-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NboHFVAyoO0sRGPBSe8MguitNGuRad9kbj9iuSu0nQDEj30+OhiKiMWkkRYTHR7G 1K6IjeAriPcL1WNIcgsVZQ== 0000038984-96-000008.txt : 19960517 0000038984-96-000008.hdr.sgml : 19960517 ACCESSION NUMBER: 0000038984-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FREMONT GENERAL CORP CENTRAL INDEX KEY: 0000038984 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 952815260 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08007 FILM NUMBER: 96566047 BUSINESS ADDRESS: STREET 1: 2020 SANTA MONICA BLVD STREET 2: STE 600 CITY: SANTA MONICA STATE: CA ZIP: 90404 BUSINESS PHONE: 3103155500 MAIL ADDRESS: STREET 1: 2020 SANTA MONICA BLVD CITY: SANTA MONICA STATE: CA ZIP: 90404 10-Q 1 QUARTERLY REPORT - -------------------------------------------------------------------------------- FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended March 31, 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 1-8007 FREMONT GENERAL CORPORATION (Exact name of registrant as specified in this charter) Nevada 95-2815260 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2020 Santa Monica Blvd. Santa Monica, California 90404 (Address of principal executive offices) (Zip Code) (310) 315-5500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15 (d) of Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate the number of shares outstanding of each of the issuer's classes of common stock: Shares Outstanding Class April 30, 1996 ----- -------------- Common Stock, $1.00 par value 25,393,723 - ------------------------------------------------------------------------------ FREMONT GENERAL CORPORATION INDEX PART I - Financial Information Page No. -------- Item 1. Financial Statements Consolidated Balance Sheets March 31, 1996 and December 31, 1995 ............... 3 Consolidated Statements of Income Three Months Ended March 31, 1996 and 1995 ........ 4 Consolidated Statements of Cash Flows Three Months Ended March 31, 1996 and 1995 ......... 5 Notes to Consolidated Financial Statements on Form 10-Q ....................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................ 7 PART II - Other Information Item 1. Not applicable Item 2. Changes in Securities ............................... 18 Item 3. Not applicable Item 4. Not applicable Item 5. Not applicable Item 6. Exhibits and Reports on Form 8-K .................... 18 Signature ..................................................... 22 2 FREMONT GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 1996 1995 ---------------- ---------------- (UNAUDITED) (THOUSANDS OF DOLLARS) ASSETS Securities available for sale at fair value: Fixed maturity investments (cost: 1996 - $1,428,296; 1995 - $1,255,434).... $1,400,789 $1,296,550 Non-redeemable preferred stock (cost: 1996 - $343,036; 1995 - $285,337).... 332,015 277,451 ---------------- ---------------- Total securities available for sale........................ 1,732,804 1,574,001 Loans receivable............................................................... 1,466,931 1,499,043 Short-term investments......................................................... 344,968 362,163 Other investments.............................................................. 3,195 1,726 ---------------- ---------------- Total Investments and Loans................................ 3,547,898 3,436,933 Cash .......................................................................... 42,565 39,559 Accrued investment income ..................................................... 29,009 30,396 Premiums receivable and agents' balances ...................................... 97,569 107,973 Reinsurance recoverable on paid losses ........................................ 16,126 9,422 Reinsurance recoverable on unpaid losses ...................................... 283,774 289,461 Deferred policy acquisition costs ............................................. 27,424 76,638 Costs in excess of net assets acquired ........................................ 69,134 70,656 Deferred income taxes ......................................................... 96,197 78,619 Other assets .................................................................. 77,820 75,240 Assets held for discontinued operations ....................................... 261,789 262,502 ---------------- ---------------- Total Assets .............................................. $4,549,305 $4,477,399 ================ ================ LIABILITIES Claims and policy liabilities: Losses and loss adjustment expenses ........................................ $1,399,974 $1,455,692 Life insurance benefits and liabilities .................................... 381,891 374,724 Unearned premiums .......................................................... 103,130 100,481 Dividends to policyholders ................................................. 39,055 40,822 ---------------- ---------------- Total Claims and Policy Liabilities ....................... 1,924,050 1,971,719 Reinsurance premiums payable and funds withheld ............................... 5,095 5,452 Other liabilities ............................................................. 65,512 81,371 Thrift deposits ............................................................... 964,148 926,312 Short-term debt ............................................................... 75,654 72,191 Long-term debt ................................................................ 731,233 693,276 Liabilities of discontinued operations ........................................ 228,275 228,988 ---------------- ---------------- Total Liabilities ......................................... 3,993,967 3,979,309 Commitments and contingencies Company-obligated mandatorily redeemable preferred securities of subsidiary Trust holding solely Company junior subordinated debentures ..... 100,000 - STOCKHOLDERS' EQUITY Common Stock, par value $1 per share -- Authorized: 49,500,000 shares; issued and outstanding: 1996 and 1995 - 25,393,000 ................. 25,393 25,393 Additional paid-in capital .................................................... 108,690 110,103 Retained earnings ............................................................. 362,376 347,607 Deferred compensation ......................................................... (29,050) (6,612) Net unrealized gain (loss) on investments, net of deferred taxes .............. (12,071) 21,599 ---------------- ---------------- Total Stockholders' Equity ................................ 455,338 498,090 ---------------- ---------------- Total Liabilities and Stockholders' Equity ................ $4,549,305 $4,477,399 ================ ================ See notes to consolidated financial statements.
3 FREMONT GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED MARCH 31, 1996 1995 ------------ ------------ (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) REVENUES Property and casualty premiums earned........................ $126,677 $123,423 Net investment income........................................ 33,777 22,374 Loan interest................................................ 38,036 39,213 Realized investment gains (losses) .......................... (661) 6 Other revenue................................................ 5,804 14,141 ------------ ------------ Total Revenues....................................... 203,633 199,157 EXPENSES Losses and loss adjustment expenses.......................... 93,677 93,517 Policy acquisition costs..................................... 25,520 23,710 Provision for loan losses.................................... 3,518 4,357 Other operating costs and expenses........................... 25,533 34,144 Interest expense............................................. 28,154 22,614 ------------ ------------ Total Expenses ...................................... 176,402 178,342 ------------ ------------ Income before taxes.......................................... 27,231 20,815 Income tax expense........................................... 8,714 6,609 ------------ ------------ NET INCOME........................................ $18,517 $14,206 ============ ============ PER SHARE DATA Net income: Primary................................................ $0.72 $0.55 Fully diluted.......................................... 0.60 0.46 Cash dividends.............................................. 0.15 0.12 Weighted average shares: Primary................................................ 25,802 25,823 Fully diluted.......................................... 33,010 33,030 See notes to consolidated financial statements on Form 10-Q.
4 FREMONT GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31, 1996 1995 ------------ ------------ (THOUSANDS OF DOLLARS) OPERATING ACTIVITIES Net income .................................................... $18,517 $14,206 Adjustments to reconcile net income to net cash provided by operating activities: Change in premiums receivable and agents' balances and reinsurance recoverable on paid losses ........... 2,925 3,895 Change in accrued investment income ...................... 1,387 391 Change in claims and policy liabilities .................. (37,292) 2,770 Amortization of policy acquisition costs ................. 25,520 23,710 Policy acquisition costs deferred ........................ (25,244) (27,490) Provision for deferred income taxes ...................... 553 (802) Provision for loan losses ................................ 3,518 4,357 Provision for depreciation and amortization .............. 5,422 4,430 Net amortization on fixed maturity investments ........... (6,360) (1,042) Realized investment (gains) losses ....................... 661 (6) Change in other assets and liabilities ................... (22,188) 4,631 ------------ ------------ Net Cash Provided by (Used in) Operating Activities ... (32,581) 29,050 INVESTING ACTIVITIES Securities available for sale: Purchases of securities .................................. (711,633) (766,883) Sales of securities ...................................... 485,579 178,543 Securities matured or called ............................. 21,149 11,360 Securities held to maturity: Purchases of securities .................................. - (18,937) Sales of securities ...................................... - - Securities matured or called ............................. - 2,489 Decrease in short-term and other investments ................. 15,726 697,645 Loan originations and bulk purchases funded .................. (114,371) (111,442) Receipts from repayments of loans ............................ 142,269 106,749 Purchase of subsidiaries, less cash acquired ................. - (249,305) Purchase of property and equipment ........................... (2,545) (1,661) ------------ ------------ Net Cash Used in Investing Activities ................. (163,826) (151,442) FINANCING ACTIVITIES Proceeds from short-term debt ................................ 74,311 22,436 Repayments of short-term debt ................................ (70,848) (10,598) Proceeds from long-term debt ................................. 74,000 75,000 Repayments of long-term debt ................................. (38,004) (2,808) Net increase in thrift deposits .............................. 37,836 9,606 Annuity contract receipts .................................... 57,777 10,873 Annuity contract withdrawals ................................. (7,606) (845) Proceeds from sale of Preferred Securities ................... 100,000 - Dividends paid ............................................... (3,325) (2,923) Stock options exercised ...................................... 975 - Net (increase) decrease in deferred compensation plans ....... (25,703) 4,380 ------------ ------------ Net Cash Provided by Financing Activities ............. 199,413 105,121 ------------ ------------ Increase (Decrease) in Cash .................................. 3,006 (17,271) Cash at beginning of year .................................... 39,559 31,058 ------------ ------------ Cash at March 31, ............................................ $42,565 $13,787 ============ ============ See notes to consolidated financial statements on Form 10-Q.
5 FREMONT GENERAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-Q (Unaudited) NOTE A --- BASIS OF PRESENTATION OF FINANCIAL STATEMENTS These statements have been prepared in accordance with generally accepted accounting principles and, accordingly, adjustments (consisting of normal accruals) have been made as management considers necessary for fair presentations. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Certain 1995 amounts have been reclassified to conform to the 1996 presentation, including the reclassification of life insurance premiums to other revenue. NOTE B --- PUBLIC OFFERING On March 1, 1996, Fremont General Financing I, a statutory business trust (the "Trust") and consolidated wholly-owned subsidiary of the Company, sold $100 million of 9% Trust Originated Preferred Securities (SM) ("the Preferred Securities") in a public offering. The Preferred Securities represent preferred undivided beneficial interests in the assets of the Trust. The proceeds from the sale of the Preferred Securities were invested in 9% Junior Subordinated Debentures of the Company ("the Junior Subordinated Debentures"). The $100 million Junior Subordinated Debentures are the sole asset of the Trust. The Preferred Securities will be redeemed upon maturity of the Junior Subordinated Debentures in 2026, subject to the election available to the Company to extend the maturity up to 2045, and they may be redeemed, in whole or in part, at any time on or after March 31, 2001 and under certain specified circumstances. The Junior Subordinated Debentures rank "pari pasu" with the Company's $373,750,000 aggregate principal amount at maturity of Liquid Yield Option Notes due 2013, and subordinate and junior to all senior indebtedness of the Company. Payment of distributions out of cash held by the Trust, and payments on liquidation of the Trust or the redemption of the Preferred Securities are guaranteed by the Company. NOTE C --- REINSURANCE On January 1, 1996, the Company entered into a reinsurance and assumption agreement with a reinsurer whereby assets and liabilities related to certain life and annuity insurance polices, primarily investment-type contracts and credit life and accident and health, were ceded to the reinsurer. This reinsurance agreement is part of several other agreements which collectively act to significantly reduce the Company's life insurance operations. The effect on operations from these agreements was not material. NOTE D -- STOCKHOLDERS' EQUITY AND PER SHARE DATA The three-for-two Common Stock split declared on December 4, 1995 was distributed on February 7, 1996 to stockholders of record on January 8, 1996. Per share data have been computed based on the weighted average number of shares outstanding adjusted retroactively for this stock split, as well as, the ten percent stock dividend distributed June 15, 1995. During the first quarter of 1996, the Company completed a stock repurchase program. This program, previously announced on November 17, 1995, was initiated to fund stock-based management and employee benefit programs. A total of 845,799 shares were purchased at a cost of $20,160,000. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Fremont General Corporation (the "Company"), a nationwide property and casualty insurance and financial services holding company, operates through its wholly-owned subsidiaries in select businesses in niche markets. The three core operating lines of business are workers' compensation insurance, real estate lending and commercial finance lending. Additionally, on a smaller scale, the Company is involved in underwriting various other insurance products. The following table presents information for the quarters ended March 31, 1996 and March 31, 1995 with respect to the Company's primary business segments.
THREE MONTHS ENDED MARCH 31, ----------------------------------- 1996 1995 ---------------- ---------------- (THOUSANDS OF DOLLARS) Revenues: Workers' compensation ......................................... $147,662 $133,578 Professional medical liability corporate and other ............ 8,342 9,672 ---------------- ---------------- Total property and casualty ...................... 156,004 143,250 Financial services ............................................ 47,226 55,713 Corporate ..................................................... 403 194 ---------------- ---------------- Total ............................................ $203,633 $199,157 ================ ================ Income (Loss) Before Taxes: Workers' compensation ......................................... $25,446 $16,750 Professional medical liability, corporate and other ........... (483) (380) ---------------- ---------------- Total property and casualty ...................... 24,963 16,370 Financial services ............................................ 7,515 7,727 Corporate ..................................................... (5,247) (3,282) ---------------- ---------------- Total $27,231 $20,815 ================ ================
The Company generated revenues of approximately $204 million in the first quarter ended March 31, 1996, as compared to revenues of $199 million for the first quarter of 1995. Revenues were higher in the first quarter of 1996 as compared to the first quarter of 1995, due primarily to higher workers' compensation insurance premiums and net investment income, offset partially by lower life insurance premiums in the financial services segment. The higher workers' compensation insurance premiums and net investment income are due primarily to the acquisition on February 22, 1995, of Casualty Insurance Company ("Casualty") from the Buckeye Union Insurance Company. Casualty underwrites workers' compensation insurance primarily in Illinois and several other mid-western states. Casualty currently is the largest underwriter of workers' compensation insurance in Illinois and has provided the Company with a significant presence in the mid-western region. The increased insurance premiums and net investment income from this acquisition have been partially offset by lower workers' compensation insurance premiums earned in California. See "Property and Casualty Insurance Operations Premiums." Lower revenues in the financial services segment are due primarily to lower life insurance premiums as the Company significantly reduced its life insurance operations effective January 1, 1996 by entering into certain reinsurance and assumption agreements with a reinsurer. See "Financial Services." Realized investment gains (losses) in the first quarter ended March 31, 1996 were ($661,000) compared to $6,000 for the first quarter of 1995. 7 The Company had net income of $18.5 million or $.72 per share for the first quarter of 1996, as compared to $14.2 million or $0.55 per share for the first quarter of 1995. Income before taxes for the first quarter of 1996 was $27.2 million as compared to $20.8 million for the first quarter of 1995, representing an increase of 30.8%. Workers' compensation insurance operations posted income before taxes of $25.4 million for the first quarter of 1996, as compared to $16.8 million for the first quarter of 1995. The 51.9% increase in income before taxes in the first quarter of 1996 is due primarily to the acquisition of Casualty, offset partially by lower income on the Company's California business. The combined ratio for the first quarter of 1996 was 99.5% compared to 99.6% for the first quarter of 1995. The Company's professional medical liability, corporate and other segment is composed principally of revenues and expenses that pertain to the Company's professional medical liability business ("medical malpractice"), as well as miscellaneous expenses associated with the Company's downstream property and casualty insurance holding company, Fremont Insurance Group, Inc., ("Fremont Insurance Group"). Medical malpractice premiums were down slightly at $6.9 million for the first quarter of 1996 as compared to $7.7 million for the first quarter of 1995. Income before taxes for the medical malpractice business was $923,000 for the first quarter of 1996, also down slightly from $1.3 million for the first quarter of 1995. Expenses of Fremont Insurance Group include interest expense on debt and other obligations of $1.5 million for the first quarter of 1996 as compared to $1.6 million for the first quarter of 1995. Since the operations of Fremont Insurance Group consist primarily of interest expense and overhead expenses, management does not expect it to operate at a profit. The financial services business segment posted income before taxes of $7.5 million for the first quarter of 1996, down 2.7% from $7.7 million for the first quarter of 1995. The decrease in income before taxes is due primarily to the establishment of a specific loan loss reserve associated with a particular loan in the commercial finance loan portfolio. See "Financial Services." The average loan portfolio in the financial services segment grew to $1.52 billion in the quarter ended March 31, 1996 from $1.47 billion in the quarter ended March 31, 1995. Corporate revenues during the quarters ended March 31, 1996 and 1995 consisted primarily of investment income, while corporate expenses consisted primarily of interest expense and general and administrative expense. The corporate loss before income taxes for the first quarter of 1996 was $5.2 million as compared to $3.3 million for the same period of 1995. The increase in the corporate loss before taxes in the first quarter of 1996 over the same period in 1995 was due primarily to increased interest expense and increased administrative expenses. The increase in interest expense is due primarily to additional debt incurred in the acquisition of Casualty, as well as to accrued dividends in connection with a public offering on March 1, 1996 of $100 million of 9% Trust Originated Preferred SecuritiesSM (the "Preferred Securities") sold by a consolidated wholly-owned subsidiary of the Company. See "Liquidity and Capital Resources." Since the proceeds from this offering were invested in 9% Junior Subordinated Debentures of the Company, the accrued dividends on the Preferred Securities have been classified in the Consolidated Statements of Income as interest expense. Income tax expense of $8.7 million for the first quarter ended March 31, 1996 represents an effective tax rate of 32.0% on pre-tax income of $27.2 million. The Company's effective tax rate represents a slight increase from the effective tax rate of 31.8% for the first quarter of 1995. These effective tax rates are lower than the enacted federal income tax rate of 35%, due primarily to tax exempt investment income which reduces the Company's taxable income. 8 PROPERTY AND CASUALTY INSURANCE OPERATIONS The following table represents information for the quarters ended March 31, 1996 and 1995 with respect to the Company's property and casualty insurance operations:
THREE MONTHS ENDED MARCH 31, ---------------------------- 1996 1995 ------------ ------------ (THOUSANDS OF DOLLARS) Revenues ........................................ $156,004 $143,250 Expenses ........................................ 131,041 126,880 ------------ ------------ Income before taxes ............................. $24,963 $16,370 ============ ============
Revenues from the property and casualty insurance operations consist primarily of workers' compensation insurance premiums earned and net investment income. Expenses consist primarily of loss and loss adjustment expenses, policy acquisition costs, other operating costs and expenses. PREMIUMS. Premiums earned from the Company's workers' compensation insurance operations were $119.4 million in the first quarter ended March 31, 1996, as compared to $115.1 million in the same period of 1995. Premiums were slightly higher in the first quarter of 1996 as compared to the first quarter of 1995, due primarily to the acquisition of Casualty, partially offset by lower premiums earned in California. For the first quarter ended March 31,1996, the Company's workers' compensation insurance premiums earned in its western region, consisting primarily of California, accounted for $44.9 million, or 37.6% of the Company's total workers' compensation insurance premiums earned for such period, representing a decrease of $31.6 million from the same period in 1995. This decrease was due primarily to the increased price competition resulting from California's adoption of an open rating system and the repeal of the minimum rate law. See "Workers' Compensation Regulation." This increased price competition has led to (i) lower premium rates and (ii) a lower average policy size due to the Company's shift in focus to smaller employers. Additionally, an increase in non-renewing polices have contributed to the lower premium volume in California. The increase in non-renewing polices occurs as a result of certain premium prices falling below required minimum pricing pursuant to the Company's underwriting standards. For the first quarter ended March 31, 1996, the Company's workers' compensation insurance premiums earned in its mid-western region, consisting primarily of Illinois, accounted for $74.5 million, or 62.4% of the Company's total workers' compensation insurance premiums earned. In addition, the Company anticipates price competition to continue in Illinois, where an overall average decrease of 13.6% in advisory rates, which workers' compensation insurance companies in Illinois tend to follow, became effective January 1, 1996. See "Variability of Operating Results." NET INVESTMENT INCOME. Net investment income within the property and casualty insurance operations was $30.0 million, in the first quarter ended March 31, 1996, as compared to $19.9 million in the same period of 1995. Significantly higher invested assets, due primarily to the acquisition of Casualty, resulted in increased investment income during the first quarter ended March 31, 1996 as compared to the same period of 1995. LOSS AND LOSS ADJUSTMENT EXPENSE. Workers' compensation loss and loss adjustment expenses ("LAE") were $88.0 million and $87.0 million for the quarters ended March 31, 1996 and 1995, respectively. In addition, the ratio of these losses and LAE to workers' compensation insurance premiums earned was 73.7%, and 75.6% for the quarters ended March 31, 1996 and 1995, respectively. The modest increase in incurred loss and LAE in the first quarter of 1996 as compared to the same period of 1995 is due primarily to the acquisition of Casualty, partially offset by lower incurred loss and LAE in California. Additionally, the decrease in the loss and LAE ratio in the first quarter of 1996 as compared to the same period of 1995, is due primarily to lower claim frequency and severity in the Company's mid-west region, offset partially by a higher loss and LAE ratio in the Company's west region resulting from lower insurance premiums earned on California policies which resulted from increased competition. See "Premiums". The decrease in California premiums was greater than the decrease in California incurred loss and LAE, thereby resulting in a higher loss and LAE ratio. 9 The Company regularly reviews its reserving techniques, overall reserve position and reinsurance. In light of present facts and current legal interpretations, management believes that adequate provisions have been made for loss reserves. In making this determination, management has considered its claims experience to date, loss development history for prior accident years and estimates of future trends of claims frequency and severity. However, establishment of appropriate reserves is an inherently uncertain process, and there can be no certainty that currently established reserves will prove adequate in light of subsequent actual experience. Subsequent actual experience has resulted and could result in loss reserves being too high or too low. Future loss development could require reserves for prior periods to be increased, which would adversely impact earnings in future periods. POLICY ACQUISITION COSTS AND OTHER OPERATING COSTS AND EXPENSES. The ratio of policy acquisition costs and other operating costs and expenses to premiums earned is referred to as the expense ratio, which for the Company's workers' compensation business was 25.8% in the first quarter ended March 31, 1996, as compared to 24.0% in the same period of 1995. The increase in this ratio in the first quarter of 1996 was due primarily to higher operating costs and expenses, partially offset by lower agents' commission costs. DIVIDENDS TO POLICYHOLDERS. In the quarters ended March 31, 1996 and March 31, 1995 there were no dividends accrued. This is due primarily to a change in the type of workers' compensation insurance policy written on and after January 1, 1995. In 1995, the Company's workers' compensation insurance policies, both in California and those underwritten by Casualty, were predominately written as non-participating, which does not include provisions for dividend consideration. Prior to 1995 the Company's policies were predominately written as participating, thereby obligating the Company to consider the payment of dividends. This shift in policy type is due primarily to the increased competition in the California market which has resulted from the repeal of the minimum rate law, effective January 1, 1995. The Company anticipates that this shift to non-participating policies will continue and be a characteristic element of the competitive environment established by the July 1993 California legislation. See "Workers' Compensation Regulation." VARIABILITY OF OPERATING RESULTS. The Company's profitability can be affected significantly by many factors including competition, the severity and frequency of claims, interest rates, regulations, court decisions, the judicial climate, and general economic conditions and trends, all of which are outside of the Company's control. These factors have contributed, and in the future could contribute, to significant variation of results of operations in different aspects of the Company's business from quarter to quarter and year to year. With respect to the workers' compensation insurance business, changes in economic conditions can lead to reduced premium levels due to lower payrolls as well as increased claims due to the tendency of workers who are laid off to submit workers' compensation claims. Legislative and regulatory changes can also contribute to variable operating results for workers' compensation insurance businesses. For example, in 1995 the Company experienced the negative impact of lower premiums and lower profitability on the Company's California workers' compensation business due to increased price competition resulting from legislation enacted in California in July 1993 which, among other things, repealed the minimum rate law effective January 1, 1995. See "Workers' Compensation Regulation." Additionally, price competition in Illinois continues to impact the Company's profitability, where an overall average decrease of 13.6% in advisory rates, which workers' compensation insurance companies in Illinois tend to follow, became effective January 1, 1996. The Company anticipates that its results of operations and financial condition will continue to be adversely affected by the increased price competition which has lowered the Company's workers' compensation insurance premiums earned in California. Also, the establishment of appropriate reserves necessarily involves estimates, and reserve adjustments have caused significant fluctuations in operating results from year to year. WORKERS' COMPENSATION REGULATION. Illinois began operating under an open rating system in 1982 and California began operating under such a system effective January 1, 1995. In an open rating system, workers' compensation companies are provided with advisory rates by job classification and each insurance company determines its own rates based in part upon its particular operating and loss costs. Although insurance companies are not required to adopt such advisory rates, companies in Illinois generally follow such rates. However, insurance companies in California have, since the adoption of an open rating system, generally set their premium rates below such advisory rates. Before January 1, 1995, California operated under a minimum rate law, whereby premium 10 rates established by the California Department of Insurance were the minimum rates which could be charged by an insurance carrier. In July 1993, California enacted legislation to reform the workers' compensation insurance system and to, among other things, (i) reduce workers' compensation manual premium rates by 7% effective July 16, 1993 and (ii) repeal the minimum rate law effective January 1, 1995. In addition to the July 1993 legislation, in December 1993, the California Insurance Commissioner reduced workers' compensation manual premium rates on new and renewal business an additional 12.7% effective January 1, 1994. In September 1994, California workers' compensation manual premium rates were further reduced by 16% effective October 1, 1994 on all business incepting on or after January 1, 1994. The repeal of the minimum rate law on January 1, 1995 has resulted in lower premiums and lower profitability in the Company's California workers' compensation insurance business due to increased price competition. The Company believes that its acquisition of Casualty, with policies written primarily outside of California, has lessened the impact of the repeal of the minimum rate law by providing geographic diversity, which mitigates the impact of economic and regulatory changes within a regional marketplace. FINANCIAL SERVICES The Company's financial services operations are principally engaged in commercial and residential real estate lending through Fremont Investment & Loan and asset-based lending through Fremont Financial. The Company also has small premium finance and life insurance operations included in this segment. Revenues consist principally of interest income and, to a lesser extent, fees, life insurance premiums and other income. The following table presents information with respect to the Company's financial services operations:
THREE MONTHS ENDED MARCH 31, ---------------------------- 1996 1995 ------------ ------------ (THOUSANDS OF DOLLARS) Revenues ........................................ $47,226 $55,713 Expenses ........................................ 39,711 47,986 ------------ ------------ Income before taxes ............................. $ 7,515 $ 7,727 ============ ============
Revenues decreased 15.2% in the first quarter ended March 31, 1996 over the same period of 1995, due primarily to lower life insurance revenues. These lower life insurance revenues resulted from certain reinsurance and assumption agreements which the Company entered into on December 31, 1995 and January 1, 1996, primarily with one reinsurer, whereby assets and liabilities related to certain life and annuity insurance policies, primarily investment-type contracts and credit life and accident and health, were ceded to the reinsurer. The reinsurance agreements are part of several other agreements which collectively act to significantly reduce the Company's life insurance operations. The effect on income before taxes and net income from these agreements was not material. Income before taxes in the financial services operations was $7.5 million for the first quarter ended March 31, 1996 as compared to $7.7 million for the first quarter of 1995. The decrease in income before taxes in the first quarter is due primarily to the establishment of a specific loan loss reserve associated with a particular loan in the commercial finance loan portfolio. Partially offsetting the impact of this specific loan loss reserve was higher income before taxes in the real estate lending operation due to lower loan loss experience resulting in a lower provision for loan losses in the first quarter of 1996 as compared to the same period of 1995. 11 The following table identifies the interest income, interest expense, average interest-bearing assets and liabilities, and interest margins for the Company's real estate lending and commercial finance subsidiaries:
THREE MONTHS ENDED MARCH 31, 1996 1995 ------------------------------------- -------------------------------------- AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST COST (1) BALANCE INTEREST COST (1) --------------- ---------- -------- --------------- --------- --------- (THOUSANDS OF DOLLARS, EXCEPT PERCENTS) Interest bearing assets (2): Commercial finance and other assets .................. $637,448 $17,535 11.00 % $582,147 $17,516 12.04 % Real estate lending: Cash equivalents ..................... 182,539 2,457 5.38 71,119 916 5.15 Investments .......................... 19,883 286 5.75 422 2 1.90 Commercial real estate loans ......... 715,777 17,000 9.50 681,176 16,043 9.42 Residential real estate loans ........ 176,172 4,128 9.37 108,160 2,709 10.02 Contract loans ....................... 113 (1) (3.54) 20,632 693 13.44 Installment loans .................... 689 19 11.03 2,937 94 12.80 Finance leases ....................... - - - 73 1 5.48 --------------- ---------- --------------- --------- Total interest bearing assets .......... $1,732,621 $41,424 9.56 $1,466,666 $37,974 10.36 =============== ========== =============== ========= Interest bearing liabilities: Savings deposits ....................... $260,322 $3,383 5.20 % $71,117 $857 4.82 % Time deposits .......................... 705,080 10,314 5.85 686,190 9,774 5.70 Commercial paper and other ............. 3,559 64 7.19 17,747 303 6.83 Securitization obligation .............. 304,258 4,700 6.18 300,000 4,886 6.51 Debt with banks ........................ 210,449 3,410 6.48 163,053 2,803 6.88 Debt from affiliates ................... 58,240 719 4.94 49,892 514 4.12 --------------- ---------- --------------- --------- Total interest bearing liabilities ..... $1,541,908 $22,590 5.86 $1,287,999 $19,137 5.94 =============== ========== =============== ========= Net interest income $18,834 $18,837 ========== ========= Net yield 4.35 % 5.14 % - --------------------- (1) Annualized. (2) Average loan balances include non-accrual balances.
The margin between the Company's interest income and cost of funds decreased in the quarter ended March 31, 1996 as compared to the quarter ended March 31, 1995, due primarily to an increase in lower yielding cash equivalents, changes in the mix of loans and a modest increase in the cost of savings and time deposits in the real estate lending operation, as well as a slight decrease in the net margins in the commercial finance lending segment. In the real estate lending operation, the change in portfolio mix occurred as the Company continued its shift away from high rate, high risk residential real estate loans secured by personal property or junior liens on real estate, to lower yielding residential first trust deed real estate loans. The lower yields on the first trust deed loans are compensated for by the improved underlying collateral and by the improved lien position on the collateral. The net margins decreased in the commercial finance segment due primarily to an increase in the competitive environment. 12 LOANS RECEIVABLE AND RESERVE ACTIVITY. The following table shows loans receivable in the various financing categories and the percentages of the total represented by each category:
MARCH 31, DECEMBER 31, 1996 1995 ----------------------- ----------------------- % OF % OF AMOUNT TOTAL AMOUNT TOTAL ---------------- ------ --------------- ------ (THOUSANDS OF DOLLARS, EXCEPT PERCENTS) Accounts receivable and inventory loans: Commercial finance ........................................ $410,034 27 % $415,038 27 % Term loans: Commercial finance ........................................ 153,017 10 110,647 7 Real estate lending ....................................... 878,411 59 888,952 58 Other ..................................................... 57,643 4 116,187 8 ---------------- ---- --------------- ----- Total term loans ...................................... 1,089,071 73 1,115,786 73 ---------------- ---- --------------- ----- Total loans ........................................... 1,499,105 100 1,530,824 100 Less allowance for possible loan losses ....................... 32,174 2 31,781 2 ---------------- ---- -------------- ----- Loans receivable .......................................... $1,466,931 98 % $1,499,043 98 % ================ ==== =============== =====
The following table illustrates the maturities of the Company's loans receivable:
MATURITIES AT MARCH 31, 1996 ------------------------------------------------------------------ 1 TO 24 25 TO 60 OVER 60 MONTHS MONTHS MONTHS TOTAL -------------- -------------- ------------- ---------------- (THOUSANDS OF DOLLARS) Accounts receivable and inventory loans -- variable rate ...................... $410,034 $ - $ - $410,034 Term loans -- variable rate ...................... 150,981 119,147 625,601 895,729 Term loans -- fixed rate ......................... 95,439 47,748 50,155 193,342 -------------- -------------- ------------- ---------------- Total ........................................ $656,454 $166,895 $675,756 $1,499,105 ============== ============== ============= ================
The Company monitors the relationship of fixed and variable rate loans and interest bearing liabilities in order to minimize interest rate risk. Adverse economic developments can negatively affect the Company's business and results of operations in a number of ways. Such developments can reduce the demand for loans, impair the ability of borrowers to pay loans and impair the value of the underlying collateral. 13 The following table describes the asset classifications, loss experience and reserve reconciliation of the real estate lending and commercial finance operations as of or for the periods ended as shown below:
MARCH 31, ----------------------------------- 1996 1995 ---------------- ---------------- (THOUSANDS OF DOLLARS, EXCEPT PERCENTS) Non-accrual loans ............................................... $27,089 $25,765 Accrual loans 90 days past due .................................. 1,595 170 Real estate owned ("REO") ....................................... 8,057 12,400 ---------------- ---------------- Total non-performing assets ..................................... $36,741 $38,335 ================ ================ Beginning allowance for possible loan losses .................... $31,781 $27,406 Provision for loan losses ....................................... 3,518 4,357 Reserves established with portfolio acquisitions ................ 1,830 - Charge-offs: Commercial finance and other loans .......................... 4,011 96 Real estate lending: Commercial real estate loans ............................ 970 213 Residential real estate loans ........................... - 442 Contract and installment loans .......................... 95 113 ---------------- ---------------- Total charge-offs ........................................... 5,076 864 ---------------- ---------------- Recoveries: Commercial finance and other loans .......................... 7 337 Real estate lending: Commercial real estate loans ............................ 19 - Residential real estate loans ........................... 35 331 Contract and installment loans .......................... 51 87 Finance leases .......................................... 9 1 ---------------- ---------------- Total recoveries ............................................ 121 756 ---------------- ---------------- Net charge-offs ................................................. 4,955 108 ---------------- ---------------- Ending allowance for possible loan losses ....................... $32,174 $31,655 ================ ================ Allocation of allowance for possible loan losses: Commercial finance and other loans .......................... $14,366 $14,211 Real estate lending ......................................... 17,808 17,444 ---------------- ---------------- Total allowance for possible loan losses .................... $32,174 $31,655 ================ ================ Total loans receivable .......................................... $1,499,105 $1,472,765 Average total loans receivable .................................. 1,520,177 1,465,408 Net charge-offs to average total loans receivable ............... 1.30 % 0.03 % Non-performing assets to total loans receivable ................. 2.45 % 2.60 % Allowance for possible loan losses to total loans receivable .... 2.15 % 2.15 % Allowance for possible loan losses to non-performing assets ..... 87.57 % 82.57 % Allowance for possible loan losses to non-accrual loans and accrual loans 90 days past due .................... 112.17 % 122.06 %
Non-performing assets decreased slightly to $36.7 million at March 31, 1996 from $38.3 million at March 31, 1995. This decrease is due primarily to a reduction in REO assets of $4.3 million, offset partially by an 14 increase in non-accrual loans and accrual loans 90 days past due. The non-accrual loan increases are consistent with the increase in total loans receivable. The decrease in REO was achieved primarily through asset sales. The lower provision for loan losses in the quarter ended March 31, 1996 as compared to the same quarter of the prior year, is due primarily to improved loan loss experience in the real estate lending operation, offset partially by an additional specific loan loss reserve in the commercial finance operation associated with one loan in the commercial finance portfolio. Substantially all of the charge-offs in the commercial finance segment in the first quarter of 1996 were also related to this loan. This accounts for the increase in net charge-offs to average total loans receivable to 1.30% at March 31, 1996 from 0.03% at March 31, 1995. LIQUIDITY AND CAPITAL RESOURCES The property and casualty insurance operations must have cash and liquid assets available to meet their obligations to policyholders in accordance with contractual obligations, in addition to having the funds available to meet ordinary operating costs. These operations have several sources of funds to meet their obligations, including cash flow from operations, recoveries from reinsurance contracts and investment securities. By statute, the majority of the cash from these operations is required to be invested in investment grade securities to provide protection for policyholders. The Company invests in fixed income and preferred equity securities with an objective of providing a reasonable return while limiting credit and liquidity risk. The Company's investment portfolio had an unrealized gain (loss) of ($18.6) million and $33.2 million at March 31, 1996 and December 31. 1995, respectively. The Company's thrift and loan subsidiary finances its lending activities primarily through customer deposits, which have grown to $964 million at March 31, 1996 from $926 million at December 31, 1995. In addition, Fremont Investment & Loan is eligible for financing through the Federal Home Loan Bank of San Francisco. This financing is available at varying rates and terms. As of March 31, 1996, $190 million was available under the facility and no borrowings were outstanding. The Company's commercial finance operation funds its lending activities primarily through its asset securitization program, an unsecured revolving line of credit with a syndicated bank group and its capital. The asset securitization program was established to provide a stable and cost effective source of funds to facilitate the expansion of this business. The securities issued in this program have scheduled maturities in 1997 and 2000, but could mature earlier depending on fluctuations in outstanding balances of loans in the portfolio and other factors. During April 1995, the Company issued $30 million in subordinated variable rate asset-backed certificates, which mature in 2000, via a private placement. In February 1996, $135 million in asset-backed certificates were issued which mature in 2000. The proceeds were used, in conjunction with existing cash, to retire $200 million in previously issued variable rate asset-backed certificates. As of March 31, 1996 there were $265 million in outstanding variable rate asset-backed certificates. Additionally, up to $365 million in additional publicly offered asset-backed certificates may be issued pursuant to a shelf registration statement to fund future growth in the commercial finance loan portfolio. In December 1995, a commercial paper facility was established as part of the asset securitization program. This facility, which expires in December 1998, provides for the issuance of up to $150 million in commercial paper, dependent upon the level of assets within the asset securitization program. As of March 31, 1996, $11 million was outstanding under this facility. The commercial finance operation's unsecured revolving line of credit is with a syndicated bank group that presently permits borrowings of up to $300 million, of which $231 million was outstanding as of March 31, 1996. This credit line is primarily used to finance assets which are not included in the Company's asset securitization program. This credit line expires August 1998. As a holding company, Fremont General pays its operating expenses, meets its other obligations and pays stockholders' dividends from its cash on hand, management fees paid by its subsidiaries and dividends paid by its subsidiaries. Stockholders' dividends declared aggregated $3.7 million and $2.9 million for the quarters ended March 31, 1996 and 1995, respectively. Several of the Company's subsidiaries are subject to certain statutory and regulatory restrictions and various agreements, principally loan agreements, that restrict their ability to distribute dividends to the Company. The Company expects that during the next few years dividends from its subsidiaries will consist of dividends from its property and casualty subsidiaries and dividends on preferred stock of its thrift and 15 loan holding company and commercial finance subsidiaries. The maximum amount available for payment of dividends by the property and casualty subsidiaries at December 31, 1995 without prior regulatory approval is approximately $30 million. To facilitate general corporate operations, in August 1994 the Company obtained a revolving line of credit with a syndicated bank group that permitted borrowings of up to $150 million. In August 1995, the Company negotiated an increase of this line to $200 million, of which $78 million was outstanding as of March 31, 1996. In August 1997, this credit line converts to a term loan of up to $100 million, with scheduled semi-annual payments through August 2001. In addition, in July 1994 the Company replaced its internally financed loan to its Employee Stock Ownership Plan ("ESOP") with an external bank-financed loan totaling $11 million. The maximum principal amount of this loan was increased to $15 million in August 1995. The loan is due in seven equal annual installments commencing on April 1, 1996 and is secured by certain shares of the ESOP. The balance outstanding at March 31, 1996 was $3.6 million. The interest and principal payments are guaranteed by the Company. On February 22, 1995, the Company completed the acquisition of Casualty which resulted in the disbursement of funds totaling $256.5 million, comprised of $231.5 million in cash and $25 million in a note payable to the seller. In September 1995, the note payable to the seller was refinanced using the Company's existing revolving line of credit. The cash used to fund the acquisition includes $55 million in borrowings under the Company's existing line of credit and the remainder from internally generated funds. On March 1, 1996, Fremont General Financing I, a statutory business trust (the "Trust") and consolidated wholly-owned subsidiary of the Company, sold $100 million of 9% Trust Originated Preferred SecuritiesSM ("the Preferred Securities") in a public offering. The Preferred Securities represent preferred undivided beneficial interests in the assets of the Trust. The proceeds from the sale of the Preferred Securities were invested in 9% Junior Subordinated Debentures of the Company ("the Junior Subordinated Debentures"). The $100 million Junior Subordinated Debentures are the sole asset of the Trust. The Preferred Securities will be redeemed upon maturity of the Junior Subordinated Debentures in 2026, subject to the election available to the Company to extend the maturity up to 2045, and they may be redeemed, in whole or in part, at any time on or after March 31, 2001 and under certain specified circumstances. The Junior Subordinated Debentures rank "pari pasu" with the Company's $373,750,000 aggregate principal amount at maturity of Liquid Yield Option(TM) Notes due 2013, and subordinate and junior to all senior indebtedness of the Company. Payment of distributions out of cash held by the Trust, and payments on liquidation of the Trust or the redemption of the Preferred Securities are guaranteed by the Company. The Company used the proceeds from the sale of the Junior Subordinated Debentures to reduce outstanding debt under the Company's revolving line of credit by approximately $50 million, and the remaining proceeds have been used for general corporate purposes. The reduction of $50 million in the Company's revolving line of credit occurred over several months, with the final reduction paid in May 1996. Net cash provided by (used in) operating activities of continuing operations was ($32.6) million and $29.1 million for the first quarter ended March 31, 1996 and 1995, respectively. Net cash provided by (used in) continuing operations decreased in the first quarter of 1996 over the same quarter of 1995 due primarily to a decrease in claims and policy liabilities resulting from lower premium volume in the Company's California workers' compensation insurance business, as well as a decrease in other liabilities due primarily to the settlement of accrued operating costs. Net cash used in investing activities increased modestly to $163.8 million from $151.4 million for the quarters ended March 31, 1996 and 1995, respectively. The increase in net cash used in investing activities is due primarily to an increase in investment purchases, net of sales, maturities, and calls, offset partially by the purchase of Casualty in February 1995 for a net cash disbursement of $249.3 million, as well as an increase in receipts from repayments of loans. The significant decrease in short-term and other investments of $697.6 million and the purchase of securities of $766.9 million in the quarter ended March 31, 1995 was due primarily to the effects of investing the acquired short-term investment portfolio of Casualty into long-term securities. Net cash provided by financing activities was $199.4 million and $105.1 million for the quarters ended March 31, 1996 and March 31, 1995, respectively. Net cash provided by financing activities increased in the first 16 quarter of 1996 as compared to the first quarter of 1995, due primarily to the following items: (i) a larger increase in thrift deposits; (ii) a larger increase in annuity contract receipts, net of contract withdrawals; (iii) and the impact of the proceeds from the sale of 9% Trust Originated Preferred Securities SM on March 1, 1996 in a public offering by the Trust. These conditions were partially offset by lower short-term and long-term debt proceeds, net of repayments, as well as an increase in deferred compensation plans. Substantially all of the annuity contract receipts received in the quarter ended March 31, 1996 will be remitted to a reinsurer under certain reinsurance and assumption agreements which became effective January 1, 1996. See "Financial Services". The lower proceeds from long-term debt, net of repayments, is due primarily to debt incurred in the first quarter of 1995 related to the Casualty acquisition. The increase in deferred compensation plan is due primarily to the repurchase by the Company of its Common Stock in the first quarter of 1996 pursuant to certain deferred compensation programs. The amortized cost of the Company's invested assets were $2.12 billion and $1.91 billion at March 31, 1996 and December 31, 1995, respectively. Contributing to the $210 million increase in the invested assets were $100 million in proceeds from the public offering on March 1, 1996 of 9% Trust Originated Preferred SecuritiesSM by a subsidiary of the Company and a $50 million increase in net annuity receipts in the life insurance operation. These annuity receipts will ultimately be remitted to a reinsurer under certain reinsurance and assumption agreements which became effective January 1, 1996. See "Financial Services". The Company's property and casualty premium to surplus ratio for the year ended December 31, 1995 was 2.3 to 1, which is within industry guidelines. The FDIC has established certain capital and liquidity standards for its member institutions, and Fremont Investment & Loan was in compliance with these standards as of March 31, 1996. The Company believes that its existing cash, its bank lines of credit, revenues from operations and other available sources of liquidity will be sufficient to satisfy its liquidity needs for the next several years. The Company's strategy is to expand its business to the extent possible without adversely impacting its loan portfolio and policyholder base. However, the Company's strategic model is not dependent on growth as a source of liquidity. While the level of revenues will obviously affect results of operations, the Company's liquidity is not dependent on future revenue growth. CHANGES IN ACCOUNTING PRINCIPLES In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement No. 121 ("FASB 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations, including intangible assets, when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. FASB 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted FASB 121 in the first quarter of 1996 and the effect of adoption was not material. Also, in 1995, the FASB issued Statement 123 ("FASB 123"), "Accounting for Stock-Based Compensation" that is effective for fiscal years beginning after December 15, 1995. FASB 123 establishes a method of accounting for stock-based compensation that is based on the fair value of stock options and similar instruments and encourages, but does not require, adoption of that method. The Company has elected to continue following Accounting Principles Board Opinion No. 25 for measuring compensation cost. Pursuant to FASB 123, the Company will disclose pro forma net income and earnings per share calculated as if the recognition and measurement provisions of the new standard had been adopted. 17 PART II - OTHER INFORMATION Item 1: Legal Proceedings. None. Item 2: Changes in Securities. On December 4, 1995, the Company announced a three-for-two split of its Common Stock for stockholders of record at January 8, 1996. The stock split was effected on February 7, 1996. Item 3: Defaults Upon Senior Securities. None. Item 4: Submission of Matters to a Vote of Security Holders. None. Item 5: Other Information. None. Item 6: Exhibits and Reports on Form 8-K. (a) Exhibits EXHIBIT NO. DESCRIPTION ----------- ----------- 2.1 Stock Purchase Agreement among Fremont Compensation Insurance Company, Fremont General Corporation, the Buckeye Union Insurance Company, The Continental Corporation and Casualty Insurance Company, Dated as of December 16, 1994. (Filed as Exhibit No. 2.1 to Current Report on Form 8-K, as of February 22, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 2.2 Amendment No. 1 to Stock Purchase Agreement among Fremont Compensation Insurance Company, Fremont General Corporation, the Buckeye Union Insurance Company, The Continental Corporation and Casualty Insurance Company, Dated as of December 16, 1994. (Filed as Exhibit No. 2.2 to Current Report on Form 8-K, as of February 22, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 3.1 Restated Articles of Incorporation of Fremont General Corporation. (Filed as Exhibit No. 3.1 to Registration Statement on Form S-3 File No 33-64771 which was declared effective on March 1, 1996, and incorporated herein by reference.) 3.2 Certificate of Amendment of Articles of Incorporation of Fremont General Corporation. (Filed as Exhibit 3.2 to Registration Statement on Form S-3 File No. 33-64771 which was declared effective on March 1, 1996 and herein incorporated by reference.) 3.3 Amended and Restated By-Laws of Fremont General Corporation. (Filed as Exhibit No. 3.3 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 4.1 Form of Stock Certificate for Common Stock of the Registrant. (Filed as Exhibit No. (1) Form 8-A filed on March 17, 1993, Commission File Number 1-8007, and incorporated herein by reference.) 4.2 Indenture with respect to Liquid Yield Option Notes Due 2013 between the Registrant and Bankers Trust Company. (Filed as Exhibit No. 4.4 to Registration Statement on Form S-3 filed on October 1, 1993, and incorporated herein by reference.) 18 EXHIBIT NO. DESCRIPTION ----------- ----------- 4.3 Indenture among the Registrant, the Trust and First Interstate Bank of California, a California banking corporation, as trustee. (Filed as Exhibit No. 4.3 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 4.4 Declaration of Trust among the Registrant, the Regular Trustees and The Chase Manhattan Bank (USA), a Delaware banking corporation, as Delaware trustee. (Filed as Exhibit No. 4.4 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 4.5 Amended and Restated Declaration of Trust among the Registrant, the Regular Trustees, The Chase Manhattan Bank (USA), a Delaware banking corporation, as Delaware trustee, and The Chase Manhattan Bank, N.A., a national banking association, as Institutional Trustee. (Filed as Exhibit No. 4.5 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 4.6 Preferred Securities Guarantee Agreement between the Registrant and The Chase Manhattan Bank, N.A., a national banking association, as Preferred Guarantee Trustee. (Filed as Exhibit No. 4.6 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 4.7 Common Securities Guarantee Agreement by the Registrant. (Filed as Exhibit No. 4.7 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 4.8 Form of Preferred Securities. (Included in Exhibit 4.5). (Filed as Exhibit No. 4.8 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 4.9 Form of 9% Junior Subordinated Debenture. (Included in Exhibit 4.3). (Filed as Exhibit No. 4.9 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.1 Fremont General Corporation Employee Stock Ownership Plan as amended. (Filed as Exhibit No. 10.1 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.2 Amended and Restated Trust Agreement for Fremont General Corporation Employee Stock Ownership Plan. (Filed as Exhibit No. 10.2 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.3 Fremont General Corporation and Affiliated Companies Investment Incentive Program as amended. (Filed as Exhibit No. 10.3 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.4 (a) Trust Agreement for Investment Incentive Program. (Filed as Exhibit No. (10)(xi) to Annual Report on Form 10-K, for the Fiscal Year Ended December 31, 1993, Commission File Number 1-8007, and incorporated herein by reference.) 10.4 (b) Amendment to Trust Agreement for Investment Incentive Program. (Filed as Exhibit No. 10.4 (b) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 19 EXHIBIT NO. DESCRIPTION ----------- ----------- 10.5 (a) Supplemental Retirement Plan of the Company. (Filed as Exhibit No. (10)(v) to Annual Report on Form 10-K, for the Fiscal Year Ended December 31, 1990, Commission File Number 1-8007, and incorporated herein by reference.) 10.5 (b) Amendment to Supplemental Retirement Plan. (Filed as Exhibit No. 10.5 (b) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.6 Trust Agreement for Supplemental Retirement Plan of the Company and the Senior Supplemental Retirement Plan of The Company, as amended. (Filed as Exhibit No. 10.6 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.7 Senior Supplemental Retirement Plan, as amended. (Filed as Exhibit No. 10.7 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.8 (a) Excess Benefit Plan of the Company. (Filed as Exhibit No. (10)(vi) to Annual Report on Form 10-K, for the Fiscal Year Ended December 31, 1993, Commission File Number 1-8007, and incorporated herein by reference.) 10.8 (b) Amendment to Excess Benefit Plan of the Company. (Filed as Exhibit No. 10.8 (b) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.8 (c) Trust Agreement for Excess Benefit Plan. (Filed as Exhibit No. 10.8 (c) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.9 Non-Qualified Stock Option Plan of 1989 of the Company. (Filed as Exhibit No. 10.9 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.10 Long-Term Incentive Compensation Plan of the Company. (Filed as Exhibit No. 10.10 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.11 1995 Restricted Stock Award Plan. (Filed as Exhibit No. 10.11 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.12 Fremont General Corporation Employee Benefits Trust Agreement ("Grantor Trust") dated September 7, 1995 between the Company and Merrill Lynch Trust Company of California. (Filed as Exhibit No. 10.12 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.13 Employment Agreement between the Company and James A. McIntyre. (Filed as Exhibit No. (10)(i) to Quarterly Report on Form 10-Q for the period ended March 31, 1994, Commission File Number 1-8007, and incorporated herein by reference.) 10.14 (a) Employment Agreement between the Company and Louis J. Rampino. (Filed as Exhibit No. 10.14 (a) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 20 EXHIBIT NO. DESCRIPTION ----------- ----------- 10.14 (b) Employment Agreement between the Company and Wayne R. Bailey. (Filed as Exhibit No. 10.14 (b) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.15 Management Continuity Agreement between the Company and Raymond G. Meyers. (Filed as Exhibit No. 10.15 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.16 1996 Management Incentive Compensation Plan of the Company. 10.17 Continuing Compensation Plan for Retired Directors. (Filed as Exhibit No. 10.17 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.18 Non-Employee Directors' Deferred Compensation Plan. (Filed as Exhibit No. 10.18 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.19 (a) Amended and Restated Credit Agreement among Fremont General Corporation, Various Lending Institutions and the Chase Manhattan Bank, N.A., As Agent. (Filed as Exhibit No. (10)(xiii) to Quarterly Report on Form 10-Q for the period ended September 30, 1995, Commission File Number 1-08007, and incorporated herein by reference.) 10.19 (b) Amendment to Credit Agreement. (Filed as Exhibit No. 10.19 (b) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.20 Keep Well Agreement, dated as of August 24, 1995 by the Company in connection with the Credit Agreement among Fremont General Corporation, Various Lending Institutions and the Chase Manhattan Bank, N.A., As Agent. (Filed as Exhibit No. 10.20 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.21 Credit Agreement $15,000,000 by and among Merrill Lynch Trust Company of California as trustee for the Fremont General Corporation Employee Stock Ownership Trust. The Plan Committee (hereinafter described) on behalf of the Fremont General Corporation Employee Stock Ownership Plan, Fremont General Corporation, and First Interstate Bank of California August 10, 1995. (Filed as Exhibit No. (10)(viii) to Quarterly Report on Form 10-Q for the period ended September 30, 1995, and incorporated herein by reference.) (11) Statement re: Computation of per share earnings. (27) Financial Data Schedule (b) Report on Form 8-K. None filed during the quarter ended March 31, 1996. 21 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FREMONT GENERAL CORPORATION Date: May 14, 1996 /s/ LOUIS J. RAMPINO ------------------------------- Louis J. Rampino, President, Chief Operating Officer and Director Date: May 14, 1996 /s/ JOHN A. DONALDSON ----------------------------- John A. Donaldson, Controller and Chief Accounting Officer 22 EXHIBIT INDEX
EXHIBIT SEQUENTIALLY NUMBER DOCUMENT NUMBERED PAGE - ------- -------- ------------- 2.1 Stock Purchase Agreement among Fremont Compensation Insurance Company, Fremont General Corporation, the Buckeye Union Insurance Company, The Continental Corporation and Casualty Insurance Company, Dated as of December 16, 1994. (Filed as Exhibit No. 2.1 to Current Report on Form 8-K, as of February 22, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 2.2 Amendment No.1 to StockPurchase Agreement among Fremont Compensation Insurance Company, Fremont General Corporation, the Buckeye Union Insurance Company, The Continental Corporation and Casualty Insurance Company, Dated as of December 16, 1994.(Filed as Exhibit No. 2.2 to Current Report on Form 8-K, as of February 22, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 3.1 Restated Articles of Incorporation of Fremont General Corporation. (Filed as Exhibit No. 3.1 to Registration Statement on Form S-3 File No 33-64771 which was declared effective on March 1, 1996, and incorporated herein by reference.) 3.2 Certificate of Amendment of Articles of Incorporation of Fremont General Corporation. (Filed as Exhibit 3.2 to Registration Statement on Form S-3 File No. 33-64771 which was declared effective on March 1, 1996 and herein incorporated by reference. 3.3 Amended and Restated By-Laws of Fremont General Corporation. (Filed as Exhibit No. 3.3 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 4.1 Form of Stock Certificate for Common Stock of the Registrant. (Filed as Exhibit No. (1) Form 8-A filed on March 17, 1993, Commission File Number 1-8007, and incorporated herein by reference.) 4.2 Indenture with respect to Liquid Yield Option Notes Due 2013 between the Registrant and Bankers Trust Company. (Filed as Exhibit No. 4.4 to Registration Statement on Form S-3 filed on October 1, 1993, and incorporated herein by reference.) 4.3 Indenture among the Registrant, the Trust and First Interstate Bank of California, a California banking corporation, as trustee. (Filed as Exhibit No. 4.3 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 4.4 Declaration of Trust among the Registrant, the Regular Trustees and The Chase Manhattan Bank (USA), a Delaware banking corporation, as Delaware trustee. (Filed as Exhibit No. 4.4 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 4.5 Amended and Restated Declaration of Trust among the Registrant, the Regular Trustees, The Chase Manhattan Bank (USA), a Delaware banking corporation, as Delaware trustee, and The Chase Manhattan Bank, N.A., a national banking association, as Institutional Trustee. (Filed as Exhibit No. 4.5 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 4.6 Preferred Securities Guarantee Agreement between the Registrant and The Chase Manhattan Bank, N.A., a national banking association, as Preferred Guarantee Trustee. (Filed as Exhibit No. 4.6 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 4.7 Common Securities Guarantee Agreement by the Registrant. (Filed as Exhibit No. 4.7 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) EXHIBIT SEQUENTIALLY NUMBER DOCUMENT NUMBERED PAGE - ------- -------- ------------- 4.8 Form of Preferred Securities. (Included in Exhibit 4.5). (Filed as Exhibit No. 4.8 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 4.9 Form of 9% Junior Subordinated Debenture. (Included in Exhibit 4.3). (Filed as Exhibit No. 4.9 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.1 Fremont General Corporation Employee Stock Ownership Plan as amended. (Filed as Exhibit No. 10.1 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference. 10.2 Amended and Restated Trust Agreement for Fremont General Corporation Employee Stock Ownership Plan. (Filed as Exhibit No. 10.2 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.3 Fremont General Corporation and Affiliated Companies Investment Incentive Program as amended. (Filed as Exhibit No. 10.3 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.4 (a)Trust Agreement for Investment Incentive Program. (Filed as Exhibit No. (10)(xi) to Annual Report on Form 10-K, for the Fiscal Year Ended December 31, 1993, Commission File Number 1-8007, and incorporated herein by reference.) 10.4 (b)Amendment to Trust Agreement for Investment Incentive Program. (Filed as Exhibit No. 10.4 (b) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.5 (a)Supplemental Retirement Plan of the Company. (Filed as Exhibit No. (10)(v) to Annual Report on Form 10-K, for the Fiscal Year Ended December 31, 1990, Commission File Number 1-8007, and incorporated herein by reference.) 10.5 (b)Amendment to Supplemental Retirement Plan. (Filed as Exhibit No. 10.5 (b) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.6 Trust Agreement for Supplemental Retirement Plan of the Company and the Senior Supplemental Retirement Plan of The Company, as amended. (Filed as Exhibit No. 10.6 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.7 Senior Supplemental Retirement Plan, as amended. (Filed as Exhibit No. 10.7 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.8 (a)Excess Benefit Plan of the Company. (Filed as Exhibit No. (10)(vi) to Annual Report on Form 10-K, for the Fiscal Year Ended December 31, 1993, Commission File Number 1-8007, and incorporated herein by reference.) 10.8 (b)Amendment to Excess Benefit Plan of the Company. (Filed as Exhibit No. 10.8 (b) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.8 (c)Trust Agreement for Excess Benefit Plan. (Filed as Exhibit No. 10.8 (c) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.9 Non-Qualified Stock Option Plan of 1989 of the Company. (Filed as Exhibit No. 10.9 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) EXHIBIT SEQUENTIALLY NUMBER DOCUMENT NUMBERED PAGE - ------- -------- ------------- 10.10 Long-Term Incentive Compensation Plan of the Company.(Filed as Exhibit No. 10.10 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.11 1995 Restricted Stock Award Plan. (Filed as Exhibit No. 10.11 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.12 Fremont General Corporation Employee Benefits Trust Agreement ("Grantor Trust") dated September 7, 1995 between the Company and Merrill Lynch Trust Company of California. (Filed as Exhibit No. 10.12 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.13 Employment Agreement between the Company and James A. McIntyre.(Filed as Exhibit No. (10)(i) to Quarterly Report on Form 10-Q for the period ended March 31, 1994, Commission File Number 1-8007, and incorporated herein by reference.) 10.14(a) Employment Agreement between the Company and Louis J.Rampino.(Filed as Exhibit No. 10.14 (a) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.14(b) Employment Agreement between the Company and Wayne R. Bailey.(Filed as Exhibit No. 10.14 (b) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.15 Management Continuity Agreement between the Company and Raymond G. Meyers. (Filed as Exhibit No. 10.15 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.16 1996 Management Incentive Compensation Plan of the Company. 10.17 Continuing Compensation Plan for Retired Directors. (Filed as Exhibit No. 10.17 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference. 10.18 Non-Employee Directors' Deferred Compensation Plan.(Filed as Exhibit No. 10.18 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.19(a) Amended and Restated Credit Agreement among Fremont General Corporation, Various Lending Institutions and the Chase Manhattan Bank, N.A., As Agent. (Filed as Exhibit No. (10)(xiii) to Quarterly Report on Form 10-Q for the period ended September 30, 1995, Commission File Number 1-08007, and incorporated herein by reference.) 10.19(b) Amendment to Credit Agreement. (Filed as Exhibit No. 10.19 (b) to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.20 Keep Well Agreement, dated as of August 24, 1995 by the Company in connection with the Credit Agreement among Fremont General Corporation, Various Lending Institutions and the Chase Manhattan Bank, N.A., As Agent. (Filed as Exhibit No. 10.20 to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission File Number 1-8007, and incorporated herein by reference.) 10.21 Credit Agreement $15,000,000 by and among Merrill Lynch Trust Company of California as trustee for the Fremont General Corporation Employee Stock Ownership Trust. The Plan Committee (hereinafter described) on behalf of the Fremont General Corporation Employee Stock Ownership Plan, Fremont General Corporation, and First Interstate Bank of California August 10, 1995. (Filed as Exhibit No. (10)(viii) to Quarterly Report on Form 10-Q for the period ended September 30, 1995, and incorporated herein by reference.) EXHIBIT SEQUENTIALLY NUMBER DOCUMENT NUMBERED PAGE - ------- -------- ------------- (11) Statement re: Computation of per share earnings. (27) Financial Data Schedule
EX-10 2 10.16-1996 MANAGEMENT INCENTIVE COMPENSATION PLAN FREMONT GENERAL CORPORATION & AFFILIATED COMPANIES 1996 MANAGEMENT INCENTIVE COMPENSATION PLAN INTRODUCTION The Management Incentive Compensation Plan ("Plan") is designed to encourage and reinforce management action and performance which results in achieving or exceeding established pre-tax earnings targets, and to reward participants for these achievements. The Company has set pre-tax earnings as the Plan's measurable objective, and individual participants are rewarded based on the earnings achieved in their respective profit centers. Some participants' bonuses are calculated partially on divisional results and partially on overall profit center results. The Plan is subject to approval each year by the Fremont General Corporation Board of Directors. STRUCTURE The Plan measures actual pre-tax earnings against a pre-determined target earnings range. Earnings achieved at target, or within a range of 80% to 120% of the target, generate a bonus pool which is calculated as a percentage of participant base salaries. Bonuses earned based upon actual earnings in this range will be between 50% of the participant's established target bonus and as much as 200% of such target, depending on position and grade ranking. Actual pre-tax earnings include an accounting accrual for anticipated bonus payments based on budget. * A target bonus is established for each participant at the beginning of the year based on salary grade and current salary. * The sum of all participants' target bonuses in each profit center is the target bonus fund for the Plan Year for that profit center. * The sum of all profit centers' target bonus funds is the total Corporate Target Bonus Fund for the Plan Year. * The actual bonus fund for each profit center depends upon pre-tax earnings in relation to the target for the year. -1- * Individual participants' bonus awards will vary in relation to their profit centers' actual bonus fund. * If participants are added during the year, the fund is increased by the amount of their target bonuses. * If participants terminate during the year, the fund is decreased by the full amount of their target bonuses. * If a participant's duties change substantially during the year (resulting in a change in grade), the target bonus may be adjusted for that participant. For participants whose bonuses are determined in part by the pre-tax earnings of their branch, division or regional office and in part by overall regional or corporate results: * A bonus based on the overall results of the larger organization (the region or company) is awarded only where the corresponding branch, division or regional office result is at least 80% of its target. * A bonus based on branch, division or regional office results is awarded if those results are at least at 80% of target even if the results of the larger organization (region or company) fall short of their targets. ELIGIBILITY Officers and Managers of Fremont General Corporation and Participating subsidiaries, as designated by the Board of Directors, are eligible for bonus consideration. * Participants must be actively employed in a participating entity of the Corporation at the end of the Plan Year to be eligible for bonus payments. * Designated participants must qualify for an actual bonus award. To Qualify, the Participant MUST: - be actively employed at the time the bonus is awarded; - have achieved a personal performance appraisal evaluation of "Satisfactory" (or equivalent rating) or better. -2- TERMINATIONS * If terminated for reasons of death, disability or retirement after age 60 and such event: a) occurs during first half of the Plan Year: No bonus awarded; b) during last half of the Plan Year: Payment on a prorated basis at normal time of award; c) between year end and time of award: Payment in full at normal time of award. * Termination for cause will result in forfeiture of all rights to bonus consideration. * Termination for other reasons: In the event of a voluntary resignation prior to actual award of a bonus, the participant will forfeit any bonus. Layoffs or other non-disciplinary terminations will not necessarily cause forfeiture of an otherwise earned bonus. -3- EX-11 3 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Statement Re: Computation of per share earnings Fremont General Corporation
THREE MONTHS ENDED MARCH 31, 1996 1995* ------------ ------------ (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Primary: Weighted average shares outstanding 24,837 25,390 Net effect of dilutive stock options - based on the treasury stock method using average market price 965 432 ------------ ------------ Total 25,802 25,823 ============ ============ Net income $18,517 $14,206 ============ ============ Per share amount $0.72 $0.55 ============ ============ Fully Diluted: Weighted average shares outstanding 24,837 25,390 Net effect of dilutive stock options - based on the treasury stock method using the quarter-end market price, if higher than average market price 965 432 Assumed conversion of LYONs 7,208 7,208 ------------ ------------ Total 33,010 33,030 ============ ============ Net income $18,517 $14,206 Income adjustments for fully diluted computation: Add interest expense and amortization of prepaid expense, net of federal income tax, for assumed conversion of LYONs 1,166 1,027 ------------ ------------ Total $19,683 $15,233 ============ ============ Per share amount $0.60 $0.46 ============ ============ * Adjusted retroactively for all stock splits and dividends.
EX-27 4 FINANCIAL DATA SCHEDULE
7 This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. 0000038984 FREMONT GENERAL CORPORATION 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1,400,789 0 0 355,210 0 0 3,547,898 42,565 16,126 27,424 4,549,305 1,781,865 103,130 0 39,055 806,887 25,393 100,000 0 429,945 4,549,305 126,677 33,777 (661) 43,840 93,677 25,520 6,899 27,231 8,714 18,517 0 0 0 18,517 0.72 0.60 0 0 0 0 0 0 0 Includes loans receivable and short-term investments. Sum of Additional paid-in-capital, Retained earnings, Deferred Compensation and Net unrealized gain (loss) on investments. Includes Loan interest and Other revenue.
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