<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1998.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
AMERICAN NATIONAL FINANCIAL, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 6361 33-0731648
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
17911 VON KARMAN, SUITE 200
IRVINE, CALIFORNIA 92614
(949) 622-4700
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
MICHAEL C. LOWTHER
CHIEF EXECUTIVE OFFICER
17911 VON KARMAN, SUITE 200
IRVINE, CALIFORNIA 92614
(949) 622-4700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS G. BROCKINGTON, ESQ. NICK E. YOCCA, ESQ.
SCOTT SANTAGATA, ESQ. J. MICHAEL VAUGHN, ESQ.
RUTAN & TUCKER, LLP STRADLING YOCCA CARLSON & RAUTH
611 Anton Boulevard, Suite 1400 660 Newport Center Drive, Suite 1600
Costa Mesa, California 92626 Newport Beach, California 92660
(714) 641-5100 (949) 725-4000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value.................. 1,437,500 shares $12.00 $17,250,000 $5,088.75
Representative's Warrants(3)................ 125,000 shares .001 125 (3)
Common Stock, no par value(4)............... 125,000 shares $14.40 $1,800,000 $531.00
TOTAL....................................... $5,619.75
</TABLE>
(1) Includes 187,500 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the
registration fee.
(3) To be issued to the Representative of the several Underwriters. No fee
pursuant to Rule 457(g).
(4) Issuable upon exercise of the Representative's Warrants. Pursuant to Rule
416, there are also being registered such additional shares as may be issued
pursuant to the anti-dilution provisions of the Representative's Warrants.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 27, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
1,250,000 SHARES
[AMERICAN NATIONAL FINANCIAL, INC. LOGO]
COMMON STOCK
------------
All of the 1,250,000 shares of Common Stock (the "Common Stock") offered
hereby are being sold by American National Financial, Inc. (the "Company").
Prior to this offering there has been no public market for the Common Stock of
the Company. It is currently anticipated that the initial public offering price
of the Common Stock will be between $10.00 and $12.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
Fidelity National Financial, Inc. (NYSE:FNF) will own approximately 34% of
the Company's outstanding Common Stock upon the completion of this offering.
Application has been made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "ANFI."
----------------
FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING
ON PAGE 6 HEREOF.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total(3)................................................. $ $ $
</TABLE>
(1) Excludes additional compensation to Cruttenden Roth Incorporated, the
representative of the Underwriters (the "Representative") in the form of
warrants to purchase 125,000 shares of Common Stock, exercisable over a
period of four years commencing one year from the date of this Prospectus
(the "Representative's Warrants"). The Company has agreed to indemnify the
Underwriters against certain civil liabilities, including certain
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting offering expenses estimated to be approximately $570,000
payable by the Company, including $275,000 in the form of a nonaccountable
expense allowance.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to 187,500 additional shares of Common Stock solely to cover
over-allotments, if any (the "Over-Allotment Option"). If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
----------------
The shares of Common Stock are offered severally by the Underwriters named
herein subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to the right of the Underwriters to reject any order
in whole or in part and certain other conditions. It is expected that delivery
of the certificates for the Common Stock will be made against payment therefor
at the offices of Cruttenden Roth Incorporated, Irvine, California or through
the facilities of the Depository Trust Company, on or about , 1998.
[CRUTTENDEN ROTH INC. LOGO]
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[MAP]
This map shows the locations of the current Company offices (designated by
an "*"), and the states (shaded in blue) in which National Title Insurance of
New York Inc. is presently licensed to underwrite title insurance. American
Title Company, a subsidiary of the Company, has agreed to acquire National Title
Insurance of New York Inc., although the consummation of this acquisition is
subject to certain conditions. See "Risk Factors-- Risks Associated with the
Acquisition of National" and "Business--Acquisition of National."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE SHORT COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED IN
THIS PROSPECTUS, EXCEPT WHERE THE CONTEXT REQUIRES OTHERWISE, REFERENCES MADE TO
"ANFI" OR THE "COMPANY" MEAN AMERICAN NATIONAL FINANCIAL, INC. AND ITS
SUBSIDIARIES, AND REFERENCES TO THE "PREDECESSOR" OR "PREDECESSORS" MEAN THE
OPERATIONS DURING ALL PERIODS PRIOR TO JULY 1, 1997 OF VARIOUS SUBSIDIARIES OF
FIDELITY NATIONAL FINANCIAL, INC. ("FNFI") THAT ARE NOW OPERATED BY THE COMPANY
AND ITS SUBSIDIARIES. UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN
THIS PROSPECTUS (I) ASSUMES AN INITIAL PUBLIC OFFERING PRICE OF $11.00 PER
SHARE, (II) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION,
(III) ASSUMES NO EXERCISE OF ANY OTHER OUTSTANDING WARRANTS OR OPTIONS, (IV)
EXCEPT AS SET FORTH HEREIN GIVES PRO FORMA EFFECT TO THE REORGANIZATION
DESCRIBED HEREIN (SEE "REORGANIZATION"); AND (V) REFLECTS A 6.0528-FOR-1 SPLIT
OF THE COMPANY'S COMMON STOCK EFFECTED IN AUGUST 1998.
THE COMPANY
American National Financial, Inc. ("ANFI" or the "Company") provides title
insurance services as well as other real estate related financial and
informational services including escrow, real estate information, trustee sale
guarantees, and appraisals. In addition, the Company obtains specialized
services for its customers, which include, but are not limited to, tax reporting
services, exchange intermediary services and courier services. The Company's
business is focused on the residential real estate market, and it generates the
majority of its revenues from issuing title insurance policies as an independent
agent on behalf of a title underwriter. For the fiscal year ended December 31,
1997 and the six months ended June 30, 1998, title insurance premiums
represented approximately 63.8% and 60.6% of the Company's revenues,
respectively.
The title insurance industry consists of insurers ("underwriters") who issue
policies through direct operations or through agents. The Company's principal
subsidiary, American Title Company ("ATC"), is an agent, known in California as
an "underwritten title company."
ATC acts exclusively as an agent for Fidelity National Title Insurance
Company ("FNTIC") with respect to the procurement of title insurance policies in
13 selected counties in California and one county in Arizona, subject to certain
exceptions. FNTIC is a wholly owned subsidiary of FNFI (NYSE:FNF). Upon
completion of this offering, FNFI will own approximately 34% of the outstanding
Common Stock. ATC retains 88% of the title premiums collected on policies
issued. The remaining 12% is comprised of an 11% underwriting fee and a 1%
administrative service fee, both paid to FNTIC pursuant to ATC's agreement with
FNTIC. As an agent, ATC is not subject to the loss and reserve requirements
applicable to insurers, and under its agreement with FNTIC, ATC's liability is
limited to the first $5,000 of loss under any policy issued by it on behalf of
FNTIC, except in the case of negligence, or willful or reckless conduct. To
date, the Company has not incurred any material liability under its obligation
to reimburse FNTIC for such losses.
The Company has agreed to acquire National Title Insurance of New York Inc.
("National"), a New York underwriter licensed in 35 states and the U.S. Virgin
Islands, from a subsidiary of FNFI. The Company's planned acquisition of
National, which is subject to regulatory approval, is intended to facilitate the
Company's expansion into new markets and permit the Company to directly
underwrite the title insurance policies that it issues in geographic areas not
covered by the Company's exclusive relationship with FNTIC.
The Company provides a variety of other real estate transaction services, in
addition to title insurance, the most significant of which is escrow services.
Escrow services provided by the Company include all of those typically required
in connection with residential and commercial real estate purchase and finance
activities. Fees from escrow services represented approximately 22.0% of the
Company's and the Predecessors' revenues in 1997 and 23.7% of the Company's
revenues for the six months ended June 30, 1998.
The key elements of the Company's business strategy include: expanding
geographically into key markets through a combination of opening new offices,
teaming with local companies, and acquiring established operations; leveraging
the business relationships it develops through its title insurance business to
generate additional demand for its other services; recruiting highly qualified
personnel with business relationships that permit the expansion of the Company's
business; and pursuing strategic acquisitions of title insurance and related
real estate service companies in order to penetrate new markets.
The Company's principal executive offices are located at 17911 Von Karman,
Suite 200, Irvine, California 92614. The Company's telephone number is (949)
622-4700.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company...... 1,250,000 shares
Common Stock to be Outstanding after the
Offering(1)............................ 6,167,096 shares
Use of Proceeds.......................... To finance the acquisition of National and for
general corporate purposes, which may include
strategic acquisitions. See "Use of Proceeds"
and "Business-- Acquisition of National."
Proposed Nasdaq National Market Symbol... ANFI
</TABLE>
- ------------------------
(1) Excludes (i) 125,000 shares issuable upon exercise of the Representative's
Warrants, (ii) 332,904 shares issuable upon exercise of outstanding options
at an exercise price of $0.66 per share; and (iii) 650,000 shares reserved
for issuance under the Company's 1998 Stock Incentive Plan, of which 320,000
shares will be issuable, subject to certain vesting requirements, pursuant
to options to be granted upon consummation of this offering at an exercise
price equal to the initial public offering price. See "Management--Stock
Incentive Plan."
RISK FACTORS
Prospective investors should carefully consider the factors discussed in
detail elsewhere in this Prospectus under the caption "Risk Factors."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION(1)
(Dollars in thousands, except per share and other operating data)
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------------------------- COMPANY
-------------------
YEAR ENDED DECEMBER 31, SIX MONTHS YEAR ENDED
------------------------------------------ ENDED JUNE 30, DECEMBER 31,
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- ------------------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue..................... $ 18,576 $ 18,293 $ 29,721 $ 51,732 $ 25,141 $ 33,525
Personnel costs................... 9,810 13,917 18,512 29,216 14,364 16,185
Other operating expenses.......... 5,782 7,649 9,963 14,473 5,623 8,084
Title plant rent and
maintenance..................... 1,215 1,538 2,405 4,107 2,009 2,664
Fees to underwriters.............. 1,282 1,503 2,628 4,151 1,852 2,614
Income before minority interest... 280 (3,909) (2,400) (174) 743 2,204
Net income (loss)(4).............. 280 (3,909) (2,400) (174) 743 1,123
PER SHARE DATA:
Earnings per share:
Basic........................... $ 0.38
Diluted......................... $ 0.38
Weighted average common shares
outstanding:....................
Basic........................... 2,972
Diluted......................... 2,972
PRO FORMA DATA(6):
Net income........................ $ 3,108
Earnings per share:
Basic........................... $ 0.61
Diluted......................... $ 0.61
Weighted average common shares
outstanding:
Basic........................... 5,072
Diluted......................... 5,072
OTHER OPERATING DATA:
Files opened...................... 60,600 93,900 40,700 46,800
Files closed...................... 36,700 63,000 28,200 32,600
Average fee per file(7)........... $ 786 $ 773 $ 835 $ 886
<CAPTION>
SIX MONTHS ENDED JUNE
TOTAL
YEAR ENDED 30,
DECEMBER 31, ------------------------
1997 1997(2) 1998(3)
------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue..................... $ 58,666 $ 25,141 $ 45,275
Personnel costs................... 30,549 14,364 22,522
Other operating expenses.......... 13,707 5,623 7,775
Title plant rent and
maintenance..................... 4,673 2,009 3,016
Fees to underwriters.............. 4,466 1,852 3,300
Income before minority interest... 2,947 743 5,131
Net income (loss)(4).............. N/A(5) 743 3,086
PER SHARE DATA:
Earnings per share:
Basic........................... $ 1.06
Diluted......................... $ 1.01
Weighted average common shares
outstanding:....................
Basic........................... 2,918
Diluted......................... 3,060
PRO FORMA DATA(6):
Net income........................ $ 5,339
Earnings per share:
Basic........................... $ 1.06
Diluted......................... $ 1.03
Weighted average common shares
outstanding:
Basic........................... 5,018
Diluted......................... 5,160
OTHER OPERATING DATA:
Files opened...................... 87,500 40,700 65,600
Files closed...................... 60,800 28,200 44,500
Average fee per file(7)........... $ 863 $ 835 $ 834
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1998 (UNAUDITED)
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(8) AS ADJUSTED(8)(9)
--------- ------------- -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 6,154 $ 2,454 $ 14,602
Working capital....................................................... 8,612 5,976 18,125
Total assets.......................................................... 27,532 23,832 35,979
Long-term debt and capitalized leases................................. 7,123 2,223 2,223
Minority interest..................................................... 5,619 -- --
Shareholders' equity.................................................. 4,209 11,028 23,176
</TABLE>
- ----------------------------------
(1) The Company was incorporated in November 1996 and acquired 60% of the
outstanding common stock of ATC on July 1, 1997. Upon consummation of the
Reorganization (See "Reorganization"), the Company will acquire the
remaining 40% of the outstanding common stock of ATC. The summary financial
information set forth above includes financial information for the
Predecessor for the years ended December 31, 1993, 1994, 1995 and 1996, and
the six month period ended June 30, 1997, and historical information for the
Company for the year ended December 31, 1997 which includes the results of
operations of ATC for the six month period from July 1, 1997 to December 31,
1997, and from January 1, 1998 to June 30, 1998. The column captioned
"Total" reflects combined financial information for the Company and the
Predecessor for the period shown.
(2) Reflects only Predecessor financial information, which has been audited. The
Company's historical operating results for the six months ended June 30,
1997 were not significant.
(3) Reflects historical financial information of the Company.
(4) The statutory tax rate was 40% (combined federal and state) for each of the
periods presented. The effective tax rate fluctuates from period to period
based on the components of taxable income. The effective tax rate for the
six months ended June 30, 1998 was 41%, for the six months ended June 30,
1997 was 43% and for the twelve months ended December 31, 1997 (combined
Company and Predecessor) was 44.1%.
(5) Not applicable because the second six months of this period excludes the 40%
minority interest in ATC.
(6) To give effect to the Reorganization and assumes ATC had been acquired on
January 1, 1997. See "Reorganization."
(7) Average fee per file information consists of revenue divided by number of
closed files (not including revenue generated by, or closed files relating
to, the Company's Shortened Title Assurance Reports ("STAR Product"), which
are excluded due to the abbreviated characteristics of the policy). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(8) Gives pro forma effect to the Reorganization (see "Reorganization") and the
repayment of acquisition debt since June 30, 1998.
(9) Adjusted to give effect to the sale by the Company of 1,250,000 shares of
Common Stock offered hereby at the assumed initial public offering price of
$11.00 per share and the receipt of the estimated net proceeds therefrom.
See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
IN EVALUATING AN INVESTMENT IN THE COMMON STOCK BEING OFFERED HEREBY,
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS.
CYCLICAL NATURE OF REAL ESTATE MARKET
The title insurance industry is dependent on the volume of real estate
transactions that occur. Substantially all of the Company's title insurance,
escrow and other real estate service business results from sales and
refinancings of real estate, primarily residential properties, and from the
construction and sale of new properties. Real estate activity is cyclical in
nature and is highly sensitive to the cost and availability of long-term
mortgage funds and general economic conditions. Real estate activity and, in
turn, the Company's revenue base, can be adversely affected during periods of
high interest rates and/or limited money supply. Accordingly, no assurance can
be given that historical levels of premiums and fees received by the Company
will be available to the Company in the future.
GEOGRAPHIC CONCENTRATION
The Company derives substantially all of its revenues from real estate
transactions occurring in California. Due to the relatively high cost of real
estate in California, the real estate market may be more sensitive to
fluctuations in interest rates and general economic conditions than other
regions of the United States. Adverse economic conditions affecting the
California real estate market could have a material adverse effect on the
Company's business, financial condition and results of operations.
RISKS ASSOCIATED WITH THE RELATIONSHIP WITH FIDELITY NATIONAL FINANCIAL, INC.
The Company maintains a close relationship with FNFI and its subsidiaries
and relies upon them for a number of services in connection with its operations.
The Company has agreed that until June 30, 2002 it will act exclusively as an
agent for FNTIC with respect to the procurement of title insurance policies in
13 selected counties in California and one county in Arizona, subject to certain
exceptions. In exchange for a management fee, FNTIC provides a variety of
administrative services for ATC, including accounting, legal and human resources
services. The unexpected loss of FNTIC's underwriting or administrative
services, for any reason, could result in an interruption in the Company's
operations until such services are secured elsewhere, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Certain of FNFI's subsidiaries are competitors of the Company's in several
of the markets in which the Company operates. A director and certain officers of
the Company are also directors or officers of FNFI. Accordingly, there is a
possibility that the interests of the Company and FNFI might conflict. There can
be no assurance that the directors or officers of the Company, in satisfying
their fiduciary duties and the requirements of applicable statutory laws to
ensure such conflicts are properly resolved, can or will act in the best
interests of the Company.
RISKS ASSOCIATED WITH THE ACQUISITION OF NATIONAL
On March 16, 1998, ATC entered into a Stock Purchase Agreement with a
subsidiary of FNFI to acquire all of the outstanding capital stock of National
Title Insurance of New York Inc. ("National"). National, a New York based title
insurance underwriter, is currently licensed to issue title insurance policies
in 35 states and the U.S. Virgin Islands. ATC has requested regulatory approval
of this transaction from the Department of Insurance of the State of New York.
An element of the Company's business strategy is to utilize National not only as
a means to generate underwriting premiums but to expand geographically into
states where the Company's subsidiaries are not currently licensed. There can be
no assurance, however, that the required regulatory approval will be obtained
for the acquisition of National or that the acquisition will be completed. In
addition, National does not currently underwrite title
6
<PAGE>
insurance policies through direct operations or agency relationships and the
Company will be required to commit resources to establish direct operations and
agency relationships in order to realize the benefits of this acquisition. There
can be no assurance that the Company will be able to develop any business or
generate title insurance premiums through National, or that it will realize any
of the benefits anticipated from the acquisition of National. See
"Business--Business Strategy" and "Business--Acquisition of National."
COMPETITION
The title insurance business is very competitive, primarily in the areas of
service and expertise. The size and financial strength of the title insurer who
underwrites the policies are also important factors in decisions relating to the
purchase of title insurance. Many of the Company's competitors have greater
financial, personnel, marketing and other resources than the Company, and some
are underwritten by larger title insurance companies. Also, the removal of
regulatory barriers in the future might result in new competitors, including
financial institutions entering the title insurance business. Intense
competition among the more established title insurance companies and any such
new entrants could have a material adverse effect on the business, financial
condition and results of operations of the Company. See "Business--Competition."
RISKS RELATED TO POSSIBLE ACQUISITIONS
An element of the Company's business strategy is to expand its operations
through the acquisition of complementary businesses. Except for the acquisition
of National, the Company has no agreements, understandings or commitments and is
not currently engaged in negotiations with respect to any additional
acquisition. There can be no assurance that the Company will be able to
identify, acquire, profitably manage or successfully integrate any businesses
into the Company without incurring substantial expenses, delays or other
operational or financial problems. Moreover, competition for acquisition
candidates is intense, which could both increase the price of any acquisition
targets and decrease the number of attractive companies available for
acquisition. Furthermore, acquisitions involve a number of special risks,
including diversion of management's attention, failure to retain key acquired
personnel, increased costs to improve managerial, operational, financial and
administrative systems, legal liabilities, and amortization of acquired
intangible assets, some or all of which could materially and adversely affect
the Company's business, operating results and financial condition. The Company
may have to issue additional equity securities or incur indebtedness in order to
finance the acquisition of other businesses. In addition, there can be no
assurance that acquired businesses, if any, will achieve anticipated revenues
and earnings or performance at levels historically enjoyed by the Company. The
failure of the Company to manage its acquisition strategy successfully could
materially and adversely affect the Company's business, operating results and
financial condition. See "Business--Business Strategy."
MANAGEMENT OF GROWTH
The Company is currently experiencing significant growth and intends to
pursue further growth as part of its business strategy. The Company's ability to
effectively manage the growth of its operations will require it to continue to
improve its operational, financial and other internal systems and to attract,
develop, motivate and retain its employees. The Company's rapid growth has
presented and will continue to present numerous operational challenges, such as
the assimilation of financial reporting systems and will increase the demands on
the Company's senior management and the Company's systems and internal controls.
In addition, the Company's success depends in large part upon its ability to
attract, develop, motivate and retain talented employees with significant
industry experience and contacts. Such employees are currently in great demand
and there is significant competition for employees with the requisite skills and
experience from other national and regional title companies. There can be no
assurance that the Company will be able to attract and retain the qualified
personnel necessary to pursue its growth strategy.
7
<PAGE>
There can be no assurance that the Company will be able to maintain or
accelerate its current growth, effectively manage its expanding operations or
achieve planned growth on a timely or profitable basis. To the extent the
Company is unable to manage its growth effectively and efficiently, the
Company's business, financial condition and results of operations could be
materially and adversely affected. See "Business-- Business Strategy."
GOVERNMENT REGULATION OF SUBSIDIARIES
The Company's underwritten title company subsidiaries, ATC, Nations Title
Insurance of Arizona, Inc. and Santa Barbara Title Company, are subject to
regulation by the state insurance authorities of the various states in which
they transact business. The regulation of underwritten title companies is
generally limited to requirements to maintain specified levels of net worth and
working capital, and to obtain and maintain a license in each of the counties in
which it operates.
If ATC acquires National, it will be subject to more extensive regulations
by such authorities applicable to title insurance underwriters. The nature and
extent of such regulation of title insurance underwriters vary from jurisdiction
to jurisdiction, but typically involve regulation of dividend payments, prior
approval of the acquisition and control of a title company or of any company
controlling a title company, certain transactions entered into by a title
company with any of its affiliates, standards of solvency and minimum amounts of
capital surplus which must be maintained, limitations on types and amounts of
investments, restrictions on the size of risks which may be insured, approval of
policy forms and premium rates, methods of accounting, establishing reserves for
losses and loss adjustment expenses, underwriting and marketing practices, and
reinsurance. These regulations may impede, or impose burdensome conditions on,
rate increases or other actions that the Company might want to take to enhance
its operating results. Such regulation is generally intended for the protection
of policyholders rather than security holders. In addition, state regulatory
examiners perform periodic examination of title underwriters.
The insurance underwriter regulatory framework has recently been subject to
increased scrutiny by the National Association of Insurance Commissioners, state
legislators and insurance regulators in the United States Congress. No assurance
can be given that future legislative or regulatory changes resulting from such
activity will not adversely affect the Company or its subsidiaries.
DEPENDENCE ON KEY PERSONNEL
The success of the Company is highly dependent on the efforts of William P.
Foley, II, Chairman of the Board, Michael C. Lowther, Chief Executive Officer,
Wayne D. Diaz, President, Barbara A. Ferguson, Executive Vice President, Dennis
R. Duffy, Executive Vice President, and Carl A. Strunk, Executive Vice President
and Chief Financial Officer. The loss of services of Messrs. Foley, Lowther,
Diaz, Duffy, or Strunk, or Ms. Ferguson, or any of the Company's key executives,
for any reason, could materially and adversely affect the Company's business,
operating results and financial condition. The Company has entered into
five-year employment agreements with Mr. Lowther, Mr. Diaz, Ms. Ferguson and Mr.
Duffy. The Company does not maintain key man insurance on any of its executive
officers.
HOLDING COMPANY STRUCTURE; RELIANCE ON DIVIDENDS FROM SUBSIDIARIES
As a holding company whose principal assets include the securities of its
underwritten title company subsidiaries, the Company's ability to meet debt
service obligations and pay operating expenses and dividends, if authorized by
its Board of Directors, depends primarily on the receipt of sufficient dividends
from its subsidiaries. The insurance statutes and related regulations of
California and Arizona, among other states, require the maintenance of minimum
amounts of net worth, which may affect the underwritten title company's ability
to pay dividends to the Company.
8
<PAGE>
VARIABILITY IN QUARTERLY RESULTS
The Company may experience significant fluctuations in future quarterly
operating results due to a number of factors, including differences in the
timing of the recognition of revenues and expenses, changes in the mix of title
orders relating to refinancing transactions and real estate sale transactions,
the seasonality of the real estate industry, the fluctuation of interest rates
and general economic conditions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
BROAD DISCRETION AS TO USE OF PROCEEDS
The Company has allocated a substantial portion of the net proceeds to be
received in connection with this offering to increase the Company's funds
available for working capital and general corporate purposes. The Company's
management will have broad discretion to allocate the proceeds of the offering
and the purposes for which such funds are used may vary significantly depending
on a number of factors, including the amount of future revenues, the amount of
cash generated or used by the Company's operations and acquisition opportunities
presented to the Company.
CONTROL BY PRINCIPAL SHAREHOLDERS
Following the consummation of the offering, FNFI will beneficially own
approximately 34.1% of the Company's outstanding Common Stock (approximately
33.0% if the Underwriters' over-allotment option is exercised in full), and will
have the ability to control or significantly influence the election of directors
and the results of other matters submitted to a vote of shareholders. In
addition, Messrs. Lowther and Diaz, who are executive officers of the Company,
will collectively own approximately 31.7% of the Company's outstanding Common
Stock (approximately 30.7% if the Underwriters' over-allotment option is
exercised in full) after the consummation of the offering. Such concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company and may adversely affect the voting or other rights of other holders
of Common Stock. See "Management" and "Principal Shareholders."
SUBSTANTIAL DILUTION
The initial public offering price for the shares of Common Stock in this
offering is substantially higher than the net tangible book value per share of
Common Stock. Purchasers of the Common Stock offered hereby will therefore incur
an immediate substantial dilution in the amount of $7.73 per share in pro forma
net tangible book value. See "Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after the offering. The initial public
offering price will be determined by negotiations among the Company and the
Representative of the Underwriters and may bear no relationship to the Company's
book value, earnings history or other investment criterion or to the price at
which the Common Stock will trade after the offering. See "Underwriting" for
factors to be considered in determining the initial public offering price. The
Company believes that factors such as announcements of developments related to
the Company's business, the Company's failure to meet securities analysts'
expectations, general conditions in the real estate market and the economy,
acquisitions, and changes in government regulations could cause the price of the
Company's Common Stock to fluctuate, perhaps substantially. In addition, in
recent years the stock market has experienced extreme price and volume
fluctuations which have affected the market price of many service based
companies and which have at times been unrelated to the operating performance of
the specific companies whose stocks were affected. Such fluctuations could
adversely affect the market price of the Company's Common Stock. Pursuant to the
Bylaws of the NASD, the Common Stock will be
9
<PAGE>
offered at a price no greater than that recommended by a qualified independent
underwriter. See "Underwriting."
POTENTIAL ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of 5,000,000
shares of "blank check" preferred stock, which will have such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without shareholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the Company's Common Stock. In the event of such
issuance, the preferred stock could be utilized, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company. See "Description of Securities-- Preferred Stock."
SHARES ELIGIBLE FOR FUTURE SALE; EFFECT OF OUTSTANDING OPTIONS
Sales of a substantial number of shares of Common Stock including shares of
Common Stock issued upon the exercise of outstanding options and warrants in the
public market following the offering could adversely affect the market price for
the Common Stock. The officers, directors and substantially all other
shareholders of the Company have agreed not to sell or otherwise transfer any
Common Stock for 180 days following the date of this Prospectus without the
consent of the Representative on behalf of the Underwriters. The Company has
outstanding options to purchase 332,904 shares of Common Stock at an exercise
price of $0.66 per share. The Company intends to grant options to certain
directors and employees to purchase 320,000 shares of Common Stock at the
initial public offering price and subject to certain vesting requirements
pursuant to the Company's 1998 Stock Incentive Plan. The Company intends to
register all of such shares, as well as options to purchase an additional
330,000 shares reserved for issuance under the 1998 Stock Incentive Plan, on a
registration statement on Form S-8, shortly after the date of this Prospectus.
The possibility that substantial amounts of Common Stock may be sold in the
public market would likely have a material adverse effect on prevailing market
prices of the Common Stock and could impair the Company's ability to raise
capital through the sale of its equity securities. See "Shares Eligible for
Future Sale."
YEAR 2000 ISSUE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. As a result, any computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major system
failure or miscalculations. The Company has performed a review of its internal
systems to identify and resolve the effect of Year 2000 software issues on the
integrity and reliability of its financial and operational systems. The Company
has a plan to correct and test the programs affected by the conversion of a two
digit year to a four digit year. The final phase of the project is scheduled to
be completed by mid-1999. In addition, the Company is also communicating with
its principal service providers to ensure Year 2000 issues will not have an
adverse impact on the Company. Based upon its internal review and communications
with its principal service providers, the Company believes that the costs of
achieving Year 2000 compliance will not have a material adverse impact on the
Company's business, operations or financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Issues."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. Such forward-looking statements are
principally contained in the sections "Prospectus Summary,"
10
<PAGE>
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" and include, without limitation, (i) the
Company's expectation and estimates as to the Company's business operations
(including the introduction of new products or services) and future financial
performance (including growth in revenues and net income and cash flows); (ii)
the ability of the Company to finance its working capital requirements; (iii)
the Company's business strategy for expanding its presence in the title
insurance and real estate related services markets; and (iv) the Company's
ability to distinguish itself from its current and future competitors. In
addition, in those and other portions of this Prospectus, the words
"anticipates," "believes," "estimates," "expects," "plans," "intends" and
similar expressions, as they relate to the Company or its management, are
intended to identify forward-looking statements. These forward-looking
statements are based largely on the Company's current expectations and are
subject to a number of risks and uncertainties. The Company's actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements. In addition to the other
risks described elsewhere in this "Risk Factors" discussion, factors that could
cause or contribute to such differences include, but are not limited to (i)
those relating to conducting operations in a competitive and regulated
environment; (ii) the effect of fluctuations in the volume of, and the seasonal
nature of, real estate transactions; (iii) the relatively high costs of
producing title evidence when premiums are subject to regulatory and competitive
restraints; (iv) changes in external competitive market factors or in the
Company's internal budgeting process which might impact trends in the Company's
results of operations; (v) unanticipated working capital or other cash
requirements; (vi) changes in the Company's business strategy or an inability to
execute its strategy due to unanticipated changes in the title insurance and
real estate services markets; and (vii) various other factors that may prevent
the Company from competing successfully in the marketplace.
11
<PAGE>
THE COMPANY
The Company provides title insurance services as well as other real estate
related financial and informational services including escrow, real estate
information, trustee sale guarantees and appraisals. In addition, the Company
obtains specialized services for its customers, which include, but are not
limited to, tax reporting services, exchange intermediary services and courier
services. The Company presently maintains 57 offices in 13 counties throughout
California and one county in Arizona.
ATC, the Company's primary subsidiary, commenced business in 1989, and was
acquired by FNFI in December 1995, at which time ATC's operations had been
conducted solely in Kern County, California. Following the acquisition by FNFI,
ATC pursued an expansion strategy that included acquiring and opening offices in
selected other counties located throughout California. In January 1997, FNFI
contributed to ATC all of the outstanding stock of Nations Title Insurance of
Arizona, Inc., which is an underwritten title company in Phoenix, Arizona, and
Landmark REO Management Services, Inc., a property management company.
The Company was incorporated in November 1996 by its current management, and
in July 1997 acquired 60% of the outstanding stock of ATC from FNFI for $6.0
million in cash. The purchase price was funded with debt incurred by the
Company, all of which will have been repaid from operations or as a result of
the Reorganization. In August 1997, under the control of the Company, ATC
purchased all of the outstanding common stock of Santa Barbara Title Company.
The Company also formed its other subsidiaries, American Document Services,
Inc., West Point Appraisal Services, Inc., West Point Support Services, Inc.,
and West Point Properties, Inc., in 1997.
In March 1998, the Company agreed to acquire National, a New York
underwriter, from a subsidiary of FNFI for $3.25 million. This acquisition is
intended to permit an expansion of the products and services offered by the
Company. Additionally, National is licensed to issue title insurance in 35
states and the U.S. Virgin Islands. The completion of this transaction is
subject to, and currently awaiting, receipt of approval from the New York
Department of Insurance. See "Risk Factors--Risks Associated with the
Acquisition of National" and "Business--Acquisition of National."
REORGANIZATION
In August 1998, the Company agreed to acquire the remaining 40% of the
Company's outstanding common stock of ATC from FNFI in exchange for shares of
Common Stock representing approximately 43% of the Company's outstanding shares
immediately prior to this offering. This transaction is subject to the approval
of the California Department of Insurance. In connection with this exchange, the
shareholders of the Company, other than FNFI, will assume approximately $1.2
million of acquisition debt from the Company, and the remaining unpaid balance
of the acquisition indebtedness, in the amount of approximately $3.5 million,
will be repaid from the proceeds of a dividend to the Company from ATC. (These
transactions are collectively referred to as the "Reorganization").
12
<PAGE>
The following diagram illustrates the Company's corporate structure before
giving effect to the Reorganization.
[GRAPHIC]
[Graphic consists of organizational chart showing subsidiaries and classes
of shareholders of American Title Company, before reorganization.]
(1) Includes American Document Services, Inc., West Point Appraisal Services,
Inc., West Point Support Services, Inc. and West Point Properties, Inc.
13
<PAGE>
The following diagram illustrates the corporate structure of the Company
after giving effect to the Reorganization.
[GRAPHIC]
[Graphic consists of organizational chart showing subsidiaries and classes
of shareholders of American National Financial, Inc. and American Title Company,
after reorganization.]
(1) Includes American Document Services, Inc., West Point Appraisal Services,
Inc., West Point Support Services, Inc. and West Point Properties, Inc.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,250,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
commissions and other offering expenses (estimated to be approximately
$570,000), all of which are payable by the Company, are estimated to be
approximately $12.1 million ($14.0 million if the Underwriters' over-allotment
option is exercised in full). The Company intends to use $3.25 million of the
net proceeds to finance the acquisition of National. See "Business-- Acquisition
of National." The remainder will be used for general corporate purposes, which
may include strategic acquisitions. Except for the acquisition of National, the
Company has no agreements, understandings or commitments and is not currently
engaged in negotiations with respect to any acquisitions. Management will have
broad discretion with respect to the expenditure of such proceeds. See "Risk
Factors--Broad Discretion as to Use of Proceeds."
In addition to providing the Company with funds to finance the purchase of
National and other possible strategic acquisitions, the purposes of this
offering are to increase the Company's working capital and equity base, to
provide a public market for its Common Stock, to provide liquidity for its
shareholders and to permit the use of publicly tradeable Common Stock in future
acquisitions.
Pending their application by the Company, the net proceeds of the offering
not immediately required for the purposes described above will be invested
principally in U.S. Government securities, short-term certificates of deposit,
money market funds or other short-term, interest-bearing securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital stock
since its inception and for the foreseeable future intends to follow a policy of
retaining all of its earnings, if any, to finance the development and continued
expansion of its business. There can be no assurance that dividends will ever be
paid by the Company. Any future determination as to payment of dividends will
depend upon the Company's financial condition, results of operations and such
other factors as the Board of Directors deems relevant. The Company's
underwritten title company subsidiaries are subject to certain governmental
regulations requiring the maintenance of minimum amounts of net worth, which may
affect their ability to pay dividends to the Company and, accordingly, the
Company's ability to pay dividends to its shareholders. See "Risk
Factors--Holding Company Structure; Reliance on Dividends from Subsidiaries."
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at June 30, 1998 after
giving effect to the Reorganization was approximately $8.0 million or $1.31 per
share. Pro forma net tangible book value per share represents the amount of the
Company's total tangible assets less total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the receipt by the
Company of the estimated net proceeds from the sale of the shares of Common
Stock offered hereby at an assumed initial public offering price of $11.00 per
share, the pro forma as adjusted net tangible book value of the Company at June
30, 1998 would have been approximately $20.2 million, or $3.27 per share. This
represents an immediate increase in pro forma net tangible book value of $1.96
per share to the existing shareholders and an immediate dilution of $7.73 per
share to new investors purchasing shares in the offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common
Stock.................................................... $ 11.00
Pro forma net tangible book value per share as of
June 30, 1998.......................................... $ 1.31
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 1.96
-----
Pro forma net tangible book value per share after the
offering................................................. 3.27
-----------
Dilution per share to new investors........................ $ 7.73
-----------
-----------
</TABLE>
The following table summarizes on a pro forma basis as of June 30, 1998,
after giving effect to the Reorganization, the differences between the existing
shareholders and new investors with respect to the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders......................... 4,917,096 79.7% $ 6,818,649(1) 33.2% $ 1.39
New investors................................. 1,250,000 20.3 $ 13,750,000 66.8 $ 11.00
---------- ----- ------------- -----
Total....................................... 6,167,096 100.0% $ 20,568,649 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
- ------------------------
(1) Includes approximately $5.6 million, representing the book value of the
minority interest associated with the shares of ATC owned by FNFI, which are
to be exchanged for 2,099,996 shares of Common Stock in connection with the
Reorganization, and $1.2 million, representing the principal amount of
indebtedness of the Company to be assumed by the existing shareholders
(other than FNFI) in connection with the Reorganization.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company: (i) at
June 30, 1998, (ii) on a pro forma basis to give effect to the Reorganization
and the repayment of acquisition debt since June 30, 1998, and (iii) pro forma
as adjusted, to give effect to the Reorganization and the repayment of
acquisition debt since June 30, 1998 and to reflect the sale of 1,250,000 shares
of Common Stock offered by the Company hereby and the receipt of the estimated
net proceeds therefrom. See "Use of Proceeds" and "Reorganization." The
following table should be read in conjunction with the Consolidated Financial
Statements of the Company and related notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................................................... $ 6,154 $ 2,454 $ 14,602
--------- ----------- -----------
--------- ----------- -----------
Acquisition debt(1).......................................................... $ 4,900 $ -- $ --
Note payable, secured by building(2)......................................... 473 473 473
Obligations under capital leases with affiliates(3).......................... 1,751 1,751 1,751
--------- ----------- -----------
Total long term debt and capital lease obligations........................... 7,124 2,224 2,224
Minority interest in consolidated subsidiary................................. 5,619 -- --
Shareholders' equity:
Preferred Stock, no par value, 5,000,000 shares authorized; no shares
issued and outstanding................................................... -- -- --
Common Stock, no par value, 50,000,000 shares authorized; 2,875,092 shares
issued and outstanding, actual; 4,917,096 shares issued and outstanding,
pro forma; and 6,167,096 shares issued and outstanding, pro forma as
adjusted(4).............................................................. -- -- --
Additional paid-in-capital................................................. -- 6,819 18,967
Retained earnings.......................................................... 4,209 4,209 4,209
--------- ----------- -----------
Total shareholders' equity............................................... 4,209 11,028 23,176
--------- ----------- -----------
Total capitalization................................................... $ 16,952 $ 13,252 $ 25,400
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
(1) Acquisition debt bears interest at the prime rate (8.5% per annum as of June
30, 1998), matures in November 2002, and includes current maturities of
$400,000.
(2) Note payable, secured by building, bears interest at the prime rate (8.5%
per annum as of June 30, 1998) and matures in December 1999.
(3) Includes current maturities of $697,273.
(4) Excludes (i) 125,000 shares issuable upon exercise of the Representative's
Warrants; (ii) 332,904 shares issuable upon exercise of outstanding options
at an exercise price of $0.66 per share; and (iii) 650,000 shares reserved
for issuance under the Company's 1998 Stock Incentive Plan, of which 320,000
shares will be issuable, subject to certain vesting requirements, pursuant
to options to be granted upon consummation of this offering at an exercise
price equal to the initial public offering price. See "Management--Stock
Incentive Plan."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER OPERATING DATA)
The Predecessor financial information included in this Prospectus includes
the historical financial information of the operations previously owned by FNFI
and acquired by the Company on July 1, 1997. The Company's financial information
included herein includes only the historical financial information of the
Company since its formation in 1996. All Predecessor information excludes the
impact of the goodwill and minority interest associated with the Company's
acquisition of 60% of the common stock of ATC from FNFI on July 1, 1997.
The Company income statement data for the year ended December 31, 1997, and
the balance sheet data at December 31, 1997, have been derived from the
Company's consolidated financial statements and Notes thereto, which statements
have been audited by KPMG Peat Marwick LLP, independent auditors, and are
included elsewhere in this Prospectus. The Predecessor balance sheet data at
December 31, 1996 and the Predecessor income statement data for each of the two
fiscal years ended December 31, 1995 and 1996 and the six months ended June 30,
1997 have been derived from the Predecessor's Financial Statements, which
statements are included elsewhere in this Prospectus. The Company's data for the
six months ended June 30, 1998 have been derived from unaudited Financial
Statements also appearing elsewhere herein and which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results of interim periods
presented. Results for the period ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the entire year. The
following information should be read in conjunction with the Financial
Statements and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------- COMPANY
---------------
YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------------ SIX MONTHS ENDED DECEMBER 31,
1993 1994 1995 1996 JUNE 30, 1997 1997
--------- --------- --------- --------- ----------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Title premiums....................... $ 10,719 $ 12,650 $ 21,974 $ 36,600 $ 16,773 $ 20,641
Escrow fees.......................... 6,205 4,470 5,527 9,672 5,581 7,352
Other fees and income................ 1,652 1,173 2,220 5,460 2,787 5,532
--------- --------- --------- --------- ------- -------
Total revenue...................... $ 18,576 $ 18,293 $ 29,721 $ 51,732 $ 25,141 $ 33,525
Personnel costs...................... 9,810 13,917 18,512 29,216 14,364 16,185
Other operating expenses............. 5,782 7,649 9,963 14,473 5,623 8,084
Title plant rent and maintenance..... 1,215 1,538 2,405 4,107 2,009 2,664
Fees to underwriters................. 1,282 1,503 2,628 4,151 1,852 2,614
Income before minority interest...... 280 (3,909) (2,400) (174) 743 2,204
Net income (loss)(3)................. 280 (3,909) (2,400) (174) 743 1,123
PER SHARE DATA:
Earnings per share:
Basic.............................. $ 0.38
Diluted............................ $ 0.38
Weighted average common shares
outstanding:
Basic.............................. 2,972
Diluted............................ 2,972
PRO FORMA DATA (5):
Net income........................... 3,108
Earnings per share:
Basic.............................. $ 0.61
Diluted............................ $ 0.61
Weighted average common shares
outstanding:
Basic.............................. 5,072
Diluted............................ 5,072
OTHER OPERATING DATA:
Files opened......................... 60,600 93,900 40,700 46,800
Files closed......................... 36,700 63,000 28,200 32,600
Average fee per file(6).............. $ 786 $ 773 $ 835 $ 886
Period end number of employees.......
<CAPTION>
TOTAL
YEAR SIX MONTHS ENDED JUNE
ENDED 30,
DECEMBER 31, ------------------------
1997 1997(1) 1998(2)
--------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Title premiums....................... $ 37,414 $ 16,773 $ 27,421
Escrow fees.......................... 12,933 5,581 10,716
Other fees and income................ 8,319 2,787 7,138
------- ----------- -----------
Total revenue...................... $ 58,666 $ 25,141 $ 45,275
Personnel costs...................... 30,549 14,364 22,522
Other operating expenses............. 13,707 5,623 7,775
Title plant rent and maintenance..... 4,673 2,009 3,016
Fees to underwriters................. 4,466 1,852 3,300
Income before minority interest...... 2,947 743 5,131
Net income (loss)(3)................. N/A(4) 743 3,086
PER SHARE DATA:
Earnings per share:
Basic.............................. $ 1.06
Diluted............................ $ 1.01
Weighted average common shares
outstanding:
Basic.............................. 2,918
Diluted............................ 3,060
PRO FORMA DATA (5):
Net income........................... 5,339
Earnings per share:
Basic.............................. $ 1.06
Diluted............................ $ 1.03
Weighted average common shares
outstanding:
Basic.............................. 5,018
Diluted............................ 5,160
OTHER OPERATING DATA:
Files opened......................... 87,500 40,700 65,600
Files closed......................... 60,800 28,200 44,500
Average fee per file(6).............. $ 863 $ 835 $ 834
Period end number of employees.......
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996(1) 1997(2)
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................... $ 26 $ 7,224
Working capital............................................................................. 4,426 5,718
Total assets................................................................................ 10,015 22,365
Due to affiliates........................................................................... -- 1,411
Shareholders' equity........................................................................ 6,753 1,123
<CAPTION>
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................... $ 6,154
Working capital............................................................................. 8,612
Total assets................................................................................ 27,532
Due to affiliates........................................................................... 197
Shareholders' equity........................................................................ 4,209
</TABLE>
- ----------------------------------
(1) Reflects only Predecessor financial information which has been audited. The
Company's historical operating results for the six months ended June 30,
1997 were not significant.
(2) Reflects historical financial information of the Company.
(3) The statutory tax rate was 40% (combined federal and state) for each of the
periods presented. The effective tax rate fluctuates from period to period
based on the components of taxable income. The effective tax rate for the
six months ended June 30, 1998 was 41%, for the six months ended June 30,
1997 was 43% and for the twelve months ended December 31, 1997 (combined
Company and Predecessor) was 44.1%.
(4) Not applicable because the second six months of this period excludes the 40%
minority interest in ATC.
(5) To give effect to the Reorganization (see "Reorganization") and assumes ATC
had been acquired on January 1, 1997.
(6) Average fee per file information consists of revenue divided by number of
closed files (not including revenue generated by, or closed files relating
to, the Company's STAR Product, which are excluded due to the abbreviated
characteristics of the policy). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements of the Company and the Predecessors and the
related Notes thereto appearing elsewhere herein.
The discussion set forth below includes both historical financial
information relating to the Company and financial information relating to the
Company's Predecessors. All amounts and related information for 1995 and 1996
relate solely to Predecessor operations, which consisted of the operations that
are now ATC.
The predecessor operations are those of ATC since it was acquired by FNFI
and other operations of FNFI contributed to ATC as of June 30, 1997 that were
operated as separate profit centers but not separate legal entities. As separate
profit centers or divisions of FNFI, only operating activities of these
divisions were segregated in FNFI's accounting records. Cash balances and other
balance sheet information was co-mingled within the accounts of FNFI's
subsidiaries that owned the respective divisions. As such, the balance sheet and
statements of shareholders' equity and cash flows present the operations of ATC.
The statements of combined operations present operations of ATC and the
divisions of FNFI, which were later contributed to ATC, as if the combined
operations were a single entity throughout the periods presented.
For 1997, these amounts and related information include both Predecessor
operations (for January 1, 1997 through June 30, 1997) and actual operations of
the Company for the year ended December 31, 1997 (which includes ATC for July 1,
1997 through December 31, 1997). The information for the six months ended June
30, 1997 and June 30, 1998 consist of Predecessor information for the earlier
period, and actual historical information for the Company for the latter period.
Operations during the latter period included both the ATC, NTA and WPSS
operations as well as the results of operations of the Company's other
subsidiaries, which had not been in operation during the earlier period. See
"The Company."
OVERVIEW
The following table sets forth certain financial and other data of the
Company and its Predecessor operations for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, OTHER THAN FEE PER FILE)
<S> <C> <C> <C> <C> <C>
Total revenue....................... $ 29,721 $ 51,732 $ 58,666 $ 25,141 $ 45,275
Total expenses...................... 33,508 51,947 53,395 23,848 36,613
Income before minority
interest.......................... (2,400) (174) 2,947 743 5,131
Net income (loss)................... $ (2,400) $ (174) N/A(1) $ 743 $ 3,086
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Orders opened(2).................... 60,600 93,900 87,500 40,700 65,600
Orders closed(2).................... 36,700 63,000 60,800 28,200 44,500
Average fee per file(2)............. $ 786 $ 773 $ 863 $ 835 $ 834
</TABLE>
- ------------------------
(1) Not applicable because the second six months of this period excludes the 40%
minority interest in ATC.
(2) Excludes orders and fees related to STAR products.
19
<PAGE>
The Company's revenue is closely related to the level of real estate
activity and the average price of real estate sales. Real estate sales are
directly affected by the availability of funds to finance purchases. Other
factors affecting real estate activity include demand, mortgage interest rates,
family income levels and general economic conditions. While the level of sales
activity was relatively depressed in certain geographical areas during the
period 1991 through mid-1993, reductions in mortgage interest rates beginning in
the latter part of 1991 triggered an increase in refinancing activity, which
continued at record levels through 1993 and into the first quarter of 1994.
During 1994 and early 1995, steady interest rate increases caused by actions
taken by the Federal Reserve Board resulted in a significant decline in
refinancing transactions and a stagnation in residential resales and new home
sales. Since late 1995, decreases in mortgage interest rates and the resulting
improvement in the real estate market have had a favorable effect on the level
of real estate activity, including refinancing transactions, new home sales and
resales. The overall economic environment, stable mortgage interest rates and
strength in the California and West Coast real estate market contributed to very
positive conditions for the industry throughout the second half of 1996, all of
1997 and into the first half of 1998. It is impossible to predict the direction
interest rates and the real estate market may move in the future.
The Company's revenues include revenues from title insurance premiums (which
also includes trustee sale guarantee fees), escrow fees, and other fees and
revenues. The Company's operations generate escrow fees from holding and
disbursing funds and documents in connection with the closing of real estate
transactions. Escrow fees generally fluctuate in a pattern consistent with the
fluctuation in title insurance premiums. Other fees and revenue primarily
consist of real estate information fees, reconveyance fees, recording fees and
appraisal fees, in connection with real estate transactions, and include fees
related to the Company's STAR product. Other fees and revenue trend closely with
the level of title insurance and escrow business.
The Company's principal costs include personnel costs, fees to underwriters,
title plant rent and maintenance costs, and other operating expenses. Personnel
costs include both base salaries and commissions paid to employees, and are the
most significant operating expense incurred by the Company.
Fees to underwriters represent the portion of gross title policy premiums
paid by the Company's underwritten title companies to FNTIC pursuant to the
terms of Issuing Agency Agreements with that underwriter, and similar fees paid
by the Company's other underwritten title company subsidiaries. Prior to 1997,
the Predecessor operations were charged a 12% underwriting fee by its
underwriters. Beginning in January 1997, ATC entered into an Issuing Agency
Agreement with FNTIC under which ATC pays FNTIC an underwriting fee equal to 11%
of the title insurance premiums received. In addition, ATC pays FNTIC a fee
equal to 1% of title insurance premiums for certain accounting, human resources
and legal services provided by FNFI.
Title plant rent and maintenance costs consist of payments for access to
title plants, and costs of updating these title plants. Title plant rent and
maintenance costs includes daily update expenses that are dependent on the
volume of real estate transaction activity in the market generally and a rental
charge that is based on actual utilization.
Other operating expenses consist of facilities expenses, postage and courier
services, computer services, professional services, advertising expenses,
general insurance, trade and notes receivable allowances, depreciation and
amortization.
Title insurance premiums and escrow fee revenue are recognized as income at
the time the underlying real estate transaction closes. Expenses directly
related to the title and escrow process are recognized as they are incurred,
throughout the time of the escrow. As a result, the Company's recognition of
revenue relating to a given escrow lags approximately 60-90 days behind the
opening of that escrow and the recognition of the corresponding expenses. These
factors may result in fluctuations in gross margins from quarter to quarter.
20
<PAGE>
While the number of orders that close affects the Company's revenue, the
largest component of the Company's expenses are personnel costs. Since personnel
costs are relatively fixed over the short-term, in a rapidly declining market,
reductions in the number of orders can adversely affect margins. Gross margins
are also affected by the relative numbers of orders that relate to refinancing
transactions, as compared to those relating to real estate sale transactions.
The average fee per file and corresponding gross margins are higher for real
estate sale and resale transactions than refinance transactions for three
principal reasons: (i) a larger percentage of sale and resale orders close as
compared to refinance orders, (ii) typically two policies are issued in a resale
transaction (one each to the buyer and lender) whereas only one is issued in a
refinance transaction and (iii) the base rate charged on sale and resale
transactions is typically higher than that charged on refinance transactions.
Because title insurance premiums are calculated with regard to the purchase
price of the property or the amount of the lender's mortgage, average fees per
file will also increase during periods in which real estate prices, and
corresponding mortgage loans, are increasing.
RESULTS OF OPERATIONS--INTERIM PERIODS
The following table presents information regarding the components of the
Company's revenue for the periods presented. The percentages shown reflect the
dollar amounts shown expressed as a percentage of total revenues for the
corresponding period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------
1997 1998
-------------------- --------------------
(DOLLARS IN THOUSANDS)
AMOUNT % AMOUNT %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Title insurance premiums............................... $ 16,773 66.7 $ 27,421 60.6
Escrow fees............................................ 5,581 22.2 10,716 23.7
Other fees and revenue................................. 2,787 11.1 7,138 15.7
--------- --------- --------- ---------
Total revenue...................................... $ 25,141 100.0% $ 45,275 100.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
Personnel costs........................................ $ 14,364 57.1 $ 22,522 49.7
Other operating expenses............................... 5,623 22.4 7,775 17.2
Title plant rent and maintenance....................... 2,009 8.0 3,016 6.7
Fees to underwriters................................... 1,852 7.4 3,300 7.3
--------- --------- --------- ---------
Total expenses..................................... $ 23,848 94.9% $ 36,613 80.9%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
REVENUE
TITLE INSURANCE PREMIUMS. Revenues from title insurance premiums were $27.4
million for the six months ended June 30, 1998 (the "1998 Period") as compared
to $16.8 million for the same period in 1997 (the "1997 Period"), an increase of
$10.6 million or 63.1%. This growth is a result of increases in both home prices
and the number of sale and refinancing transactions that occurred in the 1998
Period. During this time period the number of orders closed increased by 57.8%.
The average fee per file, defined as total revenues net of abbreviated title
policies issued primarily to lenders, divided by the number of orders closed,
was $834 for the 1998 Period, as compared to $835 for the 1997 Period.
ESCROW FEES. Revenues from escrow fees were $10.7 million for the 1998
Period as compared to $5.6 million for the 1997 Period, an increase of $5.1
million or 91.1%. This increase is a result of a continuing favorable market for
real estate transactions as well as continuing efforts by the Company to expand
its escrow operations in Southern California.
21
<PAGE>
OTHER FEES AND REVENUE. Other fees and revenue were $7.1 million for the
1998 Period, as compared to $2.8 million for the 1997 Period, an increase of
$4.3 million or 153.6%. This increase is a result of the increased number of
real estate transactions handled by the Company during the 1998 Period, as
described above, as well as an expansion of the services offered by the Company
between the periods.
EXPENSES
PERSONNEL COSTS. Personnel costs were $22.5 million for the 1998 Period as
compared to $14.4 million for the 1997 Period, an increase of $8.1 million or
56.3%. Personnel costs were 49.7% of total revenues for the 1998 Period as
compared to 57.1% for the 1997 Period. This decrease of personnel costs as a
percentage of revenues is a result of increased productivity and operating
efficiencies resulting from the implementation of automated escrow and title
systems. Management does not expect the improvement in productivity to continue
at the same rate in the future.
OTHER OPERATING EXPENSES. Other operating expenses were $7.8 million for
the 1998 Period as compared to $5.6 million for the 1997 Period, an increase of
$2.2 million or 39.3%. As a percentage of total revenues, other operating
expenses decreased to 17.2% during the 1998 Period from 22.4% for the 1997
Period. This reduction as a percentage of revenues resulted from the
implementation of improved information systems and cost control programs by the
Company during 1997.
TITLE PLANT RENT AND MAINTENANCE EXPENSES. Title plant rent and maintenance
expenses were $3.0 million for the 1998 Period as compared to $2.0 million for
the 1997 Period, an increase of $1.0 million or 50.0%. This increase is
primarily due to the variable expenses relating to the volume of orders, which
increased during the 1998 Period.
FEES TO UNDERWRITERS. Fees to underwriters were $3.3 million for the six
months ended June 30, 1998 as compared to $1.9 million for the same period of
the prior year, an increase of $1.4 million or 73.7%. Fees to underwriters are
calculated as a fixed percentage of title insurance premiums received, and
therefore increased from period to period in direct proportion to the increase
in title insurance premium revenue during these periods.
RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The following table presents information regarding the components of the
Company's revenue for the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1996 1997
-------------------- -------------------- --------------------
AMOUNT % AMOUNT % AMOUNT %
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Title insurance premiums........... $ 21,974 73.9 $ 36,600 70.7 $ 37,414 63.8
Escrow fees........................ 5,527 18.6 9,672 18.7 12,933 22.0
Other fees and revenue............. 2,220 7.5 5,460 10.6 8,319 14.2
--------- --------- --------- --------- --------- ---------
Total revenue.................... $ 29,721 100.0% $ 51,732 100.0% $ 58,666 100.0%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Personnel costs.................... $ 18,512 62.3 $ 29,216 56.5 $ 30,549 52.0
Other operating expenses........... 9,963 33.5 14,473 28.0 13,707 23.4
Title plant rent and maintenance... 2,405 8.1 4,107 7.9 4,673 8.0
Fees to underwriters............... 2,628 8.8 4,151 8.0 4,466 7.6
--------- --------- --------- --------- --------- ---------
Total expenses................. $ 33,508 112.7% $ 51,947 100.4% $ 53,395 91.0%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
22
<PAGE>
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
REVENUE
TITLE INSURANCE PREMIUMS. Revenues from title insurance premiums was $37.4
million for 1997, as compared to $36.6 million for 1996, an increase of $0.8
million or 2.2%. This increase resulted from increases in both refinancing and
real estate sale transactions during 1997, which largely resulted from stable
mortgage interest rates and improvements in the overall economic environment in
the California real estate market, offset in part by a reduction in revenues
related to the counter-cyclical trustee sale guarantee and foreclosure business.
The Company's average fee per file for orders closed in 1997 was $863 compared
to $773 in 1996, an increase of $90 or 11.6%.
ESCROW FEES. Revenues from escrow fees were $12.9 million for 1997, as
compared to $9.7 million for 1996, an increase of $3.2 million or 33.0%. The
increase in escrow fees, which occurred despite the more modest increase in
title premiums during the same period, is primarily related to the establishment
of new operations in Southern California, which contributed approximately $2.0
million.
OTHER FEES AND REVENUE. Other fees and revenue were $8.3 million for 1997
as compared to $5.5 million for 1996, an increase of $2.8 million or 50.9%. This
increase is a result of both the increased volume of real estate transactions
occurring in 1997 and the Company's development of additional service offerings
during this time period.
EXPENSES
PERSONNEL COSTS. Personnel costs were $30.5 million for 1997, as compared
to $29.2 million for 1996, an increase of $1.3 million or 4.5%. As a percentage
of total revenue, personnel costs decreased to 56.5% in 1997 from 52.0% in 1996.
This decrease of personnel costs as a percentage of revenues is a result of
increased productivity and operating efficiencies resulting from the
implementation of automated escrow and title systems. Management does not expect
the improvement in productivity to continue at the same rate in the future,
however.
OTHER OPERATING EXPENSES. Other operating expenses were $13.7 million in
1997 as compared to $14.5 million in 1996, a decrease of $0.8 million or 5.5%.
As a percentage of total revenue, other operating expenses decreased to 23.4% in
1997 from 28% in 1996. This decrease resulted from cost control programs
implemented in 1997.
TITLE PLANT RENT AND MAINTENANCE EXPENSES. Title plant rent and maintenance
expenses were $4.7 million for 1997 as compared to $4.1 million for 1996, an
increase of $0.6 million or 14.6%. This increase is primarily due to the
variable expenses relating to the volume of orders, which increased during 1997.
FEES TO UNDERWRITERS. Fees to underwriters increased to $4.5 million in
1997 from $4.2 million in fiscal 1996, an increase of $0.3 million or 7.1%. Fees
paid to underwriters are a fixed percentage of title insurance premiums, and
therefore increased for the same reasons applicable to the increases in title
insurance premiums from year to year.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
REVENUE
TITLE INSURANCE PREMIUMS. Revenue from title insurance premiums was $36.6
million for 1996, as compared to $22.0 million for 1995, an increase of $14.6
million or 66.4%. This increase resulted from increases in both refinancing and
real estate sale transactions during fiscal 1996, which resulted in large part
from decreases in mortgage interest rates in late 1995.
ESCROW FEES. Revenue from escrow fees were $9.7 million for 1996, as
compared to $5.5 million for 1995, an increase of $4.2 million or 76.4%. This
increase is a result of year to year improvement in the real
23
<PAGE>
estate market described above, as well as focused efforts by the Predecessor to
expand its escrow business in certain markets, such as Southern California,
during 1996.
OTHER FEES AND REVENUES. Other fees and revenues increased to $5.5 million
for 1996 as compared to $2.2 million for 1995, an increase of $3.3 million or
150.0%. This increase is a result of the introduction of the STAR product.
EXPENSES
PERSONNEL COSTS. Personnel costs were $29.2 million for 1996, as compared
to $18.5 million for 1995, an increase of $10.7 million or 57.8%. As a
percentage of total revenue, personnel costs decreased to 56.5% in 1996 from
62.3% in 1995, due principally to the year to year growth in revenues.
OTHER OPERATING EXPENSES. Other operating expenses increased to $14.5
million in 1996 from $10.0 million in 1995. The increase resulted from growth in
the Predecessor's existing operations, the acquisition of Nations Title and the
introduction of STAR division products. As a percentage of total revenue, other
operating expenses decreased to 28.0% in 1996 from 33.5% in 1995. This decrease
resulted from the fixed nature of certain of the other operating expenses which
were covered by a larger revenue base.
TITLE PLANT RENT AND MAINTENANCE EXPENSES. Title plant rent and maintenance
expenses were $4.1 million for 1996 as compared to $2.4 million for 1995, an
increase of $1.7 million or 70.8%. This increase is primarily due to the
variable expenses relating to the volume of orders, which increased during 1996.
FEES TO UNDERWRITERS. Fees to underwriters increased to $4.2 million in
1996 from $2.6 million in 1995, an increase of $1.6 million or 61.5%. Fees paid
to underwriters are a fixed percentage of title insurance premiums, and
therefore increased for the same reasons applicable to the increases in title
insurance premiums from year to year.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $5.1 million and $4.1 million for
the six months ended June 30, 1998 and June 30, 1997, respectively. At June 30,
1998, the Company held cash and cash equivalents of $6.2 million. At that date,
the Company had long term debt of $7.1 million which consisted of capitalized
leases, real estate indebtedness and debt (the "Acquisition Debt") incurred in
connection with the acquisition by the Company of 60% of the outstanding common
stock of ATC from FNFI. Upon consummation of the Reorganization, all of the
Company's Acquisition Debt will be repaid or extinguished. See "Reorganization."
The repayment of the Acquisition Debt will reduce the Company's cash balances by
$3.7 million.
Cash provided by (used in) operating activities was $2.8 million and $(4.5)
million for the years ended December 31, 1997 and 1996, respectively. At
December 31, 1997, the Company had $7.2 million of cash and cash equivalents and
long term debt of $8.5 million.
The Company's cash requirements include debt service, operating expenses and
taxes. The Company believes that all anticipated cash requirements for current
operations will be met from internally generated funds.
Two significant sources of the Company's funds are dividends and
distributions from its subsidiaries. As a holding company, the Company receives
cash from its subsidiaries in the form of dividends and as reimbursement for
operating and other administrative expenses it incurs. The Company's
underwritten title companies collect premiums and fees and pay underwriting fees
and operating expenses. These companies are restricted only to the extent of
maintaining minimum levels of working capital and net worth, but are not
restricted by state regulations or banking authorities in their ability to pay
dividends and make distributions. The Company's other subsidiary operations
collect revenue and pay operating expenses; however, they are not regulated by
insurance regulatory or banking authorities. Positive cash
24
<PAGE>
flow from the underwritten title companies and other subsidiary operations is
invested primarily in cash and cash equivalents.
At December 31, 1997, the Company was not in compliance with certain
covenants in the agreements relating to the Acquisition Debt, which covenants
related to minimum tangible net worth and capital expenditure restrictions. The
lender has waived the minimum tangible net worth covenant through June 30, 1998
and the Company believes it is in compliance with this covenant at June 30,
1998. The lender has also agreed to waive the capital expenditure restriction
through October 31, 1998.
SEASONALITY
Historically, the greatest volume of residential resale activity has usually
occurred in the spring and summer months. However, events during the past five
years, including numerous actions taken by the Federal Reserve Board, have
caused unusual fluctuations in real estate activity, particularly in the
seasonal pattern of residential resale and refinance activity. The Company
cannot predict whether this pattern will continue to be affected by such
factors.
INFLATION
To the extent real estate prices or mortgage interest rates increase due to
inflationary factors, the Company's title insurance premium revenue generally
increases because premiums are determined in part by the value of property or
the amount of the mortgage loan. The Company's personnel costs and other
operating expenses are also sensitive to inflation.
YEAR 2000 ISSUES
The Company is currently reviewing its information system hardware,
operations and applications software relative to their compliance with potential
Year 2000 issues. The Company believes that it has identified substantially all
of the application software programs which require modification in order to
become Year 2000 compliant and has a plan to correct and test the programs
affected by the conversion of a two-digit year to a four-digit year. The Company
expects the early phases of the project to be completed by the end of 1998. The
final phase of the project is scheduled to be completed by mid-1999. The review
of systems also includes the identification of vendors that may have a
significant impact on the Company's operations and their expected completion of
any conversions.
The Company believes that its information systems operations and those of
its significant vendors are or will become Year 2000 compliant such that there
will not be any material adverse impact on the Company's results of operations
or financial condition. The Year 2000 compliance changes are being made
concurrently with planned systems upgrades and conversions in the normal course
of business as such expenses associated with Year 2000 conversions are not
expected to materially impact the Company.
25
<PAGE>
BUSINESS
INTRODUCTION
The Company provides title insurance services as well as other real estate
related financial and informational services including escrow, real estate
information, trustee sale guarantees, and appraisals. In addition, the Company
obtains specialized services for its customers, which include, but are not
limited to, tax reporting services, exchange intermediary services and courier
services. The Company's business is focused on the residential real estate
market and it generates the majority of its revenues from issuing title
insurance policies as an independent agent on behalf of a title underwriter. For
the year ended December 31, 1997 and the six months ended June 30, 1998, title
insurance premiums represented approximately 63.8% and 60.6% of the Company's
revenues, respectively.
The title insurance industry consists of insurers ("underwriters") who issue
policies through direct operations or through agents. The Company's principal
subsidiary, ATC, is an agent, known in California as an "underwritten title
company." ATC has entered into an Issuing Agency Agreement to issue policies on
behalf of FNTIC, an insurer which is licensed in California and Arizona, among
other states. The Company has agreed to acquire National, a New York underwriter
licensed in 35 states and the U.S. Virgin Islands. The Company's planned
acquisition of National is expected to facilitate the Company's expansion into
new markets and permit the Company to directly underwrite the title insurance
policies that it issues in geographic areas not covered by the Company's
exclusive relationship with FNTIC.
The Company's operations are conducted through 14 branches, consisting of 57
offices, located in major counties throughout California and in Maricopa County,
Arizona (Phoenix and surrounding areas).
REAL ESTATE INDUSTRY
Title insurance revenue is closely related to the level of real estate
purchase and financing activity and the average price of real estate sales. Real
estate sales are directly affected by the availability of funds to finance
purchases. Other factors affecting real estate activity include demand, mortgage
interest rates, family income levels and general economic conditions. While the
level of sales activity was relatively depressed in certain geographical areas
during the early 1990's, decreases in mortgage interest rates since late 1995
and the resulting improvement in the real estate market have had a favorable
effect on the level of real estate activity, including refinancing transactions,
new home sales and resales. The overall economic environment, stable mortgage
interest rates and strength in the real estate market, especially in California,
contributed to very positive conditions for the industry throughout 1996 and
1997 and into the first half of 1998. It is impossible to predict the future
direction interest rates and the real estate market may move or fluctuate.
According to Corporate Development Services, title insurance premiums in the
United States were approximately $6.0 billion in 1997, representing an 11.8%
compound annual growth rate since 1995. The Company believes that the increase
in title premiums is primarily a result of an increase in new home sales and an
increase in refinancing transactions, both of which resulted in large part from
a decrease in mortgage interest rates during this period. The Mortgage Bankers
Association estimates that refinancing transactions during the first four months
of 1998 were four times higher than during the same period in 1997. In addition,
the National Association of Realtors anticipates record sales of 4.35 million
residential units in 1998, as compared to 4.22 million units in 1997.
26
<PAGE>
Historically, as interest rates decrease, the number of housing starts
typically rise in following periods. The following chart displays this
relationship between national housing starts and interest rates.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NATIONAL HOUSING STARTS & INTEREST RATES
<S> <C> <C> <C> <C> <C> <C>
1988 1989 1990 1991 1992 1993
Total Housing Starts 1,488,000 1,376,000 1,193,000 1,014,000 1,200,000 1,288,000
Fixed Mortgage Interest Rates 10.33% 10.32% 10.13% 9.25% 8.40% 7.33%
Sources:
Fixed Mortgage Rates: Freddie Mac Lender Survey; fixed
rate;
80% loan-to-value mortgages. Does not incorporate points.
Housing Starts: U.S. Bureau of the Census
<CAPTION>
NATIONAL HOUSING STARTS & INTEREST RATES
<S> <C> <C> <C> <C>
1994 1995 1996 1997
Total Housing Starts 1,457,000 1,354,000 1,477,000 1,476,000
Fixed Mortgage Interest Rates 8.36% 7.95% 7.81% 7.10%
Sources:
Fixed Mortgage Rates: Freddie Mac Lender Survey; fixed
rate;
80% loan-to-value mortgages. Does not incorporate points.
Housing Starts: U.S. Bureau of the Census
</TABLE>
Historical data shows the correlation between mortgage interest rates and
title policy premiums: as interest rates decrease, the volume of title policies
typically increases.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NATIONAL MORTGAGE RATES AND TITLE PREMIUMS
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
Fixed Interest Rates 7.33% 8.36% 7.95% 7.81% 7.10%
Title Insurance Premiums $6,000,000 $5,800,000 $4,800,000 $5,500,000 $6,000,000
Sources:
Mortgage Rates: Freddie Mac Lender Survey; Contract
rate
on commitments for fixed-rate; 80% loan-to-value
mortgages. Does not incorporate points.
Statutory Title Premiums: Corporate Development
Services.
</TABLE>
27
<PAGE>
TITLE INDUSTRY
TITLE POLICIES
Title insurance policies insure title to real estate. The beneficiaries of
title insurance policies are generally buyers of real property or mortgage
lenders. The policy protects the insured against title defects, liens and
encumbrances not specifically excepted from its coverage. Most mortgage lenders
require title insurance as a condition to making loans secured by real estate.
Title insurance is different from other types of insurance because it
relates to past events which affect title to property at the time of closing and
not unforeseen future events. Prior to issuing policies, underwriters can reduce
or eliminate future losses by accurately performing searches and examinations.
Title insurance policies are issued on the basis of a preliminary title
report or commitment. These reports are prepared after a search of public
records, maps and other relevant documents to ascertain title ownership and the
existence of easements, restrictions, rights of way, conditions, encumbrances or
other matters affecting the title to, or use of, real property. A visual
inspection or survey of the property may also be made prior to the issuance of
certain title insurance policies. Copies of public records, maps and other
relevant historical documents are compiled and indexed in a "title plant" in
order to facilitate the preparation of preliminary reports without the necessity
of manually searching public records. Each title plant relates to a particular
county and is kept current on a daily or other periodic basis by the continual
addition of copies of recorded documents which affect real property in the
particular county. Title companies often subscribe to independent title
information services to assist in the updating of their title plants and the
maintenance of title records.
The major expense of a title company is the cost of the search and
examination function performed in preparing preliminary title reports,
commitments and title policies, rather than the claim losses associated with the
issuance of these policies. The premium for title insurance is due in full at
the closing of the real estate transaction and is based upon the purchase price
of the property insured or the amount of the mortgage loan, and upon the type of
coverage. Coverage under the policy generally terminates upon resale or
refinance of the property. The terms of coverage have become relatively
standardized in accordance with forms approved by state or national trade
associations, such as the American Land Title Association, The California Land
Title Association and the Land Title Association of Arizona. Among the most
commonly issued title insurance policies are standard or extended coverage
policies for owners and lenders and trustee sale guarantees which provide
assurances to trustees concerning certain information in connection with
nonjudicial foreclosures.
THE TITLE POLICY AND UNDERWRITING PROCESS
A brief description of the process of issuing a title insurance policy,
which usually occurs over a thirty to ninety day period, is as follows:
(i) The customer, typically a real estate salesperson or broker, escrow
agent or lender, places an order for a title policy.
(ii) After the relevant historical data on the property is compiled, the
title officer prepares a preliminary title report which documents (a) the
current status of title and conditions affecting the property, (b) any
exclusions, exceptions and/or limitations which the title underwriter might
include in the policy and (c) specific issues which need to be addressed and
resolved by the parties to the transaction before the title policy will be
issued. The preliminary report is circulated to all the parties for
consideration of any specific issues.
(iii) After the specific issues identified in the preliminary report are
resolved, an escrow agent closes the transaction in accordance with the
instructions of the parties and the title underwriter's conditions.
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<PAGE>
(iv) Once the transaction is closed and all monies have been released,
the title underwriter or agent issues the policies (a) to the owner and the
lender on a new home sale or resale transaction or (b) to the lender only,
on a refinance transaction.
The terms and conditions upon which title to real property will be insured
are determined in accordance with the standards, policies and procedures of the
title underwriter. The underwriter may have a relationship with a third party
agent, under which the agent issues the title insurance policy on behalf of the
underwriter. The agent performs the search and examination function and retains
a majority of the title premium as a commission. The underwriter receives the
remainder of the premium collected by the agent in exchange for assuming the
risk on the policy.
Underwriting practices in California and Arizona are generally dictated by
the California and Arizona Land Title Associations, although the underwriter's
personnel interpret the application of these rules to specific circumstances. An
underwriter, such as FNTIC, also maintains and distributes current information
on title practices and procedures to its issuing agents.
A third party agent that issues title insurance on behalf of an insurer is
not subject to the same liability that the insurer faces under the policy. The
agent is not assuming risk on the title policy and its liability with respect to
the issuance of the policy is typically limited to a specific amount, pursuant
to an agreement with the insurer.
COMPETITIVE FACTORS
A key competitive factor in the title insurance business is the ability to
develop and maintain a qualified and experienced group of professionals through
which services are delivered to customers. Title insurance business is typically
generated through relationships with persons in the real estate industry such as
independent escrow companies, real estate brokers and agents, developers,
mortgage brokers, mortgage bankers, financial institutions and attorneys. Thus,
the relationships and contacts maintained by sales personnel are critical to
generating such business. In addition, the quality of a title company's service,
its responsiveness, and its ability to adapt to customer's needs are important
in attracting and maintaining customers. Other competitive factors include the
financial strength and reputation of the insurer.
The Company believes that the price of title insurance is typically not an
important competitive factor. In both California and Arizona, where the
Company's operations are currently conducted, the minimum price of title
insurance is posted by the title underwriter and is regulated by the Department
of Insurance in California, and by the State Banking Commission in Arizona. In
the event the Company expands its operations into states where regulatory
authorities do not control prices, the price of title insurance may also become
an important competitive factor.
REAL ESTATE RELATED SERVICES
In addition to title insurance, real estate transactions often require other
services such as escrow, appraisals, property management, trustee sale
guarantees, and document preparation. The demand for faster closings and more
cost effective transactions has resulted in a trend toward purchasing real
estate related services on a "one stop" basis from vendors who offer the full
array of such services. Because title companies occupy a central role in the
process of closing a real estate transaction they are in a unique position to
provide these services.
The demand for some of these real estate related services is also
countercyclical to the title insurance business. For example, as the economy
declines, interest rates rise and residential housing sales drop, which causes
foreclosures and the corresponding demand for trustee sale guarantees and
property management services to increase.
29
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NATIONAL HOUSING STARTS AND DELINQUENCY RATES
<S> <C> <C> <C> <C> <C> <C>
1988 1989 1990 1991 1992 1993
Delinquency Rates 4.79% 4.81% 4.66% 5.03% 4.57% 4.22%
Housing Starts 1,488,000 1,376,000 1,193,000 1,014,000 1,200,000 1,288,000
Sources:
Housing Starts: U.S. Bureau of the Census
Delinquency Rates: National Delinquency Survey,
Mortgage Bankers Association
<CAPTION>
NATIONAL HOUSING STARTS AND DELINQUENCY RATES
<S> <C> <C> <C> <C>
1994 1995 1996 1997
Delinquency Rates 4.10% 4.24% 4.33% 4.31%
Housing Starts 1,457,000 1,354,000 1,477,000 1,476,000
Sources:
Housing Starts: U.S. Bureau of the Census
Delinquency Rates: National Delinquency Survey,
Mortgage Bankers Association
</TABLE>
COMPANY OPERATIONS
TITLE OPERATIONS
The Company's largest subsidiary, ATC, is an underwritten title company
licensed by the State of California. ATC is not a title underwriter, but rather
issues policies as an agent on behalf of FNTIC, a subsidiary of FNFI. ATC acts
exclusively as an agent for FNTIC with respect to the procurement of title
insurance policies in 13 selected counties in California and one county in
Arizona, subject to certain exceptions. ATC retains 88% of the title premium
collected on policies issued pursuant to its agreement with FNTIC. The remaining
12% is comprised of an 11% underwriting fee and a 1% administrative service fee,
both paid to FNTIC. As an agent, ATC is not subject to the loss and reserve
requirements applicable to insurers, and pursuant to its agreement with FNTIC,
ATC's liability is limited to the first $5,000 of loss under any policy issued
by it on behalf of FNTIC, except in the case of negligence, or willful or
reckless conduct. To date, the amounts paid by the Company to FNTIC in
reimbursement of FNTIC's claims losses under this arrangement have not been
material. See "Business--Title Industry and--Relationship With Fidelity National
Financial, Inc."
However, ATC has agreed to purchase National, which is a licensed title
underwriter. Although it has not recently written any significant amount of
business, National is licensed to issue title insurance in 35 states. The
acquisition, if successfully completed, is expected to provide the Company with
an opportunity to underwrite title insurance policies and expand its operations
through both direct and agency relationships. See "Business--Acquisition of
National" and "Risk Factors--Risks Associated with the Acquisition of National."
The maximum amount of liability for an insurer, such as National, under a title
insurance policy is usually the face amount of the policy plus the cost of
defending the insured's title against an adverse claim. The reserve for claim
losses is based upon known claims, as well as losses the insurer expects to
incur based on historical experience and other factors, including industry
averages, claim loss history, legal environment, geographic considerations,
expected recoupments and the types of policies written. The title underwriter
establishes a reserve for each known claim based on a review and evaluation of
potential liability.
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<PAGE>
ATC's trustee sale guarantee ("TSG") division provides a central location
for all trustee sale guarantee requests throughout California. The Company's
services include providing ten-day letter information, customized accounting and
reporting documents, fast track messenger services, and electronic file
transfers. TSG services provide assurances to trustees concerning certain
information in connection with nonjudicial foreclosures of property secured by a
deed of trust. Because the number of foreclosures tends to increase as the real
estate market and the economy decline, the Company's TSG division tends to be
countercyclical to its title insurance business.
The Company, through its subsidiaries, maintains 14 branches consisting of
57 offices located in major counties throughout California and in Maricopa
County, Arizona (Phoenix and surrounding areas). Each of the Company's branches
processes real estate transactions within the geographical area of the branch,
usually a county boundary. Each branch is operated as a separate profit center.
In the calendar years 1996 and 1997 and the six months ended June 30, 1998, the
following branch operations of the Company and the Predecessor accounted for the
indicated percentages of total title insurance premium revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
1996 1997 1998
-------------------------- -------------------------- --------------------------
BRANCH OPERATIONS PREMIUMS PERCENT PREMIUMS PERCENT PREMIUMS PERCENT
- --------------------------------------- ------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Alameda, CA............................ $ 2,801,290 7.7 $ 2,340,155 6.3 $ 2,074,325 7.6
Contra Costa, CA....................... 878,216 2.4 1,422,190 3.8 1,455,815 5.3
Fresno, CA............................. 494,605 1.4 -- -- -- --
Inland Empire, CA (Riverside and San
Bernardino).......................... 2,887,014 7.9 3,239,259 8.7 1,498,223 5.5
Kern, CA............................... 2,593,224 7.1 2,569,164 6.9 1,466,678 5.3
Los Angeles, CA........................ 5,909,103 16.1 6,622,961 17.6 3,934,997 14.4
Orange, CA............................. 10,606,365 29.1 9,310,389 24.8 7,441,289 27.2
Phoenix, AZ............................ 1,912,400 5.2 2,680,274 7.2 1,815,447 6.6
Sacramento, CA......................... 764,427 2.1 348,751 0.9 268,469 1.0
San Diego, CA.......................... 2,946,284 8.0 2,279,367 6.1 2,170,902 7.9
San Mateo, CA.......................... 1,005,697 2.7 899,866 2.4 368,133 1.3
Santa Barbara, CA...................... -- -- -- 0.0 230,415 0.8
Santa Clara, CA........................ 3,529,743 9.6 2,863,894 7.7 2,474,388 9.0
Ventura, CA............................ 271,626 0.7 2,837,472 7.6 2,222,074 8.1
------------- ----- ------------- ----- ------------- -----
Totals............................... $ 36,599,994 100.0% $ 37,413,743 100.0% $ 27,421,155 100.0%
------------- ----- ------------- ----- ------------- -----
------------- ----- ------------- ----- ------------- -----
</TABLE>
TITLE PLANTS
To facilitate the preparation of title reports without the necessity of
manually searching official public records, copies of public records, maps and
other relevant historical documents are sometimes compiled and indexed in a
"title plant." Each title plant relates to a particular county and is kept
current on a daily or other frequent basis by the addition of copies of recorded
documents which affect real property. Title companies often subscribe to
independent title information services to assist in the updating of their title
plants and the maintenance of title records.
The Company leases title plants from FNTIC in Kern, San Mateo and Santa
Clara counties for an aggregate payment of $10,000 per month. At the expiration
of the lease, the Company will have an option to acquire these title plants for
nominal consideration. See "Business--Relationship With Fidelity National
Financial, Inc." The Company has also entered into a lease with Title Records,
Inc. for the use of a title plant in Los Angeles County, and has the right to
acquire a copy of that plant. The Company accesses title plants in the other
counties in which it operates through joint plant user agreements with Experian
Group and Security Union Title Insurance Company.
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<PAGE>
Maintenance activities constitute a significant item of expense, since each
document must be reviewed and indexed. These costs plus the costs of subscribing
to various title information services and other plant expenses range from
approximately $2,000 to $21,000 per month per branch.
ESCROW SERVICES
The escrow services provided by the Company include all of those typically
required in connection with residential and commercial real estate purchase and
finance activities. Fees from escrow services represented approximately 22.0% of
the Company's and the Predecessor's revenues in 1997 and 23.7% of the Company's
revenues for the six months ended June 30, 1998. This higher growth rate is
primarily attributable to the opening of 10 new escrow offices by the Company in
California during 1998.
Escrow operations are regulated by state insurance authorities, and the
Company has the flexibility to establish different fee schedules in different
counties. The Company believes that the acquisition of National, if completed,
will enable the Company to expand its escrow operations into counties in which
it does not presently hold the necessary licenses. The Company intends to
evaluate these expansion opportunities on a county by county basis.
OTHER REAL ESTATE RELATED SERVICES
In addition to issuing title insurance policies and providing escrow
services, the Company provides other real estate related services, including
those described below. Such services accounted for approximately 14.2% of the
Company's and the Predecessor's revenues in 1997, and 15.8% of the Company's
revenue for the six months ended June 30, 1998.
PROPERTY MANAGEMENT SERVICES. ATC's subsidiary, Landmark REO Management
Services, Inc., provides quality property management and disposition services
for foreclosure properties throughout the United States. These services include
the initial property inspection, eviction coordination, property maintenance,
the retention of a local broker, and the supervision of escrow for the sale of
the property. The Company's property management services are provided in
connection with foreclosures and therefore tend to be countercyclical to its
title insurance business.
DOCUMENT PREPARATION SERVICES. The Company also offers a variety of
services relating to the documentation of real estate transactions. Such
services include (i) the preparation of reconveyance and assignment documents,
(ii) file research and document retrieval services, and (iii) recording
services, including retrieval of recorded documents. The Company is capable of
providing these services in every county and township in the United States. The
Company's provision of these services is facilitated by independent abstract
companies, title companies and law firms.
APPRAISAL SERVICES. The Company's subsidiary, West Point Appraisal
Services, Inc., is an appraisal management company offering a variety of
residential appraisal services to meet the varying needs of its customers. The
appraisal services are provided through independent approved fee appraisers.
SHORTENED TITLE ASSURANCE REPORTS. The Company's STAR Product serves as a
low-cost, limited form of title protection for the benefit of lenders in
subordinate loan transactions where the primary lending criteria is the
borrower's creditworthiness rather than the security interest in the real
property.
CENTRAL ORDER PROCESSING UNIT. The Company's Central Order Processing Unit
("COP Unit") provides customers with a centralized location through which they
can order title and escrow services. The services offered through the COP Unit
can be provided on a nationwide basis.
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<PAGE>
BUSINESS STRATEGY
The Company's objective is to become a leading supplier of title insurance
and related real estate financial and informational services. The key elements
in the Company's strategy to achieve this objective are to:
- EXPAND TO KEY GEOGRAPHIC MARKETS. A large percentage of title insurance
policies are generated in a relatively small number of markets throughout
the United States. The Company believes it can maximize its growth
opportunities by expanding into these key real estate markets, initially
in the western region of the United States. In 1997, premiums paid in
California, Arizona, Texas, Oregon, Washington and New Mexico together
represented 36.7% of the policy premiums written in the United States
according to Corporate Development Services, Inc. The Company intends to
pursue such expansion through a combination of opening new offices,
teaming with local companies, and acquiring established operations.
- EXPAND PROVISION OF REAL ESTATE RELATED SERVICES. The Company's
complementary real estate related services, such as trustee sale services,
property management and disposition services and document services,
provide an additional source of revenue to the Company, much of which is
countercyclical to the title insurance business. The Company believes it
can leverage its relationships developed through the issuance of title
insurance to generate additional business for these services. The
provision of these value-added services to escrow companies, lenders, real
estate brokers and agents, also increases their familiarity with and
reliance upon the Company's title insurance services.
- RECRUIT HIGHLY QUALIFIED PERSONNEL. The Company believes that the
development of personal relationships between the Company's personnel and
its customers is crucial to the expansion of the Company's business. For
this purpose, the Company seeks to recruit experienced and talented
personnel who the Company believes have substantial business contacts in
relevant markets. The Company has implemented a Stock Incentive Plan and
intends to implement a Stock Purchase Plan to provide additional
incentives for its employees.
- LEVERAGE ACQUISITION OF NATIONAL. The Company has recently agreed to
acquire National in order to facilitate its entry into the markets in
which National is licensed and to permit the Company to directly
underwrite the title insurance policies in geographic areas not covered by
the Company's exclusive relationship with FNTIC. In addition, the Company
anticipates that National will provide the opportunity to create agency
relationships in a variety of geographic locations and generate revenues
through underwriting title policies issued by those agents and expand
escrow operations in other areas.
- PURSUE STRATEGIC ACQUISITIONS. The Company intends to pursue strategic
acquisitions of title insurance and real estate service companies in order
to penetrate new markets, increase its diversity of service offerings, and
add qualified personnel to its existing staff.
MARKETING AND SALES
The Company attempts to increase the volume of its title insurance and real
estate related services business primarily through customer solicitation by
sales personnel. The primary source of this business is from independent escrow
companies, real estate brokers and agents, developers, mortgage brokers,
mortgage bankers, financial institutions and attorneys. The Company believes
that the personal contacts maintained by its sales personnel with these
customers are critical to generating title insurance business. The Company
therefore actively encourages its branch personnel to continually develop new
business relationships with persons in the real estate business community. In
addition to generating business through direct solicitation and general
advertising, the Company believes that excellent service is an
33
<PAGE>
important competitive factor in attracting and retaining customers, and measures
customer service in terms of quality and timeliness in the delivery of services.
RELATIONSHIP WITH FIDELITY NATIONAL FINANCIAL, INC.
The Company has a relationship with FNFI, resulting from FNFI's involvement
in the organization and growth of the Company, FNFI's equity ownership position
in the Company and existing business and contractual relationships between the
two companies. The Company's principal subsidiary, ATC, was a wholly owned
subsidiary of FNFI until July 1, 1997, when the Company acquired 60% of ATC's
outstanding common stock. As a result of the Reorganization, FNFI will own
approximately 43% of the outstanding Common Stock of the Company prior to this
offering. See "Reorganization" and "Principal Shareholders."
Operationally, the Company and FNTIC, a subsidiary of FNFI, continue to have
a close working relationship. FNTIC and ATC have entered into an Issuing Agency
Agreement pursuant to which ATC has agreed that until June 30, 2002 it will act
exclusively as an agent for FNTIC with respect to the procurement of title
insurance policies in 14 selected counties in California and Arizona, subject to
certain exceptions. This exclusive arrangement does not apply to other counties
into which the Company may expand in the future. Under the Issuing Agency
Agreement, in addition to furnishing title insurance products and services,
FNTIC provides a wide variety of administrative services for ATC, including
accounting, legal and human resources services. ATC pays FNTIC a management fee
of 1% of gross premiums for these services. This administrative services
arrangement is terminable by ATC upon 90 days notice to FNTIC.
ACQUISITION OF NATIONAL
ATC has agreed to purchase all of the outstanding capital stock of National
from a subsidiary of FNFI for a purchase price of $3.25 million, payable $1.25
million in cash and the remainder with interest at 10% over five years. The
Company intends to pay the purchase price with the proceeds of this offering.
See "Use of Proceeds." The closing of this acquisition is currently awaiting,
and is conditioned upon, approval from the New York State Department of
Insurance. See "Risk Factors--Risks Associated with the Acquisition of
National."
National is a title insurance underwriter, licensed to issue title insurance
in the State of New York and 34 other states and the U.S. Virgin Islands.
National does not currently underwrite title insurance policies through direct
operations or agency relationships and the Company will be required to commit
resources to establish direct operations and agency relationships in order to
realize the benefits of this acquisition.
The primary purpose of the acquisition is to acquire an underwriter, which
will enable the Company to generate underwriting fees and permit the Company to
expand geographically into counties and states in which the Company is not
presently licensed. The Company believes this expansion can be accomplished more
quickly and cost-effectively through the acquisition than through other means.
The Company also believes that the acquisition will expand the business
opportunities for its current and potential employees and affiliates, which will
aid in the Company's recruitment efforts, and will permit the Company to
generate additional revenue by writing title insurance policies in those
geographic areas which are not covered by ATC's exclusive agency arrangement
with FNTIC. See "Relationship with Fidelity National Financial, Inc."
COMPETITION
The title insurance industry is highly competitive in the attraction and
retention of customers and independent agents. The number of competing companies
and the size of such companies varies in the different geographic areas in which
the Company conducts its business. Generally, the Company is in competition with
many other title insurers and agents, with the most effective competition coming
from
34
<PAGE>
companies which possess greater capital resources. Approximately 4,800 title
companies, less than 150 of which are underwriters, are members of the American
Land Title Association, the title insurance industry's national trade
association.
The title insurance industry, however is heavily concentrated; for example,
it is estimated that the seven largest title insurance underwriters, either
directly or through their agents, accounted for approximately 89% of the policy
premium revenue in the United States in 1997. In the Company's principal
markets, competitors currently include direct operations and agents of the title
insurance subsidiaries of FNFI, Chicago Title Corporation, The First American
Financial Corporation, LandAmerica Financial Group, Inc., Old Republic
International Corporation and Stewart Information Services Corporation, as well
as numerous independent agency operations at the local level. The Company may
also face competition from entrants into the industry and the markets it plans
to service.
The industry for escrow and other real estate related services provided by
the Company is also highly competitive and extremely fragmented. The Company's
competition with respect to such services includes not only other title
underwriters and title agents in the insurance industry, but also companies,
both local and national, that specialize in the provision of a particular
service.
Because the parties to a real estate transaction are usually concerned with
time schedules and costs associated with delays in closing the transaction,
competition is based primarily on the quality and timeliness of service. The
Company believes that its competitive position is enhanced by its quality
customer service. The Company believes that the price of title insurance is
typically not an important competitive factor.
GOVERNMENT REGULATION
Title companies, including underwriters, underwritten title companies and
independent agents, are subject to regulation under applicable state laws. As an
agent, the Company is subject to regulation in California and Arizona. Such
regulations include licensing requirements for the counties in which the Company
operates, and regulations relating to minimum levels of net worth and working
capital. Upon acquiring National, the Company will become subject to regulation
by the New York Department of Insurance and the regulatory requirements of those
states in which National is licensed to do business.
The laws of most states in which the Company presently transacts or will
transact business establish supervisory agencies with broad administrative
powers relating to issuing and revoking licenses to transact business, licensing
agents, approving policy forms, regulatory accounting principles, financial
practices, establishing reserve and capital and surplus requirements, defining
suitable investments for reserves, capital and surplus and approving rate
schedules.
Current regulations require that ATC maintain a minimum net worth of
$400,000. The net worth of ATC was $10.4 million as of December 31, 1997, and
$14.0 million as of June 30, 1998.
As a condition to continued authority to issue policies in the states in
which the ATC conducts its business, ATC is required to pay certain fees and
file information regarding its officers, directors and financial condition.
EMPLOYEES
As of July 31, 1998, the Company, including its subsidiaries, had 766
full-time employees. The Company believes its success depends significantly on
attracting and retaining talented and experienced personnel. The Company locates
and recruits its personnel primarily through personal contacts in the industry,
and the Company's executive officers are actively involved in the recruitment
process. The Company offers competitive packages of base and incentive
compensation and benefits in order to attract and motivate its employees. The
Company believes that its relations with employees are good.
35
<PAGE>
PROPERTIES
The Company's executive offices are located in Irvine, California. All
offices of the Company are leased except for an approximately 11,000 square foot
branch office in Phoenix, Arizona, which the Company owns. The Company believes
that its facilities are adequate for its current level of operations.
LEGAL PROCEEDINGS
The Company in the ordinary course of business is subject to claims made
under, and from time to time is named as defendants in legal proceedings
relating to, policies of insurance it has issued or other services performed on
behalf of insured policyholders and other customers. The Company also is
involved from time to time in routine litigation incidental to the conduct of
its business, apart from claims made under title insurance policies. There are
currently no material pending litigation proceedings to which the Company is a
party or to which any of its property is subject.
36
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the Company's
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- --- --------------------------------------------------------------
<S> <C> <C>
William P. Foley, II........................ 53 Chairman of the Board of Directors
Michael C. Lowther.......................... 56 Chief Executive Officer and Director
Wayne D. Diaz............................... 50 President and Director
Carl A. Strunk.............................. 60 Executive Vice President and Chief Financial Officer
Dennis R. Duffy............................. 55 Executive Vice President and Director
Barbara A. Ferguson......................... 42 Executive Vice President and Director
M'Liss Jones Kane........................... 45 Executive Vice President, Secretary and General Counsel
Bruce Elieff(1)(2).......................... 42 Director
Robert Majorino(1)(2)....................... 43 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
All directors hold office until the next annual meeting of shareholders or
the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
There are no family relationships among any of the Company's directors or
executive officers.
The business experience, principal occupations and employment, as well as
periods of service, of each of the directors and executive officers of the
Company during at least the last five years are set forth below.
WILLIAM P. FOLEY, II joined the Company as its Chairman of the Board in
June, 1997. He has been Chairman of the Board of ATC since 1996. Mr. Foley is
the Chairman of the Board and Chief Executive Officer of FNFI and has been since
its formation in 1984. Mr. Foley was President of FNFI from its formation in
1984 until December 31, 1994. Mr. Foley is currently serving as Chairman of the
Board and Chief Executive Officer of CKE Restaurants, Inc., as Chairman of the
Board of Rally's Hamburgers, Inc., Checkers Drive-In Restaurants, Inc., GB Foods
Corporation, and Star Buffet, Inc. Additionally, he is a member of the Board of
Directors of Data Works Corporation, Fresh Foods, Inc. and Micro General
Corporation.
MICHAEL C. LOWTHER has been Chief Executive Officer and a director of the
Company since its formation in November 1996, and of ATC since 1995. For
approximately 15 years prior to joining ATC, Mr. Lowther served as Chairman of
the Board and Chief Executive Officer of World Title Company which he co-founded
in 1980. He has 34 years of experience in the title industry.
WAYNE D. DIAZ has been President and a director of the Company since its
formation. During the five years prior to joining the Company, Mr. Diaz held the
position of Executive Vice President of FNTIC. Mr. Diaz has 18 years of
experience in the title industry.
CARL A. STRUNK joined the Company as its Executive Vice President and Chief
Financial Officer in August 1998. Mr. Strunk has been the Executive Vice
President and Chief Financial Officer of CKE Restaurants, Inc. since February
1997. Mr. Strunk is the Executive Vice President/Finance for FNFI and GB Foods
and has been with FNFI since 1992 and GB Foods since December 1997. Mr. Strunk
previously served as President of Land Resources Corporation from 1986 to 1991.
Mr. Strunk is a Certified Public Accountant and is also a member of the Board of
Directors of Micro General Corporation.
DENNIS R. DUFFY has held his position of Executive Vice President and
director of the Company since 1996, and has over 30 years of experience in the
title industry. From 1995 to 1996, he was Regional Vice
37
<PAGE>
President--Operations of Gateway Title Company. Mr. Duffy was the owner of
Duffy's Pacific Enterprises, a property management company, from 1993 to 1995.
From 1985 to 1993, Mr. Duffy was affiliated with a wholly-owned subsidiary of
SAFECO, initially as President, and subsequently as a consultant. Prior to that
time, he worked in various management positions with both Title Insurance and
Trust Company (TICOR) and SAFECO.
BARBARA A. FERGUSON joined the Company in August 1997 as Executive Vice
President and a director. From 1988 to 1997, Ms. Ferguson held various positions
with FNTIC, including Trust Accounting Manager, Banking Administrator, and
Senior Vice President and Manager of two separate divisions.
M'LISS JONES KANE was appointed Executive Vice President, General Counsel
and Secretary of the Company in August 1998. Ms. Kane has held various positions
with FNFI since March 1995. She has been Senior Vice President since March 1995
and Corporate Secretary since April 1995. Ms. Kane also held the position of
Corporate Counsel until September 1997, at which time she was appointed as
General Counsel of FNFI. From March 1990 to March 1995, Ms. Kane served as the
Vice President and General Counsel of SPI Pharmaceuticals, Inc. and ICN
Biomedicals, Inc., affiliates of ICN Pharmaceuticals, Inc. From February 1988 to
March 1990, Ms. Kane was the Senior Vice President, Corporate Counsel and
Secretary for Countrywide Credit Industries, Inc. Ms. Kane has also served as
Senior Vice President and Corporate Counsel for ICN Pharmaceuticals, Inc.
BRUCE ELIEFF was elected to the Company's Board of Directors in August 1998.
Mr. Elieff is a principal of Sun Cal Companies, a real estate development firm
located in Southern California. He has held this position since 1977.
ROBERT L. MAJORINO was appointed to the Company's Board of Directors in
August 1998. Mr. Majorino is currently President of G.E.M.M.M. Corporation, a
residential real estate brokerage located in Southern California, which position
he has held since 1993. Prior to that time, he was the owner of Century 21
Ambassador Realty, a residential real estate brokerage company.
DIRECTOR COMPENSATION
Directors who are not employees of the Company will be paid a fee of $2,000
per meeting they attend, plus reimbursement of reasonable expenses. Directors
who are employees of the Company will not receive compensation for their
services as directors.
EMPLOYMENT AGREEMENTS
In August 1998, the Company entered into an employment agreement with each
of Michael C. Lowther, Wayne D. Diaz, Dennis R. Duffy, and Barbara A. Ferguson.
Each employment agreement provides for a five year term and a possible merit
bonus granted at the sole discretion of the Board. The minimum base salary of
Messrs. Lowther, Diaz and Duffy under their respective employment agreements is
$260,000, $260,000 and $160,000, respectively. The minimum base salary for Ms.
Ferguson under her employment agreement is $160,000.
In the event of the termination of the employee by the Company without
"cause," each employment agreement provides that the Company shall pay to the
employee an amount equal to the product of the employee's minimum base salary in
effect upon termination plus the total bonus paid or payable to the employee for
the most recently ended calendar year multiplied by the greater of either the
number of years remaining thereunder or two years.
Upon termination of employment either by the employee or by the Company (in
breach of the employment agreement or without cause) following a "change in
control" of the Company, the employee would be entitled to receive (i) his or
her full salary through the date of termination; and (ii) an amount equal to the
product of the employee's minimum base salary in effect upon termination plus
the total bonus paid or payable to the employee for the most recently ended
calendar year multiplied by the greater
38
<PAGE>
of either the number of years remaining hereunder or two years. In addition,
upon termination due to a "change in control," the employee is entitled to
continue to participate in all employee benefit plans and programs in which such
employee was entitled to participate prior to the date of termination provided
that such continuation is possible under the terms of the plan or program for a
period equal to either (i) the greater of the number of years remaining in the
term of employment or (ii) two years. If, however, any payment required to be
made by the Company to an employee upon termination due to a "change in
control," constitutes a "parachute payment" (as defined in section 280G of the
Internal Revenue Code), such payment shall be limited to the highest amount of
such payment which can be paid without constituting a "parachute payment."
The employee may only elect to terminate the employment agreement due to a
"change in control" of the Company during the period commencing 60 days and
expiring 365 days after such "change in control."
BOARD COMMITTEES
The Board's Audit Committee will consist of Mr. Elieff and Mr. Majorino. The
Audit Committee will meet periodically with management and the Company's
independent accountants to review the results and scope of the audit and other
services provided by the Company's independent auditors and the need for
internal auditing procedures and the adequacy of internal controls.
The Compensation Committee will consist of Mr. Elieff and Mr. Majorino. The
Compensation Committee will establish salaries, incentives and other forms of
compensation for officers, directors and certain key employees, administer the
Company's various incentive compensation and benefit plans, including the
Company's 1998 Stock Incentive Plan, and recommend policies relating to such
plans.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
by the Company for the fiscal year ended December 31, 1997 to the Chief
Executive Officer and executive officers of the Company whose annual
compensation exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
--------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- ---------------------------------------------------------------------------- ---------- --------- -------------
<S> <C> <C> <C>
Michael C. Lowther, Chief Executive Officer................................. $ 200,568 $ 87,703 $ 3,150(2)
Wayne D. Diaz, President.................................................... $ 195,000 $ 87,703 $ 15,711(3)
Dennis R. Duffy, Executive Vice President................................... $ 124,133 $ 25,000 $ 6,578(4)
</TABLE>
- ------------------------
(1) Excludes perquisites and other personal benefits, securities and properties
otherwise categorized as salary or bonuses which in the aggregate, for each
of the named persons did not exceed the lesser of either $50,000 or 10% of
the total annual salary reported for such person.
(2) Consists of $900 in premiums paid on a life insurance policy of which Mr.
Lowther is the beneficiary and $2,250 in automobile allowance.
(3) Consists of $261 in premiums paid on a life insurance policy of which Mr.
Diaz is the beneficiary, $8,700 in matching contributions made by FNFI
pursuant to FNFI's employee stock purchase plan and $6,750 in automobile
allowance.
(4) Consists of $578 in premiums paid on a life insurance policy of which Mr.
Duffy is the beneficiary and $6,000 in automobile allowance.
39
<PAGE>
STOCK OPTIONS
The Company did not grant stock options to any Named Executive Officer
during fiscal year ended December 31, 1997. None of the Named Executive Officers
exercised or held stock options during the fiscal year ended December 31, 1997.
STOCK INCENTIVE PLAN
The Company's 1998 Stock Incentive Plan (the "Stock Incentive Plan")
authorizes up to 650,000 shares of Common Stock for issuance under the terms of
the Stock Incentive Plan. The authorized number of shares is subject to
adjustment in the event of stock splits, stock dividends or certain other
similar changes in the capital structure of the Company. The Stock Incentive
Plan provides for grants of "incentive stock options" as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), nonqualified
stock options and rights to purchase shares of Common Stock ("Purchase Rights").
Incentive stock options, nonqualified stock options and Purchase Rights may be
granted to employees of the Company and its subsidiaries and affiliates,
non-employee directors and officers, consultants and other service providers.
The Board of Directors, or a committee consisting of two or more members of
the Board of Directors, will administer the Stock Incentive Plan (the
"Administrator"). The Administrator has full power and authority to interpret
the Stock Incentive Plan, select the recipients of options and Purchase Rights,
determine and authorize the type, terms and conditions of, including vesting
provisions, and the number of shares subject to, grants under the Stock
Incentive Plan, and adopt, amend and rescind rules relating to the Stock
Incentive Plan. The term of options may not exceed 10 years from the date of
grant (5 years in the case of an incentive stock option granted from the date of
grant (5 years in the case of an incentive stock option granted to a person who
owns more than 10% of the combined voting power of all classes of stock of the
Company). The option exercise price for each share granted pursuant to an
incentive stock option may not be less than 100% of the fair market value of a
share of Common Stock at the time such option is granted (110% of fair market
value in the case of an incentive stock option granted to a person who owns more
than 10% of the combined voting power of all classes of stock of the Company).
There is no minimum purchase price for shares of Common Stock purchased pursuant
to a Purchase Right, and any such purchase price shall be determined by the
Administrator. The maximum number of shares for which options or Purchase Rights
may be granted to any one person during any one calendar year under the Stock
Incentive Plan is 100,000 and in no event shall the aggregate number of shares
subject to incentive stock options exceed 650,000. The aggregate fair market
value of the Common Stock (determined as of the date of grant) with respect to
which incentive stock options granted under the Stock Incentive Plan or any
other stock option plan of the Company become exercisable for the first time by
any optionee during any calendar year may not exceed $100,000.
Except as otherwise provided by the Administrator, neither options nor
Purchase Rights granted under the Stock Incentive Plan may be transferred other
than by will or by the laws of descent and distribution. Shares purchased
pursuant to Purchase Rights generally shall be restricted for a period of time,
during which such shares may be repurchased by the Company, and therefore these
shares may not be sold, assigned, pledged or transferred until such time as the
Company no longer has the right to reacquire any such shares.
In the event that the outstanding shares of Common Stock are increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of merger, consolidation or
reorganization in which the Company is the surviving corporation, or of a
recapitalization, stock split, combination of shares, reclassification,
reincorporation, stock dividend (in excess of 2%) or other change in the
corporate structure of the Company while the Stock Incentive Plan is in effect,
appropriate adjustments shall be made by the Board of Directors to the aggregate
number and kind of shares subject to the Stock Incentive Plan, and the number
and kind of shares and the price per
40
<PAGE>
share subject to outstanding incentive options, nonqualified the price per share
subject to outstanding incentive options, nonqualified options and restricted
shares in order to preserve, but not to increase, the benefits to persons then
holding incentive options, nonqualified options or restricted shares.
In the event of a Change of Control (as defined below) of the Company the
time period relating to the exercise or realization of all outstanding options
and Purchase Rights shall automatically accelerate immediately prior to the
consummation of such Change of Control. For purposes of the Stock Incentive
Plan, "Change in Control" means (i) the acquisition, directly or indirectly, by
any person or group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) of the beneficial ownership of securities of
the Company possessing more than fifty percent (50%) of the total combined
voting power of all outstanding securities of the Company; (ii) a merger or
consolidation in which the Company is not the surviving entity, except for a
transaction in which the holders of the outstanding voting securities of the
Company immediately prior to such merger or consolidation hold, in the
aggregate, securities possessing more than fifty percent (50%) of the total
combined voting power of all outstanding voting securities of the surviving
entity immediately after such merger or consolidation; (iii) a reverse merger in
which the Company is the surviving entity but in which securities possessing
more than fifty percent (50%) of the total combined voting power of all
outstanding voting securities of the Company are transferred to or acquired by a
person or persons different from the persons holding those securities
immediately prior to such merger; (iv) the sale, transfer or other disposition
(in one transaction or a series of related transactions) of all or substantially
all of the assets of the Company; or (v) the approval by the stockholders of a
plan or proposal for the liquidation or dissolution of the Company.
The Board of Directors may alter, amend, suspend or terminate the Stock
Incentive Plan at any time. Unless sooner terminated by the Board of Directors,
the Stock Incentive Plan will terminate on August , 2008. Upon completion of
this offering, the Company intends to grant options to purchase, subject to
certain vesting requirements, an aggregate of 320,000 shares of Common Stock
pursuant to the Stock Incentive Plan, at an exercise price per share equal to
the initial public offering price, of which options to purchase an aggregate of
175,280 shares of Common Stock are to be granted to the following directors or
executive officers of the Company:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Michael C. Lowther................................................................ 27,640
Wayne D. Diaz..................................................................... 27,640
Carl A. Strunk.................................................................... 50,000
Dennis R. Duffy................................................................... 10,000
Barbara A. Ferguson............................................................... 10,000
M'Liss Jones Kane................................................................. 30,000
Bruce Elieff...................................................................... 10,000
Robert Majorino................................................................... 10,000
-----------
175,280
-----------
-----------
</TABLE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide that the liability of the
Company's directors for monetary damages shall be eliminated to the fullest
extent permissible under California law. This is intended to eliminate the
personal liability of a director for monetary damages in an action brought by or
in the right of the Company for breach of a director's duties to the Company or
its shareholders except for liability: (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law; (ii) for acts
or omissions that a director believes to be contrary to the best interests of
the Company or its shareholders or that involve the absence of good faith on the
part of the director; (iii) for any transaction for which a director derived an
improper personal benefit; (iv) for acts or omission that show a
41
<PAGE>
reckless disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Company or its shareholders; (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders; (vi) with respect to certain
transactions, or the approval of transactions in which a director has a material
financial interest; and (vii) expressly imposed by statute, for approval of
certain improper distributions to shareholders or certain loans or guarantees.
The Articles also provide that the Company is authorized to provide
indemnification to its agents (as defined in Section 317 of the California
Corporations Code), through the Company's Bylaws or through agreements with such
agents or both, for breach of duty to the Company and its shareholders, in
excess of the indemnification otherwise permitted by Section 317 of the
California Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the California Corporations Code.
The Bylaws of the Company provide for indemnification of the Company's
officers, directors, employees, and other agents to the extent and under the
circumstances permitted by California law. The Bylaws further provide that no
indemnification shall be made in the case of a derivative suit in respect to any
claim as to which such person has been adjudged to be liable to the corporation,
except with court approval, nor shall indemnification be made for amounts paid
in settling or otherwise disposing of a threatened or pending action, with or
without court approval, or for expenses incurred in defending a threatened or
pending action which is settled or otherwise disposed of without court approval.
Indemnification under the Bylaws is mandatory in the case of an agent of the
Company (present or past) who is successful on the merits in defense of a suit
against him or her in such capacity. In all other cases where indemnification is
permitted by the Bylaws, a determination to indemnify such person must be made
by a majority of a quorum of disinterested directors, a majority of
disinterested shareholders, or the court in which the suits is pending.
The Company has entered into agreements to indemnify its directors in
addition to the indemnification provided for in the Articles of Incorporation
and Bylaws. Among other things, these agreements provide that the Company will
indemnify, subject to certain requirements, each of the Company's directors for
certain expenses (including attorneys' fees), judgments, fines and settlement
amounts incurred by such person in any action or proceeding, including any
action by or in the right of the Company, on account of services by such person
as a director or officer of the Company, or as a director or officer of any
other company or enterprise to which the person provides services at the request
of the Company.
The above provisions may have the effect of reducing the likelihood of
derivative litigation against directors and may discourage or deter shareholders
or management from bringing a lawsuit against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have
benefitted the Company and its shareholders. At present, there is no litigation
or proceeding pending involving a director of the Company as to which
indemnification is being sought, nor is the Company aware of any threatened
litigation that may result in claims for indemnification by any director.
42
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock and as adjusted to reflect
the sale of Common Stock offered hereby, by (i) each person known by the Company
to beneficially own more than 5% of the outstanding shares of Common Stock, (ii)
each of the Company's directors, (iii) each of the Named Executive Officers, and
(iv) all directors and executive officers of the Company as a group. Except as
otherwise indicated, the Company believes that the beneficial owners of the
Common Stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
PERCENT OF OUTSTANDING
SHARES COMMON STOCK OWNED
BENEFICIALLY ----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED BEFORE OFFERING AFTER OFFERING
- -------------------------------------------------- ----------- ----------------- ---------------
<S> <C> <C> <C>
Fidelity National Financial, Inc.................. 2,099,996 42.7% 34.1%
William P. Foley, II.............................. 332,904(2) 6.3% 5.1%
Michael C. Lowther................................ 981,106(3) 19.9% 15.9%
Wayne D. Diaz..................................... 981,106(3) 19.9% 15.9%
Dennis R. Duffy................................... 104,124(4) 2.1% 1.7%
Barbara A. Ferguson............................... 154,653(4) 3.1% 2.6%
Bruce Elieff...................................... 3,333(4) * *
Robert Majorino................................... 3,333(4) * *
All directors and executive officers as a group (9
persons)........................................ 2,587,226(5) 48.7% 39.5%
</TABLE>
- ------------------------
* Less than 1%.
(1) The address of each of Messrs. Foley, Lowther, Duffy and Diaz and Ms.
Ferguson is 17911 Von Karman Avenue, Suite 200, Irvine, California 92614.
The address for Fidelity National Financial, Inc. is 17911 Von Karman
Avenue, Suite 300, Irvine, California 92614.
(2) Consists solely of shares issuable under presently exercisable options. Mr.
Foley is the Chairman of the Board of Directors and Chief Executive Officer
of FNFI.
(3) Includes 9,213 shares issuable under options to become exercisable within 60
days.
(4) Includes 3,333 shares issuable under options to become exercisable within 60
days.
(5) Includes 391,329 shares issuable under options presently exercisable or to
become exercisable within 60 days.
43
<PAGE>
CERTAIN TRANSACTIONS
The Company has a relationship with FNFI, resulting from FNFI's involvement
in the organization and growth of the Company, FNFI's equity ownership position
in the Company and existing business and contractual relationships between the
two companies. Upon consummation of this offering (assuming no exercise of the
Underwriters' over-allotment option) FNFI will own approximately 34.1% of the
outstanding Common Stock of the Company. Mr. Foley, the Company's Chairman of
the Board, is the Chairman of the Board and Chief Executive Officer and a
principal shareholder of FNFI.
In July 1997, the Company acquired 60% of the outstanding common stock of
ATC from FNFI in exchange for $6.0 million. In August 1998, the Company agreed
to acquire the remaining 40% of the outstanding common stock of ATC from FNFI in
exchange for shares of Common Stock representing approximately 43% of the
Company's outstanding shares. In connection with that exchange, the shareholders
of the Company, other than FNFI, will assume approximately $1.2 million of
Acquisition Debt from the Company, and the remaining unpaid balance of the
Acquisition Debt, in the amount of approximately $3.5 million, will be repaid
from the proceeds of a dividend to the Company from ATC. Consummation of this
transaction is subject to receipt of approval from the California Development of
Insurance. See "Reorganization."
In July 1997, the Company issued options to purchase 332,904 shares of
Common Stock to William P. Foley, II, the Company's Chairman of the Board. The
options are exercisable for a period of five years at an exercise price of $0.66
per share.
FNTIC, a subsidiary of FNFI, and ATC have entered into an Issuing Agency
Agreement pursuant to which ATC has agreed that until June 30, 2002 it will act
exclusively as an agent for FNTIC with respect to the procurement of title
insurance policies in 14 selected counties in California and Arizona, subject to
certain exceptions. FNTIC receives 11% of the title premium as consideration for
underwriting the policies. ATC paid FNTIC approximately $4.1 million in 1997 and
$3.0 million in the first six months of 1998 under this agreement. Under the
Issuing Agency Agreement, FNTIC also provides a wide variety of administrative
services for ATC, including accounting and legal and human resources services.
ATC pays FNTIC a management fee of 1% of gross title premiums for these
services. This administrative services arrangement is terminable by ATC upon 90
days prior notice to FNTIC. The amounts of administrative fees paid to FNTIC
under this arrangement for 1997 and the first six months of 1998 were
approximately $375,000 and $274,000, respectively.
On March 16, 1998, ATC agreed to purchase all of the outstanding capital
stock of National from a subsidiary of FNFI for a purchase price of $3.25
million, payable $1.25 million in cash and the remainder with interest at 10%
over five years. The Company intends to pay the deferred portion of the purchase
price in full upon the completion of this offering. See "Use of Proceeds." When
the acquisition is closed, National will be a wholly-owned subsidiary of ATC.
The closing of this acquisition is currently awaiting, and is conditioned upon,
approval from the New York State Department of Insurance. See "Business--
Acquisition of National."
On January 28, 1998, ATC and FNTIC entered into a sublease pursuant to which
ATC subleases the Company's principal executive office from FNTIC. Such lease
provides for monthly rental payments to FNTIC of $33,494 and expires on July 11,
2000.
In August 1997, Messrs. Lowther, Diaz and Duffy and Ms. Ferguson guaranteed,
in the aggregate, approximately 34.5% of the Company's obligations under a
promissory note in the original principal amount of $6.0 million which was
incurred to finance the acquisition of the Company. The note bears interest
annually at the prime rate.
Messrs. Lowther, Diaz, and Duffy founded the Company in November 1996. In
March 1997, the Company issued 976,093, 976,093 and 100,791 shares of Common
Stock to Messrs. Lowther, Diaz, and Duffy, respectively. In consideration for
the issuance of the shares, each such founding shareholder
44
<PAGE>
guaranteed indebtedness of the Company in the amount of approximately $1.98 for
each share that was issued to him. The Company issued Common Stock to other
employees of the Company in March 1997 on the same terms and conditions.
In August 1998, the Company entered into Indemnification Agreements with all
of its directors and executive officers providing for indemnification rights in
certain circumstances. See "Management-- Indemnification of Officers and
Directors."
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock and selected
provisions of its Articles of Incorporation and Bylaws is a summary and is
qualified in its entirety by the Company's Articles of Incorporation and Bylaws,
copies of which have been filed with the Securities and Exchange Commission as
exhibits to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock, no par
value. Shareholders have no preemptive rights and no right to convert their
Common Stock into any other securities. The holders of Common Stock are entitled
to one vote for each share held of record on all matters submitted to a vote of
the shareholders, except that holders of Common Stock are entitled to cumulative
voting with respect to the election of directors upon giving notice as required
by law. In cumulative voting, the holders of Common Stock are entitled to cast
for each share held the number of votes equal to the number of directors to be
elected. In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding Preferred Stock. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares are, and all
shares to be sold and issued as contemplated hereby will be, fully paid and
nonassessable and legally issued. The Board of Directors is authorized to issue
additional shares of Common Stock within the limits authorized by the Company's
charter and without shareholder action. As of August 21, 1998 there were
2,817,100 shares of Common Stock outstanding held by 25 holders of record.
PREFERRED STOCK
The Company's authorized preferred stock consists of 5,000,000 shares, no
par value (the "Preferred Stock"). The Board of Directors has the authority,
without further action by the shareholders, to issue from time to time shares of
Preferred Stock in one or more series and to fix the dividend rights and terms,
conversion rights, voting rights (whole, limited or none), redemption rights and
terms, liquidation preferences, sinking funds and any other rights, preferences,
privileges and restrictions applicable to each such series of Preferred Stock.
The purpose of authorizing the Board of Directors to determine such rights and
preferences is to eliminate delays associated with a shareholder vote on
specific issuances. The issuance of the Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, could make it more
difficult for a third party to gain control of the Company. Such issuance of
Preferred Stock could also adversely affect the distributions on and liquidation
preference of the Common Stock by creating more series of Preferred Stock with
distribution or liquidation preferences senior to the Common Stock. No shares of
Preferred Stock are currently outstanding and the Company currently has no plans
or proposals to issue any Preferred Stock.
TRANSFER AGENT
The Transfer Agent for the Company's Common Stock is U.S. Stock Transfer
Corporation.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have 6,167,096 shares of
Common Stock outstanding (excluding approximately 652,904 shares of Common Stock
issuable upon exercise of outstanding stock options). The 1,250,000 shares sold
by the Company in the offering will be freely tradeable without restriction or
further registration under the Securities Act, unless held by an "affiliate" of
the Company within the meaning of Rule 144 adopted under the Securities Act. Any
such affiliate would be subject to the resale limitations of Rule 144.
The remaining shares of outstanding Common Stock are "restricted securities"
(the "Restricted Shares") within the meaning of Rule 144 under the Securities
Act and may not be sold in the absence of a registration under the Securities
Act unless an exemption from registration is available, including an exemption
contained in Rule 144. In general, under Rule 144 as currently in effect, any
person (or persons whose shares are aggregated for purposes of Rule 144) who has
beneficially owned "restricted securities," as that term is defined in Rule 144,
for at least one year is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock of the Company, or (ii) the average weekly
trading volume in Common Stock during the four calendar weeks preceding such
sale, provided that certain public information about the Company, as required by
Rule 144, is then available and the seller complies with the manner of sale and
notification requirements of the rule. A person who is not an affiliate and has
not been an affiliate within three months prior to the sale and has, together
with any previous owners who were not affiliates, beneficially owned restricted
securities for at least two years is entitled to sell such shares under Rule
144(k) without regard to any of the volume limitations described above. None of
the Restricted Shares are presently eligible for sale upon compliance with Rule
144(k).
The officers, directors and substantially all shareholders of the Company
have agreed not to sell or otherwise transfer any shares of Common Stock, or any
securities convertible into or exercisable for shares of Common Stock, for the
180 days following the effective date of this Prospectus without the consent of
the Representative on behalf of the Underwriters. In addition, for the next 180
days such persons have also agreed not to sell or otherwise transfer shares of
Common Stock in excess of the amounts eligible for sale under Rule 144 and in
any event to effectuate any such sales or dispositions through Cruttenden Roth
Incorporated.
No predictions can be made of the effect, if any, that future sales of
shares of Common Stock, and grants of options to acquire shares of Common Stock,
or the availability of shares for future sale, will have on the market price of
the Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock in the public market, or the perception that such sales could
occur, could adversely affect the prevailing market prices of the Common Stock.
See "Principal Shareholders," "Description of Securities" and "Underwriting."
47
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions set forth in an underwriting
agreement (the "Underwriting Agreement), the Underwriters named below, for whom
Cruttenden Roth Incorporated is acting as manager and representative (the
"Representative"), have severally agreed to purchase from the Company an
aggregate of 1,250,000 shares of Common Stock. The number of shares of Common
Stock that each Underwriter has agreed to purchase is set forth opposite its
name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Cruttenden Roth Incorporated.....................................................
----------
Total.......................................................................... 1,250,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of the
shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares of Common Stock (other than the shares
of Common Stock covered by the overallotment option described below) must be so
purchased.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the coverage page of
this Prospectus and to certain dealers (who may include the Underwriters) at
such price less a concession not to exceed $. per share. The Underwriters may
allow, and such dealers may reallow, a concession not to exceed $. per share
to any other Underwriter and certain other dealers. After the initial public
distribution of the shares offered hereby, the offering price and other selling
terms may be changed by the Representative. The Representative has advised the
Company that the Underwriters do not intend to confirm any shares to any
accounts over which they exercise discretionary control.
The Company has granted to the Underwriters an option, exercisable for 45
days from the date of this Prospectus, to purchase up to an aggregate of 187,500
additional shares of Common Stock at the initial public offering price less
underwriting discounts and commissions. Such option may be exercised solely for
the purpose of converting overallotments, if any, in connection with the
offering of the shares offered hereby. To the extent that the Underwriters
exercise such option, each of the Underwriters will be committed, subject to
certain conditions, to purchase a number of additional shares proportionate to
such Underwriter's initial commitment as indicated in the preceding table.
The offering of the shares offered hereby is made for delivery when, as and
if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The Underwriters
reserve the right to reject an order for the purchase of shares in whole or in
part.
The Company has agreed to pay the Representative a nonaccountable expense
allowance of 2% of the gross proceeds of the offering to cover certain
underwriting costs and due diligence expenses related to this offering and to
sell to the Representative for nominal consideration the Representative's
Warrants to purchase from the Company up to 125,000 shares of Common Stock
(subject to certain antidilution
48
<PAGE>
adjustments) at an exercise price per share equal to 120% of the initial public
offering price per share. The exercise price may be paid in cash or on a
cashless net issuance basis by foregoing receipt of a number of shares otherwise
issuable upon exercise having a fair market value equal to the aggregate
exercise price. The Representative's Warrants will be exercisable for a period
beginning one year from the date of this Prospectus until five years from the
date of this Prospectus. The Representative's Warrants may not be sold,
transferred, assigned, pledged or hypothecated by the Representative for a
period of one year from the date of issuance except to officers and partners of
the Representative, the Underwriters or officers and partners of the
Underwriters. In addition, the Company has granted certain demand and piggyback
registration rights to the holders of the Representative's Warrants, which
enable them to register the resale of the Common Stock underlying the
Representative's Warrants under the Securities Act.
The Company, all directors and executive officers of the Company, and
certain stockholders and option holders of the Company have agreed that, without
the prior written consent of the Representative, they will not, with certain
limited exceptions, directly or indirectly, offer, sell, contract to sell, grant
any option to purchase or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or,
in any manner, transfer all or a portion of the economic consequences associated
with the ownership of the Common Stock, for a period of 180 days after the
Effective Date, other than the shares of Common Stock offered hereby. See
"Shares Eligible for Future Sale."
In connection with this offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Securities Exchange Act of 1934, as
amended, pursuant to which such persons may bid for or purchase shares of Common
Stock for the purpose of stabilizing the market price for shares of Common
Stock. The Underwriters also may create a short position for the account of the
Underwriters by selling more shares of Common Stock in connection with this
offering than they are committed to purchase from the Company and in such case
may purchase shares of Common Stock in the open market following the completion
of this offering to cover all or a portion of the shares of Common Stock or by
exercising the Underwriters' over-allotment option referred to above. In
addition, the Representative, on behalf of the Underwriters, may impose "penalty
bids" under contractual arrangements with the other Underwriters whereby it may
reclaim for an Underwriter (or a dealer participating in this offering) for the
account of the other Underwriters, the selling concession with respect to shares
of Common Stock that are distributed in this offering but subsequently purchased
for the account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, may be discontinued at any time.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock offered hereby has
been determined by negotiation between the Company and the Representative. Among
the factors considered in determining the initial public offering price were
prevailing market conditions, revenues and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the history of and prospects for the
Company's business and the industry in which it competes, the Company's
management and other factors deemed relevant.
FNFI beneficially owns 2,099,996 shares of Common Stock, or approximately
43% of the outstanding shares of the Company, as well as more than 10% of the
outstanding common stock of Cruttenden Roth Incorporated. Under the Bylaws of
the NASD, when a member of the NASD, such as the Underwriter, participates in
the public distribution of securities of a company in which it or its affiliates
own 10% or more of the outstanding voting securities, and where there is no
"bona fide independent market" for such
49
<PAGE>
securities, the public offering price can be no higher than recommended by a
qualified independent underwriter. The independent investment banking firm of
, which may participate as a member of the selling group in
this offering (but will offer for sale more than 10% of the Common Stock offered
hereby), has recommended a maximum initial public offering price of $ per
share. performed its "due diligence" with respect to the
information contained in the registration statement of which this Prospectus is
a part. The NASD and the Securities and Exchange Commission have indicated that,
in their view, may be deemed to be an underwriter as that term is
defined in the Securities Act.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Rutan & Tucker, LLP, Costa
Mesa, California. Certain matters in connection with the sale of Common Stock
offered hereby will be passed on for the Underwriters by Stradling Yocca Carlson
& Rauth, Newport Beach, California.
EXPERTS
The consolidated financial statements of American National Financial, Inc.
as of and for the year ended December 31, 1997, have been included herein and in
the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The balance sheet of ANFI Predecessor as of December 31, 1996, and the
related statements of combined operations for each of the years in the two-year
period ended December 31, 1996 and for the six-month period ended June 30, 1997,
and the statements of shareholders' equity and cash flows for the year ended
December 31, 1996 and the six months ended June 30, 1997, have been included
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act, and the rules and regulations promulgated thereunder, with
respect to the Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
While all material elements of the contracts and documents referenced in this
Prospectus are contained herein, statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the full text of such
contract or other document which is filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to such Registration Statement and the
exhibits and schedules thereto. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center,
50 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
documents may be obtained from the Commission at its principal office in
Washington, D.C. upon the payment of the charges prescribed by the Commission.
50
<PAGE>
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The Commission's address on the World Wide
Web is http://www.sec.gov.
The Company intends to distribute to its shareholders annual reports
containing financial statements audited by the Company's independent accountants
and quarterly reports for the first three quarters of each fiscal year
containing unaudited interim financial information.
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FOR
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheet at December 31, 1997............................................................ F-3
Consolidated Statement of Operations for the Year Ended December 31, 1997.................................. F-4
Consolidated Statement of Cash Flows for the Year Ended December 31, 1997.................................. F-5
Consolidated Statement of Shareholders' Equity for the Year Ended December 31, 1997........................ F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
FINANCIAL STATEMENTS FOR
ANFI PREDECESSOR (NOTE 1)
<TABLE>
<S> <C>
Independent Auditors' Report......................................................... F-16
Balance Sheet at December 31, 1996................................................... F-17
Statement of Combined Operations for the Years Ended December 31, 1995 and 1996 and
for the six months ended June 30, 1997............................................. F-18
Statement of Shareholder's Equity for the Year Ended December 31, 1996 and for the
six months ended June 30, 1997..................................................... F-19
Statement of Cash Flows for the Year Ended December 31, 1996 and for the six months
ended June 30, 1997................................................................ F-20
Notes to Financial Statements........................................................ F-21
</TABLE>
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheet at June 30, 1998 (unaudited).................... F-27
Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 1998
(unaudited)........................................................................ F-28
Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1998
(unaudited)........................................................................ F-29
Notes to Financial Statements (unaudited)............................................ F-30
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American National Financial, Inc.:
We have audited the consolidated balance sheet of American National
Financial, Inc. and subsidiaries as of December 31, 1997 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
National Financial, Inc and subsidiaries as of December 31, 1997 and the results
of its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Orange County, California
August 26, 1998
F-2
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------ PRO FORMA TO
REFLECT
REORGANIZATION
(NOTE 12)
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 7,223,635 $ 2,423,635
Accounts receivable, net of an allowance for doubtful accounts of $1,100,449...... 6,809,177 6,809,177
Deferred income taxes............................................................. 832,732 832,732
Prepaid expenses and other current assets......................................... 903,002 903,002
------------ -------------
Total current assets.......................................................... 15,768,546 10,968,546
Property and equipment, net....................................................... 2,723,670 2,723,670
Title plants...................................................................... 815,310 815,310
Deposits with Insurance Commissioner.............................................. 105,000 105,000
Intangibles, net of accumulated amortization of $257,349.......................... 2,952,417 2,952,417
------------ -------------
Total assets.................................................................. $22,364,943 $17,564,943
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 1,958,813 1,958,813
Other accrued expenses, including $587,750 to affiliate........................... 3,403,219 3,403,219
Customer advances................................................................. 1,155,536 1,155,536
Current portion of long-term debt................................................. 266,672 --
Current portion of obligations under capital leases with affiliates............... 660,176 660,176
Income taxes payable.............................................................. 1,195,581 1,195,581
Due to affiliate.................................................................. 1,411,170 1,411,170
------------ -------------
Total current liabilities..................................................... 10,051,167 9,784,495
Long-term debt...................................................................... 6,205,828 472,500
Obligations under capital leases with affiliates.................................... 1,411,001 1,411,001
------------ -------------
Total liabilities............................................................. 17,667,996 11,667,996
Minority interest in consolidated subsidiary........................................ 3,574,100 --
Shareholders' equity:
Preferred stock, no par value, authorized, 5,000,000 shares;
issued and outstanding, none.................................................... -- --
Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding,
2,910,416 shares (5,010,416 pro forma after reorganization)..................... -- --
Additional paid in capital........................................................ -- 4,774,100
Retained earnings................................................................. 1,122,847 1,122,847
------------ -------------
Total shareholders' equity.................................................... 1,122,847 5,896,947
------------ -------------
Total liabilities and shareholders' equity.................................... $22,364,943 $17,564,943
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Revenues:
Gross title insurance premiums................................................................... $ 20,640,707
Escrow fees...................................................................................... 7,352,399
Other service charges............................................................................ 5,532,203
-------------
Total revenues................................................................................. 33,525,309
-------------
Expenses:
Personnel costs.................................................................................. 16,185,144
Other operating expenses, includes $1,184,136 with affiliate..................................... 8,083,626
Fees to affiliated underwriters.................................................................. 2,614,410
Title plant rent and maintenance................................................................. 2,664,201
-------------
Total expenses................................................................................. 29,547,381
-------------
Earnings before income taxes and minority interest in net earnings of consolidated subsidiary...... 3,977,928
Provision for income taxes......................................................................... 1,774,417
-------------
Earnings before minority interest in net earnings of consolidated
subsidiary....................................................................................... 2,203,511
Minority interest in net earnings of consolidated subsidiary....................................... (1,080,664)
-------------
Net earnings....................................................................................... $ 1,122,847
-------------
-------------
Basic and diluted net earnings per share........................................................... $ 0.38
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net earnings.................................................................. $ 1,122,847
Adjustments to reconcile net earnings to cash provided by operating
activities:
Depreciation and amortization............................................... 644,720
Minority interest in net income of consolidated subsidiary.................. 1,080,664
Changes in:
Accounts receivable, net.................................................. (2,493,048)
Prepaid expenses and other assets......................................... 94,379
Income taxes.............................................................. 341,909
Accounts payable and other accrued expenses............................... 2,156,510
Customer advances......................................................... (340,140)
Due to affiliate.......................................................... 233,544
------------
Total cash provided by operating activities........................... 2,841,385
------------
Cash flows from investing activities:
Collection of notes receivable................................................ 27,844
Purchases of property and equipment........................................... (999,087)
Acquisition of consolidated subsidiary, net of cash acquired.................. (816,584)
------------
Total cash used in investing activities............................... (1,787,827)
------------
Cash flows from financing activities:
Borrowings.................................................................... 6,472,500
Payments under capital lease obligations...................................... (302,423)
------------
Total cash provided in financing activities........................... 6,170,077
------------
Increase in cash and cash equivalents................................. 7,223,635
Cash and cash equivalents at beginning of year.................................. --
------------
Cash and cash equivalents at end of year........................................ $ 7,223,635
------------
------------
Supplemental disclosure of cash flow information:
Cash paid during the year:
Interest.................................................................... $ 473,285
Income taxes................................................................ 1,585,105
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------- PAID IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996......................... -- $ -- $ -- $ -- $ --
Issuance of common stock........................... 3,026,400 -- -- -- --
Forfeiture of common stock issued.................. (115,984) -- -- -- --
Net earnings....................................... -- -- -- 1,122,847 1,122,847
---------- ----- ----- ---------- -------------
Balance, December 31, 1997......................... 2,910,416 $ -- $ -- 1,122,847 $ 1,122,847
---------- ----- ----- ---------- -------------
---------- ----- ----- ---------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS
American National Financial, Inc., formerly ATC Holdings, Inc., was
incorporated in the state of California in November 1996 as a holding company
for certain investments in title and real estate related service companies. In
March 1997, 3,026,400 of shares were issued to founding shareholders. Prior to
1997, American National Financial, Inc. and subsidiaries (collectively, "the
Company") had substantially no operations. In April, 1997, the Company received
$6,000,000 in proceeds from the issuance of short-term notes payable, of which
$870,000 was due to certain members of management and the remainder was due to a
financial institution, in connection with an agreement with Fidelity National
Financial, Inc. ("FNFI") to acquire a 60% interest in American Title Company
("ATC"). Upon consummation of the sale in July 1997, the Company paid FNFI
$6,000,000 for the 60% interest in ATC. In August 1997, the Company refinanced
all of the debt issued in April 1997.
The Company's principal operations are those of ATC. ATC is an underwritten
title company in the state of California and is engaged in the business of
providing title insurance services and other related services in connection with
real estate transactions. The Company operates throughout California and in
Maricopa County, Arizona. ATC functions as an exclusive agent of Fidelity
National Title Insurance Company ("FNTIC"), an affiliate and a wholly owned
subsidiary of FNFI. Title insurance policies are underwritten by FNTIC for an
underwriting fee. The underwriting agreement generally provides that ATC is
liable under any single policy for only the first $5,000 of losses. As a result
of the July 1997 transaction with the Company, FNFI agreed to make no claim on
ATC for claims arising from policies written prior to January 1, 1997.
The Company's other subsidiaries include Nations Title Insurance of Arizona,
Inc.; Landmark REO Management Services, Inc.; American Document Services, Inc.;
West Point Appraisal, Inc.; West Point Properties, Inc. and West Point Support
Services, Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned and majority-owned subsidiaries. All material
intercompany profits, transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, highly liquid instruments purchased
with original maturities of three months or less are considered cash
equivalents. The carrying amounts reported in the consolidated balance sheet for
these instruments approximate their fair value.
ACCOUNTS RECEIVABLE
The carrying amounts reported in the consolidated balance sheet for accounts
receivable approximate their fair value. Accounts receivable is reported net of
allowance for doubtful accounts which represents management's estimates of those
balances that are uncollectible as of the balance sheet date.
F-7
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less depreciation and
amortization. Depreciation is computed using the straight-line method based on
the estimated useful lives of the related assets which range from three to 30
years. Leasehold improvements are amortized on a straight-line basis over the
lesser of the term of the applicable lease or the estimated useful lives of such
assets.
TITLE PLANT
Title plant is historical title information organized and maintained for use
in performing title searches. The December 31, 1997 title plant balance relates
to a capital lease. See note 9. Costs incurred to maintain, update and operate
title plants are expensed as incurred. Title plant is not amortized as it is
considered to have an indefinite life if maintained.
INTANGIBLES
Intangible assets include acquired licenses to operate within various
counties and the cost in excess of net assets acquired in connection with the
ATC acquisition. Intangibles are amortized on a straight-line basis over a
composite life of 25 years. Impairment of intangible assets is monitored on a
continual basis and is assessed based on an analysis of the cash flows generated
by the underlying assets. No impairment of intangible assets has been
recognized.
CAPITAL LEASE OBLIGATION
Capital lease obligation with affiliates is recorded at the present value of
the minimum lease payments at the beginning of the lease term. The monthly
payments under the leases are allocated between a reduction of the obligation
and interest expense so as to produce a constant periodic rate of interest on
the remaining balance of the obligation.
REVENUE RECOGNITION
Title insurance premiums, escrow fees and other service charges are
recognized as revenue at the time of closing of the related real estate
transaction. Premiums from title policies written are presented at their gross
amount on the accompanying consolidated statements of operations, and the
portion of this premium that is remitted to the underwriter is reflected as fees
to affiliated underwriters. Related expenses are recognized when incurred. A
provision for claim losses on title policies is provided at the time of closing
of the related real estate transaction to cover anticipated losses up to $5,000
per policy under the underwriting agreement with FNTIC.
INCOME TAXES
Deferred tax assets and liabilities are recognized for temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities and expected benefits of utilizing net operating loss and credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The impact on
deferred taxes of changes in tax rates and laws, if any,
F-8
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are applied to the years during which temporary differences are expected to be
settled and reflected in the consolidated financial statements in the period
enacted.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings available to
common shareholders by the weighted average number of common shares outstanding
during the period. Dilutive earnings per share is calculated by dividing net
earnings available to common shareholders plus the assumed conversions by
dilutive potential securities. The Company has granted certain options which
have been treated as common share equivalents for purposes of calculating
diluted earnings per share. The number of weighted average shares outstanding
used in both basic and diluted earnings per share was 2,971,983, as the options
granted during 1997 are not in the money and therefore are antidilutive at
December 31, 1997.
MANAGEMENT ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(3) ACQUISITION
On July 1, 1997, the Company acquired 60% of the outstanding stock of ATC
for a purchase price of $6 million. The $6 million purchase price was paid in
cash and financed by a bank loan in the same amount. This transaction has been
accounted for as a purchase. Accordingly, assets and liabilities of ATC have
been reflected at their fair values at the date of acquisition for the 60% of
outstanding stock acquired and at historical cost for the 40% minority interest.
The earnings of ATC have been included in the accompanying consolidated
statement of operations since July 1, 1997, for the Company's 60% ownership
interest. See note 12.
Assets and liabilities of ATC at acquisition were as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents...................................................... $ 5,288,000
Accounts receivable............................................................ 4,316,129
Other Assets................................................................... 1,583,107
-------------
-------------
Amounts due to affiliates...................................................... 1,178,000
Payables and accrued expenses assumed at fair value............................ 4,100,000
-------------
-------------
</TABLE>
Intangibles resulting from the 60% acquisition amounted to $2,460,000 and
are being amortized over a composite life of 25 years.
F-9
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 (CONTINUED)
(3) ACQUISITION (CONTINUED)
Selected unaudited pro forma combined results of operations for the year
ended December 31, 1997, assuming that the ATC acquisition occurred on January
1, 1997 is presented as follows:
<TABLE>
<CAPTION>
<S> <C>
Total revenue.................................................. $ 58,666,458
Net earnings................................................... 1,542,008
Basic and diluted earnings per share........................... .52
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Furniture, fixtures and equipment............................... $ 2,044,598
Leasehold improvements.......................................... 429,406
Office building................................................. 667,888
------------
3,141,892
Accumulated depreciation and amortization....................... (418,222)
------------
$ 2,723,670
------------
------------
</TABLE>
(5) INCOME TAXES
Income tax expense (benefit) for year ended December 31, 1997 consists of
the following:
<TABLE>
<CAPTION>
---------------------------------------
CURRENT DEFERRED TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
Federal.............................................. $ 1,608,578 $ (240,469) $ 1,368,109
State and local...................................... $ 476,756 $ (70,448) $ 406,308
------------ ----------- ------------
$ 2,085,334 $ (310,917) $ 1,774,417
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
The effective tax rate for the period reported differs from the Federal
statutory income tax rate as follows:
<TABLE>
<CAPTION>
<S> <C>
Statutory Federal income tax rate................................... 35.0%
Non-deductible meals and entertainment.............................. 1.8
Amortization of intangibles......................................... 1.6
State taxes, net of Federal benefit................................. 6.6
Other............................................................... (.4)
---------
44.6%
---------
---------
</TABLE>
F-10
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 (CONTINUED)
(5) INCOME TAXES (CONTINUED)
The deferred tax assets and liabilities at December 31, 1997 consist of the
following:
<TABLE>
<CAPTION>
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
------------ -------------
<S> <C> <C>
Excess state income tax.......................................... $ 44,302 $ --
Excess book over tax provision for bad debts..................... 440,178 --
Employee benefit and vacation accruals........................... 701,925 --
Excess tax depreciation over book................................ -- (24,239)
Other............................................................ -- (329,434)
------------ -------------
Total deferred taxes............................................. $1,186,405 $ (353,673)
------------ -------------
------------ -------------
</TABLE>
Based upon the Company's current and historical pre-tax earnings, management
believes it is more likely than not that the Company will realize the benefit of
its existing deferred tax assets. Management believes the existing net
deductible temporary differences will reverse during periods in which the
Company generates net taxable income. However, there can be no assurance that
the Company will generate any earnings or any specific level of continuing
earnings in future years. Certain tax planning or other strategies could be
implemented, if necessary, to supplement income from operations to fully realize
recorded tax benefits.
(6) NOTES PAYABLE
The Company has a $6,000,000 note payable to a financial institution that
bears interest at the institution's prime lending rate (8.50% at December 31,
1997) and is due in November 2002. The note requires monthly payments in the
amount of $33,334 beginning in May 1998. Interest is payable monthly. The note
is collateralized by a first priority lien on all the Company's assets and all
of its outstanding common stock. The Company is also required to maintain
tangible net worth of at least $200,000 and working capital of at least $250,000
on a quarterly basis. As of December 31, 1997, the Company is out of compliance
with certain covenants related to minimum tangible net worth and capital
expenditure restrictions. The financial institution has agreed to waive the
minimum tangible net worth covenant through June 30, 1998. The financial
institution has agreed to waive, through October 31, 1998, the capital
expenditure restriction. In April 1998, the Company voluntarily prepaid $1
million on the note.
The Company also has a $472,500 note payable to the same financial
institution that bears interest at the institution's prime lending rate (8.50%
at December 31, 1997) and is due in full in December 1999 with interest payable
monthly. The note is collateralized by a deed of trust of the office building.
Future principal maturities of these notes payable are as follows for the
years ending December 31:
<TABLE>
<CAPTION>
<S> <C>
1998............................................................................ $ 266,672
1999............................................................................ 872,508
2000............................................................................ 400,008
2001............................................................................ 400,008
2002............................................................................ 4,533,304
------------
$ 6,472,500
------------
------------
</TABLE>
F-11
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 (CONTINUED)
(6) NOTES PAYABLE (CONTINUED)
The carrying value of the Company's notes payable approximate fair value.
(7) SHAREHOLDERS' EQUITY
STOCK SPLIT
In August 1998, the Company declared a 6.0528 for 1 stock split. All share
and per share information has been retroactively adjusted to reflect this stock
split.
CAPITAL RESTRICTIONS
Underwritten title companies are subject to certain regulation by insurance
regulatory or banking authorities, primarily relating to minimum net worth and
working capital. Minimum net worth of $400,000 and minimum working capital of
$10,000 is required for ATC.
STOCK ISSUANCE
The Company issued 3,026,400 shares to several key executives in March,
1997. The shares were deemed to have no value as of the date of issuance.
Subsequently, certain of these executives surrendered a total of 115,984 shares.
(8) EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
In August 1998, the stockholders approved the adoption of the 1998 Stock
Incentive Plan (1998 Incentive Plan). Under the terms of the 1998 Incentive
Plan, the Company may grant incentive or nonqualified stock options to certain
key employees and non-employee directors or officers. The number of shares
issuable under the 1998 Incentive Plan is 650,000 shares at not less than 100%
and 85% of fair market value on the date of the grant for incentive options and
nonqualified options respectively. Officers and other key employees of the
Company or of an affiliated company are eligible to receive incentive stock
options. Officers and other key employees of the Company or of an affiliated
company, members of the Board and other service providers are eligible to
receive nonqualified stock options. The term and provision for the termination
of each option shall be fixed by the Board of Directors, but no option may be
exercisable more than 10 years after the date it is granted. An incentive option
granted to a person who is a 10% shareholder on the date of the grant shall not
be exercisable more than 5 years after the date it is granted. Each option shall
vest and become exercisable in one or more installments at such time or times
and subject to such conditions, including within limitation the achievement of
specified performance goals or objectives, as shall be determined by the Board
of Directors. No options have been granted under the 1998 Incentive Plan.
Concurrent with the acquisition of ATC, the chief executive officer of FNFI
was granted fully vested options for 332,904 shares of the Company's common
stock at an exercise price of $0.66 per share. The options expire in 10 years.
Such exercise price was considered in excess of the fair market value of the
common stock at the date of grant.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (Opinion 25) and related
Interpretations in accounting for its 1997 Incentive
F-12
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 (CONTINUED)
(8) EMPLOYEE BENEFIT PLANS (CONTINUED)
Plan. As discussed below, in management's opinion, the alternative fair value
accounting provided for under Statement of Accounting Standards No. 123,
"Accounting for Stock Based Compensation (Statement 123) requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under Opinion 25, because the exercise price of the Company's stock
options equals the market price of the underlying stock on the date of the
grant, no compensation expense is recognized.
Pro forma information regarding net earnings and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the minimum fair value method of
that Statement. The minimum fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions. The risk free interest rate used for options
granted during 1997 was 6.45%. The expected dividend yield used for 1997 was 0%.
A weighted average expected life of 10 years was used.
For purpose of pro forma disclosures, the estimated fair value of the
options is amortized into expense over the options' vesting period. The
Company's pro forma information for the year ended December 31, 1997 follows:
<TABLE>
<CAPTION>
<S> <C>
Pro forma basic and diluted net earnings........................ $1,018,377
Pro forma basic and diluted earnings per share.................. $ .34
---------
---------
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
LITIGATION
From time to time, the Company is subject to legal proceedings associated
with claims made under policies of insurance they have issued or other services
performed on behalf of insured policyholders and other customers. Management
believes that no such actions depart from customary litigation incidental to the
business of the Company and that resolution of all such litigation will not have
a material adverse effect on the Company.
TRUST DEPOSITS
In conducting its operations, ATC routinely holds customers' assets in
trust, pending completion of real estate transactions. Such amounts are
maintained in segregated bank accounts and have not been included in the
accompanying consolidated balance sheets. ATC has contingent liability relating
to proper disposition of these balances for its customers, which amounted to
$63,735,628 at December 31, 1997.
DEPOSITS WITH INSURANCE COMMISSIONER
ATC is required to maintain certain amounts on deposit with the Insurance
Commissioner in order to operate in certain counties.
F-13
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
OPERATING LEASES
ATC leases certain of its premises and equipment under operating leases that
expire at various dates. Several of these agreements include escalation clauses
and provide for purchases and renewal options for periods ranging from one to
five years. Certain of those leases are with subsidiaries of FNFI.
Future minimum operating lease payments are as follows:
<TABLE>
<CAPTION>
TO TO NON
TOTAL AFFILIATE AFFILIATE
------------ ---------- --------------
<S> <C> <C> <C>
1998............................................. $ 3,022,054 441,098 2,580,956
1999............................................. 2,454,143 517,200 1,936,943
2000............................................. 2,071,593 336,513 1,735,080
2001............................................. 1,357,519 39,617 1,317,902
2002............................................. 811,893 -- 811,893
Thereafter....................................... 323,454 -- 323,454
------------ ---------- --------------
Total future minimum operating lease
payments..................................... $ 10,040,656 1,334,428 8,706,228
------------ ---------- --------------
------------ ---------- --------------
</TABLE>
Rent expense incurred under operating leases during 1997 totaled $2,373,097,
including $207,708 paid to an affiliate.
CAPITAL LEASES
In 1997, ATC entered into a capital lease arrangement with a subsidiary of
FNFI, which terminates in December 1999, for certain equipment. Also in 1997,
ATC entered into a capital lease agreement with FNTIC, which expires in June
2007, for three title plants. The gross amount of title plants recorded under
capital leases is $815,310 at December 31, 1997. The gross amount of equipment
recorded under capital lease is $1,558,290 at December 31, 1997. Accumulated
amortization related to this equipment is $311,658 as of December 31, 1997.
Future minimum capital lease payments are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998............................................................ $ 844,572
1999............................................................ 844,572
2000............................................................ 120,000
2001............................................................ 120,000
2002............................................................ 120,000
Thereafter...................................................... 540,000
------------
Total future minimum capital lease payments................... $ 2,589,144
Portion relating to interest.................................. 517,967
------------
Present value of minimum capital lease payments............... 2,071,177
------------
------------
</TABLE>
Depreciation of the equipment held under capital leases is included in other
operating expenses for the year ended December 31, 1997.
F-14
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(10) RELATED PARTY TRANSACTIONS
Fees to affiliated underwriters include a fee for underwriting services and
management services under an exclusive agency agreement with FNTIC. Underwriting
services are provided for five years commencing July 1997 for a fee of 11% of
gross title insurance premiums. Management services are cancellable with 90 days
notice and cost 1% of gross title insurance premiums.
ATC leases office space, title plants, and certain equipment from
subsidiaries of FNFI. See note 9. Additionally, the Company reimburses
subsidiaries of FNFI for expenses incurred on its behalf. Such reimbursements
aggregated $1,184,136 in 1997.
(11) SUBSEQUENT EVENT
ACQUISITIONS
On March 16, 1998, the ATC signed a stock purchase agreement with Fidelity
National Title Insurance Company of New York (FNNEW), a wholly-owned subsidiary
of FNFI, and National Title Insurance of New York Inc. (National), a
wholly-owned subsidiary of FNNEW, for the purchase of National. The sale is
subject to regulatory approval and certain other conditions. The purchase price
of $3,250,000 is payable in $1,250,000 cash and a note for $2,000,000. National
was acquired in April 1996 by FNFI and has not been actively underwriting
policies since the transaction closed. In connection with this transaction, ATC
advanced $1,150,000 to FNNEW in May 1998, which FNNEW contributed to the capital
of National. Such advances will be returned to ATC in the event the transaction
does not close.
On August 9, 1997, ATC signed a stock purchase agreement with Pacific Coast
Title of Santa Barbara County (PCT) for the purchase of 100% of the issued and
outstanding stock of Santa Barbara Title Company. The purchase price of $160,000
is payable in cash. The sale is subject to regulatory approval and certain other
conditions. On January 9, 1998, the Insurance Commissioner of the State of
California approved the transaction and the sale was consummated.
(12) PROPOSED REORGANIZATION
In August 1998, the Company agreed to acquire the remaining 40% of the
outstanding common stock of ATC from FNFI in exchange for 43% of the outstanding
common stock of the Company. The Company is currently awaiting regulatory
approval. The agreement will automatically be consummated upon regulatory
approval. The 40% interest will be accounted for at FNFI's cost basis. This
transaction has no effect on the carrying value of the 40% interest in ATC. In
connection with this transaction, the shareholders of the Company, other than
FNFI, will assume approximately $1.2 million of the note payable incurred in
connection with the Company's acquisition of ATC. The assumption of debt by the
non-FNFI shareholders will be accounted for as a capital contribution.
Additionally, the Company will use the proceeds of a dividend from ATC of
approximately $3.5 million to repay the remaining balance of the note payable.
The accompanying financial statements include a pro forma balance sheet as
if this reorganization had occurred on December 31, 1997. The pro forma balance
sheet adjustments include the elimination of minority interest, the repayment of
debt that actually occurred subsequent to year end in the amount of $1,300,000,
the assumption of $1,200,000 of debt by the founding shareholders and the $3.5
million repayment of debt from the ATC dividend. Had this reorganization taken
place as of January 1, 1997, net earnings would have been $3,108,000. Basic and
fully diluted earnings per share would have been $0.61.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American National Financial, Inc.:
We have audited the accompanying balance sheet of ANFI Predecessor, as
defined in note 1 to the financial statements, as of December 31, 1996 and the
related statements of combined operations for the years ended December 31, 1995
and 1996 and the six months ended June 30, 1997, and the statements of
shareholder's equity and cash flows for the year ended December 31, 1996 and the
six months ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ANFI Predecessor as of
December 31, 1996 and the results of its operations for the years ended December
31, 1995 and 1996 and the six months ended June 30, 1997 and its cash flows for
the year ended December 31, 1996 and the six months ended June 30, 1997 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Orange County, California
August 26, 1998
F-16
<PAGE>
ANFI PREDECESSOR
BALANCE SHEET
AS OF DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents.................................................... $ 25,667
Accounts receivable, net of an allowance for doubtful accounts of $885,150... 6,725,357
Prepaid expenses and other current assets.................................... 108,618
Deferred income tax asset.................................................... 688,716
Due from affiliates.......................................................... 138,835
----------
Total current assets..................................................... 7,687,193
----------
Other assets:
Property and equipment, net.................................................. 136,968
Deposits with Insurance Commissioner......................................... 105,000
Intangibles, net of accumulated amortization of $112,000..................... 1,932,584
Other assets................................................................. 152,757
----------
Total assets............................................................. $10,014,502
----------
----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................. $ 979,149
Other accrued expenses....................................................... 1,322,176
Customer advances............................................................ 217,036
Income taxes payable......................................................... 742,899
----------
Total liabilities.......................................................... 3,261,260
----------
Shareholder's equity:
Common stock, $100 par value. Authorized 1,000,000 shares; issued and
outstanding 3,000 shares................................................... 300,000
Additional paid-in capital................................................... 6,669,497
Accumulated deficiency....................................................... (216,255)
----------
Total shareholder's equity............................................... 6,753,242
----------
Total liabilities and shareholder's equity............................... $10,014,502
----------
----------
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
ANFI PREDECESSOR
STATEMENTS OF COMBINED OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR ENDED MONTHS
---------------------------- ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Gross title insurance premiums.................................... $ 21,974,435 $ 36,599,994 $ 16,773,036
Escrow fees....................................................... 5,526,478 9,672,389 5,581,285
Other service charges............................................. 2,220,055 5,459,547 2,786,828
------------- ------------- -------------
Total revenues.................................................. 29,720,968 51,731,930 25,141,149
------------- ------------- -------------
Expenses:
Personnel costs................................................... 18,511,903 29,216,159 14,364,472
Other operating expenses.......................................... 9,962,476 14,472,708 5,622,823
Fees to affiliated underwriters................................... 2,628,195 4,151,343 1,851,918
Title plant rent and maintenance.................................. 2,405,134 4,106,803 2,009,188
------------- ------------- -------------
Total expenses...................................................... 33,507,708 51,947,013 23,848,401
------------- ------------- -------------
Earnings (losses) before income taxes............................... (3,786,740) (215,083) 1,292,748
Pro forma provision for income taxes................................ (1,387,186) 28,309 --
Provision for income taxes.......................................... -- (69,601) 549,902
------------- ------------- -------------
Net earnings (losses)............................................... (2,399,554) (173,791) 742,846
Less: Net earnings (losses) of
predecessors of American Title Company............................. (2,399,554) 42,464 --
------------- ------------- -------------
Net earnings (losses) of American Title Company................... $ -- $ (216,255) $ 742,846
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
ANFI PREDECESSOR
STATEMENT OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TOTAL
----------------------- PAID-IN (ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT CAPITAL DEFICIENCY) EQUITY
----------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996......................... 3,000 $ 300,000 $ 472,000 $ -- $ 772,000
Capital contribution -- predecessors of
American Title Company....................... -- -- 6,197,497 -- 6,197,497
Net losses..................................... -- -- -- (216,255) (216,255)
----- ---------- ------------ ------------ -------------
Balance, December 31, 1996....................... 3,000 300,000 6,669,497 (216,255) 6,753,242
Cash dividends................................. -- -- -- (1,500,000) (1,500,000)
Capital contribution -- subsidiaries........... -- -- 1,348,494 -- 1,348,494
Capital contribution -- cash................... -- -- 292,577 -- 292,577
Net earnings................................... -- -- -- 742,846 742,846
----- ---------- ------------ ------------ -------------
Balance, June 30, 1997........................... 3,000 $ 300,000 $ 8,310,568 $ (973,409) $ 7,637,159
----- ---------- ------------ ------------ -------------
----- ---------- ------------ ------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
ANFI PREDECESSOR
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE SIX
YEAR ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (losses)............................................................. $ (216,255) $ 742,846
Adjustments to reconcile net earnings (losses) to cash provided by operating
activities:
Depreciation and amortization................................................... 111,811 124,982
Changes in:
Accounts receivable........................................................... (3,245,468) 2,204,038
Prepaid expenses and other assets............................................. (79,939) (562,648)
Due from affiliates........................................................... -- 533,967
Payables and accruals......................................................... (1,086,587) 1,007,450
------------ -------------
Total cash provided by (used in) operating activities....................... (4,516,438) 4,050,635
------------ -------------
Cash flows from investing activities:
Net sales (purchase) of property and equipment.................................... 79,182 (216,935)
Net collection from notes receivable.............................................. 20,596 --
------------ -------------
Total cash provided by investing activities....................................... 99,778 (216,935)
Cash flows from financing activities:
Contribution from Parent.......................................................... 4,365,076 292,577
Decrease (increase) in cash and cash equivalents.................................... (51,584) 4,126,277
Cash and cash equivalents at beginning of year...................................... 77,251 25,667
------------ -------------
Cash and cash equivalents at end of year............................................ $ 25,667 4,151,944
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
ANFI PREDECESSOR
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying financial statements present the financial position and
results of operations of the divisions and/or subsidiaries of Fidelity National
Financial, Inc. ("FNFI") which were subsequently merged into or acquired by
American Title Company ("ATC" or "the Company"). ATC was acquired by FNFI in
January 1996 for $772,000 from an unaffiliated party. The purchase price
primarily represented the value of licenses to operate as an underwritten title
company in various counties in California. At the time of acquisition, the
operations of the acquired company were not significant. In July, 1997 60% of
ATC was sold to American National Financial, Inc. ("ANFI") for $6,000,000. ANFI
is owned by certain members of management of ATC. Reference to "ANFI
Predecessor" in these financial statements refers to operations of these
entities.
The predecessor operations included in the accompanying financial statements
are those of ATC since it was acquired by FNFI and other operations of FNFI
contributed to ATC as of June 30, 1997 that were operated as separate profit
centers but not separate legal entities. As separate profit centers or divisions
of FNFI, only operating activities of these divisions were segregated in FNFI's
accounting records. Cash balances and other balance sheet information was
co-mingled within the accounts of FNFI's subsidiaries that owned the respective
divisions. As such, the balance sheet and statements of shareholders' equity and
cash flows present the operations of ATC. The statements of combined operations
present operations of ATC and the divisions of FNFI, which were later
contributed to ATC, as if the combined operations were a single entity
throughout the periods presented.
(2) DESCRIPTION OF BUSINESS
ATC is an underwritten title company in the state of California and is
engaged in the business of providing title insurance services and other related
services in connection with real estate transactions. The Company operates
throughout California and in Maricopa County, Arizona. ATC functions as an
exclusive agent of Fidelity National Title Insurance Company ("FNTIC"), an
affiliate and a wholly owned subsidiary of FNFI. Title insurance policies are
underwritten by FNTIC for an underwriting fee. The underwriting agreement
generally provides that ATC is liable under any single policy for only the first
$5,000 of losses. As a result of the sale of 60% of ATC to ANFI, FNFI agreed to
make no claim on ATC for claims arising from policies written prior to January
1, 1997.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following briefly describes the significant accounting policies of the
Company which have been followed in preparing the accompanying financial
statements.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, highly liquid instruments purchased
with original maturity dates of three months or less are considered cash
equivalents. The carrying amounts reported in the balance sheets for these
instruments approximate their fair value.
ACCOUNTS RECEIVABLE
The carrying amounts reported in the balance sheets for accounts receivable
approximate their fair value. Accounts receivable is reported net of allowance
for doubtful accounts and represents management's estimate of those balances
that are uncollectible as of the balance sheet date.
F-21
<PAGE>
ANFI PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method based
on the estimated useful lives of the related assets, which range from three to
five years. Leasehold improvements are amortized on a straight-line basis over
the lesser of the term of the applicable lease or the estimated useful lives of
such assets.
INTANGIBLES
Intangible assets include acquired licenses to operate within various
counties and cost in excess of net assets acquired in connection with certain
acquisitions. Intangibles are amortized over a composite life of 25 years.
Impairment of intangible assets is monitored on a continual basis and is
assessed based on an analysis of the cash flows generated by the underlying
assets. No impairment of intangible assets has been recognized.
INCOME TAXES
Deferred tax assets and liabilities are recognized for temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities and expected benefits of utilizing net operating loss and credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The impact on
deferred taxes of changes in tax rates and laws, if any, are applied to the
years during which temporary differences are expected to be settled and
reflected in the financial statements in the period enacted.
REVENUE RECOGNITION
Title insurance premiums, escrow fees and other service charges are
recognized as revenue at the time of closing of the related real estate
transaction. Premiums from title policies written are presented at their gross
amount on the accompanying statement of combined operations, and the portion of
this premium that is remitted to the underwriter is reflected as fees to
affiliated underwriters. Related expenses are recognized when incurred. A
provision for losses on title policies is accrued at the time of closing of the
related real estate transaction to cover anticipated losses up to $5,000 per
policy under the underwriting agreement with FNTIC.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-22
<PAGE>
ANFI PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Leasehold improvements............................................................ $ 239,923
Furniture, fixtures and equipment................................................. 58,142
----------
298,065
Accumulated depreciation and amortization......................................... (161,097)
----------
$ 136,968
----------
----------
</TABLE>
(5) INCOME TAXES
ATC's operating results through July 1, 1997 are included in the income tax
returns of FNFI. ATC has a formal tax allocation agreement with FNFI whereby if
ATC has taxable income, ATC will pay FNFI a monthly amount equal to the GAAP
book tax provision established for Federal and state income taxes. If ATC has a
taxable loss, FNFI will pay to ATC an amount equal to the tax benefits received
by FNFI from the inclusion of ATC in the consolidated Federal and state income
tax returns even if ATC could not have utilized its losses and/or credits on a
separate return basis. The operating results of the divisions of FNFI included
in the statements of combined operations for the years ended December 31, 1995
and 1996 were included in the tax returns of FNFI.
All tax benefits generated by the branches were utilized to offset taxable
income generated by other FNFI subsidiaries. However, for purposes of these
financial statements, a pro forma tax benefit has been provided in the
statements of combined operations for 1995 and 1996 to reflect an estimate of
the tax benefit that would have been available if these operations had been
legally a part of ATC during these periods. The tax rate used for this estimate
is a combination of the statutory Federal and state tax rates.
Provision (benefit) for income taxes for the year ended December 31, 1996
and the six months ended June 30, 1997 consists of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1996
-------------------------------
CURRENT DEFERRED TOTAL
--------- --------- ---------
Federal.................................................... $ 495,191 $(550,860) $ (55,669)
<S> <C> <C> <C>
State and local............................................ 123,924 (137,856) (13,932)
--------- --------- ---------
$ 619,115 $(688,716) $ (69,601)
--------- --------- ---------
--------- --------- ---------
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE
30, 1997
-------------------------------
CURRENT DEFERRED TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Federal.................................................... $ 645,461 $(214,398) $ 431,063
State and local............................................ $ 177,947 $ (59,108) $ 118,839
--------- --------- ---------
$ 823,408 $(273,506) $ 549,902
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-23
<PAGE>
ANFI PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) INCOME TAXES (CONTINUED)
The effective tax rate for the periods reported differs from the Federal
statutory income tax rate as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE
ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1997
--------------- -------------------
<S> <C> <C>
Statutory Federal income tax rate......................... (34.0%) 35.0%
Non-deductible meals and entertainment.................... 13.4 .9
State taxes, net of Federal benefit....................... (6.0) 6.3
Amortization of intangibles............................... -- .5
Other..................................................... 2.3 (.2)
----- -----
(24.3%) 42.5%
----- -----
----- -----
</TABLE>
The deferred tax assets and liabilities at December 31, 1996 consist of the
following:
<TABLE>
<CAPTION>
DEFERRED DEFERRED
TAX TAX
ASSETS LIABILITIES
----------- -----------
<S> <C> <C>
Excess book over tax provision for bad debts....................... $ 410,944 $ --
Employee benefit and vacation accruals............................. 277,772 --
----------- -----------
Total deferred taxes........................................... $ 688,716 $ --
----------- -----------
----------- -----------
</TABLE>
Based upon the Company's current and historical pre-tax earnings, management
believes it is more likely than not that the Company will realize the benefit of
its existing deferred tax assets. Management believes the existing net
deductible temporary differences will reverse during periods in which the
Company generates net taxable income. However, there can be no assurance that
the Company will generate any earnings or any specific level of continuing
earnings in future years. Certain tax planning or other strategies could be
implemented, if necessary, to supplement income from operations to fully realize
recorded tax benefits.
(6) SHAREHOLDER'S EQUITY
The Company is subject to certain regulation by insurance regulatory
authorities, primarily relating to minimum net worth and working capital
requirements. In connection with the acquisition of the Company by FNFI in 1996,
minimum net worth of $400,000 and working capital of $10,000 is required for ATC
at December 31, 1996.
(7) COMMITMENTS AND CONTINGENCIES
LITIGATION
From time to time the Company is subject to legal proceedings associated
with claims made under policies of insurance they have issued or other services
performed on behalf of insured policyholders and other customers. Management
believes that no such actions depart from customary litigation incidental to the
business of the Company and that resolution of all such litigation will not have
a material adverse effect on the Company.
F-24
<PAGE>
ANFI PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES (CONTINUED)
TRUST DEPOSITS
In conducting its operations, the Company routinely holds customers' assets
in trust, pending completion of real estate transactions. Such amounts are
maintained in segregated bank accounts and have not been included in the
accompanying balance sheet. The Company has contingent liability relating to
proper disposition of these balances for its customers, which amounted to
$42,602,565 at December 31, 1996.
DEPOSITS WITH INSURANCE COMMISSIONER
The Company is required to maintain certain amounts on deposit with the
Insurance Commissioner in order to operate in certain counties. The required
deposit is reflected on the accompanying balance sheets at December 31, 1996.
OPERATING LEASES
The Company leases certain of its premises and equipment under leases that
expire at various dates. Several of these agreements include escalation clauses
and provide for purchases and renewal options for periods ranging from one to
five years.
Future minimum operating lease payments at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................ $2,439,937
1998............................................................ 1,894,742
1999............................................................ 922,414
2000............................................................ 545,747
2001............................................................ 298,664
Thereafter...................................................... 27,848
---------
Total future minimum operating lease payments................. $6,129,352
---------
---------
</TABLE>
Rent expense for the years ended December 31, 1995 and 1996 and the six
months ended June 30, 1997 was $3,221,692, $3,998,555 and $2,011,781
respectively, of which $1,022,542, $1,374,308, and $630,753, respectively, are
amounts paid to affiliates.
UNDERWRITING AGREEMENT
On July 1, 1997, the Company signed an exclusive underwriting agreement with
FNTIC which is effective for five years. Under the agreement, the Company is
generally limited to write policies only for FNTIC within certain geographic
territories. Underwriting fees are based on a percentage of the gross title
insurance premiums written and approximate 12%. The 12% underwriting fee
includes a one percent fee paid to a FNFI affiliate for management services
provided by these affiliates for ATC.
(8) RELATED PARTY TRANSACTIONS
Amounts due from affiliates at December 31, 1996 were $138,835 primarily
related to amounts due under cost reimbursement agreements whereby a FNFI
subsidiary pays certain expenses for ATC, and is later reimbursed by ATC.
F-25
<PAGE>
ANFI PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(9) SUBSEQUENT EVENTS
ACQUISITIONS
On March 16, 1998, the Company signed a stock purchase agreement with
Fidelity National Title Insurance Company of New York ("FNNEW"), a wholly-owned
subsidiary of FNFI, and National Title Insurance of New York Inc. ("National"),
a wholly-owned subsidiary of FNNEW, for the purchase of National. The sale is
subject to regulatory approval and certain other conditions. The purchase price
of $3,250,000 is payable in $1,250,000 cash and a note for $2,000,000. National
was acquired in April 1996 by FNFI and has not been actively underwriting
policies since that transaction closed. In connection with this transaction, ATC
advanced $1,150,000 to FNNEW in May 1998, which FNNEW contributed to the capital
of National. Such advance will be returned to ATC in the event the transaction
does not close.
On August 9, 1997, ATC signed a stock purchase agreement with Pacific Coast
Title of Santa Barbara County ("PCT") for the purchase of 100% of the issued and
outstanding stock of Santa Barbara Title Company. The purchase price of $160,000
is payable in cash. The sale is subject to regulatory approval and certain other
conditions. On January 9, 1998, the Insurance Commissioner of the State of
California approved the transaction and the sale was consummated.
F-26
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA TO
JUNE 30, REFLECT
1998 REORGANIZATION
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 6,153,584 $ 2,453,586
Investments...................................................................... 1,982,398 1,982,398
Accounts receivable, net of an allowance for doubtful accounts of $1,103,051..... 8,713,496 8,713,496
Advance to related party......................................................... 1,531,169 1,531,169
Deferred income tax.............................................................. 832,732 832,732
Prepaid expenses and other current assets, including $1,536,679 with affiliate... 1,076,607 1,076,607
------------ -------------
Total current assets......................................................... 20,289,986 16,589,988
Property and equipment........................................................... 3,342,378 3,342,378
Deposits with Insurance Commissioner............................................. 105,000 105,000
Title plants..................................................................... 815,310 815,310
Intangibles, net of accumulated amortization of $400,138......................... 2,979,106 2,979,106
------------ -------------
Total assets................................................................. $27,531,780 $23,831,782
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 6,762,585 $ 6,762,585
Other accrued expenses........................................................... 439,474 439,474
Customer advances................................................................ 1,591,730 1,591,730
Current portion of long-term debt................................................ 400,000 --
Current portion of obligations under capital leases with affiliates.............. 697,273 697,273
Income taxes payable............................................................. 1,589,866 1,589,866
Due to affiliates................................................................ 197,421 197,421
------------ -------------
Total current liabilities.................................................... 11,678,349 11,278,341
Long-term debt..................................................................... 4,972,490 472,500
Obligations under capital leases with affiliates................................... 1,053,402 1,053,402
------------ -------------
Total liabilities............................................................ 17,709,241 12,804,243
Minority interest in consolidated subsidiary....................................... 5,618,649 --
Shareholders' equity:
Preferred stock, no par value; authorized, 5,000,000 shares; issued and
outstanding, none.............................................................. -- --
Common stock, $0 par value; authorized 50,000,000 shares; issued and outstanding
2,875,092 shares............................................................... -- --
Additional paid-in capital....................................................... -- 6,818,649
Retained earnings................................................................ 4,208,890 4,208,890
------------ -------------
Total shareholders' equity................................................... 4,208,890 11,027,539
------------ -------------
Total liabilities and shareholders' equity................................... $27,531,780 $23,831,782
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-27
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Revenues:
Gross title insurance premiums............................................... $27,421,155
Escrow fees.................................................................. 10,716,185
Other service charges........................................................ 7,138,011
----------
Total revenues............................................................. 45,275,351
----------
Expenses:
Personnel costs.............................................................. 22,522,387
Other operating expenses, includes $1,682,230 with affiliate................. 7,774,630
Fees to affiliated underwriters.............................................. 3,299,817
Title plant rent and maintenance............................................. 3,015,889
----------
Total expenses............................................................. 36,612,723
----------
Earnings before income taxes and minority interest in net earnings of
consolidated subsidiary...................................................... 8,662,628
Provision for income taxes..................................................... 3,532,039
----------
Earnings before minority interest in net earnings of consolidated
subsidiary................................................................... 5,130,589
Minority interest in net earnings of consolidated subsidiary................... (2,044,546)
----------
Net earnings................................................................... $3,086,043
----------
----------
Basic net earnings per share................................................... $ 1.06
Diluted net earnings per share................................................. $ 1.01
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-28
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net earnings.................................................................. $3,086,043
Adjustments to reconcile net earnings to cash provided by operating
activities:
Depreciation and amortization............................................... 560,060
Minority interest in net income of consolidated subsidiary.................. 2,044,546
Changes in:
Accounts receivable, net.................................................. (1,904,319)
Prepaid expenses and other assets......................................... (173,605)
Short-term investments.................................................... (1,982,398)
Income taxes.............................................................. 394,285
Accounts payable and other accrued expenses............................... 1,840,022
Customer advances 436,194
Due to affiliate.......................................................... (1,213,749)
----------
Total cash provided by operating activities............................. 3,087,079
----------
Cash flows from investing activities:
Advance to related party...................................................... (1,531,169)
Purchases of property and equipment........................................... (1,205,457)
----------
Total cash used in investing activities................................. (2,736,626)
----------
Cash flows from financing activities:
Payments on long term debt.................................................... (1,100,002)
Payments under capital lease obligations...................................... (320,502)
----------
Total cash provided in financing activities............................. (1,420,504)
----------
Increase in cash and cash equivalents................................... (1,070,051)
Cash and cash equivalents at beginning of year.................................. 7,223,635
----------
Cash and cash equivalents at end of year........................................ $6,153,584
----------
----------
Supplemental disclosure of cash flow information:
Cash paid during the year:
Interest.................................................................... $ 261,099
Income taxes................................................................ 1,520,105
----------
----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-29
<PAGE>
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
(1) BASIS OF FINANCIAL STATEMENTS
The condensed consolidated financial information includes the accounts of
American National Financial, Inc. and Subsidiaries (collectively, the "Company")
and has been prepared in accordance with generally accepted accounting
principles and the instruction of Article 10 of Regulation S-X. All adjustments,
consisting of normal recurring accruals considered necessary for a fair
presentation, have been included. Results for the six months ended June 30, 1998
are not necessarily indicative of the results that may be expected for the
entire year. This information should be read in conjunction with the Company's
Annual Report for the year ended December 31, 1997.
(2) COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of general-
purpose financial statements. SFAS 130 requires all items that are necessary to
be recognized under accounting standards as components of comprehensive income
to be reported in a financial statement that is displayed with the same
prominence as other financial statements. The Company has no other comprehensive
income and accordingly the Statement has no impact on the presentation of the
Company's financial statements.
F-30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR SOLICITATION OF ANY OFFER TO BUY THE SECURITIES BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
The Company............................................................... 12
Reorganization............................................................ 12
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 15
Dilution.................................................................. 16
Capitalization............................................................ 17
Selected Consolidated Financial and Operating Data........................ 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 19
Business.................................................................. 26
Management................................................................ 37
Principal Shareholders.................................................... 43
Certain Transactions...................................................... 44
Description of Capital Stock.............................................. 46
Shares Eligible For Future Sale........................................... 47
Underwriting.............................................................. 48
Legal Matters............................................................. 50
Experts................................................................... 50
Available Information..................................................... 50
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,250,000 SHARES
[AMERICAN NATIONAL FINANCIAL, INC. LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
[CRUTTENDEN ROTH INCORPORATED LOGO]
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
It is estimated that the following expenses will be incurred in connection
with the proposed offering hereunder. All of such expenses will be borne by the
Company:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
SEC filing fee.................................................................... $ 5,620
Legal fees and expenses........................................................... 125,000*
Accounting fees and expenses...................................................... 75,000*
Blue sky fees and expenses (including counsel fees)............................... 10,000*
Printing expenses................................................................. 75,000*
Nonaccountable Expense Allowance.................................................. 275,000*
Miscellaneous..................................................................... 4,380*
----------
TOTAL........................................................................... $ 570,000*
----------
----------
</TABLE>
- ------------------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the Registrant and its officers and directors, and by the
Registrant of the Underwriters for certain liabilities arising under the
Securities Act or otherwise.
The Registrant's Articles of Incorporation provide that the liability of the
Registrant's directors for monetary damages shall be eliminated to the fullest
extent permissible under California law. This is intended to eliminate the
personal liability of a director for monetary damages in an action brought by or
in the right of the Registrant for breach of a director's duties to the
Registrant or its shareholders except for liability: (i) for acts or omissions
that involve intentional misconduct or a knowing and culpable violation of law;
(ii) for acts or omissions that a director believes to be contrary to the best
interests of the Registrant or its shareholders or that involve the absence of
good faith on the part of the director; (iii) for any transaction for which a
director derived an improper personal benefit; (iv) for acts or omission that
show a reckless disregard for the director's duty to the Registrant or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the Registrant or its shareholders; (v) for acts or
omissions that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Registrant or its shareholders; (vi)
with respect to certain transactions, or the approval of transactions in which a
director has a material financial interest; and (vii) expressly imposed by
statute, for approval of certain improper distributions to shareholders or
certain loans or guarantees.
The Articles also provide that the Registrant is authorized to provide
indemnification to its agents (as defined in Section 317 of the California
Corporations Code), through the Registrant's Bylaws or through agreements with
such agents or both, for breach of duty to the Registrant and its shareholders,
in excess of the indemnification otherwise permitted by Section 317 of the
California Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the California Corporations Code.
The Bylaws of the Registrant provide for indemnification of the Registrant's
officers, directors, employees, and other agents to the extent and under the
circumstances permitted by California law. The Bylaws further provide that no
indemnification shall be made in the case of a derivative suit in respect to
II-1
<PAGE>
any claim as to which such person has been adjudged to be liable to the
corporation, except with court approval, nor shall indemnification be made for
amounts paid in settling or otherwise disposing of a threatened or pending
action, with or without court approval, or for expenses incurred in defending a
threatened or pending action which is settled or otherwise disposed of without
court approval. Indemnification under the Bylaws is mandatory in the case of an
agent of the Registrant (present or past) who is successful on the merits in
defense of a suit against him or her in such capacity. In all other cases where
indemnification is permitted by the Bylaws, a determination to indemnify such
person must be made by a majority of a quorum of disinterested directors, a
majority of disinterested shareholders, or the court in which the suits is
pending.
The Registrant has entered into agreements to indemnify its directors in
addition to the indemnification provided for in the Articles of Incorporation
and Bylaws. Among other things, these agreements provide that the Registrant
will indemnify, subject to certain requirements, each of the Registrant's
directors for certain expenses (including attorneys' fees), judgments, fines and
settlement amounts incurred by such person in any action or proceeding,
including any action by or in the right of the Registrant, on account of
services by such person as a director or officer of the Registrant, or as a
director or officer of any other company or enterprise to which the person
provides services at the request of the Registrant.
The above provisions may have the effect of reducing the likelihood of
derivative litigation against directors and may discourage or deter shareholders
or management from bringing a lawsuit against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have
benefitted the Registrant and its shareholders. At present, there is no
litigation or proceeding pending involving a director of the Registrant as to
which indemnification is being sought, nor is the Registrant aware of any
threatened litigation that may result in claims for indemnification by any
director.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In March 1997, the Registrant issued 3,026,400 shares of common stock to its
founding shareholders in connection with the initial capitalization of the
Registrant. The Registrant incurred indebtedness of $6,000,000 which was
guaranteed proportionately by the shareholders in exchange for their shares of
Common Stock. These securities were issued to the Registrant's founding
shareholders, who were also employees of the Registrant, pursuant to Section
4(2) of the Securities Act.
In July 1997, the Registrant issued options to purchase 332,904 shares of
common stock to William P. Foley, II, the Chairman of the Board of Directors.
The options are exercisable for a period of five years at an exercise price of
$0.66 per share. These securities were issued in a private transaction to a
single accredited investor pursuant to Section 4(2) of the Securities Act and
Rule 506 promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Representative's Warrant Agreement.
2.1 Stock Purchase Agreement dated January 1, 1997 by and among the
Registrant, Fidelity National Financial, Inc. and American Title
Company, together with amendment.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
2.2 Stock Purchase Agreement dated December 31, 1996 by and among American
Title Company, Fidelity National Asset Recovery Services, Inc. and
Fidelity National Financial, Inc.
2.3 Stock Purchase Agreement dated December 31, 1996 by and among American
Title Company, Nations Title Insurance of Arizona, Inc. and Fidelity
National Financial, Inc.
2.4 Stock Purchase Agreement dated March 16, 1998 by and among Fidelity
National Title Insurance Company of New York, National Title Insurance
of New York, Inc. and American Title Company.
2.5 Stock Purchase Agreement dated August 9, 1997 by and between Pacific Coast
Title of Santa Barbara County and American Title Company.
2.6 Stock Exchange Agreement between the Registrant and Fidelity National
Financial, Inc.*
3.1 Amended and Restated Articles of Incorporation.
3.2 Bylaws of the Registrant, as amended.
4.1 Form of Common Stock Certificate.*
5.1 Opinion of Rutan & Tucker, LLP.*
10.1 1998 Stock Incentive Plan, together with form of Nonqualified Stock Option
Agreement and form of Incentive Stock Option Agreement.*
10.2 Employment Agreement between the Registrant and Michael C. Lowther.*
10.3 Employment Agreement between the Registrant and Wayne D. Diaz.*
10.4 Employment Agreement between the Registrant and Dennis R. Duffy.*
10.5 Employment Agreement between the Registrant and Barbara Ferguson.*
10.6 Issuing Agency Agreement dated July 1, 1997 between Fidelity National
Title Insurance Company and American Title Company.
10.7 Issuing Agency Agreement dated August 25, 1997 between Fidelity National
Title Insurance Company and Santa Barbara Title Company.
10.8 Credit Agreement dated August 7, 1997 between the Registrant and Imperial
Bank.
10.9 Note dated August 7, 1997 of the Registrant in favor of Imperial Bank.
10.10 Addendum to Note dated August 7, 1997 between the Registrant and Imperial
Bank.
10.11 Standard Sublease dated January 28, 1998 between American Title Company
and Fidelity National Financial, Inc.
10.12 Form of Indemnification Agreement.*
21 List of Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Rutan & Tucker, LLP (included in the opinion filed as Exhibit
5.1).*
24 Power of Attorney (included on the signature page hereof).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) The following financial statement schedules are filed herewith:
SCHEDULE I -- Balance Sheet of American National Financial, Inc. (Parent
Company only) as of December 31, 1997 and related Statements
of Operations and Retained Earnings and Cash Flows for the
year ended December 31, 1997, and accompanying notes.
II-3
<PAGE>
SCHEDULE II -- Valuation and Qualifying Accounts of American National
Financial, Inc. and Subsidiaries for the year ended December
31, 1997 and of American National Financial, Inc.
(Predecessor) for the year ended December 31, 1996 and the
six months ended June 30, 1997.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 24 hereof, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person thereof in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, California, on
August 26, 1998.
<TABLE>
<S> <C> <C>
AMERICAN NATIONAL FINANCIAL, INC.
By: /s/ MICHAEL C. LOWTHER
-----------------------------------------
Michael C. Lowther,
CHIEF EXECUTIVE OFFICER
</TABLE>
II-5
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints William
P. Foley, II, Michael C. Lowther and Wayne D. Diaz his true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him and in his name, place and stead, at any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, or any Registration Statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith or in connection with the
registration of the Common Stock under the Securities Exchange Act of 1934, as
amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters and
hereby ratifying and confirming that each of said attorneys-in-fact and agents,
acting along, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ MICHAEL C. LOWTHER Chief Executive Officer
- ------------------------------ and Director (Principal August 26, 1998
Michael C. Lowther Executive Officer)
Executive Vice President
/s/ CARL A. STRUNK and Chief Financial
- ------------------------------ Officer (Principal August 26, 1998
Carl A. Strunk Financial and Accounting
Officer)
/s/ WILLIAM P. FOLEY, II
- ------------------------------ Director August 26, 1998
William P. Foley, II
/s/ WAYNE D. DIAZ
- ------------------------------ Director August 26, 1998
Wayne D. Diaz
/s/ DENNIS R. DUFFY
- ------------------------------ Director August 26, 1998
Dennis R. Duffy
/s/ BRUCE ELIEFF
- ------------------------------ Director August 26, 1998
Bruce Elieff
/s/ BARBARA A. FERGUSON
- ------------------------------ Director August 26, 1998
Barbara A. Ferguson
/s/ ROBERT MAJORINO
- ------------------------------ Director August 26, 1998
Robert Majorino
II-6
<PAGE>
SCHEDULE I
AMERICAN NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents..................................................... $ 26,313
Receivables from subsidiary................................................... 900,000
Deferred tax asset............................................................ 127,108
----------
Total current assets........................................................ 1,053,421
Property and equipment, net................................................... 667,888
Investment in subsidiary...................................................... 6,435,562
----------
Total assets................................................................ $8,156,871
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. 11,792
Accounts payable to subsidiary................................................ 549,732
Current portion of long-term debt............................................. 266,672
----------
Total current liabilities................................................... 828,196
Long-term debt.................................................................. 6,205,828
----------
Total liabilities........................................................... 7,034,024
----------
Shareholders' equity:
Preferred stock, no par value, authorized, 5,000,000 shares; issued and
outstanding, none........................................................... --
Common stock, no par value; authorized, 50,000,000 shares; issued, 2,910,416
shares...................................................................... --
Additional paid in capital.................................................... --
Retained earnings............................................................. 1,122,847
----------
Total shareholders' equity.................................................. 1,122,847
----------
Total liabilities and shareholders' equity.................................. $8,156,871
----------
----------
</TABLE>
See accompanying notes to financial statements
S-1
<PAGE>
SCHEDULE I
(continued)
AMERICAN NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues:
Other service charges......................................................... $ 94,697
Expenses:
Other operating expenses...................................................... 412,466
---------
Losses before income tax expense and equity in earnings of subsidiaries......... (317,769)
Provision for income taxes...................................................... 127,108
---------
Losses before equity in earnings of subsidiaries................................ (190,661)
Equity in earnings of subsidiaries.............................................. 1,313,508
---------
Net earnings.................................................................... $1,122,847
---------
---------
Basic and diluted net earnings per share........................................ $ .38
Retained earnings, beginning of year............................................ $ --
Net earnings.................................................................. 1,122,847
---------
Retained earnings, end of year.................................................. $1,122,847
---------
---------
</TABLE>
See accompanying notes to financial statements.
S-2
<PAGE>
SCHEDULE I
(continued)
AMERICAN NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net earnings.................................................................. $1,122,847
Adjustments to reconcile net earnings to cash provided by operating
activities:
Depreciation and amortization............................................... --
Equity in earnings of subsidiaries.......................................... (1,313,508)
Changes in:
Income taxes payable...................................................... (127,108)
Accounts payable.......................................................... 539,470
----------
Total cash provided by operating activities............................. 221,701
----------
Cash flows from investing activities:
Purchase of property and equipment............................................ (195,388)
Purchase of investment in subsidiary.......................................... (6,000,000)
----------
Total cash used in investing activities................................. (6,195,388)
----------
Cash flows from financing activities -- borrowings.............................. 6,000,000
----------
Total cash provided in financing activities............................. 6,000,000
----------
Increase in cash and cash equivalents................................... 26,313
Cash and cash equivalents at beginning of year.................................. --
----------
Cash and cash equivalents at end of year........................................ $ 26,313
----------
----------
Supplemental disclosure of cash flow information:
Cash paid during the year:
Interest.................................................................... $ 412,466
----------
Income taxes................................................................ $ --
----------
----------
</TABLE>
See accompanying notes to financial statements.
S-3
<PAGE>
SCHEDULE I
(continued)
AMERICAN NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
NOTES TO FINANCIAL STATEMENTS
(1) AMERICAN
American National Financial, Inc. (the "Company") transacts substantially
all of its business through its subsidiaries. The Parent Company Financial
Statements should be read in connection with the aforementioned Consolidated
Financial Statements and Notes thereto included elsewhere herein.
(2) NOTES PAYABLE
The Company has a $6,000,000 note payable to a financial institution that
bears interest at the institution's prime lending rate (8.5% at June 30, 1998)
and is due in November 2002. The note requires monthly payments in the amount of
$33,334 beginning in May 1998. Interest is payable monthly. The note is
collateralized by a first priority lien on all the Company's assets and all of
its outstanding common stock. The Company is also required to maintain tangible
net worth of at least $200,000 and working capital of at least $250,000 on a
quarterly basis. As of December 31, 1997, the Company is out of compliance with
certain covenants related to minimum tangible net worth and capital expenditure
restrictions. The financial institution has agreed to waive the minimum tangible
net worth covenant through June 30, 1998. The financial institution has agreed
to waive, through October 31, 1998, the capital expenditure restriction. In
April 1998, the Company voluntarily prepaid $1 million on the note.
The Company also has a $472,500 note payable to the same financial
institution that bears interest at the institution's prime lending rate (8.50%
at December 31, 1997) and is due in full in December 1999 with interest payable
monthly. The note is collateralized by a deed of trust of the office building.
Future principal maturities of these notes payable are as follows for the
years ending December 31:
<TABLE>
<S> <C>
1998............................................................ $ 266,672
1999............................................................ 872,508
2000............................................................ 400,008
2001............................................................ 400,008
2002............................................................ 4,533,304
---------
$6,472,500
---------
---------
</TABLE>
The carrying value of the Company's notes payable approximate fair value.
(3) SUPPLEMENTARY CASH FLOW INFORMATION
The Company acquired certain property for use in operations in December 1997
for cash of $195,388 and a note in the amount of $472,500. A dividend in the
amount of $900,000 was declared by American Title Company in December 1997,
which is reflected as a receivable from subsidiary at December 31, 1997.
S-4
<PAGE>
SCHEDULE II
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COL. C
------------------------
COL. B ADDITIONS COL. E
----------- ------------------------ COL. D ----------
COL. A BALANCE AT CHARGED TO ----------- BALANCE AT
- --------------------------------------------------- BEGINNING COSTS AND OTHER DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES (DESCRIBE) (DESCRIBE) PERIOD
- --------------------------------------------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Trade receivables allowance........................ -- 553,039 837,005(2) 289,595(1) 1,100,449
Amortization of intangibles........................ -- 180,870 76,479(2) -- 257,349
</TABLE>
- ------------------------
(1) Represents uncollectible accounts written off, change in reserve due to
reevaluation of specific items and change in reserve due to sale of certain
assets.
(2) Balances from July 1, 1997 acquisition of American Title Company and
subsidiaries by American National Financial, Inc.
S-5
<PAGE>
SCHEDULE II
ANFI PREDECESSOR
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1996 AND SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COL. B COL. C COL. E
------------ ------------------------- COL. D ----------
COL. A BALANCE CHARGED ----------- BALANCE
- ------------------------------------------------ AT BEGINNING TO COSTS OTHER DEDUCTIONS AT END
DESCRIPTION OF PERIOD AND EXPENSES (DESCRIBE) (DESCRIBE) OF PERIOD
- ------------------------------------------------ ------------ ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts............... -- 220,358 -- -- --
Year ended December 31, 1996
Allowance for doubtful accounts............... $ -- 406,323 478,827(1) -- $ 885,150
Accumulated amortization of intangibles....... -- 112,000 -- -- 112,000
Six months ended June 30, 1997
Allowance for doubtful accounts............... $ 885,150 348,512 -- 421,733(2) $ 811,929
Accumulated amortization of intangibles....... $ -- 81,870 -- $ 81,870
</TABLE>
- ------------------------
(1) Represents amounts on the August 31, 1996 balance sheet of FNFI divisions
acquired by American Title Company.
(2) Represents uncollectible accounts written off.
S-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- --------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Representative's Warrant Agreement.
2.1 Stock Purchase Agreement dated January 1, 1997 by and among the Registrant, Fidelity National
Financial, Inc. and American Title Company, together with amendment.
2.2 Stock Purchase Agreement dated December 31, 1996 by and among American Title Company,
Fidelity National Asset Recovery Services, Inc. and Fidelity National Financial, Inc.
2.3 Stock Purchase Agreement dated December 31, 1996 by and among American Title Company, Nations
Title Insurance of Arizona, Inc. and Fidelity National Financial, Inc.
2.4 Stock Purchase Agreement dated March 16, 1998 by and among Fidelity National Title Insurance
Company of New York, National Title Insurance of New York, Inc. and American Title Company.
2.5 Stock Purchase Agreement dated August 9, 1997 by and between Pacific Coast Title of Santa
Barbara County and American Title Company.
2.6 Stock Exchange Agreement between the Registrant and Fidelity National Financial, Inc.*
3.1 Amended and Restated Articles of Incorporation.
3.2 Bylaws of the Registrant, as amended.
4.1 Form of Common Stock Certificate.*
5.1 Opinion of Rutan & Tucker, LLP.*
10.1 1998 Stock Incentive Plan, together with form of Nonqualified Stock Option Agreement and form
of Incentive Stock Option Agreement.*
10.2 Employment Agreement between the Registrant and Michael C. Lowther.*
10.3 Employment Agreement between the Registrant and Wayne D. Diaz.*
10.4 Employment Agreement between the Registrant and Dennis R. Duffy.*
10.5 Employment Agreement between the Registrant and Barbara Ferguson.*
10.6 Issuing Agency Agreement dated July 1, 1997 between Fidelity National Title Insurance Company
and American Title Company.
10.7 Issuing Agency Agreement dated August 25, 1997 between Fidelity National Title Insurance
Company and Santa Barbara Title Company.
10.8 Credit Agreement dated August 7, 1997 between the Registrant and Imperial Bank.
10.9 Note dated August 7, 1997 of the Registrant in favor of Imperial Bank.
10.10 Addendum to Note dated August 7, 1997 between the Registrant and Imperial Bank.
10.11 Standard Sublease dated January 28, 1998 between American Title Company and Fidelity National
Financial, Inc.
10.12 Form of Indemnification Agreement.*
21 List of Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- --------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
23.2 Consent of Rutan & Tucker, LLP (included in the opinion filed as Exhibit 5.1).*
24 Power of Attorney (included on the signature page hereof).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
1,250,000 SHARES (1)
AMERICAN NATIONAL FINANCIAL, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
September __, 1998
CRUTTENDEN ROTH INCORPORATED
As Representative of the several Underwriters
18301 Von Karman, Suite 100
Irvine, California 92612
Gentlemen:
American National Financial, Inc., a California corporation (the
"Company"), addresses you as the Representative of each of the persons, firms
and corporations listed in Schedule A hereto (herein collectively called the
"Underwriters") and hereby confirms its agreement with the several Underwriters
as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
1,250,000 shares of its authorized and unissued Common Stock, no par value (the
"Firm Shares"), to the several Underwriters. In addition, for the sole purpose
of covering over-allotments in connection with the sale of the Firm Shares, the
Company proposes to grant to the Underwriters an option to purchase up to
187,500 additional shares of the Company's Common Stock (the "Option Shares"),
as provided in Section 4 hereof. The Company also proposes to sell to you,
individually and not in your capacity as Representative, warrants (the
"Representative's Warrants") to purchase up to 125,000 shares of Common Stock of
the Company (the "Representative's Warrant Stock"), which sale will be
consummated in accordance with the terms and conditions of the Representative's
Warrant Agreement (the "Representative's Warrant Agreement"), the form of which
is filed as an exhibit to the Registration Statement described below. As used
in this Agreement, the term "Shares" shall include the Firm Shares and the
Option Shares. All shares of Common Stock of the Company to be outstanding
after giving effect to the sales contemplated hereby, including the sale of the
Shares, are hereinafter referred to as "Common Stock." Unless the context
otherwise requires, references herein to the "Company" include American National
Financial, Inc., together with its predecessor and subsidiaries described in the
Prospectus (hereinafter defined).
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
The Company represents and warrants to and agrees with each that:
(a) A registration statement on Form S-1 (File
No. 333-______) with respect to the Shares, the Representative's Warrants and
the Representative's Warrant Stock, including a prospectus subject to
completion, has been prepared by the Company in conformity with the requirements
of
- --------------------------
(1) Plus an option to purchase up to 187,500 additional shares from the
Company to cover over-allotments, if any.
<PAGE>
the Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement and such amended
prospectuses subject to completion as may have been required prior to the date
hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement and
such amended prospectuses subject to completion as may hereafter be required.
Copies of such registration statement and amendments and of each related
prospectus subject to completion (the "Preliminary Prospectuses") have been
delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information previously omitted from the
registration statement pursuant to Rule 430A(a) of the Rules and Regulations
pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations
or as part of a post-effective amendment to the registration statement
(including a final form of prospectus). If the registration statement relating
to the Shares has not been declared effective under the Act by the Commission,
the Company will prepare and promptly file an amendment to the registration
statement, including a final form of prospectus. The term "Registration
Statement" as used in this Agreement shall mean such registration statement,
including financial statements, schedules and exhibits, in the form in which it
became or becomes, as the case may be, effective (including, if the Company
omitted information from the registration statement pursuant to Rule 430A(a) of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations) and, in the event of any amendment thereto after
the effective date of such registration statement, shall also mean (from and
after the effectiveness of such amendment) such registration statement as so
amended. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations), except that if any revised prospectus shall be provided to the
Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus on file with the Commission at the time
the Registration Statement became or becomes, as the case may be, effective
(whether or not such revised prospectus is required to be filed with the
Commission pursuant to Rule 424(b)(3) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus, at the time of filing
thereof, has conformed in all material respects to the requirements of the Act
and the Rules and Regulations and, as of its date, has not included any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up to
and on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act and
the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, (ii) the Registration
Statement, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (iii) the Prospectus, and any
-2-
<PAGE>
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21 of the Registration Statement. The Company
and each of its subsidiaries has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation with full power and authority (corporate and other) to own, lease
and operate its properties and conduct its business as described in the
Prospectus; the Company and each of its subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business of the
Company taken as a whole; no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; the Company is not in
material violation of its charter or bylaws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company is a party or by which it or its properties or assets may be bound;
and the Company is not in violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or over its
properties or assets.
(d) The Company holds such permits, licenses, consents,
exemptions, franchises, authorizations and other approvals from insurance
departments and other governmental or regulatory authorities (including, without
limitation, insurance licenses from the insurance regulatory agencies of the
various states or other jurisdictions where it conducts business), and has made
all filings with and notices to, all governmental or regulatory authorities and
self-regulatory organizations and all courts and other tribunals, including,
without limitation, under any applicable environmental laws, as are necessary to
own, lease, license and operate its respective properties and to conduct its
business, and the Company has fulfilled and performed all material obligations
necessary to maintain such authorizations and insurance licenses. Each such
authorization and insurance license is valid and in full force and effect and
the Company is in compliance with all of the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such authorization or insurance license or
result in any other impairment of the rights of the holder of any such
authorization or insurance license; such authorizations and insurance licenses
contain no restrictions that are burdensome to the Company; and no insurance
regulatory agency or body has issued any order or decree impairing, restricting
or prohibiting the payment of dividends by any of the Company's subsidiaries to
the Company.
(e) The Company has full legal right, power and authority
to enter into this Agreement and the Representative's Warrant Agreement and to
perform the transactions
-3-
<PAGE>
contemplated hereby and thereby. Each of this Agreement and the
Representative's Warrant Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of the
Company, enforceable in accordance with its terms, except as rights to
indemnification under this Agreement or the Representative's Warrant Agreement
may be limited by applicable law and except as the enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the Representative's
Warrant Agreement and the consummation of the transactions herein or therein
contemplated will not violate any provisions of the charter, bylaws or other
organizational document of the Company and will not result in a breach or
violation of any of the terms and provisions of, or constitute, either by itself
or upon notice or the passage of time or both, a default under any bond,
debenture, note or other evidence of indebtedness, or under any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company is a party or by which its
properties or assets may be bound, or any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or over its
properties or assets.
(f) No consent, approval, authorization, license, waiver,
registration or order of, or qualification with, any governmental body or
authority, regulatory or administrative agency (including, without limitation,
any insurance regulatory body or agency), governmental commission, court or
tribunal (or any department, bureau or division thereof) or any arbitral body
having jurisdiction over the Company is required for (i) the execution and
delivery of this Agreement or the Representative's Warrant Agreement; (ii) the
consummation by the Company of the transactions contemplated herein and therein
and in the Registration Statement; (iii) the valid authorization, issuance, sale
and delivery of the Shares or the execution, delivery and performance of this
Agreement; or (iv) for the use of proceeds to be received by the Company from
such sale in the manner described under the caption "Use of Proceeds" contained
in the Prospectus and in any Preliminary Prospectus, except such as may be
required under the Act, the Exchange Act, or under state or other securities,
Blue Sky or insurance laws, or such approvals from various state insurance
departments that have been obtained, all of which requirements have been
satisfied in all material respects.
(g) There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against the
Company, or any of its officers or any of its properties, assets or rights
before any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its officers or properties
or otherwise that (i) is reasonably likely to result in any material adverse
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company or might materially and adversely affect
its properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the Act
or the Rules and Regulations or by the Securities Exchange Act of 1934 (the
"Exchange Act") or the rules and regulations of the Commission thereunder that
have not been accurately described in all material respects in the Registration
Statement or Prospectus or filed as exhibits to the Registration Statement.
(h) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the
-4-
<PAGE>
Company is as set forth in the Prospectus under the caption "Capitalization" and
conforms to the statements relating thereto contained in the Registration
Statement and the Prospectus (and such statements correctly state the substance
of the instruments defining the capitalization of the Company); the Firm Shares
and the Option Shares have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by the
Company against payment therefor in accordance with the terms of this Agreement,
will be duly and validly issued and fully paid and nonassessable, and will be
sold free and clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest; and no preemptive right, co-sale right, registration
right, right of first refusal or other similar right of shareholders exists with
respect to any of the Firm Shares or Option Shares or the issuance and sale
thereof other than those that will automatically expire upon the consummation of
the transactions contemplated on the Closing Date. No further approval or
authorization of any shareholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares except as
may be required under the Act, the Rules and Regulations or under state or other
securities or Blue Sky laws. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company, and the related notes
thereto, included in the Prospectus, the Company has no outstanding options to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the options
or other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights under the Act and the Rules and
Regulations.
(i) KPMG Peat Marwick, LLP, which has expressed its
opinion with respect to the financial statements of the Company filed with
the Commission as a part of the Registration Statement, which are included in
the Prospectus, are independent accountants within the meaning of the Act and
the Rules and Regulations. The audited financial statements of the Company,
together with the related schedules and notes, and the unaudited financial
information, included in the Registration Statement and Prospectus, fairly
present the financial position and the results of operations of the Company
at the respective dates and for the respective periods to which they apply.
Such financial statements of the Company, together with the related schedules
and notes, filed with the Commission as part of the Registration Statement,
have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods as certified by KPMG
Peat Marwick, LLP. The selected and summary financial and statistical data
included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the audited
financial statements presented therein. No other financial statements or
schedules are required to be included in the Registration Statement.
(j) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, except as
specifically disclosed or contemplated therein, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations or business of the Company, (ii) incurred by the Company any
transaction that is material to the Company, (iii) any obligation, direct or
contingent incurred by the Company that is material to the Company, (iv) any
change in the capital stock or outstanding indebtedness of the Company that is
material to the Company, (v) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company, or (vi) any loss or damage
(whether or not insured) to the property of the Company which has a material
adverse effect on the condition (financial or otherwise), earnings, operations
or business of the Company.
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(k) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration Statement and Prospectus as owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations or business of
the Company, (ii) the agreements to which the Company is a party described in
the Registration Statement are valid agreements, enforceable by the Company,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles and, to
the best of the Company's knowledge, the other contracting party or parties
thereto are not in material breach or material default under any of such
agreements, and (iii) the Company has valid and enforceable leases for all
properties described in the Registration Statement and Prospectus as leased by
it, except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles.
Except as set forth in the Registration Statement and Prospectus, the Company
owns or leases all such properties as are necessary to its operations as now
conducted and as described in the Registration Statement and the Prospectus.
(l) The Company has timely filed all federal, state, local
and foreign tax returns required to be filed by it and has paid all taxes shown
thereon as due, and there is no tax deficiency that has been or, to the best of
the Company's knowledge, is reasonably likely to be asserted against the
Company, which might have a material adverse effect on the condition (financial
or otherwise), earnings, operations or business of the Company, and all tax
liabilities are adequately provided for on the books of the Company.
(m) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for its business including, but not limited to, insurance
covering real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect; the Company
has not been refused any insurance coverage sought or applied for; and the
Company does not have any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations or business of the Company.
(n) To the best of Company's knowledge, no labor
disturbance by the employees of the Company exists or is imminent. No
collective bargaining agreement exists with any of the Company's employees and,
to the best of the Company's knowledge, no such agreement is imminent.
(o) Except as disclosed in or specifically contemplated by
the Prospectus, the Company owns or possesses adequate rights to use all patent
rights, trade secrets, mask works, know-how, trademarks, copyrights, licenses,
service marks and trade names that are necessary to conduct its businesses as
described in the Registration Statement and Prospectus; the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of the Company by others with respect to any patent rights,
trade secrets, mask works, know-how, trademarks, copyrights, licenses, service
marks or trade names; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent rights, trade secrets, mask works, know-how,
trademarks, copyrights, licenses, service marks or trade names which, singly or
in the aggregate, in the event of an unfavorable decision, ruling or finding,
would have a
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material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company.
(p) The Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and is approved for quotation on the Nasdaq
National Market, and the Company has taken no action designed to, or likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act or delisting the Common Stock from the Nasdaq National Market, nor
has the Company received any notification that the Commission or the National
Association of Securities Dealers, Inc. ("NASD") is contemplating terminating
such registration or listing.
(q) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(r) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the distribution
of the Shares, any offering material in connection with the offering and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(s) The Company has not at any time during the last five
(5) years (i) made any unlawful contribution to any candidate for foreign office
or failed to disclose fully any contribution in violation of law, or (ii) made
any payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(t) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization in violation of law or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.
(u) Each officer, director and beneficial owner of the
Company's Common Stock has agreed in writing that such person will not,
without the prior written consent of Cruttenden Roth Incorporated, for a
period of 180 days from the date hereof (the "Lock-up Period"), directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of, or otherwise dispose of or transfer
any shares of the Company's Common Stock or any securities convertible into
or exchangeable or exercisable for Common Stock, whether now owned or
hereafter acquired by such person or with respect to which such person has or
hereafter acquires the power of disposition, or (ii) enter into any swap or
any other arrangement, agreement or any transaction that transfer to another,
in whole or in part, directly or indirectly, any of the economic consequences
of ownership of the Common Stock, whether any transaction described in clause
(i) or (ii) above is settled by delivery of Common Stock or other securities,
in cash or otherwise. In addition, each such person has agreed that during
the Lock-up Period, without the prior written consent of Cruttenden Roth
Incorporated, such person will not file any registration statement under the
Securities Act, or make any demand for or exercise any right with respect to
the registration of any securities of the Company. In addition, such person
has agreed that, during the Lock-up Period and during the 180-day period
immediately following the Lock-up Period (i) no sales or other dispositions
of Common Stock will be made in excess of the number of shares which such
person is permitted to sell pursuant to Rule 144 under the Securities Act,
and (ii) in any event, all sales or other dispositions of Common Stock by
such person will be made through Cruttenden Roth Incorporated, which approval
shall be based, in part, on an assessment of then existing market conditions,
made by and at the sole discretion of Cruttenden Roth Incorporated. If
Cruttenden Roth Incorporated determines that market conditions do not support
the sale or other disposition of Common Stock by such person at any given
time, such person has agreed not to proceed with such sale or other
disposition until such time as Cruttenden Roth Incorporated determines market
conditions to be appropriate to proceed with such sale or disposition, or
until the expiration of such 180-day period, whichever occurs first.
Furthermore, such person will also agree and consent to the entry of stop
transfer instructions with the Company's transfer agent against the transfer
of the Securities held by such person except in compliance with this
restriction. The Company has provided to counsel for the Underwriters a
complete and accurate list of all shareholders of the Company and the number
and type of securities held by each shareholder. The Company has provided to
counsel for the
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Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors, director-nominees and shareholders
have agreed to such restrictions (the "Lock-up Agreements"). The Company
hereby represents and warrants that it will not release any of its officers,
directors or director-nominees or other shareholders from any Lock-up
Agreements currently existing or hereafter effected without the prior written
consent of Cruttenden Roth Incorporated.
(v) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in material compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
that are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) to its best knowledge, the Company is not
likely to be required to make future material capital expenditures to comply
with Environmental Laws and (iv) no property which is owned, leased or occupied
by the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Section 9601, ET SEQ.), or otherwise designated as a contaminated site
under applicable state or local law.
(w) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, including without limitation cash receipts,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(x) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers,
directors or director-nominees of the Company or any of the members of the
families of any of them, except as disclosed in the Registration Statement and
the Prospectus.
(y) The Representative's Warrants have been duly and
validly authorized by the Company and upon delivery to you in accordance with
the Representative's Warrant Agreement will be duly issued and legal, valid and
binding obligations of the Company.
(z) The Representative's Warrant Stock has been duly
authorized and reserved for issuance upon the exercise of the Representative's
Warrants and when issued upon payment of the exercise price therefor will be
validly issued, fully paid and nonassessable shares of Common Stock of the
Company.
3. REPRESENTATION, WARRANTIES AND AGREEMENTS OF THE UNDERWRITERS.
The information set forth in the last paragraph on the front cover page (insofar
as such information relates to the Underwriters), in the second paragraph on
page 2, concerning stabilization and over-allotment by the Underwriters, and in
third and eighth paragraphs under the caption "Underwriting" in any Preliminary
Prospectus and in the final form of Prospectus filed pursuant to Rule 424(b)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company that the statements made therein do not include any
untrue statement of a material fact or omit
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<PAGE>
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 4 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company (and the Company agrees not to deposit any such check in the bank
on which it is drawn until the day following the date of its delivery to the
Company) at the offices of the Representative or such other place as may be
agreed upon between the Representative and the Company, at 7:00 A.M., California
time, on the third (3rd) full business day following the first day that Shares
are traded (or at such time and date to which payment and delivery shall have
been postponed pursuant to Section 10 hereof), such time and date of payment and
delivery being herein called the "Closing Date." The certificates for the Firm
Shares to be so delivered will be made available to you at such office or such
other location as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representative so elects,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth,
the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
187,500 Option Shares at the purchase price per share for the Firm Shares set
forth in this Section 4. Such option may be exercised by the Representative
on behalf of the several Underwriters on one or more occasions in whole or in
part during the forty-five (45) day period after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of the total number
of Option Shares to be purchased as the number of Firm Shares purchased by
such Underwriter (set forth in Schedule A hereto) bears to the total number
of Firm Shares purchased by the several Underwriters (set forth in Schedule A
hereto), adjusted by the Representative in such manner as to avoid fractional
shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 4 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
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<PAGE>
checks drawn in next-day funds, payable to the order of the Agent (and the Agent
agrees not to deposit any such check in the bank on which it is drawn until the
day following the date of its delivery). Such delivery and payment shall take
place at the offices of the Representative, or at such other place as may be
agreed upon by the Representative and the Agent (i) on the Closing Date, if
written notice of the exercise of such option is received by the Agent at least
three (3) full business days prior to the Closing Date, or (ii) on a date which
shall not be later than the fifth (5th) full business day following the date the
Agent receives written notice of the exercise of such option, if such notice is
received by the Agent less than three (3) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location as you may
reasonably request for inspection at least two (2) full business days prior to
the date of payment and delivery and will be in such names and denominations as
you may request, such request to be made at least three (3) full business days
prior to such date of payment and delivery. If the Representative so elect,
delivery of the Option Shares may be made by credit through full fast transfer
to the accounts at The Depository Trust Company designated by the
Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
Upon exercise of any option provided for in this Section 4, the
obligations of the several Underwriters to purchase such Option Shares will be
subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the condition that all proceedings taken at or prior to the
payment date in connection with the sale and transfer of such Option Shares
shall be reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may reasonably request in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements, the performance of any of the covenants or agreements of the
Company or the compliance with any of the conditions herein contained in each
case in all material respects.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 12 hereof) of the Firm Shares at an initial public
offering price of $ per share. After the initial public offering,
the several Underwriters may, in their discretion, vary the public offering
price.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
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(a) The Company will use best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; it will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement or any
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed; if the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed; it will
notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for additional
information; promptly upon your request, it will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel for the several Underwriters
("Underwriters' Counsel"), may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare and
file with the Commission, and promptly notify you of the filing of, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act, any
event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare promptly
upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Act; and it will file no amendment or supplement to the Registration
Statement or Prospectus which shall not previously have been submitted to you a
reasonable time prior to the proposed filing thereof or to which you shall
reasonably object in writing, subject, however, to compliance with the Act and
the Rules and Regulations and the rules and regulations of the Commission
thereunder and the provisions of this Agreement.
(b) The Company will advise you promptly after it shall
received notice or obtained knowledge of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
(c) The Company will use reasonable efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.
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<PAGE>
(d) The Company will furnish to you, as soon as available,
copies of the Registration Statement (three of which will be signed and which
will include all exhibits), each Preliminary Prospectus, the Prospectus and any
amendments or supplements to such documents, including any prospectus prepared
to permit compliance with Section 10(a)(3) of the Act (three of which will
include all exhibits) all in such quantities as you may from time to time
reasonably request.
(e) The Company will make generally available to its
shareholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date hereof
and for so long as the Company is subject to Section 13 or 15 of the Exchange
Act, the Company will furnish to its shareholders as soon as practicable after
the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
shareholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's shareholders,
(ii) concurrently with furnishing to its shareholders, a balance sheet of the
Company as of the end of such fiscal year, together with statements of
operations, of shareholders' equity, and of cash flows of the Company for such
fiscal year, accompanied by a copy of the certificate or report thereon of
independent certified public accountants, (iii) as soon as they are available,
copies of all reports (financial or other) mailed to shareholders, (iv) as soon
as they are available, copies of all reports and financial statements furnished
to or filed with the Commission, any securities exchange or the NASD, (v) every
material press release and every material news item or article in respect of the
Company or its affairs which was generally released to shareholders or prepared
by the Company, and (vi) any additional information of a public nature
concerning the Company or its business which you may reasonably request. During
such five (5) year period, if the Company shall have active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and
shall be accompanied by similar financial statements for any significant
subsidiary that is not so consolidated.
(g) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus. No part of such net proceeds will be used for any
purpose that violates the provisions of any of Regulations G, T or X of the
Board of Governors of the Federal Reserve Systems or any other regulation of
such Board of Governors.
(h) The Company will maintain a transfer agent and a
registrar (which may be the same entity) for its Common Stock.
(i) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to
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<PAGE>
be performed hereunder or to fulfill any condition of the Underwriters'
obligations hereunder, or if the Company shall terminate this Agreement
pursuant to Section 11(a) hereof, or if the Underwriters shall terminate this
Agreement pursuant to Section 11(b)(i), and, in the judgment of the
Representative, a public offering price of $________ or more per share is
available, then the Company shall (i) reimburse the Representative in full
for its out-of-pocket expenses, including without limitation, its legal fees
and disbursements incurred prior to the termination; (ii) pay all Blue Sky
filing fees and expenses, including Blue Sky legal fees and disbursements;
(iii) indemnify and hold harmless the Representative for any expenses
incurred by the Company in connection with the transactions contemplated by
this Agreement, including but not limited to printing expenses and its
accounting and legal fees; (iv) not sell any of its capital stock to the
public through another underwriter for a period of at least twelve (12)
months, or if it does so, then the Company shall pay to you $200,000 in
addition to the amounts paid to you pursuant to subparagraphs (i), (ii) and
(iii) above, which the Company and you agree is fair compensation to the
Representative for services performed with respect to the transactions
contemplated hereby; and (v) in the event the Company enters into an
agreement to be acquired or merges, sells all or substantially all of the
assets or otherwise effects a corporate reorganization with any other entity
(a "Corporate Transaction") and, as a result, the public offering
contemplated hereby is abandoned, (x) pay you a cash fee of $250,000, which
the Company and you agree is fair compensation to you for services performed
with respect to the public offering contemplated hereby (such cash fee to be
in addition to the amounts paid to you pursuant to subparagraphs (i), (ii)
and (iii) above) or (y) engage you as the Company's exclusive financial
advisor with respect to the Corporate Transaction and upon request of the
Company, you shall act as the Company's investment banker in connection with
any such acquisition and shall render such services as are customary in
connection therewith, in consideration for standard and customary fees.
(j) If at any time during the ninety (90) day period after
the Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
if reasonably requested by you, forthwith prepare, and, if permitted by law,
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not,
without the prior written consent of the Representative, effect the Disposition
of, directly or indirectly, any Securities other than (i) the sale of the Firm
Shares and the Option Shares hereunder and, (ii) the Company's issuance of
options or Common Stock under the Company's presently authorized stock option
plans or restricted stock plans (collectively, the "Option Plans").
6. EXPENSES.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and
expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto with the SEC and the NASD; the printing of this
Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement,
the Preliminary Blue Sky Survey and any supplemental Blue Sky Survey, the
Underwriters' Questionnaire and Power of Attorney, and any instruments
related to any of the foregoing; the issuance and delivery of the Shares
hereunder to the several Underwriters, including transfer taxes, if any, the
cost of all certificates representing the Shares and transfer agents' and
registrars' fees; all Blue Sky fees and expenses, including related fees and
disbursements of the Representative's counsel; fifty percent (50%) of all
other fees and disbursements of the Representative's counsel; the fees and
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disbursements of counsel and accountants for the Company; all fees and other
charges of the Company's independent certified public accountants; the cost
of furnishing to the several Underwriters copies of the Registration
Statement (including appropriate exhibits), Preliminary Prospectus and the
Prospectus, and any amendments or supplements to any of the foregoing; NASD
filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of counsel for the Underwriters related to such qualification);
the Company's road show costs and expenses, the cost of preparing bound
volumes of the documents relating to the public offering of Common Stock
contemplated hereby; and all other expenses directly incurred by the Company
in connection with the performance of its obligations hereunder.
(ii) In addition to its other obligations under
Section 6(a)(i) hereof, if the Shares are sold pursuant to this Agreement, the
Company will pay to the Representative a nonaccountable expense allowance equal
to 1% of the aggregate sales price of the Shares to the public. This
nonaccountable expense allowance with respect to the Firm Shares shall be paid
to you on the Closing Date and the nonaccountable expense allowance with respect
to the Option Shares shall be paid to you on the closing of the sale to you of
such Option Shares. The $50,000 previously paid to the Representative by the
Company shall be credited against this nonaccountable expense allowance.
(iii) In addition to its other obligations under
Section 8 hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(a) hereof, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's five (5) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(b) In addition to their other obligations under
Section 8(b) hereof, the Underwriters severally and not jointly agree that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8(b) hereof, they will
reimburse the Company on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request
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(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in
Sections 6(a)(iii) and 6(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis on
which such amounts shall be apportioned among the reimbursing parties, shall be
settled by arbitration conducted pursuant to the Code of Arbitration Procedure
of the NASD in Orange County, California (or as close geographically to Orange
County, California as is reasonably practical). Any such arbitration must be
commenced by service of a written demand for arbitration or a written notice of
intention to arbitrate, therein electing the arbitration tribunal. In the event
the party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Any such arbitration will be limited to the
operation of the interim reimbursement provisions contained in
Sections 6(a)(iii) and 6(b) hereof and will not resolve the ultimate propriety
or enforceability of the obligation to indemnify for expenses which is created
by the provisions of Sections 8(a) and 8(b) hereof or the obligation to
contribute to expenses which is created by the provisions of Section 8(d)
hereof.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective
not later than 2:00 P.M., California time, on the date of this Agreement, or
such later date as shall be consented to in writing by you; and no stop order
suspending the effectiveness thereof shall have been issued and no proceedings
for that purpose shall have been initiated or, to the knowledge of the Company
or any Underwriter, threatened by the Commission, and any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to the
satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issuance, sale and delivery of
the Shares, shall have been reasonably satisfactory to Underwriters' Counsel,
and such counsel shall have been furnished with such documents and information
as they may reasonably have requested to enable them to pass upon the matters
referred to in this Section.
(c) You shall be satisfied that since the respective dates
as of which information is given in the Registration Statement and Prospectus,
(i) there shall not have been any change in the capital stock of the Company
other than pursuant to the exercise of outstanding options and warrants
disclosed in the Prospectus or any material change in the indebtedness of the
Company, (ii) except as set forth or contemplated by the Registration Statement
or the Prospectus, no material verbal or written agreement or other transaction
shall have been entered into by the Company, which is not in the ordinary course
of business, (iii) no loss or damage (whether or not insured) to the property of
the Company shall have been sustained which materially and adversely affects the
condition (financial or otherwise), business, results of operations or prospects
of the Company, (iv) no legal or governmental action, suit or proceeding
affecting the Company which is material to the Company or which affects or may
affect the transactions contemplated by this Agreement shall have been
instituted or threatened and (v) there shall not have been any material change
in the condition (financial or otherwise), business, management, results of
operations or prospects of the Company which makes it impractical or inadvisable
in the judgment of the Representative to proceed with public offering or
purchase the Common Shares as contemplated hereby.
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(d) You shall have received on the Closing Date and on
any later date on which Option Shares are purchased, as the case may be, an
opinion of Rutan & Tucker, LLP, counsel for the Company, dated the Closing
Date or such later date on which Option Shares are purchased, addressed to
the Underwriters (and stating that it may be relied upon by Underwriters'
Counsel in rendering its opinion pursuant to Section 7(d) of this Agreement)
and with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that:
(i) The Company and each of its subsidiaries has
been duly incorporated and is validly existing and in good standing
under the laws of the jurisdiction of its incorporation;
(ii) The Company and each of its subsidiaries has
full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement;
(iii) The Company and each of its subsidiaries is
duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction, if any, in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in
good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business
of the Company taken as a whole. To such counsel's knowledge, Company
has no subsidiaries other than as listed in Exhibit 21 to the
Registration Statement;
(iv) The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under
the caption "Capitalization"; all outstanding shares of capital stock
of the Company have been duly and validly issued and are fully paid
and nonassessable, and, to such counsel's knowledge, have not been
issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar
right; without limiting the foregoing, to such counsel's knowledge,
there are no preemptive or other rights to subscribe for or purchase
any of the Shares;
(v) The certificates evidencing the Shares to be
delivered hereunder are in due and proper form under California law
and when duly countersigned by the Company's transfer agent and
registrar and delivered to you against payment of the agreed
compensation in accordance with this Agreement, the Firm Shares and
the Option Shares, represented thereby will be duly and validly
issued and fully paid and nonassessable, and will not have been
issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar
right of shareholders and will conform in all respects to the
description thereof in the Registration Statement;
(vi) the Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver
to the Underwriters the Shares to be issued and sold by it hereunder;
(vii) The Company has the corporate power and
authority to enter into the Representative's Warrant Agreement and to
issue, sell and deliver to the Representative the Representative's
Warrants to be issued and sold by it thereunder;
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(viii) Each of this Agreement, the Representative's
Warrant Agreement and the Representative's Warrants has been duly
authorized by all necessary corporate action on the part of the
Company and has been duly executed and delivered by the Company and,
assuming due authorization, execution and delivery by you, is a valid
and binding agreement of the Company, enforceable in accordance with
its terms, except insofar as indemnification provisions may be limited
by applicable law and to which counsel need not express any opinion
and except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general equitable principles;
(ix) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted
or are pending or threatened under the Act;
(x) The Registration Statement and the
Prospectus, and each amendment or supplement thereto (other than the
financial statements and schedules included in the Registration
Statement as to which such counsel need express no opinion), as of the
effective date of the Registration Statement, complied as to form in
all material respects with the requirements of the Act and the
applicable Rules and Regulations;
(xi) The statements in the Registration
Statement and Prospectus under the captions "Business--Government
Regulations," "Management," "Certain Transactions," "Description
of Capital Stock" and "Shares Eligible For Future Sale," and in
the Registration Statement in Items 24 and 26 insofar as they
constitute matters of law or legal conclusions or are descriptions
of contracts, agreements or other documents are accurate and
complete in all material respects and fairly present the
information contained herein;
(xii) The description in the Registration Statement
and the Prospectus of the charter and bylaws of the Company and of
statutes are accurate and fairly present the information required to
be presented by the Act and the applicable Rules and Regulations and
the Company is not in violation of its charter or bylaws, or other
organizational documents;
(xiii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company is a
party of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to
the Registration Statement that are not described or referred to
therein or filed as required;
(xiv) The execution and delivery of this Agreement
and the Representative's Warrant Agreement and the performance by the
Company of its obligations hereunder and thereunder will not
(a) result in any violation of the Company's charter, bylaws or other
organizational documents, or (b) result in a material breach or
violation of any of the terms and provisions of, or constitute a
material default under, any material bond, debenture, note or other
evidence of indebtedness, or under any material lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company is a party or by
which its properties are
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bound, or any applicable statute, rule or regulation known to such
counsel or, to such counsel's knowledge, any order, writ or decree of
any court, government or governmental agency or body having
jurisdiction over the Company or over any of its properties or
operations;
(xv) To counsel's best knowledge, no consent,
approval, authorization or order of or qualification with any court,
government or governmental agency or body having jurisdiction over the
Company or over any of its properties or operations is necessary in
connection with the consummation by the Company of the transactions
contemplated in this Agreement and the Representative's Warrant
Agreement, except such as have been obtained under the Act or such as
may be required under state or other securities or Blue Sky laws in
connection with the purchase and the distribution of the Shares by the
Underwriters;
(xvi) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against the
Company of a character required to be disclosed in the Registration
Statement or the Prospectus by the Act or the Rules and Regulations or
by the Exchange Act or the applicable rules and regulations of the
Commission thereunder, other than those described therein;
(xvii) The Representative's Warrants have been duly
and validly authorized by the Company and upon delivery to you in
accordance with the Representative's Warrant Agreement will be duly
issued and legal, valid and binding obligations of the Company;
(xviii) The Representative's Warrant Stock to be
issued by the Company pursuant to the terms of the Representative's
Warrant has been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms of the
Representative's Warrant Agreement, will be duly and validly issued
and fully paid and nonassessable, and to such counsel's knowledge,
will not have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or
other similar right of shareholders;
(xix) To such counsel's knowledge, no holders of
Common Stock or other securities of the Company have registration
rights with respect to securities of the Company that have not been
waived; and
(xx) The offer and sale of all securities of the
Company made within the last three years as set forth in Item 15 of
the Registration Statement were exempt from the registration
requirements of the Securities Act, pursuant to the provisions set
forth in such Item, and from the registration or qualification
requirements of all relevant state securities laws.
(xxi) The Company has satisfied the conditions for
use of Form S-1 as set forth in the General Instructions thereto.
(xxii) No transfer taxes are required to be paid in
connection with the sale and delivery of the Shares to the
Underwriters.
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In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representative, Underwriters' Counsel and the independent certified
public accountants of the Company, at which the contents of the Registration
Statement and Prospectus and related matters were discussed, and although they
have not verified the accuracy or completeness of the statements contained in
the Registration Statement or the Prospectus, nothing has come to the attention
of such counsel that leads them to believe that, at the time the Registration
Statement became effective and at all times subsequent thereto up to and on the
Closing Date and on any later date on which Option Shares are purchased, the
Registration Statement and any amendment or supplement thereto, when such
documents became effective or were filed with the Commission (other than the
financial statements and supporting schedules included in the Registration
Statement as to which such counsel need express no comment) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or at
the Closing Date or any later date on which the Option Shares are purchased, as
the case may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions
of law not involving the laws of the United States upon opinions of local
counsel, and as to questions of fact upon representations or certificates of
officers of the Company, and of government officials, in which case its opinion
is to state that they are so relying and that they have no knowledge of any
material misstatement or inaccuracy in any such opinion, representation or
certificate. Copies of any opinion, representation or certificate so relied
upon shall be delivered to you, as Representative of the Underwriters, and to
Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any
later date on which Option Shares are purchased, as the case may be, an opinion
of Stradling Yocca Carlson & Rauth, in form and substance satisfactory to you,
with respect to the sufficiency of all such corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(g) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
letter from KPMG Peat Marwick, LLP, addressed to the Company and the
Underwriters, dated the Closing Date or such later date on which Option Shares
are purchased, as the case may be, confirming that they are independent
certified public accountants with respect to the Company within the meaning of
the Act and the applicable published Rules and Regulations and based upon the
procedures described in such letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but carried
out to a date not more than three (3) business days prior to the Closing Date or
such later date on which Option Shares are to be purchased, as the case may be,
(i) confirming, to the extent true, that the statements and conclusions set
forth in the Original Letter are accurate as of the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, and
(ii) setting forth any revisions and additions to the statements and conclusions
set forth in the Original Letter which are necessary to reflect any changes in
the facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations or business of the Company from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by
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the Prospectus. The Original Letter from KPMG Peat Marwick, LLP shall be
addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth its opinion with respect to its examination of the
balance sheets of the Company as of June 30, 1998, December 31, 1997 and
December 31, 1996 and related statements of operations, shareholders' equity,
and cash flows for the years ended December 31, 1997 and 1996, and (iii) address
other matters agreed upon by KPMG Peat Marwick, LLP and you. In addition, you
shall have received from KPMG Peat Marwick, LLP a letter addressed to the
Company and made available to you for the use of the Underwriters stating that
its review of the Company's system of internal accounting controls, to the
extent they deemed necessary in establishing the scope of its examination of the
Company's financial statements as of June 30, 1998, did not disclose any
weaknesses in internal controls that they considered to be material weaknesses.
(h) You shall have received on the Closing Date and on any
later date on which Option Shares are purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the President
and Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and as
of the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied, in all
material aspects, with all the agreements and satisfied all the
conditions on its part to be performed or satisfied, in all material
respects, at or prior to the Closing Date or any later date on which
Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to their knowledge, are pending or
threatened under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of
such certificate, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, contained all material
information required to be included therein by the Act and the Rules
and Regulations or the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, and in
all material respects conformed to the requirements of the Act and the
Rules and Regulations or the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, the
Registration Statement, and any amendment or supplement thereto, did
not and does not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does
not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and,
since the effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended or
supplemented Prospectus that has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been (a) any material adverse change in the condition
(financial or otherwise), earnings,
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operations or business of the Company, (b) any transaction that is
material to the Company, (c) any obligation, direct or contingent
incurred by the Company, that is material to the Company, (d) any
change in the capital stock or outstanding indebtedness of the
Company, (e) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company, or (f) any loss or damage
(whether or not insured) to the property of the Company which has a
material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company.
(i) The Company shall have obtained and delivered to you an
agreement from each officer, director and director-nominee of the Company, and
each beneficial owner of five percent or more of the Common Stock immediately
after the offering contemplated hereby, in writing prior to the date hereof that
such person will not, during the Lock-up Period, effect the Disposition of any
Securities now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a distribution
to limited partners or shareholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Cruttenden Roth
Incorporated. The foregoing restriction is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be disposed
of by someone other than the such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person will have also agreed and consented to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of the Securities held by such person except in compliance with
this restriction.
(j) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request, including
certificates of officers of the Company as to the accuracy of the
representations and warranties of the Company, as to the performance by the
Company of its obligations hereunder and as to the other conditions concurrent
and precedent to the obligations of the Underwriters hereunder.
(k) The Representative's Warrant Agreement shall have been
entered into by the Company and you, and the Representative's Warrants shall
have been issued and sold to you pursuant thereto.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the
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Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any breach of any representation, warranty, agreement or covenant of the Company
herein contained, or any failure of the Company to perform its obligations
hereunder or under law, and (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company as
described in Section 3 hereof, and, PROVIDED FURTHER, that the indemnity
agreement provided in this Section 8(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, damages, liabilities or actions based upon
any untrue statement or alleged untrue statement of material fact or omission or
alleged omission to state therein a material fact purchased Shares, if a copy of
the Prospectus in which such untrue statement or alleged untrue statement or
omission or alleged omission was corrected had not been sent or given to such
person within the time required by the Act and the Rules and Regulations, unless
such failure is the result of noncompliance by the Company with Section 5(d)
hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under the
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company as described in Section 3 hereof, and agrees to reimburse the Company
for any legal or other expenses reasonably incurred by the Company in connection
with investigating or defending any such loss, claim, damage, liability or
action.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company and each person, if any, who controls the Company within the meaning of
the Act or the Exchange Act. This indemnity agreement shall be in addition to
any liabilities which each Underwriter may otherwise have.
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<PAGE>
(c) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; PROVIDED,
HOWEVER, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party which pose a conflict of interest for such counsel, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of the indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with appropriate local counsel)
approved by the indemnifying party representing all the indemnified parties
under Section 8(a) or 8(b) hereof who are parties to such action), (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; PROVIDED that such
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on claims
that are the subject matter of such indemnification.
(d) In order to provide for just and equitable contribution
in any action in which a claim for indemnification is made pursuant to this
Section 8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters
severally and not jointly are responsible pro rata for the portion represented
by the percentage that the underwriting discount bears to the initial public
offering price, and the Company is responsible for the remaining portion,
PROVIDED, HOWEVER, that (i) no Underwriter shall be required to contribute any
amount in excess of the underwriting discount applicable to the Shares purchased
by such Underwriter and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(d) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if
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<PAGE>
any, who controls the Underwriters or the Company within the meaning of the Act
or the Exchange Act and each officer of the Company who signed the Registration
Statement and each director of the Company.
(e) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement and Prospectus as required by the Act and the
Exchange Act. The parties are advised that federal or state public policy, as
interpreted by the courts in certain jurisdictions, may be contrary to certain
of the provisions of this Section 8, and the parties hereto hereby expressly
waive and relinquish any right or ability to assert such public policy as a
defense to a claim under this Section 8 and further agree not to attempt to
assert any such defense.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Sections 6
and 8 and hereof shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any Underwriter or any controlling
person within the meaning of the Act or the Exchange Act, or by or on behalf of
the Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed Closing
Date, the Closing Date may, at the option of the Company, be postponed for a
further twenty-four (24) hours, if necessary, to allow the Company the privilege
of finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 11, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or
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<PAGE>
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary, and (ii) the respective number of Firm Shares to be purchased by
the remaining Underwriters and substituted underwriter or underwriters shall be
taken as the basis of their underwriting obligation. If the remaining
Underwriters shall not take up and pay for all such Firm Shares so agreed to be
purchased by the defaulting Underwriter or Underwriters or substitute another
underwriter or underwriters as aforesaid and the Company shall not find or shall
not elect to seek another underwriter or underwriters for such Firm Shares as
aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, the Company shall not be liable to any
Underwriter (except as provided in Sections 6 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Sections 6 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of
(i) 6:30 A.M., California time, on the second full business day following the
effective date of the Registration Statement, or (ii) the time of the initial
public offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set
forth in Section 12 before the time this Agreement becomes effective, you, as
Representative of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 6 and 8 hereof.
(b) You, as Representative of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as hereinafter
specified at any time at or prior to the Closing Date or on or prior to any
later date on which Option Shares are purchased, as the case may be, (i) if the
Company shall have failed, refused or been unable to perform any agreement on
its part to be performed, or (ii) because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
from that set forth in the Registration Statement or Prospectus, which, in your
sole judgment, is material and adverse, or (iii) if additional material
governmental restrictions, not in force and effect on the date hereof, shall
have been imposed upon trading in securities generally or minimum or maximum
prices shall have been generally established on the New York Stock Exchange or
on the American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iv) if the Company shall have sustained a loss by strike, fire,
flood, earthquake, accident or other calamity of such character as to interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured, or (v) if there
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<PAGE>
shall have been a material adverse change in the general political or economic
conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (vi) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representative, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. Any
termination pursuant to any of subparagraphs (ii) through (vi) above shall be
without liability of any party to any other party except as provided in
Sections 7 and 9 hereof. In the event of termination pursuant to subparagraph
(i) above, the Company shall also remain obligated to pay costs and expenses
pursuant to Sections 7 and 9 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o Cruttenden Roth Incorporated, 18301 Von
Karman, Suite 100, Irvine, California 92715, telecopier number (949) 852-9603,
Attention: Shelly Singhal; if sent to the Company, such notice shall be mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to 17911 Von Karman, Suite 200, Irvine, California 92614, telecopier
number (949) 622-4700, Attention: Michael C. Lowther.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
or corporation, other than the parties hereto and their respective executors,
administrators, successors and assigns, and their controlling persons within the
meaning of the Act or the Exchange Act, officers and directors referred to in
Section 8 hereof, any legal or equitable right, remedy or claim in respect of
this Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or corporation.
No purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase. The Agreement
constitutes the entire agreement and understanding of the parties with respect
to the subject matter hereof.
In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several Underwriters, and the Company shall be entitled
to act and rely upon any statement, request, notice or agreement made or given
by you on behalf of each of the several Underwriters.
14. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
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<PAGE>
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and the several Underwriters.
Very truly yours,
AMERICAN NATIONAL FINANCIAL, INC.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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<PAGE>
Accepted as of the date first above written:
CRUTTENDEN ROTH INCORPORATED
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By: CRUTTENDEN ROTH INCORPORATED
By:
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm
Shares
To Be
Purchased
Underwriters
-----------
<S> <C>
Cruttenden Roth Incorporated .......................................
Total ......................................................... 1,250,000
-----------
-----------
</TABLE>
-29-
<PAGE>
WARRANT AGREEMENT
This Warrant Agreement (this "Agreement") dated as of September ___, 1998
is by and between American National Financial, Inc., a California corporation
(the "Company") and Cruttenden Roth Incorporated ("Cruttenden" or the
"Representative").
WHEREAS, Cruttenden has agreed pursuant to an Underwriting Agreement dated
September ___, 1998 (the "Underwriting Agreement") to act as the representative
of the several underwriters in connection with the proposed public offering (the
"Public Offering") by the Company of 1,437,500 shares of Common Stock, including
up to 187,500 additional shares of Common Stock to cover over-allotments, if
any; and
WHEREAS, pursuant to Section 1 of the Underwriting Agreement, the Company
has agreed to issue warrants (the "Warrants") to the Representative to purchase,
at a price of $ per warrant, up to an aggregate of 125,000 shares
(hereinafter, and as the number thereof may be adjusted hereto, the "Warrant
Shares") of the Company's Common Stock, no par value (the "Common Stock"), each
Warrant initially entitling the holder thereof to purchase one share of Common
Stock.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein and in the Underwriting Agreement set forth and for other good and
valuable consideration, the parties hereto agree as follows:
1. ISSUANCE OF WARRANTS: FORM OF WARRANT. The Company will issue and
deliver to Cruttenden, Warrants to purchase 125,000 Warrant Shares on the
Closing Date referred to in the Underwriting Agreement, in consideration for,
and as part of the Representative's compensation in connection with, its acting
as the representative of the several underwriters for the Public Offering
pursuant to the Underwriting Agreement. The text of the Warrants and of the
form of election to purchase Warrants Shares shall be substantially as set forth
in Exhibit A attached hereto. The Warrants shall be executed on behalf of the
Company by the manual or facsimile signature of the present or any future
Chairman of the Board, President or Vice President of the Company, under its
corporate seal, affixed or in facsimile, attested by the manual or facsimile
signature of the Secretary or an Assistant Secretary of the Company.
Warrants bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrants or did not hold such
offices on the date of this Agreement. Warrants shall be dated as of the date
of execution thereof by the Company either upon initial issuance or upon
division, exchange, substitution or transfer.
2. REGISTRATION. The Warrants shall be numbered and registered on the
books of the Company (the "Warrant Register") as they are issued. The Company
shall be entitled to treat the registered holder of any Warrant on the Warrant
Register (the "Holder") as the owner in fact therefor for all purposes and shall
not be bound to recognize any equitable or other claim to or interest in such
Warrant on the part of any other person, and shall not be liable for any
registration or transfer of Warrants which are registered or are to be
registered in the name of a fiduciary or the nominee of a fiduciary unless made
with the actual knowledge that a fiduciary or nominee is committing a breach of
<PAGE>
trust in requesting such registration or transfer, or with the knowledge of such
facts that its participation therein amounts to bad faith. The Warrants shall
be registered initially in the name of "Cruttenden Roth Incorporated" or in such
other denominations as Cruttenden may request in writing to the Company.
3. EXCHANGE OF WARRANT CERTIFICATES. Subject to any restriction upon
transfer set forth in this Agreement, each Warrant certificate may be exchanged
for another certificate or certificates entitling the Holder thereof to purchase
a like aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitled such Holder to purchase. Any Holder desiring to
exchange a Warrant certificate or certificates shall make such request in
writing delivered to the Company, and shall surrender, properly endorsed, the
certificate or certificates to be so exchanged. Thereupon, the Company shall
execute and deliver to the person entitled thereto a new Warrant certificate or
certificates, as the case may be, as so requested.
4. TRANSFER OF WARRANTS. Until September ___, 1999, the Warrants will
not be sold, transferred, assigned or hypothecated except to (i) other brokers
or dealers; (ii) one or more bona fide officers and/or partners of Cruttenden;
(iii) a successor to the transferring Holder in merger or consolidation; (iv) a
purchaser of all or substantially all of the transferring Holder's assets; or
(v) any person receiving the Warrants from one or more of the persons listed in
this Section 4 at such person's or persons' death pursuant to will, trust or the
laws of intestate succession, each of whom agrees in writing to be bound by the
terms hereof. The Warrants shall be transferable only on the Warrant Register
upon delivery thereof duly endorsed by the Holder or by the Holder's duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. In all cases of transfer by an
attorney, the original power of attorney, duly approved, or an official copy
thereof, duly certified, shall be deposited with the Company. In case of
transfer by executors, administrators, guardians or other legal representatives,
duly authenticated evidence of their authority shall be produced and may be
required to be deposited with the Company in its discretion. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the person entitled thereto.
5. TERM OF WARRANTS; EXERCISE OF WARRANTS.
5.1 Each Warrant entitles the registered owner thereof to purchase
one share of Common Stock at any time from 10:00 a.m., Pacific time, on
September ___, 1999 (the "Initiation Date") until 6:00 p.m., Pacific time, on
September ___, 2003 (the "Expiration Date") at a purchase price of $
subject to adjustment (the "Warrant Price"). Notwithstanding the foregoing, if
at 6:00 p.m., Pacific time on the Expiration Date, any Holder or Holders of the
Warrants have not exercised their Warrants and the Closing Price (as defined
below) for the Common Stock on the Expiration Date is greater than the Warrant
Price, then each such unexercised Warrant shall be automatically converted into
a number of shares of Common Stock of the Company equal to: (A) the number of
shares of Common Stock then issuable upon exercise of a Warrant multiplied by
(B) a fraction (1) the numerator of which is the difference between the Closing
Price for the Common Stock on the Expiration Date and the Warrant Price and (2)
the denominator of which is the Closing Price for the Common Stock on the
Expiration Date.
5.2 The Warrant Price and the number of Warrant Shares issuable upon
exercise of each Warrant are subject to adjustment upon the occurrence of
certain events, pursuant to the
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<PAGE>
provisions of Section 11 of this Agreement. Subject to the provisions of this
Agreement, each Holder of Warrants shall have the right, which may be exercised
as expressed in the Warrant Certificate, to purchase from the Company (and the
Company shall issue and sell to such Holder of Warrants) the number of fully
paid and nonassessable Warrant Shares specified in such Warrant Certificate,
upon surrender to the Company, or its duly authorized agent, of such Warrant
Certificate, with the form of election to purchase on the reverse thereof duly
filled in and signed, and upon payment to the Company of the Warrant Price, as
adjusted in accordance with the provisions of Section 11 of this Agreement, for
the number of Warrant Shares in respect of which such Warrants are then
exercised. Payment of such Warrant Price shall be made in cash, by wire
transfer or by certified or official bank check, or any combination thereof. No
adjustment shall be made for any dividends on any Warrant Shares of stock
issuable upon exercise of a Warrant.
5.3 Upon such surrender of Warrants, and payment of the Warrant Price
as aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Holder of such Warrants
and in such name or names as such registered Holder may designate, a certificate
or certificates for the number of full Warrant Shares so purchased upon the
exercise of such Warrants, together with cash, as provided in Section 12 of this
Agreement, in respect of any fraction of a share otherwise issuable upon such
surrender and, if the number of Warrants represented by a Warrant certificate
shall not be exercised in full, a new Warrant certificate, executed by the
Company for the balance of the number of whole Warrant Shares.
5.4 If permitted by applicable law, such certificate or certificates
shall be deemed to have been issued and any person so designated to be named
therein shall be deemed to have become a holder of record of such shares as of
the date of the surrender of such Warrants and payment of the Warrant Price as
aforesaid. The rights of purchase represented by the Warrants shall be
exercisable, at the election of the registered Holders thereof, either as an
entirety or from time to time for only part of the shares specified therein.
6. COMPLIANCE WITH GOVERNMENT REGULATIONS. The Company covenants that if
any shares of Common Stock required to be reserved for purposes of exercise or
conversion of Warrants require, under any Federal or state law or applicable
governing rule or regulation of any national securities exchange, registration
with or approval of any governmental authority, or listing on any such national
securities exchange before such shares may be issued upon exercise, the Company
will in good faith and as expeditiously as possible endeavor to cause such
shares to be duly registered, approved or listed on the relevant national
securities exchange, as the case may be; PROVIDED, HOWEVER, that (except to the
extent legally permissible with respect to Warrant of which Cruttenden is the
Holder) in no event shall such shares of Common Stock be issued, and the Company
is hereby authorized to suspend the exercise of all Warrants, for the period
during which such registration, approval or listing is required but not in
effect.
7. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of the Warrants or the securities
comprising the Warrant Shares upon the exercise of Warrants; PROVIDED, HOWEVER,
that the Company shall not be required to pay any tax or taxes which may be
payable in respect of any transfer involved in the issue or delivery of any
warrants or certificate for Warrant Shares in a name other than that of the
registered Holder of such warrants.
-3-
<PAGE>
8. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest; but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction of such Warrant and, if requested, indemnity or bond also
reasonably satisfactory to the Company. An applicant for such substitute
Warrants shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
9. RESERVATION OF WARRANT SHARES. There has been reserved out of the
authorized and unissued shares of Common Stock a number of shares sufficient to
provide for the exercise of the Warrants, and the transfer agent for the Common
Stock ("Transfer Agent") and every subsequent Transfer Agent for any shares of
the Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid are hereby irrevocably authorized and directed at all times
until the Expiration Date to reserve such number of authorized and unissued
shares as shall be required for such purpose. The Company will keep a copy of
this Agreement on file with the Transfer Agent and with every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants. The Company
will supply such Transfer Agent with duly executed stock certificates for such
purposes and will itself provide or otherwise make available any cash which may
be issuable as provided in Section 12 of this Agreement. The Company will
furnish to such Transfer Agent a copy of all notices of adjustments, and
certificates related thereto, transmitted to each Holder pursuant to Section
11.2 of this Agreement. All Warrants surrendered in the exercise of the rights
thereby evidenced shall be cancelled.
10. OBTAINING STOCK EXCHANGE LISTINGS. The Company will from time to time
take all action which may be necessary so that the Warrant Shares, immediately
upon their issuance upon the exercise of Warrants, will be listed on the
securities exchanges and stock markets within the United States of America, if
any, on which other shares of Common Stock are then listed.
11. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF WARRANT SHARES. The number
and kind of securities purchasable upon the exercise of each Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter defined. For purposes of this
Section 11, "Common Stock" means shares now or hereafter authorized of any class
of common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
11.1 MECHANICAL ADJUSTMENTS. The number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price shall be
subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii)
combine its outstanding shares of Common Stock or (iv) issue by reclassification
of its shares of Common Stock other securities of the Company (including any
such reclassification in connection with a consolidation or merger in which the
Company is the surviving corporation), the number of Warrant Shares purchasable
upon exercise of each warrant immediately prior thereto shall be adjusted so
that the Holder of each Warrant shall be entitled to receive the kind and number
of Warrant Shares or other securities of the Company which he
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would have owned or would have been entitled to receive after the happening of
any of the events described above, had such Warrants been exercised immediately
prior to the happening of such event or any record date with respect thereto.
An adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) In case the Company shall distribute to all holders of its
shares of Common Stock (including any such distribution made in connection with
a consolidation or merger in which the Company is the surviving corporation)
evidences of its indebtedness or assets (excluding cash dividends or
distributions payable out of consolidated earnings or earned surplus and
dividends or distribution referred to in paragraph (a) above or in the paragraph
immediately following this paragraph) or rights, options or warrants, or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock, then in each case the number of Warrant Shares
thereafter purchasable upon the exercise of each Warrant shall be determined by
multiplying the number of Warrant Shares theretofore purchasable upon the
exercise of each Warrant by a fraction, the numerator of which shall be the then
current market price per share of Common Stock (as defined in paragraph (c)
below) on the date of such distribution, and the denominator of which shall be
the then current market price per share of Common Stock, less the then fair
value (as reasonably determined by the Board of Directors of the Company) of the
portion of the assets or evidences of indebtedness so distributed or of such
subscription rights, options or warrants, or of such convertible or exchangeable
securities applicable to one share of Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become effective on the
date of distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
In the event of a distribution by the Company to all holders of its shares
of Common Stock of a subsidiary or securities convertible into or exercisable
for such stock, then in lieu of an adjustment in the number of Warrant Shares
purchasable upon the exercise of each Warrant, the Holder of each Warrant, upon
the exercise thereof at any time after such distribution, shall be entitled to
receive from the Company, such subsidiary or both, as the Company shall
determine, the stock or other securities to which such Holder would have been
entitled if such Holder had exercised such Warrant immediately prior thereto,
all subject to further adjustment as provided in this Section 11.1; PROVIDED,
HOWEVER, that no adjustment in respect of dividends or interest on such stock or
other securities shall be made during the term of a Warrant or upon the exercise
of a Warrant.
(c) For the purpose of any computation under paragraph (b) of
this Section, the current market price per share of Common Stock at any date
shall be the average of the daily Closing Prices for 20 consecutive trading days
commencing 30 trading days before the date of such computation. The selling
price for each day (the "Closing Price") shall be the last such reported sales
price regular way or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices regular way for such day, in each on
the principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading or, if not listed or admitted to trading, the
average of the closing bid and asked prices of the Common Stock in the over-the
counter market as reported by the Nasdaq National Market System or Nasdaq
SmallCap System or if not approved for quotation on the Nasdaq National Market
System or Nasdaq SmallCap System, the average of the closing bid and asked
prices as furnished by two members of the National Association of Securities
Dealers, Inc. selected from time to time by the Company for that purpose.
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(d) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an increase or
decrease of at least one percent (1%) in the number of Warrant Shares
purchasable upon the exercise of each Warrant; PROVIDED, HOWEVER, that any
adjustments which by reason of this paragraph (d) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest one-thousandth of a share.
(e) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as herein provided, the Warrant Price
payable upon exercise of each Warrant shall be adjusted by multiplying such
Warrant Price immediately prior to such adjustment by a fraction, the numerator
of which shall be the number of Warrant Shares purchasable upon the exercise of
each Warrant immediately prior to such adjustment, and the denominator of which
shall be the number of Warrant Shares purchasable immediately thereafter.
(f) No adjustment in the number of Warrant Shares purchasable
upon the exercise of each Warrant need be made under paragraph (b) if the
Company issues or distributes to each Holder of Warrants the rights, options,
warrants or convertible or exchangeable securities, or evidences of indebtedness
or assets referred to in those paragraphs which each Holder of Warrants would
have been entitled to receive had the Warrants been exercised prior to the
happening of such event or the record date with respect thereto. No adjustment
need be made for a change in the par value of the Warrant Shares.
(g) In the event that at any time, as a result of an adjustment
made pursuant to paragraph (a) above, the Holders shall become entitled to
purchase any securities of the Company other than shares of Common Stock,
thereafter the number of such other shares so purchasable upon exercise of each
Warrant and the Warrant Price of such shares shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Warrant Shares contained in this Section 11, and
the other provisions of this Agreement, with respect to the Warrant and Warrant
Shares, shall apply as nearly equivalent as practicable on like terms to such
other securities.
(h) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges for which an adjustment was made hereunder, if
any thereof shall not have been exercised, the Warrant Price and the number of
shares of Common Stock purchasable upon the exercise of each Warrant shall, upon
such expiration, be readjusted and shall thereafter be such as it would have
been had it been originally adjusted (or had the original adjustment not been
required, as the case may be) as if (i) the only shares of Common Stock so
issued were the shares of Common Stock, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion or exchange rights and
(ii) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise plus the
aggregate consideration, if any, actually received by the Company for the
issuance, sale or grant of all such rights, options, warrants or conversion or
exchange rights whether or not exercised; PROVIDED, HOWEVER, that no such
readjustment shall have the effect of increasing the Warrant Price or decreasing
the number of shares of Common Stock purchasable upon the exercise of each
Warrant by an amount in excess of the amount of the adjustment initially made in
respect to the issuance, sale or grant of such rights, options, warrants or
conversion or exchange rights.
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11.2 NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares
purchasable upon the exercise of each Warrant or the Warrant Price of such
Warrant Shares is adjusted, as herein provided, the Company shall promptly mail
by first class, postage prepaid, to each Holder notice of such adjustment or
adjustments and a certificate of a firm of independent public accountants
selected by the Board of Directors of the Company (who may be the regular
accountants employed by the Company) setting forth the number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price of such
Warrant Shares after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth the computation by which such
adjustment was made.
11.3 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section
11.1, no adjustments in respect of any dividends shall be made during the term
of a Warrant or upon the exercise of a Warrant.
11.4 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION ETC.
In case of any consolidation of the Company with or merger of the Company into
another corporation or in case of any sale, transfer or lease to another
corporation of all or substantially all the property of the Company, the Company
or such successor or purchasing corporation, as the case may be, shall execute
with each Holder an agreement that each Holder shall have the right thereafter
upon payment of the Warrant Price in effect immediately prior to such action to
purchase upon exercise of each Warrant the kind and amount of shares and other
securities, cash and property which he would have owned or would have been
entitled to receive after the happening of such consolidation, merger, sale,
transfer or lease had such Warrant been exercised immediately prior to such
action; PROVIDED, HOWEVER, that no adjustment in respect of dividends, interest
or other income on or from such shares or other securities, cash and property
shall be made during the term of a Warrant or upon the exercise of a Warrant.
Such agreement shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
11. The provisions of this Section 11.4 shall similarly apply to successive
consolidations, mergers, sales transfer or leases.
11.5 STATEMENTS ON WARRANTS. Irrespective of any adjustments in the
Warrant Price or the number or kind of shares purchasable upon the exercise of
the Warrants, Warrants theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
11.6 OPTIONAL CONVERSION.
(a) In addition to and without limiting the rights of the
Holders of the Warrants under the terms of this Agreement and the Warrants, the
holder of the Warrants shall have the right (the "Conversion Right") to convert
the Warrants or any portion thereof into shares of Common Stock as provided in
this Section 11.6 at any time or from time to time after the first anniversary
of the date hereof and prior to its expiration, subject to the restrictions set
forth in paragraph (c) below. Upon exercise of the Conversion Right with
respect to a particular number of shares subject to the Warrants (the "Converted
Warrant Shares"), the Company shall deliver to the Holder of the Warrants,
without payment by the Holder of any exercise price or any cash or other
consideration, the number of shares of Common Stock equal to the quotient
obtained by dividing the Net Value (as hereinafter defined) of the Converted
Warrant Shares by the fair market value (as defined in paragraph (d) below) of a
single share of Common Stock, determined in each case as of the close of
business on the Conversion Date (as
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hereinafter defined). The "Net Value" of the Converted Warrant Shares shall be
determined by subtraction of the aggregate warrant purchase price of the
Converted Warrant Shares (which aggregate warrant purchase price includes the
consideration actually received by the Company upon such exercise plus the
aggregate consideration, if any, actually received by the Company for the
issuance of the Warrants) from the aggregate fair market value of the Converted
Warrant Shares. No fractional shares shall be issuable upon exercise of the
Conversion Right, and if the number of shares to be issued in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
Holder of the Warrants an amount in cash equal to the fair market value of the
resulting fractional share.
(b) The Conversion Right may be exercised by the Holder of the
Warrants by the surrender of such Warrants at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to the Warrants which are being surrendered (referred to in paragraph
(a) above as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of the Warrants
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"), not later than the expiration date of
the Warrants. Certificates for the shares of Common Stock issuable upon
exercise of the Conversion Right together with a check in payment of any
fractional share and, in the case of a partial exercise, new warrants evidencing
the shares remaining subject to the Warrants, shall be issued as of the
Conversion Date and shall be delivered to the holder of the Warrants within 7
days following the Conversion Date.
(c) In the event the Conversion Right would, at any time the
Warrants remain outstanding, be deemed by the Company's independent certified
public accountants to give rise to a charge to the Company's earnings for
financial reporting purposes, then the Conversion Right shall automatically
terminate upon receipt by the holder of this Warrant of an opinion of such
independent certified public accountant as to such adverse accounting treatment.
(d) For purposes of this paragraph 11.6, the "fair market value"
of a share of Common Stock as of a particular date shall be its "current market
price," calculated as described in paragraph 11.1(c) hereof.
12. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractional Warrant Shares on the exercise of Warrants. If more than one Warrant
shall be presented for exercise in full at the sale time by the same holder, the
number of full Warrant Shares which shall be issuable upon the exercise thereon
shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of the Warrants so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 12 be issuable on
the exercise of any Warrant (or specified portion thereof), the Company shall
pay an amount in cash equal to the closing price for one share of the Common
Stock, as defined in Section 11.1(c), on the trading day immediately preceding
the date the Warrant is presented for exercise, multiplied by such faction.
13. REGISTRATION UNDER THE SECURITIES ACT OF 1933. Cruttenden represents
and warrants to the Company that it will not dispose of the Warrants or the
Warrant Shares except pursuant to (i) an effective registration statement under
the Securities Act of 1933, as amended (the "Act"), including a post-effective
amendment to the Registration Statement, (ii) Rule 144 under the Act (or any
similar rule
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under the Act relating to the disposition of securities), or (iii) an opinion of
counsel, reasonably satisfactory to counsel of the Company, that an exemption
from such registration is available.
14. CERTIFICATES TO BEAR LEGENDS. The Warrant, the Warrant Shares or other
securities issued upon exercise of the Warrant shall be subject to a
stop-transfer order and the certificate or certificates therefore shall bear the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. SAID SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
15. REGISTRATION RIGHTS.
15.1 DEMAND REGISTRATION RIGHTS. The Company covenants and agrees
with Cruttenden and any subsequent Holders of the Warrants and/or Warrant Shares
that, on one occasion, within 60 days after receipt of a written request from
Cruttenden or from Holders of more than 25% in interest of the aggregate of
Warrants and/or Warrant Shares issued pursuant to this Agreement that Cruttenden
or such Holders of the Warrants and/or Warrant Shares desires and intends to
transfer more than 25% in interest of the aggregate number of the Warrants
and/or Warrant Shares under such circumstances that a public offering, within
the meaning of the Act, will be involved, the Company shall, on that one
occasion, file a registration statement (and use its best efforts to cause such
registration statement to become effective under the Act at the Company's
expense) with respect to the offering and sale or other disposition of the
Warrant Shares (the "Offered Warrant Shares"); PROVIDED, HOWEVER, that the
Company shall have no obligation to comply with the foregoing provisions of this
Section 15.1 if in the opinion of counsel to the Company reasonably acceptable
to the Holder or Holders, from whom such written requests have been received,
registration under the Act is not required for the transfer of the Offered
Warrant Shares in the manner proposed by such person or persons or that a
post-effective amendment to an existing registration statement would be legally
sufficient for such transfer (in which latter event the Company shall promptly
file such post-effective amendment (and use its best efforts to cause such
amendment to become effective under the Act)). Notwithstanding the foregoing,
the Company shall not be obligated to file a registration statement with respect
to the Offered Warrant Shares on more than one occasion.
The Company may defer the preparation and filing of a registration
statement for up to 90 days after the request for registration is made if the
Board of Directors determines in good faith that such registration or
post-effective amendment would materially adversely affect or otherwise
materially interfere with a proposed or pending transaction by the Company,
including without limitation a material financing or a corporate reorganization,
or during any period of time in which the Company is in possession of material
inside information concerning the Company or its securities, which information
the Company determines in good faith is not ripe for disclosure.
The Company shall not honor any request to register Warrant Shares pursuant
to this Section 15.1 received later than five (5) years from the effective date
of the Company's Registration Statement on Form S-1 (File No. 333-________) (the
"Effective Date"). The Company shall not be required (i) to maintain the
effectiveness of the registration statement beyond the earlier to occur of 90
days after the
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effective date of the registration statement or the date on which all of the
Offered Warrant Shares have been sold (the "Termination Date"); PROVIDED,
HOWEVER, that if at the Termination Date the Offered Warrant Shares are covered
by a registration statement which also covers other securities and which is
required to remain in effect beyond the Termination Date, the Company shall
maintain in effect such registration statement as it relates to Offered Warrant
Shares for so long as such registration statement (or any substitute
registration statement) remains or is required to remain in effect for any such
other securities, or (ii) to cause any registration statement with respect to
the Warrant Shares to become effective prior to the Initiation Date. All
expenses of registration pursuant to this Section 15.1 shall be borne by the
Company (excluding underwriting discounts and commissions on Warrant Shares not
sold by the Company).
The Company shall be obligated pursuant to this Section 15.1 to include in
the registration statement Warrant Shares that have not yet been purchased by a
Holder of Warrants so long as such Holder of Warrants submits an undertaking to
the Company that such Holder intends to exercise Warrants representing the
number of Warrant Shares to be included in such registration statement prior to
the consummation of the public offering with respect to such Warrant Shares. In
addition, such Holder of Warrants is permitted to pay the Company the Warrant
Price for such Warrant Shares upon the consummation of the public offering with
respect to such Warrant Shares.
15.2 PIGGY-BACK REGISTRATION RIGHTS. The Company covenants and agrees
with the Holders and any subsequent Holders of the Warrants and/or Warrant
Shares that in the event the Company proposes to file a registration statement
under the Act with respect to any class of security (other than in connection
with an exchange offer, a non-cash offer or a registration statement on Form S-8
or other unsuitable registration statement form) which becomes or which the
Company believes will become effective at any time after the Initiation Date
then the Company shall in each case give written notice of such proposed filing
to the Holders of Warrants and Warrant Shares at least 30 days before the
proposed filing date and such notice shall offer to such Holders the opportunity
to include in such registration statement such number of Warrant Shares as they
may request, unless, in the opinion of counsel to the Company reasonably
acceptable to any such Holder of Warrants or Warrant Shares who wishes to have
Warrant Shares included in such registration statement, registration under the
Act is not required for the transfer of such Warrants and/or Warrant Shares in
the manner proposed by such Holders. The Company shall not honor any such
request to register any such Warrant Shares if the request is received later
than six (6) years from the Effective Date, and the Company shall not be
required to honor any request (a) to register any such Warrant Shares if the
Company is not notified in writing of any such request pursuant to this Section
15.2 within at least 20 days after the Company has given notice to the Holders
of the filing, or (b) to register Warrant Shares that represent in the aggregate
fewer than 25% of the aggregate number of Warrant Shares. The Company shall
permit, or shall cause the managing underwriter of a proposed offering to
permit, the Holders of Warrant Shares requested to be included in the
registration (the "Piggy-back Shares") to include such Piggy-back Shares in the
proposed offering on the same terms and conditions as applicable to securities
of the Company included therein or as applicable to securities of any person
other than the Company and the Holders of Piggy-back Shares if the securities of
any such person are included therein. Notwithstanding the foregoing, if any
such managing underwriter shall advise the Company in writing that it believes
that the distribution of all or a portion of the Piggy-back Shares requested to
be included in the registration statement concurrently with the securities being
registered by the Company would materially adversely affect the distribution of
such securities by the Company for its own account, then the Holders of such
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Piggy-back Shares shall delay their offering and sale of Piggyback Shares (or
the portion thereof so designated by such managing underwriter) for such period,
not to exceed 120 days, as the managing underwriter shall request provided that
no such delay shall be required as to Piggy-back Shares if any securities of the
Company are included in such registration statement for the account of any
person other than the Company and the Holders of Piggy-back Shares. In the
event of such delay, the Company shall file such supplements, post-effective
amendments or separate registration statement, and take any such other steps as
may be necessary to permit such Holders to make their proposed offering and sale
for a period of 90 days immediately following the end of such period of delay
("Piggy-back Termination Date"); PROVIDED, HOWEVER, that if at the Piggy-back
Termination Date the Piggyback Shares are covered by a registration statement
which is, or required to remain, in effect beyond the Piggy-back Termination
Date, the Company shall maintain in effect the registration statement as it
relates to the Piggy-back Shares for so long as such registration statement
remains or is required to remain in effect for any of such other securities. All
expenses of registration pursuant to this Section 15.2 shall be borne by the
Company, except that underwriting commissions and expenses attributable to the
Piggy-back Shares and fees and disbursements of counsel (if any) to the Holders
requesting that such Piggy-back Shares be offered will be borne by such Holders.
The Company shall be obligated pursuant to this Section 15.2 to include in
the Piggy-back Offering, Warrant Shares that have not yet been purchased by a
holder of Warrants so long as such Holder of Warrants submits an undertaking to
the Company that such Holder intends to exercise Warrants representing the
number of Warrant Shares to be included in such Piggy-back Offering prior to the
consummation of such Piggy-back Offering. In addition, such Holder of Warrants
is permitted to pay the Company the Warrant Price for such Warrant Shares upon
the consummation of the Piggy-back Offering.
If the Company decides not to proceed with a Piggy-back Offering, the
Company has no obligation to proceed with the offering of the Piggy-back Shares,
unless the Holders of the Warrants and/or Warrant Shares otherwise comply with
the provisions of Section 15.1 hereof (without regard to the 60 days' written
request required thereby). Notwithstanding any of the foregoing contained in
this Section 15.2, the Company's obligation to offer registration rights to the
Piggy-back Shares pursuant to this Section 15.2 shall terminate two (2) years
after the Expiration Date.
15.3 In connection with the registration of Warrant Shares in
accordance with Section 15.1 and 15.2 above, the Company agrees to:
(a) Use its best efforts to register or qualify the Warrant
Shares for offer or sale under the state securities or Blue Sky laws of
such states which the Holders of such Warrant Shares shall designate, until
the dates specified in Section 15.1 and 15.2 above in connection with
registration under the Act; PROVIDED, HOWEVER, that in no event shall the
Company be obligated to qualify to do business in any jurisdiction where it
is not now so qualified or to take any action which would subject it to
general service of process in any jurisdiction where it is not now so
subject or to register or get a license as a broker or dealer in securities
in any jurisdiction where it is not so registered or licensed or to
register or qualify the Warrant Shares for offer or sale under the state
securities or Blue Sky laws of any state other than the states in which
some or all of the shares offered or sold in the Public Offering were
registered or qualified for offer and sale.
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(b) (i) In the event of any post-effective amendment or other
registration with respect to any Warrant Shares pursuant to Section 15.1 or
15.2 above, the Company will indemnify and hold harmless any Holder whose
Warrant Shares are being so registered, and each person, if any, who
controls such Holder within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, to which such Holder or
such controlling person may be subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained, on the effective date
thereof, in any such registration statement, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse each such Holder
and each such controlling person for any legal or other expenses reasonably
incurred by such Holder or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; PROVIDED, HOWEVER, that the Company will not be liable in such case
to the extent that any such loss, claim, damage or liability arises out of
or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in any such registration statement, any
preliminary prospectus or final prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information
furnished by such Holder expressly for use in the preparation thereof. The
Company will not be liable to a claimant to the extent of any misstatement
corrected or remedied in any amended prospectus if the Company timely
delivers a copy of such amended prospectus to such indemnified person and
such indemnified person does not timely furnish such amended prospectus to
such claimant. The Company shall not be required to indemnify any Holder or
controlling person for any payment made to any claimant in settlement of
any suit or claim unless such payment is approved by the Company.
(ii) Each Holder of Warrants and/or Warrant Shares who
participates in a registration pursuant to Section 15.1 or 15.2 will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed any such registration statement, and each person,
if any, who controls the Company within the meaning of the Act, against any
losses, claims, damages or liabilities to which the Company, or any such
director, officer or controlling person may become subject under the Act,
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue or
alleged untrue statement or any material fact contained in any such
registration statement, any preliminary prospectus or final prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in any such registration statement, any preliminary
prospectus or final prospectus, or any amendment or supplement thereto, in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in the preparation thereof; and will reimburse any
legal or other expenses reasonably incurred by the Company, or any such
director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the indemnity agreement contained in this subparagraph (ii)
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shall not apply to amounts paid to any claimant in settlement of any suit
or claim unless such payment is first approved by such Holder.
(iii) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made
pursuant to this clause (b)(iii) of Section 15.3 but is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced
in such case notwithstanding the fact that this clause (b)(iii) of Section
15.3 provides for indemnification in such case, all the parties hereto
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such
proportion so that each Holder whose Warrant Shares are being registered is
responsible pro rata for the portion represented by the public offering
price received by such Holder from the sale of such Holder's Warrant
Shares, and the Company is responsible for the remaining portion; PROVIDED,
HOWEVER, that (i) no Holder shall be required to contribute any amount in
excess of the public offering price received by such Holder from the sale
of such Holder's Warrant Shares and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. This subsection (b)(iii) shall not be
operative as to any Holder of Warrant Shares to the extent that the Company
has received indemnity under this clause (b)(iii) of Section 15.3.
16. NO RIGHTS AS STOCKHOLDER; NOTICES TO HOLDERS. Nothing contained in
this Agreement or in any of the Warrants shall be construed as conferring upon
the Holders or their transferee(s) the right to vote or to receive dividends or
to consent to or receive notice as stockholders in respect of any meeting of
stockholders for the election of directors of the Company or any other matter or
any rights whatsoever as stockholders of the Company. If, however, at any time
prior to the expiration of the Warrants and prior to their exercise, any of the
following events occur:
(a) the Company shall declare any dividend payable in any
securities upon its shares of Common Stock or make any distribution (other
than a cash dividend) to the holders of its shares of Common Stock: or
(b) the Company shall offer to the holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any right to
subscribe to or purchase any thereof; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer or
lease of all or substantially all of its property, assets and business as
an entirety) shall be proposed,
then in any one or more of said events the Company shall (i) give notice in
writing of such event to the Holders, as provided in Section 17 hereof and (ii)
if there are more than 100 Holders, cause notice of such event to be published
once in The Wall Street Journal (national edition), such giving of notice and
publication to be completed at least 20 days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution or subscription rights, or
for the determination of stockholders entitled to vote on such
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<PAGE>
proposed dissolution, liquidation or winding up. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to publish, mail or receive such notice or any defect therein or in the
publication or mailing thereof shall not affect the validity of any action taken
in connection with such dividend, distribution or subscription rights, or such
proposed dissolution, liquidation or winding up.
17. NOTICES. Any notice pursuant to this Agreement to be given or made by
the registered Holder of any Warrant to the Company shall be sufficiently given
or made if sent by first-class mail or facsimile to:
American National Financial, Inc.
17911 Von Karman Avenue, Suite 200
Irvine, California 92614-6253
Attn: President
Fax: (949) 260-1692
Notices or demands authorized by this Agreement to be given or made by the
Company to the registered Holder of any Warrant shall be sufficiently given or
made (except as otherwise provided in this Agreement) if sent by first-class
mail to such Holder at the address of such Holder as shown on the Warrant
Register.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
principles of conflicts of laws.
19. SUPPLEMENTS AND AMENDMENTS. The Company and Cruttenden may from time
to time supplement or amend this Agreement in order to cure any ambiguity or to
correct or supplement any provision contained herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and Cruttenden may deem necessary or desirable and which shall not be
inconsistent with the provisions of the Warrants and which shall not adversely
affect the interests of the Holders. This Agreement may also be supplemented or
amended from time to time by a writing executed by or on behalf of the Company
and all of the Holders.
20. SUCCESSOR. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder. Assignments by
the Holders of their rights hereunder shall be made in accordance with Section 4
hereof.
21. MERGER OR CONSOLIDATION OF THE COMPANY. So long as Warrants remain
outstanding, the Company will not merge or consolidate with or into, or sell,
transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(if not the Company), shall expressly assume, by supplemental agreement executed
and delivered to the Holders, the due and punctual performance and observance of
each and every covenant and condition of this Agreement to be performed and
observed by the Company.
22. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Holders, any legal or equitable right, remedy
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or claim under this Agreement, but this Agreement shall be for the sole and
exclusive benefit of the Company any the Holders of the Warrants and Warrant
Shares.
23. CAPTIONS. The captions of the sections and subsections of this
Agreement have been reserved for convenience only and shall have no substantive
effect.
24. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which when so executed shall be deemed to be an original;
but such counterparts together shall constitute but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
CRUTTENDEN ROTH INCORPORATED
Attest:
By:
- ---------------------------- -----------------------
Name:
Title:
AMERICAN NATIONAL FINANCIAL, INC.
Attest:
By:
- ---------------------------- -----------------------
Name:
Title:
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<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. SAID
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT
WARRANT CERTIFICATE
OF
AMERICAN NATIONAL FINANCIAL, INC.
EXERCISABLE ON OR BEFORE SEPTEMBER , 2003
No. 1 125,000 Warrants
This Warrant Certificate certifies that the registered holder hereof or its
registered assigns, is the registered holder of Warrants expiring September ___,
2003 (the "Warrants") to purchase Common Stock, no par value (the "Common
Stock"), of American National Financial, Inc., a California corporation (the
"Company"). Each Warrant entitles the holder upon exercise to receive from the
Company from 10:00 a.m., Pacific time, on September ___, 1999 through and until
6:00 p.m., Pacific time, on September ___, 2003, one fully paid and
nonassessable share of Common Stock (a "Warrant Share") at the initial exercise
price (the "Warrant Price") of $ payable in lawful money of the United
States of America upon surrender of this Warrant Certificate and payment of the
Warrant Price at the conditions set forth herein and in the Warrant Agreement
referred to on the reverse hereof. The Warrant Price and number of Warrant
Shares issuable upon exercise of the Warrants are subject to adjustment upon the
occurrence of certain events set forth in the Warrant Agreement.
No Warrant may be exercised after 6:00 p.m., Pacific Time, on September
___, 2003 (the "Expiration Date"). Notwithstanding the foregoing, if at 6:00
p.m., Pacific time on the Expiration Date, any Holder or Holders of the Warrants
have not exercised their Warrants and the Closing Price (as defined in the
Warrant Agreement) for the Common Stock on the Expiration Date is greater than
the Warrant Price, then each such unexercised Warrant shall be automatically
converted into a number of shares of Common Stock of the Company equal to: (A)
the number of shares of Common Stock then issuable upon exercise of a Warrant
multiplied by (B) a fraction (1) the numerator of which is the difference
between the Closing Price for the Common Stock on the Expiration Date and the
Warrant Price and (2) the denominator of which is the Closing Price for the
Warrant Stock on the Expiration Date.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this price.
This Warrant Certificate shall not be valid unless countersigned by the
Company.
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<PAGE>
IN WITNESS WHEREOF, American National Financial, Inc. has caused this
Warrant Certificate to be signed by its President and by its Chief Financial
Officer and has caused its corporate seal to be affixed hereunto or imprinted
hereon.
Dated: September ___, 1998 AMERICAN NATIONAL FINANCIAL, INC.
--------------------------
Wayne D. Diaz
President
--------------------------
Carl A. Strunk
Executive Vice President and Chief
Financial Officer
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<PAGE>
[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring September ___, 2003 entitling the holder
on exercise to receive shares of Common Stock, no par value, of the Company (the
"Common Stock"), and are issued or to be issued pursuant to a Warrant Agreement,
dated as of September ___, 1998 (the "Warrant Agreement"), duly executed and
delivered by the Company, which Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
A copy of the Warrant Agreement may be obtained by the holder hereof upon
written request to the Company.
The Warrants may be exercised at any time on or before September ___, 2003.
The holder of Warrants evidenced by this Warrant Certificate may exercise them
by surrendering this Warrant Certificate, with the form of election to purchase
set forth hereon properly completed and executed, together with payment of the
Warrant Price at the office of the Company designated for such purpose. In the
event that upon any exercise of Warrants evidenced hereby the number of Warrants
exercised shall be less than the total number of Warrants evidenced hereby,
there shall be issued to the holder hereof or his assignee a new Warrant
Certificate evidencing the number of Warrants not exercised. No adjustment
shall be made for any dividends on any Common Stock issuable upon exercise of
this Warrant.
The Warrant Agreement provides that upon the occurrence of certain events
the number of shares of Common Stock issuable upon the exercise of each Warrant
shall be adjusted. If the number of shares of Common Stock issuable upon such
exercise is adjusted, the Warrant Agreement provides that the Warrant Price set
forth on the face hereof may, subject to certain conditions, be adjusted. No
fractions of a share of Common Stock will be issued upon the exercise of any
Warrants but the Company will pay the cash value thereof determined as provided
in the Warrant Agreement. The Warrant Agreement also provides that, while the
Warrants are exercisable, the holders of the Warrants shall have an optional
conversion right to convert, without payment of any exercise price or any cash
or other consideration by such holders, the Warrants or any portion thereof into
a number of shares of Common Stock as specified in the Warrant Agreement.
The holders of the Warrants are entitled to certain registration rights
with respect to the Common Stock purchasable upon exercise thereof. Said
registration rights are set forth in full in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Company by the
registered holder thereof in person or by legal representative or attorney duly
authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant certificate of Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
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<PAGE>
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company, a new Warrant certificate or Warrant
certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to other transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
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<PAGE>
(Form of Election to Purchase)
(To be Executed upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ____________ shares of
Common Stock and herewith tenders payment for such shares in accordance with the
terms of the Warrant Agreement. The undersigned requests that a certificate for
such shares be registered in the name of _____________________________, whose
address is ______________________________________ and that such shares be
delivered to _______________________ whose address is
________________________________________. If said number of shares is less than
all of the shares of Common Stock purchasable hereunder, the undersigned
requests that a new Warrant Certificate representing the remaining balance of
such shares be registered in the name of ________________________, whose address
is _______________________, and that such Warrant Certificate be delivered to
_______________________, whose address is _________________________________.
Signature:
Date:
Signature Guaranteed:
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<PAGE>
(Form of Assignment)
(To be Executed upon Assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(Name and Address of Assignee Must Be Printed or Typewritten)
-----------------------------------
-----------------------------------
-----------------------------------
the within Warrants, hereby irrevocably constituting and appointing
________________ Attorney to transfer said Warrants on the books of the Company,
with full power of substitution in the premises.
Dated:
------------------- ------------------------------------
Signature of Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every particular,
without alteration or enlargement or any change whatever.
Signature Guaranteed:
-------------------------
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AND LOAN AGREEMENT (the "Agreement") is entered into
as of this 1st day of January, 1997, by and among ATC HOLDINGS, INC., a
California corporation ("Purchaser"), or its assigns, FIDELITY NATIONAL
FINANCIAL, INC., a Delaware corporation ("Parent"), and AMERICAN TITLE
COMPANY, a California underwritten title company ("Subsidiary").
RECITALS:
Parent desires to sell to Purchaser and Purchaser desires to buy from
Parent shares of the Common Stock of Subsidiary, in the amount and for the
purchase price set forth herein (the "Stock Acquisition").
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL AGREEMENTS AND COVENANTS
CONTAINED HEREIN, THE PARTIES AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF SECURITIES.
1.1 SECURITIES. Subject to the terms and conditions of this
Agreement, Parent hereby agrees to sell to Purchaser, and Purchaser hereby
agrees to purchase from Parent, one thousand eight hundred (1,800) shares of
the Common Stock of Subsidiary (the "Shares"), which Shares shall constitute
sixty percent (60%) of the issued and outstanding Common Stock of Subsidiary,
on a fully diluted basis, immediately after the Closing.
1.2 CONSIDERATION. The consideration for the sale and issuance
of the Shares to Purchaser shall consist of Six Million Dollars ($6,000,000)
(the "Consideration").
1.3 OPTION TO PURCHASE. Parent grants Purchaser an option to
purchase the remaining forty percent (40%) of the Common Stock of Subsidiary
(the "Ownership Interest") under the following terms and conditions: (a) in
the event that there is a change of control (a controlling interest of Parent
is sold to an independent third party unaffiliated with Parent or its
subsidiaries) or there is a merger between Parent and an independent third
party unaffiliated with Parent or its subsidiaries, Purchaser shall have the
right to purchase the Ownership Interest at 125% of the then net book value
of the Ownership Interest, (b) in the event
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<PAGE>
that Parent contemplates the sale of its Ownership Interest during the term
of the Underwriting Agreements or any renewals thereof (see Section 5.1(m)),
then Purchaser shall have the right to purchase the Ownership Interest for
125% of the net book value of the Ownership Interest, or (c) in the event
that after the expiration of the Underwriting Agreements, should Parent
determine to sell the Ownership Interest, Parent must first offer such
Ownership Interest to Purchaser at a price selected by Parent (the "Sale
Price"). Purchaser will have the right, for 30 days commencing on the date of
its receipt of Parent's offer to sell to Purchaser said Ownership Interest,
at the Sale Price. If Purchaser fails to complete such purchase within the 30
day period, Parent may sell its Ownership Interest to a third party at or
above the Sale Price for 180 days commencing on the date Purchaser's 30-day
option period expires.
2. CLOSING; TERMINATION.
2.1 CLOSING. The purchase and sale of the Shares shall take place
on or before the tenth business day after all of the conditions provided for
in Section 5 below have been satisfied, at the offices of Fidelity National
Financial, Inc., 17911 Von Karman, Suite 300, Irvine, California, or at such
other time and place as the Purchaser and Parent mutually agree (which time
and place are designated as the "Closing"). At the Closing, Parent shall
deliver to Purchaser (i) a stock certificate evidencing the Shares, against
delivery to the Parent by Purchaser of the amount equal to the purchase price
for the Shares, and (ii) such other documents and instruments as are provided
for in this Agreement or are reasonably requested by Purchaser.
2.2 BUSINESS CONSULTING AGREEMENT. The parties agree to continue
to be bound by the terms of the Business Consulting Agreement attached hereto
as Exhibit "A" until the Closing.
2.3 TERMINATION. If the Closing has not occurred by June 30,
1997, either party may terminate this Agreement upon written notice to the
other party, provided that such terminating party is not then in breach of
any of its covenants, representations or warranties contained in this
Agreement. Notwithstanding the foregoing, Purchaser may, at its sole
election, extend such date for up to three additional 30-day increments by
giving Parent and Subsidiary notice of any such extension on or before this
Agreement is otherwise terminated. Any such termination shall not relieve any
party of any liability for any breach which occurred prior to such
termination. With respect to any party not then in breach of this Agreement
at the time of such termination, such party shall have no further obligations
or liabilities under this Agreement.
2
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY. Parent
and Subsidiary, jointly and severally, make the following representations and
warranties to Purchaser as of the date hereof and as of the date of Closing
which are true and correct except as otherwise set forth in the attached
disclosure schedules:
3.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. Parent is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, and has full power and authority to own and
operate its properties and assets and to carry on its business as presently
conducted. Subsidiary is a corporation duly organized, validly existing, and
in good standing under the laws of the State of California, and has full
power and authority to own and operate its properties and assets and to carry
on its business as presently conducted. Subsidiary is duly qualified and
authorized to do business, and is in good standing as a foreign corporation,
in each jurisdiction where the nature of its activities and of its properties
(both owned and leased) makes such qualification necessary, except where the
failure to so qualify would not have a material adverse effect upon its
business and operations. Each of Parent and Subsidiary has furnished
Purchaser or its counsel with copies of its Articles of Incorporation and
Bylaws, as amended to the date hereof. Said copies are true, correct, and
complete and contain all amendments through the date of the Closing.
3.2 CAPITALIZATION. The authorized capital stock of Subsidiary
consists solely of three thousand (3,000) shares of common stock, with no par
value which shares are 100% owned by Parent. All issued and outstanding
shares of the capital stock of each have been duly authorized and validly
issued, and are fully paid and nonassessable. There are no outstanding rights
of first refusal, preemptive rights or other rights, options, warrants,
conversion rights, or other agreements either directly or indirectly for the
purchase or acquisition of any shares of the capital stock of either. All of
the outstanding shares of the Subsidiary have been duly and validly issued in
compliance with all applicable federal and state securities laws.
3.3 SUBSIDIARIES. Subsidiary does not presently own or control,
directly or indirectly, any equity interest in any corporation, association
or business entity. Subsidiary is not, directly or indirectly, a participant
in any joint venture or partnership.
3.4 AUTHORIZATION. All corporate action on the part of Parent and
Subsidiary, their officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the documents
contemplated hereby and the performance of all of their obligations hereunder
and thereunder and for the authorization, issuance, sale and delivery of the
Shares
3
<PAGE>
have been taken or will be taken prior to the Closing. This Agreement and the
documents contemplated hereby, when executed and delivered, shall constitute
valid and legally binding obligations of Parent and Subsidiary enforceable in
accordance with their respective terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
subject to the availability of equitable remedies.
3.5 VALIDITY OF SHARES. The sale of each of the Shares will not
be, subject to any preemptive rights or rights of first refusal and, when
issued, sold and delivered in compliance with the provisions of this
Agreement and the Shares will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided,
however, that the Shares may be subject to restrictions on transfer under
state and/or federal securities laws as set forth herein or as otherwise
required by such laws at the time a transfer is proposed.
3.6 FINANCIAL STATEMENTS. To the best of Parent's knowledge and
belief, the balance sheet and statement of stockholder's equity of Subsidiary
as of December 31, 1996 (collectively, the "Financial Statements") are
complete and correct, and present fairly, in all material respects, the
financial condition as of the date referred to and have been prepared in
accordance with generally accepted accounting principles.
3.7 CONTRACTS AND AGREEMENTS. To the best of Parent's knowledge,
based on the representation of management of Subsidiary at December 31, 1996,
all contracts, agreements, and instruments to which Subsidiary is a party are
valid and binding and in full force and effect in all material respects, and
to the best of knowledge of Parent and Subsidiary, no other party thereto is
in material breach thereof.
3.8 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. To the best of
Parent's knowledge, based on the representation of management of Subsidiary
at December 31, 1996, Subsidiary has good and marketable title to its
properties and assets, and good title to all its leasehold estates, subject
to no mortgage, pledge, lien, lease, encumbrance, or charge, other than (a)
liens resulting from taxes which have not yet become delinquent, or (b) minor
liens, encumbrances, or defects of title which do not, individually or in the
aggregate, materially detract from the value of the property subject thereto
or materially impair their operations. With respect to property leases,
Subsidiary is in compliance with all such leases.
3.9 COMPLIANCE WITH OTHER INSTRUMENTS. To the best of Parent's
knowledge, based on the representation of management of Subsidiary at
December 31, 1996, Subsidiary is not in violation of any term of its articles
of incorporation or bylaws, any mortgage, indenture, contract, agreement,
4
<PAGE>
instrument, judgment, decree, order or any statute, rule or regulation
applicable to it. The execution, delivery, and performance of and compliance
with this Agreement, and the issuance and sale of the Shares, will not result
in any violation of any term of the articles of incorporation or bylaws or
any mortgage, indenture, contract, agreement, instrument, judgment, decree or
order, or be in conflict with or constitute a default under any such term, or
result in the creation of any mortgage, pledge, lien, encumbrance, or charge
upon any of the properties or assets; and there is no term of the articles of
incorporation or bylaws of either Parent or Subsidiary or any mortgage,
indenture, contract, agreement, instrument, judgment, decree or order which
materially adversely affects, or, so far as may now reasonably be foreseen,
in the future may materially adversely affect, Subsidiary's business,
prospects, conditions, affairs, operations or any of its properties or assets.
3.10 LITIGATION, ETC. To the best of Parent's knowledge, there is
no action, suit, proceeding, or investigation currently pending against
Subsidiary.
3.11 TAXES. To the best of Parent's knowledge, Subsidiary has
paid, or has provided adequate reserves (in the good faith judgment of the
management) for the payment of all federal and state income taxes applicable
to the year ended December 31, 1996, its first year of operations, and for
the current fiscal year to the date hereof.
3.12 INSURANCE. Subsidiary has adequate insurance, with
financially sound and reputable insurers, with respect to its properties that
are of a character customarily insured by entities engaged in the same or a
similar business similarly situated, against loss or damage of the kinds
customarily insured against by such entities, which insurance is of such
types (including public liability insurance) as are customarily carried under
similar circumstances by such other entities.
3.13 OPERATING RIGHTS. Subsidiary has all operating authority,
licenses, franchises, permits, certificates, consents, rights and privileges
(collectively "Licenses") as are necessary or appropriate to the operation of
its business as now conducted and as proposed to be conducted. Such Licenses
are in full force and effect, no violations have been or are expected to have
been recorded in respect of any such Licenses, and no proceeding is pending
or threatened that could result in the revocation or limitation of any of
such Licenses. Subsidiary has conducted its business so as to comply in all
material respects with all such Licenses.
3.14 FULL DISCLOSURE. Neither this Agreement, the representations
and warranties by each contained herein, the exhibits hereto, nor any other
written statement or certificate delivered or to be furnished to Purchaser in
5
<PAGE>
connection herewith, when read together, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading. There is no fact
known which has not been disclosed to Purchaser that would materially
adversely affect its business or financial condition or its ability to
perform its obligations under this Agreement.
3.15 OFFICERS AND DIRECTORS. Set forth in the disclosure schedule
is a list of all officers and directors of Parent and Subsidiary, which list
is full, complete and correct.
3.16 VOTING AGREEMENTS. There exists no voting agreements or
voting trusts involving shares of stock of each or any shareholder of
Subsidiary.
3.17 BOOKS AND RECORDS. The minute book of the Subsidiary
contains accurate records of all meetings of and corporate actions or written
consents by the shareholders and boards of directors of the Subsidiary.
Subsidiary does not have any of its respective records, systems, controls,
data or information recorded, stored, maintained, operated or otherwise
wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Subsidiary.
3.18 BANK ACCOUNTS. Schedule 3.19 hereto sets forth a complete
list of each bank and its address in which the Subsidiary has accounts
(giving the account numbers) or safe deposit boxes or lock boxes, the names
of the persons currently authorized to draw thereon or to have access
thereto, and the current balances in such accounts.
3.19 POWERS OF ATTORNEY; GUARANTEES. There are no outstanding
powers of attorney executed on behalf of the Subsidiary. The Subsidiary is
not a guarantor or otherwise liable for any material indebtedness of any
other person or entity.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents and warrants as follows:
4.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. Purchaser is
a corporation duly organized, validly existing, and in good standing under
the laws of the State of California, and has full power and authority to own
and operate its properties and assets and to carry on its business as
presently conducted. Purchaser is duly qualified and authorized to do
business, and is in good standing
6
<PAGE>
as a foreign corporation, in each jurisdiction where the nature of its
activities and of its properties (both owned and leased) makes such
qualification necessary, except where the failure to so qualify would not
have a material adverse effect upon its business and operations. Purchaser
has provided Parent or its counsel with copies of its Articles of
Incorporation and Bylaws, as amended to the date hereof. Said copies are
true, correct, and complete and contain all amendments through the date of
the Closing.
4.2 LEGAL POWER. Purchaser has the requisite legal power to enter
into this Agreement, to purchase the Shares and to carry out and perform its
obligations under the terms of this Agreement.
4.3 AUTHORIZATION. All corporate action on the part of Purchaser
necessary for the authorization, execution and delivery of this Agreement and
the documents contemplated hereby and the performance of all of their
obligations hereunder and thereunder have been taken or will be taken prior
to the Closing. This Agreement and the documents contemplated hereby, when
executed and delivered, shall constitute valid and legally binding
obligations of Purchaser enforceable in accordance with its respective terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and subject to the availability of equitable remedies.
4.4 COMPLIANCE WITH OTHER INSTRUMENTS. Purchaser is not in
violation of any term of its articles of incorporation or bylaws, any
mortgage, indenture, contract, agreement, instrument, judgment, decree, order
or any statute, rule or regulation applicable to it. The execution, delivery,
and performance of and compliance with this Agreement, and the purchase of
the Shares, will not result in any violation of any term of the articles of
incorporation or bylaws or any mortgage, indenture, contract, agreement,
instrument, judgment, decree or order, or be in conflict with or constitute a
default under any such term, or result in the creation of any mortgage,
pledge, lien, encumbrance, or charge upon any of the properties or assets.
4.5 LITIGATION, ETC. There is no action, suit, proceeding, or
investigation currently pending against Purchaser which would prevent the
transactions from closing.
4.6 FULL DISCLOSURE. Neither this Agreement, the representations
and warranties by each contained herein, the exhibits hereto, nor any other
written statement or certificate delivered or to be furnished in connection
herewith, when read together, contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading. There is no fact known
which has not
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been disclosed to Parent that would materially adversely affect its business
or financial condition or its ability to perform its obligations under this
Agreement.
4.7 INVESTMENT REPRESENTATIONS.
(a) Purchaser is acquiring the Shares for its own account,
not as nominee or agent, for investment and not with a view to, or for resale
in connection with, any distribution or public offering thereof within the
meaning of the 1933 Act.
(b) Purchaser understands that (i) the Shares have not been
registered under the 1933 Act by reason of a specific exemption therefrom,
that they must be held by it indefinitely, and that it must, therefore, bear
the economic risk of such investment indefinitely, unless a subsequent
disposition thereof is registered under the 1933 Act or is exempt from such
registration; and (ii) each certificate representing the Shares will be
endorsed with legends to such effect.
(c) Purchaser acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge
and experience in financial or business matters and that it is capable of
evaluating the merits and risks of the investment in the Shares.
(d) Purchaser understands that the Shares it is purchasing
are characterized as "restricted securities" under the federal securities
laws inasmuch as they are being acquired from Parent in a transaction not
involving a public offering and that under such laws and applicable
regulations such securities may be resold without registration under the 1933
Act, only in certain limited circumstances, and it represents that it is
familiar with SEC Rule 144 and Rule 144A, as presently in effect, and
understands the resale limitations imposed thereby and by the 1933 Act.
(e) Purchaser was not formed for the specific purpose of
acquiring the Shares offered hereunder.
(f) Purchaser's principal business address is as set forth on
the signature page hereto.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The Closing, the
Purchaser's obligation to purchase the Shares from Parent and Parent's
obligation to sell such Shares as provided in this Agreement are conditioned
on and subject
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to satisfaction of each of the following conditions (which conditions are for
the benefit of and may be unilaterally waived by the Buyer):
(a) NO MISREPRESENTATION OR BREACH OF COVENANTS AND
REPRESENTATIONS AND WARRANTIES. There shall have been no breach by Parent or
the Subsidiary in the performance of any of their respective covenants,
representations and warranties, and agreements contained or referred to in
this Agreement, and each of the Parent and the Subsidiary shall have
performed all obligations required to be performed by them under this
Agreement prior to or at the Closing; each of the representations and
warranties of each of the Parent and the Subsidiary contained or referred to
in this Agreement shall be true and correct in all respects at the Closing as
though made at the Closing, except for changes therein specifically permitted
by this Agreement or resulting from any transaction expressly consented to in
writing by the Buyer or any transaction contemplated by this Agreement; and
there shall have been delivered to the Purchaser a certificate or
certificates to such effect, dated the date of the Closing, signed by the
Parent and the Subsidiary.
(b) AUTHORIZATIONS AND APPROVALS. All authorizations,
approvals, or permits of any governmental authority or regulatory body of the
United States or of any state specifically including, but not limited to, the
California Department of Insurance, that are required in connection with the
transactions contemplated by this Agreement shall have been duly obtained and
shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of the Shares shall have been issued and no proceedings
for such purpose shall be pending or threatened by the California
Commissioner of Insurance, the Securities and Exchange Commission, the
California Commissioner of Corporations, or any similar officer of any other
Federal or state agency having jurisdiction over this transaction.
(c) NO RESTRAINT OR LITIGATION. No order, decree or ruling of
any court shall have been entered, and no action, suit or proceeding before
any court or governmental or regulatory authority or body shall have been
instituted (or threatened if the Purchaser reasonably believes that such
threat will result in institution of an action, suit or proceeding) by any
person or by any governmental or regulatory authority or agency, to restrain,
prohibit, challenge or invalidate any of the transactions contemplated by
this Agreement or which might adversely affect the right of the Purchaser to
own the Shares, or which might adversely affect the right of the Subsidiary
to carry out its respective businesses after the date of the Closing.
(d) NECESSARY CONSENTS. The parties shall have received
consents, in form and substance satisfactory to counsel for the Purchaser, to
the
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transactions contemplated hereby by all appropriate third parties to all
contracts, leases, agreements and permits material to the operations of the
Subsidiary and the Assets to which the Subsidiary is a party or by which it
is affected and which requires such consent prior to the Closing.
(e) TRANSFER OF 100% OF THE OUTSTANDING STOCK OF NATIONS
TITLE OF ARIZONA, INC. TO SUBSIDIARY. Parent shall have caused the transfer
of all of the outstanding stock of Nations Title of Arizona to Subsidiary
prior to Closing.
(f) TRANSFER OF 100% OF THE OUTSTANDING COMMON STOCK OF
FIDELITY ASSET RECOVERY SERVICES, INC. Parent shall have caused the transfer
of all of the outstanding Common Stock of Fidelity Asset Recovery Services,
Inc. to subsidiary prior to Closing.
(g) LIENS. The Purchaser shall have received reports,
satisfactory to the Purchaser, from the Secretary of State of California
indicating that there are no liens of record as of a date not more than two
days before the Closing with respect to the Assets.
(h) EXECUTION OF DOCUMENTS. Purchaser shall have executed
all documents required by this Agreement to be executed by it.
(i) USE OF TITLE PLANT. Subsidiary shall have negotiated for
access to the title plants necessary to its business, the terms of which are
acceptable to all parties.
(j) CLOSING DELIVERIES. In addition to the other deliveries
referenced in this Article 5, on the date of the Closing, Parent and
Subsidiary shall deliver to the Purchaser:
(i) STOCK CERTIFICATES. Stock certificates representing
in the aggregate sixty percent (60%) of the outstanding shares of the
Subsidiary, together with duly executed and witnessed stock powers (in blank)
attached thereto.
(ii) BOOKS. The books, records, customer lists, files,
reports, surveys, studies, projections, budgets and strategic plans in
connection with the ownership, operation, development, maintenance and
management of the Assets and the businesses of the Subsidiary.
(iii) CERTIFICATE. A certificate from and executed by the
Parent dated the date of the Closing certifying that the conditions specified
in Sections 5.1(b), 5.1(e), and 5.1(f), hereof have been fulfilled.
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(iv) SECRETARY'S CERTIFICATE. A certificate dated the
date of the Closing and signed by the secretary of the Subsidiary setting
forth a copy of the resolutions adopted by the board of directors of the
Subsidiary authorizing the transactions contemplated in this Agreement.
(v) ADDITIONAL DOCUMENTS. Such other instruments and
documents which the Purchaser shall reasonably request in furtherance of the
purposes of this Agreement and executed by the Parent and/or the Subsidiary.
(k) FINANCING. Purchaser shall be able to obtain in its sole
discretion acceptable financing for the completion of this acquisition of the
Shares. In the event Purchaser does not obtain acceptable financing,
Purchaser shall be under no obligation to close.
(l) PERFORMANCE BY PARENT AND SUBSIDIARY. Parent and
Subsidiary shall have performed, satisfied and complied with all covenants,
agreements and conditions required by this Agreement to be performed and
complied with by them or any of them, on or before the Closing.
(m) UNDERWRITING AGREEMENT. Parent shall cause Subsidiary to
enter into underwriting agreements with Fidelity National Title Insurance
Company and Fidelity National Title Insurance Company of California or their
successors in interest including but not limited to Fidelity National Title
Insurance Company of New York for initial five (5) year terms with an option
to renew on the 5th anniversary of the effective date of the agreements, as
attached hereto as Exhibit "C".
All of the foregoing instruments shall be in form and substance
reasonably satisfactory to the Purchaser and its counsel.
5.2 CONDITIONS TO OBLIGATIONS OF PARENT AT THE CLOSING. Parent's
obligations hereunder are subject to the fulfillment, at or prior to the
Closing, of all of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by Purchaser in Section
4 hereof shall be true and correct at the date of the Closing, with the same
force and effect as if they had been made on and as of said date; and
Purchaser shall have performed all obligations herein required to be
performed by it at or prior to the Closing.
(b) AUTHORIZATIONS AND APPROVALS. All authorizations,
approvals, or permits of any governmental authority or regulatory body of the
United States or of any state specifically including, but not limited to, the
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California Department of Insurance, that are required in connection with the
transactions contemplated by this Agreement shall have been duly obtained and
shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of the Shares shall have been issued and no proceedings
for such purpose shall be pending or threatened by the California
Commissioner of Insurance, the Securities and Exchange Commission, the
California Commissioner of Corporations, or any similar officer of any other
Federal or state agency having jurisdiction over this transaction.
(c) NECESSARY CONSENTS. The parties shall have received
consents, in form and substance satisfactory to counsel for the Parent, to
the transactions contemplated hereby by all appropriate third parties to all
contracts, leases, agreements and permits material to the operations of the
Subsidiary and the Assets to which the Subsidiary is a party or by which it
is affected and which requires such consent prior to the Closing.
(d) EXECUTION OF DOCUMENTS. Purchaser shall have executed
all documents required by this Agreement to be executed by it.
(c) CERTIFICATE. The President and CEO of Subsidiary shall
have delivered to Purchaser a certificate in which they represent that all
the representations and warranties stated in Sections 3.7, 3.8, 3.9, 3.10,
3.11 and 3.15 are true and correct.
6. INDEMNIFICATION.
6.1 PARENT'S AND SUBSIDIARY'S INDEMNITY. Parent will make no
claim on Subsidiary for liquidated damages for Fidelity National Title
Insurance Company claims arising from policies written prior to January 1,
1997. Subsidiary will not be responsible for any escrow or policy files
associated with American Title Insurance Company.
6.2 PURCHASER'S INDEMNITY. Purchaser and Subsidiary (as
constituted after the Closing) shall indemnify, defend and hold Parent and
Subsidiary (as constituted prior to the Closing) harmless from and against
any and all liabilities, losses, damages, claims, causes of action, costs and
expenses (including, without limitation, reasonable attorneys' fees), arising
out of or relating to any breach of any representation, warranty or any other
material covenant, term or condition and for any actions brought against
Parent or Subsidiary after Closing which are due to the actions of Purchaser.
6.3 PROCEDURES. In the event any third party asserts any claim
with respect to any matter as to which the indemnities in this Agreement
relate, the
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party against whom the claim is asserted (the "Indemnified Party") shall give
prompt notice to the other party (the "Indemnifying Party"), and the
Indemnifying Party shall have the right at its election to take over the
defense or settlement of the third party claim at its own expense by giving
prompt notice to the Indemnified Party. If the Indemnifying Party does not
give such notice and does not proceed diligently so to defend the third party
claim within 30 days after receipt of the notice of the third party claim,
the Indemnifying Party shall be bound by any defense or settlement that the
Indemnified Party may make as to those claims and shall reimburse the
Indemnified Party for its losses and expenses related to the defense or
settlement of the third party claim. The parties shall cooperate in defending
against any asserted third party claims. For purposes of this Section 6, the
indemnification of the Indemnified Party shall also include the
indemnification of the Indemnified Party's employees, agents, affiliates, and
third parties performing services for the Indemnified Party, and the
reference to this Agreement includes any certificate, schedule, list, summary
or other information provided or delivered to a party by the Indemnifying
Party or its agents and affiliates in connection with this Agreement.
7. COVENANTS.
7.1 COVENANTS OF PARENT AND SUBSIDIARY. Parent and Subsidiary
covenant as more specifically set forth below to the following actions from
the date of execution of this Agreement until the Closing:
7.1.1 CORPORATE EXISTENCE AND FOREIGN QUALIFICATION. Parent
and Subsidiary will do and cause to be done all things necessary to (i)
preserve Subsidiary's corporate existence and for Subsidiary to remain in
good standing in the state of its incorporation, (ii) for Subsidiary to
become or remain qualified to do business and to remain in good standing in
each jurisdiction where the nature of its business makes such qualification
necessary.
7.1.2 DIVIDENDS. Parent will not cause and Subsidiary shall
not (i) declare, pay or make any dividends or other distribution, whether in
cash or in property, with respect to any class of its common stock or right
to acquire its common stock now or hereafter outstanding, (ii) issue any
warrants, options or other right to acquire any share of Subsidiary's common
stock now or hereafter authorized, (iii) purchase, acquire, redeem, retire,
or cancel any of Subsidiary's common stock now or hereafter outstanding, or
set aside any property or assets for such purpose.
7.1.3 MERGER. Parent will not cause and Subsidiary shall not
merge or consolidate with or agree to merge or consolidate with, nor purchase
or
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agree to purchase all or substantially all of the assets of, nor otherwise
acquire any corporation, partnership or other business organization or any
portion thereof.
7.1.4 ADDITIONAL STOCK. Parent will not cause and Subsidiary
shall not authorize for issuance, issue, sell or deliver any additional
shares of its capital stock of any class or issue or grant any option,
warrant or other right to purchase any shares of its capital stock of any
class.
7.1.5 RECAPITALIZATION. Parent will not cause and Subsidiary
shall not split, combine or reclassify any shares of its capital stock of any
class or redeem or otherwise acquire, directly or indirectly any shares of
its capital stock of any class.
7.1.6 ADDITIONAL DEBT. Parent will not cause and Subsidiary
shall not incur or become subject to, nor agree to incur or become subject
to, any debt, obligation or liability, contingent or otherwise, except
current liabilities and contractual obligations incurred in or arising in the
usual and ordinary course of business. In addition, Parent will not cause and
Subsidiary shall not guaranty or otherwise become liable with respect to the
obligations of any other person (other than endorsements in the ordinary
course of business of negotiable instruments for deposit or collection).
7.1.7 PAYMENT OF TAXES AND OTHER CHARGES. Parent shall pay
or cause to be paid or discharged, all before the same become delinquent and
prior to December 31, 1996, (i) all taxes, assessments and governmental
charges levied or assessed against Subsidiary on its gross receipts, income,
profits, assets and properties and (ii) all lawful claims against Subsidiary
for labor, materials, supplies, goods and services; provided, however, that
Purchaser shall be required to pay, perform or discharge any sales tax
directly related to the transfer of the Shares to Purchaser as contemplated
herein which does not result, directly or indirectly, from the breach of any
representation, warranty or covenant of Parent or Subsidiary set forth herein.
7.1.8 FINANCIAL STATEMENTS RECORDS. Parent will not cause
and Subsidiary will not make any material change in the methods of accounting
or accounting practices applied in connection with the Financial Statements
or any of the accounting records of Subsidiary.
8. MISCELLANEOUS.
8.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
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among California residents, made and to be performed entirely within the
State of California.
8.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any party and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered
by or on behalf of Parent and Subsidiary pursuant hereto or in connection
with the transactions contemplated hereby shall be deemed to be
representations and warranties by them hereunder as of the date of such
certificate or instrument.
8.3 HOME OFFICE RIGHTS. Parent agrees to grant home office rights
to subsidiary in connection with customer multiple state transactions. Parent
will insure that an underwriter of parent will underwrite such transaction on
a case by case basis with prior approval of underwriting counsel at Parent's
corporate offices. Subsidiary will prepare all documentation on said home
office transactions and Subsidiary will receive the fees generated by the
transaction.
8.4 STARTER EXCHANGE PROGRAM. Parent agrees to cause its
underwriting subsidiaries to provide starters to Subsidiary upon request for
$5 per starter requested.
8.5 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators
of the parties hereto.
8.6 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto, and
the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement among the parties with regard to the subjects
hereof and no party shall be liable or bound to any other party in any manner
by any representations, warranties, covenants, or agreements except as
specifically set forth herein or therein. Purchaser did a thorough
investigation and was familiar with the company and obtained all information
considered necessary to close, including but not limited to a complete
financial review of the Company. Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties hereto
and their respective successors and assigns, any rights, remedies,
obligations, or liabilities under or by reason of this agreement, except as
expressly provided herein.
8.7 SEVERABILITY. In case any provision of this Agreement shall
be invalid, illegal, or unenforceable, it shall, to the extent practicable,
be modified so as to make it valid, legal and enforceable and to retain as
nearly as practicable the
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intent of the parties, and the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
8.8 AMENDMENT AND WAIVER. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of the parties hereto.
8.9 NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed effectively
given upon personal delivery or on the third day following mailing by
registered or certified mail, return receipt requested, postage prepaid,
addressed: (a) if to Purchaser, at its address as set forth under such
Purchaser's signature at the end of this Agreement, or at such other address
as such Purchaser shall have furnished to the Subsidiary in writing or (b) if
to Parent and Subsidiary, at their addresses as set forth at the end of this
Agreement, or at such other addresses as they shall have furnished to
Purchaser in writing.
8.10 FINDERS' FEES. Each party hereto represents and warrants
that it has retained no finder or broker in connection with the transactions
contemplated by this Agreement and hereby agrees to indemnify and to hold
harmless the other party from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses, including reasonable attorneys' fees, of
defending against such liability or asserted liability) for which such other
party or any of its employees or representatives is responsible.
8.11 FEES AND EXPENSES. Each party shall be responsible for such
party's outside legal and accounting fees and other expenses incurred by such
party in connection with this transaction.
8.12 HEADINGS. The headings of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
8.13 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
8.14 ASSIGNMENT. No party to this Agreement may assign all or any
part of its interest in this Agreement except Purchaser may assign its rights
under this Agreement to a commonly held entity for tax purposes, in which
event this Agreement shall still be binding on all parties and any successors
or assigns.
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8.16 ATTORNEY'S FEE CLAUSE. If either party to this Agreement
shall bring any action, suit, counterclaim, appeal, arbitration, or mediation
for any relief against the other, declaratory or otherwise, to enforce the
terms hereof or to declare rights hereunder (collectively, an "Action"), the
losing party shall pay to the prevailing party a reasonable sum for
attorneys' fees and costs (at the prevailing party's attorneys'
then-prevailing rates as increased from time to time by the giving of advance
written notice by such counsel to such party) incurred in bringing and
prosecuting such Action and/or enforcing any judgment, order, ruling, or
award (collectively, a "Decision") granted therein, all of which shall be
deemed to have accrued on the commencement of such Action and shall be paid
whether or not such Action is prosecuted to a Decision. Any Decision entered
in such Action shall contain a specific provision providing for the recovery
of attorneys' fees and costs incurred in enforcing such Decision. The court
or arbitrator may fix the amount of reasonable attorneys' fees and costs on
the request of either party. For the purposes of this paragraph, attorneys'
fees shall include, without limitation, fees incurred in the following: (1)
postjudgment motions and collection actions; (2) contempt proceedings; (3)
garnishment, levy, and debtor and third party examination; (4) discovery; and
(5) bankruptcy litigation. "Prevailing party" within the meaning of this
paragraph includes, without limitation, a party who agrees to dismiss an
Action on the other party's payment of the sums allegedly due or performance
of the covenants allegedly breached, or who obtains substantially the relief
sought by it.
8.17 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement and have had competent counsel of
their own choosing. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires.
The word "including" shall mean including without limitation.
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IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of
the date first above written.
ADDRESS: ATC HOLDINGS, INC.,
a California Corporation
By: /s/ Michael Lowther
--------------------------------
Its: C.E.O
--------------------------------
ADDRESS: FIDELITY NATIONAL FINANCIAL, INC.,
a Delaware Corporation
17911 Von Karman Avenue
Irvine, CA 92614
By: /s/ Carl A. Strunk
--------------------------------
Its: Exec. V.P.
--------------------------------
ADDRESS: AMERICAN TITLE COMPANY,
a California Corporation
17911 Von Karman Avenue
Irvine, CA 92614
By: /s/ Wayne Diaz
--------------------------------
Its: President
--------------------------------
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BUSINESS CONSULTANT AGREEMENT
THIS BUSINESS CONSULTANT AGREEMENT (the "Agreement) is made as of
the 1st day of January, 1997, by and among ATC Holdings, Inc., a California
corporation, and/or its assigns which shall be limited to a commonly held
entity for tax purposes (hereinafter referred to as "Consultant"), Fidelity
National Financial, Inc., a Delaware corporation ("FNFI") and American Title
Company, a California corporation ("ATC").
R E C I T A L S :
A. FNFI owns and operates, either directly or indirectly title
insurance and escrow businesses, including ATC, an underwritten title company.
B. Consultant is experienced in operating and managing title
insurance and escrow service offices in the title insurance industry.
C. FNFI desires to engage the services of Consultant to perform
certain consulting functions in connection with the operation and management
of ATC arid to also consult with the Board of Directors and officers of FNFI
and ATC concerning problems which may arise in the operation of ATC and to
authorize Consultant to take certain actions with respect to ATC in
accordance with the terms and conditions of this Agreement.
D. Consultant desires to provide such services to FNFI on the
terms and conditions set forth herein.
NOW, THEREFORE, for and in consideration of the mutual covenants
and agreements set forth herein and other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto, intending to
be legally bound, covenant and agree as follows:
1. TERM. The term of this Agreement shall be for a period
commencing on the date hereof and continuing through the date Consultant or
its nominee obtains required approvals from the Department of Insurance
("DOI") and financing for the purchase of sixty percent (60%) of the
outstanding stock of ATC from FNFI.
2. CONSULTATION. The Consultant shall make itself available to
consult with the Board of Directors and the officers of FNFI and the Board of
Directors and the officers of ATC, at reasonable times, and to implement or
assist in implementing actions as provided in this Agreement concerning
matters pertaining to litigation and claims handling, the administration and
operation of ATC, the personnel and fiscal affairs of ATC and, in general,
any problem of importance with regard to the business affairs or operations
of ATC. Without limiting the generality of the foregoing, the parties hereto
agree that the Consultant will consult with ATC and, where appropriate, take
action
Exhibit "A"
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<PAGE>
as provided in this Agreement, in implementing the actions deemed desirable
by Consultant and FNFI as provided in Section 3 hereof, and considering the
actions described in Section 7 hereof.
3. SCOPE OF CONSULTATION. The business operations of ATC which
affect, directly or indirectly, the operation of ATC and which arise in the
ordinary course of business, shall be conducted by the officers and
administration of ATC. The Consultant shall (i) advise the administrative
staff of ATC and, in connection therewith, Consultant is hereby authorized
and ATC agrees to take such actions necessary or appropriate in order to
implement the plans and recommendations agreed to by Consultant, ATC and
FNFI, (ii) analyze the operations of ATC, including personnel and facility
needs, the appropriate positioning of employees, and other material items of
revenue or expenditures, and to make recommendations with respect thereto,
(iii) analyze the policies and procedures utilized by ATC for the operations,
and to make recommendations with respect thereto, and (iv) analyze any other
aspect of the business affairs of ATC for which Consultant may believe that
either expenditures can be reduced, revenues increased or efficiencies
attained, and to make recommendations with respect thereto. Any
recommendation by Consultant shall be reviewed and considered by a committee
(the "Committee") of four persons, two of which Consultant shall appoint or
replace and two of which FNFI shall appoint or replace. The Committee, by
majority vote, shall then either approve or disapprove of such
recommendation. If the Committee approves of such recommendation, the
following shall occur:
(a) If the recommendation requires, under applicable State
law, the approval of the Board of Directors of ATC, such recommendation shall
be promptly submitted for approval, which approval will not be unreasonably
denied. If the Corporation does not disapprove of such recommendation in
writing and communicates such disapproval to the Committee members within
five (5) business days of when the Committee submitted such recommendation to
the Board of Directors, such recommendation shall be deemed approved.
(b) If the recommendation does not so require such Board of
Director approval, such recommendation shall be deemed approved upon the
adoption by the Committee.
With respect to all recommendations or actions approved, the
Consultant, working with the administrative staff and officers of ATC, shall
proceed to implement such recommendation or action and is hereby specifically
authorized to so do; provided, however, that, to the extent that any such
recommendation or action may require an expenditure which must be formally
approved by the Board of Directors of FNFI, ATC shall (and FNFI shall cause
the officers and administrative staff of ATC to) take such actions as may be
reasonably necessary or appropriate in order to implement the actions
recommended by Consultant and approved as provided above. Notwithstanding the
above, ATC shall not be obligated to take any action with respect to the
termination of agents or employees unless such action is in compliance with
any agreement with such agents or employees, applicable policies of FNFI or
ATC, as the case may be, then in effect, applicable law and the Worker
Adjustment and Retraining Notification Act of 1988, as amended (the "WARN
Act").
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4. MINIMUM AMOUNT OF SERVICE. In the sole discretion of
Consultant, the Consultant shall devote such time, if any, as reasonably
necessary to perform its duties under this Agreement and in particular shall
cause its employees and agents to devote such portion of their time, if any,
to the rendering of services hereunder as Consultant determines appropriate,
recognizing that the officers and directors already serve in capacities as
management of ATC and will continue to perform these duties. The additional
services shall include but not be limited to long range planning. The
Consultant may represent, perform services for, and be employed by any
additional clients, persons, or companies so long as it does not conflict
with the performance of services under this Agreement.
5. COMPENSATION. The Consultant shall receive from ATC a monthly
fee for the performance of the services to be rendered by Consultant of
$1,000 per month. Any partial months shall be prorated.
6. AUTHORITY TO CONTRACT. From time to time, the Consultant may
deem it advisable to recommend to FNFI that either it or ATC enter into
agreements for the purpose of enhancing or improving the operations of ATC.
With regard to any such agreements as may be approved as provided in Section
3 above, the Consultant shall be the exclusive agent of ATC for the purpose
of negotiating the terms and conditions of agreements. The Consultant shall
not, however, bind FNFI or its subsidiaries (other than ATC or its
subsidiaries) to such agreements without first obtaining the approval of the
terms and conditions of such agreements from the Board of Directors of FNFI
or its subsidiaries, as applicable, as provided in Section 3 above.
7. ADDITIONAL ACTIONS: CLAIMS NOTIFICATION.
(a) The Consultant agrees that, except as otherwise provided
in Section 3 above, actions may not be taken without the advance approval of
the Committee regarding changes, amendments, modifications or adjustments to
financial accounting or reporting systems, policies, and procedures.
(b) Any request by Consultant for approval under this Section
7, shall be submitted to FNFI in writing and shall be deemed approved unless
rejected in writing (which writing shall specify the reasons for such
rejection) within seven (7) business days from when such request for approval
is submitted to FNFI in writing.
8. TERMINATION.
(a) Upon the occurrence of any one of the following events,
FNFI and ATC shall be entitled to terminate this Agreement immediately upon
written notice to the Consultant:
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(i) The filing of any petition by the Consultant in any
court, whether or not pursuant to any statute of the United States or of
any state, initiating bankruptcy, arrangement, or insolvency proceedings;
(ii) The filing of any petition against the Consultant in
any court, whether or not pursuant to any statute of the United States
or of any state, initiating bankruptcy, arrangement, or insolvency
proceedings which petition is not dismissed within sixty (60) days of
the filing thereof;
(iii) The appointment of a receiver or trustee for all or
any portion of the Consultant's business or assets;
(iv) Any assignment by the Consultant for the benefit of
creditors;
(v) The attachment, execution, or other judicial seizure
of a material portion of the Consultant's asset, which attachment,
execution, or judicial seizure is not removed or released within one
hundred twenty (120) days;
(vi) The material failure by the Consultant to perform any
of the Consultant's covenants or obligations set forth in this
Agreement, and such material failure continues for twenty (20) days
after written notice thereof by FNFI;
(vii) Termination of any stock purchase agreement("SPA")
which is executed between FNFI and Consultant, pursuant to the terms
thereof; or
(viii) Notification from any regulatory agency, whose
approval of this Agreement is required, that such approval is denied.
(b) Upon the occurrence of any of the following events,
Consultant shall be entitled to terminate this Agreement immediately upon
written notice to FNFI:
(i) If any of the events set forth in clauses (i) through
(v) above occurs with respect to FNFI or ATC;
(ii) The material failure by FNFI or ATC to perform any of
FNFI's or ATC's covenants or obligations set forth in this Agreement for
ATC and such material failure continues for twenty (20) days after
written notice thereof by the Consultant;
(iii) Termination of the SPA pursuant to the terms thereof;
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<PAGE>
(iv) Notification from any regulatory agency, whose
approval of the SPA is required, that such approval is denied; or
(v) failure of Consultant to obtain required financing to
the purchase of 60% of the outstanding stock of ATC.
(c) In the event of the termination of this Agreement for any
reason by either party including but not limited to (a) and (b) above, no
employee of ATC will lose their employment due to the termination.
9. REMEDIES. In addition to any remedies provided herein, FNFI, ATC
and Consultant shall have all other remedies permitted in law or in equity under
the laws of the State of California and the laws of the United States for any
breach by the other party of the terms and conditions hereof.
10. LIMITED LIABILITY: INDEMNIFICATION.
(a) Notwithstanding any provision hereof to the contrary, the
Consultant shall have no liability to FNFI or ATC for any act or failure to
act by or on behalf of the Consultant in connection with provision of
services by the Consultant under this Agreement, unless such act or failure
to act constitutes (i) gross negligence, (ii) recklessness, or (iii)
intentional misconduct or bad faith.
(b) FNFI and ATC hereby jointly and severally agree to
indemnify, hold harmless and provide a defense to the Consultant against all
claims, costs, demands, damages, losses, expenses or liabilities to or as a
result of claims asserted by persons or entities not a party to this
Agreement, or an affiliate of Consultant, resulting from or arising out of
the provision by the Consultant of services hereunder; provided that FNFI
shall not indemnify the Consultant against any such claim, cost, damage,
expense or liability arising out of or resulting from any act of failure to
act by or on behalf of the Consultant enumerated in clauses (i) through (iv)
of subsection (a) above.
(c) Consultant hereby agrees to indemnify, hold harmless and
provide a defense to ATC against all claims, costs, demands, damages, losses,
expenses or liabilities to or as a result of claims asserted by persons or
entitles not a party to this Agreement, or an affiliate of ATC, resulting
from or arising out of any act or failure to act which constitutes (i) gross
negligence, (ii) recklessness, or (iii) intentional misconduct or bad faith.
11. ASSIGNMENT. No party to this Agreement may assign all or any
part of its interest in this Agreement without the prior express written
consent of the other party, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, it is understood and agreed that ATC Holdings
can assign its rights to a commonly held entity for tax purposes, in which
event this Agreement shall still be binding on all parties and any such
successor or assign.
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<PAGE>
12. INVALIDITY. Wherever possible, each provision of this Agreement
shall be interpreted in such a manner as to be valid under applicable law,
but if any provision of this Agreement shall be invalid or prohibited
hereunder, such provision shall be ineffective to the extent of such
prohibition or invalidation, but shall not invalidate the remainder of such
provision or the remaining provisions of this Agreement.
13. NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two (2) business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to Consultant: ATC Holdings, Inc.
17911 Von Karman Avenue
Suite 500
Irvine, CA 92614
with a copy to: George Wall
Palmieri, Tyler, Wiener, Wilhelm & Waldron
2603 Main Street
Suite 1300
Irvine, CA 92714
If FNFI: Fidelity National Financial, Inc.
17911 Von Karman Avenue
Suite 300
Irvine, CA 92614
Fax: (714) 622-4131
Attention: Andrew F. Puzder, Executive Vice
President and General Counsel
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other parties notice in the manner herein set forth.
14. ARBITRATION. Except as otherwise provided in this Agreement,
any controversy or claim arising out of or relating to this Agreement or the
breach thereof shall be settled by arbitration in Orange County, California.
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(a) JUDICIAL ARBITRATION AND MEDIATION SERVICES. The
arbitration shall be administered by Judicial Arbitration and Mediation
Service ("JAMS") in its Orange County office.
(b) ARBITRATOR. The arbitrator shall be a retired superior
court judge of the State of California affiliated with JAMS.
(c) PROVISIONAL REMEDIES. Each of the parties reserves the
right to file with a court of competent jurisdiction an application for
temporary or preliminary injunctive relief, writ of attachment, writ of
possession, temporary protective order and/or appointment of a receiver on
the grounds that the arbitration award to which the applicant may be entitled
may be rendered ineffectual in the absence of such relief.
(d) ENFORCEMENT OF JUDGMENT. Judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof.
(e) DISCOVERY. The parties may obtain discovery in aid of the
arbitration to the fullest extent permitted under law, including California
Code of Civil Procedure Section 1283.05. All discovery disputes shall be
resolved by the arbitrator.
(f) CONSOLIDATION. Any arbitration hereunder may be
consolidated by JAMS with the arbitration of any other dispute arising out of
or relating to the same subject matter when the arbitrator determines that
there is a common issue of law or fact creating the possibility of
conflicting rulings by more than one arbitrator. Any disputes over which
arbitrator shall hear any consolidated matter shall be resolved by JAMS.
(g) POWER AND AUTHORITY OF ARBITRATOR. The arbitrator shall
not have any power to alter, amend, modify or change any of the terms of this
Agreement nor to grant any remedy which is either prohibited by the terms of
this Agreement, or not available in a court of law.
(h) GOVERNING LAW. All questions in respect of procedure to be
followed in conducting the arbitration as well as the enforceability of this
Agreement to arbitrate which may be resolved by state law shall be resolved
according to the law of the State of California. Any action brought to
enforce the provisions of this Section shall be brought in the Orange County
Superior Court. All other questions in respect to this Agreement, including
but not limited to the interpretation, enforcement of this Agreement (other
than the right to arbitrate), and the rights, duties and liabilities of the
parties to this Agreement shall be governed by California law.
(i) COSTS. The costs of the arbitration, including any JAMS
administration fee, the arbitrator's fee, and costs of the use of facilities
during the hearings, shall be borne equally by the parties. Costs and
attorneys' fees may be awarded to the prevailing party at the discretion of
the arbitrator.
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15. ATTORNEYS' FEES. In the event of any dispute arising under this
Agreement, other than as addressed in Section 14, the prevailing party shall be
entitled to attorneys' fees.
16. ENTIRE AGREEMENT. This Agreement contains the entire agreement
of the parties hereto with respect to the matters set forth herein and
supersedes all prior arrangements and understandings between the parties, and
no other agreement, statement, or promise made by either party hereto which
is not contained herein shall be binding or valid.
17. AMENDMENT. This Agreement may only be amended by written
document signed by each of the parties hereto.
18. COUNTERPARTS. This Agreement shall be executed simultaneously
or in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
19. GOVERNING LAW. This Agreement shall be construed and
interpreted under, and governed and enforced according to, the domestic
internal law (but not the law of conflicts of law) of the State of California.
20. HEADINGS. The headings or captions of sections in this
Agreement are for convenience and reference only and in no way define, limit,
or describe the scope or intent of this Agreement or the provisions of such
sections.
21. JOINT DOCUMENT. The parties hereto were all represented by
legal counsel in connection with this Agreement and all participated in the
drafting thereof. Accordingly, this Agreement is deemed to have been jointly
drafted by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
FIDELITY NATIONAL FINANCIAL INC.
a Delaware corporation
By: /s/ [Illegible]
--------------------------------
[insert name]
Its: [insert title]
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<PAGE>
ATC HOLDINGS, INC.
a California corporation
By: /s/ Michael Lowther
--------------------------------
Michael Lowther
Its: President
/s/ Wayne Diaz
--------------------------------
Wayne Diaz
Vice President, Secretary
AMERICAN TITLE COMPANY
a California corporation
By: /s/ M'Liss Jones Kane
--------------------------------
[insert name]
Its: [insert title]
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<PAGE>
AMENDMENT TO STOCK PURCHASE AGREEMENT
This AMENDMENT TO STOCK PURCHASE AGREEMENT ("Amendment") is made this
26th day of August, 1998 by and among AMERICAN NATIONAL FINANCIAL, INC.
(formerly ATC Holdings, Inc.) ("Purchaser"), FIDELITY NATIONAL FINANCIAL,
INC. ("Parent") and AMERICAN TITLE COMPANY ("Subsidiary"), as follows:
1. The parties agree that effective on the closing of the initial
public offering of securities by Purchaser, the Stock Purchase Agreement
dated as of January 1, 1997 among Purchaser, Parent and Subsidiary (the
"Stock Purchase Agreement") is amended by terminating all of the provisions
of Section 1.3 thereof.
2. Except as set forth above, the remaining provisions of the Stock
Purchase Agreement shall be unaffected by this Amendment.
IN WITNESS WHEREOF, the undersigned have executed this Amendment,
effective as of the date first set forth above.
AMERICAN NATIONAL FINANCIAL, INC.
By: /s/ Michael Lowther
--------------------------------
FIDELITY NATIONAL FINANCIAL, INC.
By: /s/ Carl Strunk
--------------------------------
AMERICAN TITLE COMPANY
By: /s/ Wayne Diaz
--------------------------------
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of this 31st day of December, 1996, by and among AMERICAN TITLE COMPANY, a
California corporation ("Purchaser"), FIDELITY NATIONAL ASSET RECOVERY
SERVICES, INC., a Kansas corporation ("Company"), and NATIONS TITLE, INC., a
Kansas corporation ("Shareholder") with reference to the following facts and
circumstances:
RECITALS
A. The Shareholder is the record and beneficial owner of all the
issued and outstanding shares of common stock of the Company (the "Company
Stock").
B. The Shareholder desires to sell, and Purchaser wishes to purchase,
all of the issued and outstanding Company Stock upon the terms and subject to
the conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
I. PURCHASE AND SALE OF COMPANY STOCK
1.1. PURCHASE AND SALE. Subject to the terms and conditions set forth
in this Agreement, on the Closing Date (as defined below), Shareholder will
sell, transfer and convey One Hundred Thousand (100,000) shares of the
Company Stock, which amount constitutes all of the issued and outstanding
shares of the Company Stock, to Purchaser, and Purchaser will acquire the
Company Stock from Shareholder.
1.2. PURCHASE PRICE. In consideration of the sale and transfer of the
Company Stock by Shareholder, Purchaser shall, in full payment therefor, pay
to Shareholder the amount of Ten Thousand Dollars ($10,000) (the "Purchase
Price").
1.3. PAYMENT OF PURCHASE PRICE. Provided that all of the conditions to
the Closing set forth in Article V below have been satisfied or waived by the
party benefiting therefrom, Purchaser shall pay to Shareholder at the Closing
the Purchase Price by delivery of a cashier's or certified bank check at
Closing.
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II. CLOSING
2.1. CLOSING. The closing of the purchase and sale of the Company Stock
and the consummation of the other transactions contemplated by this Agreement
(the "Closing") shall take place at 10:00 a.m., local time, on December 31,
1996, at the offices of the Shareholder, 17911 Von Karman Avenue, Suite 500,
Irvine, California 92614, or at such other date, time and place as the
parties hereto may mutually agree upon in writing (the "Closing Date").
2.2. SHAREHOLDERS' DELIVERIES AT CLOSING. Provided that all of the
conditions to the Closing set forth in Article V below have been satisfied or
waived by the party benefiting therefrom, Shareholder shall execute and
deliver or cause to be delivered to Purchaser at the Closing the following
documents:
(a) Certificates representing the Company Stock being sold, duly
endorsed for transfer, or accompanied by duly executed stock powers,
transferring to Purchaser good and marketable title to the Company
Stock, free and clear of all liens and encumbrances.
(b) The Company's original minute book, such minute book to
contain (i) original Articles of Incorporation and all amendments
thereto, or copies thereof if the originals are unavailable, (ii) the
Company's Bylaws presently in effect, (iii) the Company's stock transfer
records together with all available cancelled stock certificates, and
(iv) all minutes of meetings or consents in lieu of such meetings of the
Company's Board of Directors and shareholders.
(c) Such other documents and agreements as may be either
reasonable or necessary to carry out the purpose and intention of this
Agreement.
2.3. PURCHASER'S DELIVERIES AT CLOSING. Provided that all of the
conditions to the Closing set forth in Article V below have been satisfied or
waived by the party benefiting therefrom, Purchaser shall execute and deliver
or cause to be delivered to Shareholder at the Closing the following
documents:
(a) A certified or bank cashier's check payable to Shareholder
(or, at Purchaser's option, wire transfer funds to an account designated
in writing by the Shareholder) in the amount of the Purchase Price.
(b) Such other documents and agreements as may be either
reasonable or necessary to carry out the purpose and intention of this
Agreement.
III. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER AND THE COMPANY
The Company and the Shareholder, jointly and severally, hereby represent
and warrant to Purchaser as follows:
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3.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Arizona, has full power and authority to own its
properties and to carry on its business as presently conducted. The Company
is duly qualified to transact intrastate business and is in good standing in
all jurisdictions in which the nature of its business or its properties makes
such qualification necessary. The Company has furnished Purchaser with copies
of its Articles of Incorporation and Bylaws, as amended to the date hereof.
Said copies are true, correct and complete and contain all amendments through
the date of the Closing.
3.2 AUTHORIZATION. All corporate action on the part of Company, its
officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement and the documents contemplated
hereby and the performance of all of the Company's and Shareholder's
obligations hereunder and thereunder and for the authorization, issuance,
sale and delivery of the Company Stock have been taken or will be taken prior
to the Closing. This Agreement and the documents contemplated hereby, when
executed and delivered, shall constitute valid and legally binding
obligations of the Company enforceable in accordance with their respective
terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and subject to the availability of
equitable remedies.
3.3 VALIDITY OF COMPANY STOCK. The sale of each of the shares of the
Company Stock is not, and will not be, subject to any preemptive rights or
rights of first refusal and, when issued, sold and delivered in compliance
with the provisions of this Agreement, the Company Stock will be validly
issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Company Stock may be subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein or as otherwise required by such laws at the time a transfer is
proposed.
3.4 CAPITALIZATION. The authorized capital stock of the Company
consists solely of One hundred Thousand (100,000) shares of Class A common
stock no par value, of which 100,000 shares are issued and outstanding. Upon
the consummation of the transactions contemplated by this Agreement, the
Shareholder shall have transferred and conveyed one hundred percent (100%) of
the issued and outstanding shares of Company Stock to Purchaser. All of the
issued and outstanding shares of the Company Stock are duly authorized and
validly issued, fully paid and nonassessable. There are no outstanding rights
of first refusal, preemptive rights or other rights, options, warrants,
conversion rights, or other agreements either directly or indirectly for the
purchase or acquisition of any shares of the Company Stock. All of the
outstanding shares of the Company Stock have been duly and validly issued in
compliance with all applicable federal and state securities laws.
3.5 FINANCIAL STATEMENTS. The balance sheet as of December 31, 1996,
together with statements of income and cash flow for the year ending December
31, 1996, heretofore delivered to Purchaser, are complete and correct in all
material respects, and
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present fairly the financial condition of the Company and the results of its
operation as of the dates and for the periods referred to and have been
prepared in accordance with generally accepted accounting principles
consistently applied.
3.6 MATERIAL CONTRACTS AND AGREEMENTS. Except as set forth on SCHEDULE
3.6, the Company has no contract, agreement, lease or other commitment,
written or oral, absolute or contingent. All material contracts, agreements
and instruments to which the Company is a party are valid and binding and in
full force and effect in all material respects, and the Company is not in,
and to the best of its knowledge, no other party thereto is in material
breach thereof.
3.7 TITLE TO PROPERTIES AND ASSETS. Except as set forth on SCHEDULE
3.7, the Company has good and marketable title to its properties and assets,
and good title to all its leasehold estates, in each case subject to no
mortgage, pledge, lien, lease, encumbrance, or charge, other than (a) liens
resulting from taxes which have not yet become delinquent, or (b) minor
liens, encumbrances, or defects of title which do not, individually or in the
aggregate, materially detract from the value of the property subject thereto
or materially impair their operations.
3.8 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
of any term of its Articles of Incorporation or Bylaws, any mortgage,
indenture, contract, agreement, instrument, judgment, decree, order or any
statute, rule or regulation applicable to it. The execution, delivery, and
performance of and compliance with this Agreement, and the issuance and sale
of the Company Stock pursuant hereto, will not result in any violation of any
term of the Articles of Incorporation or Bylaws of either or any mortgage,
indenture, contract, agreement, instrument, judgment, decree or order, or be
in conflict with or constitute a default under any such term, or result in
the creation of any mortgage, pledge, lien, encumbrance, or charge upon any
of the properties or assets of the Company; and there is no term of the
Articles of Incorporation or Bylaws of the Company or any mortgage,
indenture, contract, agreement, instrument, judgment, decree or order which
materially adversely affects, or, so far as the Company may now reasonably
foresee, in the future may materially adversely affect, its business,
prospects, conditions, affairs, operations or any of its properties or assets.
3.9 LITIGATION. There are no actions, proceedings, or investigations
before any court or administrative agency pending or currently threatened
against or with respect to the Company (or any basis therefor known to the
Company or the Shareholder), which question the validity of this Agreement or
any action taken or to be taken in connection herewith, or which, the Company
individually or in the aggregate, might result in a material adverse change
in the business, prospects, conditions, affairs, or operations of the Company
or in any of its properties or assets, or in any material impairment of the
right or ability of each to carry on its business as now conducted or as
proposed to be conducted, or in any material liability on the part of the
Company. The Company is not a party or subject to, and none of its assets are
bound by, the provisions of any order,
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writ, injunction, judgment, or decree of any court or governmental agency or
instrumentality.
3.10 TAXES. The Company has no material liability for any federal,
state or local taxes, except for taxes which have accrued and are not yet
payable. The Company has filed all tax returns required to be filed by it and
has paid all income taxes payable by it which have become due pursuant to
such tax returns and all other taxes and assessments payable by it which have
become due, other than those not yet delinquent and except for those
contested in good faith and for which adequate reserves have been
established. The Company has paid, or has provided adequate reserves (in the
good faith judgment of the management of the Company) for the payment of, all
federal and state income or premium taxes applicable for all prior fiscal
years and for the current fiscal year to the date hereof.
3.11 EMPLOYEES. No employee of the Company is obligated under any
contract (including licenses, covenants, or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any Court or
administrative agency that would conflict with such employee's obligation to
use his or her best effort to promote the interests of the Company or that
would conflict with its business as conducted or as proposed to be conducted.
No employee of the Company is in violation of any term of any employment
contract, or any other contract or agreement relating to the relationship of
any such employee with it or any previous employer. The Company has no
collective bargaining agreements with any of its employees and, to the best
knowledge of the Company and the Shareholder, there is no labor union
organizing activity pending or threatened with respect to the Company.
3.12 GOVERNMENTAL CONSENTS. All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations,
declarations or filings with, any governmental authority, required on the
part of Company and/or Shareholder in connection with the valid execution and
delivery of this Agreement and the offer, sale or issuance of the Company
Stock, or the consummation of any other transaction contemplated hereby have
been obtained, or will be effective at the Closing, except for notices
required or permitted to be filed with certain state and federal securities
commissions after the Closing, which notices will be filed on a timely basis.
3.13 OPERATING RIGHTS. The Company has all operating authority,
licenses, franchises, permits, certificates, consents, rights and privileges
(collectively, "Licenses") as are necessary or appropriate to the operation
of its business as now conducted and as proposed to be conducted. Such
Licenses are in full force and effect, no violations have been or are
expected to have been recorded in respect of any such Licenses, and no
proceeding is pending or threatened that could result in the revocation or
limitation of any such Licenses. The Company has conducted its business so as
to comply in all material respects with all such Licenses.
3.14 FULL DISCLOSURE. Neither this Agreement, the representations and
warranties by the Company contained herein, the exhibits or schedules hereto,
nor any other written
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statement or certificate delivered or to be furnished to Purchaser in
connection herewith, when read together, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading. There is no fact
known to the Company which has not been disclosed to Purchaser that would
materially adversely affect the Company's business or financial condition or
its ability to perform its obligations under this Agreement.
IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company and Shareholder
as follows:
4.1 ORGANIZATION AND GOOD STANDING. Purchaser has been duly organized
and is existing as a corporation in good standing under the laws of the State
of California with full corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby.
4.2 DUE EXECUTION. This Agreement has been duly authorized, executed
and delivered by it and, upon due execution and delivery by Purchaser, this
Agreement and the agreements contemplated hereby will be valid and binding
agreements of Purchaser, enforceable in accordance with their respective
terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and subject to the availability of
equitable remedies.
4.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby will not conflict with or result in the violation of the
provisions of the Articles of Incorporation or Bylaws of Purchaser.
4.4 INVESTMENT INTENT. Purchaser is acquiring the Company Stock for
investment purposes only, for its own account and not as a nominee or agent
for any other person, and not with a view to or for resale in connection with
any distribution thereof within the meaning of the Securities Act of 1933.
V. CONDITIONS TO CLOSING
5.1. CONDITIONS TO OBLIGATIONS OF PURCHASER AT CLOSING. Purchaser's
obligations hereunder are subject to the fulfillment, at or prior to the
Closing, of all of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE: PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company and the
Shareholder in Section 3 hereof shall be true and correct on the Closing Date
with the same force and
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effect as if they had been made on and as of said date; and the Company and
the Shareholder shall have performed all of the obligations and complied with
each and all of the covenants required to be performed or complied with by
them on or prior to the Closing.
(b) MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change to the business, assets, financial condition or
prospects of the Company.
(c) AUTHORIZATIONS AND APPROVALS. All authorizations, approvals,
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with
transactions contemplated by this Agreement shall have been duly obtained and
shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of the Company Stock shall have been issued and no
proceedings for such purpose shall be pending.
(d) DELIVERY OF DOCUMENTS. The Company shall have delivered to
Purchaser all share certificates evidencing the Company Stock and such other
documents and instruments as Purchaser may reasonably request.
(e) CERTIFICATES. The President and Chief Financial Officer of
the Company shall deliver to Purchaser a certificate in which they certify
that all of their representations and warranties are true and correct, that
all obligations to be performed by them pursuant to this Agreement prior to
Closing have been performed, and that all of the conditions to Purchaser's
obligations provided for in this Section 5.1 have been satisfied.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AT THE CLOSING. The
Company's obligations hereunder are subject to the fulfillment, at or prior
to the Closing, of all of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by Purchaser in Section
4 hereof shall be true and correct at the Closing Date, with the same force
and effect as if they had been made on and as of said date; and Purchaser
shall have performed all obligations herein required to be performed by it at
or prior to the Closing.
(b) AUTHORIZATIONS AND APPROVALS. All authorizations, approvals,
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the
transactions contemplated by this Agreement shall have been duly obtained and
shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of the Company Stock shall have been issued and no
proceedings for such purpose shall be pending or threatened by the Securities
and Exchange Commission, the California Commissioner of Corporations, or
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any similar officer of any other federal or state agency having jurisdiction
over this transaction.
VI. CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through
the Closing Date, the Company and Shareholder jointly and severally covenant
and agree that:
6.1 QUALIFICATION. The Company shall maintain all qualifications to
transact business and remain in good standing in its jurisdiction of
incorporation and in the foreign jurisdictions in which it is qualified to
transact business.
6.2 ORDINARY COURSE. The Company shall conduct its business in the
ordinary course and shall not make or institute any unusual or novel methods
of management, accounting, or operation that vary materially from those
methods used by the Company as of the date of this Agreement. The Company
will use its best efforts to preserve its business organizations intact, to
keep available to Company its present officers and employees, and to preserve
its present relationships with suppliers, customers, and others having
business relationships with the Company.
6.3 CORPORATE MATTERS. The Company shall not (a) amend its Articles of
Incorporation or Bylaws; (b) issue any shares of its capital stock; (c) issue
or create any warrants, obligations, subscriptions, options, convertible
securities, or other commitments under which any additional shares of its
capital stock of any class might be directly or indirectly authorized,
issued, or transferred from treasury; or (d) agree to any of the acts listed
above.
6.4 INDEBTEDNESS. The Company shall not incur any indebtedness, sell
any debt securities or lend money to or guarantee the indebtedness of any
person or entity. The Company shall not restructure or refinance its existing
indebtedness.
6.5 DISPOSITION OF ASSETS. The Company shall not sell, transfer,
license, lease or otherwise dispose of, or suffer or cause the encumbrance by
any lien upon any of its properties or assets, tangible or intangible, or
upon any interest therein, except for sales in the ordinary course of its
business.
6.6 EMPLOYEES AND COMPENSATION. The Company shall not do, or agree to
do, any of the following acts: (a) make any change in compensation payable or
to become payable by it to any officer, employee, or representative; (b) make
any change in benefits payable to any officer, employee, or representative
under any bonus or other contract or commitment; or (c) modify any collective
bargaining agreement to which it is a party or by which it may be bound.
6.7 CONSENTS. The Company shall use its best efforts to obtain any
consent, authorization or approval of any person or entity required to be
obtained or made by any party
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hereto in connection with the transactions contemplated hereby or the taking
of any action in connection with the consummation thereof.
6.8 MAINTENANCE OF INSURANCE. The Company shall maintain its policies
of insurance in full force and effect and shall not do, permit or willingly
allow to be done any act by which any of the policies may be suspended,
impaired or cancelled.
VII. INDEMNIFICATION
7.1 INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDER. The Company
and the Shareholder shall indemnify and hold harmless Purchaser against any
and all losses, liabilities, claims and expenses, including reasonable
attorneys' fees ("Losses"), sustained by Purchaser resulting from, arising
out of, or connected with any material inaccuracy in, breach of, or
nonfulfillment of any representation, warranty, covenant or agreement made by
or other obligation of the Company contained in this Agreement.
Notwithstanding the foregoing, the Company and the Shareholder shall not be
liable for any of Purchaser's lost profits or any incidental or consequential
damages.
7.2 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify and hold
harmless the Company and the Shareholder against any and all Losses sustained
by the Company and/or the Shareholder resulting from, arising out of, or
connected with any material inaccuracy in, breach of, or nonfulfillment of
any representation, warranty, covenant or agreement made by or other
obligation of Purchaser contained in this Agreement. Notwithstanding the
foregoing, Purchaser shall not be liable for any of the Company's or the
Shareholder's lost profits or any incidental or consequential damages.
7.3 PROCEDURES. In the event any third party asserts any claim with
respect to any matter as to which the indemnities in this Agreement relate,
the party against whom the claim is asserted (the "Indemnified Party") shall
give prompt notice to the other party (the "Indemnifying Party"), and the
Indemnifying Party shall have the right at its election to take over the
defense or settlement of the third party claim at its own expense by giving
prompt notice to the Indemnified Party. If the Indemnifying Party does not
give such notice and does not proceed diligently so to defend the third party
claim within thirty (30) days after receipt of the notice of the third party
claim, the Indemnifying Party shall be bound by any defense or settlement
that the Indemnified Party may make as to those claims and shall reimburse
the Indemnified Party for its Losses and expenses related to the defense or
settlement of the third party claim. The parties shall cooperate in defending
against any asserted third party claims. For purposes of this Section 7, the
indemnification of the Indemnified Party shall also include the
indemnification of the Indemnified Party's employees, agents, affiliates, and
third parties performing services for the Indemnified Party, and the
reference to this Agreement includes any certificate, schedule, list, summary
or other information provided or delivered to a party by the Indemnifying
Party or its agents and affiliates in connection with this Agreement.
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VIII. MISCELLANEOUS
8.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.
8.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto or in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by it hereunder as of the date of such certificate or instrument.
8.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
8.4 ENTIRE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement among the parties with regard to the
subject matter hereof and no party shall be liable or bound to any other
party in any manner by any representations, warranties, covenants, or
agreements except as specifically set forth herein or therein. Nothing in
this Agreement, express or implied, is intended to confer upon any party,
other than the parties hereto and their respective successors and assigns,
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided herein.
8.5 SEVERABILITY. In the event any provision of this Agreement shall
be invalid, illegal, or unenforceable, it shall, to the extent practicable,
be modified so as to make it valid, legal and enforceable and to retain as
nearly as practicable the intent of the parties, and the validity, legality,
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
8.6 AMENDMENT AND WAIVER. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of the parties hereto.
8.7 NOTICE. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery or on the third day following mailing by registered or
certified mail, return receipt requested, postage prepaid, addressed: (a) if
to Purchaser, at its address as set forth at the end of this Agreement, or at
such other address as such Purchaser shall have furnished to the Company in
writing or (b) if to the Company, at its address as set forth at the end of
this Agreement, or at such other address as it shall have furnished to
Purchaser in writing.
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8.8 CONSTRUCTION. The parties to this Agreement have participated
jointly in the negotiation and drafting of this Agreement and have had
competent counsel of their own choosing. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
8.9 HEADINGS. The headings of the paragraphs and subparagraphs of this
Agreement are for convenience of reference only and are not to be considered
in construing this Agreement.
8.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the
date first above written.
PURCHASER ADDRESS:
AMERICAN TITLE COMPANY
17911 Von Karman Ave., Ste. 500
Irvine, California 92614
By: /s/ Michael C. Lowther
---------------------------------
Michael C. Lowther
Its: Chief Executive Officer
COMPANY ADDRESS:
FIDELITY NATIONAL ASSET RECOVERY
SERVICES, INC.
17911 Von Karman Ave., Ste. 300
Irvine, California 92614
By: /s/ M'Liss Jones Kane
---------------------------------
M'Liss Jones Kane
Its: Senior Vice President and
Secretary
SHAREHOLDER ADDRESS:
NATIONS TITLE, INC.
17911 Von Karman Ave., Ste. 300
Irvine, California 92614
By: /s/ Carl A. Strunk
---------------------------------
Carl A. Strunk
Its: Executive Vice President and
Chief Financial Officer
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SCHEDULE 3.6
LIST OF MATERIAL CONTRACTS AND AGREEMENTS
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SCHEDULE 3.7
EXCEPTIONS TO TITLE OF PROPERTIES AND ASSETS
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of this 31st day of December, 1996, by and among AMERICAN TITLE COMPANY, a
California corporation ("Purchaser"), NATIONS TITLE INSURANCE OF ARIZONA,
INC., an Arizona corporation ("Company"), and FIDELITY NATIONAL FINANCIAL,
INC., a Delaware corporation ("Shareholder") with reference to the following
facts and circumstances:
RECITALS
A. The Shareholder is the record and beneficial owner of all the issued
and outstanding shares of common stock of the Company (the "Company Stock").
B. The Shareholder desires to sell, and Purchaser wishes to purchase,
all of the issued and outstanding Company Stock upon the terms and subject to
the conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
I. PURCHASE AND SALE OF COMPANY STOCK
1.1 PURCHASE AND SALE. Subject to the terms and conditions set forth in
this Agreement, on the Closing Date (as defined below), Shareholder will
sell, transfer and convey One Thousand (1,000) shares of the Company Stock,
which amount constitutes all of the issued and outstanding shares of the
Company Stock, to Purchaser, and Purchaser will acquire the Company Stock
from Shareholder.
1.2. PURCHASE PRICE. In consideration of the sale and transfer of the
Company Stock by Shareholder, Purchaser shall, in full payment therefor, pay
to Shareholder the amount of Ten Thousand Dollars ($10,000) (the "Purchase
Price").
1.3. PAYMENT OF PURCHASE PRICE. Provided that all of the conditions to
the Closing set forth in Article V below have been satisfied or waived by the
party benefiting therefrom, Purchaser shall pay to Shareholder at the Closing
the Purchase Price by delivery of a cashier's or certified bank check at
Closing.
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II. CLOSING
2.1. CLOSING. The closing of the purchase and sale of the Company Stock
and the consummation of the other transactions contemplated by this Agreement
(the "Closing") shall take place at 10:00 a.m., local time, on December 31,
1996, at the offices of the Shareholder, 17911 Von Karman Avenue, Suite 500,
Irvine, California 92614, or at such other date, time and place as the
parties hereto may mutually agree upon in writing (the "Closing Date").
2.2. SHAREHOLDERS' DELIVERIES AT CLOSING. Provided that all of the
conditions to the Closing set forth in Article V below have been satisfied or
waived by the party benefiting therefrom, Shareholder shall execute and
deliver or cause to be delivered to Purchaser at the Closing the following
documents:
(a) Certificates representing the Company Stock being sold, duly
endorsed for transfer, or accompanied by duly executed stock powers,
transferring to Purchaser good and marketable title to the Company
Stock, free and clear of all liens and encumbrances.
(b) The Company's original minute book, such minute book to
contain (i) original Articles of Incorporation and all amendments
thereto, or copies thereof if the originals are unavailable, (ii) the
Company's Bylaws presently in effect, (iii) the Company's stock transfer
records together with all available cancelled stock certificates, and
(iv) all minutes of meetings or consents in lieu of such meetings of the
Company's Board of Directors and shareholders.
(c) Such other documents and agreements as may be either
reasonable or necessary to carry out the purpose and intention of this
Agreement.
2.3. PURCHASER'S DELIVERIES AT CLOSING. Provided that all of the
conditions to the Closing set forth in Article V below have been satisfied or
waived by the party benefiting therefrom, Purchaser shall execute and deliver
or cause to be delivered to Shareholder at the Closing the following
documents:
(a) A certified or bank cashier's check payable to Shareholder
(or, at Purchaser's option, wire transfer funds to an account designated
in writing by the Shareholder) in the amount of the Purchase Price.
(b) Such other documents and agreements as may be either
reasonable or necessary to carry out the purpose and intention of this
Agreement.
III. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER AND THE COMPANY
The Company and the Shareholder, jointly and severally, hereby represent
and warrant to Purchaser as follows:
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3.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Arizona, has full power and authority to own its
properties and to carry on its business as presently conducted. The Company
is duly qualified to transact intrastate business and is in good standing in
all jurisdictions in which the nature of its business or its properties makes
such qualification necessary. The Company has furnished Purchaser with copies
of its Articles of Incorporation and Bylaws, as amended to the date hereof.
Said copies are true, correct and complete and contain all amendments through
the date of the Closing.
3.2 AUTHORIZATION. All corporate action on the part of Company, its
officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement and the documents contemplated
hereby and the performance of all of the Company's and Shareholder's
obligations hereunder and thereunder and for the authorization, issuance,
sale and delivery of the Company Stock have been taken or will be taken prior
to the Closing. This Agreement and the documents contemplated hereby, when
executed and delivered, shall constitute valid and legally binding
obligations of the Company enforceable in accordance with their respective
terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and subject to the availability of
equitable remedies.
3.3 VALIDITY OF COMPANY STOCK. The sale of each of the shares of the
Company Stock is not, and will not be, subject to any preemptive rights or
rights of first refusal and, when issued, sold and delivered in compliance
with the provisions of this Agreement, the Company Stock will be validly
issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Company Stock may be subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein or as otherwise required by such laws at the time a transfer is
proposed.
3.4 CAPITALIZATION. The authorized capital stock of the Company consists
solely of One Million (1,000,000) shares of Class A common stock and One Million
(1,000,000) shares of Class B common stock, par value of $1.00 per share, of
which 1,000 shares are issued and outstanding. Upon the consummation of the
transactions contemplated by this Agreement, the Shareholder shall have
transferred and conveyed one hundred percent (100%) of the issued and
outstanding shares of Company Stock to Purchaser. All of the issued and
outstanding shares of the Company Stock are duly authorized and validly issued,
fully paid and nonassessable. There are no outstanding rights of first refusal,
preemptive rights or other rights, options, warrants, conversion rights, or
other agreements either directly or indirectly for the purchase or acquisition
of any shares of the Company Stock. All of the outstanding shares of the Company
Stock have been duly and validly issued in compliance with all applicable
federal and state securities laws.
3.5 FINANCIAL STATEMENTS. The balance sheet as of December 31, 1996,
together with statements of income and cash flow for the year ending December
31, 1996, heretofore delivered to Purchaser, are complete and correct in all
material respects, and
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fairly present the financial condition of the Company and the results of its
operation as of the dates and for the periods referred to and have been
prepared in accordance with generally accepted accounting principles
consistently applied.
3.6 MATERIAL CONTRACTS AND AGREEMENTS. Except as set forth on SCHEDULE
3.6, the Company has no contract, agreement, lease or other commitment,
written or oral, absolute or contingent. All material contracts, agreements
and instruments to which the Company is a party are valid and binding and in
full force and effect in all material respects, and the Company is not in,
and to the best of its knowledge, no other party thereto is in material
breach thereof.
3.7 TITLE TO PROPERTIES AND ASSETS. Except as set forth on SCHEDULE 3.7,
the Company has good and marketable title to its properties and assets, and
good title to all its leasehold estates, in each case subject to no mortgage,
pledge, lien, lease, encumbrance, or charge, other than (a) liens resulting
from taxes which have not yet become delinquent, or (b) minor liens,
encumbrances, or defects of title which do not, individually or in the
aggregate, materially detract from the value of the property subject thereto
or materially impair their operations.
3.8 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
of any term of its Articles of Incorporation or Bylaws, any mortgage,
indenture, contract, agreement, instrument, judgment, decree, order or any
statute, rule or regulation applicable to it. The execution, delivery, and
performance of and compliance with this Agreement, and the issuance and sale
of the Company Stock pursuant hereto, will not result in any violation of any
term of the Articles of Incorporation or Bylaws of either or any mortgage,
indenture, contract, agreement, instrument, judgment, decree or order, or be
in conflict with or constitute a default under any such term, or result in
the creation of any mortgage, pledge, lien, encumbrance, or charge upon any
of the properties or assets of the Company; and there is no term of the
Articles of Incorporation or Bylaws of the Company or any mortgage,
indenture, contract, agreement, instrument, judgment, decree or order which
materially adversely affects, or, so far as the Company may now reasonably
foresee, in the future may materially adversely affect, its business,
prospects, conditions, affairs, operations or any of its properties or assets.
3.9 LITIGATION. There are no actions, proceedings, or investigations
before any court or administrative agency pending or currently threatened
against or with respect to the Company (or any basis therefor known to the
Company or the Shareholder), which question the validity of this Agreement or
any action taken or to be taken in connection herewith, or which, the Company
individually or in the aggregate, might result in a material adverse change
in the business, prospects, conditions, affairs, or operations of the Company
or in any of its properties or assets, or in any material impairment of the
right or ability of each to carry on its business as now conducted or as
proposed to be conducted, or in any material liability on the part of the
Company. The Company is not a party or subject to, and none of its assets are
bound by, the provisions of any order,
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writ, injunction, judgment, or decree of any court or governmental agency or
instrumentality.
3.10 TAXES. The Company has no material liability for any federal, state
or local taxes, except for taxes which have accrued and are not yet payable.
The Company has filed all tax returns required to be filed by it and has paid
all income taxes payable by it which have become due pursuant to such tax
returns and all other taxes and assessments payable by it which have become
due, other than those not yet delinquent and except for those contested in
good faith and for which adequate reserves have been established. The Company
has paid, or has provided adequate reserves (in the good faith judgment of
the management of the Company) for the payment of, all federal and state
income or premium taxes applicable for all prior fiscal years and for the
current fiscal year to the date hereof.
3.11 EMPLOYEES. No employee of the Company is obligated under any
contract (including licenses, covenants, or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any Court or
administrative agency that would conflict with such employee's obligation to
use his or her best effort to promote the interests of the Company or that
would conflict with its business as conducted or as proposed to be conducted.
No employee of the Company is in violation of any term of any employment
contract, or any other contract or agreement relating to the relationship of
any such employee with it or any previous employer. The Company has no
collective bargaining agreements with any of its employees and, to the best
knowledge of the Company and the Shareholder, there is no labor union
organizing activity pending or threatened with respect to the Company.
3.12 GOVERNMENTAL CONSENTS. All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations, declarations
or filings with, any governmental authority, required on the part of Company
and/or Shareholder in connection with the valid execution and delivery of this
Agreement and the offer, sale or issuance of the Company Stock, or the
consummation of any other transaction contemplated hereby have been obtained, or
will be effective at the Closing, except for notices required or permitted to be
filed with certain state and federal securities commissions after the Closing,
which notices will be filed on a timely basis.
3.13 OPERATING RIGHTS. The Company has all operating authority, licenses,
franchises, permits, certificates, consents, rights and privileges
(collectively, "Licenses") as are necessary or appropriate to the operation of
its business as now conducted and as proposed to be conducted. Such Licenses are
in full force and effect, no violations have been or are expected to have been
recorded in respect of any such Licenses, and no proceeding is pending or
threatened that could result in the revocation or limitation of any such
Licenses. The Company has conducted its business so as to comply in all material
respects with all such Licenses.
3.14 FULL DISCLOSURE. Neither this Agreement, the representations and
warranties by the Company contained herein, the exhibits or schedules hereto,
nor any other written
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statement or certificate delivered or to be furnished to Purchaser in
connection herewith, when read together, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading. There is no fact
known to the Company which has not been disclosed to Purchaser that would
materially adversely affect the Company's business or financial condition or
its ability to perform its obligations under this Agreement.
IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company and Shareholder as
follows:
4.1 ORGANIZATION AND GOOD STANDING. Purchaser has been duly organized and
is existing as a corporation in good standing under the laws of the State of
California with full corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby.
4.2 DUE EXECUTION. This Agreement has been duly authorized, executed and
delivered by it and, upon due execution and delivery by Purchaser, this
Agreement and the agreements contemplated hereby will be valid and binding
agreements of Purchaser, enforceable in accordance with their respective terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and subject to the availability of equitable remedies.
4.3 NO CONFLICTS. The execution, delivery and performance of this Agreement
by Purchaser and the consummation by Purchaser of the transactions contemplated
hereby will not conflict with or result in the violation of the provisions of
the Articles of Incorporation or Bylaws of Purchaser.
4.4 INVESTMENT INTENT. Purchaser is acquiring the Company Stock for
investment purposes only, for its own account and not as a nominee or agent
for any other person, and not with a view to or for resale in connection with
any distribution thereof within the meaning of the Securities Act of 1933.
V. CONDITIONS TO CLOSING
5.1. CONDITIONS TO OBLIGATIONS OF PURCHASER AT CLOSING. Purchaser's
obligations hereunder are subject to the fulfillment, at or prior to the
Closing, of all of the following conditions:
(a) Representations and Warranties True: Performance of Obligations. The
representations and warranties made by the Company and the Shareholder in
Section 3 hereof shall be true and correct on the Closing Date with the same
force and
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effect as if they had been made on and as of said date; and the Company and
the Shareholder shall have performed all of the obligations and complied with
each and all of the covenants required to be performed or complied with by
them on or prior to the Closing.
(b) MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change to the business, assets, financial condition or
prospects of the Company.
(c) AUTHORIZATIONS AND APPROVALS. All authorizations, approvals,
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with
transactions contemplated by this Agreement shall have been duly obtained and
shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of the Company Stock shall have been issued and no
proceedings for such purpose shall be pending.
(d) DELIVERY OF DOCUMENTS. The Company shall have delivered to
Purchaser all share certificates evidencing the Company Stock and such other
documents and instruments as Purchaser may reasonably request.
(e) CERTIFICATES. The President and Chief Financial Officer of the
Company shall deliver to Purchaser a certificate in which they certify that
all of their representations and warranties are true and correct, that all
obligations to be performed by them pursuant to this Agreement prior to
Closing have been performed, and that all of the conditions to Purchaser's
obligations provided for in this Section 5.1 have been satisfied.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AT THE CLOSING. The
Company's obligations hereunder are subject to the fulfillment, at or prior
to the Closing, of all of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF OBLIGATIONS.
The representations and warranties made by Purchaser in Section
4 hereof shall be true and correct at the Closing Date, with the same force
and effect as if they had been made on and as of said date; and Purchaser
shall have performed all obligations herein required to be performed by it at
or prior to the Closing.
(b) AUTHORIZATIONS AND APPROVALS. All authorizations, approvals,
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the
transactions contemplated by this Agreement shall have been duly obtained and
shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of the Company Stock shall have been issued and no
proceedings for such purpose shall be pending or threatened by the Securities
and Exchange Commission, the California Commissioner of Corporations, or
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any similar officer of any other federal or state agency having jurisdiction
over this transaction.
VI. CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through
the Closing Date, the Company and Shareholder jointly and severally covenant
and agree that:
6.1 QUALIFICATION. The Company shall maintain all qualifications to
transact business and remain in good standing in its jurisdiction of
incorporation and in the foreign jurisdictions in which it is qualified to
transact business.
6.2 ORDINARY COURSE. The Company shall conduct its business in the
ordinary course and shall not make or institute any unusual or novel methods
of management, accounting, or operation that vary materially from those
methods used by the Company as of the date of this Agreement. The Company
will use its best efforts to preserve its business organizations intact, to
keep available to Company its present officers and employees, and to preserve
its present relationships with suppliers, customers, and others having
business relationships with the Company.
6.3 CORPORATE MATTERS. The Company shall not (a) amend its Articles of
Incorporation or Bylaws; (b) issue any shares of its capital stock; (c) issue
or create any warrants, obligations, subscriptions, options, convertible
securities, or other commitments under which any additional shares of its
capital stock of any class might be directly or indirectly authorized,
issued, or transferred from treasury; or (d) agree to any of the acts listed
above.
6.4 INDEBTEDNESS. The Company shall not incur any indebtedness, sell any
debt securities or lend money to or guarantee the indebtedness of any person
or entity. The Company shall not restructure or refinance its existing
indebtedness.
6.5 DISPOSITION OF ASSETS. The Company shall not sell, transfer,
license, lease or otherwise dispose of, or suffer or cause the encumbrance by
any lien upon any of its properties or assets, tangible or intangible, or
upon any interest therein, except for sales in the ordinary course of its
business.
6.6 EMPLOYEES AND COMPENSATION. The Company shall not do, or agree to
do, any of the following acts: (a) make any change in compensation payable or
to become payable by it to any officer, employee, or representative; (b) make
any change in benefits payable to any officer, employee, or representative
under any bonus or other contract or commitment; or (c) modify any collective
bargaining agreement to which it is a party or by which it may be bound.
6.7 CONSENTS. The Company shall use its best efforts to obtain any
consent, authorization or approval of any person or entity required to be
obtained or made by any party
8
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hereto in connection with the transactions contemplated hereby or the taking of
any action in connection with the consummation thereof.
6.8 MAINTENANCE OF INSURANCE. The Company shall maintain its policies of
insurance in full force and effect and shall not do, permit or willingly
allow to be done any act by which any of the policies may be suspended,
impaired or cancelled.
VII. INDEMNIFICATION
7.1 INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDER. The Company and
the Shareholder shall indemnify and hold harmless Purchaser against any and
all losses, liabilities, claims and expenses, including reasonable attorneys'
fees ("Losses"), sustained by Purchaser resulting from, arising out of, or
connected with any material inaccuracy in, breach of, or nonfulfillment of
any representation, warranty, covenant or agreement made by or other
obligation of the Company contained in this Agreement. Notwithstanding the
foregoing, the Company and the Shareholder shall not be liable for any of
Purchaser's lost profits or any incidental or consequential damages.
7.2 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify and hold
harmless the Company and the Shareholder against any and all Losses sustained
by the Company and/or the Shareholder resulting from, arising out of, or
connected with any material inaccuracy in, breach of, or nonfulfillment of
any representation, warranty, covenant or agreement made by or other
obligation of Purchaser contained in this Agreement. Notwithstanding the
foregoing, Purchaser shall not be liable for any of the Company's or the
Shareholder's lost profits or any incidental or consequential damages.
7.3 PROCEDURES. In the event any third party asserts any claim with
respect to any matter as to which the indemnities in this Agreement relate,
the party against whom the claim is asserted (the "Indemnified Party") shall
give prompt notice to the other party (the "Indemnifying Party"), and the
Indemnifying Party shall have the right at its election to take over the
defense or settlement of the third party claim at its own expense by giving
prompt notice to the Indemnified Party. If the Indemnifying Party does not
give such notice and does not proceed diligently so to defend the third party
claim within thirty (30) days after receipt of the notice of the third party
claim, the Indemnifying Party shall be bound by any defense or settlement
that the Indemnified Party may make as to those claims and shall reimburse
the Indemnified Party for its Losses and expenses related to the defense or
settlement of the third party claim. The parties shall cooperate in defending
against any asserted third party claims. For purposes of this Section 7, the
indemnification of the Indemnified Party shall also include the
indemnification of the Indemnified Party's employees, agents, affiliates, and
third parties performing services for the Indemnified Party, and the
reference to this Agreement includes any certificate, schedule, list, summary
or other information provided or delivered to a party by the Indemnifying
Party or its agents and affiliates in connection with this Agreement.
9
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VIII. MISCELLANEOUS
8.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.
8.2 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by Purchaser and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by
it hereunder as of the date of such certificate or instrument.
8.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
8.4 ENTIRE AGREEMENT. This Agreement, the exhibits and schedules hereto,
and the other documents delivered pursuant hereto constitute the full and
entire understanding and agreement among the parties with regard to the
subject matter hereof and no party shall be liable or bound to any other
party in any manner by any representations, warranties, covenants, or
agreements except as specifically set forth herein or therein. Nothing in
this Agreement, express or implied, is intended to confer upon any party,
other than the parties hereto and their respective successors and assigns,
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided herein.
8.5 SEVERABILITY. In the event any provision of this Agreement shall be
invalid, illegal, or unenforceable, it shall, to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as
nearly as practicable the intent of the parties, and the validity, legality,
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
8.6 AMENDMENT AND WAIVER. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived only with the
written consent of the parties hereto.
8.7 NOTICE. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery or on the third day following mailing by registered or
certified mail, return receipt requested, postage prepaid, addressed: (a) if
to Purchaser, at its address as set forth at the end of this Agreement, or at
such other address as such Purchaser shall have furnished to the Company in
writing or (b) if to the Company, at its address as set forth at the end of
this Agreement, or at such other address as it shall have furnished to
Purchaser in writing.
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8.8 CONSTRUCTION. The parties to this Agreement have participated
jointly in the negotiation and drafting of this Agreement and have had
competent counsel of their own choosing. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
8.9 HEADINGS. The headings of the paragraphs and subparagraphs of this
Agreement are for convenience of reference only and are not to be considered
in construing this Agreement.
8.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the
date first above written.
PURCHASER ADDRESS:
American Title Company
17911 Von Karman Ave., Ste. 500
Irvine, California 92614 By. /s/ Michael C. Lowther
------------------------------
Michael C. Lowther
Its: Chief Executive Officer
COMPANY ADDRESS:
Nations Title Insurance of Arizona, Inc.
17911 Von Karman Ave., Ste. 300
Irvine, California 92614 By: /s/ M'Liss Jones Kane
------------------------------
M'Liss Jones Kane
Its: Senior Vice President and
Secretary
SHAREHOLDER ADDRESS:
Fidelity National Financial, Inc.
17911 Von Karman Ave., Ste. 300
Irvine, California 92614 By: /s/ Carl A. Strunk
------------------------------
Carl A. Strunk
Its: Executive Vice President and
Chief Financial Officer
11
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SCHEDULE 3.6
LIST OF MATERIAL CONTRACTS AND AGREEMENTS
12
<PAGE>
SCHEDULE 3.7
EXCEPTIONS TO TITLE OF PROPERTIES AND ASSETS
13
<PAGE>
STOCK PURCHASE AGREEMENT
BY AND AMONG
FIDELITY NATIONAL TITLE INSURANCE COMPANY OF NEW YORK,
NATIONAL TITLE INSURANCE
OF NEW YORK, INC.
AND
AMERICAN TITLE COMPANY
DATED AS OF MARCH 16, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
RECITALS ............................................................... 1
INDEX OF EXHIBITS....................................................... iv
INDEX OF SCHEDULES...................................................... iv
ARTICLE I
Certain Definitions ............................................... 1
ARTICLE 2
The Basic Transaction.............................................. 6
2.1 Purchase and Sale of Company Stock ................................ 6
2.2 Consideration at Closing .......................................... 6
2.3 Certificate Delivery Requirement................................... 6
ARTICLE 3
Closing............................................................ 6
3.1. Closing ........................................................... 6
3.2 Seller's Deliveries at Closing .................................... 7
3.3 Buyer's Deliveries at Closing ..................................... 7
3.4 Conditions of Buyer ............................................... 7
3.5 Conditions of Seller and Company .................................. 9
ARTICLE 4
Representations and Warranties of Company and Shareholders ........ 10
4.1 Organization and Standing; Articles and Bylaws .................... 10
4.2 Authorization ..................................................... 10
4.3 Subsidiaries ...................................................... 10
4.4 Capitalization .................................................... 10
4.5 Financial Statements .............................................. 11
4.6 Material Contracts ................................................ 11
4.7 Assets Other Than Real Property.................................... 12
4.8 Real Property ..................................................... 12
4.9 No Conflicts ...................................................... 13
4.10 Litigation ........................................................ 13
4.11 Taxes ............................................................. 13
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4.12 Employees. ........................................................ 14
4.13 Consents .......................................................... 14
4.14 Operating Rights .................................................. 14
4.15 Compliance with Applicable Laws ................................... 15
4.16 Insurance ......................................................... 15
4.17 Absence of Changes ................................................ 15
4.18 Employee Plans .................................................... 16
4.19 Intellectual Property Rights ...................................... 16
4.20 Environment, Health and Safety .................................... 17
4.21 Certain Transactions............................................... 17
4.22 Bank Accounts; Powers of Attorney.................................. 17
4.23 Brokers' Fees ..................................................... 18
4.24 Full Disclosure ................................................... 18
ARTICLE 5
Representations and Warranties of Buyer............................ 18
5.1 Organization and Standing; Articles and Bylaws .................... 18
5.2 Authorization ..................................................... 18
5.3 No Conflicts ...................................................... 19
5.4 Governmental Consents.............................................. 19
5.5 Brokers' Fees ..................................................... 19
5.6 Full Disclosure ................................................... 19
ARTICLE 6
Conduct of Business Pending Closing ............................... 19
6.1 Qualification...................................................... 19
6.2 Ordinary Course ................................................... 19
6.3 Corporate Changes ................................................. 20
6.4 Indebtedness ...................................................... 20
6.5 Accounting......................................................... 20
6.6 Compliance with Legal Requirements ................................ 20
6.7 Disposition of Assets ............................................. 20
6.8 Compensation ...................................................... 20
6.9 Modification or Breach of Agreements; New Agreements .............. 21
6.10 Capital Expenditures............................................... 21
6.11 Consents .......................................................... 21
6.12 Maintenance of Insurance........................................... 21
6.13 Discharge.......................................................... 21
6.14 Claims............................................................. 21
6.15 Taxes and Tax Assessments ......................................... 21
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ARTICLE 7
Additional Covenants. ............................................. 22
7.1 Covenants of Seller and Company ................................... 22
7.2 Covenants of Buyer ................................................ 23
7.3 Tax Advice......................................................... 23
7.4 Access and Information ............................................ 23
7.5 Expenses .......................................................... 24
7.6 Certain Notifications.............................................. 24
7.7 Publicity.......................................................... 24
7.8 Further Assurances................................................. 24
7.9 Post-Closing Employment ........................................... 25
7.10 Employee Benefits ................................................. 25
7.11 Post-Closing Underwriting and Other Contractual Obligations ....... 25
7.12 Use of Name........................................................ 26
ARTICLE 8
Termination, Amendment and Waiver.................................. 27
8.1 Termination ....................................................... 27
8.2 Effect of Termination ............................................. 27
8.3 Amendment ......................................................... 27
8.4 Waiver............................................................. 27
ARTICLE 9
Indemnification ................................................... 28
9.1 Survival of Representations and Warranties ........................ 28
9.2 Indemnification by Seller ......................................... 28
9.3 Indemnification by Buyer........................................... 28
9.4 Third-Party Claims................................................. 29
9.5 Additional Indemnification Provisions.............................. 29
9.6 Indemnification Non-Exclusive ..................................... 29
9.7 Access and Information ............................................ 29
9.8 Mitigation......................................................... 30
9.9 Right of Set-Off................................................... 30
ARTICLE 10
General Provisions ................................................ 30
10.1 Governing Law ..................................................... 30
10.2 Successors and Assigns............................................. 30
10.3 Entire Agreement................................................... 30
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10.4 Severability....................................................... 31
10.5 Notice ............................................................ 31
10.6 Construction ...................................................... 31
10.7 Headings .......................................................... 32
10.8 Counterparts ...................................................... 32
10.9 Recitals, Schedules, and Exhibits.................................. 32
</TABLE>
INDEX OF EXHIBITS
EXHIBIT "A" - Promissory Note
EXHIBIT "B" - List of Counties
LIST OF SCHEDULES
Disclosure Schedule
iv
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of this 16th day of March, 1998, by and among FIDELITY NATIONAL TITLE INSURANCE
COMPANY OF NEW YORK, a New York corporation ("Seller"); NATIONAL TITLE INSURANCE
COMPANY OF NEW YORK, INC., a New York corporation ("Company"); and AMERICAN
TITLE COMPANY, a California corporation ("Buyer"). Seller, Company, and Buyer
are sometimes referred to collectively herein as the "Parties" or singularly as
a "Party."
RECITALS
A. Seller is the record and beneficial owner of all of the outstanding
capital stock of Company (the "Company Stock").
B. This Agreement contemplates the acquisition by Buyer from Seller of all
of the Company Stock.
C. The respective Boards of Directors of Buyer and Seller believe that this
Agreement and the transactions contemplated herein are advisable and in the best
interests of their respective shareholders.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
Unless the context otherwise requires, the terms defined in this Article 1
shall have the meanings herein specified for all purposes of this Agreement,
applicable to both the singular and the plural forms of such terms. Any
capitalized term used in this Agreement and not ascribed a meaning in this
Article 1 shall have the meaning ascribed to such term elsewhere in this
Agreement.
"AFFILIATE" means, with respect to a Person, any other Person that directly
or indirectly through one or more intermediaries, controls, is controlled by or
is under common control with such Person.
1
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"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or would reasonably form the basis
for any specified consequence.
"BENEFIT ARRANGEMENT" mean any form of current or deferred compensation,
bonus, stock option, stock appreciation right, severance pay, salary
continuation, pension, profit-sharing, retirement or incentive plan, practice or
arrangement, any group or individual disability, medical, dental, health,
hospitalization, life insurance or other insurance plans or related benefits, or
any other welfare or similar plan or arrangement for the benefit of any
director, officer or employee, whether active or retired, or for any class or
classes of such directors, officers or employees.
"CLAIM" means any actual or threatened claim, action, suit, arbitration,
hearing, inquiry, proceeding (including administrative and informal
proceedings), complaint, charge, investigation or audit by or before any
Governmental Entity or arbitrator and any appeal from any of the foregoing.
"CLOSING" has the meaning set forth in Section 3.1, below.
"CLOSING DATE" has the meaning set forth in Section 3.1, below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY STOCK" has the meaning set forth in Recital A.
"CONFIDENTIAL INFORMATION" means any information concerning the businesses
and affairs of any of the Parties that is not already generally available to the
public.
"DISCLOSURE SCHEDULE" means the Schedules to this Agreement required to be
prepared by Seller and Company and delivered to Buyer.
"EMPLOYEE PLAN" means any "employee benefit plan," as defined in Section
3(3) of ERISA, which is subject to any provisions of ERISA and covers any
employee, whether active or retired.
"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all Legal Requirements concerning
pollution or protection of the environment, public health and safety, or
employee health and safety, including Legal Requirements relating to emissions,
discharges, releases, or threatened releases of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes into ambient air,
surface water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage,
2
<PAGE>
disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, toxic materials or other Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"GAAP" means United States generally accepted accounting principles, as
amended from time to time.
"GOVERNMENTAL ENTITY" means any court, federal, state, local or foreign
government or any administrative agency or commission or any other governmental
authority or instrumentality whatsoever.
"HAZARDOUS SUBSTANCES" means any hazardous, toxic or infectious substance,
material, gas or waste which is regulated by any Governmental Entity.
"INDEBTEDNESS" means, when used with reference to any Person, without
duplication, (i) any Liability of such Person created or assumed by such Person,
or any Subsidiary thereof, (A) for borrowed money, (B) evidenced by a bond,
note, debenture, or similar instrument (including a purchase money obligation,
deed of trust or mortgage) given in connection with the acquisition of, or
exchange for, any property or assets (other than inventory or similar property
acquired and consumed in the Ordinary Course of Business), including securities
and other indebtedness, (C) in respect of letters of credit issued for such
Person's account and "swaps" of interest and currency exchange rates (and other
interest and currency exchange rate hedging agreements) to which such Person is
a party or (D) for the payment of money as lessee under leases that should be,
in accordance with GAAP, recorded as capital leases for financial reporting
purposes; (ii) any Liability of others described in the preceding clause (i)
guaranteed as to payment of principal or interest by such Person or in effect
guaranteed by such Person through an agreement, contingent or otherwise, to
purchase, repurchase, or pay the related Indebtedness or to acquire the security
therefor; (iii) all Liabilities or obligations secured by a Lien upon property
owned by such Person and upon which Liabilities or obligations such Person
customarily pays interest or principal, whether or not such Person has assumed
or become liable for the payment of such liabilities or obligations; and (iv)
any amendment, renewal, extension, revision or refunding of any such Liability
or obligation.
"INTELLECTUAL PROPERTY" means (i) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissurances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof; (ii) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith; (iii) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith; (iv) all trade secrets and
confidential business information (including ideas, research and development,
know-how,
3
<PAGE>
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals);
(v) all computer software (including data and related documentation); (vi) all
other proprietary rights; and (vii) all copies and tangible embodiments thereof
(in whatever form or medium).
"KNOWLEDGE" means that Seller is actually aware of the fact or matter in
question or reasonably should be aware of the fact or matter in question after a
reasonable investigation concerning such fact or matter.
"LEGAL REQUIREMENT" means any statute, law, ordinance, rule, regulation,
permit, order, writ, judgment, injunction, decree or award issued, enacted or
promulgated by any Governmental Entity or any arbitrator with binding authority
on a Party or Parties, as the case may be.
"LIABILITY" means any liability (whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including, but not limited to,
any liability for Taxes.
"LICENSES" has the meaning set forth in Section 4.14, below.
"LIEN" means all liens (including judgment and mechanics' liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, pledges, trusts (constructive or otherwise), deeds of trust, options
or other charges, encumbrances or restrictions.
"LOSSES" means any and all losses, damages, demands, assessments,
adjustments, judgments, settlement payments, deficiencies, penalties, fines,
interest (including interests from the date of such damages), and costs and
expenses (including without limitation reasonable attorneys' fees and
disbursements of every kind, nature and description).
"MATERIAL ADVERSE EFFECT" means any event, effect, development, occurrence
or circumstance, individually or when taken together with all other such events,
effects, developments, occurrences or circumstances, causing, resulting in or
having a material adverse effect on (i) the business, assets, results of
operations, properties or condition (financial or otherwise) of Buyer, Seller or
Company (as applicable); or (ii) the legal right or authorization of Buyer,
Seller or Company (as applicable) to continue to operate its business as a going
concern.
"MATERIAL CONTRACTS" means (i) any union contract or any employment or
consulting contract or arrangement providing for future compensation, written or
oral, with any officer, director or employee which is not terminable on thirty
(30) days notice or less without penalty or obligation to make payments related
to such termination; (ii) any plan contract or arrangement, whether written or
oral, providing for bonuses, pensions, deferred compensation, severance pay or
benefits, retirement payments, profit sharing or the like; (iii) any existing
distribution agreement, volume purchase agreement, or similar agreement (but
excluding individual customer
4
<PAGE>
purchase orders) in which the annual amount involved in fiscal 1997 exceeded or
is expected to exceed $25,000 in aggregate amount; (iv) any individual customer
purchase order for the sale of goods or services in excess of $25,000; (v)
except for trade indebtedness incurred in the Ordinary Course of Business, any
Indebtedness incurred in the acquisition of companies or other entities or
Indebtedness for borrowed money by way of direct loan, sale of debt securities,
purchase money obligation, conditional sale, guarantee, leasehold obligations or
otherwise; (vi) any contract containing covenants purporting to limit in any way
the freedom of Company to compete in any line of business or in any geographic
area; (vii) any agreement of indemnification other than those entered into in
connection with the sale of products or services of Company in the Ordinary
Course of Business; (viii) any agreement, contract or commitment relating to
capital expenditures and which involve future payments in excess of $25,000 in
the aggregate by Company; (ix) any agreements, contracts or commitments relating
to the disposition of assets, including any intangible assets or intellectual
property rights (other than inventory), which involve payments in excess of
$25,000 in the aggregate by Company; (x) any contracts with a Governmental
Entity subject to price redetermination or renegotiation; or (xi) all insurance
policies of Company; (xii) all equipment leases of Company which involve
payments in excess of $10,000 in the aggregate; or (xiii) any other agreement,
contract or commitment which is material to Company.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency and, where appropriate, in accordance with formula).
"PARTY" has the meaning set forth in the preamble to this Agreement.
"PERMITTED LIENS" means (i) mechanic's, materialmen's, and similar liens;
(ii) liens for Taxes not yet due and payable or for Taxes that the taxpayer is
contesting in good faith through appropriate proceedings; and (iii) purchase
money liens and liens securing rental payments under capital lease arrangements.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof), or any other legal
entity.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"TAX" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs, duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
5
<PAGE>
added, alternative or add-on minimum, estimated, or other tax or contribution of
any kind whatsoever, including any interest, penalty, or addition thereto,
whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
ARTICLE 2
THE BASIC TRANSACTION
2.1 PURCHASE AND SALE OF COMPANY STOCK. On the Closing Date, subject to the
terms and conditions of this Agreement, Buyer shall acquire from Seller, and
Seller shall sell to Buyer, the Company Stock, free and clear of all Liens,
Claims, Indebtedness and Security Interests.
2.2 CONSIDERATION AT CLOSING. In consideration for the acquisition of the
Company Stock in accordance with Section 2.1, above, Buyer shall, on the Closing
Date, (i) pay to Seller the cash sum of One Million Two Hundred Fifty Thousand
Dollars ($1,250,000) by delivery, at Buyer's option, of a cashier's or certified
bank check, or by wire transfer to an account or accounts designated by Seller;
and (ii) deliver to Seller that certain Promissory Note in the principal amount
of Two Million Dollars ($2,000,000), a copy of which is attached hereto as
Exhibit "A."
2.3 CERTIFICATE DELIVERY REQUIREMENT. On the Closing Date, Seller shall
deliver to Buyer the certificate(s) (the "Certificates") representing the
Company Stock, duly endorsed in blank by Seller, or accompanied by blank stock
powers, and with all necessary transfer tax and other revenue stamps affixed and
canceled.
ARTICLE 3
CLOSING
3.1. CLOSING. The consummation of the purchase and sale of the Company
Stock and the other transactions contemplated by this Agreement (the "Closing"),
shall take place at the offices of Buyer, located at 2510 North Red Hill Avenue,
Santa Ana, California 92705, on such date (the "Closing Date") and at such time
as may be mutually designated by the Parties within five (5) business days
following the satisfaction or waiver of the conditions set forth in Sections 3.4
and 3.5, below (including, without limitation, the "Requisite Regulatory
Approvals," as defined below), or such other date, time, place and manner as the
Parties may mutually agree.
6
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3.2 SELLER'S DELIVERIES AT CLOSING. Provided that all of the conditions to
the Closing set forth in Sections 3.4 and 3.5, below, have been satisfied or
waived by the Party benefiting therefrom, Seller shall execute and deliver or
cause to be delivered to Buyer at or prior to the Closing the following
documents:
(a) The Certificates, in accordance with Section 2.3 above;
(b) Company's original minute book, such minute book to contain (i)
original Articles of Incorporation and all amendments thereto, or copies
thereof if the originals are unavailable; (ii) Company's Bylaws presently in
effect; (iii) Company's stock transfer records together with all available
canceled stock certificates; and (iv) all minutes of meetings or consents
in lieu of such meetings of Company's Board of Directors and shareholders.
Each of the above items shall be certified by the Secretary of Seller; and
(c) Minutes of the Board of Directors of Seller, certified by the
Secretary of Seller, authorizing and approving this agreement and the
transactions contemplated herein;
(d) Resignations of all of the officers and directors of Company
effective as of the Closing Date;
(e) Within thirty (30) days after the execution of this Agreement, the
Disclosure Schedule required under Article 4, below; and
(f) Such other documents and instruments as may be specified in this
Agreement or otherwise reasonably requested by Buyer in order to consummate the
transactions contemplated hereby.
3.3 BUYER'S DELIVERIES AT CLOSING. Provided that all of the conditions to
the Closing set forth in Sections 3.4 and 3.5, below, have been satisfied or
waived by the Party benefiting therefrom, Buyer shall execute and deliver or
cause to be delivered to Seller at the Closing:
(a) The cash and the Promissory Note in accordance with Section 2.2,
above; and
(b) Such other documents and instruments as may be specified in this
Agreement or otherwise reasonably requested by Seller in order to consummate the
transactions contemplated hereby.
3.4 CONDITIONS OF BUYER. Buyer's obligations hereunder to consummate the
transactions contemplated hereby are subject to the satisfaction, at or prior to
the Closing, of all of the following conditions:
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(a) REPRESENTATIONS AND WARRANTIES TRUE: PERFORMANCE OF OBLIGATIONS.
The representations and warranties made by Seller in this Agreement shall be
true, correct and complete in all material respects on and as of the Closing
Date with the same force and effect as if they had been made on and as of said
date; and Seller and Company shall have in all material respects performed all
of the obligations and complied with each and all of the covenants required to
be performed or complied with by them on or prior to the Closing Date.
(b) MATERIAL ADVERSE EFFECT. No act, event or condition shall have
occurred after the date hereof which Buyer determines in its reasonable
discretion has had or could have a Material Adverse Effect on Company.
(c) AUTHORIZATIONS. APPROVALS AND CONSENTS. All authorizations,
approvals or consents from third parties, including from any Governmental
Entity, landlord or other Person, necessary for the consummation of the
transactions contemplated hereby shall have been obtained.
(d) DELIVERIES. Buyer shall have received from Seller the delivery
obligations set forth in Sections 3.2, above.
(e) DISCLOSURE SCHEDULE. Buyer shall be satisfied in its reasonable
discretion with the Disclosure Schedule to be delivered by Seller in accordance
with Section 3.2(e), above, and shall notify Seller of such approval or
disapproval within ten (10) business days of receipt of the Disclosure Schedule.
(f) NO CLAIMS. There shall not be instituted and pending or
threatened any Claims before any Governmental Entity (i) challenging or
otherwise seeking to restrain or prohibit the consummation of the transactions
contemplated hereby, or (ii) seeking to prohibit the direct or indirect
ownership or operation by Buyer of all or a material portion of the capital
stock, business or assets of Company, or to compel Buyer or Company to dispose
of or hold separate all or a material portion of the capital stock, business or
assets of Company or Buyer.
(g) CORPORATE ACTION. All corporate and other proceedings and actions
taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments, releases and documents
referenced herein or incident to the transactions contemplated hereby shall be
in form and substance satisfactory to Buyer in its reasonable discretion.
(h) REQUISITE REGULATORY APPROVALS. All notices or filings required
to be made, all authorizations, permits, certificates, registrations, consents,
approvals or orders required to be obtained, and all waiting periods required to
expire, prior to the consummation of the transactions contemplated by this
Agreement under applicable federal law of the United States or applicable laws
of any state having jurisdiction over the transactions contemplated by this
Agreement or the businesses conducted by the Parties or any Affiliate or
Subsidiary of any
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Party, including those described in Section 7.1(g), below, (collectively, the
"Requisite Regulatory Approvals") shall have been obtained or expired, as the
case may be, without the imposition of any condition which is materially
burdensome upon Buyer or any Party or Person to be affected by such condition.
(i) DUE DILIGENCE INVESTIGATION. Within forty (40) days after the
date of this Agreement, Buyer shall have concluded (through its
representatives, accountants, counsel and other experts) its due diligence
investigation of the business, condition (financial, legal and other),
properties, assets, prospects, operations and affairs of Company (as
contemplated by Section 7.4, below) and shall, in its reasonable discretion,
be satisfied with the results thereof, which results shall promptly be
communicated to Seller at the end of such forty (40) day period.
3.5 CONDITIONS OF SELLER AND COMPANY. Seller's and Company's obligations
hereunder to consummate the transactions contemplated hereby are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE: PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by Buyer in this
Agreement shall be true, correct and complete in all material respects on and
as of the Closing Date with the same force and effect as if they had been
made on and as of said date; and Buyer shall have in all material respects
performed all of the obligations and complied with each and all of the
covenants required to be performed or complied with by it on or prior to the
Closing Date.
(b) MATERIAL ADVERSE EFFECT. No act, event or condition shall have
occurred after the date hereof which Seller determines in its reasonable
discretion has had or could have a Material Adverse Effect on Buyer.
(c) AUTHORIZATIONS, APPROVALS AND CONSENTS. All authorizations,
approvals or consents, if any, from third parties, including from any
Governmental Entity or other Person, required to be obtained by Buyer shall
have been obtained.
(d) DELIVERIES. Seller shall have received from Buyer the delivery
obligations set forth in Section 3.3, above.
(e) NO CLAIMS. There shall not be instituted and pending or
threatened any Claims before any Governmental Entity (i) challenging or
otherwise seeking to restrain or prohibit the consummation of the
transactions contemplated hereby, or (ii) seeking to prohibit the direct or
indirect ownership or operation by Buyer of all or a material portion of the
business or assets of Company, or to compel Buyer or Company to dispose of or
hold separate all or a material portion of the business or assets of Company
or Buyer.
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(f) REQUISITE REGULATORY APPROVALS. The Requisite Regulatory
Approvals, including those described in Section 7.1(g), below, shall have
been obtained or expired, as the case may be, without the imposition of any
condition which is materially burdensome upon Seller, Company or any Party or
Person to be affected by such condition.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that (except for changes
contemplated by this Agreement and except as set forth in the Disclosure
Schedule attached hereto), each of the following statements is true, correct
and complete as of the date of this Agreement and will be true, correct and
complete as of the Closing Date (each such statement to be made again by
Seller on that date with the Closing Date being substituted for the date of
this Agreement throughout this Article 4):
4.1 ORGANIZATION AND STANDING: ARTICLES AND BYLAWS. Seller and Company
are corporations duly organized, validly existing and in good standing under
the laws of the State of New York, have full power and authority to own their
respective assets and properties and to carry on their respective business as
presently conducted. Company is duly qualified and authorized to do business,
and is in good standing as a foreign corporation, in each jurisdiction where
the nature of its activities and of its properties (both owned and leased)
make such qualification necessary, except where the failure to so qualify
would not have a Material Adverse Effect.
4.2 AUTHORIZATION. All corporate action on the part of Seller and
Company, and their respective officers, directors and shareholders necessary
for the authorization, execution and delivery of this Agreement and the
documents contemplated hereby, the performance of all of Seller's and
Company's obligations hereunder and thereunder, and for the transfer of the
Company Stock have been taken or will be taken prior to the Closing. This
Agreement and the documents contemplated hereby, when executed and delivered,
shall constitute valid and legally binding obligations of Seller and Company
enforceable in accordance with their respective terms.
4.3 SUBSIDIARIES. Company has no Subsidiaries and does not presently
own, of record or beneficially, or control, directly or indirectly, any
capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity, nor is the
Company, directly or indirectly, a participant in any joint venture,
partnership or other entity.
4.4 CAPITALIZATION. The authorized capital stock of Company consists of
200,000 shares of Common Stock, par value $7,500 per share, of which 123,949
shares are issued and outstanding as of the date of this Agreement. All of
the shares of Company Stock have been
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duly authorized and validly issued and are fully paid and non-assessable. All
of the shares of Company Stock were offered, issued, sold and delivered by
Company in compliance with all applicable state and federal laws concerning
the issuance of securities. None of the shares of Company Stock were issued
in violation of any preemptive rights created by statute, or by Company's
charter documents, or by any agreement to which Company may be bound.
There are no outstanding shares of common stock, preferred stock or any
other equity securities of Company, and there are no options, warrants,
calls, conversion rights, commitments or agreements of any character to which
Seller or Company may be bound, that do or may obligate Seller or Company to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of common stock, preferred stock or other equity securities or that do
or may obligate Seller or Company to grant, extend or enter into any such
option, warrant, call, conversion right, commitment or agreement. There are
no outstanding arrangements, agreements, commitments or understandings of any
kind affecting or relating to the voting, issuance, purchase, redemption,
repurchase or transfer of any capital stock of Company or any other
securities of Company. Seller and Company have not, or prior to the Closing
will have not, become a party to or subject to any contract or obligation
wherein any Person has a right or option to purchase or acquire any rights in
any additional capital stock or securities of Company. Seller owns of record
and beneficially, and has good and marketable title to all of the shares of
Company Stock, free and clear of all Claims, Liens and Encumbrances. As a
result of the transactions contemplated hereby, Buyer will be the record and
beneficial owner of all outstanding capital stock of Company and rights to
acquire capital stock of Company.
4.5 FINANCIAL STATEMENTS. Schedule 4.5 to the Disclosure Schedule hereto
includes true, complete and correct copies of (i) Company's most recent Form
9; and (ii) Company's balance sheet as of December 31, 1997 (the end of its
most recently completed fiscal year) and statements of income, cash flows and
retained earnings for the year then ended (collectively, the "Financial
Statements"). The Financial Statements have been prepared in accordance with
GAAP consistently applied and fairly present the financial position of
Company as of the date thereof and the results of its operations and cash
flows for the period then ended. There are no Company Liabilities, direct or
indirect, fixed or contingent, which are not reflected or reserved in the
balance sheet as of December 31, 1997, except for Liabilities incurred in the
Ordinary Course of Business subsequent to December 31, 1997, which, either
individually or in the aggregate, would not be material. To the Knowledge of
Seller, there is no Basis for any assertion against Company of any Liability
or obligation of any nature whatsoever that is not fully reflected or
reserved in the Financial Statements which, either individually or in the
aggregate, would be material.
4.6 MATERIAL CONTRACTS. True, correct and complete copies of all
Material Contracts shall, at the request of Buyer, be furnished by Company to
Buyer in connection with Buyer's due diligence investigation of Company. Each
Material Contract so delivered is a valid and binding obligation of Company
and is enforceable against Company and the other Person or Persons thereto,
in accordance with its terms, subject to laws of general application relating
to
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bankruptcy, insolvency and the relief of debtors and subject to the
availability of equitable remedies. Company has performed all obligations
required to be performed by it to date and is not in default under or in
breach of any term or provision of any Material Contract to which Company is
a party, is subject or is otherwise bound, and no event has occurred that,
with the giving of notice or the passage of time or both, would constitute
such a default or breach under any Material Contract. To the Knowledge of
Seller, no party with whom Company has a Material Contract is in default of
its obligations thereunder. Except as set forth on Schedule 4.6 of the
Disclosure Schedule, no consent or approval of any Person to any of the
Material Contracts is necessary in order to permit Company to consummate the
transactions contemplated hereby.
4.7 ASSETS OTHER THAN REAL PROPERTY. Company has good and marketable
title to all properties and assets (other than real property which is subject
to Section 4.8, below) owned or leased by Company, free and clear of all
Liens except for: (i) Permitted Liens; and (ii) Liens, if any, that are not
substantial in character, amount or extent and do not detract materially from
the value, or interfere with present use or the sale or other disposition, of
the property subject thereto or affected thereby. The assets and properties
of Company constitute all the assets, properties, rights, privileges and
interests necessary for the operation of Company's business. All of the
vehicles, machinery and equipment of Company are in good working order and
condition, ordinary wear and tear excepted.
4.8 REAL PROPERTY. Schedule 4.8 to the Disclosure Schedule sets forth a
true, correct and complete list of all real property (the "Real Property")
owned by Company and all Liens, Claims and Indebtedness encumbering such
Property. Subject to the Liens, Claims and Indebtedness encumbering the Real
Property, Company has good, marketable and insurable title to the Real
Property. The improvements on the Real Property have been maintained in the
Ordinary Course of Business. There are no condemnation or appropriation
proceedings pending or threatened, or to the Knowledge of Seller any Basis
therefore, against any of the Real Property or the improvements thereon. The
use of the Real Property and the improvements thereon is in compliance with
all Legal Requirements in all material respects. Schedule 4.8 to the
Disclosure Schedule hereto also contains an accurate list and general
description of all real property leases, subleases, licenses or similar
agreements (the "Leases") to which Company is a party (copies of which have
been previously furnished to Buyer), in each case setting forth (i) the
landlord and tenant or sublessor and sublessee, as applicable, thereof and
the date and term of each of the Leases; (ii) the legal description or street
address of each property covered thereby; and (iii) a brief description
(including size and function) of the principal improvements and buildings
thereon (the "Leased Premises"). Company has valid leasehold interests in the
Leased Premises, free and clear of all Liens and Claims, except for (i)
Claims of lessors, co-lessees or sublessees in such matters as are reflected
in the Leases; (ii) title exceptions affecting the fee estate of the lessor
under such Leases; and (iii) other matters as described in the Disclosure
Schedule. Company is not in default, and no facts or circumstances have
occurred which, through the passage of time or both, or the giving of notice
would constitute a default, under any Lease. The activities of Company, with
respect to
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the Leased Premises, are in all material respects permitted and authorized by
applicable zoning laws, ordinances and regulations and all laws and
regulations of any Governmental Entity. To the Knowledge of Company, the
portions of the buildings on the Leased Premises that are used in the
business of Company are each in good repair and condition (including without
limitation, the electrical, mechanical, HVAC, plumbing, elevator, other
building systems and structural components serving such premises, and the
roofs are water-tight), and are in the aggregate sufficient to satisfy
Company's current business activities as conducted thereat.
4.9 NO CONFLICTS. Neither the execution and delivery nor the performance
of this Agreement by Seller and Company will result in any of the following:
(i) a default or an event that, with notice or lapse of time or both, could
be a default, breach or violation of (A) the Articles of Incorporation or
Bylaws of Seller or Company, (B) any Material Contract; (ii) the termination
of any Material Contract or the acceleration of the maturity of any
Indebtedness or other material obligation of Company; (iii) the creation or
imposition of any Lien (except for Permitted Liens) on any of the assets or
properties of Company; (iv) the creation or imposition of any Lien on any
shares of the Company Stock; or (v) a violation or breach of any writ,
injunction or decree of any Governmental Entity or arbitrator to which
Company is a party or by which any of its properties are bound.
4.10 LITIGATION. There are no Claims before any court or administrative
agency pending or currently threatened against or with respect to Seller or
Company (or to the Knowledge of Seller any Basis therefor), which question
the validity of this Agreement or any action taken or to be taken in
connection herewith, or which, individually or in the aggregate, might result
in a Company Material Adverse Effect, or in any material impairment of the
right or ability of Company to carry on its business as now conducted, or in
any Liability or Loss on the part of Company in excess of reserves. Company
is not a party or subject to, and none of its assets are bound by, the
provisions of any order, writ, injunction, judgment, or decree of any
Governmental Entity or arbitrator.
4.11 TAXES. Company has no Liability for any federal, state or local
Taxes, except for Taxes which have accrued and are not yet payable. Company
has filed or caused to be filed all Tax Returns required under applicable law
to be filed on or before the Closing Date, Company has paid or made provision
for all Taxes and other charges which have or may become due for the periods
covered by such Tax Returns, and all such Tax Returns are true, correct and
complete in all respects. None of the Tax Returns of Company are currently
under investigation or audit, nor is an investigation or audit pending, and
there has not been an investigation or audit of the Tax Returns of Company in
the past seven (7) years. There are no outstanding agreements or waivers
extending the statutory period of limitations applicable to any Tax Return
for any period. The accounting treatment of all items of income, gain, loss,
deduction and credit as reported on all Tax Returns and estimates filed by or
on behalf of Company are true, correct and complete, and all deferred Taxes
and all Taxes due for the period ending on the Closing Date have been accrued
on the Balance Sheet of the December 31, 1997 Financial Statements. No Claim
has ever been made by any Governmental Entity in
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a jurisdiction where Company does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. All Taxes owed by Company or which
Company is obligated to withhold from amounts owed or owing to any employee,
independent contractor, stockholder, creditor or third party have been paid.
There are no unresolved Claims concerning Company's Tax Liability, and to the
Knowledge of Seller no Basis for any such Claims exist.
4.12 EMPLOYEES. Schedule 4.12 to the Disclosure Schedule hereto sets
forth a complete list of all current employees of Company, title or job
classification, and the current annual rate of compensation payable to each
such employee. There are no unfair labor practice complaints, strikes,
slowdowns, stoppages or other controversies pending or threatened, attempts
to unionize or controversies threatened between Company and, or relating to,
any of its employees, nor to the Knowledge of Seller any Basis therefore.
Company is not a party to any collective bargaining agreement with respect to
any of its employees or to a written employment contract with any of its
employees, and there are no understandings with respect to the employment of
any officer or employee of Company which are not terminable by Company
without Liability on not more than thirty (30) days' notice. No officer,
director, or employee is entitled to receive any payment of any amount under
any existing agreement, Benefit Arrangement, Employment Plan or other
benefit, or to the accrual or vesting of any other benefit or payment as a
result of the consummation of any transactions contemplated by this
Agreement. Company has complied with all applicable Legal Requirements which
govern workers' compensation, equal employment opportunity and equal pay.
Company's employment of each of its employees is in compliance with all
immigration and naturalization laws of the United States.
4.13 CONSENTS. All consents, approvals, orders, or authorizations of, or
registrations, qualifications, designations, declarations or filings with,
any Governmental Entity or under any Material Contract or Company's most
recent Form 9, required on the part of Company in connection with the valid
execution and delivery of this Agreement and the exchange and cancellation of
the Company Stock, or the consummation of any other transaction contemplated
hereby have been obtained, or will be obtained and effective at or prior to
the Closing.
4.14 OPERATING RIGHTS. Company has all operating authority, licenses,
franchises, permits, certificates, consents, rights and privileges
(collectively, "Licenses") as are necessary or appropriate to the operation
of its business as now conducted. Such Licenses are in full force and effect,
no violations have been or are expected to have been recorded in respect of
any such Licenses, and no proceeding is pending or threatened, or to the
Knowledge of Seller any Basis therefore, that could result in the revocation
or limitation of any such Licenses. Company has conducted its business so as
to comply in all material respects with all such Licenses.
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4.15 COMPLIANCE WITH APPLICABLE LAWS. The properties, assets, business
and operations of Company have been and are being maintained and conducted in
compliance with all Legal Requirements to which Company is subject. No
investigation or review by any Governmental Entity with respect to Company is
pending or threatened, or to the Knowledge of Seller is there any Basis
therefore, nor has any Governmental Entity indicated to Company an intention
to conduct the same.
4.16 INSURANCE. Schedule 4.16 to the Disclosure Schedule hereto sets
forth an accurate list, as of the date of the delivery to Buyer of the
Disclosure Schedule, of all insurance policies carried by Company and all
insurance loss runs or workmen's compensation claims received for the past
two (2) policy years. Attached to Schedule 4.16 to the Disclosure Schedule
are true, complete and correct copies of the summaries from the insurance
company of all current insurance policies, all of which are in full force and
effect, and a list of all pending insurance claims. All premiums payable
under all such policies have been paid and Company is otherwise in full
compliance with the terms of such policies (or other policies providing
substantially similar insurance coverage). To the Knowledge of Seller, such
policies of insurance are of the type and in amounts carried by Persons
conducting businesses similar to that of Company. There is no threatened
termination of or material premium increase with respect to, any of such
policies. All claims previously made under such policies have been timely
filed.
4.17 ABSENCE OF CHANGES. Except as set forth on Schedule 4.17 to the
Disclosure Schedule, since January 1, 1998, there has not been (i) any change
or amendment in the Articles of Incorporation, Bylaws or other governing
instruments of Company; (ii) any sale or issuance of, or grant of options or
rights to acquire, any shares of the Company Stock or other securities of
Company or any declaration, setting aside, or payment of dividends or
redemptions in respect of any shares of capital stock of Company, or any
direct or indirect redemption, purchase, or other acquisition of such stock,
or any agreement, understandings or commitments to do the same; (iii) any
transfer or other disposition or pledge of, or the grant of options or rights
to acquire, any of the outstanding shares of the Company Stock; (iv) any
amendment, termination or revocation, or any threat of any amendment,
termination, or revocation of any Material Contract; (v) any sale, transfer,
mortgage, pledge, or subjection to Lien (other than Permitted Liens) of, on
or affecting any of the assets of Company valued at or above $10,000
individually or in the aggregate; (vi) any increase in the compensation paid
or payable or in the fringe benefits provided to any employee of Company, or
the adoption of any Benefit Arrangements or Employee Plans not in existence
in the fiscal year ended December 31, 1997; (vii) any damage, destruction or
loss, whether or not covered by insurance, of any of the assets of Company;
(viii) any purchase or lease, or commitment for the purchase or lease, of
equipment or other capital items not disclosed in Company's Financial
Statements which is in excess of the normal, ordinary and usual requirements
of the business of Company; (ix) any change that by itself or together with
other changes, has had a Material Adverse Effect; (x) any agreement or
arrangement made by Seller to take any action which, if taken prior to the
date hereof, would have made any representation or warranty set forth in
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this Agreement untrue or incorrect as of the date when made; or (xi) the
commencement or notice or threat of commencement of any Claim against Company
or any of its affairs other than title insurance Claims in the Ordinary
Course of Business, notice of which has or will be provided to Buyer.
4.18 EMPLOYEE PLANS. Schedule 4.18 to the Disclosure Schedule hereto
sets forth a complete list of all Employee Plans and Benefit Arrangements
maintained, administered or contributed to, or otherwise participated in, by
Company. True and complete copies of each such Employee Plan or Benefit
Arrangement, including amendments thereto, have been provided to Buyer,
together with true and complete copies of (i) annual reports for the most
recent three (3) years (Form 5500 Series including, if applicable, Schedules
A and B thereto); (ii) all plan documents and the most recent summary plan
description of each such Employee Plan, together with any modifications
thereto; and (iii) the most recent favorable determination letter (if
applicable) from the Internal Revenue Service for each such Employee Plan.
None of the Employee Plans is a "multiemployer plan" as defined in Section
3(37) of ERISA or a "multiple employer plan" as covered in Section 412(c) of
the Code, and the Company has not been obligated to make a contribution to
any such multiemployer or multiple employer plan. All contributions
(including all employer contributions and employee salary reduction
contributions) which are due have been paid to each such Employee Plan or
Benefit Arrangement and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such Employee
Plan or Benefit Arrangement or accrued in accordance with past custom and
practice of Company. Each Employee Plan which is intended to be qualified
under Section 401(a) of the Code is so qualified and each trust maintained
pursuant thereto is exempt from income tax under Section 501(a) of the Code.
Neither Company nor any Employee Plan, nor any trusts created thereunder, nor
any trustee, administrator nor any other fiduciary thereof, has engaged in a
"prohibited transaction," as defined in Section 406 of ERISA and Section 4975
of the Code, or any breach of fiduciary duty as defined in Part 4 of Subtitle
B of Title I of ERISA.
4.19 INTELLECTUAL PROPERTY RIGHTS.
(a) Company owns, or has the right to use, sell or license all
Intellectual Property necessary or required for the conduct of its business
as presently conducted and such rights to use, sell or license are reasonably
sufficient for such conduct of Company's business. Company has taken all
reasonable and practicable action designed to safeguard and maintain the
secrecy and confidentiality of, and its proprietary right in, all of its
Intellectual Property.
(b) Neither the manufacture, marketing, license, sale or intended
use of any Intellectual Property licensed or sold by Company or currently
under development by Company violates any license or agreement between
Company and any third party or infringes any Intellectual Property of any
other party; and there is not pending or threatened, nor to the Knowledge of
Seller any Basis therefor, any Claim contesting the validity, ownership or
right to use, sell, license or dispose of any Intellectual Property or that
the proposed use, sale,
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license or disposition thereof conflicts or will conflict with the rights of any
other party, nor to the Knowledge of Seller, is there any Basis for any such
assertion.
4.20 ENVIRONMENT, HEALTH AND SAFETY.
(a) Company has complied with all Environmental, Health and Safety
Laws, except where failure to comply would not have a Material Adverse
Effect, and no Claim or notice has been filed or commenced against it
alleging any failure to so comply. Without limiting the generality of the
preceding sentence, Company has obtained and been in compliance with all of
the terms and conditions of all Licenses and other authorizations which are
required under, and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables which are contained in, all Environmental, Health, and Safety
Laws, except where failure to comply would not have a Material Adverse Effect.
(b) Company has not handled or disposed of any substance, arranged
for the disposal of any substance, exposed any employee or other individual
to any substance or condition, or owned or operated any property or facility
in any manner that could form a Basis for any present or future Claim against
Company giving rise to any Liability, except where having done so would not
have a Material Adverse Effect. Company has no Liability for damage to any
site, location, or body of water (surface or subsurface), for any illness of
or personal injury to any employee or other individual, or for any reason
under any Environmental, Health, and Safety Law which could have a Material
Adverse Effect.
(c) All properties used in the Company's business are free of
Hazardous Substances, except where the existence thereof would not have a
Material Adverse Effect.
4.21 CERTAIN TRANSACTIONS. Except as set forth on Schedule 4.21 of the
Disclosure Schedule, there are no existing or pending transactions, nor are
there any agreements or understandings, between Company, on the one hand, and
any officer or director of Company, or any person or entity affiliated with
any of them, on the other hand, including, without limitation, any
transactions, arrangements or understandings relating to the purchase or sale
of goods or services or the sale, lease or use of any of the assets of or by
Company, with or without adequate compensation, or to any indebtedness owed
to or by Company, in any amount whatsoever.
4.22 BANK ACCOUNTS; POWERS OF ATTORNEY. Schedule 4.22 of the Disclosure
Schedule sets forth any and all updates or revisions as of the date of this
Agreement to Company's most recent Form 9, with respect to Company's bank
accounts and/or investments. Schedule 4.22 of the Disclosure Schedule hereto
also sets forth the name of each Person holding a general or special power of
attorney from Company and a description of the terms of such power.
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4.23 BROKERS' FEES. Seller and Company have no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement.
4.24 FULL DISCLOSURE. Neither this Agreement, the representations and
warranties by Seller contained herein, the Exhibits or Schedules hereto, nor
any other written statement or certificate delivered or to be furnished to
Buyer in connection herewith, when read together, contain any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading. To
the Knowledge of Seller, there is no fact which has not been disclosed to
Buyer that would have a Material Adverse Effect or would affect the ability
of Seller and Company to perform their obligations under this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that (except for changes
contemplated by this Agreement) each of the following statements is true,
correct and complete in all material respects as of the date of this
Agreement and will be true, correct and complete in all material respects as
of the Closing Date (each such statement to be made again by Buyer on that
date with the Closing Date being substituted for the date of this Agreement
throughout this Article 5):
5.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California, has full power and authority to own its
assets and properties and to carry on its business as presently conducted.
Buyer is duly qualified and authorized to do business, and is in good
standing as a foreign corporation, in each jurisdiction where the nature of
its activities and properties (both owned and leased) make such qualification
necessary, except where the failure to so qualify would not have a Material
Adverse Effect.
5.2 AUTHORIZATION. All corporate action on the part of Buyer and its
officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement and the documents contemplated
hereby, the performance of all of Buyer's obligations hereunder and
thereunder, and for the purchase of the Company Stock have been taken or will
be taken prior to the Closing. This Agreement and the documents contemplated
hereby, when executed and delivered by Buyer, shall constitute valid and
legally binding obligations of Buyer enforceable in accordance with their
respective terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and subject to the
availability of equitable remedies.
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5.3 NO CONFLICTS. Neither the execution and delivery nor the performance
of this Agreement by Buyer will result in any of the following: (i) a default
or an event that, with notice or lapse of time or both, could be a default,
breach or violation of (A) the Articles of Incorporation or Bylaws of Buyer,
(B) any Material Contract of Buyer; (ii) the termination of any Material
Contract of Buyer or the acceleration of the maturity of any Indebtedness or
other material obligation of Buyer; (iii) the creation or imposition of any
Lien (except for Permitted Liens) on any of the assets or properties of
Buyer; (iv) the creation or imposition of any Lien on any shares of Buyer's
Common Stock; or (v) a violation or breach of any writ, injunction or decree
of any Governmental Entity to which Buyer is a party or by which any of its
properties are bound.
5.4 GOVERNMENTAL CONSENTS. All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations,
declarations or filings with, any Governmental Entity, required on the part
of Buyer in connection with the valid execution and delivery of this
Agreement and the purchase of the Common Stock, or the consummation of any
other transaction contemplated hereby have been obtained, or will be
effective at the Closing.
5.5 BROKERS' FEES. Buyer is not a party to or obligated under any
agreement with any broker, agent, or finder relating to the transactions
contemplated hereby, and neither the execution of this Agreement nor the
consummation of the transactions provided for herein will result in any
liability to any broker, agent, or finder.
5.6 FULL DISCLOSURE. Neither this Agreement, the representations and
warranties by Buyer contained herein, the Exhibits or Schedules hereto, nor
any other written statement or certificate delivered or to be furnished to
Seller in connection herewith, when read together, contain any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
ARTICLE 6
CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through
the Closing Date, Seller and Company, jointly and severally, covenant and
agree that, unless consented to in writing by Buyer, which consent shall not
be unreasonably withheld:
6.1 QUALIFICATION. Company shall maintain all qualifications to transact
business and remain in good standing in its jurisdiction of incorporation and
in the foreign jurisdictions in which Company owns or leases any property or
conducts any business.
6.2 ORDINARY COURSE. Company shall conduct its business in, and only in,
the Ordinary Course of Business and, to the extent consistent with such
business, shall not make or institute any unusual or novel methods of
management, accounting, or operation that vary
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materially from those methods used by the Company as of December 31, 1997.
Company will use its best efforts to preserve its business organization
intact, to keep available to Company its present officers and employees, and
to preserve its present relationships with suppliers, customers, and others
having business relationships with the Company. Company shall maintain its
properties and assets in good condition and repair.
6.3 CORPORATE CHANGES. Company shall not (i) amend its Articles of
Incorporation or Bylaws (or equivalent documents); (ii) acquire by merging or
consolidating with, or agreeing to merge or consolidate with, or purchase any
of the stock or assets of, or otherwise acquire, any business or any
corporation, partnership, association or other business organization or
division thereof; (iii) enter into any partnership or joint venture; (iv)
declare, set aside, make or pay any dividend or other distribution in respect
of its capital stock or purchase or redeem, directly or indirectly, any
shares of its capital stock; (v) issue or sell any shares of its capital
stock of any class or any options, warrants, conversion or other rights to
purchase any such shares or any securities convertible into or exchangeable
for such shares; or (vi) liquidate or dissolve or obligate itself to do so.
6.4 INDEBTEDNESS. Company shall not incur any Indebtedness, sell any
debt securities or lend money to or guarantee the Indebtedness of any Person.
Company shall not restructure or refinance its existing Indebtedness.
6.5 ACCOUNTING. Company shall not make any change in the accounting
principles, methods or practices followed by it or depreciation or
amortization policies or rates heretofore adopted by it. Company shall
maintain its books, records, and accounts in accordance with GAAP applied on
a basis consistent with that of prior periods.
6.6 COMPLIANCE WITH LEGAL REQUIREMENTS. Company shall comply promptly
and in all material respects with all Legal Requirements imposed upon it, its
operations and with respect to the transactions contemplated by this
Agreement, and shall cooperate promptly with, and furnish information to,
Buyer in connection with any such requirements imposed upon Buyer, or upon
any of its Affiliates, in connection therewith or herewith.
6.7 DISPOSITION OF ASSETS. Except in the Ordinary Course of Business,
Company shall not sell, transfer, license, lease or otherwise dispose of, or
suffer or cause the encumbrance by any Lien other than Permitted Liens upon
any of its properties or assets, tangible or intangible, or upon any interest
therein.
6.8 COMPENSATION. Except in the Ordinary Course of Business, Company
shall not (i) adopt or amend in any material respect any collective
bargaining, bonus, profit-sharing, compensation, stock option, pension,
retirement, deferred compensation, Employee Plan, Benefit Arrangement, or any
other agreement, trust, fund or arrangement for the benefit of employees
other than to comply with any Legal Requirement; or (ii) pay, or make any
accrual or arrangement for payment of, any increase in compensation, bonuses
or special
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compensation of any kind, or any severance or termination pay to, or enter
into any employment or loan or loan guarantee agreement with, Seller or any
current or former officer, director, employee or consultant of Company.
6.9 MODIFICATION OR BREACH OF AGREEMENTS; NEW AGREEMENTS. Except in the
Ordinary Course of Business, Company shall not terminate or modify, or commit
or cause or suffer to be committed any act that will result in breach or
violation of any term of or (with or without notice or passage of time, or
both) constitute a default under or otherwise give any Person a basis for
nonperformance under, any Material Contract, written or oral. Company shall
refrain from becoming a party to any contract or commitment other than in the
Ordinary Course of Business. Company shall meet all of its contractual
obligations in accordance with their respective terms.
6.10 CAPITAL EXPENDITURES. Except in the Ordinary Course of Business,
except for capital expenditures or commitments necessary to maintain its
properties and assets in good condition and repair (the amount of which shall
not exceed $15,000 individually or in the aggregate), Company shall not
purchase or enter into any contract to purchase any capital assets.
6.11 CONSENTS. Company shall use its best efforts to obtain any consent,
authorization or approval of, or exemption by, any Governmental Entity or
Person required to be obtained or made by Company hereto in connection with
the transactions contemplated hereby or the taking of any action in
connection with the consummation thereof.
6.12 MAINTENANCE OF INSURANCE. Company shall maintain its policies of
insurance in full force and effect on substantially the same terms and
conditions as in effect on the date of this Agreement, and shall not do,
permit or willingly allow to be done any act by which any of said policies of
insurance may be suspended, materially impaired or canceled.
6.13 DISCHARGE. Company shall not cancel, compromise, release or
discharge any Claim of Company upon or against any Person or waive any right
of Company, and not discharge any Lien upon any asset of Company or
compromise any debt or other obligation of Company to any Person other than
Liens, debts or obligations with respect to current Liabilities of Company.
6.14 CLAIMS. Company shall not institute, settle or agree to settle any
Claim before any Governmental Entity, except for title insurance Claims in
the Ordinary Course of Business.
6.15 TAXES AND TAX ASSESSMENTS. Company shall pay, when due, and prior
to the imposition or assessment of any interest, penalties or Liens by reason
of the nonpayment of, all Taxes assessed against Company, its assets,
properties or operations. Company shall furnish promptly to Buyer a copy of
all notices of proposed assessment or similar notices or
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reports that are received from any taxing authority and which relate to
Company's operations for periods ending on or prior to the Closing Date.
ARTICLE 7
ADDITIONAL COVENANTS
7.1 COVENANTS OF SELLER AND COMPANY. During the period from the date
hereof through the Closing Date, Seller and Company agree to:
(a) Comply promptly with all applicable Legal Requirements imposed
upon them with respect to the transactions contemplated by this Agreement,
and shall cooperate promptly with, and furnish information to, Buyer in
connection with any such requirements imposed upon Buyer or upon any of its
Affiliates in connection therewith or herewith;
(b) Use their best efforts to obtain (and to cooperate with Buyer
in obtaining) any consent, authorization or approval of, or exemption by, any
Person required to be obtained or made by Seller and/or Company in connection
with the transactions contemplated by this Agreement;
(c) Use their best efforts to bring about the satisfaction of the
conditions precedent to Closing set forth in Section 3.4, above;
(d) Promptly advise Buyer orally and, within three (3) business
days thereafter, in writing of any change in Company's business or condition
that has had or would reasonably be expected to have a Material Adverse
Effect on Company;
(e) Deliver to Buyer prior to the Closing a written statement
disclosing any untrue statement in this Agreement or any Exhibit or Schedule
hereto (or supplement thereto) or document furnished pursuant hereto, or any
omission to state any material fact required to make the statements herein or
therein contained complete and not misleading, immediately upon the discovery
of such untrue statement or omission, accompanied by a written supplement to
any Exhibit or Schedule to this Agreement that may be affected thereby;
provided, however, that the disclosure of such untrue statement or omission
shall not prevent Buyer from terminating this Agreement pursuant to
Section 8.1(b), below, at any time at or prior to the Closing in respect of
any original untrue or misleading statement;
(f) Within thirty (30) days after the date of this Agreement,
deliver to Buyer the Disclosure Schedule; and
(g) Promptly commence and diligently prepare, file and process, at
Seller's cost and expense, all the necessary Regulatory Approvals from
Governmental Entities that specifically relate to the title insurance
business and the change of ownership of such business
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from Seller to Buyer; provided, however, that Buyer expressly acknowledges
and agrees that (i) such approvals are burdensome and may take several months
to obtain; and (ii) Buyer shall not have a right to terminate this Agreement
under Section 8.1(b), below, so long as Seller is diligently attempting to
obtain such Regulatory Approvals. Buyer shall cooperate with Seller to the
extent reasonably requested by Seller in obtaining the above Regulatory
Approvals.
7.2 COVENANTS OF BUYER. During the period from the date hereof to the
Closing Date, Buyer shall:
(a) Comply promptly with all applicable Legal Requirements imposed
upon it with respect to the transactions contemplated by this Agreement, and
shall cooperate promptly with, and furnish information to, Seller in
connection with any such requirements imposed upon Seller or Company or upon
any of Seller's or Company's Affiliates in connection therewith or herewith;
(b) Use its best efforts to obtain any consent, authorization or
approval of, or exemption by, any Person required to be obtained or made by
Buyer in connection with the transactions contemplated by this Agreement;
(c) Use its best efforts to bring about the satisfaction of the
conditions precedent to Closing set forth in Section 3.5 of this Agreement;
and
(d) Promptly advise Company orally and, within three (3) business
days thereafter, in writing of any change in Buyer's business or condition
that has had or would reasonably be expected to have a Material Adverse
Effect on Buyer;
7.3 TAX ADVICE. Seller, Company and Buyer acknowledge that they have
each received their own independent tax advice with respect to this Agreement
and the transactions contemplated thereby, and are not in any way relying on
any statements or advice of any other Party or any of such other Party's
officers, directors, employees, agents or representatives with respect to
such matters.
7.4 ACCESS AND INFORMATION.
(a) During the period commencing on the date hereof and ending
forty (40) days thereafter, Seller shall cause Company to afford to Buyer and
to Buyer's accountants, counsel, and other representatives, reasonable access
during regular business hours and without undue interruption to its business
to all of its properties, books, contracts, commitments, records and
personnel and, during such period, to cause Company to furnish promptly to
Buyer all information concerning its business, properties and personnel as
Buyer may reasonably request.
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(b) Except to the extent permitted by the provisions of
Section 7.7, below, Buyer shall hold in confidence, and shall use reasonable
efforts to ensure that its employees and representatives hold in confidence,
all such information supplied to it by Seller or Company concerning Company and
shall not disclose such information to any third Person except as may be
required by any Legal Requirement and except for information that (i) is or
becomes generally available to the public other than as result of disclosure by
Buyer or its representatives; (ii) becomes available to Buyer or its
representatives from a third party other than Seller or Company, and Buyer or
its representatives have no reason to believe that such third party is not
entitled to disclose such information; (iii) is known to Buyer or its
representatives on a non-confidential basis prior to its disclosure by Seller
or Company; or (iv) is made available by Seller or Company to any other
Person on a non-restricted basis. Buyer's obligations under the foregoing
sentence shall expire on the Closing Date or, if the Closing does not occur,
one (1) year after the date hereof.
7.5 EXPENSES. All costs and expenses (including, without limitation,
all legal fees and expenses and costs) incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the Party
incurring the same.
7.6 CERTAIN NOTIFICATIONS. At all times from the date hereof to the
Closing Date, each Party shall promptly notify the others in writing of the
occurrence of any event that will or reasonably would be expected to result
in the failure to satisfy any of the conditions specified in Sections 3.4 and
3.5, above.
7.7 PUBLICITY. At all times prior to the Closing Date, each Party
shall obtain the consent of all other Parties hereto prior to issuing, or
permitting any of its directors, officers, employees or agents to issue, any
press release or other information to the press, employees of Company or any
third party with respect to this Agreement or the transactions contemplated
hereby; provided, however, that no party shall be prohibited from supplying
any information to any of its representatives, agents, attorneys, advisors,
and others to the extent necessary to complete the transactions contemplated
hereby so long as such representatives, agents, attorneys, advisors, and
others are made aware of the terms of this Section 7.7. Nothing contained in
this Agreement shall prevent any party to this Agreement at any time from
furnishing any required information to any Governmental Entity or authority
pursuant to a Legal Requirement or from complying with its legal or
contractual obligations; provided that the Party furnishing such information
shall have used its reasonable best efforts to comply with this provision
first, and in any event does so only with the advice of counsel.
7.8 FURTHER ASSURANCES.
(a) Subject to the terms and conditions of this Agreement, each of
the Parties hereto agrees to use all reasonable efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Legal
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Requirements, to consummate and make effective the transactions contemplated
by this Agreement.
(b) If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the
proper officers or directors of Seller, Company and Buyer, as the case may
be, shall take or cause to be taken all such necessary or convenient action
and execute, and deliver and file, or cause to be executed, delivered and
filed, all necessary or appropriate documentation.
7.9 POST-CLOSING EMPLOYMENT. Company shall terminate all of its
employees as of the Closing Date. Company and Sellers acknowledge and agree
that after the Closing Date (i) Buyer shall not be required to employ or
retain any employee of Company or any other Person; and (ii) Buyer, in its
sole and absolute discretion, may cause Company to retain all, some, or none
or such employees.
7.10 EMPLOYEE BENEFITS. With respect to those employees of Company
retained by Buyer pursuant to Section 7.9, above, as of the Closing Date, the
Company's Benefit Arrangements and Employee Plans shall either be fully
maintained by Buyer for such employees, or such employees and their eligible
dependents, shall be consolidated into Buyer's Benefit Arrangements and
Employee Plans with full takeover provisions ("Buyer Coverage"), such that,
among other things, such employees and their eligible dependents who receive
Buyer Coverage are (i) credited for service with Company to be applied
against all service and waiting periods under Buyer Coverage; (ii) credited
for any deductibles paid for the plan year under Company's Benefit
Arrangements and Employee Plans to be applied against any deductibles under
Buyer Coverage; and (iii) not excluded from Buyer Coverage for any
pre-existing condition if such employee or eligible dependent was entitled to
coverage under Company's Benefit Arrangements and Employee Plans as of the
Closing Date.
7.11 POST-CLOSING UNDERWRITING AND OTHER CONTRACTUAL OBLIGATIONS.
Except as otherwise expressly set forth in this Section 7.11, all of the
terms and conditions of any and all pre-Closing contracts or agreements
between Fidelity National Financial, Inc., a Delaware corporation, and its
Subsidiaries and Affiliates (collectively, "Fidelity"), on the one hand, and
Buyer, on the other hand (collectively, the "Fidelity Contracts"), shall
survive the Closing and each Fidelity Contract shall remain in full force and
effect for the duration of the respective term of such Fidelity Contract.
Notwithstanding the preceding sentence:
(a) With respect to any Trustee Sale Guaranty commitment
originated by Buyer post-Closing, Buyer shall be entitled to underwrite the
first One Hundred Thousand Dollars ($100,000) of such commitment with Company
or underwrite the entire commitment with Fidelity. If Buyer elects to
underwrite the first One Hundred Thousand Dollars ($100,000) of such
commitment with Company, then Buyer shall have Fidelity reinsure the
remaining portion of such commitment in excess of One Hundred Thousand
Dollars ($100,000) and pay Fidelity a fee equal to six percent (6%) of the
gross policy premium as and for a reinsurance fee.
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If Buyer elects to have Fidelity underwrite the entire commitment, then Buyer
shall pay Fidelity a fee of eleven percent (11%) of the gross policy premium
in connection with each Trustee Sale Guaranty Policy;
(b) With respect to any post-Closing non-Trustee Sale Guaranty
commitments in a county in which Buyer is currently licensed (such counties
are listed on Exhibit "B" hereto), Buyer shall underwrite the entire
commitment with Fidelity and pay Fidelity a fee equal to eleven percent (11%)
of the gross policy premium, as provided under the current Fidelity Contracts;
(c) With respect to any post-Closing non-Trustee Sale Guaranty
commitments originated by or referred to Buyer in a county not listed on
Exhibit "B" hereto, Buyer shall be entitled to underwrite the first Fifty
Thousand Dollars ($50,000) of such commitment with Company or underwrite the
entire commitment with Fidelity. If Buyer elects to underwrite the first
Fifty Thousand Dollars ($50,000) of such commitment with Company, then Buyer
shall have Fidelity reinsure the remaining portion of such commitment in
excess of Fifty Thousand Dollars ($50,000) and pay Fidelity a fee equal to
six percent (6%) of the gross policy premium as and for a reinsurance fee. If
Buyer elects to have Fidelity underwrite the entire commitment, then Buyer
shall pay Fidelity a fee of eleven percent (11%) of the gross policy premium,
as provided under the current Fidelity Contracts;
(d) Post-Closing, Buyer shall (i) continue to pay Fidelity a
monthly fee of one percent (1%) of total gross policy premiums generated by
Buyer in the immediately preceding month, regardless of the underwriter
utilized, in consideration for certain services provided to Buyer pre-Closing
under the Fidelity Contracts, including accounting, legal, trust accounting,
human resources and payroll; and (ii) for the first twenty-four (24)
consecutive months following the Closing, pay Fidelity a fee of $8,333.33 per
month in consideration for claims processing services for Company,
preparation and filing of Form 9s for Company, and agency processing services
for Company. If after the twenty-fourth (24th) month following the Closing,
Buyer elects to continue to utilize the services of Fidelity set forth in
clause (ii), above, then such services shall be provided to Buyer by Fidelity
upon such terms and conditions as Buyer and Fidelity shall mutually agree; and
(e) Fidelity shall continue to manage Company's investment
portfolio post-Closing. In consideration for such services, Company shall
pay Fidelity a monthly fee equal to 1.67 basis points of Company's average
investment balance managed by Fidelity for the immediately preceding month.
7.12 USE OF NAME. Seller and/or an Affiliate of Seller owns or has an
interest in the name American Title Insurance Company. Seller on behalf of
itself and its Affiliates hereby authorizes Buyer to use such name, or a
derivation thereof, for Company post-Closing.
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ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
(a) By mutual consent of Seller and Buyer;
(b) By Seller, on the one hand, or by Buyer, on the other hand, if
there has been a breach, failure to fulfill or default (collectively, a
"Breach") on the part of the other Party (the "Breaching Party") of any of
the representations and warranties contained herein or in the due and timely
performance and satisfaction of any of the covenants, agreements or
conditions contained herein; or
(c) By Seller, on the one hand, or by Buyer, on the other hand, if
there shall be a final non-appealable order of a Governmental Entity or
arbitrator in effect preventing consummation of the transactions contemplated
hereby; or there shall be any action taken, or any statute, rule, regulation
or order enacted, promulgated or issued or deemed applicable to the
transactions contemplated hereby by any Governmental Entity or arbitrator
which would make the consummation of such transactions illegal.
8.2 EFFECT OF TERMINATION. In the case of any termination of this
Agreement pursuant to Section 8.1, above, this Agreement shall forthwith
become void, and there shall be no Liability or obligation on the part of any
Party or its officers, directors or shareholders. Notwithstanding the
foregoing sentence, (i) the provisions of Section 7.4 and 7.5 shall remain in
full force and effect and survive any termination of this Agreement; (ii)
each Party shall remain liable for any Breach of this Agreement prior to its
termination; and (iii) in the event of termination pursuant to Section
8.1(b), above, then notwithstanding the provisions of Section 7.5, above, the
Breaching Party shall be liable to the non-breaching Party to the extent of
the expenses incurred by such other party in connection with this Agreement
and the transactions contemplated thereby.
8.3 AMENDMENT. This Agreement may be amended at any time by a written
instrument executed by the Parties. Any amendment effected pursuant to this
Section 8.3 shall be binding upon all Parties.
8.4 WAIVER. Any term or provision of this Agreement may be waived in
writing at any time by the Party or Parties entitled to the benefits thereof.
Any waiver effected pursuant to this Section 8.4 shall be binding upon all
Parties hereto. No failure to exercise and no delay in exercising any right,
power or privilege shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude the exercise of
any other right, power or privilege. No waiver of any Breach of any covenant
or agreement hereunder shall be deemed a waiver of a preceding or subsequent
breach of the same or any
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other covenant or agreement. The rights and remedies of each Party under this
Agreement are in addition to all other rights and remedies, whether at law,
in equity or otherwise, that such Party may have against the other Parties.
ARTICLE 9
INDEMNIFICATION
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Buyer and Seller contained in this Agreement or in any
writing delivered pursuant hereto or at the Closing shall survive the Closing
and the consummation of the transactions contemplated hereby for a period of
eighteen (18) months after the Closing Date; provided that the
representations and warranties contained in Sections 4.2, 4.4, 4.11, 4.20,
and 5.2 shall continue until the expiration of the applicable statutes of
limitations.
9.2 INDEMNIFICATION BY SELLER. Seller covenants and agrees with Buyer
and its officers, directors, employees, shareholders, assigns, successors and
affiliates (a "Buyer Indemnified Party") to indemnify and hold harmless a
Buyer Indemnified Party from, against and in respect of any and all Losses
suffered, sustained, incurred or paid by any Buyer Indemnified Party in
connection with resulting from or arising out of, directly or indirectly:
(a) any breach of any representation or warranty of Seller set
forth in this Agreement or any certificate, document or instrument delivered
by or on behalf of Seller in connection herewith; or
(b) any non-fulfillment of any covenant or agreement on the part
of Seller or Company in this Agreement.
Payment shall not be a condition precedent to recovery under the above
indemnities.
9.3 INDEMNIFICATION BY BUYER. Buyer covenants and agrees with Seller
and its officers, directors, employees, shareholders, assigns, successors and
affiliates (a "Seller Indemnified Party") to indemnify and hold harmless a
Seller Indemnified Party from, against and in respect of any and all Losses
suffered, sustained, incurred or paid by any Seller Indemnified Party in
connection with resulting from or arising out of, directly or indirectly:
(a) any breach of any representation or warranty of Buyer set
forth in this Agreement or any certificate, document or instrument delivered
by or on behalf of Buyer in connection herewith; or
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(b) any non-fulfillment of any covenant or agreement on the part
of Buyer in this Agreement.
Payment shall not be a condition precedent to recovery under the above
indemnities.
9.4 THIRD-PARTY CLAIMS. In the event any third party asserts any Claim
with respect to any matter as to which the indemnities in this Agreement
relate, the Party or Person against whom the Claim is asserted (the
"Indemnified Party") shall give prompt notice to the other Party or Person
(the "Indemnifying Party"), and the Indemnifying Party shall have the right
at its election to take over the defense or settlement of the third-party
Claim at its own expense by giving prompt notice to the Indemnified Party. If
the Indemnifying Party does not give such notice and does not proceed
diligently so to defend the third-party Claim within thirty (30) days after
receipt of the notice of the third-party Claim, the Indemnifying Party shall
be bound by any defense or settlement that the Indemnified Party may make as
to those claims and shall reimburse the Indemnified Party for its Losses
related to the defense or settlement of the third-party Claim, including all
costs and expenses (including reasonable attorneys' fees and costs) incurred
by the Indemnified Party in defending such Claim. The Parties shall cooperate
in defending against any asserted third-party Claims. For purposes of this
Article 9, the reference to this Agreement includes any certificate,
Disclosure Schedule, Exhibit, list, summary or other information provided or
delivered to a party by the Indemnifying Party or its agents and affiliates
in connection with this Agreement.
9.5 ADDITIONAL INDEMNIFICATION PROVISIONS. Notwithstanding anything to
the contrary in this Article 9, (i) Seller's and Buyer's aggregate Liability
to each other under Sections 9.2 and 9.3, respectively, shall not exceed One
Million Dollars ($1,000,000); (ii) Seller and Buyer shall not incur any
Liability to each other under Sections 9.2 and 9.3, respectively, until the
aggregate amount of the indemnification obligations exceeds Fifty Thousand
Dollars ($50,000); (iii) Seller and Buyer shall not incur any Liability to
each other under Sections 9.2 and 9.3, respectively, for an individual
indemnification Claim less than One Thousand Dollars ($1,000); and (iv) in
lieu of payment from Seller to Buyer of a valid indemnification Claim under
Section 9.2, above, Buyer may elect to reduce the principal balance due under
the Promissory Note by the amount of such valid Claim.
9.6 INDEMNIFICATION NON-EXCLUSIVE. Subject to the limitations set
forth in Sections 9.1 and 9.5, above, the indemnification provisions of this
Article 9 are in addition to, and not in derogation of, any statutory,
equitable or common-law remedy any Party may have for breach of
representation, warranty, covenant or agreement.
9.7 ACCESS AND INFORMATION. With respect to any Claim for
indemnification hereunder, the Indemnified Party will give to the
Indemnifying Party and its counsel, accountants and other representatives
full and free access during normal business hours and upon the giving of
reasonable prior notice to their books and records relating to such Claims,
and to their employees, accountants, counsel and other representatives, all
without charge to
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the Indemnifying Party, except for reimbursement of reasonable out-of-pocket
expenses. The Indemnified Party agrees to maintain any of its books and
records which may relate to a Claim for indemnification hereunder for such
period of time as may be necessary to enable the Indemnifying Party to
resolve such Claim; provided that the failure to do so shall not relieve the
Indemnifying Party of any obligation hereunder unless the Indemnifying Party
demonstrates that the failure to do so substantially prejudiced the
Indemnifying Party in the defense of any third-party proceeding, and then
only to the extent so prejudiced.
9.8 MITIGATION. The Indemnified Parties agree to mitigate their Losses
and use their reasonable efforts to collect any indemnifiable damages from
any available insurer or third-party indemnitors before collecting from the
Indemnifying Party; provided, however, nothing in the foregoing sentence
shall preclude any Indemnified Party from filing a Claim against the
Indemnifying Party from the outset. If any amounts are recovered from an
insurer or third party after payment to an Indemnified Party, the recovering
party (or parties) shall promptly pay over to such Indemnifying Party (or
Parties) any such recovered amounts, but only to the extent of any Losses
with respect to such matter.
9.9 RIGHT OF SET-OFF. Any Party to this Agreement shall be entitled to
set-off against any amounts due to another Party under the terms of this
Agreement or under any additional agreement, any amounts due from such other
Party under the terms of this Agreement.
ARTICLE 10
GENERAL PROVISIONS
10.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.
10.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
Parties hereto.
10.3 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement among the Parties with regard to the
subject matter hereof and no Party shall be liable or bound to any other
Party in any manner by any representations, warranties, covenants, or
agreements except as specifically set forth herein or therein. Nothing in
this Agreement, express or implied, is intended to confer upon any Person,
other than the Parties hereto and their respective successors and assigns,
any rights, remedies, obligations, or Liabilities under or by reason of this
Agreement, except as expressly provided herein.
30
<PAGE>
10.4 SEVERABILITY. In the event any provision of this Agreement shall
be invalid, illegal, or unenforceable, it shall, to the extent practicable,
be modified so as to make it valid, legal and enforceable and to retain as
nearly as practicable the intent of the Parties, and the validity, legality,
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
10.5 NOTICE. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
(i) if delivered personally (including by overnight express or messenger),
upon delivery; (ii) if delivered by registered or certified mail, return
receipt requested, upon the earlier of actual delivery or three (3) days
after being mailed; or (iii) if given by facsimile, upon confirmation of
transmission by facsimile, in each case to the Parties at the following
addresses:
(a) If to Seller or Company (pre-Closing), addressed to:
Fidelity National Title Insurance Company of New York
3916 State Street, Suite 300
Santa Barbara, California 93105
Attn: Frank P. Willey, Executive Vice President
Facsimile: (805) 898-7191
With a copy to:
Fidelity National Financial, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Attn: Andrew F. Puzder, Executive Vice President
Facsimile: (805) 898-7149
(b) If to Buyer or Company (post-Closing), addressed to:
American Title Company
2510 North Red Hill Avenue
Santa Ana, California 92705
Attn: Michael C. Lowther, Chief Executive Officer
Facsimile: (809) 332-7230
10.6 CONSTRUCTION. Parties to this Agreement have participated jointly
in the negotiation and drafting of this Agreement and have had competent
counsel of their own choosing. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement.
31
<PAGE>
10.7 HEADINGS. The headings of the Articles and Sections of this
Agreement are for convenience of reference only and are not to be considered
in construing this Agreement.
10.8 COUNTERPARTS. This Agreement may be executed by facsimile and in
any number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one instrument.
10.9 RECITALS, SCHEDULES, AND EXHIBITS. The Recitals, Schedules and
Exhibits to this Agreement are incorporated herein and, by this reference,
made a part hereof as if fully set forth at length herein.
[SIGNATURES ON FOLLOWING PAGE]
32
<PAGE>
IN WITNESS WHEREOF, the foregoing Agreement and Plan of Reorganization
is hereby executed as of the date first above written.
SELLER:
FIDELITY NATIONAL TITLE INSURANCE
COMPANY OF NEW YORK, a New York
corporation
By: /s/ Frank P. Willey
------------------------------------
Its: E.V.P
------------------------------------
COMPANY:
NATIONAL TITLE INSURANCE OF NEW
YORK, INC., a New York corporation
By: /s/ [Illegible]
------------------------------------
Its: E.V.P. and C.F.O.
------------------------------------
BUYER:
AMERICAN TITLE COMPANY, a California
corporation
By: /s/ Michael Lowther
------------------------------------
Its:
------------------------------------
ACCEPTED AND AGREED TO WITH
RESPECT TO SECTION 7.11 ONLY:
FIDELITY NATIONAL FINANCIAL, INC., a
Delaware corporation
By: /s/ Frank P. Willey
------------------------------------
Its: President
------------------------------------
33
<PAGE>
EXHIBIT "A"
PROMISSORY NOTE
$2,000,000 _________________ ,1998
FOR VALUE RECEIVED, AMERICAN TITLE COMPANY, a California corporation
("Obligor"), promises to pay to FIDELITY NATIONAL TITLE INSURANCE COMPANY OF
NEW YORK, a New York corporation ("Holder"), at 2 Park Avenue, 3rd Floor, New
York, New York 10016, or order, the principal sum of Two Million Dollars
($2,000,000), together with interest thereon at the rate of ten percent (10%)
per annum for actual days elapsed.
This Promissory Note is being delivered by Obligor to Holder in
accordance with Sections 2.2 and 3.3(a) of that certain Stock Purchase
Agreement (the "Agreement"), dated March __ ,1998, by and among Obligor,
Holder and National Title Insurance Company of New York, Inc., a New York
corporation ("Company"), pursuant to which Obligor purchased from Holder all
of the outstanding capital stock of Company. The principal balance due
hereunder is subject to reduction pursuant to Section 9.5(iv) of the
Agreement.
Principal and interest due hereunder shall be amortized over a period of
five (5) years, and paid by Obligor to Holder in equal monthly installments
commencing on ________ 1, 1998, and continuing for each consecutive month
thereafter through and including _________ 1, 2008. For purposes of
clarification, such payments shall be due and payable in accordance with the
Payment and Amortization Schedule attached hereto as Exhibit "A."
Obligor may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will be applied first to unpaid
interest and then to reduce principal.
Obligor will be in default of this Promissory Note if any of the
following events occur (an "Event of Default"): (a) Obligor fails to make any
payment when due, which default is not cured within ten (10) days; (b)
Obligor breaks any promise Obligor has made to Holder, or Obligor fails to
perform any of its obligations promptly at the time and in the manner
provided in this Promissory Note, the Agreement or in any other agreement or
loan Obligor has with Holder; (c) any representation or statement made to
Holder by Obligor or on Obligor's behalf is false or misleading in any
material respect; or (d) either Obligor becomes insolvent, a receiver is
appointed for all or any part of Obligor's property, Obligor makes an
assignment for the benefit of creditors, or any proceeding is commenced by
Obligor or against Obligor under any bankruptcy or insolvency laws.
<PAGE>
Upon the occurrence of an Event of Default the entire unpaid principal
amount, together with all unpaid interest accrued thereon, shall be
immediately due and payable and Holder may proceed to exercise any rights or
remedies it may have under this Promissory Note or such other rights and
remedies that Holder may have at law, in equity or otherwise.
In the event this Promissory Note is turned over to an attorney at law
for collection after an Event of Default, in addition to the principal
balance and all accrued interest, Holder shall be entitled to recover from
Obligor all costs of collection, including but not limited to reasonable
attorneys' fees, and all such costs and expenses shall be payable on demand.
Obligor hereby waives diligence, presentment, protest and demand, notice
of protest, dishonor and nonpayment of this Promissory Note and expressly
agrees that, without in any way affecting the liability of Obligor hereunder,
Holder may extend the time for payment of principal and/or interest
hereunder. Obligor further waives, to the fullest extent permitted by law,
the right to plead any and all statute of limitations as a defense to any
demand on this Promissory Note.
No failure on the part of Holder to exercise any right or remedy
hereunder, whether before or after an Event of Default, shall constitute a
waiver thereof, and no waiver of any past Event of Default shall constitute a
waiver of any future Event of Default.
This Promissory Note may not be modified or amended orally, but only by
an agreement in writing signed by the party against whom such change is
sought.
Should any one or more of the provisions of this Promissory Note be
determined illegal or unenforceable, all other provisions shall nevertheless
remain effective.
This Promissory Note has been delivered to Holder and accepted by Holder
in the State of California. If there is a lawsuit, Obligor agrees upon
Holder's request to submit to the jurisdiction of the courts of the State of
California. This Promissory Note shall be governed by and construed in
accordance with the laws of the State of California as those laws are applied
to written contracts between residents of said jurisdiction to be performed
within said jurisdiction.
IN WITNESS WHEREOF, Obligor, intending to be legally bound hereby, has
caused this Promissory Note to be duly executed and delivered as of the day
and year first above written.
AMERICAN TITLE COMPANY, a
California corporation
By:
------------------------------
Its:
------------------------------
2
<PAGE>
EXIBIT "A"
PAYMENT AMORTIZATION SCHEDULE
PRINCIPLE AMOUNT: $2.000,000
INTEREST RATE: 10%
LIFE OF LOAN (MONTHS): 60
<TABLE>
<CAPTION>
Payment Interest Principle Remaining
Month: Amount Amount: Amount: Principle:
- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C>
1 42,494.09 16,666.67 25,827.42 1,974,172.58
2 42,494.09 16,451.44 26,042.65 1,948,129.93
3 42,494.09 16,234.42 26,259.67 1,921,870.25
4 42,494.09 16,015.59 26,478.50 1,895,391.75
5 42,494.09 15,794.93 26,699.16 1,868,692.59
6 42,494.09 15,572.44 26,921.65 1,841,770.94
7 42,494.09 15,348.09 27,146.00 1,814,624.94
8 42,494.09 15,121.87 27,372.21 1,787,252.73
9 42,494.09 14,893.77 27,600.32 1,759,652.41
10 42,494.09 14.663.77 27,830.32 1,731,822.09
11 42,494.09 14,431.85 28,062.24 1,703,759.85
12 42,494.09 14,198.00 28,296.09 1,675,463.76
13 42,494.09 13,962.20 28,531.89 1,646,931.87
14 42,494.09 13,724.43 28,769.66 1,618,162.21
15 42,494.09 13,484.69 29,009.40 1,589,152.81
16 42,494.09 13,242.94 29,251.15 1,559,901.66
17 42,494.09 12,999.18 29,494.91 1,530,406.75
18 42,494.09 12,753.39 29,740.70 1,500,666.05
19 42,494.09 12,505.55 29,988.54 1,470,677.51
20 42,494.09 12,255.65 30,238.44 1,440,439.07
21 42,494.09 12,003.66 30,490.43 1,409,948.64
22 42,494.09 11,749.57 30,744.52 1,379,204.12
23 42,494.09 11,493.37 31,000.72 1,348,203.40
24 42,494.09 11,235.03 31,259.06 1,316,944.34
25 42,494.09 10,974.54 31,519.55 1,285,424.78
26 42,494.09 10,711.87 31,782.22 1,253,642.57
27 42,494.09 10,447.02 32,047.O7 1,221,595.50
28 42,494.09 10,179.96 32,314.13 1,189,281.37
29 42,494.09 9,910.68 32,583.41 1,156,697.96
30 42,494.09 9,639.15 32,854.94 1,123,843.02
31 42,494.09 9,365.36 33,128.73 1,090,714.29
32 42,494.09 9,089.29 33,404.80 1,057,309.49
33 42,494.09 8.810.91 33,683.18 1,023,626.31
34 42,494.09 8,530.22 33,963.87 989,662.44
35 42,494.09 8,247.19 34.246.90 955,415.54
36 42,494.09 7,961.80 34,532.29 920,883.24
37 42,494.09 7,674.03 34,820.06 886,063.18
38 42,494.09 7,383.86 35,110.23 850,952.95
39 42,494.09 7,091.27 35,402.81 815,550.14
40 42,494.09 6,796.25 35,697.84 779,852.30
41 42,494.09 6,498.77 35,995.32 743,856.98
42 42,494.09 6,198.81 36,295.28 707,561.70
43 42,494.09 5,896.35 36,597.74 670,963.95
44 42,494.09 5,591.37 36,902.72 634,061.23
45 42,494.09 5,283.84 37,210.25 596,850.99
46 42,494.09 4,973.76 37,520.33 559,330.65
47 42,494.09 4,661.09 37,833.00 521,497.65
48 42,494.09 4,345.81 38,148.28 483,349.38
49 42,494.09 4.027.91 38,466.18 444,883.20
50 42,494.09 3,707.36 38,786.73 406,096.47
51 42,494.09 3,384.14 39,109.95 366,986.52
52 42,494.09 3,058.22 39,435.87 327,550.65
53 42,494.09 2,729.59 39,764.50 287,786.15
54 42,494.09 2,398.22 40,095.87 247,690.28
55 42,494.09 2,064.09 40,430.00 207,260.27
56 42,494.09 1,727.17 40,766.92 166,493.35
57 42,494.09 1,387.44 41,106.64 125,386.71
58 42,494.09 1,044.89 41,449.20 83,937.51
59 42,494.09 699.48 41,794.61 42,142.90
60 42,494.09 351.19 42,142.90 (0.00)
</TABLE>
<PAGE>
EXHIBIT "B"
LIST OF COUNTIES
Alameda
Contra Costa
Fresno
Kern
Los Angeles
Maricopa
Orange
Riverside
Sacramento
San Bernadino
San Diego
San Mateo
Santa Barbara
Santa Clara
Ventura
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("THE AGREEMENT") is entered into by
and between Pacific Coast Title of Santa Barbara County, a California
corporation ("Seller"), and American Title Company, a California corporation
("Purchaser"), as of this 9th day of August, 1997.
RECITALS
1. Seller owns one hundred percent (100%) of the issued and
outstanding shares of the common stock (the "Stock") of Santa Barbara Title
Company, a California corporation (the "Company"), and there are no other
outstanding classes or series of stock or options, warrants or rights to
acquire any shares of stock of the Company.
2. Purchaser desires to acquire one hundred percent (100%) of
the Stock.
3. Seller and Purchaser desire to set forth their mutual
understanding regarding the terms and conditions upon which the purchase of
the Stock will be consummated.
NOW, THEREFORE, for and in consideration of the above premises and
for other good and valuable consideration, the receipt and sufficiency of
which is hereby expressly acknowledged, the parties hereto do hereby agree as
follows:
I. SALE AND PURCHASE. Subject to the terms and conditions contained herein,
at a closing (as defined in Section 2 hereof), Seller shall transfer the
Stock to Purchaser. Such transfer shall be evidenced by the delivery to
Purchaser of one or more certificates representing the Stock accompanied by
duly executed stock powers.
1. CLOSING. Subject to satisfaction of each of the conditions
precedent contained in Section 8 hereof, the purchase of the Stock shall be
consummated at a closing (the "Closing") to take place at the offices of the
Company at 17911 Von Karman Ave., Suite 300, Irvine, CA 92614 upon receipt of
the approval of the Department of Insurance of the State of California to
this transaction.
2. PURCHASE PRICE. The consideration (the "Purchase Price") to be paid
by Purchaser for the purchase of the Stock shall be One Hundred Sixty Thousand
Dollars ($160,000.00), which shall be paid at the Closing in the following
manner:
1
<PAGE>
a. Subject to the terms set forth in Section 3(c) below, One
Hundred Fifty Thousand Dollars ($150,000.00) shall be delivered to Seller at the
Closing either by cashier's check or wire transfer to an account designated by
Seller; and
b. Ten Thousand Dollars ($10,000) shall be placed in an escrow
account with an escrow agent acceptable to both parties for a period as
further described in (c) below.
c. Seller and Purchaser agree to the placement of $10,000.00
in an escrow account which amount would have otherwise been payable to Seller
as part of the Purchase Price for the Stock in accordance with Section 2
above, to cover all outstanding payables, or other unasserted obligations. If
after a period of 30 days from the date of Closing there are remaining funds
held in the escrow Seller shall be entitled to receive such funds in full
settlement of all amounts otherwise due to Seller under Section 2 above.
d. At Closing all of the outstanding trustee work under the
name of Pacific Coast Title will transfer to Santa Barbara Title Company.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby
represents and warrants to Purchaser as follows:
a. ORGANIZATION AND AUTHORITY. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the
state of California. Seller has all requisite power, authority and legal
right to enter into this Agreement and, upon receipt of all required
regulatory approvals, if any, and the expiration of all required waiting
periods, to consummate the transactions contemplated herein.
b. ENFORCEABILITY: NO VIOLATION. This Agreement constitutes a
valid and binding obligation of Seller enforceable against Seller in
accordance with its terms, subject to general principles of equity. Neither
the execution and delivery of this Agreement nor the effectuation by Seller
of the transactions contemplated hereby (i) will violate any statute or law,
or any rule, regulation, order, writ, injunction or decree of any court or
governmental authority, or (ii) will violate or conflict with or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default), under, or will result in the termination of, or
accelerate the performance required by, any term or provision of (A) the
charter or bylaws of Seller, or (B) any contract, commitment, understanding,
arrangement, agreement or restriction of any kind or character to which
Seller is a party or by which Seller or any of its assets or properties may
be bound or affected. Except for filings, consents, approvals or
authorizations which will have been made or obtained or actions which will
have been taken at or prior to the Closing, no filing with, or consent,
approval, authorization or action by, any governmental authority is required
in connection with the execution and delivery by Seller of this Agreement or
the effectuation by it of the transactions contemplated herein.
2
<PAGE>
c. CAPITAL STRUCTURE. The authorized capital stock of the
Company consists solely of 10,000 shares of common stock, $1.00 par value, of
which 10,000 shares are issued and outstanding.
d. TITLE TO STOCK. Seller has good, valid and defensible title
to the Stock, free and clear of any lien, mortgage, pledge, voting trust,
restriction on sale, proxy or encumbrance and upon consummation of the
purchase and sale of the Stock, Seller will deliver such Stock, free and
clear of any lien, mortgage, pledge, voting trust, restriction on sale, proxy
or encumbrance (other than those imposed by applicable securities laws or
created by Purchaser).
e. BROKERS OR FINDERS. There is no agent's, broker's or
finder's fee or commission payable in connection with the transactions
contemplated by this Agreement by virtue of or resulting from any action or
agreement by Seller, or any of its representatives, affiliates or associates.
f. TAX RETURNS. To the best of Seller's knowledge, all
federal, state and local taxes owed by the Company for prior years have been
paid and any current federal, state and local taxes will be paid at or prior
to the Closing. There are no pending matters or obligations of the Seller or
Company related to taxes owed for periods prior to the Closing which have not
been disclosed to Purchaser.
g. FINANCIAL STATEMENTS. Attached as Schedule A are true,
correct and complete copies of (i) the audited financial statements of the
Company, including the balance sheets of the Company as at July 31, 1997 (the
"Company Balance Sheets"), and the Statements of Operations, Stockholder's
Equity and Cash Flows for the three fiscal years then ended, together with
the reports thereon of independent certified public accountants (such audited
financial statement, including the notes and schedules thereto, if any, are
hereinafter referred to as the "Company Financial Statements"); and
h. ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected on the Company Balance Sheet as of July 31, 1997 or on Schedule B
attached hereto, the Company does not have any indebtedness, liability or
obligation of any nature, whether absolute, accrued, contingent or otherwise,
related to or arising from the operation of the business or the ownership,
possession or use of any assets, other than those which have arisen since
July 31, 1997 in the ordinary course of business on terms and conditions and
in amounts consistent with past practices and on terms not more onerous than
available to other corporations. Company represents that it will leave all
payable current as of the Closing.
i. ACTIONS, SUITS, ETC. Schedule C sets forth as of the date
of this Agreement all actions, suits, claims, complaints, charges, hearings,
investigations, arbitrations (or other dispute resolution proceedings) or
other proceedings pending or threatened in writing (or to its knowledge
otherwise) against, by or affecting the Company in any court or panel or
before any arbitrator or governmental agency, domestic or foreign, other than
(1) actions related to garnishments
3
<PAGE>
of employee wages, (2) routine matters covered by insurance, (3) policy
claims, and (4) matters in which the Company is the plaintiff or claimant and
no counterclaim has been asserted. The Company has not been charged with, and
to the best of its knowledge is not under investigation with respect to, any
charge concerning any violation of any provision of any federal, state or
other applicable law or administrative regulation in respect to its business,
except as set forth in Schedule D. Except as set forth in Schedule D, there
are no judgments unsatisfied against the Company and no consent decrees to
which the Company is subject. The Company is not involved in or threatened
with any labor dispute which could have a material adverse effect on the
business and operations of the Company.
j. MATERIAL CONTRACTS. Schedule E sets forth an accurate, correct
and complete list of all instruments, commitments, agreements, arrangements and
understandings related to the business to which the Company is a party or bound,
or pursuant to which the Company is a beneficiary, meeting any of the
descriptions set forth below (the "Material Contracts"):
(1) Real Estate Leases, Personal Property Leases,
insurance policies, licenses of Intellectual Property, Technical Information
or Software, Agency Agreements, Employment Contracts and Benefit Plans;
(2) Any contract for capital expenditures or for the
purchase of goods or services in excess of $20,000, except those incurred in
the ordinary course of business and to be performed in six months or less;
(3) Any instrument evidencing indebtedness (other than
routine purchase orders), any liability for borrowed money, any obligation
for the deferred payment of the purchase price for property in excess of
$25,000 (excluding normal trade payables), or any instrument guaranteeing any
indebtedness, obligation or liability.
(4) Any advertising contract not terminable without
payment or penalty on sixty (60) days (or less) notice;
(5) Any deed, lease, easement, agreement or other
instrument affecting any right, title or interest in or to real property;
(6) Any contract with any government or any agency or
instrumentality thereof;
(7) Any license or royalty agreement;
(8) Any power of attorney, proxy or similar instrument;
4
<PAGE>
(9) Any contract for the purchase or sale of any assets
in excess of $50,000 other than in the ordinary course of business or
granting an option or preferential rights to purchase or sell any assets in
excess of $50,000;
(10) Any contract containing covenants not to compete in
any line of business or with any person in any geographical area;
(11) Any contract relating to the acquisition of a
business or the equity of any other person;
(12) Any other contract, commitment, agreement,
arrangement or understanding related to the business (other than those
excluded by an express exception from the descriptions set forth in
subsections;
(13) Above which provides for payment or performance by
either party thereto having an aggregate value of $50,000 or more, and is not
terminable without payment or penalty on sixty (60) days (or less) notice.
Accurate, correct and complete copies of each Material Contract have
been made available to Purchaser. Each Material Contract is in full force and
effect and is valid, binding and enforceable as to the Company in accordance
with its terms. To Seller's knowledge, each other party has complied in all
material respects with all material commitments and obligations on its part
to be performed or observed under each Material Contract. No event has
occurred which is or, after the giving of notice or passage of time, or both,
would constitute a material default under or a material breach of any
Material Contract by the Company or, to the knowledge of Seller, by any other
party. The Company has not received written notice or to its knowledge been
given other notice of an intention to cancel or terminate a Material Contract
or to exercise or not exercise options or rights under a Material Contract.
The Company has not received any written or, to its knowledge, other notice
of a default, offset or counterclaim under any Material Contract, or any
other written or, to its knowledge, other communication calling upon the
Company to comply with any provision of any Material Contract or asserting
noncompliance by the Company. Except as disclosed in this Agreement, the
consummation of the transactions contemplated hereby without notice to or
consent or approval of any party, will not constitute a default under or a
breach of any provision of a Material Contract, and the Company will have and
may enjoy and enforce all rights and benefits under each Material Contract
after Closing. There is no security interest, lien, encumbrance or claim of
any kind on the Company under any Material Contract.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents and warrants to Seller as follows:
a. ORGANIZATION AND AUTHORITY. Purchaser is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of California. Purchaser has all requisite power, authority and legal
right to enter into this Agreement and, upon
5
<PAGE>
receipt of all required regulatory approvals, if any, and the expiration of
all required waiting periods, to consummate the transactions contemplated
herein.
b. ENFORCEABILITY; NO VIOLATION. This Agreement constitutes a
valid and binding obligation of Purchaser enforceable against Purchaser in
accordance with its terms, subject to general principles of equity. Neither
the execution and delivery of this Agreement nor the effectuation by
Purchaser of the transactions contemplated hereby (i) will violate any
statute or law, or any rule, regulation, order, writ, injunction or decree of
any court or governmental authority, or (ii) will violate or conflict with or
constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default), under, or will result in the termination
of, or accelerate the performance required by, any term or provision of (A)
the charter or bylaws of Purchaser, or (B) any contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character
to which Purchaser is a party or by which Purchaser or any of its assets or
properties may be bound or affected. Except for filings, consents, approvals
or authorizations which will have been made or obtained or actions which will
have been taken at or prior to the Closing, no filing with, or consent,
approval, authorization or action by, any governmental authority is required
in connection with the execution and delivery by Purchaser of this Agreement
or the effectuation by it of the transactions contemplated herein.
c. INVESTIGATION AND REVIEW. Purchaser, with the assistance
and advice of its accountants and other advisors whom it has deemed
appropriate, will have a full opportunity to complete a review of all
information pertaining to the business and financial operations of the
Company which will be provided directly to Purchaser or to which Purchaser
will be given access either by the Seller or the Seller's representatives.
Purchaser will, in addition, be given the opportunity to request additional
information concerning the Company's assets, liabilities, books, records and
financial status, and will receive full and adequate responses to any such
requests. Purchaser shall complete its investigation and review on or before
August , 1997.
d. BROKERS OR FINDERS . There are no agent's, broker's or
finder's fees or commission payable in connection with the purchase of the
Stock by virtue of or resulting from any action or agreement of Purchaser or
Purchaser's representatives, affiliates or associates.
5. PRE-CLOSING COVENANT OF SELLER. Prior to the Closing, Seller
shall not make any cash payments or expenditures out of the Company except
for payment of administrative, operational, and maintenance expenses incurred
in the normal course of business.
6. CONDITIONS PRECEDENT FOR PURCHASER. The obligations of Purchaser
to consummate the purchase of the Stock pursuant to the terms of this
Agreement are subject to the satisfaction, prior to or at the Closing, of
each of the following conditions, provided, however, that any or all such
conditions may be waived in whole or in part by Purchaser:
6
<PAGE>
a. SELLER'S COMPLIANCE WITH REPRESENTATIONS, WARRANTIES AND
COVENANTS. The representations and warranties made by Seller in this
Agreement shall have been true and correct when made and shall be true and
correct in all respects at the date of the Closing with the same force and
effect as if such representations and warranties were made at and as of the
Closing date, and Seller shall have performed or complied with all
agreements, covenants and conditions required by this Agreement to be
performed or complied with by Seller prior to or at the Closing.
b. NO LEGAL PROCEEDINGS. At the Closing, no suit, action or
other legal or administrative proceeding before any court or other
governmental agency shall be pending or threatened by third parties not
affiliated with Purchaser or Seller in connection with this Agreement or the
consummation of the transactions contemplated herein.
c. CERTIFICATE. The Purchaser shall have been furnished at
Closing with a certificate of Seller, certifying the matters specified in
Section 8(a) above.
7. REPRESENTATIONS AND WARRANTIES TO SURVIVE. Unless otherwise
provided herein, all representations and warranties contained in this
Agreement and in any certificate or other document delivered pursuant to this
Agreement shall survive Closing only for the period ending eighteen (18)
months after the Closing.
8. BINDING EFFECT ON THIS AGREEMENT. This Agreement, together with
the certificates, affidavits, confidentiality agreements, releases and other
instruments delivered by or on behalf of the parties pursuant to this
Agreement, constitute the entire contract between the parties, and no party
shall be liable for or bound to any warranties, representations or agreements
except as specifically set forth herein, therein or in such certificates,
affidavits, confidentiality agreements, releases or other instruments. The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective heirs, legal representatives, successors and
assigns of the parties hereto. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto
and their respective heirs, legal representatives and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.
9. ASSIGNMENT. Seller may not assign its rights or obligations
hereunder without the prior written consent of the Purchaser. Purchaser has
the right to assign all of its rights and obligations hereunder to any of its
underwriting subsidiaries.
10. APPLICABLE LAW. This Agreement is made pursuant to, will be
construed under, and will be conclusively deemed for all purposes to have
been executed and delivered under, the laws of the State of California. The
appropriate state or federal courts located in Orange County, California
shall have jurisdiction over all matters arising under the Agreement
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<PAGE>
or any certificates or instruments delivered in connection herewith and will
be the proper form in which to adjudicate such matters.
11. NOTICES. All notices, demands and other communications
hereunder shall be in writing and will be deemed to have been duly given when
delivered or mailed, first class postage pre-paid by certified mail, return
receipt requested:
If to Seller: PACIFIC COAST TITLE COMPANY OF SANTA BARBARA COUNTY
1333 E. Mountain Drive
Santa Barbara, CA 93108
MCL [Initialed]
JJB [Initialed]
If to Purchaser: American Title Company
17911 Von Karman Ave., Suite 300
Irvine, CA 92614
Such addresses may be changed from time to time by written notice to the
other party.
12. SECTION AND OTHER HEADINGS. The headings contained in this
Agreement and in any certificates or instruments delivered in connection
herewith are for reference purposes only and will not effect in any way the
meaning or interpretation of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of which together
will constitute one instrument.
14. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, the legality, validity, and enforceability of the remaining
provisions of this Agreement shall not be effected thereby. In lieu of such
illegal, invalid, or unenforceable provision, there shall be added automatically
as a part of this Agreement a provision as similar in terms to such illegal,
invalid, or unenforceable provision as may be legal, valid, and enforceable.
15. FORBEARANCE; WAIVER. Forbearance or failure to pursue any legal
or equitable remedy or right available to a party upon default or breach under
this Agreement shall not constitute waiver of such right, nor shall any such
forbearance, failure or actual waiver imply or constitute waiver of subsequent
default or breach.
16. EXPENSES. Each party hereto shall pay all expenses and fees
incurred by such party incident to this Agreement, and in connection with the
consummation of the
8
<PAGE>
purchase of the Stock. The prevailing party in a legal proceeding based upon
this Agreement shall be entitled to reasonable attorney's fees and court
costs in addition to any other recoveries allowed by law.
IN WITNESS WHEREOF, the undersigned parties hereto have executed
this Agreement effective on the date first stated above.
MCL [Initialed]
JJB [Initialed]
SELLERS: ---------------------------------------------
PACIFIC COAST TITLE COMPANY OF SANTA BARBARA COUNTY
/s/ [Illegible]
----------------------------
BY:
Its: President
PURCHASER: ---------------------------------------------
AMERICAN TITLE COMPANY
/s/ Michael C. Lowther
----------------------------
BY: Michael C. Lowther
Its: CEO
9
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
Wayne D. Diaz and M'Liss Jones Kane hereby certify that:
1. They are the President and Secretary, respectively, of ATC
Holdings, Inc., a California corporation (the "Corporation").
2. The Articles of Incorporation of this Corporation are amended and
restated in full to read as follows:
I.
The name of this corporation is "AMERICAN NATIONAL FINANCIAL, INC."
II.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business or the practice of a
profession permitted to be incorporated by the California Corporations Code.
III.
A. CLASSES OF STOCK. This Corporation is authorized to issue two
classes of stock to be designated, respectively, as "Common Stock" and
"Preferred Stock." The total number of shares which the Corporation is
authorized to issue is fifty-five million (55,000,000) shares. Fifty million
(50,000,000) shares shall be Common Stock and five million (5,000,000) shares
shall be Preferred Stock.
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock may be issued from time to time in one or more series. The
Board of Directors is hereby authorized to fix or alter the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), redemption price or prices, and the
liquidation preferences of any wholly unissued series of Preferred Stock, and
the number of shares constituting any such series and the designation thereof,
or any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall resume the status
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
C. STOCK SPLIT. Upon the amendment of this Article III to read as
hereinabove set forth, each outstanding share of Common Stock is divided into
six point zero five two eight (6.0528) shares of Common Stock.
<PAGE>
IV.
The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
V.
The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, approval of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to the Corporation and its shareholders.
Any repeal or modification of this Article shall be prospective and
shall not affect the rights under this Article in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
3. The foregoing amendment and restatement of Articles of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been
duly approved by the required vote of the shareholders of the Corporation in
accordance with Section 902 of the Corporations Code. The total number of
outstanding shares of the Corporation is 465,421 shares of common stock. The
number of shares voting in favor of the amendment and restatement equaled or
exceed the vote required. The percentage vote required was more that 50%.
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of our own knowledge.
DATED: August 19, 1998 /s/ Wayne D. Diaz
-------------------------------
Wayne D. Diaz, President
/s/ M'Liss Jones Kane
-------------------------------
M'Liss Jones Kane, Secretary
<PAGE>
BYLAWS
OF
ATC HOLDINGS, INC.
(A CALIFORNIA CORPORATION)
ARTICLE I - OFFICES
Section 1. The principal executive office of ATC HOLDINGS, INC.
(the "Corporation") shall be at such place inside or outside the State of
California as the Board of Directors may determine from time to time.
Section 2. The Corporation may also have offices at such other
places as the Board of Directors may from time to time designate, or as the
business of the Corporation may require.
ARTICLE II - SHAREHOLDERS' MEETINGS
Section 1. ANNUAL MEETINGS. The annual meeting of the
shareholders of the Corporation for the election of directors to succeed
those whose terms expire and for the transaction of such other business as
may properly come before the meeting shall be held at such place and at such
time as may be fixed from time to time by the Board of Directors and stated
in the notice of the meeting. If the annual meeting of the shareholders be
not held as herein prescribed, the election of directors may be held at any
meeting thereafter called pursuant to these Bylaws.
Section 2. SPECIAL MEETINGS. Special meetings of the
shareholders, for any purpose whatsoever, unless otherwise prescribed by
statute, may be called at any time by the Chairman of the Board, the
President, or by the Board of Directors, or by one or more shareholders
holding not less than ten percent (10%) of the voting power of the
Corporation.
Section 3. PLACE. All meetings of the shareholders shall be at
any place within or without the State of California designated by the Board
of Directors or by written consent of all the persons entitled to vote
thereat, given either before or after the meeting. In the absence of any such
designation, shareholders' meetings shall be held at the principal executive
office of the Corporation.
Section 4. NOTICE. Notice of meetings of the shareholders of the
Corporation shall be given in writing to each shareholder entitled to vote,
either personally or by first-class mail or other means of written
communication, charges prepaid, addressed to the shareholder at his address
appearing on the books of the Corporation or given by the shareholder to the
Corporation for the purpose of notice. Notice of any such meeting of
shareholders shall be sent to each shareholder entitled thereto not less than
ten (10) nor more than sixty (60) days before the meeting. Said notice shall
state the place, date and hour of the meeting and, (1) in the case of special
meetings, the general nature of
<PAGE>
the business to be transacted, and no other business may be transacted, or
(2) in the case of annual meetings, those matters which the Board of
Directors, at the time of the mailing of the notice, intends to present for
action by the shareholders, but subject to Section 601(f) of the California
Corporations Code any proper matter may be presented at the meeting for
shareholder action, and (3) in the case of any meeting at which directors are
to be elected, the names of the nominees intended at the time of the mailing
of the notice to be presented by management for election.
Section 5. ADJOURNED MEETINGS. Any shareholders' meeting may be
adjourned from time to time by the vote of the holders of a majority of the
voting shares present at the meeting either in person or by proxy. Notice of
any adjourned meeting need not be given unless a meeting is adjourned for
forty-five (45) days or more from the date set for the original meeting.
Section 6. QUORUM. The presence in person or by proxy of the
persons entitled to vote a majority of the shares entitled to vote at any
meeting constitutes a quorum for the transaction of business. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the
shares required to constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares, the
holders of which are either present in person or represented by proxy
thereat, but no other business may be transacted, except as provided above.
Section 7. SHAREHOLDER ACTION BY WRITTEN CONSENT. Any action which
may be taken at any meeting of shareholders may be taken without a meeting
and without prior notice, if a consent in writing, setting forth the action
so taken, shall be signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon
were present and voted; provided, however, that (1) unless the consents of
all shareholders entitled to vote have been solicited in writing, notice of
any shareholder approval without a meeting by less than unanimous written
consent shall be given as required by the California Corporations Code, and
(2) directors may not be elected by written consent except by unanimous
written consent of all shares entitled to vote for the election of directors.
Any written consent may be revoked by a writing received by the
Secretary of the Corporation prior to the time that written consents of the
number of shares required to authorize the proposed action have been filed
with the Secretary.
Section 8. WAIVER OF NOTICE. The transactions of any meeting of
shareholders, however called and noticed, and whenever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if
a quorum be present either in person or by proxy, and if, either before or
after the meeting, each of the persons entitled to vote, not present in
person or by proxy, signs a written waiver of notice, or a consent to the
holding of the meeting, or an approval of the minutes
2
<PAGE>
thereof. All such waivers, consents, or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 9. VOTING. The voting at all meetings of shareholders need
not be by ballot, but any qualified shareholder before the voting begins may
demand a stock vote whereupon such stock vote shall be taken by ballot, each
of which shall state the name of the shareholder voting and the number of
shares voted by such shareholder, and if such ballot be cast by a proxy, it
shall also state the name of such proxy.
At any meeting of the shareholders, every shareholder having the
right to vote shall be entitled to vote in person, or by proxy appointed in a
writing subscribed by such shareholder and bearing a date not more than
eleven (11) months prior to said meeting, unless the writing states that it
is irrevocable and is held by a person specified in Section 705(e) of the
California Corporations Code, in which event it is irrevocable for the period
specified in said writing and said Section 705(e).
Section 10. RECORD DATES. In the event the Board of Directors fixes
a day for the determination of shareholders of record entitled to vote as
provided in Section 1 of Article V of these Bylaws, then, subject to the
provisions of the General Corporation Law of the State of California, only
persons in whose name shares entitled to vote stand on the stock records of
the Corporation at the close of business on such day shall be entitled to
vote.
If no record date is fixed:
The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day notice is given or, if notice is
waived, at the close of business on the business day next preceding the day
on which the meeting is held;
The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is given; and
The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto, or the sixtieth (60th) day prior to
the date of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or
to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the
adjourned meeting, but the Board of Directors shall fix a new record date if
the meeting is adjourned for more than forty-five (45) days.
Section 11. CUMULATIVE VOTING FOR ELECTION OF DIRECTORS. Provided
the candidate's name has been placed in nomination prior to the voting and
one or more shareholders has given notice at the meeting prior to the voting
of the shareholder's intent to cumulate the shareholder's votes, every
3
<PAGE>
shareholder entitled to vote at any election for directors shall have the
right to cumulate such shareholder's votes and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the number
of votes to which the shareholder's shares are normally entitled, or
distribute the shareholder's votes on the same principle among as many
candidates as the shareholder shall think fit. The candidates receiving the
highest number of votes of the shares entitled to be voted for them up to the
number of directors to be elected by such shares are elected.
ARTICLE III - BOARD OF DIRECTORS
Section 1. POWERS. Subject to any limitations in the Articles of
Incorporation or these Bylaws and to any provision of the California
Corporations Code requiring shareholder authorization or approval for a
particular action, the business and affairs of the Corporation shall be
managed and all corporate powers shall be exercised by, or under the
direction of, the Board of Directors. The Board of Directors may delegate the
management of the day-to-day operation of the business of the Corporation to
a management company or other person provided that the business and affairs
of the Corporation shall be managed and all corporate powers shall be
exercised, under the ultimate direction of the Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of
directors that shall constitute the whole board shall be not less than five
(5) nor more than nine (9), the exact number of directors may be fixed from
time to time within such limit by a duly adopted resolution of the Board of
Directors or shareholders. Directors need not be shareholders.
Directors shall hold office until the next annual meeting of
shareholders and until their respective successors are elected. If any such
annual meeting is not held, or the directors are not elected thereat, the
directors may be elected at any special meeting of shareholders held for that
purpose. Directors need not be shareholders.
Section 3. REGULAR MEETINGS. A regular annual meeting of the Board
of Directors shall be held without other notice than this Bylaw immediately
after, and at the same place as, the annual meeting of shareholders. The
Board of Directors may provide for other regular meetings from time to time
by resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, or the
President or any Vice President, or the Secretary or any two (2) directors.
Written notice of the time and place of all special meetings of the Board of
Directors shall be delivered personally or by telephone or telegraph to each
director at least forty-eight (48) hours before the meeting, or sent to each
director by first-class mail, postage prepaid, at least four (4) days before
the meeting. Such notice need not specify the purpose of the meeting. Notice
of any meeting of the Board of Directors need not be given to any director
who signs a waiver
4
<PAGE>
of notice, whether before or after the meeting, or who attends the meeting
without protesting prior thereto or at its commencement, the lack of notice
to such director.
Section 5. PLACE OF MEETINGS. Meetings of the Board of Directors
may be held at any place within or without the State of California, which has
been designated in the notice, or if not stated in the notice or there is no
notice, the principal executive office of the Corporation or as designated by
the resolution duly adopted by the Board of Directors.
Section 6. PARTICIPATION BY TELEPHONE. Members of the Board of
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in
such meeting can hear one another.
Section 7. QUORUM. A majority of the Board of Directors shall
constitute a quorum at all meetings. In the absence of a quorum a majority of
the directors present may adjourn any meeting to another time and place. If a
meeting is adjourned for more than twenty-four (24) hours, notice of any
adjournment to another time or place shall be given prior to the time of the
reconvened meeting to the directors who were not present at the time of
adjournment.
Section 8. ACTION AT MEETING. Every act or decision done or made by
a majority of the directors present at a meeting duly held at which a quorum
is present is the act of the Board of Directors. A meeting at which a quorum
is initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for such meeting.
Section 9. WAIVER OF NOTICE. The transactions of any meeting of the
Board of Directors, however called and noticed or wherever held, are as valid
as though had at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding
the meeting, or an approval of the minutes thereof. All such waivers,
consents and approvals shall be filed with the corporate records or made a
part of the minutes of the meeting.
Section 10. ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the Board of Directors may be taken without a
meeting, if all members of the Board individually or collectively consent in
writing to such action. Such written consent or consents shall be filed with
the minutes of the proceedings of the Board. Such action by written consent
shall have the same force and effect as a unanimous vote of such directors.
Section 11. REMOVAL. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of
court or who has been convicted of a felony.
The entire Board of Directors or any individual director may be
removed from office without cause by a vote of shareholders holding a
majority of the outstanding shares entitled to vote at an election of
directors; provided, however, that unless the entire Board is removed, no
individual
5
<PAGE>
director may be removed when the votes cast against removal, or not
consenting in writing to such removal, would be sufficient to elect such
director if voted cumulatively at an election at which the same total number
of votes cast were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of the director's most recent election were then being
elected.
In the event an office of a director is so declared vacant or in
case the Board or any one or more directors be so removed, new directors may
be elected at the same meeting.
Section 12. RESIGNATIONS. Any director may resign effective upon
giving written notice to the Chairman of the Board, the President, the
Secretary or the Board of Directors of the Corporation, unless the notice
specifies a later time for the effectiveness of such resignation. If the
resignation is effective at a future time, a successor may be elected to take
office when the resignation becomes effective.
Section 13. VACANCIES. Except for a vacancy created by the removal
of a director, all vacancies in the Board of Directors, whether caused by
resignation, death or otherwise, may be filled by a majority of the remaining
directors, though less than a quorum, or by a sole remaining director, and
each director so elected shall hold office until his successor is elected at
an annual, regular or special meeting of the shareholders. Vacancies created
by the removal of a director may be filled only by approval of the
shareholders. The shareholders may elect a director at any time to fill any
vacancy not filled by the directors. Any such election by written consent
requires the consent of a majority of the outstanding shares entitled to vote.
Section 14. COMPENSATION. No stated salary shall be paid directors,
as such, for their services, but, by resolution of the Board of Directors, a
fixed sum and expenses of attendance, if any, may be allowed for attendance
at each regular or special meeting of such Board; provided that nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation
for attending committee meetings.
Section 15. COMMITTEES. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or more directors, to serve at
the pleasure of the Board of Directors. The Board of Directors may designate
one or more directors as alternate members of any committee, who may replace
any absent member at any meeting of the committee. The appointment of members
or alternate members of a committee requires the vote of a majority of the
authorized number of directors. Any such committee, to the extent provided in
the resolution of the Board of Directors, shall have all the authority of the
Board of Directors in the management of the business and affairs of the
Corporation, except with respect to (a) the approval of any action requiring
shareholders' approval or approval of the outstanding shares, (b) the filling
of vacancies on the Board or any committee, (c) the fixing of compensation of
directors for serving on the Board or a committee, (d) the adoption,
amendment or repeal of Bylaws, (e) the amendment or repeal of any resolution
of the Board which by its express terms is not so amendable or repealable,
(f) a distribution to shareholders,
6
<PAGE>
except at a rate or in a periodic amount or within a price range determined
by the Board, and (g) the appointment of other committees of the Board or the
members thereof.
ARTICLE IV - OFFICERS
Section 1. NUMBER AND TERM. The officers of the Corporation shall
be a Chairman of the Board, a President, one or more Vice-Presidents, a
Secretary and a Chief Financial Officer, all of which shall be chosen by the
Board of Directors. In addition, the Board of Directors may appoint such
other officers as may be deemed expedient for the proper conduct of the
business of the Corporation, each of whom shall have such authority and
perform such duties as the Board of Directors may from time to time
determine. The officers to be appointed by the Board of Directors shall be
chosen annually at the regular meeting of the Board of Directors held after
the annual meeting of shareholders and shall serve at the pleasure of the
Board of Directors. If officers are not chosen at such meeting of the Board
of Directors, they shall be chosen as soon thereafter as shall be convenient.
Each officer shall hold office until his successor shall have been duly
chosen or until his removal or resignation.
Section 2. INABILITY TO ACT. In the case of absence or inability to
act of any officer of the Corporation and of any person herein authorized to
act in his place, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer, or any director or
other person whom it may select.
Section 3. REMOVAL AND RESIGNATION. Any officer chosen by the Board
of Directors may be removed at any time, with or without cause, by the
affirmative vote of a majority of all the members of the Board of Directors.
Any officer chosen by the Board of Directors may resign at any time
by giving written notice of said resignation to the Corporation. Unless a
different time is specified therein, such resignation shall be effective upon
its receipt by the Chairman of the Board, the President, the Secretary or the
Board of Directors.
Section 4. VACANCIES. A vacancy in any office because of any cause
may be filled by the Board of Directors for the unexpired portion of the term.
Section 5. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the Board.
Section 6. PRESIDENT. The President shall be the general manager
and chief executive officer of the Corporation, subject to the control of the
Board of Directors, and as such shall preside at all meetings of
shareholders, shall have general supervision of the affairs of the
Corporation, shall sign or countersign or authorize another officer to sign
all certificates, contracts, and other instruments of the Corporation as
authorized by the Board of Directors, shall make reports to the
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<PAGE>
Board of Directors and shareholders, and shall perform all such other duties
as are incident to such office or are properly required by the Board of
Directors.
Section 7. VICE PRESIDENT. In the absence of the President, or in
the event of such officer's death, disability or refusal to act, the Vice
President, or in the event there be more than one Vice President, the Vice
Presidents in the order designated at the time of their selection, or in the
absence of such designation, then in the order of their selection, shall
perform the duties of President, and when so acting, shall have all the
powers and be subject to all restrictions upon the President. The Vice
President shall have such powers and discharge such duties as may be assigned
from time to time by the President or by the Board of Directors.
Section 8. SECRETARY. The Secretary shall see that notices for all
meetings are given in accordance with the provisions of these Bylaws and as
required by law, shall keep minutes of all meetings, shall have charge of the
seal and the corporate books, and shall make such reports and perform such
other duties as are incident to such office, or as are properly required by
the President or by the Board of Directors.
The Assistant Secretary or the Assistant Secretaries, in the order
of their seniority, shall, in the absence or disability of the Secretary, or
in the event of such officer's refusal to act, perform the duties and
exercise the powers and discharge such duties as may be assigned from time to
time by the President or by the Board of Directors.
Section 9. CHIEF FINANCIAL OFFICER. The Chief Financial Officer may
also be designated by the alternate title of "Treasurer." The Chief Financial
Officer shall have custody of all moneys and securities of the Corporation
and shall keep regular books of account. Such officer shall disburse the
funds of the Corporation in payment of the just demands against the
Corporation, or as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Board of Directors
from time to time as may be required of such officer, an account of all
transactions as Chief Financial Officer and of the financial condition of the
Corporation. Such officer shall perform all duties incident to such office or
which are properly required by the President or by the Board of Directors.
The Assistant Treasurer or the Assistant Treasurers, in the order
of their seniority, shall, in the absence or disability of the Chief
Financial Officer, or in the event of such officer's refusal to act, perform
the duties and exercise the powers of the Chief Financial Officer, and shall
have such powers and discharge such duties as may be assigned from time to
time by the President or by the Board of Directors.
Section 10. SALARIES. The salaries of the officers shall be fixed
from time to time by the Board of Directors and no officer shall be prevented
from receiving such salary by reason of the fact that such officer is also a
director of the Corporation.
8
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Section 11. OFFICERS HOLDING MORE THAN ONE OFFICE. Any two or more
offices may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity.
Section 12. APPROVAL OF LOAN TO OFFICERS. The Corporation may upon
the approval of the Board of Directors alone, make loans or money or property
to, or guarantee the obligations of, any officer of the Corporation or its
parent or subsidiary, whether or not a director, or adopt an employee
;benefit plan or plans authorizing such loans or guaranties provided that (i)
the Board of Directors Determines that such a loan or guaranty or plan may
reasonably be expected to benefit the Corporation, (ii) the Corporation has
outstanding shares held of record by 100 or more persons (determined as
provided in Section 605 of the California Corporations Code) on the date of
approval by the Board of Directors, and (iii) the approval of the Board of
Directors is by a vote sufficient without counting the vote of any interested
director or directors.
ARTICLE V - MISCELLANEOUS
Section 1. RECORD DATE AND CLOSING OF STOCK BOOKS. The Board of
Directors may fix a time in the future as a record date for the determination
of the shareholders entitled to notice of and to vote at any meeting of
shareholders or entitled to receive payment of any dividend or distribution,
or any allotment of rights, or to exercise rights in respect to any other
lawful action. The record date so fixed shall not be more than sixty (60) nor
less than ten (10) days prior to the date of the meeting or event for the
purposes of which it is fixed. When a record date is so fixed, only
shareholders of record at the close of business on that date are entitled to
notice of and to vote at the meeting or to receive the dividend,
distribution, or allotment of rights, or to exercise the rights, as the case
may be, notwithstanding any transfer of any shares on the books of the
Corporation after the record date.
The Board of Directors may close the books of the Corporation
against transfers of shares during the whole or any part of a period of not
more than sixty (60) days prior to the date of a shareholders' meeting, the
date when the right to any dividend, distribution, or allotment of rights
vests, or the effective date of any change, conversion or exchange of shares.
Section 2. CERTIFICATES. Certificates of stock shall be issued in
numerical order and each shareholder shall be entitled to a certificate
signed in the name of the Corporation by the Chairman of the Board or the
President or a Vice President, and the Chief Financial Officer or the
Secretary or an Assistant Secretary, certifying to the number of shares owned
by such shareholder. Any or all of the signatures on the certificate may be
facsimile. Prior to the due presentment for registration of transfer in the
stock transfer book of the Corporation, the registered owner shall be treated
as the person exclusively entitled to vote, to receive notifications and
otherwise to exercise all the rights and powers of an owner, except as
expressly provided otherwise by the laws of the State of California.
Section 3. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares
of other corporations standing in the name of this Corporation may be voted
or represented and all incidents
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thereto may be exercised on behalf of the Corporation by the Chairman of the
Board President or the Vice President and the Chief Financial Officer or the
Secretary or an Assistant Secretary.
Section 4. FISCAL YEAR. The fiscal year of the Corporation shall
end on the 31st day of December.
Section 5. ANNUAL REPORTS. The Annual Report to shareholders,
described in the California Corporations Code, is expressly waived and
dispensed with.
Section 6. AMENDMENTS. Bylaws may be adopted, amended, or repealed
by the vote or the written consent of shareholders entitled to exercise a
majority of the voting power of the Corporation. Subject to the right of
shareholders to adopt, amend, or repeal Bylaws, Bylaws may be adopted,
amended, or repealed by the Board of Directors, except that a Bylaw amendment
thereof changing the authorized number of directors may be adopted by the
Board of Directors only if these Bylaws permit an indefinite number of
directors and the Bylaw or amendment thereof adopted by the Board of
Directors changes the authorized number of directors within the limits
specified in these Bylaws.
Section 7. INDEMNIFICATION OF CORPORATE AGENTS. The Corporation
shall indemnify each of its agents against expenses, judgments, fines,
settlements and other amounts, actually and reasonably incurred by such
person by reason of such person's having been made or having been threatened
to be made a party to a proceeding to the fullest extent permissible under
the California Corporations Code and the Corporation shall advance the
expenses reasonably expected to be incurred by such agent in defending any
such proceeding upon receipt of the undertaking required by subdivision (f)
of Section 317 of the California Corporations Code. The terms "agent",
"proceeding" and "expenses" made in this Section 7 shall have the same
meaning as such terms in said Section 317.
10
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Fidelity National Title
INSURANCE COMPANY
ISSUING AGENCY AGREEMENT
This Agreement is made this 1 day of JULY, 1997 between FIDELITY
NATIONAL TITLE INSURANCE COMPANY, a California corporation ("Company"), and
American Title Company ("Agent") (collectively, the "Parties"). In
consideration of the mutual benefits accruing and subject to the terms and
conditions hereof, the Parties agree as follows: The Schedules indicated
below are attached and incorporated by reference:
[ x ] Schedule A: Effective Date of Agreement, Agent's Territory,
Liability Limit, Compensation, General Liability
of Agent
[ x ] Schedule B: Corporate Agent's Bond and Insurance Requirements
[ x ] Schedule C: Exclusivity
[ ] Schedule D: Personal Guarantee
1. APPOINTMENT AND AUTHORITY OF AGENT
Company appoints Agent solely to countersign and issue title insurance
commitments, binders, guarantees, endorsements, title insurance policies
of Company, or any other form whereby Company assumes liability
(collectively, "Title Assurances") in Agent's Territory set forth in
Schedule A.
2. RESPONSIBILITY OF AGENT
A. Affirmative Covenants. Agent shall:
l. Receive and process applications for Title Assurances in
accordance with the provisions of state law, in conformity
with usual and customary practices and procedures, prudent
underwriting principles and in full compliance with manuals.
instructions, and bulletins of Company from time to time given
to Agent.
2. Maintain a Policy Register (the "Policy Register") referencing
the Agent's file number, policy number, date of issue, name of
insured, amount of policy, premium charged, and the
description of land insured. A legible copy of the Policy
Register shall be tendered to Company upon termination of this
Agreement or at any time as requested by Company.
3. Make available for examination by Company, at any time during
normal business hours and with reasonable prior notice from
Company during the term of this Agreement, all financial
records and records relating to the issuance of Company's
Title Assurances by Agent.
4. Provide to Company copies of any audited and any unaudited
financial reports or data submitted to any regulatory agencies
with jurisdiction over Agent.
5. Permit Company and its examiners, auditors, and independent
certified public accountants to enter Agent's business
promises for the purpose of inspecting same or performing a
financial, procedural, technical or forms audit.
6. Comply with all applicable federal, state and local laws
including statutes, ordinances, rules, regulations and
judicial opinions.
7. Obtain Company's prior approval where funds are to be held
under an escrow and/or indemnity agreement in order to
facilitate the issuance of a Title Assurance without exception
to or with affirmative coverage over a specific defect, lien
or encumbrance. The funds and property held under any such
escrow and/or indemnity agreement, together with the original
documents evidencing the escrow/indemnity, shall be
transferred to Company on request of Company.
8. Keep safely and segregated, in an FDIC insured escrow/trust
account, which is subject to audit by Company, all monies that
may be entrusted to Agent by Company, or others, in the course
of: (i) Agent's business operations; and, (ii) the issuance of
Company's Title Assurances hereunder. Agent shall exercise a
fiduciary duty with respect to the owners of the funds so
deposited. Agent shall be solely liable for any and all losses
arising by reason of Agent's improper, unauthorized, reckless
or premature disbursement of any escrowed funds.
9. Retain for seven (7) years, or such other time period required
by law, an original or legible copy of its file to evidence
the determination of insurability.
10. IF AGENT IS A CORPORATION OR PARTNERSHIP, DISCLOSE TO COMPANY
ANY CHANGE IN THE CONTROLLING INTEREST IN SAID CORPORATION OR
PARTNERSHIP WITHIN FIVE (5) BUSINESS DAYS OF THE CHANGE.
A CHANGE IN THE CONTROLLING INTEREST SHALL BE DEEMED TO OCCUR
WHEN AN OWNER OF MORE THAN FIFTY PERCENT (50%) OF THE CAPITAL
STOCK OF SAID CORPORATION CEASES TO OWN MORE THAN FIFTY
PERCENT (50%) OF SAID STOCK, OR WHEN THERE IS A SALE OF
SUBSTANTIALLY ALL OF AGENT'S ASSETS OR WHEN THERE IS A CHANGE
IN MORE THAN FIFTY PERCENT (50%) OWNERSHIP OF THE INTEREST(S)
IN THE PARTNERSHIP.
B. Negative Covenants. Agent shall not, without the prior written
approval of Company's corporate underwriting department:
1. Accept service of process on behalf of Company.
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2. Incur debts in the name of Company.
3. Issue any Title Assurance in a liability amount in excess of
the Risk Limit stated in Schedule A.
4. Commit Company to insure any Extra Hazardous Risk as defined
herein.
5. Alter any Title Assurance or other form furnished by Company
or commit Company to any particular interpretation of
provisions or terms of any Title Assurance.
6. Receive any funds including escrow, settlement or closing
funds, in the name of Company, but shall receive funds solely
in Agent's name.
7. Use Company's name in any manner inconsistent with the terms
and conditions of this Agreement.
8. Issue any Title Assurance on land in which any officer,
director, shareholder or partner of Agent has an interest.
3. RESPONSIBILITY OF COMPANY
Company shall:
A. Furnish to Agent, without cost, the then currently approved forms
of Title Assurances which Agent is authorized to issue hereunder.
B. Provide Agent with any relevant Company manuals, underwriting
bulletins and/or instructions which may now or hereafter be issued
by Company.
C. Be responsible for remitting payment of all Premium taxes.
D. Determine all underwriting questions submitted by Agent.
E. Arrange for reinsurance when necessary, but only to the extent
reinsurance is reasonably available.
F. Furnish its Insured Closing Service Letter to each of Agent's
qualified customers requesting same.
4. COMPENSATION
A. Agent shall remit to Company a percentage of the gross Premiums as
set for in Schedule A on all Title Assurances issued by Agent.
Agent shall hold Company's percentage of gross Premiums in trust
for Company until such time as such remittances are made to Company.
B. No later than the tenth (10th) of each calendar month Agent shall
submit to company copies, with Premium charged set forth thereon,
of all Title Assurances issued by Agent during the previous
calendar month, remit the Company's percentage of the Premium
charged for such Title Assurances and shall return all spoiled,
obsolete or canceled policies accumulated during the previous
calendar month.
5. REINSURANCE AND COINSURANCE
If reinsurance or coinsurance is purchased, the cost shall be deducted
from the Title Assurance Premium before determining the compensation due
to Agent and the remaining Premium together with the cost of the
reinsurance or coinsurance shall be remitted to Company, except as
otherwise agreed in writing between the Parties.
6. ALLOCATION OF LOSSES
A. Agent's General Liability shall be as set forth in Schedule A for any
Loss sustained or incurred as a result of the issuance of Title
Assurances by Agent, unless otherwise mandated by state and federal
law.
B. In the event that a Loss sustained or incurred for a matter arising
under this Agreement resulted or arose from the negligent, willful
or reckless conduct of Agent, Agent's employees or any independent
contractor relied upon by Agent, then Agent shall reimburse Company
for the Loss. The instances where Agent shall be liable to Company
under this subparagraph shall include, without limitation, the
following:
1. Failure of Agent to comply with the terms and conditions of
this Agreement or with the manuals, underwriting bulletins
and/or instructions given to Agent by Company.
2. Issuance of Title Assurances which contain errors or omissions
which could reasonably have been detected by Agent from the
commitment, examiner's report, title search or abstract.
3. Loss arising from escrow or Non-Title Assurance operations of
Agent including, but not limited to, preparation of documents,
providing abstracting services, providing accommodation
services and the handling and disbursement of funds.
4. Any Loss arising out of the issuance of an insured closing
service letter naming Agent.
5. Commission of fraud, conspiracy, dishonesty, misrepresentation
or defalcation by Agent or Agent's aiding and abetting therein.
6. Any act, or failure to act, of Agent which results in Company
sustaining Loss for bad faith, deceptive trade practices,
unfair claim practices, consumer protection violations or
punitive damages.
C. Agent shall be liable to Company for any Loss resulting to Company
by reason of Agent's failure to comply with the terms and
conditions of this Agreement.
D. Recovery of Loss under a claim will first be applied to
reimbursement of Company's Loss, then the balance, if any, to
reimburse Agent's loss. However, if Agent renders material
assistance in achieving recovery of a Loss, then the recovered
funds will be applied: (i) first, to reimburse Company's recovery
related expenses; (ii) second, to Agent's recovery related
expenses; and, (iii) third, to Company and Agent in accordance with
the percentage of loss paid by each party.
7. CLAIMS, LITIGATION AND ADMINISTRATIVE PROCEEDINGS
A. Agent shall immediately notify Company of and immediately forward
to Company:
1. Any claim, or threatened claim, under any Title Assurance
issued hereunder.
2. Any judicial action or proceeding affecting or purporting to
affect: (i) Company's interest; or (ii) the rights of an
insured or proposed insured under a Title Assurance issued by
Agent.
3. Any administrative proceeding, including any written
complaints or inquiries, by any insurance department or
regulatory agency involving: (i) one or both of the Parties;
or (ii) a Title Assurance issued by Agent. Agent shall provide
an initial notification to Company describing the allegations
and basic known facts. This initial notification shall be
provided, at the addresses and telephone numbers set forth
herein, by: (i) telephone advice; and, (ii) overnight courier;
or, (iii) facsimile transmission. Initial notification shall
be provided to Company within three (3) business days of Agent
becoming aware of any of the matters described in this
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<PAGE>
subparagraph 7 A. Following this initial notification Agent shall
forward, as soon as reasonably possible, all relevant
documents to Company by overnight courier or certified or
registered mail. Agent agrees to keep Company fully advised
and to promptly forward all relevant communications and other
writings or documents. Agent shall acknowledge receipt of any
notice in the manner set forth by Company.
B. Agent agrees that Company shall be fully authorized and empowered,
in its absolute discretion, to control, defend, prosecute, settle,
compromise, and/or dispose of any claim, litigation or proceeding
for which: (i) Company may be liable; and/or (ii) an insured under
a Title Assurance may be liable. Company shall have the rights to
select and approve any counsel representing Company or an insured
under a Title Assurance. Unless specifically authorized by Company
in writing, Agent shall have no right to defend, deny, settle,
compromise, or dispose of any action against Company or an insured.
Company shall have no obligation to provide a defense to Agent.
8. TERMINATION OF AGREEMENT
This Agreement shall be in force for a period of five (5) years,
thereafter to be renewed upon renegotiation by both parties.
9. PAYMENT OF COSTS AND EXPENSES
If either party shall institute an action against the other for breach
of this Agreement, the unsuccessful party shall pay court costs and
reasonable attorneys' fees to the successful party.
10. NOTICES
All notices permitted or required to be given under this Agreement shall
be in writing addressed as shown below, and may be: (i) personally
delivered; or, (ii) delivered by express courier service; or (iii)
mailed by certified or registered United States Mail. The effective date
of notice shall be: (i) the date of delivery for personal or express
courier deliveries; (ii) the date shown on the "return card" for
certified or registered mail if delivery is by certified or registered
mail. Said notices shall be addressed as follows:
Original to Company: Fidelity National Title Insurance Company
17911 Von Karman Avenue, Suite 300
Irvine, California 92714
Original to Agent: American Title Company
c/o: Wayne Diaz or
Mike Lowther
The person and/or address for notice may be changed by written notice.
Telephone and telefax numbers are shown for purpose of preliminary claim
and/or legal proceedings notice under paragraph 7 of this Agreement.
11. GENERAL PROVISIONS
A. Assignment. This Agreement is not assignable by either party
without the prior written consent of the other. This Agreement is,
however, binding on and inures to the benefit of any corporate
successors or assigns of Company and Agent.
B. Counterparts. This Agreement may be executed in counterparts which
shall collectively constitute a single agreement.
C. Waiver. By failing to exercise any of its rights hereunder, Company
shall not be deemed to have waived any breach on the part of Agent
or to have released Agent from any of its obligations hereunder.
The waiver by either party of a breach of any provision of this
Agreement shall not be deemed a continuing waiver or a waiver of
any subsequent breach of any provision of this Agreement.
D. Severability. If any one or more of the terms of this Agreement
shall be adjudged unenforceable, void, or voidable, the remaining
terms shall not be affected thereby and shall be valid and
enforceable to the full extent permitted by law.
E. Continuing Obligations. In the event this Agreement is terminated,
the obligations to make any payments, including without limitation
Agent's share of any Loss under paragraph 6 herein, to provide
notification as to claims and to provide access to records and
files shall continue beyond the date of termination.
F. Headings. The subject headings of the paragraphs and subparagraphs
of this Agreement are included for convenience and shall not affect
the construction or interpretation of any of their provisions.
G. Time of the Essence. Time shall be of the essence with respect to
all terms of this Agreement.
H. Further Cooperation. Each of the Parties hereto shall execute and
deliver any and all additional documents and other assurances and
shall do any and all acts and things reasonably necessary in
connection with the performance of their obligations hereunder and
to carry out the intent of the Parties.
I. Entire Agreement. This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof,
supersedes all prior discussions, understandings or agreements
between the Parties and shall not be amended, modified, or
otherwise changed in any manner except in writing by the Parties.
12. DEFINITION OF TERMS
A. Loss. Loss shall mean sums paid or to be paid by Company, in cash
or otherwise, to settle or compromise claims under any of Company's
Title Assurances issued by Agent. Loss shall include, but not be
limited to, expenses, costs and attorneys' fees actually paid or
incurred in connection with investigation, negotiation, litigation,
or settlement of such
Page 3 of 6
<PAGE>
claim which ultimately requires payment of any sum by Company.
Loss, as defined herein, shall be reduced by the value of any
recoveries actually realized by Company.
B. Premium. Premium shall mean the amount payable or paid in
accordance with Company's rates in effect or as otherwise approved
by Company in writing for the issuance of Title Assurances.
C. Extra Hazardous Risks. Extra Hazardous Risks shall mean all risks
which result in a liability not normally assumed by the Company.
Extra Hazardous Risks include, without limitation, the issuance of
a Title Assurance without a Schedule "B" exception for any of the
following matters where said matters affect the subject property:
1. Unrecorded construction/mechanics' liens which may gain
priority over the interest insured where Agent is aware that
the owner, general contractor or a subcontractor may not be
paying its debts as they become due.
2. Any interest of the applicable state, the United States or
other governmental entity in tidelands, swamp and overflow
waters, existing streams or rivers or lands which currently or
formerly were beneath a navigable waterbody.
3. Outstanding subsurface rights containing a right of entry.
4 Existing liens and encumbrances.
5. Bankruptcy, insolvency or creditors' rights.
6. Major encroachments.
7. Non-imputation of knowledge.
8. Indian land or restricted Indian title.
9. Pending actions and litigation.
10. Any risk involving a title about which Agent has knowledge of
an existing dispute or of risks, adverse claims or questions
of title known in the community.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be properly
executed by their respective representatives having full authority to do so.
AGENT: COMPANY:
AMERICAN TITLE COMPANY FIDELITY NATIONAL TITLE
INSURANCE COMPANY
By: /s/ WAYNE DIAZ By: /s/ M'LISS JONES KANE
-------------------------------- ------------------------------------
President
ATTEST: /s/ MICHAEL LOWTHER ATTEST: /s/ [Illegible]
---------------------------- --------------------------------
Its: [Signature] Its: [Signature]
-------------------------------- -----------------------------------
NOTIFICATION IN COMPLIANCE WITH SECTION 606(A)
OF "THE FAIR CREDIT REPORTING ACT"
In making this Agreement, it is understood that an investigative report may
be made whereby information is obtained through personal interviews with
third parties such as family members, business associates, financial sources,
friends, neighbors or others with whom you are acquainted. This inquiry
includes information as to your character, general reputation, personal
characteristics, and mode of living, whichever may be applicable. You have
the right to make a written request within a reasonable period of time for a
complete and accurate disclosure of additional information concerning the
nature and scope of the investigation.
Attached and made a part of the Agreement by and between Fidelity National
Title Insurance Company ("Company") and American Title Company ("Agent").
Page 4 of 6
<PAGE>
SCHEDULE A
EFFECTIVE DATE OF AGREEMENT, AGENT'S TERRITORY
LIABILITY LIMIT, COMPENSATION, GENERAL LIABILITY OF AGENT
1. Effective Date of Original Agreement: Date the California Department
of Insurance approves the sale
of 60% of American Title
Company to American Title
Company Holdings, Inc.
2. Effective Date of Extension:
3. Agent's Territory: Kern County
Alameda County
Contra Costa County
Fresno County
Los Angeles County
Madera County
Orange County
Riverside County
San Bernardino County
Sacramento County
San Diego County
San Mateo County
Santa Clara County
Ventura County
4. Liability Limit: On any Title Assurance which has liability
in excess of $1,000,000.00, Agent shall
first review and obtain Company's written
approval prior to issuing the Title
Assurance.
5. Compensation: Agent shall pay Company twelve percent
(11%) of the gross premiums on all Title
Assurances issued by Agent. There shall be
an additional 1% Management Fee.
Management Fee shall be for accounting
services including but not limited to
accounting profit and loss and balance
sheet information, corporate legal
including underwriting, human resources
including insurance and 401K, statutory
auditing including the preparation of all
statutory reports and federal and state
tax returns. In the event that Agent no
longer needs management's services, upon
ninety (90) days' prior notice to Company
said fee and services shall terminate.
6. General Liability of Agent: Subject to the provisions of subparagraph
6B above, Agent shall be liable for the
first $5,000.00 of any Loss sustained or
incurred by Company as a result of the
issuance of the Title Assurances by Agent.
7. Governing Law: This Agreement is to be construed,
enforced, and governed according to and by
the laws of the State of California in all
respects.
SCHEDULE B
CORPORATE AGENT'S BOND AND INSURANCE REQUIREMENTS
1. Agent shall, at its own expense, maintain a blanket fidelity bond in a
principal sum of at least Fifty Thousand Dollars and No Cents
($50,000.00) in a form and issued by a company acceptable to Company and
naming Company as an additional insured or payee.
2. Agent shall, at its own expense, maintain errors and omissions liability
insurance in a principal sum of at least Two Hundred Fifty Thousand
Dollars and No Cents ($250,000.00) per occurrence and Five Hundred
Thousand Dollars and No Cents ($500,000.00) total annually, in a form
and issued by a company acceptable to Company, with a deductible of no
more than Five Thousand Dollars and No Cents ($5,000.00) and naming
Company as an additional insured or payee.
3. Agent shall annually furnish Company with true copies of the bond(s) and
policy together with current premium receipts for said bond(s) and
insurance.
4. Upon request of Company, Agent agrees to notify its fidelity bond or
errors and omissions insurance carrier of any claim for which Agent may
be liable to Company.
SCHEDULE C
EXCLUSIVITY
During the term of this Agreement, Agent shall not act as Agent for or in any
manner aid the procurement of any Title Assurance for any other title
insurance company except Fidelity National Title Insurance Company of
California unless: (i) Company declines to issue insurance with respect to a
particular transaction (in which case Agent may use any title insurance
company of its choosing with respect to that particular transaction): (ii)
Lessor otherwise consents to the Lessee's use of another underwriter; or
(iii) a customer of Lessee declines to accept title insurance from Lessor.
Page 5 of 6
<PAGE>
The coincidental use by a competitive title insurer of an abstract or title
report prepared by Agent shall not be construed as a violation of this
provision.
In the event that control of the Company is transferred to an independent
third party, outside of the Fidelity companies (which shall include any
Fidelity affiliate, subsidiary or employee), Agent shall have the right to
cause this Agreement to become non-exclusive for the remainder of the term of
the Agreement.
COMPLIANCE WITH CALIFORNIA LAND TITLE ASSOCIATION
ACCOUNT, OVERSIGHT AND CONTROL GUIDELINES
Company and Agent hereby agree that effective January 1, 1996, Agent shall
comply with the California Land Title Association Account Review Processes
and Oversight and Internal Control Guidelines, the American Land Title
Association Escrow Internal Control Guidelines for Title Insurance Companies,
Agencies and Approved Attorneys and Employee Affidavit (collectively referred
to as the "Guidelines") in compliance with Section 12389.8 of the California
Insurance Code. Agent shall comply with the procedures set out in said
Guidelines as they may be further modified from time to time by Company in
order to comply with requirements of the Department of Insurance or the
California Insurance Code. In the event of any disparity between said
Guidelines and the California Insurance Code, the provision of the Insurance
Code shall prevail.
Page 6 of 6
<PAGE>
ISSUING AGENCY AGREEMENT
This Agreement is made this 25th day of August, 1997, between FIDELITY NATIONAL
TITLE INSURANCE COMPANY, a California corporation ("Company"), and Santa Barbara
Title Company, a California Corporation ("Agent") (collectively, the "Parties").
In Consideration of the mutual benefits accruing and subject to the terms and
conditions hereof, the Parties agree as follows:
The Schedules indicated below are attached and incorporated by reference:
[ X ] Schedule A: Effective Date of Agreement, Agent's Territory, Liability
Limit, Compensation, General Liability of Agent
[ X ] Schedule B: Corporate Agent's Bond and Insurance Requirements
[ X ] Schedule C: Exclusivity
[ ] Schedule D: Personal Guarantee
l. APPOINTMENT AND AUTHORITY OF AGENT
Company appoints Agent solely to countersign and issue title insurance
commitments, binders, guarantees, endorsements, title insurance policies
of Company, or any other form whereby Company assumes liability
(collectively, "Title Assurance"j in Agent's Territory set forth in
Schedule A.
2. RESPONSIBILITY OF AGENT
A. Affirmative Covenants. Agent Shall:
1. Receive and process applications for Title Assurances in
accordance with the provisions of state law, in conformity
with usual and customary practices and procedures, prudent
underwriting principles and in full compliance with manuals,
instructions, and bulletins of company from time to time given
to Agent.
2. Maintain a Policy Register (the "Policy Register") referencing
the Agent's file number, policy number, date of issue, name of
insured, amount of policy, premium charged, and the
description of land insured. A legible copy of the policy
Register shall be tendered to Company upon termination of this
Agreement or at any time as requested by Company.
3. Make available for examination by Company, at any time during
normal business hours and with reasonable prior notice from
Company during the term of this Agreement, all financial
records and records relating to the issuance of Company's
Title Assurances by Agent.
4. Provide to Company copies of any audited and any unaudited
financial reports or data submitted to any regulator agencies
with jurisdiction over Agent.
5. Permit Company and its examiners, auditors, and independent
certified public accountants to enter Agent's business
premises for the purpose of inspecting same of performing a
financial, procedural, technical or forms audit.
6. Comply with all applicable federal, state and local laws
including statutes, ordinances, rules, regulations and
judicial opinions.
7. Obtain Company's prior approval where funds are to be held
under an escrow and/or indemnity agreement in order to
facilitate the issuance of a Title Assurance without exception
to or with affirmative coverage over a specific defect, lien
or encumbrance. The funds and property held under any such
escrow and/or indemnity agreement, together with the original
documents evidencing the escrow/indemnity, shall be
transferred to Company on request of Company.
8. Keep safely and segregated, in a FDIC insured escrow/trust
account, which is subject to audit by Company, all monies that
may be entrusted by Agent by Company, or others, in the course
of: (i) Agent's business operations; and, (ii) the issuance of
Company's Title Assurances hereunder. Agent shall exercise a
fiduciary duty with respect to the owners of the funds so
deposited. Agent shall be solely liable for any and all losses
arising by reason of Agent's improper, unauthorized, reckless
or premature disbursement of any escrowed funds.
9. Retain for seven (7) years, or such other time period required
by law, an original or legible copy of its file to evidence
the determination of insurability.
10. If Agent is a corporation or partnership, disclose to Company
any change in the controlling interest in said corporation or
partnership within five (5) business days of the change. A
change in the controlling interest shall be deemed to occur
when an owner of more then fifty percent (50%) of the capital
stock of said corporation ceases to own more than fifty
percent (50% ) of said stock, or when there is a sale of
substantially all of Agent's assets or when there is a change
in more than fifty percent (50% ) ownership of the interest(s)
in the partnership.
B. Negative Covenants. Agent shall not, without the prior written
approval of Company's corporate underwriting department:
1. Accept service of process on behalf of Company.
2. Incur debts in the name of Company.
3. Issue any Title Assurance in a liability amount in excess of
the Risk Limit stated in Schedule A.
4. Commit Company to insure any Extra Hazardous Risk as defined
herein.
5. Alter any Title Assurance or other form furnished by Company
or commit Company to any particular interpretation of
provisions or terms of any Title Assurance.
6. Receive any funds including escrow settlement or closing
funds, in the name of Company, but shall receive funds solely
in Agent's name.
7. Use Company's name in any manner inconsistent with the terms
and conditions of this Agreement.
8. Issue any Title Assurance on land in which any officer,
director, shareholder or partner of Agent has an interest.
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3. RESPONSIBILITY OF COMPANY
Company shall:
A. Furnish to Agent. without cost, the then currently approved forms
of Title Assurances which Agent is authorized to issue hereunder.
B. Provide Agent with any relevant Company manuals, underwriting
bulletins and/or instructions which may now or hereafter be issued
by Company.
C. Be responsible for remitting payment of all Premium taxes.
D. Determine all underwriting questions submitted by Agent.
E. Arrange for reinsurance when necessary, but only to the extent
reinsurance is reasonably available.
F. Furnish its Insured Closing Service Letter to each of Agent's
qualified customers requesting same.
4. COMPENSATION
A. Agent shall remit to Company a percentage of the gross Premiums as
set for in Schedule A on all Title Assurances issued by Agent.
Agent shall hold Company's percentage of gross Premiums in trust
for Company until such time as such remittances are made to Company.
B. No later than the tenth (10th) of each calendar month Agent shall
submit to company copies, with Premium charged set forth thereon,
of all Title Assurances issued by Agent during the previous
calendar month, remit the Company's percentage of the Premium
charged for such Title Assurances and shall return all spoiled,
obsolete or canceled policies accumulated during the previous
calendar month.
5. REINSURANCE AND COINSURANCE
If reinsurance or coinsurance is purchased, the cost shall be deducted
from the Title Assurance Premium before determining the compensation due
to Agent and the remaining Premium together with the cost of the
reinsurance or coinsurance shall be remitted to Company, except as
otherwise agreed in writing between the Parties.
6. ALLOCATION OF LOSSES
A. Agent's General Liability shall be as set forth in Schedule A for any
Loss sustained or incurred as a result of the issuance of Title
Assurances by Agent, unless otherwise mandated by state and federal
law.
B. In the event that a Loss sustained or incurred for a matter arising
under this Agreement resulted or arose from the negligent, willful
or reckless conduct of Agent, Agent's employees or any independent
contractor relied upon by Agent, then Agent shall reimburse Company
for the Loss. The instances where Agent shall be liable to Company
under this subparagraph shall include, without limitation, the
following:
1. Failure of Agent to comply with the terms and conditions of
this Agreement or with the manuals, underwriting bulletins
and/or instructions given to Agent by Company.
2. Issuance of Title Assurances which contain errors or omissions
which could reasonably have been detected by Agent from the
commitment, examiner's report, title search or abstract.
3. Loss arising from escrow or Non-Title Assurance operations of
Agent including, but not limited to, preparation of documents,
providing abstracting services, providing accommodation
services and the handling and disbursement of funds.
4. Any Loss arising out of the issuance of an insured closing
service letter naming Agent.
5. Commission of fraud, conspiracy, dishonesty, misrepresentation
or defalcation by Agent or Agent's aiding and abetting therein.
6. Any act, or failure to act, of Agent which results in Company
sustaining Loss for bad faith, deceptive trade practices,
unfair claim practices, consumer protection violations or
punitive damages.
C. Agent shall be liable to Company for any Loss resulting to Company
by reason of Agent's failure to comply with the terms and
conditions of this Agreement.
D. Recovery of Loss under a claim will first be applied to
reimbursement of Company's Loss, then the balance, if any, to
reimburse Agent's loss. However, if Agent renders material
assistance in achieving recovery of a Loss, then the recovered
funds will be applied: (i) first, to reimburse Company's recovery
related expenses; (ii) second, to Agent's recovery related
expenses; and, (iii) third, to Company and Agent in accordance with
the percentage of loss paid by each party.
7. CLAIMS, LITIGATION AND ADMINISTRATIVE PROCEEDINGS
A. Agent shall immediately notify Company if Agent becomes aware of:
l. Any claim, or threaten claim, under any Title Assurance issued
hereunder.
2. Any judicial action or proceeding affecting or purporting to
affect: (i) Company's interest; or (ii) the rights of an
insured or proposed insured under a Title Assurance issued by
Agent.
3. Any administrative proceeding, including any written
complaints or inquiries, by any insurance department or
regulatory agency involving: (i) one or both of the Parties;
or (ii) a Title Assurance issued by Agent.
Agent shall provide an initial notification to Company
describing the allegations and basic known facts. This initial
notification shall be provided, at the addresses and telephone
numbers set forth herein, by: (i) telephone advice; and, (ii)
overnight courier, or, (iii) facsimile transmission. Initial
notification shall be provided to Company within three (3)
business days of Agent becoming aware of any of the matters
described in this subparagraph 7 A. Following this initial
notification Agent shall forward, as soon as reasonably
possible, all relevant documents to Company by overnight courier
or certified or registered mail. Agent agrees to keep Company
fully advised and to promptly forward all relevant
communications and other writings or documents. Agent shall
acknowledge receipt of any notice in the manner set forth by
Company.
2
<PAGE>
B. Agent agrees that Company shall be fully authorized and empowered,
in its absolute discretion, to control, defend, prosecute, settle,
compromise, and/or dispose of any claim, litigation or proceeding
for which: (i) Company may be liable; and/or (ii) an insured under
a Title Assurance may be liable. Company shall have the rights to
select and approve any counsel representing Company or an insured
under a Title Assurance. Unless specifically authorized by Company
in writing, Agent shall have no right to defend, deny, settle,
compromise, or dispose of any action against Company or an insured.
Company shall have no obligation to provide a defense to Agent.
8. TERMINATION OF AGREEMENT
A. This Agreement may be terminated by either party without cause upon
thirty (30) days' written notice to the other party.
B. This Agreement may be terminated by Company upon ten (10) day's
written notice to Agent upon the occurrence of:
(i.) A material failure of Agent to fulfill the obligations
created under this Agreement, unless Agent cures such
default to satisfaction of Company within such time; or
(ii.) A change, not approved by Company, in the controlling
interest in Agent, if Agent is a corporation or
partnership.
C. This Agreement may be immediately terminated by Company if:
(i.) Financial irregularities are disclosed as result of an
audit or examination of Agent's records or upon failure
of Agent to allow review of its financial records or
records relating to issuance of Company's Title
Assurances by Agent.
(ii.) Agent applies for, consents to, or commences a case
seeking liquidation, insolvency, receivership or
bankruptcy, voluntary or involuntary, or has a
conservator or rehabilitator appointed, or has its
license or permit to do business suspended or canceled,
or if the State covered by the Agreement, Federal
authorities or any regulatory body or court shall
commence a proceeding, which proceeding if successful,
would lead to cancellation of Agent's permit or license
to do business.
(iii.) Company ceases to transact business in Agent's territory.
D. Upon termination of this agreement, Agent shall promptly furnish to
Company all funds, property and agreements held as security for
affirmative assurances given by Agent with respect to Company's Title
Assurances, together with a complete accounting and immediate payment
of any and all unpaid premiums owing to Company, and Agent shall
return to Company the Policy Register, all unused forms, blanks and
supplies, and all manuals, bulletins and instructions furnished by
Company to Agent. Should Agent fail or refuse to return any or all of
the above, Company shall have the right to enter Agent's premises and
remove same. Agent may retain a copy of the Policy Register for its
files and for its exclusive use in complying with the surviving
obligations as set forth herein.
9. PAYMENT OF COSTS AND EXPENSES
If either party shall institute an action against the other for breach
of this Agreement, the unsuccessful party shall pay court costs and
reasonable attorneys' fees to the successful party.
10. NOTICES
All notices permitted or required to be given under this Agreement shall
be in writing addressed as shown below, and may be: (i) personally
delivered; or, (ii) delivered by express courier service; or (iii)
mailed by certified or registered United States Mail. The effective date
of notice shall be: (i) the date of delivery for personal or express
courier deliveries; (ii) the date shown on the "return card" for
certified or registered mail if delivery is by certified or registered
mail. Said notices shall be addressed as follows:
Original to Company: Fidelity National Tile Insurance Company
17911 Von Karman Avenue, Suite 410
Irvine, California 92614-6253
Attn.: Western agency Department
With a Copy to: Fidelity National Tile Insurance Company
17911 Von Karman Avenue, Suite 300
Irvine, California 92614-6253
National Claims Administration
Original to Agent: Santa Barbara Title Company
205 East Carrillo Street
Santa Barbara, CA 93102
The person and/or address for notice may be changed by written notice.
Telephone and telefax numbers are shown for purposes of preliminary
claim and/or legal proceedings notice under paragraph 7 of this
Agreement.
11. GENERAL PROVISIONS
A. Assignment. This Agreement is not assignable by either party
without the prior written consent of the other. This Agreement is.
however, binding on and inures to the benefit of any corporate
successors or assigns of Company and Agent.
B. Counterparts. This Agreement may be executed in counterparts which
shall collectively constitute a single agreement.
C. Waiver. By failing to exercise any of its rights hereunder, Company
shall not be deemed to have waived any breach on the part of Agent
or to have released Agent from any of its obligations hereunder.
The waiver by either party of a breach of any provision of this
Agreement shall not be deemed a continuing waiver or a waiver of
any subsequent breach of any provision of this Agreement.
D. Severability. If any one or more of the terms of this Agreement
shall be adjudged unenforceable, void, or voidable, the remaining
terms shall not be affected thereby and shall be valid and
enforceable to the full extent permitted by law.
E. Continuing Obligations. In the event this Agreement is terminated,
the obligations to make any payments, including without limitation
Agent's share of any Loss under paragraph 6 herein, to provide
notification as to claims and to provide access to records and
files shall continue beyond the date of termination.
3
<PAGE>
F. Headings. The subject headings of the paragraphs and subparagraphs
of this Agreement are included for convenience and shall not affect
the construction of interpretation of any of their provisions.
G. Time of the Essence. Time shall be of the essence with respect to
all terms of this Agreement.
H. Further Cooperation. Each of the Parties hereto shall execute and
deliver any and all additional documents and other assurances and
shall do any and all acts and things reasonably necessary in
connection with the performance of their obligations hereunder and
to carry out the intent of the Parties.
I. Entire Agreement. This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof,
supersedes all prior discussions, understandings or agreements
between the Parties and shall not be amended, modified, or
otherwise changed in any manner except in writing by the Parties.
12. DEFINITION OF TERMS
A. Loss. Loss shall mean sums paid or to be paid by Company, in cash
or otherwise, to settle or compromise claims under any of Company's
Title Assurances issued by Agent. Loss shall include, but not bc
limited to, expenses, costs and attorneys' fees actually paid or
incurred in connection with investigation, negotiation, litigation,
or settlement of such claim which ultimately requires payment of
any sum by Company. Loss, as defined herein, shall be reduced by
the value of any recoveries actually realized by Company.
B. Premium. Premium shall mean the amount payable or paid in
accordance with Company's rates in effect or as otherwise approved
by Company in writing for the issuance of Title Assurances.
C. Extra Hazardous Risks. Extra Hazardous Risks shall mean all risks
which result in a liability not normally assumed by the Company.
Extra Hazardous Risks include, without limitation, the issuance of
a Title Assurance without a Schedule "B" exception for any of the
following matters where said matters affect the subject property:
l. Unrecorded construction/mechanics' liens which may gain
priority over the interest insured where Agent is aware that
the owner, general contractor or a subcontractor may not be
paying its debts as they become due.
2. Any interest of the applicable state, the United States or
other governmental entity in tidelands, swamp and overflow
waters, existing streams or rivers or lands which currently or
formerly were beneath a navigable waterbody.
3. Outstanding subsurface rights containing a right of entry.
4. Existing liens and encumbrances.
5. Bankruptcy, insolvency or creditors' rights.
6. Major encroachments.
7. Non-imputation of knowledge.
8. Indian land or restricted Indian title.
9. Pending actions and litigation.
10. Any risk involving a title about which agent has knowledge of
an existing dispute or of risks, adverse claims or questions
of title known in the community.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be properly
executed by their respective representatives having full authority to do so.
AGENT: Santa Barbara Title Company, COMPANY:
a California Corporation FIDELITY NATIONAL TITLEI
INSURANCE COMPANY
By: /s/ Dennis R. Duffy By: /s/ M'Liss Jones Kane
-------------------------------- -------------------------------
Dennis Duffy M'Liss Jones Kane
Operations Manager Senior Vice President
ATTEST:
----------------------------
Its:
-------------------------------
NOTIFICATION IN COMPLIANCE WITH SECTION 606(A)
OF "THE FAIR CREDIT REPORTING ACT"
In making this Agreement, it is understood that an investigative report may
be made whereby information is obtained through personal interviews with
third parties such as family members, business associates, financial sources,
friends, neighbors or others with whom you are acquainted. This inquiry
includes information as to your character, general reputation, personal
characteristics, and mode of living, whichever may be applicable. You have
the right to make a written request within a reasonable period of time for a
complete and accurate disclosure of additional information concerning the
nature and scope of the investigation.
4
<PAGE>
SCHEDULE A
Attached and made a part of the Agreement between Fidelity National Title
Insurance Company ("Company") and Santa Barbara Title Company, a California
Corporation("Agent").
EFFECTIVE DATE OF AGREEMENT, AGENT'S TERRITORY
LIABILITY LIMIT, COMPENSATION, GENERAL LIABILITY OF AGENT
l. Effective Date of Original Agreement: August 14th, 1997
2. Effective date of Extension (if any):
3. Agent's Territory: Santa Barbara County
4. Liability Limit On any Title Assurance which has liability in excess of
$ 1,000,000.00, Agent shall first review and obtain Company's written
approval prior to issuing the Title Assurance.
5. Compensation: Agent shall pay Company twelve percent (11%) of the gross
premiums on all Title Assurances issued by Agent. There
shall be an additional 1% Management Fee. Management Fee
shall be for accounting services including but not limited
to accounting profit and loss and balance sheet information,
corporate legal including underwriting, human resources
including insurance and 401K, statutory auditing including
the preparation of all statutory reports and federal and
state tax returns.
In the event that Agent no longer needs management's
services, upon ninety (90) days' prior notice to Company
said fee and services shall terminate.
6. General Liability of Agent: Subject to the provisions of subparagraph 6
B above, Agent shall be liable for the first $5,000.00 of any Loss
sustained or incurred by Company as a result of the issuance of the
Title Assurances by Agent.
7. Governing Law. This Agreement is to be construed, enforced, and governed
according to and by the laws of the State of California in all respects.
SCHEDULE B
CORPORATE AGENT'S BOND AND INSURANCE REQUIREMENTS
l. Agent shall, at its own expense, maintain a blanket fidelity bond in a
principal sum of at least Fifty Thousand Dollars and No Cents
($50,000.00) in a form and issued by a company acceptable to Company and
naming Company as an additional insured or payee.
2. Agent shall, at its own expense, maintain errors and omissions liability
insurance in a principal sum of a least Two Hundred Fifty Thousand
Dollars and No Cents ($250,000.00) per occurrence and Five Hundred
Thousand Dollars and No Cents ($500,000.00) total annually, in a form
and issued by a company acceptable to Company, with a deductible of no
more than Five Thousand Dollars and No Cents (5,000.00) and naming
Company as an additional insured or payee.
3. Agent shall annually furnish Company with true copies of the bond(s) and
policy together with current premium receipts for said bond(s) and
insurance.
4. Upon request of Company, Agent agrees to notify its fidelity bond or
errors and omissions insurance carrier of any claim for which Agent may
be liable to Company.
SCHEDULE C
EXCLUSIVITY
During the term of this Agreement, Agent shall not act as Agent for or in any
manner aid the procurement of any Title Assurance for any other title insurance
company except Fidelity National Title Insurance Company unless: (i) Company
declines to issue insurance with respect to a particular transaction (in which
case Agent may use any title insurance company of its choosing with respect to
that particular transaction): (ii) Lessor otherwise condents to the Lessee's use
of another underwriter; or (iii) a customer of Lessee declines to accept title
insurance from Lessor.
5
<PAGE>
The coincidental use by a competitive title insurer of an abstract or title
report by Agent shall not be construed as a violation of this provision.
In the event that control of the Company is transferred to an independent third
party, outside of the Fidelity companies (which shall include any Fidelity
affiliate, subsidiary or employee), Agent shall have the right to cause this
Agreement to become non-exclusive for the remainder of the term of the
Agreement.
COMPLIANCE WITH CALIFORNIA LAND TITLE ASSOCIATION
ACCOUNT, OVERSIGHT AND CONTROL GUIDELINES
Company and Agent hereby agree that effective January I, 1996, Agent shall
comply with the California Land Title Association Account Review Processes and
Oversight and Internal Control Guidelines, the American Land Title Association
Escrow Internal Control Guidelines for Title Insurance Companies, Agencies and
Approved Attorneys and Employee Affidavit (collectively referred to as the
"Guidelines") in compliance with Section l2389.6 of the California Insurance
Code. Agent shall comply with the procedures set out in said Guidelines as they
may be further modified from time to time by Company in order to comply with
requirements of the Department of Insurance or the California Insurance Code. In
the event of any disparity between said Guidelines and the California Insurance
Code, the provision of the Insurance Code shall prevail.
6
<PAGE>
SCHEDULE A
EFFECTIVE DATE OF AGREEMENT, AGENT'S TERRITORY
LIABILITY LIMIT, COMPENSATION, GENERAL LIABILITY OF AGENT
1. Effective Date of Original Agreement: Date the California Department
of Instance approves the sale of
60% of American Title Company to
American Title Company Holdings,
Inc.
2. Effective Date of Extension:
3. Agent's Territory: Kern County
Alameda County
Contra Costa County
Fresno County
Los Angeles County
Madera County
Orange County
Riverside County
San Bernardino County
Sacramento County
San Diego County
San Mateo County
Santa Clara County
Ventura County
4. Liability Limit: On any Title Assurance which has liability
in excess of $1,000,000.00, Agent shall
first review and obtain Company's written
approval prior to issuing the Title
Assurance.
5. Compensation: Agent shall pay Company twelve percent
(11%) of the gross premiums on all Title
Assurances issued by Agent. There shall be
an additional 1% Management Fee.
Management Fee shall be for accounting
services including but not limited to
accounting profit and loss and balance
sheet information, corporate legal
including underwriting, human resources
including insurance and 401K, statutory
auditing including the preparation of all
statutory reports and federal and state
tax returns. In the event that Agent no
longer needs management's services, upon
ninety (90) days' prior notice to Company
said fee and services shall terminate.
6. General Liability of Agent: Subject to the provisions of subparagraph
6B above, Agent shall be liable for the
first $5,000.00 of any Loss sustained or
incurred by Company as a result of the
issuance of the Title Assurances by Agent.
7. Governing Law: This Agreement is to be construed,
enforced, and governed according to and by
the laws of the State of California in all
respects.
SCHEDULE B
CORPORATE AGENT'S BOND AND INSURANCE REQUIREMENTS
1. Agent shall, at its own expense, maintain a blanket fidelity bond in a
principal sum of at least Fifty Thousand Dollars and No Cents
($50,000.00) in a form and issued by a company acceptable to Company and
naming Company as an additional insured or payee.
2. Agent shall, at its own expense, maintain errors and omissions liability
insurance in a principal sum of at least Two Hundred Fifty Thousand
Dollars and No Cents ($250,000.00) per occurrence and Five Hundred
Thousand Dollars and No Cents ($500,000.00) total annually, in a form
and issued by a company acceptable to Company, with a deductible of no
more than Five Thousand Dollars and No Cents ($5,000.00) and naming
Company as an additional insured or payee.
3. Agent shall annually furnish Company with true copies of the bond(s) and
policy together with current premium receipts for said bond(s) and
insurance.
4. Upon request of Company, Agent agrees to notify its fidelity bond or
errors and omissions insurance carrier of any claim for which Agent may
be liable to Company.
SCHEDULE C
EXCLUSIVITY
During the term of this Agreement, Agent shall not act as Agent for or in
any manner aid the procurement of any Title Assurance for any other title
insurance company except Fidelity National Title Insurance Company of
California unless: (i) Company declines to issue insurance with respect to a
particular transaction (in which case Agent may use any title insurance
company of its choosing with respect to that particular transaction): (ii)
Lessor otherwise consents to the Lessee's use of another underwriter; or
(iii) a customer of Lessee declines to accept title insurance from Lessor.
Page 5 of 6
<PAGE>
The coincidental use by a competitive title insurer of an abstract or title
report prepared by Agent shall not be construed as a violation of is
provision.
In the event that control of the Company is transferred to an independent third
party, outside of the Fidelity companies (which shall include any Fidelity
affiliate, subsidiary or employee), Agent shall have the right to cause this
Agreement to become non-exclusive for the remainder of the term of the
Agreement.
COMPLIANCE WITH CALIFORNIA LAND TITLE ASSOCIATION
ACCOUNT, OVERSIGHT AND CONTROL GUIDELINES
Company and Agent hereby agree that effective January 1, 1996, Agent shall
comply with the California Land Title Association Account Review Processes
and Oversight and Internal Control Guidelines, the American Land Title
Association Escrow Internal Control Guidelines for Title Insurance Companies,
Agencies and Approved Attorneys and Employee Affidavit (collectively referred
to as the "Guidelines") in compliance with Section 12389.6 of the California
Insurance Code. Agent shall comply with the procedures set out in said
Guidelines as they may be further modified from time to time by Company in
order to comply with requirements of the Department of Insurance or the
California Insurance Code. In the event of any disparity between said
Guidelines and the California Insurance Code, the provision of the Insurance
Code shall prevail.
Page 6 of 6
<PAGE>
IMPERIAL BANK
CREDIT AGREEMENT
This Agreement is made by and between ATC HOLDINGS, INC. ("Borrower") and
Imperial Bank, a California banking corporation, ("Bank").
Subject to the terms and conditions of the Loan Documents (as defined
below), Bank shall make loans to Borrower from time to time as advances are
requested by Borrower until October 3, 1997, not to exceed, in the aggregate,
$6,000,000.00. To induce Bank to make loans to Borrower and in consideration
of any loan or loans Bank may make to Borrower, Borrower warrants and agrees
as follows:
A. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
1) EXISTENCE AND RIGHTS. Borrower is a corporation duly organized and existing
and in good standing under the laws of California, without limit as to the
duration of its existence and is authorized and in good standing to do
business in the State of California; Borrower has corporate powers and
adequate authority, rights and franchises to own its property and to carry
on its business as now conducted, and is duly qualified and in good
standing in each State in which the character of the properties owned by it
therein or the conduct of its business makes such qualification necessary;
and Borrower has the power and adequate authority to make and carry out
this Agreement
2) AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or approval of
any governmental body or other regulatory authority; are not in
contravention of or in conflict with any law or regulation or any term or
provision of Borrower's articles of incorporation, by-laws, or Articles of
Association, as the case may be, and this Agreement is the valid, binding
and legally enforceable obligation of Borrower in accordance with its
terms; subject only to bankruptcy, insolvency or similar laws affecting
creditors rights generally.
3) NO CONFLICT. The execution, delivery and performance of this Agreement are
not in contravention of or in conflict with any agreement, indenture or
undertaking to which Borrower is a party or by which it or any of its
property may be bound or affected, and do not cause any lien, charge or
other encumbrance to be created or imposed upon any such property by reason
thereof.
4) LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower which if determined adversely
to Borrower or its interest would have a material adverse effect on the
financial condition of Borrower, and Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court or
other governmental or regulatory authority.
<PAGE>
5) FINANCIAL CONDITION. The balance sheet of Borrower as of March 31, 1997, a
copy of which has heretofore been delivered to Bank by Borrower, and all
other statements and data submitted in writing by Borrower to Bank in
connection with this request for credit are true and correct, and said
balance sheet truly presents the financial condition of Borrower as of the
date thereof, and has been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained. Since such date,
there have been no material adverse changes in the financial condition or
business of Borrower. Borrower has no knowledge of any liabilities,
contingent or otherwise, at such date not reflected in said balance sheet,
and Borrower has not entered into any special commitments or substantial
contracts which are not reflected in said balance sheet, other than in the
ordinary and normal course of its business, which may have a materially
adverse effect upon its financial condition, operations or business as now
conducted.
6) TITLE TO ASSETS. Borrower has good title to its assets, and the same are
not subject to any liens or encumbrances other than those permitted by
Section C.3 hereof.
7) TAX STATUS. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
8) TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights,
and licenses to conduct its business as now operated, without any known
conflict with the valid trademarks, trade names, copyrights, patents and
license rights of others.
9) REGULATION U. The proceeds of the Loan shall not be used to purchase or
carry margin stock (as defined within Regulation U of the Board of
Governors of the Federal Reserve system).
B. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under
borrowings, or other indebtedness, it will, unless Bank shall otherwise consent
in writing:
1) RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
2) INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against
fire and other hazards with responsible insurance carriers to the extent
usually maintained by similar businesses and/or in the exercise of good
business judgment and as to property insurance have Bank named as loss
payee in a Lenders "Loss Payable" Endorsement Form 438BFU or equivalent.
3) TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all
its other liabilities at any time existing, except to the extent and so
long as:
2
<PAGE>
a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
effect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
b) It shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it
adequate with respect thereto.
4) RECORDS AND REPORTS. Maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles on a basis
consistently maintained; permit Bank's representatives to have access to,
and to examine its properties, books and records at all reasonable times
and upon reasonable notice during normal business hours; and furnish Bank:
a) As soon as available, and in any event within forty five (45) days
after the close of each quarter of each fiscal year of
Borrower, commencing with the quarter next ending, a balance sheet,
profit and loss statement and reconciliation of Borrower's capital
accounts as of the close of such period and covering operations for
the portion of Borrower's fiscal year ending on the last day of such
period, all in reasonable detail, prepared in accordance with
generally accepted accounting principles on a basis consistently
maintained by Borrower and certified by an appropriate officer of
Borrower;
b) As soon as available, and in any event within one hundred and twenty
(120) days of fiscal year end, a report of Borrower as of the close
of and for each fiscal year, all in reasonable detail, prepared on an
audited basis by an independent certified public accountant selected
by Borrower and reasonably acceptable to Bank, in accordance with
generally accepted accounting principles on a basis consistently
maintained by Borrower and certified by an appropriate officer of
Borrower;
c) In connection with each fiscal year end financial statement furnished
to Bank hereunder, any management letter of Borrower's independent
certified public accountant;
d) Budgets, operating plans, and such other information relating to the
affairs of Borrower as the Bank may reasonably request from time to
time;
e) Personal financial statements and individual tax returns of all
guarantors of loans to Borrower, annually or otherwise as the Bank may
reasonably request from time to time;
f) As soon as available, and in any event within forty five (45) days
after the close of each quarter of each fiscal year of American Title
Company, commencing with the quarter next ending, a balance sheet,
profit and loss statement and reconciliation of American Title
Company's capital accounts as of the close of such period and
covering operations for the portion of American Title Company's
fiscal year ending on the last day of such period, all in reasonable
detail, prepared in accordance with generally accepted accounting
principles on a basis consistently maintained by American Title
Company and certified by an appropriate officer of American Title
Company;
g) As soon as available, and in any event within one hundred and twenty
(120) days of fiscal year end, a report of American Title Company as
of the close of and for each fiscal year, all in reasonable detail,
prepared on an audited basis by an independent certified public
accountant selected by American Title Company and reasonably
acceptable to Bank, in
3
<PAGE>
requirement of the Federal Reserve Board and uncollected funds.
Any deficiencies shall be charged directly to the Borrower on a
monthly basis.
7) ATTORNEY'S FEES. Pay promptly to Bank without demand after notice, with
interest thereon from the date of expenditure at the rate applicable to
any loans from Bank to Borrower, reasonable attorneys' fees and all
costs and expenses paid or incurred by Bank in collecting or
compromising any such loan after the occurrence of an Event of Default,
whether or not suit is filed. If suit is brought to enforce any
provision of this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and court costs in addition to
any other remedy or recovery awarded by the court.
8) FINANCIAL COVENANTS. Maintain the following financial covenants:
a) Tangible Net Worth of not less than $200,000.00;
b) Net current assets (Working Capital) of not less than $(250,000.00);
[initialed] ML
[initialed] MD
All financial covenants and financial information referenced herein
shall be interpreted and prepared in accordance with generally
accepted accounting principals applied on a basis consistent with
previous years. Compliance with financial covenants shall be
calculated and monitored on a quarterly basis.
C. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, it
will not, without Bank's written consent:
1. TYPE OF BUSINESS; MANAGEMENT. Make any substantial change in the
character of its business; or make any change in its executive
management.
2. OTHER INDEBTEDNESS. Other than in the ordinary course of business and
consistent with past practices, create, incur, assume or permit to
exist any indebtedness for borrowed moneys, other than loans from the
Bank, except obligations now existing as shown in the financial
statement dated March 31, 1997, excluding those obligations being
refinanced by Bank.
3. LIENS AND ENCUMBRANCES. Other than in the ordinary course of business
and consistent with past practices, create, incur, or assume any
mortgage, pledge, encumbrance, lien or charge of any kind upon any
asset now owned, other than liens for taxes not delinquent and liens
in Bank's favor, except for those already existing as of March 31, 1997.
4. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances
to any person or other entity other than in the ordinary and normal
course of its business as now conducted or make any investment in the
securities of any person or other entity other than the United States
Government or commercial paper maturing no more than one (1) year
from the date of creation thereof and currently having the highest
rating obtainable from either Standard & Poor's Corporation or
Moody's Investors Service, Ind., or certificates of deposit maturing
more than one (1) year from the date of investment therein issued by
Bank; or guarantee or otherwise become liable upon the
4
<PAGE>
3. LIENS AND ENCUMBRANCES. Other than in the ordinary course of business
and consistent with past practices, create, incur, or assume any
mortgage, pledge, encumbrance, lien or charge of any kind upon any
asset now owned, other than liens for taxes not delinquent and liens
in Bank's favor, except for those already existing as of March 31,
1997.
4. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances
to any person or other entity other than in the ordinary and normal
course of its business as now conducted or make any investment in the
securities of any person or other entity other than the United States
Government or commercial paper maturing no more than one (1) year
from the date of creation thereof and currently having the highest
rating obtainable from either Standard & Poor's Corporation or
Moody's Investors Service, Ind., or certificates of deposit maturing
more than one (1) year from the date of investment therein issued by
Bank; or guarantee or otherwise become liable upon the obligation of
any person or other entity, except by endorsement of negotiable
instruments for deposit or collection in the ordinary and normal
course of its business.
5. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other
entity; or liquidate, dissolve, merge or consolidate, or commence any
proceedings therefor; or sell any assets except in the ordinary and
normal course of its business as now conducted; or sell, lease assign
or transfer any substantial part of its business or fixed assets, or
any property or other assets necessary for the continuance of its
business as now conducted, including without limitation the selling
of any property or other asset accompanied by the leasing back of the
same.
6. CAPITAL EXPENDITURES. Make or incur obligations for capital
expenditures, which includes purchase money indebtedness or capital
lease obligations, in excess of $500,000.00 in any one fiscal year.
7. LEASE LIABILITY. Make or incur additional liability for payments of
rent under leases of real property in excess of $250,000.00 or personal
property in excess of $250,000.00 in any one fiscal year.
D. EVENTS OF DEFAULT
The occurrence of any of the following Events of Default shall, at Bank's
option, terminate Bank's commitment to lend and make all sums of principal and
interest then remaining unpaid on all Borrower's indebtedness to Bank
immediately due and payable, all without demand, presentment or notice, all of
which are hereby expressly waived:
1) FAILURE TO PAY. Failure to pay any installment of principal or interest
on any indebtedness of Borrower to Bank.
2) BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Agreement binding upon Borrower.
3) BREACH OF WARRANTY. Any of Borrower's representations or warranties
made herein or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith shall be false or
misleading in any respect.
5
<PAGE>
4) INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or
admit its inability to pay its debts as they mature; or make an
assignment for the benefit of creditors; or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part
of its property or business.
5) JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against
Borrower or any of its assets and shall remain unvacated, unbonded or
unstayed for a period later than five days prior to the date of any
proposed sale thereunder.
6) BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or
against Borrower and, if instituted against it, shall be consented to.
7) FAILURE TO MEET DEPARTMENT OF INSURANCE REQUIREMENTS. Failure of
American Title Company to meet the net worth and working capital
requirements, as they may exist from time to time, imposed upon
American Title Company by the State of California Department of
Insurance.
8) ADVERSE ACTION. Any action taken by the State of California
Department of Insurance which would adversely effect the continued
operation of American Title Company's business, including the
issuance of any notice of intended adverse action by the Department
of Insurance.
9) FAILURE TO MEET MINIMUM TANGIBLE NET WORTH. Failure of American Title
Company to maintain Tangible Net Worth of no less than $2,500,000.00.
E. MISCELLANEOUS PROVISIONS
1) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Bank or any holder of any note issued by Borrower to Bank, in the
exercise of any power, right or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise
thereof or of any other right, power or privilege. All rights and
remedies existing under this Agreement or any note issued in
connection with a loan that Bank may make hereunder, are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
2) ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in
addition to all rights, powers and remedies given to Bank by law
against Borrower or any other person, including but not limited to
Bank's rights of setoff or banker's lien.
3) INUREMENT. The benefits of this Agreement shall inure to the successors
and assigns of Bank and the permitted successors and assigns of
Borrower.
4) APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be
governed by and construed according to the laws of the State of
California, to the jurisdiction of whose courts the parties hereby
agree to submit.
6
<PAGE>
5) OFFSET. In addition to and not in limitation of all rights of
offset that Bank or other holder of any note issued by Borrower in
favor of Bank may have under applicable law, Bank or other holder of
such notes shall, upon the occurrence of any Event of Default or any
event which with the passage of time or notice would constitute such
an Event of Default, have the right to appropriate and apply to the
payment of the outstanding under any such note any and all balances,
credits, deposits, accounts or monies of Borrower then or thereafter
with Bank or other holder, within ten (10) days after the Event of
Default, and notice of the occurrence of any Event of Default by Bank
to Borrower.
6) SEVERABILITY. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions
nevertheless shall be effective.
7) TIME OF THE ESSENCE. Time is hereby declared to be of the essence of this
Agreement and of every part hereof.
8) INTEGRATION CLAUSES. Except for documents and instruments
specifically referenced herein, the Agreement constitutes the entire
agreement between Bank and Borrower regarding the Loan, and all prior
communications verbal or written between Borrower and Bank shall be
of no further effect or evidentiary value. In the event of a conflict
or inconsistency among any other documents and instruments and this
Agreement, the provisions of this Agreement shall prevail.
9) ACCOUNTING. All accounting terms shall have the meanings applied under
generally accepted accounting principles unless otherwise specified.
10) MODIFICATION. This Agreement may be modified only by a writing signed by
both parties hereto.
11) SUPPLEMENTAL PRINCIPAL PAYMENTS. Borrower agrees that seventy five
percent (75%) of the annual excess cash flow of American Title
Company, as defined below, will be utilized as supplemental principal
payments to debt. Such payments are to be applied to principal in
inverse order of maturity and are to be made prior to the end of the
first quarter following the end of each fiscal year.
EXCESS CASH FLOW OF AMERICAN TITLE COMPANY:
1. Net Profit After Tax of American Title Company
2. Plus: Depreciation and Amortization
3. Equals American Title Company Operating Cash Flow
4. Less: American Title Company CPLTD
5. Less: American Title Company Capital Expenditures
6. Equals American Title Company Net Operating Cash Flow
7. Multiply by ATC Holdings, Inc. ownership percentage (60%)
8. Less: ATC Holdings, Inc. CPLTD
9. Less: ATC Holdings, Inc. Capital Expenditures
10. Equals: Excess Cash Flow of American Title Company
11. Multiply by seventy five percent (75%)
12. Equals: Supplemental Principal Payment
7
<PAGE>
12) RELEASE OF GUARANTORS. Providing that no Event of
Default exists, each of the personal guarantees taken in support of
any loans extended to Borrower pursuant to this Agreement shall be
reduced according to the following schedule:
<TABLE>
<CAPTION>
OUTSTANDING LOAN BALANCE PERCENTAGE OF ORIGINAL GUARANTEE AMOUNT
<S> <C>
$6,000,000 100%
$5,400,000 90%
$4,800,000 80%
$4,200,000 70%
$3,600,000 60%
$3,000,000 50%
</TABLE>
13) COLLATERAL. Loan will be secured by a first priority lien on all corporate
assets of Borrower and one hundred percent (100%) of the Common Stock of
Borrower.
This Agreement is executed on behalf of the parties by duly authorized
representatives as of August 7, 1997.
IMPERIAL BANK ("Bank")
By: [Illegible]
Date: 8-7-97
ATC HOLDINGS, INC. ("Borrower")
By: /s/ Michael Lowther
By: /s/ Wayne Diaz
Date:
------------------------------------
8
<PAGE>
[IMPERIAL BANK LOGO]
NOTE
$6,000,000.00 Beverly Hills, California August 7, 1997
On November 3, 2002, and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking
corporation, or order, at its Financial Services Group office, the principal
sum of $6,000,000.00 or such sums up to the maximum if so stated, as the Bank
may now or hereafter advance to or for the benefit of the undersigned in
accordance with the terms hereof, together with interest from date of
disbursement or N/A, whichever is later, on the unpaid principal balance / /
at the rate of % per year /X/ at the rate of 0.000% per year in excess of
the rate of interest which Bank has announced as its prime lending rate (the
"Prime Rate"), which shall vary concurrently with any change in such Prime
Rate, or $250.00, whichever is greater. Interest shall be computed at the
above rate on the basis of the actual number of days during which the
principal balance is outstanding, divided by 360, which shall, for interest
computation purposes, be considered one year.
Interest shall be payable /X/ monthly / / quarterly / / included with
principal /X/ in addition to principal / / beginning September 3, 1997, and
if not so paid shall become a part of the principal. All payments shall be
applied first to interest, and the remainder, if any, on principal, /X/ (if
checked), Principal shall be payable in installments of $33,334.00, or more,
each installment on the 3rd day of each month, beginning May 3, 1998. Advances
not to exceed any unpaid balance owing at any one time equal to the maximum
amount specified above, may be made at the option of Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal
or interest when due, or in the performance or observance, when due, of any
item, covenant or condition of any deed or trust, security agreement or other
agreement (including amendments or extensions thereof) securing or pertaining
to this note, at the option of the holder hereof and without notice of demand,
the entire balance of principal and accrued interest then remaining unpaid
shall (a) become immediately due and payable, and (b) thereafter bear
interest, until paid in full, at the increased rate of 5% per year in excess
of the rate provided for above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the
maker(s) to pay principal or interest when due; the filing as to each person
obligated hereon, whether as maker, co-maker, endorser or guarantor
(individually or collectively referred to as the "Obligor") of a voluntary or
involuntary petition under the provisions of the Federal Bankruptcy Act; the
issuance of any attachment or execution against any asset of any Obligor; the
death of any Obligor; or any deterioration of the financial condition of any
Obligor which results in the holder hereof considering itself, in good faith,
insecure.
/X/ If any installment payment or principal balance payment due hereunder is
delinquent ten or more days, Obligor agrees to pay a late charge in the
amount of 5% of the payment so due and unpaid, in addition to the payment;
but nothing in this paragraph is to be construed as any obligation on the
part of the holder of this note to accept payment of any installment past due
or less than the total unpaid principal balance after maturity.
If this note is not paid when due, each Obligor promises to pay all
costs and expenses of collection and reasonable attorney's fees incurred by
the holder hereof on account of such collection, plus interest at the rate
applicable to principal, whether or not suit is filed hereon. Each Obligor
shall be jointly and severally liable hereon and consents to renewals,
replacements and extensions of time for payment hereof, before, at, or after
maturity; consents to the acceptance, release or substitution of security for
this note; and waives demand and protest and the right to assert any statute
of limitations. Any married person who signs this note agrees that recourse
may be had against separate property for any obligations hereunder. The
indebtedness evidenced hereby shall be payable in lawful money of the United
States. In any action brought under or arising out of this note, each
Obligor, including successor(s) or assign(s) hereby consents to the
application of California law, to the jurisdiction of any competent court
within the State of California, and to service of process by any means
authorized by California law
No single or partial exercise of any power hereunder, or under any deed
of trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect
to any of the security. Any delay or omission on the part of the holder
hereof in exercising any right hereunder, or under any deed of trust,
security agreement or other agreement, shall not operate as a waiver of such
right, or of any other right, under this note or any deed of trust, security
agreement or other agreement in connection herewith.
See Letter Agreement dated August 7, 1997 and Reference Provision
ATC Holding, Inc.
- ------------------------------------ ----------------------------------
By /s/ Michael Lowther
- ------------------------------------ ----------------------------------
By /s/ Wayne Diaz
- ------------------------------------ ----------------------------------
<PAGE>
August 7, 1997
ATC HOLDINGS, INC.
17911 Von Karman, Suite #500
Irvine, CA 92714
Reference is made to that certain Note dated August 7, 1997 executed by you
evidencing Imperial Bank's (Bank) loan to you in the amount of $6,000,000.00
(Note). Notwithstanding the terms contained in the Note for the payment of
monthly interest as it accrues, you shall be allowed to pay monthly interest
on the unpaid principal balance of the Note at a rate lower than the accrual
rate stated in the Note (Payment Rate) with the remaining balance of the
monthly interest which is accruing on the Note being charged on a monthly
basis against any unused Net Earnings Credit calculated by Bank in connection
with deposit accounts maintained or cause to be maintained by you with Bank
calculated on a monthly basis, less the sum of all costs of Bank for services
provided to you during such month, computed in accordance with Bank's normal
and customary standards and Bank's reasonable determination of the amounts
thereof shall be final and binding upon you. The initial Payment Rate shall
be 0.25% per annum and shall be subject to increase at any time and from time
to time in Bank's absolute discretion based on the availability of Earning
Credit.
Sincerely, ACKNOWLEDGED:
D.M. Farmer ATC HOLDINGS, INC.
Senior Vice President
By: /s/ Michael Lowther
--------------------------------
By: /s/ Wayne Diaz
--------------------------------
<PAGE>
The following provisions are hereby added to the Note between ATC HOLDINGS,
INC. and IMPERIAL BANK.
"REFERENCE PROVISION
1. Other than (i) non-judicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii)
the appointment of a receiver, or the exercise of other provisional remedies
(any and all of which may be initiated pursuant to applicable law), each
controversy, dispute or claim between the parties arising out of or relating
to this Note ("Agreement"), which controversy, dispute or claim is not
settled in writing within thirty (30) days after the "Claim Date" (defined as
the date on which a party subject to the Agreement gives written notice to
all other parties that a controversy, dispute or claim exists), will be
settled by a reference proceeding in California in accordance with the
provisions of Section 638 ET SEQ. of the California Code of Civil Procedure,
or their successor section ("CCP"), which shall constitute the exclusive
remedy for the settlement of any controversy, dispute or claim concerning
this Agreement, including whether such controversy, dispute or claim is
subject to the reference proceeding and except as set forth above, the
parties waive their rights to initiate any legal proceedings against each
other in any court or jurisdiction other than the Superior Court in the
County where the real property securing this Agreement, if any, is located or
Los Angeles County if none (the "Court"). The referee shall be a retired
Judge of the Court selected by mutual agreement of the parties, and if they
cannot so agree within forty-five (45) days after the Claim Date, the referee
shall be promptly selected by the presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers of a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of Court (or any subsequently enacted Rule).
Each party shall have one peremptory challenge pursuant to CCP Section 170.6.
The referee shall (a) be requested to set the matter for hearing within sixty
(60) days after the Claim Date and (b) try any and all issues of law or fact
and report a statement of decision upon them, if possible, within ninety (90)
days of the Claim Date. Any decision rendered by the referee will be final,
binding and conclusive and judgment shall be entered pursuant to CCP Section
644 in any court in the State of California having jurisdiction. Any party
may apply for a reference proceeding at any time after thirty (30) days
following notice to any other party of the nature of the controversy, dispute
or claim, by filing a petition for a hearing and/or trial. All discovery
permitted by this Agreement shall be completed no later than fifteen (15)
days before the first hearing date established by the referee. The referee
may extend such period in the event of a party's refusal to provide requested
discovery for any reason whatsoever, including, without limitation, legal
objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducting
discovery. Depositions may be taken by either party upon seven (7) days
written notice, and request for production or inspection of documents shall
be responded to within Ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties. Pending
appointment of the referee as provided herein, the Superior Court is
empowered to issue temporary and/or provisional remedies, as appropriate.
2. Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of
the reference proceeding. All proceedings
<PAGE>
and hearings conducted before the referee, except for trial, shall be
conducted without a court reporter, except that when any party so requests, a
court reporter will be used at any hearing conducted before the referee. The
party making such a request shall have the obligation to arrange for and pay
for the court reporter. The costs of the court reporter at the trial shall be
borne equally by the parties.
3. The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of California
will be applicable to the reference proceeding. The referee shall be
empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will
be binding upon the parties. The referee shall issue a single judgment at the
close of the reference proceeding which shall dispose of all of the claims of
the parties that are the subject of the reference. The parties hereto
expressly reserve the right to contest or appeal from the final judgment or
any appealable order or appealable judgment entered by the referee. The
parties hereto expressly reserve the right to findings of fact, conclusions
of law, a written statement of decision, and the right to move for a new
trial or a different judgment, which new trial, if granted, is also to be a
reference proceeding under this provision.
4. In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted),
any dispute between the parties that would otherwise be determined by the
reference procedure herein described will be resolved and determined by
arbitration. The arbitration will be conducted by a retired judge of the
Court, in accordance with the California Arbitration Act, Section 1280
through Section 1294,2 of the CCP amended from time to time. The limitations
with respect to discovery as set forth hereinabove shall apply to any such
arbitration proceeding."
Initial Here ML
------
Initial Here WD
------
<PAGE>
STANDARD SUBLEASE
American Industrial Real Estate Association
[LOGO]
1. PARTIES. This Sublease, dated, for reference purposes only, January 28,
1998, is made by and between Fidelity National Title Insurance Company (herein
called "Sublessor") and American Title Company (herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Orange, State of California, commonly known as 17911 Von Karman Avenue, 2nd
Floor, Irvine, California and described as Approximately 20,934 square feet.
Said real property, including the land and all improvements thereon, is
hereinafter called the "Premises".
3. TERM.
3.1 TERM. The term of this Sublease shall be for Two (2) years, four
(4) months and eleven (11) days commencing on April 1, 1998 and ending on July
11, 2000 unless sooner terminated pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if
for any reason Sublessor cannot deliver possession of the Premises to
Sublessee on said date, Sublessor shall not be subject to any liability
therefore, nor shall such failure affect the validity of this Lease or the
obligations of Sublessee hereunder or extend the term hereof, but in such
case Sublessee shall not be obligated to pay rent until possession of the
Premises is tendered to Sublessee; provided, however, that if Sublessor shall
not have delivered possession of the Premises within sixty (60) days from
said commencement date, Sublessee may, at Sublessee's option, by notice in
writing to Sublessor within ten (10) days thereafter, cancel this Sublease,
in which event the parties shall be discharged from all obligations
thereunder. If Sublessee occupies the Premises prior to said commencement
date, such occupancy shall be subject to all provisions hereof, such
occupancy shall not advance the termination date and Sublessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of $33,494.40, in advance, on the _____ day of each month of
the term hereof. Sublessee shall pay Sublessor upon the execution hereof
$ zero as rent for n/a. Rent for any period during the term hereof which is
for less than one month shall be a prorata portion of the monthly
installment. Rent shall be payable in lawful money of the United States to
Sublessor at the address stated herein or to such other persons or at such
other places as Sublessor may designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $ zero as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this
Sublease, Sublessor may use, apply or retain all or any portion of said deposit
for the payment of any rent or other charge in default or for the payment of any
other sum to which Sublessor may become obligated by reason of Sublessee's
default, or to compensate Sublessor for any loss or damage which Sublessor may
suffer thereby. If Sublessor so uses or applies all or any portion of said
deposit, Sublessee shall within ten (10) days after written demand therefore
deposit cash with Sublessor in an amount sufficient to restore said deposit to
the full amount hereinabove stated and Sublessee's failure to do so shall be a
material breach of this Sublease. Sublessor shall not be required to keep said
deposit separate from its general accounts. If Sublessee performs all of
Sublessee's obligations hereunder, said deposit, or so much thereof as has not
theretofore been applied by Sublessor, shall be returned, without payment of
interest or other increment for its use to Sublessee (or at Sublessor's option,
to the last assignee, if any, of Sublessee's interest hereunder) at the
expiration of the term hereof, and after Sublessee has vacated the Premises. No
trust relationship is created herein between Sublessor and Sublessee with
respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for general
office and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its
existing state, but without regard to the use for which Sublessee will use the
Premises, does not violate any applicable building code regulation or ordinance
at the time that this Sublease is executed. In the event that it is determined
that this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole
cost and expense, rectify any such violation. In the event that Sublessee does
not give to Sublessor written notice of the violation of this warranty within 1
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes,
ordinances, rules, regulations, orders, restrictions of record, and
requirements in effect during the term or any part of the term hereof
regulating the use by Sublessee of the Premises. Sublessee shall not use or
permit the use of the Premises in any manner that will tend to create waste
or a nuisance or, if there shall be more than one tenant of the building
containing the Premises, which shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the date
of the execution hereof, subject to all applicable zoning, municipal, county and
state laws, ordinances, and regulations governing and regulating the use of the
Premises, and accepts this Sublease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto. Sublessee acknowledges that
neither Sublessor nor Sublessor's agents have made any representation or
warranty as to the suitability of the Premises for the conduct of Sublessee's
business.
7. MASTER LEASE.
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1, dated July 3, 1997 wherein CarrAmerica Realty
Corporation is the lessor, hereinafter referred to as the "Master Lessor".
7.2 This Sublease is and shall be at all times subject and subordinate
to the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions
of the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used it shall be deemed to mean the Sublessor herein and wherever in the
Master Lease the word "Lessee" is used it shall be deemed to mean the
Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with, for
the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease EXCEPT for the following paragraphs which are
excluded therefrom: n/a
<PAGE>
7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "Sublessee's Assumed Obligations".
The obligations that Sublessee has NOT assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a default
shall occur in the performance of Sublessor's Obligations under the Master
Lease, that Sublessor may receive, collect and enjoy the rents accruing under
this Sublease. However, if Sublessor shall default in the performance of its
obligations to Master Lessor then Master Lessor may, at its option, receive and
collect, directly from Sublessee, all rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without the
consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease, nor the Master
Lessor's consent, shall not be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving guarantors consent to
this Sublease and the terms thereof.
9.3 In the Event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations
or alter the primary liability of Sublessor to pay the rent and perform and
comply with all of the obligations of Sublessor to be performed under the Master
Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or
any one else liable under the Master Lease shall not be deemed a waiver by
Master Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent
to any subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
any one else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor nor any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations
under the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid rents nor any
security deposit paid by Sublessee, nor shall Master Lessor be liable for any
other defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor
at the end of this document shall constitute their consent to the terms of this
Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee. If such default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to Orion
Realty Group, a licensed real estate broker, (herein called "Broker"), a fee
as set forth in a separate agreement between Sublessor and Broker, or in the
event there is no separate agreement between Sublessor and Broker, the sum of
$ zero for brokerage services rendered by Broker to Sublessor in this
transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor herein, or any option or right substantially
similar thereto, either to extend the term of this Sublease, to renew this
Sublease, to purchase the Premises, or to lease or purchase adjacent property
which Sublessor may own or in which Sublessor has an interest, or if Broker is
the procuring cause of any lease, sublease, or sale pertaining to the Premises
or any adjacent property which Sublessor may own or in which Sublessor has an
interest, then as to any of said transactions Sublessor shall pay to Broker a
fee, in cash, in accordance with the schedule of Broker in effect at the time of
the execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this Paragraph 10.2 is limited to a transaction in which
Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to renew
the Master Lease, to purchase the Premises or any part thereof, or to lease or
purchase adjacent property which Master Lessor may own or in which Master Lessor
has an interest, or if Broker is the procuring cause of any other lease or sale
entered into between Sublessee and Master Lessor pertaining to the Premises, any
part thereof, or any adjacent property which Master Lessor owns or in which it
has an interest, then as to any of said transactions Master Lessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of its consent to this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due
and payable upon the exercise of any option to extend or renew, as to any
extension or renewal; upon the execution of any new lease, as to a new lease
transaction or the exercise of a right of first refusal to lease; or at the
close of escrow, as to the exercise of any option to purchase or other sale
transaction.
10.5 Any transferee of Sublessor's interest in this Sublease, or of
Master Lessor's interest in the Master Lease, by accepting an assignment
thereof, shall be deemed to have assumed the respective obligations of Sublessor
or Master Lessor under this Paragraph 10. Broker shall be deemed to be a
third-party beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an action
to enforce the terms hereof or to declare rights hereunder, the prevailing party
in any such action, on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court. The
provision of this paragraph shall inure to the benefit of the Broker named
herein who seeks to enforce a right hereunder.
<PAGE>
ADDITIONAL PROVISIONS. [If there are no additional provisions draw a line
from this point to the next printed word after the space left here. If there
are additional provisions place the same here.]
12.2 Subject to the addendum to the Master Lease, during the term,
Sub-lessee and its employees shall be entitled to use, within the project's
parking area (as defined in the Master Lease) an aggregate of eleven (11)
reserved parking stalls and sixty-four (64) unreserved parking stalls.
12.3 TERMINATION CONSIDERATION: In the event that the Master Lessor
elects to terminate this sub-lease as provided in Section 3 of the Addendum to
the Master Lease and pays the termination consideration as provided in Section 4
of the Addendum, Sub-lessee shall be entitled to receive from Master Lessor its
prorata share of any termination consideration paid by Master Lessor.
If this Sublease has been filled in it has been prepared for submission to
your attorney for his approval. No representation or recommendation is
made by the real estate broker or its agents or employees as to the legal
sufficiency, legal effect, or tax consequences of this Sublease or the
transaction relating thereto.
<TABLE>
<S> <C>
Executed at Santa Barbara, California Fidelity National Title Insurance Company
----------------------------- ---------------------------------------------
on February , 1998 By /s/ William A. Imparato
--------------------------------------- -------------------------------------------
address 3916 State Street, 3rd Floor By William A. Imparato, Vice President
---------------------------------- -------------------------------------------
Santa Barbara, California 93105 "Sublessor" (Corporate Seal)
- -----------------------------------------
Executed at Irvine, California American Title Company
------------------------------ ---------------------------------------------
on February , 1998 By /s/ Wayne Diaz
-------------------------------------- -------------------------------------------
address 17911 Von Karman Avenue By Wayne Diaz, President
---------------------------------- -------------------------------------------
Irvine, CA 92714 "Sublessee" (Corporate Seal)
- -----------------------------------------
Executed at
------------------------------ ---------------------------------------------
on By
--------------------------------------- -------------------------------------------
address By
---------------------------------- -------------------------------------------
- ----------------------------------------- "Master Lessor" (Corporate Seal)
Executed at
------------------------------ ---------------------------------------------
on
--------------------------------------- ---------------------------------------------
address
---------------------------------- ---------------------------------------------
- ----------------------------------------- "Guarantors"
</TABLE>
NOTE: These forms are often modified to meet changing requirements of
law and needs of the industry. Always write or call to make sure
you are utilizing the most current form: AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA
90071. (213) 687-8777.
<PAGE>
Subsidiaries of the Registrant
American Title Company, a California corporation
American Document Services, Inc., a California corporation
West Point Appraisal Services, Inc., a California corporation
West Point Support Services, Inc., a California corporation
West Point Properties, Inc., a California corporation
Santa Barbara Title Company, a California corporation
Landmark REO Management Services, Inc, a Kansas corporation
Nations Title Insurance of Arizona, Inc., an Arizona corporation
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
American Financial National, Inc.:
The audit referred to in our report dated August 27, 1998 relating to the
consolidated financial statements of American Financial National, Inc. as of
and for the year ended December 31, 1997, included the related financial
statement schedules as of and for the year ended December 31, 1997, included
in the registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audit. In our
opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
The audit referred to in our report dated August 27, 1998 relating to the
financial statements of ANFI Predecessor included the related financial
statement schedules as of December 31, 1996, and for each of the years in the
two-year period ended December 31, 1996 and the six months ended June 30,
1997, included in the registration statement. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement
schedules based on our audit. In our opinion, such financial statement
schedules, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Orange County, California
August 27, 1998
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
American National Financial, Inc.:
The audit referred to in our report dated August __, 1998 relating to the
consolidated financial statements of American National Financial, Inc. as of
and for the year ended December 31, 1997, included the related financial
statement schedules as of and for the year ended December 31, 1997, included
in the registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audit. In our
opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
The audits referred to in our report dated August __, 1998 relating to the
financial statements of ANFI Predecessor, as defined in note 1 to the
financial statements, included the related financial statement schedules as
of December 31, 1996, and for each of the years in the two-year period ended
December 31, 1996 and for the six months ended June 30, 1997, included in the
registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits. In
our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Orange County, California
August __, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 DEC-31-1997
<CASH> 6,153,584 7,223,635
<SECURITIES> 2,087,398 0
<RECEIVABLES> 9,816,547 7,909,626
<ALLOWANCES> (1,103,051) (1,100,449)
<INVENTORY> 0 0
<CURRENT-ASSETS> 20,394,986 15,768,546
<PP&E> 3,979,127 3,141,892
<DEPRECIATION> (586,749) (418,222)
<TOTAL-ASSETS> 27,531,780 22,364,943
<CURRENT-LIABILITIES> 11,678,349 10,051,167
<BONDS> 5,372,490 6,472,500
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 4,208,890 1,122,847
<TOTAL-LIABILITY-AND-EQUITY> 27,531,780 22,364,943
<SALES> 0 0
<TOTAL-REVENUES> 45,275,351 33,525,309
<CGS> 0 0
<TOTAL-COSTS> 36,612,723 29,547,381
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 8,662,628 3,977,928
<INCOME-TAX> 3,532,039 1,774,417
<INCOME-CONTINUING> 5,130,589 2,203,511
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,086,043 1,122,847
<EPS-PRIMARY> 1.06 .38
<EPS-DILUTED> 1.01 .38
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