-----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, T1Jzib9YilUVTw/xTxUQTd1nWd4o/mfYlEOPBK71eXgrGw01XDCTlYyavprbZKCb CbrwCTkQcsf3YD4g4+WkJg== 0000912057-96-009341.txt : 19960515 0000912057-96-009341.hdr.sgml : 19960515 ACCESSION NUMBER: 0000912057-96-009341 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: US FACILITIES CORP CENTRAL INDEX KEY: 0000798085 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 330097221 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15196 FILM NUMBER: 96562331 BUSINESS ADDRESS: STREET 1: 650 TOWN CENTER DR STE 1600 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7145491600 MAIL ADDRESS: STREET 1: 650 TOWN CENTER DRIVE STREET 2: STE 1600 CITY: COSTA MESA STATE: CA ZIP: 92626-1925 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO 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: 0-15196 US FACILITIES CORPORATION ------------------------- (Exact name of Registrant as specified in its charter) DELAWARE 33-0097221 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 650 Town Center Drive, Suite 1600, Costa Mesa, CA 92626 -------------------------------------------------------- (Address of principal executive offices) (Zip code) (714)549-1600 ------------- (Registrant's telephone number, including area code) Not applicable -------------- (Former name, former address and former fiscal year, if changed since last report.) 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 _____ Number of shares outstanding of each class of the Registrant's Common Stock as of May 7, 1996: Common Stock, par value $.01 per share: 5,838,098 Common Stock Purchase Rights: 5,838,098 INDEX Part I FINANCIAL INFORMATION Item 1. FINANCIAL INFORMATION Condensed Consolidated Financial Statements: Balance Sheets as of March 31, 1996 and December 31, 1995. . . . . . . . . . . . . . . . . . . . . . 3 Income Statements for the Quarters Ended March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . 4 Statements of Stockholders' Equity at March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . 5 Statements of Cash Flows for the Quarters Ended March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . 6 Notes to Condensed Consolidated Financial Statements. . . . . . 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 8 Part II OTHER INFORMATION Item 6. EXHIBITS and REPORTS ON FORM 8-K . . . . . . . . . . . . . . 13 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Financial Statements: US FACILITIES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (000 omitted) ASSETS
March 31, 1996 December 31,1995 -------------- ---------------- Investments, at market (amortized cost $168,288 at March 31,1996, $159,333 at December 31,1995) $174,418 $170,258 Cash and invested cash 7,917 8,165 Restricted cash and short term investments 23,025 24,036 Accrued investment income 2,157 2,414 Receivables: Reinsurance losses and reserves 19,308 18,597 Premiums 13,285 14,065 Prepaid reinsurance premiums 5,551 5,117 Deferred policy acquisition costs 2,628 2,830 Other assets 4,668 4,390 -------- -------- Total assets $252,957 $249,872 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Insurance liabilities: Amounts due insurance companies $ 25,008 $ 25,712 Losses and loss adjustment expenses 82,270 78,894 Unearned premiums 18,572 17,705 Note payable 35,000 35,000 Accounts payable and accrued expenses 3,127 4,500 -------- -------- Total liabilities 163,977 161,811 Stockholders' Equity 88,980 88,061 -------- -------- Total liabilities and stockholders' equity $252,957 $249,872 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 US FACILITIES CORPORATION CONDENSED CONSOLIDATED INCOME STATEMENTS (000 omitted, except per share data)
Quarter ended March 31, ----------------------- 1996 1995 ---- ---- Revenues: Premiums earned $29,152 $26,695 Commissions and fees 6,589 6,420 Net investment income 2,442 2,164 Realized investment gains 735 180 ------- ------- Total revenues 38,918 35,459 ------- ------- Operating Expenses: Losses and loss adjustment expenses incurred 20,842 17,640 Policy acquisition expenses 8,874 8,760 General and administrative expenses 3,545 4,785 Interest 680 542 ------- ------- Total operating expenses 33,941 31,727 ------- ------- Income before income taxes 4,977 3,732 Income tax expense 1,169 810 ------- ------- Net income $ 3,808 $ 2,922 ======= ======= Net income per common and common equivalent share $ 0.64 $ 0.52 ======= ======= Weighted average number of common and common equivalent shares outstanding during period 5,979 5,589 ======= =======
See accompanying notes to condensed consolidated financial statements. 4 US FACILITIES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (000 omitted)
Net unrealized Common Paid in gain(loss) Retained Treasury stock capital on securities earnings stock Total ------ ------- ------------- -------- -------- ----- Balance at December 31, 1994 $59 $44,261 $(2,637) $26,544 $(5,148) $63,079 Net Income -- -- -- 2,922 -- 2,922 Dividends paid -- -- -- (272) -- (272) Exercise of stock options -- (127) -- -- 1,074 947 Unrealized investment gain, net -- -- 3,624 -- -- 3,624 --- ------- ------- ------- ------- ------- Balance at March 31, 1995 $59 $44,134 $ 987 $29,194 $(4,074) $70,300 === ======= ======= ======= ======= ======= Balance at December 31, 1995 $61 $44,489 $ 7,211 $39,273 $(2,973) $88,061 Net Income -- -- -- 3,808 -- 3,808 Dividends paid -- -- -- (350) -- (350) Exercise of stock options -- 197 -- -- 429 626 Unrealized investment loss, net -- -- (3,165) -- -- (3,165) --- ------- ------- ------- ------- ------- Balance at March 31, 1996 $61 $44,686 $ 4,046 $42,731 $(2,544) $88,980 === ======= ======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements. 5 US FACILITIES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (000 omitted)
Quarter Ended March 31, ----------------------- 1996 1995 ---- ---- Cash provided by operating activities $ 7,787 $ 321 Cash flows from investing activities: Purchases of fixed maturity investments (11,835) (38,332) Purchases of equity securities (487) (337) Proceeds from sales of investment securities 10,619 26,910 Net sales (purchases) of short term investments (6,365) 12,464 Purchases of property and equipment (243) (71) -------- -------- Cash (used in) provided by investing activities (8,311) 634 -------- -------- Cash flows from financing activities: Dividends paid (350) (272) Exercise of stock options 626 947 -------- -------- Cash provided by financing activities 276 675 -------- -------- Net (decrease) increase in cash and invested cash (248) 1,630 Cash and invested cash at beginning of period 8,165 4,502 -------- -------- Cash and invested cash at end of period $ 7,917 $ 6,132 ======== ======== Supplemental disclosure of cash flow information: Interest paid $ -- $ -- ======== ======== Income taxes paid, net $ 61 $ 5 ======== ========
See accompanying notes to condensed consolidated financial statements. 6 US FACILITIES CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. General. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31,1996 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31,1995 included in the US Facilities Corporation (the "Company") 1995 Annual Report to Stockholders. 2. Note Payable Effective March 29, 1996, the Company renegotiated its bank Credit Agreement to extend the commencement of required principal reductions and maturity by one year, and reduce the applicable interest margin from 2% to 1.75% over LIBOR. Mandatory principal reductions now commence in March 1997, and the Note matures December 31, 2002. At March 31, 1996, the Company was in compliance with all covenants of the Credit Agreement. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The Company's consolidated revenues for the 1996 first quarter increased 10% to $38,918,000 from $35,459,000 in the 1995 quarter. Revenue growth resulted from: increases in premiums earned in both of the Company's business segments; a 13% increase in net investment income resulting from higher levels of invested assets; and the effect of first quarter 1996 realized gains. The increase in realized gains in 1996 primarily resulted from two transactions. These levels of realized gains are not expected to continue during 1996. Consolidated net income increased 30% to $3,808,000 in the 1996 quarter from $2,922,000 in the 1995 quarter. The increase in net income reflects improved profitability primarily due to a 26% decline in consolidated general and administrative expenses. Such decline is due to the Company's continuing focus on cost control and its emphasis on increasing productivity, as well as the effect in the 1995 quarter of $695,000 pre-tax expenses pertaining to the resignation of the Company's former Chief Executive Officer. Income tax expense as a percentage of pre-tax income fluctuates depending on the proportion of tax-exempt investment income to total pre-tax income. The statutory combined ratio is the traditional indicator of the potential underwriting profitability of an insurance company's business. The Company's statutory combined ratio was 102.4 and 100.2 for the quarters ended March 31, 1996 and 1995, respectively. BUSINESS SEGMENTS The Company conducts business primarily in two business segments which are classified as: (a) MEDICAL, which includes all commission and fee-based revenues of the Company and reinsurance of 50% of the medical stop-loss and provider excess business generated by the Company's wholly owned subsidiary, USBenefits Insurance Services, Inc. ("USBenefits"). USBenefits acts primarily as the underwriting manager and marketing organization for medical stop-loss and provider excess coverages issued by The Continental Insurance Company, one of the CNA Insurance Companies, an unaffiliated party. Provider excess coverage is specifically designed to address the risk hospitals and physician groups are facing from a managed care environment under capitated fee arrangements. USBenefits also provides other employee benefit related 8 products. This business segment has been referred to in the Company's previous filings as the "medical stop-loss and employee benefit products" segment. (b) PROPERTY/CASUALTY insurance and reinsurance underwriting is conducted by the Company's wholly-owned subsidiaries, USF RE INSURANCE COMPANY ("USF RE") and USF Insurance Company ("USFIC"). USF RE assumes property/casualty reinsurance from unaffiliated insurance companies primarily through reinsurance intermediaries, and USFIC writes surplus lines insurance through independent excess and surplus lines brokers. The tables set forth below present pre-tax operating information by business segment and holding company operations (including realized gains) for the quarters ended March 31, 1996 and 1995, respectively. MEDICAL (000 omitted)
Quarter Ended March 31 -------- 1996 1995 % CHANGE ---- ---- -------- Revenues: Premiums earned $20,321 $19,572 4% Commissions and fees 6,589 6,420 3% Investment income 749 744 -- ------- ------- ---- Total revenues 27,659 26,736 3% ------- ------- ---- Expenses: Losses and loss adjustment 13,838 12,823 8% Policy acquisition 6,856 6,422 7% General and administrative 2,472 3,047 (19)% ------- ------- ---- Total expenses 23,166 22,292 4% ------- ------- ---- Income before income taxes $ 4,493 $ 4,444 1% ======= ======= ====
Medical segment production increased 4% in the 1996 quarter over the 1995 quarter, generating the changes noted above in premiums earned and commissions and fees revenues, in spite of a competitive pricing environment. In turn, loss and loss adjustment expenses in 1996 as compared to 1995 reflect increases in the cost of healthcare which are not mitigated by increases in premium rates due to price competition, as well as higher losses incurred related to the provider excess business. 9 The segment information presented in the table above includes pre-tax losses of $342,000 for the quarter ended March 31, 1995 from the Company's medical bill review operations which were closed effective May 31, 1995. PROPERTY/CASUALTY (000 omitted)
Quarter Ended March 31 -------- 1996 1995 % CHANGE ---- ---- -------- Revenues: Premiums earned $ 8,831 $7,123 24% Investment income 1,674 1,407 19% ------- ------ ---- Total revenues 10,505 8,530 23% ------- ------ ---- Expenses: Losses and loss adjustment 7,004 4,817 45% Policy acquisition 2,018 2,338 (14)% General and administrative 850 891 (5)% ------- ------ ---- Total expenses 9,872 8,046 23% ------- ------ ---- Income before income taxes $ 633 $ 484 31% ======= ====== ====
The increase in premiums earned during the first quarter of 1996 over the 1995 period primarily resulted from the continuing growth of property/casualty operations due to ongoing focused marketing efforts and expansion of its client base. Increases in losses and loss adjustment expenses in 1996 as compared to 1995 reflect the Company's continued growth of the casualty business which is reserved at a higher formula loss ratio than property lines, offset in part by the 1995 withdrawal from the plate glass business which generally had a lower loss ratio and higher acquisition expenses. The decrease in policy acquisition expenses in 1996 as compared to 1995 results from a shift in the mix of business and modification of reinsurance arrangements. 10 HOLDING COMPANY (000 omitted)
Quarter ended March 31 ------------- 1996 1995 % CHANGE ---- ---- -------- Revenues: Investment income $ 19 $ 13 5% Realized gains 735 180 308% ----- ------- --- Total revenues 754 193 291% ----- ------- --- Expenses: General and administrative 223 847 (74)% Interest 680 542 25% ----- ------- ---- Total expenses 903 1,389 (35)% ----- ------- ----- Loss before income taxes $(149) $(1,196) (88)% ====== ======== =====
In November, 1995 the Company increased its bank loan by $10,000,000, resulting in higher interest expenses in 1996 as compared to 1995. These funds were contributed to the surplus of USF RE to support additional premium growth. ACCOUNTING POLICIES Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" issued in October 1995, will be adopted by the Company for the year ending December 31, 1996. Adoption is not expected to have a material effect on the financial statements of the Company. INFLATION The healthcare marketplace has long been subject to the effects of increasing costs for provider services. Such inflation in the costs of healthcare tends to generate higher claims payments, resulting in increases in premiums for medical stop-loss coverage, and in greater revenues. Management believes various cost control initiatives and the trend to self-insured plans have stabilized the price spiral and have caused a decline in the rate of increase in the cost of healthcare. 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 made no explicit provisions for inflation, but trends are considered when setting underwriting terms and claim reserves. Such reserves are subjected to a continuing internal and external review process to assess their adequacy and 11 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, investment income and commissions and fees. 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. As discussed in Note 2 to the Condensed Consolidated Financial Statements, the Company renegotiated its Credit Agreement effective March 29, 1996. The Credit Agreement with the Company's lender contains certain covenants, restrictions and dividend payment limitations with which the Company was in compliance at March 31, 1996. 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 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 March 31, 1996, 99% of the fixed income portfolio was in securities 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. LEGISLATIVE AND REGULATORY DEVELOPMENTS Federal healthcare legislative proposals, which were extensively considered but not adopted by the 103rd Congress (1993-1994), have been under consideration by the current Congress. As with prior efforts, such proposals concern government regulation and control of the financing and delivery of healthcare, including the scope of the present preemptive provisions of the Employee Retirement Income Security Act of 1974 ("ERISA") that affect self-insured healthcare plans. Recently, the House of Representatives and the Senate adopted separate healthcare insurance reform bills. A House and Senate conference committee will attempt to reconcile the different provisions of these bills, some of which concern self-insured plans, including additional reporting requirements and greater market access for groups of small employers. Legislative action on the reconciled bills is expected in the near future. 12 The National Association of Insurance Commissioners ("NAIC") adopted in September 1995 a model act that would regulate medical stop-loss policies. The principal feature of the model act is a recommendation that stop-loss policies contain a minimum specific attachment point (the amount of risk an employer retains for itself). In order to be effective in any state, the NAIC model act would have to be adopted by legislative action in such state. Management believes that few states will adopt the model act, but some may adopt it with specific attachment point requirements lower than the level recommended by the model act. Management also believes that if adopted by a state, the model act will be challenged on the basis that it is preempted by ERISA. The Company cannot predict at this time the extent to which the federal or state legislative or regulatory initiatives discussed above will be adopted, or the extent of the impact they would have on the Company's business. Management believes, however, that changes to the healthcare system which ultimately may be adopted will continue to recognize employers' self-insurance of healthcare benefits as a viable and cost effective method of financing healthcare. Management further believes such changes will not have a significant effect on its medical stop-loss business, and that its medical segment products will remain a source of revenues to the Company. Some of the statements included within Management's Discussion and Analysis of Financial Condition and Results of Operations and in the Condensed 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), and 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 the following: 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; stock and bond market volatility; the effects of competitive market pressures within the stop-loss or property/casualty marketplaces; the effect of changes required by generally accepted accounting principles or statutory accounting principles; and other risks which are described from time to time in the Company's filings with the Securities and Exchange Commission. PART II OTHER INFORMATION Item 6. EXHIBITS and REPORTS ON FORM 8-K. (a) The following is a list of exhibits required to be filed as part of this Form 10-Q by Item 601 of Regulation S-K: 13 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 on October 31, 1986 (the "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 US Facilities Corporation, 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, and incorporated herein by this reference. 4.3 Common Stock Certificate of US Facilities Corporation. Filed as Exhibit 4.1 to the Company's Registration Statement, and incorporated herein by this reference. 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. 10.1* First Amendment to the Credit Agreement dated as of March 29, 1996, between the US Facilities Corporation and Fleet National Bank of Connecticut. 11* US Facilities Corporation and Subsidiaries Computation of Earnings Per Share. * Describes the exhibits filed with this Quarterly Report on Form 10-Q. 14 15* Independent Auditors' letter regarding unaudited interim financial information. 27* Financial Data Schedules (b) No reports on Form 8-K were filed by the Company during the quarter ended March 31, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. US FACILITIES CORPORATION Date: May 13, 1996 By: /S/DAVID L. CARGILE ------------------------------- DAVID L. CARGILE Chairman of the Board, President and Chief Executive Officer Date: May 13, 1996 By: /S/MARK BURKE ------------------------------- MARK BURKE Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) * Describes the exhibits filed with this Quarterly Report on Form 10-Q. 15 EX-10.1 2 EXHIBIT 10.1 EXHIBIT 10.1 FIRST AMENDMENT TO THE CREDIT AGREEMENT Dated as of March 29, 1996 This FIRST AMENDMENT dated as of March 29, 1996 (this "First Amendment") is between US FACILITIES CORPORATION, a Delaware corporation (the "Borrower"), and FLEET NATIONAL BANK OF CONNECTICUT, a national banking association, formerly known as Shawmut Bank Connecticut, N.A. (the "Bank"). PRELIMINARY STATEMENTS. The Borrower and the Bank entered into a Credit Agreement dated as of December 20, 1994 (the "Credit Agreement"). The Borrower and the Bank wish to amend the Credit Agreement, to, among other things, extend the Revolving Loan Termination Date and defer the date of the commencement of the Mandatory Quarterly Commitment Reduction. NOW, THEREFORE, the Borrower and the Bank agree as follows: Section 1. AMENDMENTS TO THE CREDIT AGREEMENT. Effective as of the effective date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, the Credit Agreement is hereby amended as follows: (a) SECTION 1.1 (DEFINITIONS) of the Credit Agreement is amended by substituting for subparagraph (c) of the defined term "Applicable Margin" the following: "(c) with respect to Eurodollar Rate Loans, the rate per annum for each rating level period set forth in the schedule below: Applicable Margin ----------------- Level I Period 1.75% Level II Period 1.50% (b) SECTION 1.1 (DEFINITIONS) of the Credit Agreement is amended by substituting for the defined term "Revolving Loan Termination Date" the following: - 2 - "REVOLVING LOAN TERMINATION DATE" means December 31, 2002. If such date is not a Business Day, the Revolving Loan Termination Date shall be the next preceding Business Day. (c) SUBSECTION (B) OF SECTION 2.5 (MANDATORY QUARTERLY REDUCTION OF COMMITMENT) of the Credit Agreement is replaced with the following: "(b) Commencing on March 31, 1997 and continuing on each succeeding June 30, September 30, December 31 and March 31 thereafter until the Revolving Loan Termination Date, the Commitment of the Bank to make Revolving Loans A shall be reduced automatically by the amounts set forth in the following table:
Mandatory Quarterly Year Commitment/Principal Reduction ---- ------------------------------ January 1, 1997 - December 31, 1997 $625,000 January 1, 1998 - December 31, 1998 $1,325,000 January 1, 1999 - Revolving Loan Termination Date $1,700,000
After the Commitment to make Revolving Loans A has been reduced to zero, the above reduction amounts shall be applied to pay the outstanding principal balance of the Revolving Loans B." (d) SECTION 7.10 MINIMUM STATUTORY SURPLUS of the Credit Agreement is replaced with the following: "Section 7.10. MINIMUM STATUTORY SURPLUS. As of the end of any fiscal quarter, permit Statutory Surplus of USF RE to be less than an amount equal to the sum of (a) $80,000,000 plus (b) 75% of any positive Statutory Net Income, after dividends to the Borrower, for each fiscal quarter following the fiscal quarter ending December 31, 1995, plus (c) any contributions to surplus made by the Borrower to USF RE, from Revolving Loans or otherwise, during each fiscal quarter following the fiscal quarter ending December 31, 1995." (e) SECTION 7.11 MINIMUM CONSOLIDATED GAAP NET WORTH of the Credit Agreement is replaced with the following: - 3 - "Section 7.11. MINIMUM CONSOLIDATED GAAP NET WORTH. As of the end of any fiscal quarter, permit Consolidated GAAP Net Worth of the Borrower and its Subsidiaries to be less than an amount equal to the sum of (a) $75,000,000, plus (b) 50% of cumulative positive net income (as determined in accordance with GAAP) for each fiscal quarter following the fiscal quarter ending December 31, 1995, plus (c) the amount of paid-in capital resulting from any issuance by the Borrower of its capital stock after December 20, 1994." (f) SECTION 7.10 MINIMUM STATUTORY SURPLUS of Attachment 3 to Exhibit C of the Credit Agreement is replaced with the following: "Section 7.10. MINIMUM STATUTORY SURPLUS 1. Statutory Surplus of USF RE as of the fiscal quarter ending ____________, 199_ = ________________ 2. Positive Statutory Net Income for each fiscal quarter following the fiscal quarter ended December 31, 1995 was : [Include data for each quarter, as applicable] 2a. The sum of positive Statutory Net Income for each of the quarters set forth in Line 2 above = _______________ 2b. 75% of line 2a = _______________ 3. Contributions to surplus made by Borrower to USF RE during each fiscal quarter following the fiscal quarter ended December 31, 1995 were: [Include data for each quarter, as applicable] 3a. The sum of the contributions for each of the quarters set forth in line 3 above = _______________ 4. The sum of $80,000,000 and line 2b and line 3a = _______________ 5. Line 1 is not less than line 4." -4- (g) SECTION 7.11 MINIMUM CONSOLIDATED GAAP NET WORTH of Attachment 3 to Exhibit C of the Credit Agreement is replaced with the following: "Section 7.11. MINIMUM CONSOLIDATED GAAP NET WORTH 1. Consolidated GAAP Net Worth as of the fiscal quarter ending ______________, 199__. = ______ 2. Consolidated positive net income (as determined in accordance with GAAP) for each fiscal quarter following the fiscal quarter ended December 31, 1995 was: [INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE] 2a. The sum of the positive net income for each of the quarters set forth in Line 2 above = ______ 2b. 50% of line 2a = ______ 3. Paid-in capital resulting from any issuance by the Borrower of its capital stock = ______ 4. The sum of $75,000,0000 and line 2b and line 3 = ______ 5. Line 1 is not less than line 4." Section 2. CONDITIONS OF EFFECTIVENESS. This First Amendment shall become effective when, and only when, the Bank shall have received a counterpart of this First Amendment executed by the Borrower and shall have additionally received, in form and substance satisfactory to the Bank: (a) A certificate of a Senior Officer of the Borrower stating that: (i) the representations and warranties contained in Article 5 of the Credit Agreement are correct on and as of the date of such certificate as though made on and as of such date (or, if such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); (ii) no Event of Default or Default has occurred and is continuing or would result from the signing of this First Amendment or the transactions contemplated thereby; and (iii) there has been no material adverse change in the financial condition, operations, Properties, business or business prospects of the Borrower and its Subsidiaries, if any, since the date of the last Borrowing under this Agreement. -5- (b) A certificate of the Secretary or Assistant Secretary of the Borrower as to the following: (i) specimen signatures and incumbency of officers signing this First Amendment and all other documents, certificates and instruments delivered in connection herewith and therewith (collectively, the "Amendment Documents"); and (ii) that attached thereto is a true, complete and correct copy of the resolutions of the Board of Directors (or Executive Committee thereof) of the Borrower authorizing the transactions contemplated by the Amendment Documents, certified by the Secretary of the Borrower (which certificate shall state that such resolutions are in full force and effect on the date of the certificate). (c) All information and documents relating to the Borrower, as the Bank may reasonably request, all in form and substance satisfactory to the Bank and its special counsel. (d) Payment to the Bank of the $12,500 amendment fee. Section 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower represents as follows: (a) The execution, delivery and performance by the Borrower of this First Amendment have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of its shareholders; (ii) violate any provisions of its articles of incorporation or by-laws; (iii) violate any provision of, or require any filing, registration, consent or approval under, any law, rule, regulation (including without limitation, Regulation U and X), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to and binding upon the Borrower or any Subsidiary; (iv) result in a breach of or constitute a default or require any consent under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which the Borrower or any Subsidiary is a party or by which it or its Properties may be bound; or (v) result in, or require, the creation or imposition of any Lien upon or with respect to any of the Properties now owned or hereafter acquired by the Borrower. (b) No authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, or exemption by, any governmental or public body or authority, or any subdivision thereof, or any other Person, including without limitation, the California or Massachusetts Insurance Commissioner, is required to authorize, or is required in connection with the execution, delivery and performance by the Borrower of, or the legality, validity, binding effect or enforceability of, this First Amendment. -6- (c) This First Amendment constitutes the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally and by general principles of equity. (d) No actions, suits or proceedings or investigations (other than routine examinations performed by insurance regulatory authorities) are pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Subsidiary, or any Property of any of them before any court, governmental agency or arbitrator, which if determined adversely to the Borrower or any Subsidiary would in any one case or in the aggregate, materially adversely affect the financial condition, operations, Properties, business or, to the knowledge of the Borrower, prospects of the Borrower and its Subsidiaries taken as a whole or the ability of the Borrower to perform is obligations under the Credit Agreement, as amended by this First Amendment. (e) No information, exhibit or report furnished in writing by or on behalf of the Borrower or any officer or director of the Borrower to the Bank in connection with the negotiation of, or pursuant to the terms of, this First Amendment contained when made any material misstatement of fact or omitted to state a material fact necessary to make the statements contained therein not misleading. Section 4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT (a) Upon the effectiveness of this First Amendment, on and after the date hereof, each reference in the Credit Agreement to "this Credit Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be a reference to the Credit Agreement as amended thereby. (b) Except as specifically amended above, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this First Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Bank under the Credit Agreement, nor constitute a waiver of any provision of the Credit Agreement. Section 5. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all costs and expenses of the Bank in connection with the preparation, execution and delivery of this First Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Bank with respect thereto and with respect to advising the Bank as to its rights and responsibilities hereunder and thereunder. In addition, the Borrower shall pay any and all stamp and other taxes -7- payable or determined to be payable in connection with the execution and delivery of this First Amendment and the other instruments and documents to be delivered hereunder, and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. Section 6. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Section 7. GOVERNING LAW. This First Amendment shall be governed by, and construed in accordance with, the laws of the State of Connecticut. Section 8. DEFINED TERMS. Capitalized terms used herein which are not expressly defined herein shall have the meanings ascribed to them in the Credit Agreement. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. Accepted and agreed to as of the date first above written. US FACILITIES CORPORATION By: /s/ Mark Burke -------------------------------- Name: Title: FLEET NATIONAL BANK OF CONNECTICUT By: /s/ Robert B. Meditz -------------------------------- Name: Robert B. Meditz Title: Assistant Vice President EX-11 3 EXHIBIT 11 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 quarter ended March 31, as follows: (000 OMITTED)
1996 1995 ------ ------ Net Income $3,808 $2,922 ====== ====== Weighted average shares outstanding during the period 5,821 5,556 Common stock equivalent shares 158 33 ------ ------ Common and common stock equivalent shares outstanding for purposes of caluculating income per share 5,979 5,589 Incremental shares to reflect full dilution 2 40 ------ ------ Total shares for purpose of calculating fully diluted income per share 5,981 5,629 ====== ====== Primary net income per share $ 0.64 $ 0.52 ====== ====== Fully diluted net income per share $ 0.64 $ 0.52 ====== ======
EX-15 4 EXHIBIT 15 EXHIBIT 15 INDEPENDENT AUDITORS' REVIEW REPORT The Board of Directors and Shareholders US Facilities Corporation: We have reviewed the condensed consolidated balance sheet of US Facilities Corporation and subsidiaries as of March 31, 1996, and the related condensed consolidated income statements, statements of stockholders' equity and cash flows for the three-month periods ended March 31, 1996 and 1995. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of US Facilities Corporation and subsidiaries as of December 31, 1995, and the related consolidated income statements, statements of stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 6, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1995, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ KPMG PEAT MARWICK LLP Los Angeles, California April 26, 1996 EX-27 5 EXHIBIT 27 (FDS)
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 0 0 0 0 0 0 174,418 30,942 19,308 2,628 252,957 82,270 18,572 0 0 35,000 0 0 0 0 252,957 29,152 2,442 735 6,589 20,842 8,874 3,545 4,977 1,169 0 0 0 0 3,808 0.64 0.64 0 0 0 0 0 0 00
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