of the accounting methods prescribed by Accounting
Principles Board Opinion No. 25 and expand its disclosure of stock-based
compensation as permitted by SFAS No. 123. Accordingly, no related compensation
cost has been recognized.
[L] CERTAIN RECLASSIFICATIONS
Certain reclassifications have been made to the accompanying 1995 and 1994
financial statements to conform to the 1996 presentation.
[M] FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has disclosed the fair value of financial instruments and the
methods and assumptions used to establish fair value, as required by SFAS No.
107, "Disclosures about the Fair Value of Financial Instruments" which was
adopted for the year ending December 31, 1995.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[N] MANAGEMENT'S ESTIMATES
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 2 - Investments
Bonds valued at approximately $10,545,000 were on deposit with various
governmental authorities at December 31, 1996.
The amortized cost and estimated market values of bonds (in thousands of
dollars) at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
December 31, 1996 Cost Gains Losses Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 13,265 $ 236 $ 80 $ 13,421
Foreign bonds 529 25 -- 554
Obligations of states and
political subdivisions 89,996 3,508 239 93,265
Corporate bonds 46,884 1,737 381 48,240
------------------------------------------
Total $150,674 $5,506 $700 $155,480
==========================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
December 31, 1995 Cost Gains Losses Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 11,071 $ 722 $ -- $ 11,793
Foreign bonds 557 65 -- 622
Obligations of states and
political subdivisions 69,967 4,587 117 74,437
Corporate bonds 45,982 3,963 51 49,894
--------------------------------------------
Total $127,577 $9,337 $ 168 $136,746
============================================
</TABLE>
The amortized cost and estimated market value of bonds at December 31, 1996, by
contractual maturity, are shown below (in thousands of dollars). Expected
maturities will differ from contractual maturities because certain borrowers
have the right to call or prepay obligations with or without call or prepayment
penalties.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Maturity Dates Amortized Cost Market Value
- --------------------------------------------------------------------------
<S> <C> <C>
1997 $ 528 $ 538
1998-2001 26,886 27,728
2002-2006 74,457 76,626
2007-Thereafter 48,803 50,588
-----------------------------
Total $150,674 $155,480
=============================
</TABLE>
<TABLE>
<CAPTION>
Information regarding bond sales (in thousands of dollars) follows:
Year ended December 31, Proceeds from sales Gross Gains Gross Losses
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996 $ 24,656 $ 809 $ 80
1995 77,373 1,677 522
1994 17,136 385 355
======================================
Information regarding equity dispositions (in thousands of dollars) follows:
Year ended December 31, Proceeds from sales Gross Gains Gross Losses
- -----------------------------------------------------------------------------------------------------------------------------------
1996 $ 6,799 $ 1,757 $ 120
1995 9,214 211 344
1994 2,853 68 54
======================================
</TABLE>
<TABLE>
<CAPTION>
Information regarding gross unrealized gains and losses on equity securities (in
thousands of dollars) follows:
Gross Gross
Unrealized Unrealized
Year ended December 31, Gains Losses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1996 $ 4,766 $ 692
1995 2,243 487
1994 375 1,212
=======================
</TABLE>
<TABLE>
<CAPTION>
Net investment income (in thousands of dollars) consists of the following:
Year ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on bonds $ 8,618 $ 8,134 $5,347
Short-term investment interest 2,349 1,569 803
Dividends on equity securities 346 496 604
--------------------------------------
11,313 10,199 6,754
Less: Investment expenses 1,166 1,009 804
--------------------------------------
Net investment income $ 10,147 $ 9,190 $5,950
======================================
</TABLE>
Note 3 - Reinsurance
The property and casualty insurance companies cede a portion of their business
to other insurance companies under multiple reinsurance agreements.
Reinsurance contracts do not relieve the Company from its
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
obligations to policyholders. A contingent liability exists for the amount of
all reinsurance deductions necessary in the event that any of the reinsuring
companies are unable to pay their portion of any losses; consequently,
allowances are established for amounts deemed uncollectible. 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 to minimize its exposure to significant losses
from a reinsurer's insolvency. At December 31, 1996, reinsurance recoverables
and prepaid premiums of $18,166,000 were unsecured. The Company holds letters of
credit totaling $9,831,000 under certain reinsurance agreements that can be
drawn on for amounts that remain unpaid for more than 120 days.
The effect of reinsurance on premiums written and earned and the effect of
ceding arrangements (in thousands of dollars) follows:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------
Premiums Premiums Premiums Premiums Premiums Premiums
Written Earned Written Earned Written Earned
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Direct $ 10,122 $ 10,279 $ 11,260 $ 12,218 $ 12,004 $ 9,386
Reinsurance
assumed 140,102 134,714 121,201 117,151 96,275 94,573
Reinsurance
ceded (22,246) (20,869) (15,565) (14,398) (11,897) (10,690)
---------------------------------------------------------------------
Net $127,978 $124,124 $116,896 $114,971 $ 96,382 $ 93,269
=====================================================================
Losses and loss adjustment
expenses ceded $ 12,844 $ 8,327 $ 10,141
========================================================
Liabilities for losses
and loss adjustment
expenses ceded $ 22,265 $ 16,426 $ 13,343
========================================================
Commissions ceded $ 4,144 $ 2,441 $ 1,723
========================================================
</TABLE>
Note 4 - Reserve for Losses and Loss Adjustment Expenses
The table below summarizes the activity for losses and loss adjustment expenses
(LAE), net of reinsurance recoverable (in thousands of dollars), for each year
ended December 31, 1996, 1995 and 1994, respectively. Reserves are established
for losses that have occurred as of each balance sheet date, whether or not
reported to the Company. Insurance and reinsurance companies establish reserves
for losses incurred, but not yet paid, in order to match such losses with the
related premiums earned. The process of establishing loss reserves is subject to
uncertainties that are a normal, recurring aspect of the insurance business
which requires the use of informed judgments and estimates. Estimating loss
reserves is a process where many factors can ultimately affect the final
settlement of a claim and, therefore, the ultimate
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reserve that is needed. In addition, time can be a critical part of reserving
determinations, since the longer the span between the incidence of a loss and
the payment or settlement of the claim, the more variable the ultimate
settlement amounts may be. In 1996, changes in the payment patterns experienced
within the Company's medical lines segment produced adjustments to factors
applied to actuarial models resulting in increases in estimated losses and LAE
for claims occurring in prior years. Loss and loss adjustment expense reserve
development is reviewed on a regular basis, incorporating analyses of current
trends, market changes in the Company's business segments and historical
experience to analyze the Company's actuarial assumptions. As additional
experience and other data become available, the Company's actuarial estimates
may be revised and impact earnings.
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $78,894 $69,647 $58,770
Less reinsurance recoverables 16,474 13,343 7,412
---------------------------------
Reserve for losses and LAE at
beginning of period, net 62,420 56,304 51,358
Incurred losses and LAE:
Provision for losses and LAE for claims
occurring in the current year 83,485 74,935 61,941
Increase in estimated losses and LAE for
claims occurring in prior years 4,688 2,808 2,425
Loss and LAE payments for claims
occurring during:
The current year (43,287) (39,511) (33,345)
Prior years (34,902) (32,116) (26,075)
--------------------------------
Reserve for losses and LAE at
end of period, net 72,404 62,420 56,304
Plus reinsurance recoverables 22,265 16,474 13,343
--------------------------------
Balance at end of period $94,669 $78,894 $69,647
================================
</TABLE>
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Note Payable
On December 20, 1994 the Company entered into a $35,000,000 reducing, revolving,
variable interest rate bank Credit Agreement. Amounts bear interest at LIBOR
plus a margin, currently 1%. At December 31, 1996, $35,000,000 was outstanding.
Under its terms, the outstanding balance is to be reduced quarterly beginning
March 31, 1997, with aggregate annual reductions (in thousands of dollars) as
follows:
<TABLE>
<CAPTION>
Year Commitment Reductions
- ----------------------------------
<S> <C>
1997 $ 2,500
1998 5,300
1999 6,800
2000 6,800
2001 6,800
2002 6,800
-------
Total $35,000
-------
</TABLE>
Interest on amounts outstanding at December 31, 1996 is paid at an effective
rate of 6.59% through March 24, 1997.
The Credit Agreement also contains restrictive covenants which include
restrictions on other debt, mergers, acquisitions and investment portfolio
quality. Additionally, the credit agreement requires the Company to maintain
certain levels of financial ratios, statutory surplus and pretax statutory net
income, minimum consolidated tangible net worth, risk based capital ratio and
A.M. Best Company rating. The credit agreement is secured by a pledge of all the
capital stock of USF RE INSURANCE COMPANY. At December 31, 1996 the Company was
in compliance with all covenants.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Income Taxes
Income tax expense (benefit) (in thousands of dollars) consists of:
<TABLE>
<CAPTION>
Year ended December 31, 1996: Federal State Total
- -------------------------------------------------------------
<S> <C> <C> <C>
Current $5,849 $ 452 $6,301
Deferred (1,154) (5) (1,159)
--------------------------
Total $4,695 $ 447 $5,142
==========================
Year ended December 31, 1995: Federal State Total
- -------------------------------------------------------------
Current $3,818 312 $4,130
Deferred 121 54 175
--------------------------
Total $3,939 $ 366 $4,305
==========================
Year ended December 31, 1994: Federal State Total
- -------------------------------------------------------------
Current $ 884 -- $ 884
Deferred 289 (29) 260
--------------------------
Total $1,173 $ (29) $1,144
==========================
</TABLE>
Actual tax expense differs from "expected" tax expense computed by applying the
federal statutory rate to income before taxes (in thousands of dollars) as
follows:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
"Expected" federal tax expense $ 7,057 $ 6,174 $ 2,510
Tax exempt interest - net (1,393) (1,621) (1,615)
Change in valuation allowance (576) (115) (146)
Other 54 (133) 395
---------------------------
Actual income tax expense $ 5,142 $ 4,305 $ 1,144
===========================
</TABLE>
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities at December 31, 1996 and
1995 are presented below (in thousands of dollars):
<TABLE>
<CAPTION>
December 31, 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Loss and loss adjustment expense reserves $ 3,708 $ 3,111
Unearned premiums 1,151 861
Net operating loss carryforwards 444 462
Other 292 207
------------------
Total deferred tax assets 5,595 4,641
Less valuation allowance (444) (1,020)
------------------
Net deferred tax assets 5,151 3,621
------------------
Deferred tax liabilities:
Intangibles (569) (560)
Depreciation (104) (145)
Policy acquisition costs (1,276) (968)
Net unrealized gain (3,020) (3,672)
Other (33) --
-------------------
Total deferred tax liabilities (5,002) (5,345)
-------------------
Total deferred income taxes $ 149 $(1,724)
===================
</TABLE>
Based on the Company's current and historical earnings, management believes it
is more likely than not that the existing net deductible temporary differences
will reverse during periods in which the Company generates net taxable income.
However, there can be no assurance that the Company will generate any earnings
or any specific level of continuing earnings in future years. Valuation
allowances established for uncertainties associated with the utilization of
future tax benefits are revised when changes in circumstances indicate that it
is more likely than not that the reversal of such temporary differences will be
realized. Certain tax planning strategies could be implemented to supplement
income from operations to fully realize recorded tax benefits.
Net operating loss carryforwards of $1,268,000 are available to offset future
federal taxable income of a subsidiary through 2005.
Note 7 - Stockholders' Equity
The Company is authorized to issue 20,000,000 shares of common stock and
5,000,000 shares of preferred stock.
The Company has a Stockholder Rights Plan which provides that in the event any
person becomes the beneficial owner of 10% or more of the
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
outstanding common stock of the Company, each right (other than rights held by
the 10% stockholder) will be exercisable at a predetermined price after the
close of business on the tenth business day following such event. Each right
entitles the holder thereof to purchase shares of common stock of the Company
which have a market value equal to two times the then established exercise price
($70.00 per share at December 31, 1996). The Plan further provides that if, on
or after the occurrence of the previously mentioned event, the Company is merged
with or into any other corporation, or 50% or more of the Company's assets or
earning power are sold, each right (other than rights held by the 10%
stockholder) will be exercisable to purchase shares of common stock of the
surviving corporation or purchaser which have a market value equal to two times
the exercise price. The rights expire on May 24, 2000, and can be redeemed by
the Board of Directors at $.001 per right at any time before the first date on
which they first become exercisable.
At December 31, 1996 and 1995, USF RE's statutory surplus was $109,880,000 and
$100,568,000, respectively. Consolidated statutory net income for USF RE was
$8,022,000, $10,343,000, and $6,316,000 for the years ended December 31, 1996,
1995 and 1994, respectively. Statutory amounts are determined on the basis of
regulations promulgated by the National Association of Insurance Commissioners,
which is a comprehensive basis of accounting other than Generally Accepted
Accounting Principles. The more significant of these statutory accounting
practices are: (1) premiums are taken into income over the terms of the
policies, whereas the related acquisition and commission costs are expensed when
incurred; (2) certain assets designated as "nonadmitted assets" are charged to
surplus; (3) bonds are carried at amortized costs, irrespective of the Company's
investment portfolio activity; (4) adjustments reflecting the equity in earnings
of subsidiaries are carried to the surplus account as unrealized capital gains
or losses rather than income; (5) deferred federal income tax effects for tax
return timing differences are not provided; (6) gains and losses from
retrospective reinsurance contracts are recognized immediately through the
income statement and (7) a provision is made for unearned premiums and losses
recoverable, in excess of funds held, on business reinsured with companies not
qualified by license, through a charge to surplus.
USF RE is limited in the amount of dividends it can pay to the Company without
approval of the Insurance Commissioners of Massachusetts and California. Such
limitation is the greater of net income or 10% of policyholders' surplus of the
preceding year. During 1997 USF RE may pay dividends of $10,988,000 to the
Company without such prior approval.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Stock Compensation and Employee Benefits
The US Facilities Corporation Employees Savings Plan is a voluntary contributory
401(k) savings plan covering substantially all employees. Under the Company's
plan eligible employees may contribute up to 15% of their compensation on a pre-
tax basis up to the IRS allowable limit. The Company makes matching
contributions to the plan on a pro-rata basis for all participants up to a
maximum of 6% of each individual's compensation. For 1996, 1995 and 1994 such
matching contributions were $388,000, $395,000 and $321,000, respectively.
The Company has four fixed stock option plans under which options to purchase
shares of the Company's common stock have been or may be granted. As of December
31, 1996 options to purchase up to 300,000 and 1,000,000 shares, respectively,
have been authorized under the 1988 and 1991 Employee Stock Option Plans.
Options to purchase up to 35,000 and 150,000 shares, respectively, have been
authorized under the 1988 and 1991 Director Stock Option Plans. Such plans allow
the Company to grant incentive stock options (ISO's), nonqualified stock options
(NQSO's), stock appreciation rights (SAR's) and restricted shares to key
employees and directors at prices not lower than the market value at date of
grant. Options generally vest 50% after one year and 50% after two years from
the date of grant and have a maximum term of five years. Options are exercisable
through periods ending December 2, 1997 to May 28, 2001. No SAR's or restricted
share grants were outstanding at December 31, 1996, 1995 or 1994.
At December 31,1995, the Company had 30,000 options outstanding, exercisable at
prices ranging from $5.04 to $13.00. These options were sold in 1991 at $1 per
share to a corporation controlled by a current officer and director of the
Company, and were exercised during 1996. Such options are excluded from the
following information.
The Company has adopted the disclosure-only provisions of FAS 123, "Accounting
for Stock-based Compensation," but applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its fixed stock option
plans. Accordingly, no related compensation cost has been recognized. If the
Company had elected to recognize compensation cost for its Employee and Director
plans based on the fair value at the
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
grant dates for awards under those plans, net income and earnings per share
would have been reported as the proforma amounts noted below (in thousands of
dollars) consistent with the method prescribed by FAS 123:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Net income As reported $15,020 $13,854
Pro forma $14,762 $13,611
Primary earnings per share, As reported $ 2.51 $ 2.42
which approximates fully diluted Pro forma $ 2.47 $ 2.38
earnings per share
</TABLE>
The fair value of each option grant subsequent to December 15, 1994 used to
compute proforma net income and earnings per share disclosures is the estimated
present value at grant date using the Black-Scholes option-pricing model with
following weighted average assumptions for 1996 and 1995: dividend yield of
1.4%, expected volatility of 15%, a risk free interest rate of 5%, and an
expected holding period of 4 years.
The status of all optioned shares is as follows:
<TABLE>
<CAPTION>
December 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
Shares Weighted- Shares Weighted- Shares Weighted-
Average Average Average
Exercise Exercise Exercise
Price Price Price
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-
beginning
of year 602,600 $13.55 648,900 $ 9.79 828,400 $ 9.36
Granted 15,000 17.00 255,400 16.00 36,000 10.06
Exercised (155,500) 11.73 (280,700) 7.42 (161,000) 6.93
Canceled (6,500) 17.69 (21,000) 13.76 (54,500) 11.62
-----------------------------------------------------------------------------
Outstanding-
end of year 455,600 $14.04 602,600 $ 13.55 648,900 $ 9.79
=============================================================================
Options
exercisable
at year end 315,400 $13.15 310,700 $ 11.64 547,600 $ 9.32
==========================================================================
Weighted-
average fair
value of
options
granted
during
the year $ 2.88 $ 3.07
====================================
</TABLE>
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about fixed stock options outstanding
at December 31,1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Exercise Prices 12/31/96 Life Price 12/31/96 Price
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$9 to $13.50 221,200 2 Years $11.43 171,200 $10.85
$14 to $20 234,400 3 Years 16.50 144,200 15.74
------- -------
Total 455,600 315,400
======= =======
</TABLE>
Note 9 - Segment Information
Certain information about the Company's operations by industry segment is
summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
REVENUES:
<S> <C> <C> <C>
Medical lines $114,213 $110,809 $ 98,373
Property/casualty underwriting 46,722 39,297 24,429
Holding company
(including realized gains) 2,184 1,071 9
-----------------------------------------
Total $163,119 $151,177 $122,811
-----------------------------------------
INCOME BEFORE INCOME TAXES:
Medical lines $ 17,481 $ 17,152 $ 12,598
Property/casualty underwriting 4,003 3,918 (1,774)
Holding company (1,322) (2,911) (3,442)
-----------------------------------------
Total $ 20,162 $ 18,159 $ 7,382
-----------------------------------------
IDENTIFIABLE ASSETS:
Medical lines $ 87,228 $ 75,529 $ 69,160
Property/casualty underwriting 196,987 170,645 126,297
Holding company 4,528 3,698 4,280
-----------------------------------------
Total $288,743 $249,872 $199,737
-----------------------------------------
</TABLE>
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Commitments and Contingencies
The Company leases certain facilities and equipment under long-term operating
leases which expire at various dates through 2007. Taxes, insurance and
maintenance are generally obligations of the Company. Total rent expense,
including month-to-month rentals, was $1,273,000 in 1996, $1,951,000 in 1995 and
$1,566,000 in 1994.
Future minimum noncancelable lease commitments (in thousands of dollars) are as
follows:
<TABLE>
<CAPTION>
Year ending December 31,
- ------------------------------------
<S> <C>
1997 $ 1,434
1998 1,303
1999 1,296
2000 1,295
2001 1,216
Thereafter 6,384
-------
$12,928
=======
</TABLE>
52
<PAGE>
US FACILITIES CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
AND STOCKHOLDERS
US FACILITIES CORPORATION
We have audited the accompanying consolidated balance sheets of US Facilities
Corporation and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated income statements, statements of stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall 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 US Facilities
Corporation and subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
February 4, 1997
Los Angeles, California
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
Following is quarterly summary financial information for 1996, 1995 and 1994 (in
thousands of dollars, except per share data).
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Revenues $38,918 $38,529 $40,525 $45,147
Income before income taxes 4,977 4,781 5,091 5,313
Net Income 3,808 3,585 3,709 3,918
-------------------------------------
Net income per share $ .64 $ .60 $ .62 $ .65
-------------------------------------
1995
Revenues $35,459 $39,932 $36,330 $39,456
Income before income taxes 3,732 5,023 4,606 4,798
Net Income 2,922 3,849 3,477 3,606
-------------------------------------
Net income per share $ .52 $ .67 $ .60 $ .61
-------------------------------------
1994
Revenues $30,469 $32,185 $29,505 $30,652
Income before income taxes 424 697 2,832 3,429
Net Income 600 761 2,107 2,770
-------------------------------------
Net income per share $ .10 $ .13 $ .35 $ .46
-------------------------------------
</TABLE>
Stock Price Information
Following are the quarterly high and low prices from January 1, 1995 through
February 28, 1997. The Company believes that as of February 28, 1997 there were
approximately 2,000 holders of its common stock.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 through
February 28 $20 3/8 18 3/4
1996 $21 3/8 16 1/2 $20 1/8 16 3/8 $19 1/2 14 7/8 $19 7/8 17 1/8
1995 $14 1/2 9 3/4 $16 1/4 13 1/8 $20 3/8 16 0/0 $23 3/8 17 1/2
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Board of Directors Officers
<S> <C>
David L. Cargile [1, 3, 5] David L. Cargile
Chairman, President and Chief Executive Officer, Chairman of the Board, President and Chief Executive Officer,
US Facilities Corporation US Facilities Corporation
John R. Kooken [1, 2, 3] Howard S. Stinger
Retired; Director Glendale Federal Savings Bank; Executive Vice President-Corporate Finance and
Director, Pacific Gulf Properties, Inc.; Former Vice Investor Relations
Chairman and Chief financial Officer, Security
Pacific Corporation Mark Burke
Senior Vice President, Treasurer and Chief
L. Steven Medgyesy, M.D. [3, 4, 5] Financial Officer
Retired; Former Director of Laboratories, Lincoln
West Medical Center John T. Grush
Senior Vice President
Bernard H. Ross [2, 4, 5]
Executive Vice President, Request, Inc.; Former Craig J. Kelbel
Partner and National Director of Healthcare Senior Vice President
Services, Touche Ross & Company
Jose A. Velasco
Charles L Schultz [2, 3, 4] Senior Vice President, Secretary and
Retired; Director, Amwest Insurance Group; General Counsel
Former Senior Vice President, Finance and Chief
Financial Officer, Farmers Group. Inc Patricia S. Boisseranc
Vice President
Howard S. Singer [1, 3, 5]
Executive Vice President-Corporate Finance and Edward D. Jones, III
Investor Relations, US Facilities Corporation Vice President
Kenneth C. Tyler [2, 4, 5] Barbara Fox Stoner
Retired; Attorney at Law; Former Vice Chairman Vice President
and General Counsel, Farmers Group, Inc.
Frank P. Van Buskirk
DIRECTOR EMERITUS: Vice President
John A. Allison
Retired; Former Vice Chairman, Transamercia
Insurance Group
1996 Committee Assignments
1 MEMBER OF EXECUTIVE COMMITTEE
2 MEMBER OF AUDIT COMMITTEE
3 MEMBER OF INVESTMENT COMMITTEE
4 MEMBER 0F COMPENSATION COMMITTEE
5 MEMBER OF NOMINATING COMMITTEE
</TABLE>
<PAGE>
STOCKHOLDER INFORMATION
ANNUAL MEETING
The 1997 Annual Meeting of Stockholders of US Facilities Corporation will be
held on May 14, 1997, at 9:00 a.m. Local Time, at the offices of the Company,
650 Town Center Drive, Suite 1500, Costa Mesa, California 92626.
ADDITIONAL INFORMATION
Stockholder inquiries and request for additional copies of this Annual Report
and the Company's 1996 Report on Form 10-K filed with the Securities and
Exchange Commission should be directed to: Howard S. Singer, Executive Vice
President, US Facilities Corporation, 6200 N. Hiawatha, Suite 400, Chicago,
Illinois 60646, (800) 550-3285
BOOK VALUE
$17.18 per share at December 31, 1996.
REGISTRAR AND TRANSFER AGENT
American Stock Transfer & Trust Company, 40 Wall Street, New York,
New York 10005.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 725 South Figueroa Street, Los Angeles, California 90017.
STOCK TRADING INFORMATION
The Company's common stock trades on The New York Stock Exchange under the
symbol UF.
<PAGE>
EXHIBIT 21
US FACILITIES CORPORATION AND SUBSIDIARIES
AS OF DECEMBER 31, 1996
US Facilities Corporation
A Delaware Corporation
<TABLE>
<CAPTION>
100% 100%
<S> <C>
USBenefits Insurance Services, Inc. US MedCare Review, Inc.
A California Corporation An Illinois Corporation
(INACTIVE)
</TABLE>
100%
USF RE INSURANCE COMPANY
A Massachusetts Corporation
100%
US Holdings, Inc.
A Delaware Corporation
100%
USF Insurance Company
A Pennsylvania Corporation
<PAGE>
EXHIBIT 23
The Board of Directors
US Facilities Corporation
We consent to incorporation by reference in Registration Statements (No. 33-
41086 and No. 33-46841), both on Form S-8, of US Facilities Corporation of our
reports dated February 4, 1997, relating to the consolidated balance sheets of
US Facilities Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated income statements, statements of stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1996, and all related schedules, which report appears in the December 31, 1996
annual report on Form 10-K of US Facilities Corporation and subsidiaries.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 194,352
<CASH> 34,903
<RECOVER-REINSURE> 23,975
<DEFERRED-ACQUISITION> 3,644
<TOTAL-ASSETS> 288,743
<POLICY-LOSSES> 94,669
<UNEARNED-PREMIUMS> 22,936
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 35,000
0
0
<COMMON> 61
<OTHER-SE> 102,303
<TOTAL-LIABILITY-AND-EQUITY> 288,743
124,124
<INVESTMENT-INCOME> 10,147
<INVESTMENT-GAINS> 2,126
<OTHER-INCOME> 26,722
<BENEFITS> 88,173
<UNDERWRITING-AMORTIZATION> 37,179
<UNDERWRITING-OTHER> 14,995
<INCOME-PRETAX> 20,162
<INCOME-TAX> 5,142
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,020
<EPS-PRIMARY> 2.51
<EPS-DILUTED> 2.51
<RESERVE-OPEN> 62,420
<PROVISION-CURRENT> 83,485
<PROVISION-PRIOR> 4,688
<PAYMENTS-CURRENT> 43,287
<PAYMENTS-PRIOR> 34,902
<RESERVE-CLOSE> 72,404
<CUMULATIVE-DEFICIENCY> 4,688
</TABLE>
