<PAGE>
 
                                                    EXHIBIT 10.5 (vii)

                                Amendment No. 1
                            To Severance Agreement
                                    Between
                            US Facilities Ccorporation
                                       And
                                David L. Cargile
                                 ---------------

      Whereas, US Facilities Corporation, a Delaware corporation (the
"Company"), and David L. Cargile (the "Executive") entered into a Severance
Agreement dated May 24, 1994 with respect to the termination of Executive's
employment with the Company (the "Agreement"); and

      Whereas, the Company and the Executive desire to amend Section 4(e) to
clarify the definition of events which constitute a "Change in Control" for
purposes of this Agreement and to amend Section 5(a) which defines the
obligations of the Company regarding salary and bonus termination payments to
Executive;

      Now, Therefore, in consideration of the Company's agreement to continue
the employment of Executive for a period of a minimum of six (6) months from the
date of this Amendment and the payment to Executive of $1.00 and other good and
valuable consideration, receipt of which is hereby acknowledged, the Company and
the Executive hereby agree to enter into this Amendment to the Agreement as
follows:

      1. Section 4(e) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 4(e), which shall read in full as follows:

                (e) For purposes of this Agreement, a "Change in Control" shall
      mean the occurrence, after the Effective Date hereof, of any of the
      following events if such events are not approved by the Board of Directors
      of the Company prior to their occurrence;

                                      -1-
<PAGE>
 
                    (i) At any time during the term of this Agreement, any
      "person" (as such term is used in Sections 13(d) and 14(d) of the
      Securities Exchange Act of 1934 (the "Exchange Act") and the regulations
      of the Securities and Exchange Commission (the "SEC") thereunder, each as
      in effect on the Effective Date of this Agreement (including any such
      persons that may be deemed to be acting in concert with respect to the
      Company or the acquisition, ownership or voting of Company securities)
      becomes, directly or indirectly, the "beneficial owner" (as defined in
      Rule 13d-3 under the Exchange Act and the regulations of the SEC
      thereunder, each as in effect on the Effective Date of this Agreement) of
      outstanding securities of the Company representing 10% or more of the
      combined voting power of the Company's then outstanding securities. For
      purposes of this subsection (i) of Section 4(e) of the Agreement, a person
      becomes, directly or indirectly, the beneficial owner of outstanding
      securities of the Company representing 10% or more of the combined voting
      power of the Company's outstanding securities when such person, together
      with all affiliates and associates of such person, acquires beneficial
      ownership of, in the aggregate, a number of voting shares of the Company
      equal to 1% or more of the voting shares then outstanding, and thereupon
      or thereafter beneficially owns (as defined in the aforenoted Rule 13d-3
      under the Exchange Act) 10% or more of the voting shares of the Company
      then outstanding; provided, however, that the concept of any person
      becoming the owner of 10% or more of the combined voting shares shall not
      include: (A) the Company, any wholly owned subsidiary of the Company, any
      employee benefit plan of the Company or of a subsidiary of the Company, or
      any person holding voting shares for or pursuant to the terms of any such
      employee benefit plan; or (B) any person if such person would not
      otherwise be a 10% stockholder but for a reduction in the number of
      outstanding voting shares resulting from a stock repurchase program or
      other similar plan instituted by the Company or from a self-tender offer
      of the Company, which plan or tender offer commenced on or after the
      Effective Date of this Agreement; provided, however, that the concept of
      becoming the owner of 10% or more of the combined voting shares shall
      include such beneficial owner after the first date upon which (x) such
      person, since the date of commencement of such plan or tender offer, shall
      have acquired beneficial ownership of, in the aggregate, a number of
      voting shares of the Company equal to 1% or more of the voting shares then
      outstanding, and (y) such person, together with all affiliates and
      associates of such person, shall beneficially own 10% or more of the
      voting shares of the Company then outstanding. In calculating the
      percentage of the person for purposes of this subsection, voting shares
      that are beneficially owned by such person shall be deemed outstanding,
      and voting shares that are not beneficially owned by such person and that
      are subject to issuance upon the exercise or conversion of outstanding
      conversion rights, exchange rights, rights (other than rights), warrants
      or options shall not be deemed outstanding. Any determination made by the
      directors as to whether any person is or is not a 10% stockholder for
      purposes of this subsection shall be conclusive and binding upon the
      Company and upon all stockholders;

                                      -2-
<PAGE>
 
                   (ii) At any time during the term of this Agreement the
      composition of the Board of Directors of the Company is changed such that
      persons who were directors of the Company as of the Effective Date, or
      persons nominated or elected as directors by a majority of such persons
      who were directors as of the Effective Date, do not continue to comprise a
      majority of the members of such Board of Directors of the Company;

                  (iii)  At any time during the term of this Agreement the
      stockholders of the Company approve a merger or consolidation of the
      Company with, or a reorganization transaction involving the Company and,
      any other entity, other than a merger, consolidation or reorganization
      which would result in the voting securities of the Company outstanding
      immediately prior thereto continuing to represent (either by remaining
      outstanding or by being converted into voting securities of the surviving
      entity) at least 50% of the combined voting power of the voting securities
      of the Company or such surviving entity outstanding immediately after such
      merger or consolidation; or

                   (iv) At any time during the term of this Agreement the
      stockholders of the Company approve a plan of complete liquidation of the
      Company or an agreement for the sale or disposition by the Company of more
      than 50% of its consolidated assets.

      2. Section 5(a) of the Agreement as originally written shall be stricken
and eliminated from the Agreement, and shall be completely replaced by a new
Section 5(a), which shall read in full as follows:

                (a) Salary and Bonus: Subject to the limitations set forth in
      Section 7 hereof, the Company shall pay to the Executive that amount which
      is equal to his regular base salary, at the rate then in effect, for a
      period of three (3) years, plus a bonus in an amount which shall be equal
      to one-and-one-half (1 1/2) times the largest cash bonus actually received
      by Executive during his term of employment with the Company; provided,
      however, that if Executive shall have entered into an Employment Agreement
      with the Company which is in effect at the time of Executive's
      termination, then and in that event the Company and Executive agree that
      upon Executive's termination Executive shall be entitled to receive either
      (i) the salary and bonus termination payments under this Section 5(a), or
      (ii) the salary and bonus terminations payments provided for in such
      Employment Agreement, whichever salary and bonus termination payment is
      the greater; but under no conditions shall Executive be entitled to
      receive upon termination both the salary and bonus termination payments
      under this Severance Agreement and the salary and bonus termination
      payments under any such Employment Agreement.

                                      -3-
<PAGE>
 
      3. This Amendment shall be retroactive and shall be considered and deemed
to have been in effect as of May 24, 1994, the Effective Date of the Agreement,
which is the date when it was entered into by the parties hereto.

      4. Apart from this Amendment, the terms of the Agreement as entered into
on May 24, 1994 shall otherwise in all respects remain as originally written to
the extent that such terms do not conflict with or are inconsistent with this
Amendment.

      In Witness  Whereof,  this  Amendment  No. 1 has been  executed  by a duly
authorized  officer of the  Company  and by the  Executive  as of the 4th day of
December, 1996.
<TABLE> 
<S>                               <C>
      Company:                    US Facilities Corporation

                                  By /s/ JOSE A. VELASCO
                                  ----------------------------------------
                                  Jose A. Velasco
                                  Senior Vice President, Secretary
                                   and General Counsel


      Executive:                  /s/ DAVID L. CARGILE
                                  -----------------------------------------
                                  David L. Cargile
</TABLE> 

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