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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NO. 1-9396
FIDELITY NATIONAL FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 86-0498599
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
17911 VON KARMAN AVENUE 92614 (714) 622-4333
IRVINE, CALIFORNIA (ZIP CODE) (REGISTRANT'S TELEPHONE NUMBER,
(ADDRESS OF PRINCIPAL EXECUTIVE INCLUDING AREA CODE)
OFFICES)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
COMMON STOCK, $.0001 PAR VALUE NEW YORK STOCK EXCHANGE
LIQUID YIELD OPTION NOTES, DUE 2009, NEW YORK STOCK EXCHANGE
ZERO COUPON, CONVERTIBLE SUBORDINATED
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [ ]
As of March 26, 1998, 22,736,836 shares of Common Stock ($.0001 par value)
were outstanding, and the aggregate market value of the shares of the Common
Stock held by non-affiliates of the registrant was $672,838,000. The aggregate
market value was computed with reference to the closing price on the New York
Stock Exchange on such date.
LOCATION OF EXHIBIT INDEX: The index to exhibits is contained in Part IV
herein on page number .
The information in Part III hereof is incorporated herein by reference to
the Registrant's Proxy Statement on Schedule 14A for the fiscal year ended
December 31, 1997, to be filed within 120 days after the close of the fiscal
year that is the subject of this Report.
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TABLE OF CONTENTS
FORM 10-K
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PAGE NO.
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PART I
Item 1 Business.......................................... 1
Item 2 Properties........................................ 10
Item 3 Legal Proceedings................................. 11
Item 4 Submission of Matters to a Vote of Security
Holders................................................ 11
PART II
Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters.................................... 12
Item 6 Selected Financial Data........................... 13
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 17
Item 8 Financial Statements and Supplementary Data....... 30
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............. 66
PART III
Item 10 Directors and Executive Officers of the
Registrant............................................. 66
Item 11 Executive Compensation........................... 66
Item 12 Security Ownership of Certain Beneficial Owners
and Management......................................... 66
Item 13 Certain Relationships and Related Transactions... 66
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................... 66
</TABLE>
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PART I
ITEM 1. BUSINESS
Fidelity National Financial, Inc., through its principal subsidiaries
(collectively, the "Company"), is one of the largest national underwriters
engaged in the business of issuing title insurance policies and performing other
title-related services such as escrow, collection and trust activities, real
estate information and technology services, trustee sale guarantees, credit
reporting, attorney services, flood certification, tax monitoring,
reconveyances, recordings, foreclosure publishing and posting services and
exchange intermediary services in connection with real estate transactions.
Title insurance services are provided through the Company's direct operations
and otherwise through independent title insurance agents who issue title
policies on behalf of the underwriting subsidiaries. Title insurance is
generally accepted as the most efficient means of determining title to, and the
priority of interests in, real estate in nearly all parts of the United States.
Today, virtually all real property mortgage lenders require their borrowers to
obtain a title insurance policy at the time a mortgage loan is made or to allow
the sale of loans in the secondary market.
The Company's principal subsidiaries consist of Fidelity National Title
Insurance Company ("Fidelity Title"), which, in turn, is the parent company of
Fidelity National Title Insurance Company of Tennessee ("Fidelity Tennessee"),
and was the parent company of Fidelity National Title Insurance Company of
California ("Fidelity California"), which was merged into Fidelity Title as of
August 7, 1997, and was the parent company of Nations Title Insurance Company
("Nations Title"), which was merged into Fidelity Title as of December 29, 1997;
Fidelity National Title Insurance Company of New York ("Fidelity New York"),
which, in turn, is the parent company of Nations Title Insurance of New York
Inc. ("Nations New York") and National Title Insurance of New York Inc.
("National"); Fidelity National Title Insurance Company of Pennsylvania
("Fidelity Pennsylvania"), which was merged into Fidelity New York as of April
11, 1997, which in turn, was the parent company of American Title Insurance
Company ("ATIC"), which was merged into Fidelity Pennsylvania as of November 21,
1996; (collectively, the "Insurance Subsidiaries"); its wholly-owned
underwritten title companies (collectively, the "UTCs"); and its network of
wholly-owned title-related ancillary service companies known as Fidelity's
Lender Express Network ("FLEXNet").
Nations Title Insurance Company, Nations Title Insurance of New York Inc.
and National Title Insurance of New York Inc. were acquired, along with Nations
Title Inc. ("NTI," collectively, "Nations Title Inc.") in a transaction which
closed on April 1, 1996. Certain of the ancillary service companies were
acquired in separate transactions during 1997.
On November 17, 1997, Fidelity National Financial, Inc. signed an Agreement
and Plan of Merger ("Merger Agreement") to merge a newly-formed subsidiary of
the Company into Granite Financial, Inc. ("Granite"). Granite, located in
Golden, Colorado, is a rapidly expanding speciality finance company engaged in
the business of originating, funding, purchasing, selling, securitizing and
servicing equipment leases for a broad range of businesses located throughout
the United States. Granite is a prominent consolidator in the $48 billion
small-ticket lease finance market with the acquisitions of Global Finance &
Leasing in March, 1997; SFR Funding, Inc., in June, 1997; and North Pacific
Funding, Inc. (dba C&W Leasing), a privately held corporation based in Seattle,
Washington, and its wholly-owned subsidiary, in December, 1997. This transaction
closed on February 26, 1998.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Recent Developments" and Notes B and O of Notes to
Consolidated Financial Statements.
INDUSTRY OVERVIEW
TITLE POLICIES. Title insurance policies state the terms and conditions
upon which a title underwriter will insure title to real estate. The
beneficiaries of title insurance policies are generally buyers of real property
or mortgage lenders. Most mortgage lenders require title insurance as a
condition to making loans secured by real estate.
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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. To facilitate the preparation of preliminary reports without
the necessity of manually searching public records, copies of public records,
maps and other relevant historical documents are compiled and indexed in a
"title plant." 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 search and examination function
in preparing preliminary title reports, commitments and title policies; and not
from claim losses associated with the issuance of said 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. 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.
THE TITLE POLICY 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) Sales personnel note the specifics of the order and place a
request with the title department for a preliminary report (a commitment in
the eastern United States).
(iii) 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
satisfaction of any specific issues.
(iv) After the specific issues identified in the preliminary report
are satisfied, an escrow agent closes the transaction in accordance with
the instructions of the parties and the title underwriter's conditions.
(v) Once the transaction is closed and all monies have been released,
the title underwriter 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.
LOSSES AND RESERVES. The maximum amount of liability 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.
ECONOMIC FACTORS AFFECTING INDUSTRY. Title insurance 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, lower
mortgage interest rates beginning in the latter part of 1991 triggered an
increase in refinancing activity which continued
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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
real estate market, especially in California and on the West Coast, contributed
to very positive conditions for the industry throughout 1996 and 1997 and into
the first quarter of 1998. It is impossible to predict in what future direction
interest rates and the real estate market may move or fluctuate.
TITLE INSURANCE OPERATIONS
The Insurance Subsidiaries are currently licensed to issue title insurance
policies through direct operations and independent agents in all states (with
the exception of Iowa) and the District of Columbia, the Bahamas, the Virgin
Islands and Puerto Rico.
The Company maintains direct operations in Arizona, California, Florida,
Georgia, Hawaii, Nevada, New Jersey, New Mexico, New York, North Carolina,
Oregon, Pennsylvania, Tennessee, Texas and Washington. Direct operations are
divided into approximately 70 branches consisting of more than 350 offices. Each
branch processes title insurance transactions within its geographical area,
which is usually a county boundary. Each branch is operated as a separate profit
center.
The Company also transacts title insurance business through a network of
approximately 2,200 agents, primarily in those areas in which agents are the
more accepted title insurance provider.
The following table sets forth for the years 1997, 1996 and 1995,
respectively, the approximate dollars and percentages of title insurance premium
revenue by state according to records maintained by the Company:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
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California................ $202,848 38.0% $183,108 38.5% $124,407 43.6%
New York.................. 60,022 11.3 45,938 9.7 17,436 6.1
Texas..................... 47,051 8.8 42,122 8.9 28,761 10.1
Florida................... 29,457 5.5 25,444 5.3 16,141 5.7
Pennsylvania.............. 26,318 5.0 25,441 5.3 13,751 4.8
Arizona................... 24,431 4.6 23,865 5.0 15,462 5.4
All others................ 143,093 26.8 130,043 27.3 69,594 24.3
-------- ----- -------- ----- -------- -----
Totals.......... $533,220 100.0% $475,961 100.0% $285,552 100.0%
======== ===== ======== ===== ======== =====
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For the entire title insurance industry, 12 states accounted for 72.1% of
title premiums written in the United States in 1996. California represented the
single largest state with 17.5%. The Company is licensed and has operations in
all 12 of these states.
MARKETING. The Company attempts to increase the volume of its title
insurance business primarily through customer solicitation by sales personnel.
The Company actively encourages its personnel to develop new business
relationships with persons in the real estate community, such as real estate
sales agents and brokers, financial institutions, independent escrow companies
and title agents, real estate developers, mortgage brokers and attorneys. The
Company's marketing efforts are also assisted by general advertising. The
Company believes customer service is the most important factor in attracting and
retaining customers and measures customer service in terms of quality and
timeliness in the delivery of services.
DIRECT AND AGENCY OPERATIONS. Preliminary title reports and commitments to
issue policies are prepared by title underwriters or wholly-owned underwritten
title companies (direct operations) or by independent agents on behalf of the
underwriters (agency operations). The terms and conditions upon which the real
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property will be insured are determined in accordance with the underwriting
standards, policies and procedures of the title underwriter. In direct
operations, the title underwriter issues the title insurance policy and retains
the entire premium paid in connection with the transaction. In agency
operations, the search and examination function is performed by an independent
agent. The majority of the title premium collected is retained by the agent with
the balance remitted to the title underwriter. Independent agents may select
among several title underwriters based upon the amount of the premium "split"
offered by the underwriter, the overall terms and conditions of the agency
agreement and the scope of services offered to the agent. Premium splits vary by
geographic region. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Expenses and Recent Developments."
Prior to the acquisition of the Nations group of companies, which was
completed on April 1, 1996, the Company generated the majority of its revenue
from its network of direct operations as opposed to agency relationships, the
latter being more common in the title industry. See below and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview and Recent Developments." The Company's direct operations
generate higher margins than agency operations because the Company retains the
entire premium from each transaction instead of paying commissions to agents and
claim losses are less than in agency based operations because the Company
controls the issuance of the title policy. Direct operations also provide
additional sources of income, such as escrow fees, collection and trust fees,
real estate information and technology service fees, trustee sale guarantee
fees, credit reporting fees, attorney service fees, flood certification fees,
tax monitoring fees, reconveyance fees, recording fees, foreclosure publishing
and posting service fees and exchange intermediary service fees in connection
with real estate transactions.
In 1997, 46.9% of the Company's title insurance premiums were generated by
direct operations. In 1996 and 1995, 49.8% and 62.1%, respectively, of title
insurance premiums were generated by direct operations. The percentage of title
insurance premiums generated by agency operations was 53.1%, 50.2% and 37.9% in
1997, 1996 and 1995, respectively. The average percentage of premiums generated
by agents and retained by the Company was 20.9%, 21.3% and 23.7% in 1997, 1996
and 1995, respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview, Revenue and Expenses."
The relationship between the Company and each agent is governed by an
agency agreement which states the conditions under which the agent is authorized
to issue a title insurance policy on behalf of the Company. The agency agreement
also prescribes the circumstances under which the agent may be liable to the
Company if a policy loss is attributable to errors made by the agent. The agency
agreement typically is terminable upon 30 days' notice or immediately for cause.
In determining whether to engage or retain an independent agent the Company
considers the agent's experience, financial condition and loss history. Loss
history is an important consideration in the Company's decision to initiate or
continue agency relationships. The Company maintains financial and loss
experience records for each agent and conducts periodic audits of its agents.
On April 1, 1996, the Company completed its acquisition of one hundred
percent of Nations Title Inc. and its wholly-owned subsidiaries Nations Title
Insurance Company (which was merged into Fidelity Title as of December 29,
1997), Nations Title Insurance of New York Inc. and National Title Insurance of
New York Inc., from Nations Holding Group for a purchase price of $19.3 million
plus 212,960 shares, $2.1 million, of Fidelity National Financial, Inc.'s common
stock, subject to certain adjustments. The acquisition positioned the Company as
the nation's fourth largest title insurance underwriter. The Company believes
that the combination of its direct operations and Nations Title Inc.'s strong
agency network provides a balance to the Company's title premium revenue between
direct and agency, as well as a hedge against future market downturns. The
acquisition of Nations Title Inc. has also increased the Company's revenue and
positively impacted its balance sheet and margins due to the operating economies
of the combined companies. The acquisition has also increased market share in
areas where the Company has had a limited presence, particularly in those areas
where business is primarily agent driven, as well as in states where the Company
has a strong market position. During 1997, the Nations Title Inc. purchase price
was reduced $749,000, pursuant to certain terms and conditions contained in the
acquisition agreement. The purchase price adjustment resulted in Nations Holding
Group returning 26,499 shares of Company common stock. The returned shares were
subsequently cancelled. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview, Revenue and Recent
Developments."
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ESCROW, TRUST AND OTHER TITLE-RELATED SERVICES. The Company holds funds
and documents in real estate transactions for delivery upon closing pursuant to
the instructions of the respective parties to an escrow. The Company derives
revenue from other ancillary services generated from direct operations, such as
collection and trust fees, real estate information and technology service fees,
trustee sale guarantee fees, credit reporting fees, attorney service fees, flood
certification fees, tax monitoring fees, reconveyance fees, recording fees,
foreclosure publishing and posting service fees and exchange intermediary
service fees in connection with real estate transactions.
In a few cases, the Company leases its title plants to independent agents
for their examination of title records for a rental or usage fee.
TITLE LOSSES AND RESERVES. The Company believes that the level of risk
undertaken pursuant to its underwriting standards is consistent with that of the
industry. The maximum amount of liability 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 Company's reserve for claim losses includes
known claims as well as losses the Company expects to incur, net of recoupments.
Each known claim is reserved for on the basis of a review by the Company as to
the estimated amount of the claim and the costs required to settle the claim.
Reserves for claims which are incurred but not reported are provided for at the
time premium revenue is recognized based on historical loss experience and other
factors, including industry averages, claim loss history, legal environment,
geographic considerations and types of policies written. Claims greater than
$500,000 ("major claims") are reserved for as they become known because the
unique circumstances surrounding most major claims make it inherently
impractical to predict the incidence and amount of such claims. The occurrence
of a significant major claim in any given period could have a material adverse
effect on the Company's financial condition and results of operations for such
period. See "Reinsurance." Escrow losses are expensed as they become known.
If a loss is related to a policy issued by an independent agent, the
Company may proceed against the independent agent pursuant to the terms of the
agency agreement. In any event, the Company may proceed against third parties
who are responsible for any loss sustained under the title insurance policy
under rights of subrogation.
The Company believes that its quality controls and historical focus on
residential resale and refinance transactions have helped minimize the net title
claims paid as a percentage of title insurance premiums ("net claims paid
ratio"). The Company further reduces its losses by following aggressive
recoupment procedures under rights of subrogation or warranties and by carefully
reviewing all claims. The Company paid title claims, net of recoupments, of
approximately $35.3 million, $37.3 million and $26.2 million in 1997, 1996 and
1995, respectively, representing 6.6%, 7.8% and 9.2% of title insurance premium
revenue during such periods. The 1997 and 1996 claims paid include Nations Title
Inc. claims paid (since April 1, 1996 for the year ended December 31, 1996)
totalling $8.5 million and $9.3 million, respectively. Fluctuations in the net
claims paid ratio can be attributed to the development of claims and related
payments over time. As payments related to prior years are made, particularly
prior years in which premium volume was at higher levels than those generated in
the year the loss is paid, the net claims paid ratio increases as a simple
percentage. The inverse occurs when the payments to premiums relationship is
reversed. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Expenses." There can be no assurance that the Company's
current paid loss experience will continue at these levels.
Courts and juries sometimes award damages against insurance companies,
including title insurance companies, in excess of policy limits. Such awards are
typically based on allegations of fraud, misrepresentation, deceptive trade
practices or other wrongful acts commonly referred to as "bad faith." Although
the Company has not experienced damage awards materially in excess of policy
limits, the possibility of such bad faith damage awards may cause the Company to
experience increased costs and difficulty in settling title claims.
The Company generally pays losses in cash. In some instances claims are
settled by purchasing the interest of the insured in the real property or the
interest of the adverse claimant. Such interests are generally
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recorded as an asset on the Company's books at the lower of cost or fair value
less selling costs and any related indebtedness is carried as a liability. At
December 31, 1997, the amount of these interests was $8.8 million.
REINSURANCE. In the ordinary course of business, the Company reinsures
certain risks with other title insurers for the purpose of limiting its maximum
loss exposure and also assumes reinsurance for certain risks of other title
insurers for the purpose of earning additional income. The Company cedes or
assumes a portion of certain policy liabilities under agent fidelity, excess of
loss and case-by-case reinsurance agreements. Reinsurance agreements provide
that the reinsurer is liable for loss and loss adjustment expense payments
exceeding the amount retained by the ceding company. However, the ceding company
remains primarily liable in the event the reinsurer does not meet its
contractual obligations. See Note A of Notes to Consolidated Financial
Statements.
COMPETITION. The title insurance industry is highly competitive. The
number and size of competing companies varies in the different geographic areas
in which the Company conducts its business. In the Company's principal markets,
competitors include other major title underwriters such as Chicago Title
Insurance Company, Commonwealth Land Title Insurance Company, First American
Title Insurance Company, Lawyers Title Insurance Corporation, Old Republic Title
Insurance Company and Stewart Title Guaranty Company, as well as numerous
independent agency operations at the regional and local level.
Competition is based primarily on the quality and timeliness of service,
since the parties to a real estate transaction are usually concerned with time
schedules and costs associated with delays in closing the transaction. In those
states where prices are not established by regulatory authorities the price of
the title insurance policy is also a competitive factor. The Company believes
that its competitive position is enhanced by its quality customer service and
pricing.
REGULATION. Title insurance companies, including underwriters,
underwritten title companies and independent agents, are subject to extensive
regulation under applicable state laws. Each insurance underwriter is usually
subject to a holding company act in its state of domicile which regulates, among
other matters, the ability to pay dividends and investment policies. The laws of
most states in which the Company transacts business establish supervisory
agencies with broad administrative powers relating to issuing and revoking
licenses to transact business, regulating trade practices, licensing agents,
approving policy forms, accounting principles, financial practices, establishing
reserve and capital and surplus requirements, defining suitable investments for
reserves, capital and surplus and approving rate schedules. The Company has
analyzed its current Insurance Subsidiary structure and the regulatory
environments of the various states of domicile of the Insurance Subsidiaries.
Based on this analysis the Company has implemented a program to merge certain of
its Insurance Subsidiaries, ultimately resulting in two Insurance Subsidiaries,
Fidelity Title and Fidelity New York, as opposed to the current five, which is
down from eight underwriters at the end of 1996.
Pursuant to statutory accounting requirements of the various states in
which the Insurance Subsidiaries are qualified, they must defer a portion of
premiums earned as an unearned premium reserve for the protection of
policyholders and must maintain qualified assets in an amount equal to the
statutory requirements. The level of unearned premium reserve required to be
maintained at any time is determined on a quarterly basis by statutory formula
based upon either the age and dollar amount of policy liabilities underwritten
or the age and dollar amount of statutory premiums written. As of December 31,
1997, the combined statutory unearned premium reserve required and reported for
the Insurance Subsidiaries was $174.5 million.
The Insurance Subsidiaries are regulated by the insurance commissioners of
their respective states of domicile. Regulatory examinations usually occur at
three year intervals. Examinations are currently in progress for Fidelity Title
(1996), Fidelity New York (1996), Nations New York (1996), National (1996) and
ATIC (1994). The Company has not received preliminary reports of examination for
Fidelity Title, Fidelity New York, Nations New York or National, as the
examinations are currently ongoing.
The Department of Insurance of the State of Florida has completed the field
portion of its triennial examination of ATIC, which was merged into Fidelity
Pennsylvania as of November 21, 1996, which was in turn merged into Fidelity New
York as of April 11, 1997; as of and for the three-year period ended
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December 31, 1994. The Company has received a preliminary report of examination.
The preliminary report, as forwarded to the Company by the Department of
Insurance of the State of Florida, indicates that the examiners are proposing
adjustments that could materially impact the statutory capital and surplus of
ATIC and subsequently, Fidelity Pennsylvania, its former parent company, and
ultimately Fidelity New York. Certain of these adjustments have not been
included in the 1997 Fidelity New York Statutory Annual Statement as filed with
insurance regulatory authorities as the Company does not agree with these
findings and has requested support for the examination report. These same
adjustments have not been considered in the calculation of dividend capability,
statutory surplus and statutory income (loss) reported below.
Examinations have been completed for Fidelity Pennsylvania (1995), Fidelity
Tennessee (1995) and Nations Title (1996). All adjustments proposed by the
examiners have been recorded by the Company for Fidelity Pennsylvania, Fidelity
Tennessee and Nations Title, and are included in the calculation of dividend
capability, statutory surplus and statutory income (loss) reported below.
Statutorily calculated net worth determines the maximum insurable amount
under any single title insurance policy. As of January 1, 1998, the Company's
self-imposed single policy maximum insurable amounts, which comply with all
statutory limitations, for Fidelity Title, Fidelity New York and Fidelity
Tennessee were $42.0 million, $80.0 million and $6.0 million, respectively. The
self-imposed single policy maximum insurable amounts for Nations New York and
National were $20.0 million and $6.7 million, respectively.
The Insurance Subsidiaries are subject to regulations that restrict their
ability to pay dividends or make other distributions of cash or property to
their immediate parent company without prior approval from the Department of
Insurance of their respective states of domicile. In the case of Fidelity Title,
the total amount of dividends made in any twelve-month period may not exceed the
greater of 10% of the surplus as regards policyholders as of the last day of the
preceding year or net income for the twelve-month period ending the last day of
the preceding year. In the case of Fidelity New York, the total amount of
dividends and distributions is limited to surplus as regards policyholders,
excluding capital stock, less fifty percent of statutory premium reserve as of
the last day of the preceding year and capital contributions received in the
latest five-year period. As of January 1, 1998, Fidelity Title could pay
dividends or make other distributions to the Company of $6,823,000. Fidelity New
York does not have any dividend paying capability as of January 1, 1998.
The combined statutory capital and surplus of the Insurance Subsidiaries
was $94,101,000, $73,326,000 and $67,174,000 as of December 31, 1997, 1996 and
1995, respectively. The combined statutory income (loss) of the Insurance
Subsidiaries was $21,500,000, $6,052,000 and $(1,533,000) for the years ended
December 31, 1997, 1996 and 1995, respectively. These amounts do not include
certain of the proposed ATIC examination adjustments previously discussed.
As a condition to continued authority to underwrite policies in the states
in which the Insurance Subsidiaries conduct their business, the Insurance
Subsidiaries are required to pay certain fees and file information regarding
their officers, directors and financial condition. In addition, the Company's
escrow and trust business is subject to regulation by various state banking
authorities.
Pursuant to statutory requirements of the various states in which the
Insurance Subsidiaries are domiciled, they must maintain certain levels of
minimum capital and surplus. Each of the Company's title underwriters have
complied with the minimum statutory requirements as of December 31, 1997. See
Note K of Notes to Consolidated Financial Statements.
The UTCs are also subject to certain regulation by insurance regulatory or
banking authorities, primarily relating to minimum net worth and dividend
capability. Minimum net worth of $7.5 million and $2.5 million is required for
Fidelity National Title Company ("FNTC") and Fidelity National Title Company of
California ("FNCAL"), respectively. In addition, the Company has agreed to
notify the State of California Department of Insurance of dividend payments by
FNTC and FNCAL greater than 30% of earnings before income taxes through 1998.
7
<PAGE> 10
RATINGS
The Insurance Subsidiaries are regularly assigned ratings by independent
agencies designed to indicate their financial condition and/or claims paying
ability. Financial data and other information is supplied to the rating agencies
and subjected to quantitative and qualitative analyses from which the ratings
were derived. Ratings of the Company's principal Insurance Subsidiaries, as
assigned by Demotech, Inc. during 1997, are listed below.
<TABLE>
<S> <C> <C> <C>
DEMOTECH, INC.
(FINANCIAL STABILITY RATING)
------------------------------------
Fidelity Title A = Exceptional
Fidelity New York A = Exceptional
</TABLE>
INVESTMENT POLICIES AND INVESTMENT PORTFOLIO
The Company's investment policy is designed to maintain a high quality
portfolio, maximize income, minimize interest rate risk and match the duration
of the portfolio to the Company's liabilities. The Company also makes
investments in certain equity securities in order to take advantage of perceived
value and for strategic purposes. Most of the Company's investment assets
qualify as "admitted assets" and for purposes of capital and surplus and
unearned premium reserves as prescribed by various state insurance regulations.
These investments are restricted by the state insurance regulations of their
domiciliary states and are limited primarily to cash and cash equivalents,
federal and municipal governmental securities, mortgage loans, certain
investment grade debt securities, equity securities and real estate. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
As of December 31, 1997 and 1996, the carrying amount, which approximates
the fair value, of total investments was $326.3 million and $227.7 million,
respectively.
It is the practice of the Company to purchase investment grade fixed
maturity securities, selected non-investment grade fixed maturity securities and
equity securities. The securities in the Company's portfolio are subject to
economic conditions and normal market risks and uncertainties.
The following table sets forth certain information regarding the investment
ratings of the Company's fixed maturity portfolio at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------
1997 1996
--------------------------------------- --------------------------------------
% % % %
AMORTIZED OF FAIR OF AMORTIZED OF FAIR OF
RATINGS(1) COST TOTAL VALUE TOTAL COST TOTAL VALUE TOTAL
---------- --------- ----- -------- ----- --------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA.................. $103,187 48.3% $104,488 48.2% $110,718 66.0% $109,956 66.1%
AA................... 36,484 17.1 37,141 17.1 10,485 6.3 10,572 6.3
A.................... 66,215 31.0 66,655 30.7 40,587 24.2 40,007 24.1
Other................ 7,703 3.6 8,717 4.0 5,822 3.5 5,794 3.5
-------- ----- -------- ----- -------- ----- -------- -----
Total........... $213,589 100.0% $217,001 100.0% $167,612 100.0% $166,329 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
- ---------------
(1) Ratings as assigned by Standard & Poor's Corporation
The following table sets forth certain information regarding the Company's
fixed maturity securities at December 31, 1997. Expected maturities may differ
from contractual maturities because certain borrowers have the right to call or
prepay obligations with or without call or prepayment penalties. Fixed maturity
8
<PAGE> 11
securities with an amortized cost of $17,640,000 and a fair value of $18,159,000
were callable at December 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------
% %
AMORTIZED OF FAIR OF
MATURITY COST TOTAL VALUE TOTAL
-------- --------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
One year or less.............................. $ 5,180 2.4% $ 5,188 2.4%
After one year through five years............. 120,134 56.2 121,780 56.1
After five years through ten years............ 76,760 35.9 78,346 36.1
After ten years............................... 11,515 5.5 11,687 5.4
-------- ----- -------- -----
Total............................... $213,589 100.0% $217,001 100.0%
======== ===== ======== =====
</TABLE>
Equity securities at December 31, 1997 and 1996 consist of investments in
various industry groups as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1997 1996
------------------ ------------------
FAIR FAIR
COST VALUE COST VALUE
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banks, trust and insurance companies........ $ 50 $ 50 $ 800 $ 863
Industrial, miscellaneous and all other..... 35,826 70,368 19,349 41,475
------- ------- ------- -------
Total............................. $35,876 $70,418 $20,149 $42,338
======= ======= ======= =======
</TABLE>
The Company's investment results for the years ended December 31, 1997,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net investment income(1)(2)........................ $ 18,275 $ 15,523 $ 15,014
Average invested assets(1)......................... 328,172 266,480 233,831
Effective return on average invested assets(1)..... 5.6% 5.8% 6.4%
</TABLE>
- ---------------
(1) Excludes investments in real estate. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Revenue."
(2) Net investment income as reported in the Consolidated Statements of Earnings
has been adjusted to provide the tax equivalent yield on tax exempt
investments and to exclude net realized capital gains on the sale of
investments. Net realized capital gains totalled $16,988,000, $2,625,000 and
$5,213,000 in 1997, 1996 and 1995, respectively.
REAL ESTATE AND PROPERTY MANAGEMENT OPERATIONS
The Company, principally through Manchester Development Corporation
("Manchester"), currently doing business as Orion Realty Group, a wholly-owned
subsidiary, previously invested in various real estate projects directly and
through partnerships. Some of these partnerships involve related parties. See
Notes D and E of Notes to Consolidated Financial Statements. Manchester
currently assists in the identification and leasing of space for operating
purposes and manages property owned by the Company. The Company's investments in
real estate and partnerships represented approximately 1.0% of the Company's
assets at December 31, 1997.
9
<PAGE> 12
EMPLOYEES
As of December 31, 1997, the Company had approximately 5,200 full-time
equivalent employees. The Company believes that its relations with employees are
generally good.
YEAR 2000 ISSUES
The Company has reviewed its information systems hardware, operations and
application 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 formal 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 during the middle of 1998. The
final phase of the project is scheduled to be completed by mid-1999. The review
of systems also included 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 Company estimates costs to be incurred prior to
December 31, 1999 to be approximately $200,000 to complete all programming
changes, related testing and implementation.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
The Company wishes to caution readers that the forward-looking statements
contained in this Form 10-K under "Item 1. Business," "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-K involve known and unknown risks and uncertainties
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by any forward-looking statements made by or on behalf of
the Company. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is filing the following
cautionary statements identifying important factors that in some cases have
affected, and in the future could cause the Company's actual results to differ
materially from those expressed in any such forward-looking statements.
The factors that could cause the Company's results to differ materially
include, but are not limited to, general economic and business conditions,
including interest rate fluctuations; the impact of competitive products and
pricing; success of operating initiatives; adverse publicity; changes in
business strategy or development plans; quality of management; availability,
terms, and deployment of capital; the results of financing efforts; business
abilities and judgment of personnel; availability of qualified personnel;
employee benefit costs and changes in, or the failure to comply with government
regulations.
ITEM 2. PROPERTIES
During 1997, the Company sold its corporate home office building in Irvine,
California, which housed the Company's corporate departments and certain
operating subsidiaries, recording a net realized gain of $4.3 million, prior to
applicable income taxes. Also during 1997, a subsidiary of the Company completed
the purchase of a building in Santa Barbara, California, which houses certain of
the Company's corporate departments.
The majority of the branch offices of the Company are leased from third
parties. The remainder are owned by the Company or leased from partnerships in
which the Company has an interest or leased from affiliates.
10
<PAGE> 13
As of December 31, 1997, the Company leased office and storage spaces as
follows:
<TABLE>
<CAPTION>
NUMBER OF
LOCATIONS
---------
<S> <C>
California.................................................. 197
Florida..................................................... 36
Texas....................................................... 33
Arizona..................................................... 29
Oregon...................................................... 19
Pennsylvania and Tennessee.................................. 8
New Jersey, New York and Washington......................... 7
Nevada, New Mexico and North Carolina....................... 6
Georgia, Hawaii and Michigan................................ 4
Connecticut................................................. 2
One each in: Alabama, Colorado, Illinois, Kansas, Maryland,
Massachusetts, Minnesota, Missouri, Ohio, Rhode Island and Virginia.
</TABLE>
See Note J of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is involved in various
pending and threatened litigation matters related to its operations, some of
which include claims for punitive or exemplary damages. Management believes that
no 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.
See Note J of Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the
fourth quarter of 1997.
See "Management's Discussion and Analysis of Financial Condition -- Recent
Developments" and Note O of Notes to Consolidated Financial Statements.
11
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The following table sets forth the range of high and low closing prices for
the common stock on the New York Stock Exchange. The high and low closing prices
and the amount of dividends declared for the periods indicated have been
retroactively adjusted for stock dividends and splits declared since the
Company's inception.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
------ ------ ---------
<S> <C> <C> <C>
Year ended December 31, 1997
First quarter............................................. $14.09 $10.91 $.064
Second quarter............................................ $15.34 $10.45 $.064
Third quarter............................................. $21.59 $14.44 $.064
Fourth quarter............................................ $31.25 $18.64 $ .07
Year ended December 31, 1996
First quarter............................................. $14.67 $12.39 $.058
Second quarter............................................ $12.91 $10.33 $.058
Third quarter............................................. $13.33 $11.26 $.058
Fourth quarter............................................ $13.98 $12.60 $.064
</TABLE>
On March 26, 1998, the last reported sale price of the common stock on the
New York Stock Exchange Composite Tape was $36.00 per share. As of March 26,
1998, the Company had approximately 900 stockholders of record.
Dividend Policy and Restrictions On Dividend Payments. Since the last
quarter of 1987, the Company has consistently paid cash dividends on a quarterly
basis, which payments have been made at the discretion of the Company's Board of
Directors. On March 19, 1998, the Company's Board of Directors declared a cash
dividend of $.07 per share which will be payable on May 1, 1998 to stockholders
of record on April 10, 1998. The continued payment of dividends will depend upon
operating results, business requirements, contractual restrictions, regulatory
considerations and other factors. The Company anticipates the continued payment
of dividends. See "Business -- Regulation" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Contractual Restrictions on Dividend Payments. The Company's ability to
pay dividends on its common stock and make certain payments is restricted by
provisions contained in the Company's various debt agreements. The Company
believes that amounts to fund currently anticipated dividends and certain
payments are available pursuant to the terms and conditions of its various debt
agreements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Notes G and O of
Notes to Consolidated Financial Statements.
12
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The historical operating results data, per share data and balance sheet
data set forth below are derived from the Consolidated Financial Statements of
the Company. Per share data has been retroactively adjusted for stock dividends
and splits since the Company's inception. The Consolidated Financial Statements
for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 have been
audited by KPMG Peat Marwick LLP, independent certified public accountants.
Audited Consolidated Balance Sheets at December 31, 1997 and 1996 and
Consolidated Statements of Earnings, Stockholders' Equity and Cash Flows for the
years ended December 31, 1997, 1996, and 1995, and Notes thereto are included
elsewhere herein and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994
(3)(4)(5)(6) (3)(4) (2) (1) 1993
------------ -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA:
Revenue:
Title insurance premiums............. $533,220 $475,961 $285,552 $369,275 $429,772
Escrow fees.......................... 81,241 66,927 49,723 52,260 69,982
Other fees and revenue............... 98,695 76,333 56,954 59,351 60,958
Interest and investment income,
including realized gains
(losses)........................... 33,556 17,692 17,616 11,918 14,671
-------- -------- -------- -------- --------
746,712 636,913 409,845 492,804 575,383
-------- -------- -------- -------- --------
Expenses:
Personnel costs...................... 240,223 211,668 165,514 181,953 196,470
Other operating expenses............. 161,200 154,043 123,888 129,367 137,125
Agent commissions.................... 223,797 187,901 82,713 132,713 147,427
Provision for claim losses........... 38,661 33,302 19,031 27,838 39,220
Interest expense..................... 9,401 9,446 9,239 8,594 2,587
-------- -------- -------- -------- --------
673,282 596,360 400,385 480,465 522,829
-------- -------- -------- -------- --------
Earnings before income taxes and
extraordinary item................... 73,430 40,553 9,460 12,339 52,554
Income tax expense...................... 31,959 16,216 1,828 2,594 16,259
-------- -------- -------- -------- --------
Earnings before extraordinary item...... 41,471 24,337 7,632 9,745 36,295
Extraordinary item, net of income taxes
(1)(2)(6)............................ (1,700) -- (813) 2,400 --
-------- -------- -------- -------- --------
Net earnings......................... $ 39,771 $ 24,337 $ 6,819 $ 12,145 $ 36,295
======== ======== ======== ======== ========
Diluted net earnings................. $ 42,913 $ 27,533 $ 6,819 $ 15,201 $ 36,295
======== ======== ======== ======== ========
PER SHARE DATA:
Net diluted earnings per share before
extraordinary item................... $ 2.08 $ 1.34 $ .49 $ .51 $ 1.78
Extraordinary item, net of income taxes,
diluted basis........................ (.08) -- (.05) .10 --
-------- -------- -------- -------- --------
Net earnings per share, diluted basis
................................... $ 2.00 $ 1.34 $ .44 $ .61 $ 1.78
======== ======== ======== ======== ========
Weighted average shares outstanding,
diluted basis (000's)................ 21,483 20,484 15,694 24,864 20,365
Dividends per share..................... $ .26 $ .24 $ .22 $ .20 $ .18
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994
(3)(4)(5)(6) (3)(4) (2) (1) 1993
------------ -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Direct operations market share(7)....... 21.3% 21.0% 20.3% 20.6% 18.3%
Orders closed by direct operations...... 406,000 394,000 302,000 335,000 464,000
Average fee per file(8)................. $ 853 $ 806 $ 790 $ 750 $ 710
Provision for claim losses to title
insurance premiums................... 7.3% 7.0% 6.7% 7.5% 9.1%
Net claims paid ratio(9)................ 6.6% 7.8% 9.2% 6.3% 4.2%
Title-related revenue:
Percentage direct operations......... 57.5% 59.5% 71.1% 62.6% 65.3%
Percentage agency operations......... 42.5% 40.5% 28.9% 37.4% 34.7%
Employees at year end................... 5,200 4,500 4,100 3,500 4,700
Number of licensed states at year end... 49 49 49 49 48
Return on average equity before
extraordinary item(1)(2)(6)(10)...... 27.1% 25.9% 10.0% 10.3% 40.3%
Return on average equity including
extraordinary item(1)(2)(6)(10)...... 25.9% 25.9% 9.0% 12.9% 40.3%
BALANCE SHEET DATA:
Investments............................. $326,277 $227,674 $180,082 $217,648 $236,533
Cash and cash equivalents............... 54,005 63,971 47,431 34,689 42,731
Total assets............................ 600,559 509,296 405,063 418,119 396,279
Notes payable........................... 123,023 148,922 136,047 142,129 52,769
Reserve for claim losses................ 190,747 187,245 146,094 153,306 142,512
Minority interest....................... 3,614 1,287 393 616 22,424
Stockholders' equity.................... 196,319 110,251 77,947 73,954 114,926
</TABLE>
- ---------------
(1) During 1994, the Company recognized a $2.4 million extraordinary gain, net
of related income taxes of $1.3 million, related to the early retirement of
$48 million maturity value of the Company's Liquid Yield Option Notes (the
"LYONs").
(2) During 1995, the Company recognized an $813,000 extraordinary loss, net of
related income taxes of $437,000, related to the early retirement of its
Senior Secured Notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Extraordinary Item."
(3) The Company acquired NTI and its wholly-owned subsidiaries Nations Title,
Nations New York and National on April 1, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments" and Note B of Notes to Consolidated
Financial Statements. The selected financial data above includes the
balance sheet accounts of NTI and subsidiaries at December 31, 1997 and
1996 and the results of its operations for the year ended December 31, 1997
and for the nine-month period ended December 31, 1996.
(4) The Company acquired 80% of CRM, Inc. ("CRM") on November 1, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments" and Note B of Notes to Consolidated
Financial Statements. The selected financial data above includes the
Company's interest in the balance sheet accounts of CRM at December 31,
1997 and 1996 and the Company's interest in the results of its operations
for the year ended December 31, 1997 and for the two-month period ended
December 31, 1996.
(5) On July 3, 1997, the Company converted an outstanding note balance in
conjunction with the exercise of warrants into a 51% ownership interest of
National Alliance Marketing Group ("National Alliance"), subject to certain
regulatory approvals. The selected financial data above includes the
Company's
14
<PAGE> 17
interest in the balance sheet accounts of National Alliance at December 31,
1997 and the Company's interest in the results of operations for the period
from July 3, 1997 through December 31, 1997.
On August 22, 1997, the Company acquired First Title Corporation ("First
Title"). The selected financial data above includes the balance sheet
accounts of First Title at December 31, 1997 and the results of its
operations for the period from August 22, 1997 through December 31, 1997.
The Company acquired Ifland Credit Services ("ICS") on September 18, 1997.
The selected financial data above includes the balance sheet accounts of
ICS at December 31, 1997 and the results of its operations for the period
from September 18, 1997 through December 31, 1997.
The Company acquired Credit Reports, Inc. ("CRI") and Express Network, Inc.
("ENI") on October 9, 1997. The selected financial data above includes the
balance sheet accounts of CRI and ENI at December 31, 1997 and the results
of their operations for the period from October 9, 1997 through December
31, 1997.
The Company acquired Classified Credit Data, Inc. ("CCD") on October 21,
1997. The selected financial data above includes the balance sheet accounts
of CCD at December 31, 1997 and the results of their operations for the
period from October 21, 1997 through December 31, 1997.
The Company acquired Bron Research, Inc. ("BRON") on October 1, 1997. This
acquisition has been accounted for as a pooling-of-interests. The selected
financial data above includes the balance sheet accounts of BRON at
December 31, 1997 and the results of its operations for the year ended
December 31, 1997. BRON's financial position and results of operations
prior to 1997 were insignificant, and as such, the selected financial data
above has not been restated for prior years.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Recent Developments" and Note B of Notes to
Consolidated Financial Statements.
(6) During 1997, the Company recognized an extraordinary loss of $1.7 million,
net of related income taxes of $1.1 million, related to the early
retirement of $45 million maturity value of the Company's LYONs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Extraordinary Item and Recent Developments."
(7) This estimate of direct operations market share is based upon the number of
title recordings by the Company in the counties where the Company maintains
direct operations and excludes title recordings by the Company's agents and
excludes title recordings in certain eastern and southeastern states
because such information is not available. The direct operations market
share percentage has been weighted to give effect to the Company's related
direct revenue in the applicable counties.
(8) Average fee per file is based upon title insurance premiums, escrow fees
and certain other title-related fees from direct operations divided by
orders closed.
(9) The net claims paid ratio is the percentage resulting from total title
claims paid, net of recoupments, divided by title insurance premiums.
(10) Percentage return on average equity is net earnings for the period divided
by the simple average of total stockholders' equity as of the beginning and
end of each year presented.
15
<PAGE> 18
QUARTERLY FINANCIAL DATA
Selected quarterly financial data is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997
Revenue......................................... $153,192 $178,458 $197,915 $217,147
Earnings before income taxes and extraordinary
loss.......................................... 5,123 15,075 27,271 25,961
Earnings before extraordinary loss.............. 3,023 9,105 15,857 13,486
Extraordinary loss, net of income taxes......... -- -- -- (1,700)
Net earnings basic basis........................ 3,023 9,105 15,857 11,786
Net earnings diluted basis...................... 3,831 9,913 16,675 12,494
Earnings per share before extraordinary item,
basic basis................................... .20 .60 1.03 .76
Extraordinary loss, net of income taxes, basic
basis......................................... -- -- -- (.09)
Basic earnings per share........................ .20 .60 1.03 .67
Earnings per share before extraordinary item,
diluted basis................................. .18 .48 .78 .62
Extraordinary loss net of income taxes, diluted
basis......................................... -- -- -- (.07)
Diluted earnings per share...................... .18 .48 .78 .55
Dividends paid per share........................ .06 .06 .06 .07
1996
Revenue......................................... $126,398 $171,628 $166,692 $172,195
Earnings before income taxes.................... 8,300 11,757 10,623 9,873
Net earnings, basic basis....................... 5,145 6,946 6,317 5,929
Net earnings, diluted basis..................... 5,985 7,720 7,102 6,726
Basic earnings per share........................ .35 .46 .42 .39
Diluted earnings per share...................... .29 .38 .35 .33
Dividends paid per share........................ .06 .06 .06 .06
1995
Revenue......................................... $ 83,059 $ 95,494 $113,471 $117,821
Earnings (loss) before income taxes and
extraordinary loss............................ (4,737) 1,322 7,831 5,044
Earnings (loss) before extraordinary loss....... (2,447) 1,021 5,873 3,185
Extraordinary loss, net of income taxes......... (813) -- -- --
Net earnings (loss), basic basis................ (3,260) 1,021 5,873 3,185
Net earnings (loss), diluted basis.............. (3,260) 1,021 6,677 4,000
Earnings (loss) per share before extraordinary
item, basic basis............................. (.15) .07 .40 .21
Extraordinary loss, net of income taxes, basic
basis......................................... (.05) -- -- --
Basic earnings (loss) per share................. (.20) .07 .40 .21
Earnings (loss) per share before extraordinary
item, diluted basis........................... (.15) .06 .33 .20
Extraordinary loss net of income taxes, diluted
basis......................................... (.05) -- -- --
Diluted earnings (loss) per share............... (.20) .06 .33 .20
Dividends paid per share........................ .05 .05 .05 .06
</TABLE>
16
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is intended to provide information to facilitate
the understanding and assessment of significant changes and trends related to
the financial condition and results of operations of the Company. This
discussion and analysis should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto appearing elsewhere
herein.
OVERVIEW
The following table sets forth certain financial and other data for the
years indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total revenue...................................... $746,712 $636,913 $409,845
Total expenses..................................... $673,282 $596,360 $400,385
Earnings before extraordinary item................. $ 41,471 $ 24,337 $ 7,632
Extraordinary item -- loss on early retirement of
debt, net of income taxes........................ (1,700) -- (813)
-------- -------- --------
Net earnings..................................... $ 39,771 $ 24,337 $ 6,819
======== ======== ========
Net claims paid ratio(1)........................... 6.6% 7.8% 9.2%
Return on average equity before extraordinary
item(2).......................................... 27.1% 25.9% 10.0%
Return on average equity including extraordinary
item(2).......................................... 25.9% 25.9% 9.0%
</TABLE>
- ---------------
(1) The net claims paid ratio is the percentage resulting from total title
claims paid, net of recoupments, divided by title insurance premiums.
(2) Percentage return on average equity is net earnings for the period divided
by the simple average of total stockholders' equity as of the beginning and
end of each year presented.
Title insurance 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, lower 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 real estate market, especially in California and on the West
Coast, contributed to very positive conditions for the industry throughout 1996
and 1997 and into the first quarter of 1998. It is impossible to predict in what
future direction interest rates and the real estate market may move or
fluctuate.
Additionally, during 1997, the Company acquired certain ancillary service
companies in various separate transactions. See "Recent Developments." The
acquired ancillary service companies have been bundled with other existing
lender services to form Fidelity's Lender Express Network ("FLEXNet"). FLEXNet
provides a complete range of real estate transactional services, leading to a
broader base of services provided and increased other fees and revenue.
Also, during 1997 the Company sold a majority interest of its subsidiary
American Title Company ("ATC"), an underwritten title company, to certain
members of ATC's management. See "Recent Developments." ATC functions as an
exclusive agent of the Company, and represents one of the Company's largest
agents. The conversion of ATC business from direct to agency resulted in a
continued increase in the
17
<PAGE> 20
percentage of title-related revenue generated from agency operations to 42.5% in
1997 compared to 40.5% in 1996.
The following table sets forth information regarding title-related revenue
derived from direct operations and title-related revenue derived from agency
operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
% % %
1997 OF TOTAL 1996 OF TOTAL 1995 OF TOTAL
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue from direct
operations:
Title insurance premiums.... $250,314 37.6% $237,244 40.2% $177,202 47.3%
Escrow fees................. 81,241 12.2 66,927 11.4 49,723 13.3
Other title-related fees and
revenue.................. 50,899 7.7 46,762 7.9 39,117 10.5
-------- ----- -------- ----- -------- -----
Total............... 382,454 57.5 350,933 59.5 266,042 71.1
Revenue from agency
operations:
Title insurance premiums.... 282,906 42.5 238,717 40.5 108,350 28.9
-------- ----- -------- ----- -------- -----
Total title-related
revenue........... $665,360 100.0% $589,650 100.0% $374,392 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
On April 1, 1996, the Company completed its acquisition of the Nations
Title Inc. group of companies. See "Recent Developments." The acquisition
positioned Fidelity National Financial, Inc. as the nation's fourth largest
title insurance underwriter. Nations Title Inc. and its three wholly-owned
underwriting subsidiaries, Nations Title Insurance Company (which was
subsequently merged into Fidelity Title), Nations Title Insurance of New York
Inc. and National Title Insurance of New York Inc., expanded the Company's
national agency network and increased its market share in the more traditional
agency driven states. The Nations Title Inc. acquisition resulted in additional
agency business and a shift in the mix of business from direct to agency during
1996. The revenue and expense information presented in Management's Discussion
and Analysis of Financial Condition and Results of Operations includes Nations
Title Inc.'s results of operations for the nine-month period ended December 31,
1996. In 1996, the total title-related revenue (excluding interest and
investment income and non-title-related other fees and revenue) generated by
agency operations increased to 40.5% from 28.9% in 1995.
During 1995, 71.1% of total title-related revenue was generated from direct
operations. The Company traditionally focused on direct operations because it
retains the entire premium from each transaction and is able to generate
additional sources of revenue by providing other title-related services.
The Company's strategy of expanding into selected markets continues. The
Company's strategy includes the restructuring of acquired operations, expansion
into the commercial market while maintaining its level of focus on the
residential resale and refinance markets, enhancing sales and marketing efforts,
minimizing net claim payments through stringent quality controls and effectively
managing overhead costs.
18
<PAGE> 21
RESULTS OF OPERATIONS
REVENUE. The following table presents information regarding the components
of the Company's revenue:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS, OTHER THAN
FEE PER FILE)
<S> <C> <C> <C>
Title insurance premiums........................... $533,220 $475,961 $285,552
Escrow fees........................................ 81,241 66,927 49,723
Other fees and revenue............................. 98,695 76,333 56,954
Interest and investment income, including realized
gains (losses)................................... 33,556 17,692 17,616
-------- -------- --------
Total revenue.................................... $746,712 $636,913 $409,845
======== ======== ========
Orders closed by direct operations................. 406,000 394,000 302,000
Average fee per file from direct operations........ $ 853 $ 806 $ 790
</TABLE>
Favorable mortgage interest rates in the latter part of 1991 through early
1994 triggered refinancing activity at record levels. Beginning in early 1994
through mid-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. Title
orders and requests for title-related services followed the market trend as
expected. Since late 1995, decreases in mortgage interest rates and the
resulting improvement in the real estate market have had a positive impact on
the level of real estate activity, order counts and closed orders. The overall
economic environment, stable mortgage interest rates in the seven percent range
and strength in the real estate market, especially in California, the Company's
strongest market, and on the West Coast, were positive factors through 1996 and
1997 and into the first quarter of 1998. These factors and the Company's
acquisition of Nations Title Inc., which was completed on April 1, 1996, have
resulted in title premiums of $533.2 million, $476.0 million and $285.6 million,
for 1997, 1996 and 1995, respectively. The difference in title insurance
premiums between 1997 and 1996 of $57.2 million represents an increase of 12.0%.
Title insurance premiums increased $190.4 million, or 66.7%, in 1996 from 1995.
The average fee per file increased to $853 in 1997 from $806 in 1996, which
had previously increased from $790 in 1995. The increase in fee per file in 1997
over 1996 and 1996 over 1995 is the result of increased fee revenue attributable
to higher fees charged per policy due to appreciated property values,
particularly in California, an overall rate increase and an expansion in the
commercial business sector offset by an increase in refinancing transactions.
Title business generated was primarily related to new home sale or resale
transactions, which typically charge higher fees than refinancing transactions.
Fees generated from refinancing transactions are generally less than fees
generated from resale transactions because the base rate charged on such a
policy is usually lower. Furthermore, one policy is issued to a lender in a
refinance transaction and two policies are issued in a resale transaction (buyer
and lender).
The Company's direct operations generate escrow fees from holding funds and
documents in connection with the closing of real estate transactions, as well as
real estate information and technology service fees, trustee sale guarantee
fees, credit reporting fees, attorney service fees, flood certification fees,
tax monitoring fees, reconveyance fees, recording fees, foreclosure publishing
and posting service fees and exchange intermediary service fees in connection
with real estate transactions.
The trends in escrow fees are primarily related to the title insurance
activity generated by the Company's direct operations. Escrow fees have
fluctuated during the 1997, 1996 and 1995 years in a pattern generally
consistent with the fluctuation in title insurance premiums. Escrow fees
increased $14.3 million to $81.2 million in 1997, a 21.4% increase from $66.9
million in 1996. This increase is consistent with the trend in title premiums
but is also due to the Company's focused efforts to expand its escrow market
presence in certain areas, such as Southern California. Escrow fees increased
$17.2 million to $66.9 million in 1996, a 34.6% increase from $49.7 million in
1995. The 1996 percentage increase in escrow fees is not as significant as the
19
<PAGE> 22
percentage increase in title premiums due to the change in the direct
operation/agency business mix. See "Overview." Agency title insurance premiums
do not generate escrow fees for the Company.
Other fees and revenue trend closely with the level and mix of business, as
well as the performance of certain of the Company's title-related subsidiaries.
During 1997, the Company acquired certain ancillary service companies in various
separate transactions. See "Recent Developments." The acquired ancillary service
companies have been bundled with other existing lender services to form
Fidelity's Lender Express Network ("FLEXNet"). FLEXNet provides a complete range
of real estate transactional services, leading to increased other fees and
revenues in 1997 as compared to 1996. 1997 other fees and revenue were $98.7
million, an increase of $22.4 million, or 29.4%, over 1996 other fees and
revenue of $76.3 million. In 1996, other fees and revenue increased $19.3
million, or 33.9%, to $76.3 million from $57.0 million in 1995. The increase is
primarily related to the increase in title premiums and escrow fees generated by
the Company's direct operations. Direct operations generate other fees and
income. Additionally, over the past two years the Company's ancillary service
businesses have significantly expanded their market presence and revenue, which
are included in other fees and revenue. The Company continues to make a
concerted effort to expand and develop the ancillary service contribution to
title-related operations.
Interest and investment income levels are primarily a function of
securities markets, interest rates and the amount of cash available for
investment. In 1997 investment income increased $15.9 million, or 89.8%, to
$33.6 million compared to $17.7 million in 1996. Average invested assets,
excluding real estate, increased 23.2% to $328.2 million in 1997 from $266.5
million in 1996, while the tax equivalent yield decreased to 5.6% in 1997 from
5.8% in 1996 due to declining interest rates, which resulted in an increase in
interest and dividend income of approximately $1.5 million. The Company shifted
the emphasis in its fixed income portfolio from taxable to non-taxable
securities during 1997. The difference in investment income results is primarily
attributable to the substantial increase in net realized capital gains during
1997 compared to 1996. In 1997, net realized capital gains totalled
approximately $17.0 million compared to $2.6 million in 1996. The primary
components of 1997 capital gains, prior to applicable income taxes, are the
following: $10.5 million in capital gains from the sale of investment
securities, $4.3 million in capital gain from the sale of the Company's former
home office building, $1.3 million from the sale of a majority interest in
American Title Company and approximately $800,000 in capital gain from the sale
of the Company's former small business investment company subsidiary, FNF
Ventures, Inc. During 1996, interest and investment income increased .6% to
$17.7 million from $17.6 million in 1995. As interest rates declined during 1996
from 1995, the tax adjusted yield decreased to 5.8% in 1996 compared to 6.4% in
1995. Average invested assets, excluding real estate, increased $32.7 million,
or 14.0%, to $266.5 million in 1996 from $233.8 million in 1995. The difference
in investment income results is primarily attributable to increased interest
income resulting from an increase in average invested assets offset by a
decrease in yield and in capital gains. During 1996, the Company recognized $2.6
million of capital gains compared to $5.2 million of capital gains recorded in
1995. Included in the 1995 gain amount is a $3.4 million net gain realized upon
the sale of the Company's common stock holdings in US Facilities Corporation
during the third quarter of 1995.
EXPENSES. The following table presents the components of the Company's
expenses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1995 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Personnel costs............................ $240,223 $211,668 $165,514
Other operating expenses................... 161,200 154,043 123,888
Agent commissions.......................... 223,797 187,901 82,713
Provision for claim losses................. 38,661 33,302 19,031
Interest expense........................... 9,401 9,446 9,239
-------- -------- --------
Total expenses................... $673,282 $596,360 $400,385
======== ======== ========
</TABLE>
The Company's operating expenses primarily consist of personnel costs and
other operating expenses which are incurred as title insurance orders are
received and processed. Direct title insurance premiums and
20
<PAGE> 23
escrow fee revenue are recognized as income at the time the underlying real
estate transaction closes. As a result, revenue lags approximately 60-90 days
behind expenses and therefore gross margins may fluctuate.
Personnel costs include both base salaries and commissions (direct
operations) paid to employees and are the most significant operating expense
incurred by the Company. These costs generally fluctuate with the level of
orders opened and closed and with the mix of revenue between direct and agency
operations. Personnel costs totalled $240.2 million, $211.7 million and $165.5
million for the years ended December 31, 1997, 1996 and 1995, respectively. See
"Overview" and "Revenue." Personnel costs, as a percentage of total revenue,
have decreased to 32.2% from 33.2% in 1996, which had previously decreased from
40.4% in 1995.
The Company has taken significant measures to maintain appropriate
personnel levels and costs relative to the volume and mix of business and
revenues. The Company will not, however, compromise its customer service
standards or quality controls in responding to market conditions. The Company
continues to monitor the prevailing market conditions and will respond as
necessary.
Other operating expenses consist of facilities expenses, title plant
maintenance, premium taxes (which insurance underwriters are required to pay on
title premiums and title-related revenue in lieu of franchise and other state
taxes), escrow losses, postage and courier services, computer services,
professional services, advertising expenses, general insurance, trade and notes
receivable allowances and depreciation. Other operating expenses decreased as a
percentage of total revenue to 21.6% in 1997 from 24.2% in 1996, which had
previously decreased from 30.2% in 1995. In response to market conditions, the
Company implemented aggressive cost control programs in order to maintain
operating expenses at levels consistent with the levels of title-related
revenue; however, certain fixed costs are incurred regardless of revenue levels,
resulting in the year over year percentage fluctuations. The Company continues
to be committed to these cost control measures. Total other operating expenses
totalled $161.2 million, $154.0 million and $123.9 million in 1997, 1996 and
1995, respectively. See "Overview."
The period over period fluctuations in personnel costs and other operating
expenses are primarily the result of the fluctuations in total revenue, the
impact of the continued implementation of the Company's proprietary title and
escrow related technology on productivity and efficiency, as well as the changes
in the direct operation and agency operation title premium mix and the effect of
the newly acquired ancillary service companies on personnel and other operating
expenses. Additionally, the sale of ATC has shifted certain costs from personnel
and other operating expenses to commissions.
The 1996 addition of Nations Title Inc. title premiums, which are primarily
agency-related, has provided a balance between direct operation and agency
revenue. In previous periods the majority of title premiums and total revenue
were generated by direct operations, which resulted in higher personnel costs
and other operating expenses.
Agent commissions represent the portion of premiums retained by agents
pursuant to the terms of their respective agency contracts. The following table
illustrates the relationship of agent premiums and agent commissions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Agent premiums.................... $282,906 100.0% $238,717 100.0% $108,350 100.0%
Agent commissions................. 223,797 79.1 187,901 78.7 82,713 76.3
-------- ----- -------- ----- -------- -----
Premiums retained by the
Company.................... $ 59,109 20.9% $ 50,816 21.3% $ 25,637 23.7%
======== ===== ======== ===== ======== =====
</TABLE>
Agent commissions and the resulting percentage of agent premiums retained
by the Company varies according to regional differences in real estate closing
practices and state regulations. During 1997, the Company sold a majority
interest in its underwritten title company subsidiary ATC resulting in the
transfer of premiums from direct operations to agency operations and increased
commission expense in 1997 compared to
21
<PAGE> 24
1996, as well as a decrease in premiums retained by the Company on a year over
year basis. Commission rates paid to ATC are higher than average commission
rates paid to the 1996 agent base. The 1996 increase in agent commissions as a
percentage of agency premiums over 1995, resulting in a decrease in the
percentage of agency premiums retained by the Company, is attributable to the
fact that the average commissions paid to agents acquired in the Nations Title
Inc. acquisition exceed those paid to the former agent base. The combination of
higher agency commission rates and the significant agency revenue generated
since the sale of ATC and by the Nations Title Inc. acquisition have resulted in
higher overall commissions in 1997 and 1996.
The provision for claim losses includes an estimate of anticipated title
claims and major claims. The estimate of anticipated title claims is accrued as
a percentage of title premium revenue based on the Company's historical loss
experience and other relevant factors. The Company monitors its claims
experience on a continual basis and adjusts the provision for claim losses
accordingly. Based on Company loss development studies, the Company believes
that as a result of its underwriting and claims handling practices, as well as
the refinancing business of prior years, the Company will maintain the trend of
favorable claim loss experience. Based on this information, in 1997, 1996 and
1995, the Company recorded a provision for claim losses of 7.0% of title
insurance premiums prior to major claim expense, net of recoupments and the
impact of premium rates and Company loss experience in the state of Texas.
Premiums are generally higher in Texas for similar coverage than in other
states, while loss experience is comparable. As a result, losses as a percentage
of premiums are lower. These factors resulted in a net provision for claim
losses of 7.3%, 7.0% and 6.7% in 1997, 1996 and 1995, respectively.
A summary of the reserve for claim losses follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.................................. $187,245 $146,094 $153,306
Reserves assumed from First Title Corp........... 284 -- --
Reserves relinquished due to the sale of American
Title Company................................. (160) -- --
Reserves assumed from Nations Title Inc.......... -- 45,171 --
Title claim loss provision related to:
Current year.................................. 36,404 32,505 23,901
Prior years................................... 2,257 797 (4,870)
-------- -------- --------
Total title claim loss provision................. 38,661 33,302 19,031
Title claims paid, net of recoupments related to:
Current year.................................. (2,376) (2,430) (2,818)
Prior years................................... (32,907) (34,892) (23,425)
-------- -------- --------
Total title claims paid, net of recoupments...... (35,283) (37,322) (26,243)
-------- -------- --------
Ending balance..................................... $190,747 $187,245 $146,094
======== ======== ========
Provision for title claim losses to title insurance
premiums......................................... 7.3% 7.0% 6.7%
Net claims paid ratio.............................. 6.6% 7.8% 9.2%
</TABLE>
Interest expense is incurred by the Company in financing its capital asset
purchases and certain acquisitions. Interest expense consists of interest
related to the Company's outstanding debt and the amortization of original issue
discount and debt issuance costs related to the Liquid Yield Option Notes due
2009 ("LYONs") issued in February 1994. Interest expense on non-LYONs debt
totalled $4.1 million, $4.2 million and $4.3 million for the years 1997, 1996
and 1995, respectively. The LYONs-related component of interest expense amounted
to $5.3 million, $5.2 million and $4.9 million for 1997, 1996 and 1995,
respectively. Interest expense was comparable over the three-year period
primarily as a result of slightly more favorable interest rates related to
outstanding non-LYONs debt, offset by an increase in the LYONs component of
interest expense. See "Extraordinary Item and Recent Developments."
22
<PAGE> 25
Income tax expense for 1997, 1996 and 1995, as a percentage of earnings
before income taxes, including the extraordinary losses in 1997 and 1995, was
43.6%, 40.0% and 16.9%, respectively. See "Extraordinary Item." The fluctuations
in income tax expense as a percentage of earnings before income taxes, including
the extraordinary item, are attributable to the effect of state income taxes on
the Company's wholly-owned underwritten title companies and ancillary service
companies; a change in the amount and characteristics of net income, operating
income versus investment income; and the tax treatment of certain items. See
Note H of Notes to Consolidated Financial Statements for additional information
regarding income taxes.
EXTRAORDINARY ITEM. In an effort to reduce the leverage of the Company
while taking advantage of the favorable environment relative to the Company's
common stock, on October 17, 1997, the Company, in a private transaction,
purchased $45 million aggregate principal amount at maturity of its outstanding
Liquid Yield Option Note due 2009 from Merrill Lynch, Pierce, Fenner & Smith
Incorporated for an aggregate purchase price of $27.2 million (or $605 per
$1,000 principal amount at maturity of LYONs), which exceeded the accreted value
recorded by the Company pursuant to the LYONs Indenture at that date. The
purchase price was paid in the form of 1,267,619 shares, $26.4 million, of the
Company's common stock and $790,000 in cash. The purchase of the LYONs increased
stockholders' equity by approximately $24.7 million while reducing outstanding
debt by approximately $24.3 million. An extraordinary loss due to the early
retirement of debt of approximately $1.7 million, net of applicable income
taxes, related to this transaction has been recorded in the Consolidated
Statement of Earnings for the year ended December 31, 1997. See "Recent
Developments."
In order to reduce interest expense incurred and interest rates paid, the
Company prepaid the Senior Secured Notes (the "Senior Notes") issued in March
1993. Pursuant to the terms and conditions of the Senior Note Agreement, the
Company provided for the Make Whole Provision, as defined, and related expenses
in 1995. This amount, $813,000, net of applicable income taxes, has been
reflected as an extraordinary item in the Consolidated Statements of Earnings
for the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements include debt service, operating expenses,
taxes and dividends on its common stock. The Company believes that all
anticipated cash requirements for current operations will be met from internally
generated funds, through cash received from subsidiaries, cash generated by
investment securities and short-term bank borrowings through existing credit
facilities.
Two of the 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 reimbursements are
executed within the guidelines of various management agreements among the
Company and its subsidiaries. Fluctuations in operating cash flows are primarily
the result of increases or decreases in revenue. See "Overview." The Company's
Insurance Subsidiaries and UTCs collect premiums and pay claims and operating
expenses. The Insurance Subsidiaries also have cash flow sources derived from
investment income, repayments of principal and proceeds from sales and
maturities of investments and dividends from subsidiaries. Positive cash flow
from the Insurance Subsidiaries is invested primarily in short-term investments
and medium-term bonds. Short-term investments held by the Company's Insurance
Subsidiaries provide liquidity for projected claims and operating expenses. The
Insurance Subsidiaries are restricted by state regulations in their ability to
pay dividends and make distributions. Each state of domicile regulates the
extent to which the Company's title underwriters can pay dividends or make other
distributions to the Company. The UTCs are also regulated by insurance
regulatory or banking authorities. The Company's ancillary service subsidiaries
collect revenue and pay operating expenses; however, they are not regulated by
insurance regulatory or banking authorities. Positive cash flow from the UTCs
and ancillary service subsidiaries is invested primarily in cash and cash
equivalents.
The short- and long-term liquidity requirements of the Company, Insurance
Subsidiaries and UTCs are monitored regularly to match cash inflows with cash
requirements. The Company, Insurance Subsidiaries, UTCs and ancillary service
subsidiaries forecast their daily cash needs and periodically review their
short- and
23
<PAGE> 26
long-term projected sources and uses of funds, as well as the asset, liability,
investment and cash flow assumptions underlying these projections.
For purposes of satisfying insurance regulatory requirements, the Company
is required to maintain certain levels of readily marketable securities and
other liquid assets. At December 31, 1997, the fair value of the Company's total
investment securities was approximately $326.3 million. These investments
consist of securities which the Company believes are readily marketable and
could be liquidated if necessary. See "Business -- Investment Policies and
Investment Portfolio."
On September 21, 1995, the Company obtained a $35 million credit facility
with a banking syndicate led by Chase Manhattan Bank N.A. The facility includes
a $22 million term loan and a $13 million revolving credit facility. The $22
million term loan was used to refinance higher rate indebtedness and for general
corporate purposes. $5 million of the $13 million revolving credit facility was
used to fund a portion of the Nations Title Inc. acquisition and the remainder
was available for general corporate purposes. This credit facility was
terminated and paid subsequent to year end with proceeds from a new credit
facility containing terms more favorable to the Company. See Note G of Notes to
Consolidated Financial Statements.
In February 1994, the Company issued zero coupon, convertible subordinated
Liquid Yield Option Notes due February 2009 at an interest rate of 5.5% with a
principal amount at maturity of $235,750,000. Net proceeds to the Company were
approximately $101,000,000. The proceeds were used for investment and general
corporate purposes, including the repurchase of treasury shares. See "Recent
Developments" and Note G of Notes to Consolidated Financial Statements.
In the normal course of business certain of the Company's subsidiaries
enter into off-balance sheet credit risk associated with certain aspects of its
title insurance policies and Manchester's real estate activities. This credit
risk is in the form of standby letters of credit and general partnership
guarantees. The Company believes that this credit risk is adequately secured by
either legal remedies associated with settlement procedures or the underlying
real estate assets. See Note J of Notes to Consolidated Financial Statements.
RECENT ACCOUNTING PRONOUNCEMENTS. In March 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"), effective for fiscal years ending after
December 15, 1997. SFAS 128 introduces and requires the presentation of "basic"
earnings per share which represents net earnings divided by the weighted average
shares outstanding excluding all common stock equivalents. Dual presentation of
"diluted" earnings per share, reflecting the dilutive effects of all common
stock equivalents, is also required. The diluted presentation is similar to the
former presentation of fully diluted earnings per share. All quarterly and
annual per share data have been restated to reflect the impact of SFAS 128. The
adoption of SFAS 128 did not have a material impact on the Consolidated
Financial Statements of the Company.
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. SFAS 130 does not require a specific
format for that financial statement, but requires that an enterprise display an
amount representing total comprehensive income for the period covered by that
financial statement. SFAS 130 requires an enterprise to (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS 130 will not have a
material impact on the Company's financial reporting.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements
24
<PAGE> 27
and requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS 131 requires, among other items, that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
segment assets, information about the revenues derived from the enterprise's
products or services and major customers. SFAS 131 also requires that the
enterprise report descriptive information about the way that the operating
segments were determined and the products and services provided by the operating
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. SFAS 131 need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application. Management has not determined whether the adoption of SFAS 131
will have a material impact on the Company's financial reporting.
RECENT DEVELOPMENTS
In February of 1996, the Company proposed a merger with Giant Group, Ltd.
("Giant"). The Company had purchased 705,489 shares (or 14.8%) of Giant's
outstanding common stock. The Company's intent in acquiring Giant was to utilize
its liquid assets to take advantage of investment opportunities in non-interest
rate sensitive businesses. On April 26, 1996, the parties reached a settlement
agreement pursuant to which Giant repurchased its shares from Fidelity. In
addition, as part of the settlement, Fidelity acquired 767,807 shares of Rally's
Hamburger, Inc. ("Rally's") stock from Giant for $.83 per share, as well as an
option to purchase additional shares of Rally's common stock.
On April 1, 1996, the Company completed its acquisition of one hundred
percent of Nations Title Inc. and its whollyowned subsidiaries Nations Title
Insurance Company (which was merged into Fidelity Title as of December 29,
1997), Nations Title Insurance of New York Inc. and National Title Insurance of
New York Inc. from Nations Holding Group for a purchase price of $19.3 million
plus 212,960 shares, $2.1 million, of the Company's common stock, subject to
certain adjustments. The acquisition positioned Fidelity National Financial,
Inc. as the nation's fourth largest title insurance underwriter. The Company
believes that the combination of its direct operations and Nations Title Inc.'s
strong agency network provides a balance to the Company's title premium revenue
between direct and agency, as well as a hedge against future market downturns.
The acquisition of Nations Title Inc. has also increased the Company's revenue
and positively impacted its balance sheet and margins due to the operating
economies of the combined companies. The acquisition has also increased market
share in areas where the Company has had a limited presence, particularly in
those areas where business is primarily agent driven, as well as in states where
the Company has a strong market position. During 1997, the Nations Title Inc.
purchase price was reduced $749,000, pursuant to certain terms and conditions
contained in the acquisition agreement. The purchase price adjustment resulted
in Nations Holding Group returning 26,499 shares of common stock to the Company.
The returned shares were subsequently cancelled. This transaction has been
accounted for as a purchase. See Note B of Notes to Consolidated Financial
Statements.
On April 4, 1996, the Company purchased 17% of the outstanding common stock
of National Alliance Marketing Group, Inc. ("National Alliance"), a California
corporation, for $566,667; together with a warrant to acquire an additional 14%
of National Alliance common stock. In addition, the Company loaned $1,200,000 to
National Alliance at closing at a rate of prime plus one percent. Subsequently,
the Company agreed to increase the credit facility from $1,200,000 to
$1,700,000. In consideration for the increase in the credit facility National
Alliance agreed to increase the warrant shares which the Company could purchase.
If the entire $1,700,000 was borrowed the Company could purchase an additional
34% of the outstanding shares of National Alliance. After receiving approval of
the transaction from the California Department of Insurance, the transaction
closed on July 12, 1996. National Alliance is the parent company of Alliance
Home Warranty
25
<PAGE> 28
Company ("Alliance"), a California insurance company. Alliance sells home
warranty plans to buyers of resale homes, primarily in the Central and Southern
California markets. A home warranty contract generally promises the repair or
replacement of major operating systems and built-in appliances inside a home for
a period of one year. On July 3, 1997, the Company converted the outstanding
note balance in conjunction with the exercise of the warrants and now owns 51%
of the outstanding common stock of National Alliance, subject to certain
regulatory approvals. The outstanding balance of the notes receivable due from
National Alliance at conversion was approximately $1.6 million. See Note B of
Notes to Consolidated Financial Statements.
On May 16, 1996, the Company paid $3.1 million to acquire a first lien loan
of $3.4 million secured by a commercial office building owned by a real estate
partnership in which Manchester Development Corporation is the sole general
partner. During 1996, but prior to the Company's acquisition of the loan,
officers and directors of the Company assigned their ownership interests in the
real estate partnership to Manchester. The Company leases space in the
commercial office building.
On September 30, 1996, the Company accepted the assignment from a real
estate partnership of the right to redeem a retail shopping center valued at
$4.5 million in exchange for a net payment of $434,000. Officers and directors
of the Company who held ownership interests in the real estate partnership
assigned their rights to redeem to the Company. On November 21, 1996, the
Company redeemed the retail property at a price of $2.8 million. The Company
continues to collect rent from the retail tenants while actively marketing the
property for sale. The property is carried at cost, which approximates fair
value.
On November 1, 1996, the Company acquired 80% of the outstanding stock of
CRM, Inc. ("CRM") for a purchase price of $3.5 million, $1.0 million in cash and
191,169 shares, $2.5 million, of the Company's common stock. CRM provides real
estate information services with a heavy concentration in the areas of tax
services and flood certification. The Company combined its existing tax service
business with that of CRM. Under certain circumstances the Company can purchase
the remaining 20% of the outstanding stock of CRM. CRM, Inc. now operates as
Fidelity National Tax Service, Inc. This transaction has been accounted for as a
purchase. See Note B of Notes to Consolidated Financial Statements.
Effective July 1, 1997, the Company sold a majority interest (60%) of its
subsidiary American Title Company ("ATC"), an underwritten title company, to
certain members of ATC's management. ATC will function as an exclusive agent of
the Company. The sale price of the 60% interest was $6.0 million resulting in a
realized gain of approximately $1.3 million before applicable income taxes.
On July 10, 1997, the Company sold its former home office building in
Irvine, California for a purchase price of $16.2 million, resulting in a net
realized gain of $4.3 million, before applicable income taxes.
On July 22, 1997, the Company purchased 1,000,000 shares of common stock of
GB Foods Corporation, which represents approximately 15.5% of the outstanding
common stock of GB Foods Corporation, for a purchase price of $5.0 million.
Additionally, the Company purchased warrants to acquire an additional 3,500,000
shares of GB Foods Corporation at various prices ranging from $5.00 -- $7.50 for
a purchase price of $800,000, 1,500,000 warrants are exercisable at $5.00 per
share, 1,000,000 warrants are exercisable at $7.00 per share and 1,000,000
warrants are exercisable at $7.50 per share. In conjunction with the common
stock purchase, the Company gained control of three seats on the GB Foods
Corporation Board of Directors. The purpose of the investment is consistent with
the Company's strategic goal to diversify into noninterest rate sensitive
businesses. The Company has announced that it expects to exercise 1,000,000 of
the $5.00 warrants in conjunction with a previously announced GB Foods
Corporation acquisition, in order to provide GB Foods Corporation additional
capital. The GB Foods acquisition is expected to close during the second quarter
of 1998. The Company's investment in GB Foods Corporation is accounted for under
the equity method.
On August 22, 1997, the Company acquired the common stock of First Title
Corporation ("First Title"), a title company with fourteen offices throughout
the southeastern United States. First Title has been merged into a subsidiary of
the Company. First Title was acquired for $4.7 million; payable in 80% common
stock of the Company (253,398 shares or $3.8 million) and 20% cash
(approximately $900,000). This transaction has been accounted for as a purchase.
See Note B of Notes to Consolidated Financial Statements.
26
<PAGE> 29
On September 18, 1997, the Company acquired the common stock of Ifland
Credit Services ("ICS"), a credit reporting company headquartered in Lexington,
Kentucky, for a purchase price of $3.75 million. ICS has been merged with Credit
Reports, Inc. The purchase price was payable 80% in common stock of the Company
(170,155 shares or $3.0 million) and 20% cash ($750,000). This transaction has
been accounted for as a purchase. See Note B of Notes to Consolidated Financial
Statements.
Effective as of October 1, 1997, the Company acquired Bron Research, Inc.
("BRON"), a flood certification company headquartered in Austin, Texas. The
purchase price paid by the Company for the acquisition was $9.85 million, paid
in 523,272 shares of Company common stock. BRON now operates as Fidelity
National Flood, Inc. This transaction has been accounted for as a
pooling-of-interests. See Note B of Notes to Consolidated Financial Statements.
On October 9, 1997, the Company acquired the common stock of Credit
Reports, Inc. ("CRI"), a credit reporting company headquartered in Scottsdale,
Arizona, with operations in California, Colorado, Nevada and Oregon. CRI has
been merged with ICS. The purchase price for CRI was $200,000, subject to
certain purchase price adjustments based on the combined equity of CRI and
Express Network, Inc., its affiliate, payable in 11,455 shares of Company common
stock. This transaction has been accounted for as a purchase. See Note B of
Notes to Consolidated Financial Statements.
Also on October 9, 1997, the Company acquired the common stock of Express
Network, Inc. ("ENI"), a provider of attorney services such as courier,
messenger, courthouse filing, process serving, investigation and reprographics.
ENI provides services to legal firms in Los Angeles, Orange County, San Diego,
Riverside and San Francisco, California. The purchase price for ENI was $10.55
million; subject to certain purchase price adjustments based on the combined
equity of ENI and CRI, its affiliate, payable in 50% common stock of the Company
(302,158 shares or $5.275 million) and 50% cash (approximately $5.275 million).
Approximately $2.8 million of the cash portion of the purchase price will be
paid in equal installments over a four-year period. This transaction has been
accounted for as a purchase. See Note B of Notes to Consolidated Financial
Statements.
On October 17, 1997, the Company in a private transaction, purchased $45
million aggregate principal amount at maturity of its outstanding Liquid Yield
Option Notes due 2009 from Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") for an aggregate purchase price of $27.2 million (or $605 per
$1,000 principal amount at maturity of LYONs). The purchase price was paid in
the form of 1,267,619 shares, $26.4 million, of the Company's common stock (the
"Exchange Shares"). The Company also paid Merrill Lynch, the excess of a base
price of $21.48 per Exchange Share over the actual sales price (less $0.05 per
share in commissions) realized by Merrill Lynch for sales of up to 552,619
Exchange Shares. The Company also paid Merrill Lynch, for each day, an amount in
cash to be determined by multiplying the Net Carry Amount (number of Exchange
Shares multiplied by $21.48) by the Applicable Rate (LIBOR plus 2.50%). The
Company's payment obligations were subject to reduction for dividends on
Exchange Shares received by Merrill Lynch during the period. The Company paid
the foregoing amounts to Merrill Lynch in cash of approximately $790,000 on
November 7, 1997. The purchase of the LYONs increased stockholders' equity by
approximately $24.7 million while reducing outstanding debt by approximately
$24.3 million. Additionally, an extraordinary loss due to the early retirement
of debt of approximately $1.7 million, net of applicable income taxes, was
recorded in the fourth quarter of 1997. The maturity value of LYONs outstanding
at December 31, 1997 is approximately $140.6 million.
On October 21, 1997, the Company acquired 100% of the common stock of
Classified Credit Data, Inc. ("CCD") a credit reporting company headquartered in
Orange County, California, for a purchase price of $300,000 which was paid in
cash. CCD was merged with ICS and CRI in order to form Fidelity National Credit
Services. This transaction has been accounted for as a purchase.
Effective October 23, 1997, the Company sold its small business investment
company subsidiary FNF Ventures, Inc., to certain members of FNF Ventures,
Inc.'s management. The sale price was $2.8 million, resulting in a realized gain
of approximately $800,000, before applicable income taxes.
27
<PAGE> 30
On November 17, 1997, Fidelity National Financial, Inc. signed an Agreement
and Plan of Merger ("Merger Agreement") to merge a newly-formed subsidiary of
the Company into Granite Financial, Inc. ("Granite"). Granite, located in
Golden, Colorado, is a rapidly expanding speciality finance company engaged in
the business of originating, funding, purchasing, selling, securitizing and
servicing equipment leases for a broad range of businesses located throughout
the United States. Granite is a prominent consolidator in the $48 billion
small-ticket lease finance market with the acquisitions of Global Finance &
Leasing in March, 1997; SFR Funding, Inc., in June, 1997; and North Pacific
Funding, Inc. (dba C&W Leasing), a privately held corporation based in Seattle,
Washington, and its wholly-owned subsidiary, in December, 1997.
Under the original terms of the definitive agreement (as adjusted for the
Company's recent 10% stock dividend), each share of Granite common stock would
be converted into the right to receive .771 shares of Company common stock
without interest, together with cash in lieu of any fractional share. The
exchange ratio was collared between $20.75 and $25.94. The adjustment factor was
designed to insure that the average market value of the shares of Company common
stock to be issued to the stockholders of Granite is neither less than $16.00
nor more than $20.00 per share of Granite common stock. The market value was
determined based on the average closing price of Company common stock during the
20 day trading period ending on the third business day prior to the date of the
shareholder meetings to be held to approve the transaction. Below $20.75
Fidelity could make up the difference in additional shares of its common stock
at its option and above $25.94 Granite shareholders would have the exchange
ratio reduced pro rata. Such average closing price was determined to be $28.48,
resulting in an adjusted exchange ratio of .702 shares of Company common stock
for each share of Granite common stock. The merger will be treated as a
reorganization pursuant to Section 368(a)(1) of the Internal Revenue Code of
1986, as amended, and be accounted for as a "pooling-of-interests" for
accounting purposes.
The shareholders of Granite approved the merger, and the Company
shareholders approved the issuance of shares in connection with the merger, at
special shareholders' meetings on Tuesday, February 24, 1998. The merger was
completed Thursday, February 26, 1998. Under the terms of the definitive
agreement, shareholders of Granite Financial, Inc. common stock receive .702
shares of Fidelity National Financial, Inc. common stock for each share of
Granite Financial, Inc. common stock, with fractional shares to be paid in cash,
resulting in the issuance of approximately 4.4 million shares of Fidelity
National Financial, Inc. common stock. Fidelity National Financial, Inc. common
stock, as reported by the New York Stock Exchange, closed at $28.69 on February
26, 1998. The Company believes that the acquisition of Granite Financial, Inc.
complements its core title operations and is a significant step in realizing its
previously stated goal of positioning the Company as a diversified financial
services company. See Note O of Notes to Consolidated Financial Statements.
On March 18, 1998, the Company announced that it had entered into an
agreement to sell National Title Insurance of New York Inc. to American Title
Company, subject to regulatory approval and certain other conditions. The
purchase price is structured at a premium to book value. National was acquired
in April 1996, as part of the Nations Title Inc. acquisition and has not been
actively underwriting policies since the transaction closed. American Title
Company is an underwritten title company which was formerly a wholly-owned
subsidiary of the Company. Effective July 1, 1997, 60% of ATC was sold to
certain members of ATC management. The Company will continue to own 40% of ATC,
and ultimately National, following the transaction. See Note O of Notes to
Consolidated Financial Statements.
On March 19, 1998, the Company's Board of Directors declared a cash
dividend of $.07 per share which will be payable on May 1, 1998, to stockholders
of record on April 10, 1998.
On March 25, 1998, the Company closed a new credit facility, the proceeds
of which were used to terminate and pay the Company's credit agreement dated as
of September 21, 1995. Additional amounts available under the new credit
facility are available for general corporate purposes. See Notes G and O of
Consolidated Financial Statements.
Also, on March 25, 1998, the Company announced that it had executed an
agreement to merge Matrix Capital Corporation ("Matrix") with a newly-formed
subsidiary of the Company. The merger is subject to due diligence, regulatory
approvals and other customary conditions, and requires approval of the merger by
the
28
<PAGE> 31
shareholders of Matrix and approval of the issuance of Company common stock in
connection with the merger by the shareholders of the Company.
Matrix, through its subsidiaries, focuses on mortgage merchant banking by
purchasing and selling residential mortgage loans and servicing rights; offering
brokerage, consulting, and analytical services to other financial services
companies and financial institutions; originating and servicing residential
mortgage portfolios and providing real estate management and disposition
services. Matrix also provides trust administration and broker-dealer services.
Matrix is structured to provide these services through a combination of a
mortgage banking firm, a mortgage servicing brokerage and consulting firm, a
federally chartered banking institution, a real estate and disposition firm, a
trust company and a broker-dealer.
Under the terms of the definitive agreement, each share of Matrix stock
will be converted into the right to receive .80 shares of Company common stock
without interest, together with cash in lieu of any fractional share. The
exchange ratio has been collared between $28.75 and $35.00 per Company share.
The market value is to be determined based on the average closing price of
Company stock during the 20 day trading period ending on the third business day
immediately prior to the last of the stockholders' meetings held to approve the
transaction (the "Average Stock Price"). Below $28.75 the Company may make up
the difference in additional shares at its option and above $35.00 the exchange
ratio would be adjusted to a number equal to $28.00 plus fifty percent of the
amount by which the Average Stock Price exceeds $35.00 divided by the Average
Stock Price. It is intended that the merger be treated as a reorganization
pursuant to Section 368(a)(1) of the Internal Revenue Code and be accounted for
as a "pooling-of-interests." See Note O of Notes to Consolidated Financial
Statements.
SEASONALITY. Historically, the greatest volume of residential resale
activity has 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 the historical pattern of residential resale and
refinance activity will continue to be affected by such outside 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.
29
<PAGE> 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Independent Auditors' Report................................ 31
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... 32
Consolidated Statements of Earnings for the years ended
December 31, 1997, 1996 and 1995.......................... 33
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995.............. 34
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................... 35
Notes to Consolidated Financial Statements.................. 36
</TABLE>
30
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Fidelity National Financial, Inc.:
We have audited the Consolidated Balance Sheets of Fidelity National
Financial, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
related Consolidated Statements of Earnings, Stockholders' Equity and Cash Flows
for each of the years in the three-year period ended December 31, 1997. These
Consolidated Financial Statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these Consolidated
Financial Statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred to above
present fairly, in all material respects, the consolidated financial position of
Fidelity National Financial, Inc. and subsidiaries as of December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
February 16, 1998, except as to Note O
of the Consolidated Financial Statements,
which is as of March 25, 1998
31
<PAGE> 34
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale, at fair value........ $217,001 166,329
Equity securities, at fair value.......................... 70,418 42,338
Other long-term investments, at cost, which approximates
fair value............................................. 15,864 6,782
Short-term investments, at cost, which approximates fair
value.................................................. 17,793 873
Investments in real estate and partnerships, net.......... 5,201 11,352
-------- --------
Total investments................................. 326,277 227,674
Cash and cash equivalents (including certificates of deposit
of $5,219 in 1997 and $4,057 in 1996)..................... 54,005 63,971
Trade receivables (less allowance of $5,153 in 1997 and
$6,822 in 1996)........................................... 52,650 54,355
Notes receivable, net (including $1,366 in 1997 and $1,996
in 1996 with affiliated parties).......................... 8,898 11,317
Prepaid expenses and other assets........................... 70,213 55,072
Title plants................................................ 51,756 50,701
Property and equipment, net................................. 36,760 38,617
Income taxes receivable..................................... -- 7,589
-------- --------
$600,559 $509,296
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities.................. $ 63,312 $ 53,987
Notes payable............................................. 123,023 148,922
Reserve for claim losses.................................. 190,747 187,245
Deferred income taxes..................................... 13,422 7,604
Income taxes payable...................................... 10,122 --
-------- --------
400,626 397,758
Minority interest......................................... 3,614 1,287
Stockholders' equity:
Preferred stock, $.0001 par value; authorized, 3,000,000
shares; issued and outstanding, none................... -- --
Common stock, $.0001 par value; authorized, 50,000,000
shares in 1997 and 1996; issued, 24,055,755 in 1997 and
21,353,963 in 1996..................................... 2 2
Additional paid-in capital................................ 101,735 61,271
Retained earnings......................................... 126,535 91,019
-------- --------
228,272 152,292
Net unrealized gains on investments....................... 22,422 12,334
Less treasury stock, 6,041,352 shares in 1997 and 1996, at
cost................................................... 54,375 54,375
-------- --------
196,319 110,251
Commitments and contingencies.............................
Subsequent events.........................................
-------- --------
$600,559 $509,296
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE> 35
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUE:
Title insurance premiums................................. $533,220 $475,961 $285,552
Escrow fees.............................................. 81,241 66,927 49,723
Other fees and revenue................................... 98,695 76,333 56,954
Interest and investment income, including realized gains
(losses).............................................. 33,556 17,692 17,616
-------- -------- --------
746,712 636,913 409,845
-------- -------- --------
EXPENSES:
Personnel costs.......................................... 240,223 211,668 165,514
Other operating expenses................................. 161,200 154,043 123,888
Agent commissions........................................ 223,797 187,901 82,713
Provision for claim losses............................... 38,661 33,302 19,031
Interest expense......................................... 9,401 9,446 9,239
-------- -------- --------
673,282 596,360 400,385
-------- -------- --------
Earnings before income taxes and extraordinary item...... 73,430 40,553 9,460
Income tax expense....................................... 31,959 16,216 1,828
-------- -------- --------
Earnings before extraordinary item.................... 41,471 24,337 7,632
Extraordinary item -- loss on early retirement of debt,
net of applicable income tax benefit of $1,180 in 1997
and $437 in 1995...................................... (1,700) -- (813)
-------- -------- --------
Net earnings.......................................... $ 39,771 $ 24,337 $ 6,819
======== ======== ========
Basic net earnings....................................... $ 39,771 $ 24,337 $ 6,819
======== ======== ========
Basic earnings per share before extraordinary item....... $ 2.61 $ 1.62 $ .50
Extraordinary item -- loss on early retirement of debt,
net of applicable income tax benefit, basic basis..... (.11) -- (.05)
-------- -------- --------
Basic net earnings per share............................. $ 2.50 $ 1.62 $ .45
======== ======== ========
Weighted average shares outstanding, basic basis......... 15,911 15,037 15,131
======== ======== ========
Diluted net earnings..................................... $ 42,913 $ 27,533 $ 6,819
======== ======== ========
Diluted net earnings per share before extraordinary
item.................................................. $ 2.08 $ 1.34 $ .49
Extraordinary item -- loss on early retirement of debt
net of applicable income tax benefit, diluted basis... (.08) -- (.05)
-------- -------- --------
Diluted net earnings per share........................... $ 2.00 $ 1.34 $ .44
======== ======== ========
Weighted average shares, diluted basis................... 21,483 20,484 15,694
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE> 36
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NET TREASURY STOCK
--------------- PAID-IN RETAINED UNREALIZED -----------------
SHARES AMOUNT CAPITAL EARNINGS GAINS (LOSSES) SHARES AMOUNT
------ ------ ---------- -------- -------------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994............. 20,845 $2 $ 56,659 $ 66,668 $(8,914) 4,396 $(40,461)
Exercise of stock options............ 204 -- 1,439 -- -- -- --
Net unrealized gains on
investments....................... -- -- -- -- 14,780 -- --
Purchase of treasury stock........... -- -- -- -- -- 1,859 (15,831)
ACS Systems, Inc. purchase price
adjustment........................ 53 -- -- -- -- -- --
Cash dividends ($.22 per share)...... -- -- -- (3,214) -- -- --
Net earnings......................... -- -- -- 6,819 -- -- --
------ ---- -------- -------- ------- ----- --------
Balance, December 31, 1995............. 21,102 2 58,098 70,273 5,866 6,255 (56,292)
------ ---- -------- -------- ------- ----- --------
Exercise of stock options............ 61 -- 440 -- -- -- --
Net unrealized gains on
investments....................... -- -- -- -- 6,468 -- --
Acquisitions......................... 191 -- 2,733 -- -- (214) 1,917
Cash dividends ($.24 per share)...... -- -- -- (3,591) -- -- --
Net earnings......................... -- -- -- 24,337 -- -- --
------ ---- -------- -------- ------- ----- --------
Balance, December 31, 1996............. 21,354 2 61,271 91,019 12,334 6,041 (54,375)
------ ---- -------- -------- ------- ----- --------
Exercise of stock options............ 145 -- 1,412 -- -- -- --
Net unrealized gains on
investments....................... -- -- -- -- 10,088 -- --
Acquisitions......................... 1,260 -- 12,450 -- -- -- --
LYONs retirement and conversion...... 1,323 -- 27,351 -- -- -- --
Nations Title Inc. purchase price
adjustment........................ (26) -- (749) -- -- -- --
Cash dividends ($.26 per share)...... -- -- -- (4,255) -- -- --
Net earnings......................... -- -- -- 39,771 -- -- --
------ ---- -------- -------- ------- ----- --------
Balance, December 31, 1997............. 24,056 $2 $101,735 $126,535 $22,422 6,041 $(54,375)
====== ==== ======== ======== ======= ===== ========
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE> 37
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 39,771 $ 24,337 $ 6,819
Adjustments to reconcile net earnings to net cash provided
by
(used in) operating activities:
Extraordinary item: Loss on early retirement of LYONs... 2,090 -- --
Depreciation and amortization........................... 14,123 12,814 13,410
Net increase (decrease) in reserve for claim losses..... 3,382 (4,020) (7,212)
Amortization of LYONs original issue discount and other
debt issuance costs.................................. 5,939 5,295 4,916
Provision for losses on real estate and notes
receivable........................................... 600 775 783
Equity in (gains) losses of unconsolidated
partnerships......................................... (488) 520 (72)
Gain on sales of investments............................ (10,534) (3,713) (5,023)
(Gain) loss on sale of real estate and other assets..... (6,454) 1,088 (190)
Changes in assets and liabilities, net of effects from
acquisitions:
Net (increase) decrease in trade receivables............ 2,757 (7,030) (11,306)
Net increase in prepaid expenses and other assets....... (1,664) (5,434) (6,268)
Net increase (decrease) in accounts payable and accrued
liabilities.......................................... 6,422 (509) (4,797)
Net increase in income taxes............................ 16,793 3,417 7,673
--------- --------- ---------
Net cash provided by (used in) operating
activities....................................... 72,737 27,540 (1,267)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investment securities:
Held to maturity (principally maturities of
securities).......................................... -- -- 2,310
Available for sale...................................... 272,766 182,512 214,524
Proceeds from sales of other assets....................... 15,756 3,700 3,442
Proceeds from sales of real estate........................ 6,407 917 --
Collections of notes receivable........................... 4,142 14,645 3,035
Additions to title plants................................. (830) (1,011) (1,719)
Additions to property and equipment....................... (19,680) (14,085) (9,655)
Additions to notes receivable............................. (3,415) (8,470) (5,980)
Purchases of investment securities:
Held to maturity........................................ -- -- (1,941)
Available for sale...................................... (350,503) (183,788) (151,305)
Investments in real estate and partnerships............... (1,048) -- (100)
Sale of subsidiary, net of cash........................... 5,934 -- --
Acquisitions of businesses, net of cash acquired.......... (7,055) (10,138) (11,363)
--------- --------- ---------
Net cash provided by (used in) investing
activities....................................... (77,526) (15,718) 41,248
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings................................................ 11,226 22,904 48,285
Debt service payments..................................... (14,626) (17,066) (59,150)
Extraordinary items:
Early retirement of LYONs............................... 790 -- --
Early retirement of debt................................ -- -- 1,250
Dividends paid............................................ (3,979) (3,477) (3,232)
Exercise of stock options................................. 1,412 440 1,439
Issuance (purchase) of treasury stock, net................ -- 1,917 (15,831)
--------- --------- ---------
Net cash provided by (used in) financing
activities....................................... (5,177) 4,718 (27,239)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents...... (9,966) 16,540 12,742
Cash and cash equivalents at beginning of year............ 63,971 47,431 34,689
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ 54,005 $ 63,971 $ 47,431
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE> 38
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following describes the significant accounting policies of Fidelity
National Financial, Inc. ("Fidelity Financial") and its subsidiaries
(collectively, the "Company") which have been followed in preparing the
accompanying Consolidated Financial Statements.
Description of business
Fidelity National Financial, Inc., through its principal subsidiaries
(collectively, the "Company"), is engaged in the business of issuing title
insurance policies and performing other title-related services such as escrow,
collection and trust activities, real estate information and technology
services, trustee sale guarantees, credit reporting, attorney services, flood
certification, tax monitoring, reconveyance fees, recording fees, foreclosure
publishing and posting services and exchange intermediary services in connection
with real estate transactions. Title insurance services are provided through the
Company's direct operations and otherwise through independent title insurance
agents who issue title policies on behalf of the underwriting subsidiaries.
The Company's principal subsidiaries consist of Fidelity National Title
Insurance Company ("Fidelity Title"), which, in turn, is the parent company of
Fidelity National Title Insurance Company of Tennessee ("Fidelity Tennessee"),
and was the parent company of Fidelity National Title Insurance Company of
California ("Fidelity California"), which was merged into Fidelity Title as of
August 7, 1997, and was the parent company of Nations Title Insurance Company
("Nations Title"), which was merged into Fidelity Title as of December 29, 1997;
Fidelity National Title Insurance Company of New York ("Fidelity New York"),
which, in turn, is the parent company of Nations Title Insurance of New York
Inc. ("Nations New York") and National Title Insurance of New York Inc.
("National"); Fidelity National Title Insurance Company of Pennsylvania
("Fidelity Pennsylvania"), which was merged into Fidelity New York as of April
11, 1997, which in turn, was the parent company of American Title Insurance
Company ("ATIC"), which was merged into Fidelity Pennsylvania as of November 21,
1996; (collectively, the "Insurance Subsidiaries"); its wholly-owned
underwritten title companies (collectively, the "UTCs"); and its network of
wholly-owned title-related ancillary service companies known as Fidelity's
Lender Express Network ("FLEXNet").
Nations Title Insurance Company, Nations Title Insurance of New York Inc.
and National Title Insurance of New York Inc. were acquired, along with Nations
Title Inc. ("NTI," collectively, "Nations Title Inc.") in a transaction which
closed on April 1, 1996. Certain of the ancillary service companies were
acquired in separate transactions during 1997. See Note B.
On November 17, 1997, Fidelity National Financial, Inc. signed an Agreement
and Plan of Merger ("Merger Agreement") to merge a newly-formed subsidiary of
the Company into Granite Financial, Inc. ("Granite"). Granite, located in
Golden, Colorado, is a rapidly expanding speciality finance company engaged in
the business of originating, funding, purchasing, selling, securitizing and
servicing equipment leases for a broad range of businesses located throughout
the United States. This transaction closed on February 26, 1998. See Note 0.
Principles of consolidation and basis of presentation
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. The
Company's investments in non-majority-owned partnerships are accounted for on
the equity method.
36
<PAGE> 39
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Sheets
for these instruments approximate their fair value.
Investments
Fixed maturity securities are purchased to support the investment
strategies of the Company, which are developed based on many factors including
rate of return, maturity, credit risk, tax considerations and regulatory
requirements. Fixed maturity securities which may be sold prior to maturity to
support the Company's investment strategies are carried at fair value and are
classified as available for sale as of the balance sheet dates. Fair values for
fixed maturity securities are principally a function of current interest rates
and are based on quoted market prices.
Equity securities are considered to be available for sale and carried at
fair value as of the balance sheet dates. Fair values are based on quoted market
prices.
Other long-term investments, which consist of a limited partnership
investment in an investment fund, as well as certain other debt instruments and
equity investments, are carried at cost, which approximates fair value.
Short-term investments, which consist primarily of securities purchased
under agreements to resell, commercial paper and money market instruments, which
have an original maturity of one year or less, are carried at amortized cost,
which approximates fair value.
Investments in real estate and partnerships are generally held for
investment purposes and are carried at cost in the absence of any other than
temporary impairment in value. Investments in real estate which are held for
sale, including real estate acquired through foreclosure of properties in
satisfaction of commercial and real estate loans, are carried at the lower of
cost or fair value less estimated costs to sell.
Realized gains and losses on the sale of investments are determined on the
basis of the cost of the specific investments sold and are credited or charged
to income on a trade date basis. Unrealized gains or losses on bonds and common
stocks which are classified as available for sale, net of applicable deferred
income taxes (benefits), are excluded from income and credited or charged
directly to a separate component of stockholders' equity. The carrying value for
investments considered available for sale is reduced to estimated realizable
value if the decline in fair value is deemed other than temporary. Such
reductions are recognized as realized losses.
Trade receivables
The carrying amounts reported in the Consolidated Balance Sheets for trade
receivables approximate their fair value.
Fair value of financial instruments
The fair values of financial instruments presented in the applicable notes
to the Company's Consolidated Financial Statements are estimates of the fair
values at a specific point in time using available market information and
appropriate valuation methodologies. These estimates are subjective in nature
and involve uncertainties and significant judgment in the interpretation of
current market data. Therefore, the fair values presented are not necessarily
indicative of amounts the Company could realize or settle currently. The Company
does not necessarily intend to dispose of or liquidate such instruments prior to
maturity. See Notes C, D and G.
37
<PAGE> 40
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Title plants
Title plants are recorded at the cost incurred to construct or obtain and
organize historical title information to the point it can be used to perform
title searches. Costs incurred to maintain, update and operate title plants are
expensed as incurred. Title plants are not amortized as they are considered to
have an indefinite life if maintained. Sales of title plants are reported at the
amount received net of the adjusted costs of the title plant sold. Sales of
title plant copies are reported at the amount received. No cost is allocated to
the sale of copies of title plants unless the value of the title plant is
diminished.
Property and equipment
Property and equipment are recorded at cost, less depreciation.
Depreciation is computed primarily using the straight-line method based on the
estimated useful lives of the related assets which range from three to thirty
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.
Cost in excess of net assets acquired and other intangible assets
Intangible assets include cost in excess of net assets acquired,
capitalized licensing costs and capitalized software costs and are amortized on
a straight line basis over three to forty years. Intangible assets at December
31, 1997 consist of cost in excess of net assets acquired of $28,977,000 less
accumulated amortization of $2,394,000, capitalized licensing costs of
$2,500,000 less accumulated amortization of $159,000, capitalized software of
$12,326,000 less accumulated amortization of $4,636,000 and capitalized debt
offering costs of $4,163,000 less accumulated amortization of $2,008,000. At
December 31, 1996, intangible assets consist of cost in excess of net assets
acquired of $8,349,000 less accumulated amortization of $1,733,000, capitalized
licensing costs of $3,937,000 less accumulated amortization of $98,000,
capitalized software of $11,720,000 less accumulated amortization of $2,740,000
and capitalized debt offering costs of $4,738,000 less accumulated amortization
of $1,738,000.
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 noted.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("Statement 109"), "Accounting for Income
Taxes." Statement 109 provides that deferred tax assets and liabilities be
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.
Reserve for claim losses
The Company's reserve for claim losses includes known claims as well as
losses the Company expects to incur, net of recoupments. Each known claim is
reserved for on the basis of a review by the Company as to the estimated amount
of the claim and the costs required to settle the claim. Reserves for claims
which are incurred but not reported are provided for at the time premium revenue
is recognized based on historical loss experience and other factors, including
industry averages, claim loss history, current legal environment, geographic
considerations and type of policy written. Major claims (greater than $500,000)
are evaluated and
38
<PAGE> 41
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts greater than $500,000 are reserved for as they become known because the
unique circumstances surrounding most major claims make it inherently
impractical to predict the incidence and amount of such claims. The occurrence
of a significant major claim in any given period could have a material adverse
effect on the Company's financial condition and results of operations for such
period. Escrow losses are expensed when they become known and are included in
other operating expenses. See Note I.
If a loss is related to a policy issued by an independent agent, the
Company may proceed against the independent agent pursuant to the terms of the
agency agreement. In any event, the Company may proceed against third parties
who are responsible for any loss under the title insurance policy under rights
of subrogation.
Reinsurance
In the ordinary course of business, the Company reinsures certain risks
with other insurers for the purpose of limiting its maximum loss exposure and
also assumes reinsurance for certain risks of other insurers for the purpose of
earning additional revenue. The Company cedes or assumes a portion of certain
policy liabilities under agent fidelity, excess of loss and case-by-case
reinsurance agreements. Reinsurance agreements provide that in the event of a
loss (including costs, attorneys' fees and expenses) exceeding the retained
amounts, the reinsurer is liable for the excess amount assumed. However, the
ceding company remains primarily liable in the event the reinsurer does not meet
its contractual obligations. Reinsurance activity is not considered significant.
Title, escrow, other fees and revenue and agent commissions
Title insurance premiums, escrow fees and other fees and revenue are
recognized as revenue at the time of closing of the related real estate
transaction. Title insurance commissions earned by the Company's agents are
recognized as an expense concurrently with premium recognition.
Share and per share restatement
On December 13, 1995, the Company declared a 10% stock dividend, to
shareholders of record on January 15, 1996, distributed February 2, 1996. The
par value of the additional shares of common stock issued in connection with the
stock dividend was credited to common stock and a like amount charged to
retained earnings as of December 31, 1995. Fractional shares were paid in cash.
On December 11, 1996, the Company declared a 10% stock dividend, to
shareholders of record on December 23, 1996, distributed January 7, 1997. The
par value of the additional shares of Common Stock issued in connection with the
stock dividend was credited to common stock and a like amount charged to
retained earnings as of December 31, 1996. Fractional shares were paid in cash.
On December 17, 1997, the Company declared a 10% stock dividend, to
shareholders of record on December 29, 1997, distributed January 14, 1998. The
par value of the additional shares of common stock issued in connection with the
stock dividend was credited to common stock and a like amount charged to
retained earnings as of December 31, 1997. Fractional shares were paid in cash.
All data with respect to earnings per share, dividends per share and share
information, including price per share where applicable, in the Consolidated
Financial Statements and Notes thereto have been retroactively adjusted to
reflect all stock dividends and splits.
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
39
<PAGE> 42
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
calculated by dividing net earnings available to common shareholders plus the
impact of assumed conversions by dilutive potential securities. The Company has
granted certain options and warrants which have been treated as common share
equivalents for purposes of calculating diluted earnings per share. The Liquid
Yield Option Notes ("LYONs") are considered other dilutive securities for
purposes of calculating diluted earnings per share to the extent that they are
not antidilutive.
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), effective for fiscal years ending after December 15, 1997. SFAS 128
introduces and requires the presentation of "basic" earnings per share which
represents net earnings divided by the weighted average shares outstanding
excluding all common stock equivalents. Dual presentation of "diluted" earnings
per share, reflecting the dilutive effects of all common stock equivalents, is
also required. The diluted presentation is similar to the former presentation of
fully diluted earnings per share. All quarterly and annual per share data have
been restated to reflect the impact of SFAS 128. The adoption of SFAS 128 did
not have a material impact on the Consolidated Financial Statements of the
Company.
The following table sets forth the calculation of basic and diluted
earnings per share for each of the years in the three-year period ended December
31, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Basic earnings per share calculation
Earnings before extraordinary loss........................ $41,471 $24,337 $ 7,632
Extraordinary loss, net of applicable income tax benefit
of $1,180 in 1997 and $437 in 1995..................... (1,700) -- (813)
------- ------- -------
Net earnings.............................................. $39,771 $24,337 $ 6,819
======= ======= =======
Weighted average shares........................... 15,911 15,037 15,131
======= ======= =======
Basic earnings per share
Earnings before extraordinary loss........................ 2.61 1.62 0.50
Extraordinary loss........................................ (0.11) -- (0.05)
------- ------- -------
Net earnings.............................................. $ 2.50 $ 1.62 $ 0.45
======= ======= =======
</TABLE>
40
<PAGE> 43
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Diluted earnings per share calculation
Earnings before extraordinary loss........................ $41,471 $24,337 $ 7,632
Plus: Impact of assumed conversion of LYONs............... 3,142 3,196 --(1)
------- ------- -------
Earnings before extraordinary loss plus assumed
conversion............................................. 44,613 27,533 7,632
Extraordinary loss, net of applicable income tax benefit
of $1,180 in 1997 and $437 in 1995..................... (1,700) -- (813)
------- ------- -------
Net earnings plus assumed conversions..................... $42,913 $27,533 $ 6,819
======= ======= =======
Weighted average shares................................... 15,911 15,037 15,131
Plus: Incremental shares from assumed conversions
LYONs................................................ 4,553 4,793 --(1)
Options.............................................. 1,019 654 563
------- ------- -------
Dilutive potential shares................................. 21,483 20,484 15,694
======= ======= =======
Diluted earnings per share
Earnings before extraordinary loss plus assumed
conversions............................................ $ 2.08 $ 1.34 $ 0.49
Extraordinary loss........................................ (0.08) -- (0.05)
------- ------- -------
Net earnings.............................................. $ 2.00 $ 1.34 $ 0.44
======= ======= =======
</TABLE>
- ---------------
(1) As the conversion of the Liquid Yield Option Notes ("LYONs") have an
antidilutive effect in 1995, the assumed conversion is not considered in the
Diluted Earnings Per Share Calculation. Assumed conversion of the LYONs
would result in additional net earnings of $3,245,000 and 4,793,000
additional dilutive potential shares.
Management estimates
The preparation of these 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.
Certain reclassifications
Certain reclassifications have been made in the 1996 and 1995 Consolidated
Financial Statements to conform to the classifications used in 1997.
B. ACQUISITIONS
On April 1, 1996, the Company completed its acquisition of Nations Title
Inc. from Nations Holding Group for a purchase price of $19.3 million plus
212,960 shares, $2.1 million, of the Company's common stock, subject to certain
adjustments. This transaction has been accounted for as a purchase. During 1997,
the Nations Title Inc. purchase price was reduced $749,000, pursuant to certain
terms and conditions contained in the acquisition agreement. The purchase price
adjustment resulted in Nations Holding Group returning 26,499 shares of common
stock to the Company. The returned shares were subsequently cancelled.
41
<PAGE> 44
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The assets acquired and liabilities assumed in the Nations Title Inc.
acquisition were as follows (dollars in thousands):
<TABLE>
<S> <C>
Assets acquired at fair value............................. $ 74,177
Liabilities assumed at fair value......................... (52,777)
--------
Total purchase price............................ $ 21,400
========
</TABLE>
On April 4, 1996, the Company purchased 17% of the outstanding common stock
of National Alliance Marketing Group, Inc. ("National Alliance"), a California
corporation, for $566,667; together with a warrant to acquire an additional 14%
of National Alliance common stock. In addition, the Company loaned $1,200,000 to
National Alliance at closing at a rate of prime plus one percent. Subsequently,
the Company agreed to increase the credit facility from $1,200,000 to
$1,700,000. In consideration for the increase in the credit facility National
Alliance agreed to increase the warrant shares which the Company could purchase.
If the entire $1,700,000 was borrowed, the Company could purchase an additional
34% of the outstanding shares of National Alliance. After receiving approval of
the transaction from the California Department of Insurance, the transaction
closed on July 12, 1996. National Alliance is the parent company of Alliance
Home Warranty Company ("Alliance"), a California insurance company. Alliance
sells home warranty plans to buyers of resale homes, primarily in the Central
and Southern California markets. A home warranty contract generally promises the
repair or replacement of major operating systems and built-in appliances inside
a home for a period of one year. On July 3, 1997, the Company converted the
outstanding note balance in conjunction with the exercise of the warrants and
now owns 51% of the outstanding common stock of National Alliance, subject to
certain regulatory approvals. The outstanding balance of the notes receivable
due from National Alliance at conversion was approximately $1.6 million.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the National Alliance acquisition were as follows
(dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value..................... $ 3,200
Cost in excess of net assets acquired...................... 3,150
Liabilities assumed at fair value.......................... (1,809)
Minority interest.......................................... (2,224)
-------
Total purchase price............................. $ 2,317
=======
</TABLE>
On November 1, 1996, the Company acquired 80% of the outstanding stock of
CRM, Inc. ("CRM") for a purchase price of $3.5 million, $1.0 million in cash and
191,169 shares, $2.5 million, of the Company's Common Stock. CRM provides real
estate information services with a heavy concentration in the areas of tax
services and flood certification. The Company combined its existing tax service
business with that of CRM. Under certain circumstances the Company can purchase
the remaining 20% of the outstanding stock of CRM. CRM, Inc. operates as a
majority-owned subsidiary of the Company and is now known as Fidelity National
Tax Service, Inc. ("Fidelity National Tax"). This transaction has been accounted
for as a purchase. The CRM results of operations were not material to the 1996
Consolidated Financial Statements.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the Fidelity National Tax acquisition were as follows
(dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value...................... $2,073
Cost in excess of net assets acquired....................... 2,590
Liabilities assumed at fair value........................... (263)
Minority interest........................................... (880)
------
Total purchase price.............................. $3,520
======
</TABLE>
42
<PAGE> 45
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 22, 1997, the Company acquired the common stock of First Title
Corporation ("First Title"), a title company with fourteen offices throughout
the southeastern United States. First Title has been merged into a subsidiary of
the Company. First Title was acquired for $4.7 million; payable in 80% common
stock of the Company (253,398 shares or $3.8 million) and 20% cash
(approximately $900,000). This transaction has been accounted for as a purchase.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the First Title Corporation acquisition were as follows
(dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value...................... $1,294
Cost in excess of net assets acquired....................... 4,033
Liabilities assumed at fair value........................... (627)
------
Total purchase price.............................. $4,700
======
</TABLE>
On September 18, 1997, the Company acquired the common stock of Ifland
Credit Services ("ICS"), a credit reporting company headquartered in Lexington,
Kentucky, for a purchase price of $3.75 million. ICS has been merged with Credit
Reports, Inc. ("CRI") and Classified Credit Data, Inc. ("CCD") in order to form
Fidelity National Credit Services. The purchase price was payable 80% in common
stock of the Company (170,155 shares or $3.0 million) and 20% cash ($750,000).
This transaction has been accounted for as a purchase.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the Ifland Credit Services acquisition were as follows
(dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value...................... $ 618
Cost in excess of net assets acquired....................... 3,517
Liabilities assumed at fair value........................... (385)
------
Total purchase price.............................. $3,750
======
</TABLE>
Effective as of October 1, 1997, the Company acquired Bron Research, Inc.
("BRON"), a flood certification company headquartered in Austin, Texas. The
purchase price paid by the Company for the acquisition was $9.85 million, paid
in 523,272 shares of Company common stock. BRON now operates as Fidelity
National Flood, Inc. This transaction has been accounted for as a
pooling-of-interests. BRON's financial position and results of operations as of
and for the year ended December 31, 1997 are included in the Consolidated
Financial Statements. Prior to 1997, BRON's financial position and results of
operations were insignificant, and as such, the Consolidated Financial
Statements have not been restated.
On October 9, 1997, the Company acquired the common stock of Credit
Reports, Inc. a credit reporting company headquartered in Scottsdale, Arizona,
with operations in California, Colorado, Nevada and Oregon. CRI has been merged
with ICS and CCD in order to form Fidelity National Credit Services. The
purchase price for CRI was $200,000, subject to certain purchase price
adjustments based on the combined equity of CRI and Express Network, Inc., its
affiliate, payable in 11,455 shares of Company common stock. This transaction
has been accounted for as a purchase.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the Credit Reports, Inc. acquisition were as follows
(dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value...................... $2,559
Cost in excess of net assets acquired....................... 139
Liabilities assumed at fair value........................... (2,498)
------
Total purchase price.............................. $ 200
======
</TABLE>
43
<PAGE> 46
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Also on October 9, 1997, the Company acquired the common stock of Express
Network, Inc. ("ENI"), a provider of attorney services such as courier,
messenger, courthouse filing, process serving, investigation and reprographics.
ENI provides services to legal firms in Los Angeles, Orange County, San Diego,
Riverside and San Francisco, California. The purchase price for ENI was $10.55
million; subject to certain purchase price adjustments based on the combined
equity of ENI and CRI, its affiliate, payable in 50% common stock of the Company
(302,158 shares or $5.275 million) and 50% cash (approximately $5.275 million).
Approximately $2.8 million of the cash portion of the purchase price will be
paid in equal installments over a four-year period. This transaction has been
accounted for as a purchase.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the Express Network, Inc. acquisition were as follows
(dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value..................... $ 3,018
Cost in excess of net assets acquired...................... 9,640
Liabilities assumed at fair value.......................... (2,108)
-------
Total purchase price............................. $10,550
=======
</TABLE>
On October 21, 1997, the Company acquired 100% of the common stock of
Classified Credit Data, Inc., a credit reporting company headquartered in Orange
County, California, for a purchase price of $300,000, which was paid in cash.
CCD was merged with ICS and CRI in order to form Fidelity National Credit
Services. This transaction has been accounted for as a purchase.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the Classified Credit Data acquisition were as follows
(dollars in thousands):
<TABLE>
<S> <C>
Tangible assets acquired at fair value...................... $385
Cost in excess of net assets acquired....................... 386
Liabilities assumed at fair value........................... (471)
----
Total purchase price.............................. $300
====
</TABLE>
Selected unaudited pro forma combined results of operations for the years
ended December 31, 1997, 1996 and 1995, assuming the Nations Title Inc. and
Fidelity National Tax acquisitions occurred on January 1, 1997, 1996 and 1995,
and assuming the National Alliance, First Title, ICS, CRI, ENI and CCD
acquisitions occurred on January 1, 1997 and 1996, are presented as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Total revenue.............................. $776,109 $720,118 $588,759
Basic earnings before extraordinary item... 42,294 22,001 7,395
Basic net earnings......................... 40,594 22,001 6,582
Basic earnings per share................... $ 2.47 $ 1.39 $ .42
Diluted earnings before extraordinary
item..................................... $ 45,436 $ 25,197 $ 7,395
Diluted net earnings....................... 43,736 25,197 6,582
Diluted earnings per share................. $ 1.99 $ 1.19 $ .41
</TABLE>
44
<PAGE> 47
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C. INVESTMENTS
The carrying amounts and fair values of the Company's fixed maturity
securities at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------------
GROSS GROSS
CARRYING AMORTIZED UNREALIZED UNREALIZED FAIR
AMOUNT COST GAINS LOSSES VALUE
-------- --------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fixed maturity investments (available
for sale):
U.S. government and agencies......... $ 36,869 $ 36,537 $ 373 $ (41) $ 36,869
States and political subdivisions.... 122,164 119,626 2,545 (7) 122,164
Corporate securities................. 52,810 52,308 532 (30) 52,810
Mortgage-backed securities........... 5,158 5,118 60 (20) 5,158
-------- -------- ------ ------- --------
$217,001 $213,589 $3,510 $ (98) $217,001
======== ======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------
GROSS GROSS
CARRYING AMORTIZED UNREALIZED UNREALIZED FAIR
AMOUNT COST GAINS LOSSES VALUE
-------- --------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fixed maturity investments (available
for sale):
U.S. government and agencies......... $ 87,765 $ 88,376 $ 106 $ (717) $ 87,765
States and political subdivisions.... 16,534 16,282 270 (18) 16,534
Corporate securities................. 46,354 47,058 241 (945) 46,354
Mortgage-backed securities........... 15,676 15,896 86 (306) 15,676
-------- -------- ------ ------- --------
$166,329 $167,612 $ 703 $(1,986) $166,329
======== ======== ====== ======= ========
</TABLE>
The change in unrealized gains (losses) on fixed maturities for the years
ended December 31, 1997, 1996, and 1995 was $4,695,000, $(3,255,000) and
$13,025,000, respectively.
The amortized cost and estimated fair value of fixed maturity securities,
which are classified as available for sale at December 31, 1997, by contractual
maturity, are shown as follows. Expected maturities may differ from contractual
maturities because certain borrowers have the right to call or prepay
obligations with or without call or prepayment penalties:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------
AMORTIZED % FAIR %
COST OF TOTAL VALUE OF TOTAL
--------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Maturity
One year or less......................... $ 5,180 2.4% $ 5,188 2.4%
After one year through five years........ 120,134 56.2 121,780 56.1
After five years through ten years....... 76,760 35.9 78,346 36.1
After ten years.......................... 11,515 5.5 11,687 5.4
-------- -------- -------- --------
Total............................ $213,589 100.0% $217,001 100.0%
======== ======== ======== ========
Subject to call............................ $ 17,640 8.3% $ 18,159 8.4%
</TABLE>
45
<PAGE> 48
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fixed maturity securities valued at approximately $18,881,000 and
$17,670,000 were on deposit with various governmental authorities at December
31, 1997 and 1996, respectively, as required by law.
Equity securities at December 31, 1997 and 1996 consist of investments in
various industry groups as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996
------------------ -----------------
FAIR FAIR
COST VALUE COST VALUE
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banks, trust and insurance companies.......... $ 50 $ 50 $ 800 $ 863
Industrial, miscellaneous and all other....... 35,826 70,368 19,349 41,475
------- ------- ------- -------
Total....................................... $35,876 70,418 $20,149 $42,338
======= ======= ======= =======
</TABLE>
The carrying value of the Company's investment in equity securities is fair
value. As of December 31, 1997, gross unrealized gains and gross unrealized
losses on equity securities were $36,774,000 and $2,232,000, respectively. Gross
unrealized gains and gross unrealized losses on equity securities were
$22,912,000 and $723,000, respectively, as of December 31, 1996.
Included in equity securities at December 31, 1997 and 1996, is an
investment in a certain equity security, CKE Restaurants, Inc., with a cost
basis of $3,366,000 and a fair value of $31,404,000 at December 31, 1997 and a
cost basis of $3,366,000 and a fair value of $17,892,000 at December 31, 1996.
The change in unrealized gains on equity securities for the years ended
December 31, 1997, 1996 and 1995 was $12,353,000, $15,245,000 and $9,369,000,
respectively.
Interest and investment income, including realized gains (losses), consists
of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 1,103 $ 1,666 $ 1,571
Fixed maturity securities..................... 10,098 9,431 8,254
Equity securities............................. 11,664 4,823 5,091
Short-term investments........................ 1,891 165 155
Notes receivable.............................. 2,369 2,675 2,355
Other......................................... 6,431 (1,068) 190
------- ------- -------
$33,556 $17,692 $17,616
======= ======= =======
</TABLE>
Net realized gains included in interest and investment income amounted to
$16,988,000, $2,625,000 and $5,213,000 for the years ended December 31, 1997,
1996 and 1995, respectively. Included in net realized gains for the year ended
December 31, 1997, are net realized gains from the sales of investments of
approximately $10,500,000, a net realized gain from the sale of the Company's
former home office building of approximately $4,300,000, and net realized gains
on the sale of 60% of American Title Company, a former wholly-owned underwritten
title company subsidiary, and the sale of FNF Ventures, Inc., a small business
investment company subsidiary of approximately $1,300,000 and $800,000,
respectively. All amounts are before applicable income taxes.
During the years ended December 31, 1997, 1996 and 1995, gross realized
gains on sales of fixed maturity securities considered available for sale were
$735,000, $452,000 and $1,700,000, respectively; and gross realized losses were
$429,000, $714,000 and $1,331,000, respectively. Gross proceeds from the sale of
fixed
46
<PAGE> 49
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maturity securities considered available for sale amounted to $137,019,000,
$93,108,000 and $188,902,000, during the years ended December 31, 1997, 1996 and
1995, respectively.
During the years ended December 31, 1997, 1996 and 1995, gross realized
gains on sales of equity securities considered available for sale were
$12,658,000, $5,937,000 and $5,111,000, respectively; and gross realized losses
were $2,430,000, $1,962,000 and $457,000, respectively. Gross proceeds from the
sale of equity securities amounted to $135,747,000, $89,404,000 and $25,622,000
during the years ended December 31, 1997, 1996 and 1995, respectively.
D. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Mortgage notes, secured by various deeds of trust,
installments due monthly including interest at rates
ranging from 7.0% to 10%, due through 2022................ $ 426 $ 512
Promissory notes, secured by various assets and unsecured,
installments due monthly including interest at rates
ranging from 7.4% to 13%, due through 2008................ 8,876 11,463
Promissory note due from the Company's Chief Executive
Officer, secured by a deed of trust, in monthly
installments including interest at 9.5%, paid in November
1997...................................................... -- 471
Officer and employee secured and unsecured notes receivable
at rates ranging from 7.0% to 10.0%, due through 2004..... 1,346 1,525
------- -------
10,648 13,971
Allowance for doubtful receivables.......................... (1,750) (2,654)
------- -------
$ 8,898 $11,317
======= =======
</TABLE>
The allowance for doubtful receivables is primarily related to promissory
notes at December 31, 1997 and 1996. Interest income is not recognized on the
Company's non-performing notes receivable.
The carrying amounts and estimated fair values of the Company's notes
receivable were as follows at December 31, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1997 1996
------------------ -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- -------
<S> <C> <C> <C> <C>
Mortgage notes........................................ $ 426 $ 426 $ 412 $ 412
Other promissory notes................................ 7,365 7,365 8,909 8,909
Affiliated notes...................................... 1,107 1,107 1,996 1,996
------ ------ ------- -------
$8,898 $8,898 $11,317 $11,317
====== ====== ======= =======
</TABLE>
The fair values of significant notes receivable are established using
discounted cash flow analyses based on current market interest rates and
comparison of rates being received to interest rates currently being offered for
similar loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations. All other notes
receivable are not significant individually or in the aggregate, or are current
and at market rates, and their carrying value approximates fair value.
47
<PAGE> 50
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1991, Manchester Development Corporation ("Manchester"), a
wholly-owned subsidiary, sold certain real estate investments and operating
properties to Folco Development Corporation ("Folco"), of which the Company's
Chief Executive Officer and spouse are sole shareholders, at the assets' net
book value of $2,211,000. This transaction resulted in a note receivable from
Folco to Manchester of approximately $1,492,000 secured by subordinated deeds of
trust on the 11 office buildings included in the sale to Folco. In connection
with the sale, the existing leases of space by the Company were amended thereby
increasing rental rates approximately 20%. The terms of the agreement between
Manchester and Folco provide that each of the subordinated deeds of trust will
be released and reconveyed upon payment to Manchester of 15% of the net sales
proceeds from the sale of the property encumbered by the subordinated deeds of
trust. The note was paid on November 10, 1997. At December 31, 1996, the balance
outstanding on the note approximated $471,000 and one property remained unsold.
E. INVESTMENTS IN REAL ESTATE AND PARTNERSHIPS
At December 31, 1997 and 1996, the Company had financial interests ranging
from 22% to 50% in three real estate partnerships which were accounted for under
the equity method. These partnerships are involved in the ownership and
management of commercial office buildings, retail facilities and have acquired
specific parcels of real property for investment purposes. The Company, through
Manchester Development Corporation ("Manchester"), a wholly-owned subsidiary,
had a general partnership interest in one of the three real estate partnerships
at December 31, 1997 and 1996.
Two of these partnerships, representing raw land investments, also have
officers and directors of the Company as partners with ownership interests that
are based on cash contributions. These two partnerships require that all of the
partners, including the Company, make pro-rata capital contributions should the
partnerships require additional funds to pay liabilities.
On May 16, 1996, the Company paid $3.1 million to acquire a first lien loan
of $3.4 million secured by a commercial office building owned by a real estate
partnership in which Manchester is the sole general partner. During 1996, but
prior to the Company's acquisition of the loan, officers and directors of the
Company assigned their ownership interests in the real estate partnership to
Manchester. The Company leases space in the commercial office building.
On September 30, 1996, the Company accepted the assignment from a real
estate partnership of the right to redeem a retail shopping center valued at
$4.5 million in exchange for a net payment of $434,000. Officers and directors
of the Company, who have ownership interests in the real estate partnership,
assigned their rights to redeem to the Company. On November 21, 1996, the
Company redeemed the retail property at a price of $2.8 million. The Company
continues to collect rent from the retail tenants while actively marketing the
property for sale. The property is carried at cost, which approximates fair
value.
Summarized combined financial information of the unconsolidated
partnerships is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total assets, primarily land, development and
improvement costs............................. $3,922 $3,960 $14,096
Total liabilities, primarily notes and mortgages
payable....................................... 819 841 12,664
------ ------ -------
Partners' equity................................ $3,103 $3,119 $ 1,432
====== ====== =======
Revenue......................................... $ 47 $ 378 $ 1,568
====== ====== =======
Net income (loss)............................... $ 22 $ (73) $ (515)
====== ====== =======
</TABLE>
48
<PAGE> 51
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997 and 1996, the Company had a 92.5% and a 76.3% interest
in real estate partnerships which are consolidated with the Company.
Manchester is presently a partner with Sussex Holdings, Ltd. (an affiliate
of Folco) in Folco Mission Valley Partners Limited Partnership, a California
limited partnership. Manchester owns a 22% limited partnership interest and
Sussex Holdings, Ltd. owns a 78% general partnership interest. Fidelity Title is
the sole tenant in the building and received an approximate 30% decrease in its
annual rental rate based upon its lease with Folco Mission Valley.
Investments in real estate and partnerships consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Investments in real estate:
Land................................................... $ 4,291 $ 7,476
Commercial buildings, net of accumulated depreciation
of $67 and $2,925................................... 663 6,537
Investments in unconsolidated partnerships............... 1,714 1,806
------- -------
6,668 15,819
Valuation allowance...................................... (1,467) (4,467)
------- -------
$ 5,201 $11,352
======= =======
</TABLE>
During 1997, the Company sold an investment in real estate at a purchase
price that approximated book value.
F. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land..................................................... $ 4,863 $ 4,370
Buildings................................................ 7,148 14,700
Leasehold improvements................................... 11,427 9,452
Furniture, fixtures and equipment........................ 85,788 71,365
------- -------
109,226 99,887
Accumulated depreciation and amortization................ (72,466) (61,270)
------- -------
$36,760 $38,617
======= =======
</TABLE>
49
<PAGE> 52
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
G. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Credit agreement, secured by common stock of certain
Insurance Subsidiaries, with principal due quarterly and
interest due monthly at LIBOR rate plus 2.0% (7.63% at
December 31, 1997), due September 2001, paid subsequent to
year end.................................................. $ 15,250 $ 18,250
Bank revolving credit facility, secured by common stock of
certain Insurance Subsidiaries, with interest due
quarterly at LIBOR plus 2.0% (7.63% at December 31, 1997),
principal due quarterly beginning April 1998, due
September 2001, unused portion of $8 million at December
31, 1997 and 1996, paid subsequent to year end............ 5,000 5,000
Equipment line of credit, secured by equipment, with
interest due monthly at prime rate plus 1.00% (9.50% at
December 31, 1997), principal, due May 1998, unused
portion of $3,970 and $414 at December 31, 1997 and
1996...................................................... 4,030 5,586
Bank promissory note, secured by equipment, with principal
and interest due monthly at LIBOR plus 1.77%, paid in
September 1997............................................ -- 2,760
Bank promissory note, secured by equipment, with principal
and interest due monthly at LIBOR plus 1.77% (7.40% at
December 31, 1997), due October 1998...................... 2,134 4,787
Bank promissory note, secured by equipment, with principal
and interest due monthly at LIBOR plus 2.10% (7.73% at
December 31, 1997), due June 1999......................... 2,052 3,282
Bank promissory note, secured by equipment, with principal
and interest at 30 day commercial paper rate plus 2.44%
(8.02% at December 31, 1997), due September 2000.......... 5,000 7,031
Bank promissory note, secured by equipment, with principal
and interest due monthly at LIBOR plus 1.84% (7.47% at
December 31, 1997), due May 2001.......................... 4,042 --
Bank promissory note, secured by equipment, with principal
and interest due monthly at LIBOR plus 1.84% (7.47% at
December 31, 1997), due September 2001.................... 5,784 --
Promissory note, guaranteed by United States Small Business
Administration, with interest only at 7.59% due monthly
and principal due at maturity, September 2006, liability
assumed by purchaser when subsidiary sold in October
1997...................................................... -- 3,000
Promissory note, secured by real estate, with principal and
interest due monthly at 9.875%, due April 1998............ 1,693 1,723
Liquid Yield Option Notes, zero coupon, convertible
subordinated notes due 2009 with interest at 5.5%......... 76,635 97,013
Other promissory notes with various interest rates and
maturities................................................ 1,403 490
-------- --------
$123,023 $148,922
======== ========
</TABLE>
50
<PAGE> 53
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principal maturities, including accretion of original issue discount, are
as follows (dollars in thousands):
<TABLE>
<S> <C>
1998...................................................... $ 18,354
1999...................................................... 10,806
2000...................................................... 9,715
2001...................................................... 6,491
2002...................................................... 937
Thereafter................................................ 140,657
--------
$186,960
========
</TABLE>
The Company's credit agreement, dated as of September 21, 1995, included a
$22 million term loan and a $13 million revolving credit facility, is and was
collateralized by the common stock of certain Insurance Subsidiaries. This
credit facility was terminated and paid subsequent to year end with the proceeds
from a new credit facility. Additionally, the Company must comply with certain
affirmative and negative covenants related to its debt agreements which require,
among other things, that the Company maintain certain financial ratios related
to liquidity, net worth, capitalization, investments, restricted payments and
certain dividend restrictions.
The Company entered into an interest rate swap agreement concurrent with
the funding of the credit agreement, dated as of September 21, 1995, which is
principally used by the Company in the management of interest rate exposure. The
interest rate swap agreement is accounted for on the accrual basis. Income and
expense are recorded in the same category as that arising from the related debt.
Amounts to be paid or received under interest rate swap agreements are
recognized as interest income or expense in the period in which they accrue. The
interest rate swap agreement has not had a material impact on the Consolidated
Financial Statements. See Note N.
In February 1994, the Company issued zero coupon, convertible subordinated
Liquid Yield Options Notes due February 2009 ("LYONs") at an interest rate of
5.5% with a principal amount at maturity of $235,750,000. Net proceeds to the
Company were approximately $101,000,000. The proceeds were used for investment
and general corporate purposes, including the repurchase of treasury shares. See
Note K.
On October 17, 1997, the Company in a private transaction, purchased $45
million aggregate principal amount at maturity of its outstanding Liquid Yield
Option Notes due 2009 from Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") for an aggregate purchase price of $27.2 million (or $605 per
$1,000 principal amount at maturity of LYONs). The purchase price was paid in
the form of 1,267,619 shares, $26.4 million, of the Company's common stock (the
"Exchange Shares"). The Company also paid Merrill Lynch, the excess of a base
price of $21.48 per Exchange Share over the actual sales price (less $0.05 per
share in commissions) realized by Merrill Lynch for sales of up to 552,619
Exchange Shares. The Company also paid Merrill Lynch, for each day, an amount in
cash to be determined by multiplying the Net Carry Amount (number of Exchange
Shares multiplied by $21.48) by the Applicable Rate (LIBOR plus 2.50%). The
Company's payment obligations were subject to reduction for dividends on
Exchange Shares received by Merrill Lynch during the period. The Company paid
the foregoing amounts to Merrill Lynch in cash of approximately $790,000 on
November 7, 1997. The purchase of the LYONs increased stockholders' equity by
approximately $24.7 million while reducing outstanding debt by approximately
$24.3 million. Additionally, an extraordinary loss due to the early retirement
of debt of approximately $1.7 million, net of applicable income taxes, was
recorded in the fourth quarter of 1997. The maturity value of LYONs outstanding
at December 31, 1997 is approximately $140.6 million.
51
<PAGE> 54
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts and estimated fair values of the Company's notes
payable were as follows at December 31, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1997 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Short-term borrowings................... $ 5,158 $ 5,158 $ 5,710 $ 5,710
Long-term borrowings, variable rate..... 39,263 39,263 41,110 41,110
Long-term borrowings, fixed rate........ 78,602 113,722 102,102 93,214
-------- -------- -------- --------
$123,023 $158,143 $148,922 $140,034
======== ======== ======== ========
</TABLE>
Short-term borrowings approximate their fair value. The fair value of the
Company's fixed rate and variable rate notes payable is estimated using
discounted cash flow analyses based on current market interest rates and
comparison of interest rates being paid to the Company's current incremental
borrowing rates for similar types of borrowing arrangements. The LYON's fair
value is calculated based on quoted market prices.
H. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current....................................... $31,217 $ 7,886 $(2,729)
Deferred...................................... (438) 8,330 4,120
------- ------- -------
$30,779 $16,216 $ 1,391
======= ======= =======
</TABLE>
Total income tax expense (benefit) for the years ended December 31, 1997,
1996 and 1995 was allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations............. $31,959 $16,216 $ 1,828
Extraordinary gain (loss)..................... (1,180) -- (437)
------- ------- -------
$30,779 $16,216 $ 1,391
======= ======= =======
</TABLE>
52
<PAGE> 55
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Provision for claim losses in excess of
statutory amounts............................ $ 2,142 $ 5,108 $4,890
Employee benefit accruals...................... (3,758) (1,847) 81
(Excess) deficit book over tax bad debt
expense...................................... 2,298 304 (535)
Other acquisition accruals..................... 1,660 1,862 610
Statutory unearned premium reserve............. 1,313 3,624 303
Accelerated depreciation....................... (587) (1,068) --
Investments in partnerships.................... (68) (434) --
Investments in real estate..................... (624) 128 --
Section 338 (h)(10) gain deferral.............. (1,711) (153) (504)
Other.......................................... (1,103) 806 (725)
------- ------- ------
$ (438) $ 8,330 $4,120
======= ======= ======
</TABLE>
The effective tax rate differs from the statutory income tax rate as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
----- ----- ------
<S> <C> <C> <C>
Statutory income tax rate............................. 35.0% 35.0% 34.0%
Tax exempt interest income............................ (1.6) (.8) (23.3)
Non-deductible expenses............................... 6.2 2.0 6.5
State taxes, net of Federal deduction................. 3.6 2.7 --
Other................................................. .4 1.1 (.3)
---- ---- -----
43.6% 40.0% 16.9%
==== ==== =====
</TABLE>
53
<PAGE> 56
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred tax assets and liabilities at December 31, 1997 consist of the
following:
<TABLE>
<CAPTION>
DEFERRED DEFERRED TAX
TAX ASSETS LIABILITIES
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Provision for claim losses in excess of statutory amounts... $47,072 $ --
Employee benefit accruals................................... 8,175 --
Excess book over tax provision for bad debts................ 3,517 --
Other assets................................................ 2,165 --
Statutory unearned premium reserve.......................... -- 48,783
Accelerated depreciation.................................... 77 --
Investment securities....................................... -- 15,532
Investments in partnerships................................. -- 392
Investments in real estate.................................. -- 154
Section 338 (h)(10) gain deferral........................... -- 2,046
Other acquisition accruals.................................. -- 5,509
Other liabilities........................................... -- 2,012
Net operating loss available for carryover.................. 711 --
------- -------
Less: valuation allowance................................... 711 --
------- -------
Total deferred taxes........................................ $61,006 $74,428
======= =======
</TABLE>
The deferred tax assets and liabilities at December 31, 1996 consist of the
following:
<TABLE>
<CAPTION>
DEFERRED DEFERRED TAX
TAX ASSETS LIABILITIES
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Provision for claim losses in excess of statutory amounts... $49,215 $ --
Employee benefit accruals................................... 4,756 --
Excess book over tax provision for bad debts................ 5,758 --
Other assets................................................ 1,803 --
Statutory unearned premium reserve.......................... -- 47,470
Accelerated depreciation.................................... -- 521
Investment securities....................................... -- 8,503
Investments in partnerships................................. -- 460
Investments in real estate.................................. -- 778
Section 338 (h)(10) gain deferral........................... -- 3,758
Other acquisition accruals.................................. -- 3,266
Other liabilities........................................... -- 4,380
Net operating loss available for carryover.................. 711 --
------- -------
62,243 69,136
Less: valuation allowance................................... 711 --
------- -------
Total deferred taxes........................................ $61,532 $69,136
======= =======
</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, net of the recorded valuation
allowance. 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
54
<PAGE> 57
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
planning or other strategies could be implemented, if necessary, to supplement
income from operations to fully realize recorded tax benefits.
The Company's 1990 through 1994 Federal income tax returns are currently
under examination by the Internal Revenue Service. Based on information
currently available, management does not believe the outcome of these
examinations will have a material impact on the financial condition or results
of operations of the Company.
I. SUMMARY OF RESERVE FOR CLAIM LOSSES
A summary of the reserve for claim losses follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.......................................... $187,245 $146,094 $153,306
Reserves assumed from First Title Corp................... 284 -- --
Reserves relinquished due to the sale of American Title
Company .............................................. (160) -- --
Reserves assumed from Nations Title Inc.................. -- 45,171 --
Title claim loss provision related to:
Current year.......................................... 36,404 32,505 23,901
Prior years........................................... 2,257 797 (4,870)
-------- -------- --------
Total title claim loss provision......................... 38,661 33,302 19,031
Title claims paid, net of recoupments related to:
Current year.......................................... (2,376) (2,430) (2,818)
Prior years........................................... (32,907) (34,892) (23,425)
-------- -------- --------
Total title claims paid, net of recoupments.............. (35,283) (37,322) (26,243)
-------- -------- --------
Ending balance............................................. $190,747 $187,245 $146,094
======== ======== ========
</TABLE>
The provision for claim losses includes an estimate of anticipated title
claims and major claims. The estimate of anticipated title claims is accrued as
a percentage of title premium revenue based on the Company's historical loss
experience and other relevant factors. The Company monitors its claims
experience on a continual basis and adjusts the provision for claim losses
accordingly.
J. COMMITMENTS AND CONTINGENCIES
The Company's title insurance underwriting subsidiaries are, in the
ordinary course of business, subject to claims made under, and from time-to-time
are named as defendants in legal proceedings relating to, policies of insurance
they have issued or other services performed on behalf of insured policyholders
and other customers. The Company believes that the reserves reflected in its
Consolidated Financial Statements are adequate to pay losses and loss adjustment
expenses which may result from such claims and proceedings; however, such
estimates may be more or less than the amount ultimately paid when the claims
are settled.
Effective January 1996, the Company extended the term of an employment
agreement with its Chief Executive Officer for an additional period of five
years through March 31, 2001. Under this extension, he is to receive a minimum
annual base salary and an annual bonus based on the Company's performance. In
addition, the Board of Directors may grant the Chief Executive Officer an annual
merit bonus in cash or common stock based on his individual performance during
each year of the extension.
55
<PAGE> 58
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective January 1, 1996, the Company entered into one year employment
agreements with four of its key executives, whereby each was to receive a
minimum annual base salary and an annual bonus based on the Company's
performance. Bonuses in the form of cash or Common Stock could be paid to the
executives at the discretion of the Compensation Committee of the Board of
Directors. Certain terms of these contracts were subsequently amended/revised
effective January 1, 1997 and April 1, 1997. Additionally, effective September
15, 1997, the Company entered into a three year employment agreement with a
fifth key executive. Terms and conditions of the fifth executive's contract are
similar to the other four.
In the ordinary course of business, the Company is involved in various
pending and threatened litigation matters related to its operations, some of
which include claims for punitive or exemplary damages. Management believes that
no 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.
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 Consolidated Balance Sheets. The Company has a contingent liability
relating to proper disposition of these balances for its customers which
amounted to $608.6 million at December 31, 1997.
The Company leases certain of its premises and equipment under leases which
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 are as follows (dollars in
thousands):
<TABLE>
<S> <C>
1998....................................................... $22,698
1999....................................................... 16,736
2000....................................................... 11,698
2001....................................................... 8,492
2002....................................................... 5,087
Thereafter................................................. 6,610
-------
Total future minimum operating lease payments.............. $71,321
=======
</TABLE>
Rent expense incurred under operating leases during the years ended
December 31, 1997, 1996 and 1995 was $24,929,000, $23,413,000 and $21,388,000,
respectively. Included in rent expense for 1997, 1996 and 1995 is $523,000 paid
to related parties.
K. STOCKHOLDERS' EQUITY
Title insurance companies, including underwriters, underwritten title
companies and independent agents, are subject to extensive regulation under
applicable state laws. Each insurance underwriter is usually subject to a
holding company act in its state of domicile which regulates, among other
matters, the ability to pay dividends and investment policies. The laws of most
states in which the Company transacts business establish supervisory agencies
with broad administrative powers relating to issuing and revoking licenses to
transact business, regulating trade practices, licensing agents, approving
policy forms, accounting principles, financial practices, establishing reserve
and capital and surplus requirements, defining suitable investments for
reserves, capital and surplus and approving rate schedules.
The Insurance Subsidiaries are regulated by the insurance commissioners of
their respective states of domicile. Regulatory examinations usually occur at
three year intervals. Examinations are currently in progress for Fidelity Title
(1996), Fidelity New York (1996), Nations New York (1996), National (1996)
56
<PAGE> 59
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and ATIC (1994). The Company has not received preliminary reports of examination
for Fidelity Title, Fidelity New York, Nations New York or National, as the
examinations are currently ongoing.
The Department of Insurance of the State of Florida has completed the field
portion of their triennial examination of ATIC, which was merged into Fidelity
Pennsylvania as of November 21, 1996, which was in turn merged into Fidelity New
York as of April 11, 1997; as of and for the three-year period ended December
31, 1994. The Company has received a preliminary report of examination. The
preliminary report, as forwarded to the Company by the Department of Insurance
of the State of Florida, indicates that the examiners are proposing adjustments
that could materially impact the statutory capital and surplus of ATIC, Fidelity
Pennsylvania, its former parent company, and ultimately Fidelity New York.
Certain of these adjustments have not been included in the 1997 Fidelity New
York Statutory Annual Statement as filed with insurance regulatory authorities
as the Company does not agree with these findings and has requested support for
the examination report. These same adjustments have not been considered in the
calculation of dividend capability, statutory surplus and statutory income
(loss) reported below.
Examinations have been completed for Fidelity Pennsylvania (1995), Fidelity
Tennessee (1995) and Nations Title (1996). All adjustments proposed by the
examiners have been recorded by the Company for Fidelity Pennsylvania, Fidelity
Tennessee and Nations Title, and are included in the calculation of dividend
capability, statutory surplus and statutory income (loss) reported below.
Statutorily calculated net worth determines the maximum insurable amount
under any single title insurance policy. As of January 1, 1998, the Company's
self-imposed single policy maximum insurable amounts, which comply with all
statutory limitations, for Fidelity Title, Fidelity New York and Fidelity
Tennessee were $42.0 million, $80.0 million and $6.0 million, respectively. The
self-imposed single policy maximum insurable amounts for Nations New York and
National are $20.0 million and $6.7 million, respectively.
The Insurance Subsidiaries are subject to regulations that restrict their
ability to pay dividends or make other distributions of cash or property to
their immediate parent company without prior approval from the Department of
Insurance of their respective states of domicile. In the case of Fidelity Title,
the total amount of dividends made in any twelve-month period may not exceed the
greater of 10% of the surplus as regards policyholders as of the last day of the
preceding year or net income for the twelve-month period ending the last day of
the preceding year. In the case of Fidelity New York, the total amount of
dividends and distributions is limited to surplus as regards policyholders,
excluding capital stock, less fifty percent of statutory premium reserve as of
the last day of the preceding year and capital contributions received in the
latest five-year period. As of January 1, 1998, Fidelity Title could pay
dividends or make other distributions to the Company of $6,823,000. Fidelity New
York does not have any dividend paying capability as of January 1, 1998.
The combined statutory capital and surplus of the Insurance Subsidiaries
was $94,101,000, $73,326,000 and $67,174,000 as of December 31, 1997, 1996 and
1995, respectively. The combined statutory income (loss) of the Insurance
Subsidiaries was $21,500,000, $6,052,000 and $(1,533,000) for the years ended
December 31, 1997, 1996 and 1995, respectively. These amounts do not include
certain of the proposed ATIC examination adjustments previously discussed.
As a condition to continued authority to underwrite policies in the states
in which the Insurance Subsidiaries conduct their business, the Insurance
Subsidiaries are required to pay certain fees and file information regarding
their officers, directors and financial condition. In addition, the Company's
escrow and trust business is subject to regulation by various state banking
authorities.
The UTCs are also subject to certain regulation by insurance regulatory or
banking authorities, primarily relating to minimum net worth and dividend
capability. Minimum net worth of $7.5 million and $2.5 million is required for
Fidelity National Title Company ("FNTC") and Fidelity National Title Company of
California ("FNCAL"), respectively. In addition, the Company has agreed to
notify the State of California Department
57
<PAGE> 60
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of Insurance of dividend payments by FNTC and FNCAL greater than 30% of earnings
before income taxes through 1998.
L. EMPLOYEE BENEFIT PLANS
Employee benefits include an employee stock purchase plan, three stock
option plans and a 401(k) plan.
In 1987, stockholders approved the adoption of an Employee Stock Purchase
Plan ("ESPP"). Under the terms of the ESPP and subsequent amendments, there are
7,986,000 shares of the Company's Common Stock available for purchase at current
market prices by Company employees who meet certain vesting requirements.
Pursuant to the ESPP, Company employees may contribute an amount between 5% and
15% of their base salary and certain commissions. The Company contributes
varying amounts as specified in the ESPP. During the years ended December 31,
1997, 1996 and 1995, 321,449, 338,047 and 315,901 shares, respectively, were
purchased and allocated to employees, based upon their contributions, at an
average price of $15.10, $12.45 and $9.77 per share, respectively. The Company
contributed $1.7 million or the equivalent of 111,582 shares for the year ended
December 31, 1997, $1.2 million or the equivalent of 97,471 shares for the year
ended December 31, 1996 and $1.4 million or the equivalent of 143,559 shares for
the year ended December 31, 1995 in accordance with the employer's matching
contribution. A total of 6,524,409 shares have been purchased by both the ESPP
and employees since the adoption of the ESPP.
In 1987, stockholders also approved the adoption of a Stock Option Plan
("1987 Option Plan"). Under the terms of the 1987 Option Plan, the Company may
grant stock options to certain key employees and non-employee directors or
officers. The number of shares issuable under the 1987 Option Plan is 1,647,113
shares of Common Stock at not less than fair market value on the date of grant.
Employees are eligible to receive incentive stock options or non-qualified stock
options and non-employee directors are eligible to receive non-qualified stock
options. Options available to directors or officers may not exceed one-half of
the aggregate number of shares available for grant. All options granted become
exercisable at the discretion of the Board of Directors and expire five to
eleven years from the date of grant. Options that lapse or are cancelled prior
to exercise are added to the shares authorized for future grants. The 1987
Option Plan expired December 31, 1997.
In 1992, the stockholders approved the adoption of the 1991 Stock Option
Plan ("1991 Option Plan"). Under the terms of the 1991 Option Plan, options may
be granted to officers and key employees of the Company or any or all of its
present or future subsidiaries. The number of shares reserved for issuance under
the 1991 Option Plan and subsequent amendments is 2,362,525 shares of Common
Stock, which may be newly issued or treasury shares. The per share option price
is determined at the date of grant. The option price may be less than the fair
market value of the Common Stock at the date of grant to reflect the application
of the optionee's deferred bonus, if applicable. Options granted under the 1991
Option Plan shall be exercisable in such installments and for such periods as
may be fixed at the time of grant, but in no event shall any stock options
extend for a period in excess of 12 years from the date of grant.
In 1994, the stockholders approved the adoption of the 1993 Stock Plan
("1993 Plan"). Under the terms of the 1993 Plan, options may be granted to
officers, key employees and non-employee directors of the Company. The number of
shares of Common Stock reserved for issuance under the 1993 Plan is 998,250. The
per share option price is determined at the date of grant provided that the
price for incentive stock options shall not be less than 100% of their market
value or award stock shares. The 1993 Plan also contains an automatic grant of
non-qualified stock options to non-employee directors at an exercise price equal
to 100% of fair value at date of grant, and the right to exercise such options
shall vest equally over three years. Stock options granted under the 1993 Plan
are exercisable subject to the terms and conditions set by the Board of
Directors; however, options shall be exercisable no earlier than six months nor
ten years following the grant date.
58
<PAGE> 61
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth activity in the 1987 and 1991 Stock Option
Plans and the 1993 Stock Plan from December 31, 1994 through December 31, 1997:
<TABLE>
<CAPTION>
1987 STOCK OPTION PLAN 1991 STOCK OPTION PLAN 1993 STOCK PLAN
--------------------------------------- ---------------------- -------------------------
INCENTIVE NON-QUALIFIED EXERCISE EXERCISE EXERCISE
OPTIONS OPTIONS PRICE SHARES PRICE(1) SHARES PRICE
--------- ------------- ----------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding at December 31,
1994............................ 4,386 545,835 $1.14-11.46 1,454,374 $ .59-7.45 69,878 $10.43-11.15
Granted in 1995................. 9,858 465,850 $ 7.61-9.77 63,030 $ 3.42-3.68 97,162 $ 7.51-8.17
Exercised in 1995............... (2,194) -- -- (237,661) $ 4.66-7.45 -- --
Expired or cancelled in 1995.... -- -- -- -- -- (6,655) $10.42-11.15
--------- ---------- ----------- -------- ----------- ---------- ------------
Outstanding at December 31,
1995............................ 12,050 1,011,685 $1.14-11.46 1,279,743 $ .59-7.45 160,385 $ 7.51-11.16
Granted in 1996................. -- 323,675 10.54 104,699 5.91-6.20 52,659 10.66-11.16
Exercised in 1996............... -- -- -- (61,287) .66-7.45 -- --
Expired or cancelled in 1996.... -- (69,878) 7.61-11.46 (33,576) 3.68-7.45 -- --
--------- ---------- ----------- -------- ----------- ---------- ------------
Outstanding at December 31,
1996............................ 12,050 1,265,482 $1.14-11.46 1,289,579 $ .59-7.29 213,044 $ 7.51-11.16
Granted in 1997................. -- 589,600 6.93-18.24 182,881 6.93-11.48 27,500 12.65
Exercised in 1997............... -- (69,575) 9.77-10.54 (52,657) .59-7.29 (22,410) 11.16
Expired or cancelled in 1997.... -- -- -- -- -- -- --
--------- ---------- ----------- -------- ----------- ---------- ------------
Outstanding at December 31,
1997............................ 12,050 1,785,507 $1.14-18.24 1,419,803 $ .59-11.48 218,134 $ 7.51-12.65
========= ========== =========== ======== =========== ========== ============
Exercisable at December 31,
1997............................ 12,050 1,206,907 $1.14-18.24 1,400,984 $ .59-7.29 208,008 $ 7.51-12.65
========= ========== =========== ======== =========== ========== ============
Exercisable through............... June 2005 Sept. 2007 May 2008 April 2008
</TABLE>
- ---------------
(1) This variable plan allows for exercise prices with a fixed discount from the
quoted market price. 63,030 options were granted in 1995 at an exercise
price of $7.70 to key employees of the Company who applied deferred bonuses
expensed in 1994 amounting to $236,773 to the exercise price, reducing it to
$3.95 if exercised within the first year of the grant. The exercise price of
these options decreases approximately 6.0% per year through 2000 and $.16
per share from 2001 through 2006, at which time the exercise price will be
$1.61. 104,699 options were granted in 1996 at an exercise price of $10.33
to key employees of the Company who applied deferred bonuses expensed in
1995 amounting to $432,640 to the exercise price, reducing it to $6.20 if
exercised within the first year of the grant. The exercise price of these
options decreases approximately 5.0% per year through 2001 and $.18 per
share from 2002 through 2007, at which time the exercise price will be
$3.64. In 1997, 182,881 options were granted at an exercise price of $11.48
to key employees of the company who applied deferred bonuses expensed in
1996 amounting to $875,730 to the exercise price, reducing it to $6.93 if
exercised within the first year of the grant. The exercise price of these
options decreases approximately 7% per year through 2002 and $.20 per share
from 2003 through 2008, at which time the exercise price will be $4.11.
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 employee stock options. 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 employee 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 fair value
59
<PAGE> 62
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method of that Statement. The 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 rates used in the
calculation is the rate on the date the options were granted. The risk free
interest rate used for options granted during 1997, 1996 and 1995 were 6.0%,
6.5% and 6.9%, respectively. A volatility factor for the expected market price
of the common stock of 50% was used for options granted in 1997, 1996 and 1995.
The expected dividend yield used for 1997, 1996 and 1995 was 1.0%, 2.0% and
2.0%, respectively. A weighted average expected life of seven years was used in
all years as the Company has little history of options being exercised.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that do not have vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the value of an estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
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 follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
------- ------- ------
(IN THOUSANDS, EXCEPT PER SHARE
INFORMATION)
<S> <C> <C> <C>
Pro forma basic net earnings....................... $38,862 $22,390 $5,509
Pro forma diluted net earnings..................... $42,004 $25,586 $5,509
Pro forma earnings per share
Basic............................................ $ 2.44 $ 1.49 $ .36
Diluted.......................................... 1.96 1.25 .35
</TABLE>
A summary of the Company's stock option activity, and related information
for the years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ---------------------------- ----------------------------
NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE
--------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Stock options outstanding
beginning of year........... 2,780,155 $ 7.39 2,463,863 $ 6.95 2,074,473 $ 6.57
Stock options granted......... 799,981 10.64 481,033 9.57 635,900 7.26
Stock options exercised....... (144,642) 8.63 (61,287) 4.26 (239,855) 4.67
Stock options cancelled....... -- -- (103,454) 9.01 (6,655) 10.78
--------- ------ --------- ------ --------- ------
Stock options outstanding, end
of year..................... 3,435,494 $ 8.09 2,780,155 $ 7.39 2,463,863 $ 6.95
Exercisable at end of year.... 2,827,949 -- 2,395,853 -- 1,942,557 --
Weighted-average fair value of
options granted during the
year........................ -- $11.68 -- $10.59 -- $ 8.19
</TABLE>
The weighted average remaining contractual life of the options outstanding
at December 31, 1997 is 7.6 years.
The following table sets forth options outstanding and exercisable by price
range as of December 31, 1997:
60
<PAGE> 63
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS OUTSTANDING
- ----------------------------------------------------------------------------- ----------------------------
WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AS OF 12/31/97 CONTRACTUAL LIFE PRICE AS OF 12/31/97 PRICE
- --------------------- -------------- ---------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$0.5940 - 2.8130 460,509 5.65 $ 1.6541 460,509 $1.6541
3.4180 - 6.0480 394,755 9.00 5.6646 394,756 5.6646
6.2550 - 6.9320 205,973 9.94 6.8883 177,373 6.8812
7.2880 - 7.2880 370,540 7.20 7.2880 370,540 7.2880
7.5130 - 7.6270 439,230 7.34 7.6116 437,012 7.6121
8.0770 - 10.5370 616,796 7.37 10.2184 616,796 10.2184
10.6150 - 11.4580 505,373 6.82 11.2324 340,373 11.3339
11.4770 - 11.4770 376,318 9.18 11.4770 0 0.0000
12.6450 - 15.9660 33,000 9.94 13.1985 19,590 12.6450
18.2390 - 18.2390 33,000 9.71 18.2390 11,000 18.2390
- --------------------- --------- ---- -------- --------- -------
$0.5940 - $18.2390 3,435,494 7.62 $ 8.0908 2,827,949 $7.3743
</TABLE>
The Company also offers the Fidelity National Financial, Inc. 401(k) Profit
Sharing Plan, a qualified voluntary contributory savings plan, available to
substantially all employees. Eligible employees may contribute up to 15% of
their pretax annual compensation, up to the amount allowed pursuant to the
Internal Revenue Code. The Company may elect to make matching contributions. The
Company has historically not made matching contributions.
61
<PAGE> 64
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
M. SUPPLEMENTARY CASH FLOW INFORMATION
The following supplemental cash flow information is provided with respect
to interest and tax payments, as well as certain non-cash investing and
financing activities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash paid (refunded) during the year:
Interest............................................ $ 4,244 $ 4,766 $ 4,568
======= ======= =======
Income taxes........................................ $13,971 $14,334 $(3,147)
======= ======= =======
Non-cash investing and financing activities:
Dividends declared and unpaid....................... $ 1,254 $ 975 $ 860
======= ======= =======
Acquisition of Nations Title Inc.................... $ -- $ 2,130 $ --
======= ======= =======
Acquisition of Fidelity National Tax................ $ -- $ 2,520 $ --
======= ======= =======
Acquisition of National Alliance Marketing Group,
Inc.............................................. $ 2,317 $ -- $ --
======= ======= =======
Acquisition of First Title Corporation.............. $ 3,760 $ -- $ --
======= ======= =======
Acquisition of Ifland Credit Services............... $ 2,985 $ -- $ --
======= ======= =======
Acquisition of Bron Research, Inc................... $ 9,850 -- --
======= ======= =======
Acquisition of Credit Reports, Inc.................. $ 200 -- --
======= ======= =======
Acquisition of Express Network, Inc................. $ 5,275 $ -- $ --
======= ======= =======
Retirement of LYONs................................. $25,512 $ -- $ --
======= ======= =======
Conversion of LYONs................................. $ 888 $ -- $ --
======= ======= =======
</TABLE>
N. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF RISK
During 1997, the Company generated 38.0% and 11.3% of its title insurance
premiums in California and New York, respectively. The Company generated a
significant amount of title insurance premiums in California and Texas, 38.5%
and 8.9% in 1996, and 43.6% and 10.1% in 1995, respectively.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, short-term
investments, trade receivables, notes receivable and financial instruments used
in hedging activities.
The Company places its cash equivalents and short-term investments with
high credit quality financial institutions and, by policy, limits the amount of
credit exposure with any one financial institution. Investments in commercial
paper of industrial firms and financial institutions are rated A1, P1 or better.
Concentrations of credit risk with respect to trade receivables are limited
because a large number of geographically diverse customers make up the Company's
customer base, thus spreading the trade receivables credit risk. The Company
controls credit risk through monitoring procedures.
Concentrations of credit risk with respect to notes receivable are limited
because a number of diverse entities make up the Company's notes receivable
base, thus spreading the credit risk. The Company controls credit risk through
credit approvals, credit limits and monitoring procedures. The Company performs
in-depth credit evaluations for all notes and requires guarantees and/or
collateral, if deemed necessary.
62
<PAGE> 65
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The counterparty to the agreement relating to the Company's interest rate
swap instrument consists of a major high credit quality financial institution.
The Company does not believe that there is significant risk of nonperformance by
this counterparty because the Company continually monitors the credit rating of
such counterparties and limits the financial exposure and the amount of
agreements entered into with any one financial institution. While the notional
amounts of financial instruments are often used to express the volume of these
transactions, the potential accounting loss on these transactions if the
counterparty failed to perform is limited to the amounts, if any, by which the
counterparty's obligation under the contract exceeds the obligation of the
Company to the counterparty.
O. SUBSEQUENT EVENTS
On November 17, 1997, Fidelity National Financial, Inc. signed an Agreement
and Plan of Merger ("Merger Agreement") to merge a newly-formed subsidiary of
the Company into Granite Financial, Inc. ("Granite"). Granite, located in
Golden, Colorado, is a rapidly expanding speciality finance company engaged in
the business of originating, funding, purchasing, selling, securitizing and
servicing equipment leases for a broad range of businesses located throughout
the United States.
Under the original terms of the definitive agreement (as adjusted for the
Company's recent 10% stock dividend), each share of Granite common stock would
be converted into the right to receive .771 shares of Company common stock
without interest, together with cash in lieu of any fractional share. The
exchange ratio was collared between $20.75 and $25.94. The adjustment factor was
designed to insure that the average market value of the shares of Company common
stock to be issued to the stockholders of Granite is neither less than $16.00
nor more than $20.00 per share of Granite common stock. The market value was
determined based on the average closing price of Company common stock during the
20 day trading period ending on the third business day prior to the date of the
shareholder meetings to be held to approve the transaction. Below $20.75
Fidelity could make up the difference in additional shares of its common stock
at its option and above $25.94 Granite shareholders would have the exchange
ratio reduced pro rata. Such average closing price was determined to be $28.48,
resulting in an adjusted exchange ratio of .702 shares of Company common stock
for each share of Granite common stock. The merger will be treated as a
reorganization pursuant to Section 368(a)(1) of the Internal Revenue Code of
1986, as amended, and be accounted for as a "pooling-of-interests" for
accounting purposes.
The shareholders of Granite approved the merger, and the Company
shareholders approved the issuance of shares in connection with the merger, at
special shareholders' meetings on Tuesday, February 24, 1998. The merger was
completed Thursday, February 26, 1998. Under the terms of the definitive
agreement, shareholders of Granite Financial, Inc. common stock receive .702
shares of Fidelity National Financial, Inc. common stock for each share of
Granite Financial, Inc. common stock, with fractional shares to be paid in cash,
resulting in the issuance of approximately 4.4 million shares of Fidelity
National Financial, Inc. common stock. Fidelity National Financial, Inc. common
stock, as reported by the New York Stock Exchange, closed at $28.69 on February
26, 1998.
63
<PAGE> 66
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Selected unaudited pro forma combined financial position and results of
operations as of and for the years ending December 31, 1997, 1996 and 1995,
assuming the Granite Financial, Inc. acquisition occurred on January 1, 1997,
1996 and 1995, are presented as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Total assets....................................... $679,592 $546,883 $405,670
Total liabilities.................................. 447,762 424,578 327,495
Total stockholders' equity......................... 231,830 122,305 78,175
Total revenue...................................... $763,181 $642,377 $410,798
Basic earnings before extraordinary item........... $ 44,797 $ 25,384 $ 7,690
Basic net earnings................................. 43,097 25,384 6,877
Basic earnings per share........................... 2.12 1.31 .35
Diluted earnings before extraordinary item......... $ 47,939 $ 28,580 $ 7,690
Diluted net earnings............................... 46,239 28,580 6,877
Diluted earnings per share......................... 1.79 1.15 .34
</TABLE>
On March 18, 1998, the Company announced that it had entered into an
agreement to sell National Title Insurance of New York Inc. to American Title
Company, subject to regulatory approval and certain other conditions. The
purchase price is structured at a premium to book value. National was acquired
in April 1996, as part of the Nations Title Inc. acquisition and has not been
actively underwriting policies since the transaction closed. American Title
Company is an underwritten title company which was formerly a wholly-owned
subsidiary of the Company. Effective July 1, 1997, 60% of ATC was sold to
certain members of ATC management. The Company will continue to own 40% of ATC,
and ultimately National, following the transaction.
On March 19, 1998, the Company's Board of Directors declared a cash
dividend of $.07 per share which will be payable on May 1, 1998, to stockholders
of record on April 10, 1998.
On March 25, 1998, the Company closed a new credit facility, the proceeds
of which were used to terminate and pay the Company's credit agreement dated as
of September 21, 1995. Additional amounts available under the new credit
facility are available for general corporate purposes.
Also, on March 25, 1998, the Company announced that it had executed an
agreement to merge Matrix Capital Corporation ("Matrix") with a newly-formed
subsidiary of the Company. The merger is subject to due diligence, regulatory
approvals and other customary conditions, and requires approval of the merger by
the shareholders of Matrix and approval of the issuance of Company common stock
in connection with the merger by the shareholders of the Company.
Under the terms of the definitive agreement, each share of Matrix stock
will be converted into the right to receive .80 shares of Company common stock
without interest, together with cash in lieu of any fractional share. The
exchange ratio has been collared between $28.75 and $35.00 per Company share.
The market value
64
<PAGE> 67
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
is to be determined based on the average closing price of Company stock during
the 20 day trading period ending on the third business day immediately prior to
the last of the stockholders' meetings held to approve the transaction (the
"Average Stock Price"). Below $28.75 the Company may make up the difference in
additional shares at its option and above $35.00 the exchange ratio would be
adjusted to a number equal to $28.00 plus fifty percent of the amount by which
the Average Stock Price exceeds $35.00 divided by the Average Stock Price. It is
intended that the merger be treated as a reorganization pursuant to Section
368(a)(1) of the Internal Revenue Code and be accounted for as a
"pooling-of-interests."
65
<PAGE> 68
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. THROUGH 13.
Within 120 days after the close of its fiscal year, the Company intends to
file with the Securities and Exchange Commission a definitive proxy statement
pursuant to Regulation 14A of the Securities Exchange Act of 1934 as amended,
which will include the election of directors, the report of compensation
committee on annual compensation, certain relationships and related transactions
and other business.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS. The following is a list of the Consolidated
Financial Statements of Fidelity National Financial, Inc. and its subsidiaries
included in Item 8 of Part II.
Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 1997 and 1996.
Consolidated Statements of Earnings for the years ended December 31, 1997,
1996 and 1995.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
(a)(2) FINANCIAL STATEMENT SCHEDULES. The following is a list of financial
statement schedules filed as part of this annual report on Form 10-K.
Schedule I: Fidelity National Financial, Inc. (Parent Company Financial
Statements).
Schedule II: Valuation and Qualifying Accounts.
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the Consolidated
Financial Statements or notes thereto.
(a)(3) The following exhibits are incorporated by reference or are set
forth on pages to this Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
3 Charter and Bylaws of the Issuer.
3.1 Certificate of Incorporation of Registrant, with Amendments,
incorporated by reference from Form S-1, Registration No.
33-11321.
3.1.1 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated February 2, 1989 and approved by the
stockholders of the Company on March 24, 1989, incorporated
by reference from Form 10-K filed January 29, 1990.
3.1.2 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 10, 1992 and approved by the
stockholders of the Company on July 15, 1992, incorporated
by reference from Proxy Statement on Schedule 14A dated June
17, 1992.
3.1.3 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 15, 1993 and approved by the
stockholders of the Company on June 15, 1993, incorporated
by reference from Proxy Statement on Schedule 14A dated May
5, 1993.
</TABLE>
66
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
3.1.4 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 14, 1994 and approved by the
stockholders of the Company on June 14, 1994, incorporated
by reference from Proxy Statement on Schedule 14A dated May
11, 1994.
3.2 Bylaws of Registrant with Amendments, incorporated by
reference from Form S-1, Registration No. 33-11321.
3.2.1 Amendment to Article VII, Section 7 of the Bylaws of
Registrant dated April 22, 1988, incorporated by reference
from Form 10-K filed January 29, 1990.
3.2.2 Amendment to Article III, Section 3(d) of the Bylaws of
Registrant dated September 14, 1991, incorporated by
reference from Form 10-K filed March 29, 1993.
3.2.3 Amendment to Article II, Section 1(b) of the Bylaws of
Registrant dated October 29, 1991, incorporated by reference
from Form 10-K filed March 29, 1993.
3.2.4 Amendment to Article II, Section 1(b) of the Bylaws of
Registrant dated December 10, 1991, incorporated by
reference from Form 10-K filed March 29, 1993.
3.2.5 Amendment to Article IV, Sections 1(a) and (b) and Section 4
of the Bylaws of Registrant dated June 9, 1992, incorporated
by reference from Form 10-K filed March 29, 1993.
4 Instruments Defining Rights of Security Holders.
4.1 Specimen Certificate, incorporated by reference from Form
S-1, Registration No. 33-11321.
4.2 Articles FOURTH and EIGHTH of Certificate of Incorporation
of Registrant, with Amendments, incorporated by reference
from Form S-1, Registration No. 33-11321.
4.2.1 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated February 2, 1989 and approved by the
stockholders of the Company on March 24, 1989, incorporated
by reference from Form 10-K filed January 29, 1990.
4.2.2 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 10, 1992 and approved by the
stockholders of the Company on July 15, 1992, incorporated
by reference from Proxy Statement on Schedule 14A dated June
17, 1992.
4.2.3 Amendment to Article FOURTH of Certificate of Incorporation
of Registrant dated June 14, 1994 and approved by the
stockholders of the Company on June 14, 1994, incorporated
by reference from Proxy Statement on Schedule 14A dated May
11, 1994.
4.3 Articles II and IV of the Bylaws of the Registrant with
Amendments, incorporated by reference from Form S-1,
Registration No. 33-11321.
4.4 Subscription Documents, incorporated by reference from Form
S-1, Registration No. 33-11321.
10 Material Contracts.
10.1 Employment Agreement effective as of April 1, 1991, between
William P. Foley, II and Fidelity National Financial, Inc.,
incorporated by reference from Form 10-K filed March 23,
1992.
10.1.1 First amendment to Employment Agreement between William P.
Foley, II and Fidelity National Financial, Inc., effective
as of January 1, 1996, incorporated by reference from Form
10-K filed March 31, 1997.
10.1.2 Employment Agreements effective as of January 1, 1996
between four key executives and Fidelity National Financial,
Inc., incorporated by reference from Form 10-K filed March
31, 1997.
10.1.2.1 First amendments revisions to Employment Agreements between
four key executives and Fidelity National Financial, Inc.,
effective January 1, 1997 and April 1, 1997.
10.1.3 Employment Agreement effective September 15, 1997 between a
key executive and Fidelity National Financial, Inc.
</TABLE>
67
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
10.2 Sale Agreement with Exhibits dated August 23, 1991 between
Fidelity National Financial, Inc. and Meridian Bank, a
Pennsylvania banking corporation, incorporated by reference
from Form 10-K filed March 23, 1992.
10.4 Fidelity National Financial, Inc. 1987 Stock Option Plan,
incorporated by reference from Form S-1, Registration No.
33-11321.
10.4.1 Amendments to Fidelity National Financial, Inc. 1987 Stock
Option Plan approved by the stockholders of the Company on
March 24, 1989, incorporated by reference from Form S-8,
Registration No. 33-34300.
10.5 Fidelity National Financial, Inc. 1987 Employee Stock
Purchase Plan, incorporated by reference from Form S-1,
Registration No. 33-11321.
10.5.1 Amendments to Fidelity National Financial, Inc. 1987
Employee Stock Purchase Plan approved by the stockholders of
the Company on March 24, 1989, incorporated by reference
from Form S-8, Registration No. 33-15027.
10.5.2 Amendments to Fidelity National Financial, Inc. 1987
Employee Stock Purchase Plan, incorporated by reference from
Form S-8, Registration No. 33-45709.
10.5.3 Amendments to Fidelity National Financial, Inc. 1987
Employee Stock Purchase Plan approved by the stockholders of
the Company on June 15, 1993, incorporated by reference from
Form S-8, Registration No. 33-64836.
10.5.4 Amendments to Fidelity National Financial, Inc. 1987 Stock
Purchase Plan approved by the stockholders of the Company on
June 20, 1995, incorporated by reference from Form S-8,
Registration No. 33-61983.
10.6 Fidelity National Financial, Inc. 401(k) Profit Sharing
Defined Contribution Plan and Trust adopted January 1, 1990,
incorporated by reference from Form 10-K filed January 29,
1991.
10.6.1 Amendments to Fidelity National Financial, Inc. 401(k)
Profit Sharing Plan, incorporated by reference from Form
S-8, Registration No. 33-56514.
10.7 Fidelity National Financial, Inc. 1991 Stock Option Plan,
approved by the stockholders of the Company on July 15,
1992, incorporated by reference from Form S-8, Registration
No. 33-45272.
10.7.1 Amendments to Fidelity National Financial, Inc. 1991 Stock
Option Plan approved by the stockholders of the Company on
June 15, 1993, incorporated by reference from Form S-8,
Registration No. 33-64834.
10.7.2 Amendment to Fidelity National Financial, Inc. 1991 Stock
Plan, approved by the stockholders of the Company on June
14, 1994, incorporated by reference from Form S-8,
Registration No. 33-83026.
10.8.3 Credit Agreement dated as of September 21, 1995 between
Fidelity National Financial Inc. and The Chase Manhattan
Bank, N.A., Sanwa Bank California, Imperial Bank and First
Interstate Bank, incorporated by reference from Form 8-K
filed September 29, 1995.
10.8.3.1 Amendment No. 1, dated as of December 18, 1995, to the
Fidelity National Financial, Inc. Credit Agreement dated as
of September 21, 1995, incorporated by reference from Form
10-K filed March 31, 1997.
10.8.3.2 Amendment No. 2, dated as of March 15, 1996, to the Fidelity
National Financial, Inc. Credit Agreement dated as of
September 21, 1995, incorporated by reference from Form 10-K
filed March 31, 1997.
10.8.3.3 Amendment No. 3, dated as of July 15, 1996, to the Fidelity
National Financial, Inc. Credit Agreement dated as of
September 21, 1995, incorporated by reference from Form 10-K
filed March 31, 1997.
</TABLE>
68
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
10.8.3.4 Amendment No. 4, dated as of February 24, 1997, to the
Fidelity National Financial, Inc. Credit Agreement dated as
of September 21, 1995, incorporated by reference from Form
10-K filed March 31, 1997.
10.8.3.5 Amendment No. 5, dated as of March 31, 1997, to the Fidelity
National Financial, Inc. Credit Agreement dated as of
September 21, 1995.
10.8.3.6 Amendment No. 6, dated as of August 5, 1997, to the Fidelity
National Financial, Inc. Credit Agreement dated as of
September 21, 1995.
10.8.3.7 Amendment No. 7, dated as of September 16, 1997, to the
Fidelity National Financial, Inc. Credit Agreement dated as
of September 21, 1995.
10.8.3.8 Amendment No. 8, dated as of November 21, 1997, to the
Fidelity National Financial, Inc. Credit Agreement dated as
of September 21, 1995.
10.8.3.9 Amendment No. 9, dated as of February 17, 1998, to the
Fidelity National Financial, Inc. Credit Agreement dated as
of September 21, 1995.
10.10 Agreement of Limited Partnership of Folco Mission Valley
Partners Limited Partnership, a California limited
partnership, dated August 8, 1991, by Folco Development
Corporation, an Arizona corporation, as general partner, and
Fidelity National Title Insurance Company, an Arizona
corporation, as limited partner, incorporated by reference
from Form 10-K filed March 23, 1992.
10.10.2 Office Building Lease dated October 1, 1991 between Folco
Mission Valley Partners Limited Partnership, a California
limited partnership, as Landlord, and Fidelity National
Title Insurance Company, an Arizona corporation, as Tenant,
incorporated by reference from Form 10-K filed March 23,
1992.
10.12 Form of First Amendment to Office Building Lease between
Folco Development Corporation, an Arizona corporation, as
Landlord, and Fidelity National Title Insurance Company, an
Arizona corporation, as Tenant, with respect to nine office
buildings, and the schedule of such buildings, incorporated
by reference from Form 10-K filed March 23, 1992.
10.14 Goodyear Investors Number II Partnership Agreement dated
October 7, 1986 among Manchester Development Corporation,
Folco Development Corporation Defined Benefit Pension Plan,
Enfield Construction Company, et al., incorporated by
reference from Form S-1, Registration No. 33-11321.
10.16 Agreement of Limited Partnership of Prospect Office
Partners, a California limited partnership, dated September
1, 1988 by and among William P. Foley, II, Frank P. Willey,
Max F. Hickman, Manchester Development Corporation, and
James G. Watt Partnership, incorporated by reference from
Form 10-K filed January 29, 1989.
10.16.1 Promissory Note dated October 1, 1988 in the original
principal amount of $850,000 to Manchester Development
Corporation by Prospect Office Partners, incorporated by
reference from Form 10-K filed March 29, 1993.
10.16.2 Modification Agreement dated November 30, 1992 between
Manchester Development Corporation and Prospect Office
Partners, incorporated by reference from Form 10-K filed
March 29, 1993.
10.18 Wilmac III Limited Partnership Certificate and Agreement of
Limited Partnership, dated December 31, 1987 by and among
Manchester Development Corporation, Stephen L. McCartney,
Frank P. Willey and Robert P. Coluccio, incorporated by
reference from Form 10-K filed January 29, 1989.
10.19 Agreement of Limited Partnership of Tustin Retail, a
California limited partnership, dated April 1988 by and
among Manchester Development Corporation and Vistar
Financial Inc., incorporated by reference from Form 10-K
filed January 29, 1989.
</TABLE>
69
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
10.19.1 Amendment to Agreement of Limited Partnership of Tustin
Retail by and among Manchester Development Corporation,
Vistar Financial, Inc., William P. Foley, II, Frank P.
Willey, John E. Hock, Robert A. Diemer, Gerald S. Misurek
and Stuart R. Boesche, incorporated by reference from Form
10-K filed March 29, 1993.
10.19.2 Promissory Note dated May 1, 1988 in the original principal
amount of $700,000 to Manchester Development Corporation by
Tustin Retail, incorporated by reference from Form 10-K
filed March 29, 1993.
10.19.3 Fixed Rate Promissory Note dated March 1, 1992 in the
original principal amount of $303,500 to Manchester
Development Corporation by Tustin Retail, incorporated by
reference from Form 10-K filed March 29, 1993.
10.19.4 Modification Agreement dated November 30, 1992 between
Manchester Development Corporation and Tustin Retail,
incorporated by reference from Form 10-K filed March 29,
1993.
10.25 Stock Purchase Agreement dated November 23, 1992 by and
among Fidelity National Financial, Inc., Fidelity National
Title Insurance Company of Pennsylvania, Security Title and
Guaranty Company, and Helmsley Enterprises, Inc.,
incorporated by reference from Form 10-K filed March 29,
1993.
10.32 Asset Purchase Agreement dated December 31, 1993 by and
between American Title Insurance Company ("Seller") and
Fidelity National Title Insurance Company of New York
("Purchaser"), incorporated by reference from Form 10-K
filed March 18, 1994.
10.33 Asset Purchase Agreement dated December 31, 1993, by and
between American Title Insurance Company ("Seller") and
Fidelity National Title Insurance Company of Pennsylvania
("Buyer"), incorporated by reference from Form 10-K filed
March 18, 1994.
10.35 Fidelity National Financial, Inc. 1993 Stock Plan, approved
by stockholders of the Company on June 14, 1994,
incorporated by reference from Form S-8, Registration No.
33-83026.
10.36 Agreement to Purchase Option to Purchase an Undivided 60%
Interest in Assets of World Tax Service, by and between
Fidelity Participations, Inc. and World Tax Service, Inc.,
incorporated by reference from Form 10-K filed March 30,
1995.
10.36.1 Stock Purchase Agreement dated June 9, 1995 between Fidelity
National Financial, Inc., WTC Financial and World Tax
Service to acquire World Tax Service and certain assets of
WTC Financial, incorporated by reference from Form 10-K
filed March 25, 1996.
10.38 Variable Rate Promissory Note dated August 24, 1994 in the
principal amount of $10,127,141 to Fleet Credit Corporation
by Fidelity Asset Management, Inc., incorporated by
reference from Form 10-K filed March 30, 1995.
10.39 Variable Rate Promissory Note dated August 24, 1994 in the
principal amount of $10,134,939.93 to Fleet Credit
Corporation by Fidelity Asset Management, Inc., incorporated
by reference from Form 10-K filed March 30, 1995.
10.39.1 Variable Rate Promissory Note dated June 22, 1995 in the
principal amount of $4,938,337 to Fleet Credit Corporation
by Fidelity Asset Management, Inc., incorporated by
reference from Form 10-K filed March 25, 1996.
10.39.2 Variable Rate Promissory Note dated September 12, 1996 in
the principal amount of $7,500,000 to MetLife Capital
Corporation by Fidelity Asset Management, Inc., incorporated
by reference from Form 10-K filed March 31, 1997.
10.39.3 Variable Rate Promissory Note dated April 30, 1997 in the
principal amount of $4,767,422 to Fleet Capital Leasing by
Fidelity Asset Management, Inc.
10.39.4 Variable Rate Promissory Note dated July 29, 1997 in the
principal amount of $8,000,000 to Imperial Bank by Fidelity
Asset Management, Inc.
</TABLE>
70
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
10.39.5 Variable Rate Promissory Note dated September 30, 1997 in
the principal amount of $6,131,283 to Fleet Capital Leasing
by Fidelity Asset Management, Inc.
10.41 Stock Purchase Agreement dated February 14, 1995 by and
among Fidelity National Financial, Inc., Raul Costelo, Jeff
A. Sanderson and Mark J. Attaway to acquire outstanding
capital stock of ACS Systems, Inc., incorporated by
reference from Form 10-K filed March 30, 1995.
10.42 Stock Purchase Agreement by and among Ronald G. Bridge
(selling shareholder); Western Title Co. of Washington, Inc.
and Fidelity National Financial, Inc. to acquire Western
Title Co. of Washington, Inc., incorporated by reference
from Form 10-K filed March 30, 1995.
10.43 Stock Purchase Agreement dated as of August 18, 1995 by and
among William D. Rothenberg, Marshall D. Wexler, Southern
California Title Company and Fidelity National Financial,
Inc., incorporate by reference from Form 10-K filed March
25, 1996.
10.44 Acquisition Agreement dated September 13, 1995 by and among
Fidelity National Financial, Inc. and Nations Holding Group,
Inc. and its wholly-owned subsidiary Nations Title Inc. to
acquire all of the issued and outstanding shares of Nations
Title Inc., incorporated by reference from Form 10-K filed
March 25, 1996.
10.45 Agreement for purchase and sale of stock dated November 4,
1996 by and between Fidelity National Financial, Inc. and
the stockholders of CRM, Inc., incorporated by reference
from Form 10-K filed March 31, 1997.
10.46 Stock Purchase and Loan Agreement by and among ATC Holdings,
Inc., Fidelity National Financial, Inc., and American Title
Company.
10.47 Agreement and Plan of Reorganization dated as of August 15,
1997 by and among Fidelity National Financial, Inc., First
Title Corporation, Ernest N. Moore, Jeanene S. Moore and T.
Frank Jordan and First Title Acquisition Corporation.
10.48 Agreement and Plan of Reorganization dated September 1997 by
and among Fidelity National Financial, Inc., ICS Ifland
Credit Services, Inc., Rick W. Ifland and ICS Acquisition
Corporation.
10.49 Agreement and Plan of Reorganization by and among Fidelity
National Financial, Inc.; Bron Acquisition Corporation, Bron
Research, Inc., and the Shareholders of Bron Research, Inc.,
dated as of September 24, 1997.
10.50 Agreement and Plan of Reorganization dated as of September
12, 1997, by and among Fidelity National Financial, Inc.,
Credit Reports, Inc., Colin Howard Friedman and Hedy Kramer
Friedman, as trustees of the Friedman Family Trust UDT,
dated July 23, 1987, Colin H. Friedman, Farid Meshkatai and
CRI Acquisition Corporation.
10.51 Agreement and Plan of Reorganization dated as of September
12, 1997 by and among Fidelity National, Inc., Express
Network, Inc., Colin Howard Friedman and Hedy Kramer
Friedman, as trustees of the Friedman Family Trust UDT,
dated July 23, 1987, Farid Meshkatai, and Anita Kramer
Meshkatai, as Trustee of the Anita Kramer Living Trust,
dated July 23, 1987, Colin H. Friedman, and ENI Acquisition
Corporation.
10.52 Fidelity National Financial, Inc. Liquid Yield Option Notes,
due 2009 (zero coupon-subordinated) Exchange Agreement dated
October 17, 1997.
10.53 Stock and Asset Purchase Agreement dated as of May 22, 1997,
by and between Randall F. Zurbach and John C. Wilbur, Jr.
and Fidelity National Financial, Inc.
10.54 Agreement and Plan of Merger, dated November 17, 1997 by and
among Fidelity National Financial, Inc.; Granite Acquisition
Corporation and Granite Financial, Inc., incorporated by
reference from Form S-4, Registration No. 333-44153.
11 Computation of Basic and Diluted Earnings per Share
</TABLE>
71
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
21 List of Subsidiaries
23 Independent Auditors' Consent
27 1997 Financial Data Schedule
27.1 1996 Financial Data Schedule -- Restated
27.2 1995 Financial Data Schedule -- Restated
27.3 1997 1Q Financial Data Schedule -- Restated
27.4 1997 2Q Financial Data Schedule -- Restated
27.5 1997 3Q Financial Data Schedule -- Restated
27.6 1996 1Q Financial Data Schedule -- Restated
27.7 1996 2Q Financial Data Schedule -- Restated
27.8 1996 3Q Financial Data Schedule -- Restated
</TABLE>
(b) REPORTS ON FORM 8-K. The Company filed reports on Form 8-K during the
fourth quarter ending December 31, 1997 as follows:
Current report on Form 8-K dated November 3, 1997, relating to Fidelity
National Financial, Inc.'s purchase of $45 million face amount of its
outstanding Liquid Yield Option Notes.
Current report on Form 8-K dated November 5, 1997, relating to the combined
financial results of Fidelity National Financial, Inc. and Bron Research, Inc.
for the month ended October 31, 1997.
Combined report on Form 8-K dated November 21, 1997, relating to Fidelity
National Financial, Inc.'s signing of a Merger Agreement with Granite Financial,
Inc.
72
<PAGE> 75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
FIDELITY NATIONAL FINANCIAL, INC.
By: /s/ WILLIAM P. FOLEY, II
------------------------------------
William P. Foley, II
Chief Executive Officer
Date: March 19, 1998
----------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM P. FOLEY, II Chairman of the Board and Chief March 19, 1998
- --------------------------------------------------- Executive Officer (Principal
William P. Foley, II Executive Officer)
/s/ FRANK P. WILLEY President and Director March 19, 1998
- ---------------------------------------------------
Frank P. Willey
/s/ ALLEN D. MEADOWS Executive Vice President and March 19, 1998
- --------------------------------------------------- Chief Financial Officer
Allen D. Meadows (Principal Financial and
Accounting Officer)
/s/ WILLIAM A. IMPARATO Director March 19, 1998
- ---------------------------------------------------
William A. Imparato
/s/ DONALD M. KOLL Director March 19, 1998
- ---------------------------------------------------
Donald M. Koll
Director March 19, 1998
- ---------------------------------------------------
Daniel D. (Ron) Lane
/s/ GENERAL WILLIAM LYON Director March 19, 1998
- ---------------------------------------------------
General William Lyon
/s/ STEPHEN C. MAHOOD Director March 19, 1998
- ---------------------------------------------------
Stephen C. Mahood
/s/ J. THOMAS TALBOT Director March 19, 1998
- ---------------------------------------------------
J. Thomas Talbot
/s/ CARY H. THOMPSON Director March 19, 1998
- ---------------------------------------------------
Cary H. Thompson
/s/ WILLIAM W. WEHNER Director March 19, 1998
- ---------------------------------------------------
William W. Wehner
</TABLE>
73
<PAGE> 76
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Fidelity National Financial, Inc.:
Under date of February 16, 1998, except as to Note O to the Consolidated
Financial Statements, which is as of March 25, 1998, we reported on the
Consolidated Balance Sheets of Fidelity National Financial, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related Consolidated
Statements of Earnings, Stockholders' Equity and Cash Flows for each of the
years in the three-year period ended December 31, 1997 which are included in the
Annual Report on Form 10-K. In connection with our audits of the aforementioned
Consolidated Financial Statements, we also audited the related financial
statement schedules in the Annual Report on Form 10-K. 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 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.
KPMG PEAT MARWICK LLP
Los Angeles, California
February 16, 1998, except as to Note O
to the Consolidated Financial Statements,
which is as of March 25, 1998
74
<PAGE> 77
SCHEDULE I
FIDELITY NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Cash........................................................ $ -- $ 2,922
Investment securities available for sale, at fair value..... 46,811 31,569
Trade receivables, net...................................... 20 20
Notes receivable, net....................................... 2,500 4,535
Investment in subsidiaries.................................. 278,430 215,253
Investments in real estate and partnerships, net............ 1,435 1,435
Income taxes receivable..................................... -- 7,589
Prepaid expenses and other assets........................... 4,290 6,083
-------- --------
$333,486 $269,406
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities.................. $ 7,466 $ 2,935
Notes payable............................................. 96,885 120,263
Accounts payable to subsidiaries.......................... 9,272 28,353
Deferred income taxes..................................... 13,422 7,604
Income taxes payable...................................... 10,122 --
-------- --------
137,167 159,155
-------- --------
Stockholders' Equity:
Preferred stock, $.0001 par value; authorized 3,000,000
shares; issued and outstanding, none................... -- --
Common stock, $.0001 par value; authorized, 50,000,000
shares in 1997 and 1996; issued 24,055,755 in 1997 and
21,353,963 in 1996..................................... 2 2
Additional paid-in capital................................ 101,735 61,271
Retained earnings......................................... 126,535 91,019
-------- --------
228,272 152,292
Net unrealized gains on investments....................... 22,422 12,334
Less treasury stock, 6,041,352 shares in 1997 and 1996, at
cost................................................... 54,375 54,375
-------- --------
196,319 110,251
Commitments and contingencies.............................
Subsequent events.........................................
-------- --------
$333,486 $269,406
======== ========
</TABLE>
See accompanying Notes to Financial Statements.
(Schedule continued on following page.)
75
<PAGE> 78
FIDELITY NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
REVENUE:
Other fees and revenue.................................... $ 13 $ 1,617 $ 583
Interest and investment income............................ 1,868 227 2,563
-------- ------- -------
1,881 1,844 3,146
-------- ------- -------
EXPENSES:
Other operating expenses.................................. 9,645 2,288 204
Interest expense.......................................... 7,163 7,177 8,427
-------- ------- -------
16,808 9,465 8,631
-------- ------- -------
Losses before income tax benefit, equity in earnings of
subsidiaries and extraordinary item....................... (14,927) (7,621) (5,485)
Income tax benefit.......................................... 6,493 3,048 899
-------- ------- -------
Losses before equity in earnings of subsidiaries and
extraordinary item........................................ (8,434) (4,573) (4,586)
Equity in earnings of subsidiaries.......................... 49,905 28,910 12,218
-------- ------- -------
Earnings before extraordinary item.......................... 41,471 24,337 7,632
Extraordinary item -- loss on early retirement of debt, net
of applicable income tax benefit of $1,180 in 1997 and
$437 in 1995.............................................. (1,700) -- (813)
-------- ------- -------
Net earnings................................................ $ 39,771 $24,337 $ 6,819
======== ======= =======
Basic net earnings.......................................... $ 39,771 $24,337 $ 6,819
======== ======= =======
Basic earnings per share before extraordinary item.......... $ 2.61 $ 1.62 $ .50
Extraordinary item -- loss on early retirement of debt, net
of applicable income tax benefit.......................... (.11) -- (.05)
-------- ------- -------
Basic net earnings per share................................ $ 2.50 $ 1.62 $ .45
======== ======= =======
Weighted average shares outstanding, basic basis............ 15,911 15,037 15,131
======== ======= =======
Diluted net earnings........................................ $ 42,913 $27,533 $ 6,819
Diluted net earnings per share before extraordinary item.... $ 2.08 $ 1.34 $ .49
Extraordinary item -- loss on early retirement of debt net
of applicable income tax benefit.......................... (.08) -- (.05)
-------- ------- -------
Diluted net earnings per share.............................. $ 2.00 $ 1.34 $ .44
======== ======= =======
Weighted average shares, diluted basis...................... 21,483 20,484 15,694
======== ======= =======
Dividends per share......................................... $ .26 $ .24 $ .22
======== ======= =======
Retained earnings, beginning of year........................ $ 91,019 $70,273 $66,668
Dividends declared........................................ (4,255) (3,591) (3,214)
Net earnings.............................................. 39,771 24,337 6,819
-------- ------- -------
Retained earnings, end of year.............................. $126,535 $91,019 $70,273
======== ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
(Schedule continued on following page.)
76
<PAGE> 79
FIDELITY NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................. $ 39,771 $ 24,337 $ 6,819
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Extraordinary item: Loss on early retirement of
LYONs............................................... 2,090 -- --
Depreciation and amortization......................... -- 90 98
Amortization of LYONs original issue discount and
issuance costs...................................... 5,939 5,295 4,916
Provision for losses on notes receivable.............. 195 240 (80)
Net equity in earnings of subsidiaries................ (49,905) (28,910) (12,218)
(Gain) loss on sale of investments.................... (746) 1,625 (639)
Net increase (decrease) in income taxes............... 16,793 3,417 7,673
Net (increase) decrease in prepaid expenses and other
assets.............................................. (99) (1,470) 4,397
Net increase (decrease) in accounts payable and
accrued liabilities................................. 3,553 (1,380) (2,584)
-------- -------- --------
Net cash provided by operating activities........ 17,591 3,244 8,382
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments....................... 7,491 8,699 25,112
Purchase of investments.................................. (12,217) (8,814) (7,471)
Additions to notes receivable............................ -- (4,350) --
Collections on notes receivable.......................... 1,590 393 106
Additions to investment in subsidiaries.................. (7,055) (10,699) (7,034)
Investment in real estate and partnerships, net.......... -- -- (53)
-------- -------- --------
Net cash provided by (used in) investing
activities..................................... (10,191) (14,771) 10,660
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings............................................... -- 5,000 33,772
Debt service payments.................................... (3,000) (3,000) (46,814)
Extraordinary items:
Early retirement of LYON's............................ 790 -- --
Early retirement of debt.............................. -- -- 1,250
Dividends paid........................................... (3,979) (3,477) (3,232)
Issuance (acquisition) of treasury stock, net............ -- 1,917 (15,831)
Exercise of stock options................................ 1,412 440 1,439
Net borrowings from (payments to) subsidiaries........... (5,545) 13,325 10,618
-------- -------- --------
Net cash provided by (used in) financing
activities..................................... (10,322) 14,205 (18,798)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... (2,922) 2,678 244
Cash and cash equivalents at beginning of year............. 2,922 244 --
-------- -------- --------
Cash and cash equivalents at end of year................... $ -- $ 2,922 $ 244
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
(Schedule continued on following page.)
77
<PAGE> 80
FIDELITY NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
NOTES TO FINANCIAL STATEMENTS
A. Fidelity 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.
B. Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Credit agreement, secured by common stock of certain
Insurance Subsidiaries, with principal due quarterly and
interest due monthly at LIBOR rate plus 2.0% (7.63% at
December 31, 1997), due September 2001, paid subsequent to
year end.................................................. $15,250 $ 18,250
Bank revolving credit facility, secured by common stock of
certain Insurance Subsidiaries, with interest due
quarterly at LIBOR rate plus 2.0% (7.63% at December 31,
1997) principal due quarterly beginning April 1998, due
September 2001, unused portion of $8 million at December
31, 1997 and 1996, paid subsequent to year end............ 5,000 5,000
Liquid Yield Option Notes, zero coupon, convertible
subordinated notes due 2009 with interest at 5.5%......... 76,635 97,013
------- --------
$96,885 $120,263
======= ========
</TABLE>
Principal maturities, including accretion of original issue discount, are
as follows (dollars in thousands):
<TABLE>
<S> <C>
1998...................................................... $ 3,563
1999...................................................... 5,250
2000...................................................... 5,500
2001...................................................... 5,000
2002...................................................... 938
Thereafter................................................ 140,572
--------
$160,823
========
</TABLE>
78
<PAGE> 81
FIDELITY NATIONAL FINANCIAL, INC.
(PARENT COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
C. SUPPLEMENTARY CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash paid (refunded) during the year:
Interest.................................................. $ 1,931 $ 1,953 $ 3,126
======= ======= =======
Income taxes.............................................. $13,971 $14,334 $(3,147)
======= ======= =======
Non-cash investing and financing activities:
Dividends declared and unpaid............................. $ 1,254 $ 975 $ 860
======= ======= =======
Acquisition of Nations Title Inc.......................... $ -- $ 2,130 $ --
======= ======= =======
Acquisition of Fidelity National Tax...................... $ -- $ 2,520 $ --
======= ======= =======
Acquisition of National Alliance Marketing Group, Inc..... $ 2,317 $ -- $ --
======= ======= =======
Acquisition of First Title Corporation.................... $ 3,760 $ -- $ --
======= ======= =======
Acquisition of Ifland Credit Services..................... $ 2,985 $ -- $ --
======= ======= =======
Acquisition of Bron Research, Inc......................... $ 9,850 $ -- $ --
======= ======= =======
Acquisition of Credit Reports, Inc........................ $ 200 $ -- $ --
======= ======= =======
Acquisition of Express Network, Inc....................... $ 5,275 $ -- $ --
======= ======= =======
Retirement of LYONs....................................... $25,512 $ -- $ --
======= ======= =======
Conversion of LYONs....................................... $ 888 $ -- $ --
======= ======= =======
</TABLE>
79
<PAGE> 82
SCHEDULE II
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------- ---------- ----------------------- ---------- ---------
ADDITIONS
-----------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND OTHER DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES (DESCRIBE) (DESCRIBE) OF PERIOD
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Reserve for claim losses.............. $187,245 $38,661 $ 124(1) $35,283(2) $190,747
Allowance on:
Trade receivables.................. 6,822 1,920 204(1) 3,793(3) 5,153
Notes receivable................... 2,654 270 (153)(1) 1,021(3) 1,750
Real estate allowance................. 4,467 330 -- 3,330(4) 1,467
Amortization of cost in excess of net
assets acquired and other
intangible assets.................. 6,309 2,888 -- -- 9,197
Year ended December 31, 1996:
Reserve for claim losses.............. $146,094 $33,302 $45,171 $37,322(2) $187,245
Allowance on:
Trade Receivables.................. 3,471 2,644 3,091(1) 2,384(3) 6,822
Notes Receivable................... 2,941 775 153(1) 1,215(3) 2,654
Real estate allowance................. 3,467 -- 1,000(1) -- 4,467
Amortization of cost in excess of net
assets acquired and other
intangible assets.................. 3,988 2,321 -- -- 6,309
Year ended December 31, 1995:
Reserve for claim losses.............. $153,306 $19,031 $ -- $26,243(2) $146,094
Allowance on:
Trade receivables.................. 2,029 1,701 -- 259(3) 3,471
Notes receivable................... 2,783 612 -- 454(3) 2,941
Real estate allowance................. 3,296 171 -- -- 3,467
Amortization of cost in excess of net
assets acquired and other
intangible assets.................. 1,503 2,485 -- -- 3,988
</TABLE>
- ---------------
(1) Represents net reserve for claim losses and other allowances assumed from
sales and acquisitions during the year.
(2) Represents payments of claim losses, net of recoupments.
(3) Represents uncollectible accounts written off, change in reserve due to
reevaluation of specific items and change in reserve due to sale of certain
assets.
(4) Represents reduction in the reserve balance due to the sale of a real estate
property.
80
<PAGE> 1
EXHIBIT 10.1.2.1
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, effective as of January
1, 1997, is entered into by and between FIDELITY NATIONAL FINANCIAL, INC., a
Delaware corporation (the "Company"), and PATRICK F. STONE ("the Employee") and
amends the current Employment Agreement between the Company and Employee, which
current Employment Agreement was effective January 1, 1996.
WHEREAS, the Company and Employee are parties to an Employment
Agreement ("Agreement") effective January 1, 1996 with a one year term which
expires December 31, 1996 ("Agreement"), and
WHEREAS, the Company and Employee wish to amend such Agreement as set
forth below,
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties agree as follows:
1. Section I of the Agreement, entitled "Employment and Duties" is
amended to delete the current section 1 and replace it with the following:
"1. Employment and Duties. Subject to the terms and conditions
of this Agreement, the Company employs the Employee to serve in an
executive and managerial capacity as the Chief Operating Officer of
the Company, and the Employee accepts such employment and agrees to
perform such reasonable responsibilities and duties commensurate
with the aforesaid position, as directed by the Chief Executive
Officer and as set forth in the Articles of Incorporation and the
Bylaws of the Company. Any change in such title or delegation of
duties inconsistent with such title shall be deemed a Termination
Without Cause under section 7 (b) of this Agreement."
2. Section 2 of the Agreement, entitled "Term" is amended to delete the
current section 2 and replace it with the following:
1
<PAGE> 2
"2. Term. The term of the Agreement shall be for a period of
three (3) years commencing January 1, 1997 and ending December 31,
1999, subject to termination as set forth in Section 7 hereof."
3. Section 3 of the Agreement entitled "Salary" is amended to delete
the current section 3 and replace it with the following:
"3. Salary. During the term of this Agreement, the Company
shall pay Employee a minimum base annual salary, before deducting
all applicable withholdings, of $325,000 per year, payable at the
times and in the manner dictated by the Company's standard payroll
policies. Such base salary may be periodically reviewed and
increased (but not decreased) at the discretion of the Chief
Executive Officer and/or the Compensation Committee of the Board of
Directors to reflect among other matters cost of living increases
and performance results."
4. Section 7 of the Agreement entitled "Termination" and subsection (b)
thereof entitled "Without Cause" is amended to delete the current subsection (b)
and replace it with the following:
"(b) Without Cause. Either party may terminate this Agreement
immediately without cause by giving written notice to the other. (i) If
the Company terminates hereunder, it shall pay to the Employee an
amount equal to the product of (A) the Employee's minimum base annual
salary rate in effect as of the date of termination plus the bonus paid
for calender year 1996 and paid in 1997 (base year bonus), multiplied
by (B) the greater of the number of years (including partial years)
remaining in the term of employment hereunder or the number 2, such
payment to be made in a lump sum on or before the fifth day following
the date of termination, or as otherwise directed by Employee. The
Company shall maintain in full force and effect, for the continued
benefit of the Employee for the greater of the number of years
(including partial years) remaining in the term of employment hereunder
or the number 2, all employee benefit plans and programs in which the
executive was entitled to participate immediately prior to the date of
termination provided that the Employee's continued
2
<PAGE> 3
participation is possible under the general terms and provisions of such
plans and programs. In the event that the Employee's participation in
any such plan or program is prohibited, the Company shall, at the
Company's expense, arrange to provide the Employee with or, if not
possible to arrange, to pay Employee the economic value of benefits
substantially similar to those which the Employee would otherwise have
been entitled to receive under such plans and programs from which his
continued participation is prohibited. (ii) If the Employee terminates
hereunder, the Company shall be obligated to pay the Employee the
minimum base annual salary and a prorated annual bonus as set forth in
Sections 3 and 4 due him through the date of termination."
5. Section 8 of the Agreement entitled "Severance Payment," and
subsection (b) (ii) thereof is amended to delete the current subsection (b) (ii)
and replace it with the following:
(ii) in lieu of any further salary and bonus payments or
other payments due to the Employee for periods subsequent to the date of
termination, the Company shall pay as severance to the Employee an
amount equal to the product of (A) the Employee's annual salary rate in
effect as of the date of termination plus the base year bonus,
multiplied by (B) the greater of the number of years (including partial
years) remaining in the term of employment hereunder or the number 2,
such payment to be made in a lump sum on or before the fifth day
following the date of termination; and
6. A new section 9 (a) shall be added to the Agreement entitled
"Relocation" stating as follows:
"9. Relocation. At the Company's request, Employee has
relocated to and agreed to reside in Santa Barbara County, California to
perform his duties hereunder. Employee shall not be required to move
from Santa Barbara County, California to perform his duties hereunder
during the term of this Agreement."
3
<PAGE> 4
7. In the seventh line of section 8 (b) (iii) of the Agreement, the word
"at the Company's expense" shall be added after the word "shall" and before the
word "arrange."
8. Effect on Employment Agreement. Except as herein amended, all
provisions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF the parties have executed this First Amendment to
Employment Agreement as of the date set forth herein above.
FIDELITY NATIONAL FINANCIAL, INC.
/s/ WILLIAM P. FOLEY
-----------------------------------
By: William P. Foley, II
Its: Chairman of the Board and Chief
Executive Officer
PATRICK F. STONE
/s/ PATRICK F. STONE
-----------------------------------
4
<PAGE> 5
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, effective as of January
1, 1997, is entered into by and between FIDELITY NATIONAL FINANCIAL, INC., a
Delaware corporation (the "Company"), and FRANK P. WILEY ("the Employee") and
amends the current Employment Agreement between the Company and Employee, which
current Employment Agreement was effective January 1, 1996.
WHEREAS, the Company and Employee are parties to an Employment
Agreement ("Agreement") effective January 1, 1996 with a one year term which
expires December 31, 1996 ("Agreement"), and
WHEREAS, the Company and Employee wish to amend such Agreement as set
forth below,
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties agree as follows:
1. Section I of the Agreement, entitled "Employment and Duties" is
amended to delete the current section I and replace it with the following:
" 1. Employment and Duties. Subject to the terms and conditions
of this Agreement, the Company employs the Employee to serve in an
executive and managerial capacity as the President of the Company, and
the Employee accepts such employment and agrees to perform such
reasonable responsibilities and duties commensurate with the aforesaid
position, as directed by the Chief Executive Officer and as set forth in
the Articles of Incorporation and the Bylaws of the Company. Any change
in such title or delegation of duties inconsistent with such title shall
be deemed a Termination Without Cause under section 7 (b) of this
Agreement."
2. Section 2 of the Agreement, entitled "Term" is amended to delete the
current section 2 and replace it with the following:
1
<PAGE> 6
"2. Term. The term of the Agreement shall be for a period of
three (3) years commencing January 1, 1997 and ending December 31,
1999, subject to termination as set forth in Section 7 hereof."
3. Section 7 of the Agreement entitled "Termination" and subsection (b)
thereof entitled "Without Cause" is amended to delete the current subsection (b)
and replace it with the following:
"(b) Without Cause. Either party may terminate this Agreement
immediately without cause by giving written notice to the other. (i) If
the Company terminates hereunder, it shall pay to the Employee an
amount equal to the product of (A) the Employee's minimum base annual
salary rate in effect as of the date of termination plus the bonus paid
for calender year 1996 and paid in 1997 (base year bonus), multiplied
by (B) the greater of the number of years (including partial years)
remaining in the term of employment hereunder or the number 2, such
payment to be made in a lump sum on or before the fifth day following
the date of termination, or as otherwise directed by Employee. The
Company shall maintain in full force and effect, for the continued
benefit of the Employee for the greater of the number of years
(including partial years) remaining in the term of employment hereunder
or the number 2, all employee benefit plans and programs in which the
executive was entitled to participate immediately prior to the date of
termination provided that the Employee's continued participation is
possible under the general terms and provisions of such plans and
programs. In the event that the Employee's participation in any such
plan or program is prohibited, the Company shall, at the Company's
expense, arrange to provide the Employee with or, if not possible to
arrange, to pay Employee the economic value of benefits substantially
similar to those which the Employee would otherwise have been entitled
to receive under such plans and programs from which his continued
participation is prohibited. (ii) If the Employee terminates hereunder,
the Company shall be obligated to pay the Employee the minimum base
annual salary and a prorated annual bonus as set forth in Sections 3
and 4 due him through the date of termination."
2
<PAGE> 7
4. Section 8 of the Agreement entitled "Severance Payment," and
subsection (b) (ii) thereof is amended to delete the current subsection (b) (ii)
and replace it with the following:
(ii) in lieu of any further salary and bonus payments or
other payments due to the Employee for periods subsequent to the date of
termination, the Company shall pay as severance to the Employee an
amount equal to the product of (A) the Employee's annual salary rate in
effect as of the date of termination plus the base year bonus,
multiplied by (B) the greater of the number of years (including partial
years) remaining in the term of employment hereunder or the number 2,
such payment to be made in a lump sum on or before the fifth day
following the date of termination; and
5. A new section 9 (a) shall be added to the Agreement entitled
"Relocation" stating as follows:
"9. Relocation. Employee shall not be required to move from the
State of California to perform his duties hereunder during the term of
this Agreement."
6. In the seventh line of section 8 (b) (iii) of the Agreement, the word
"at the Company's expense" shall be added after the word "shall" and before the
word "arrange."
7. Effect on Employment Agreement. Except as herein amended, all
provisions of the Agreement shall remain in full force and effect.
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<PAGE> 8
IN WITNESS WHEREOF the parties have executed this First Amendment to
Employment Agreement as of the date set forth herein above.
FIDELITY NATIONAL FINANCIAL, INC.
/s/ WILLIAM P. FOLEY
----------------------------------------
By: William P. Foley
Its: Chairman of the Board and
Chief Executive Officer
FRANK P. WILEY
/s/ FRANK P. WILEY
----------------------------------------
4
<PAGE> 9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("AGREEMENT") is effective as of April 1,
1997, by and between FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation
(the "Company"), and ANDREW F. PUZDER (the "Employee"), and supersedes any prior
employment agreement entered into between the parties. In consideration of the
mutual covenants and agreements set forth herein, the parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs the Employee to serve in an executive and
managerial capacity as the General Counsel and Executive Vice President of the
Company, and the Employee accepts such employment and agrees to perform such
reasonable responsibilities and duties commensurate with the aforesaid position,
as directed by the Chief Executive Officer and as set forth in the Articles of
Incorporation and the Bylaws of the Company. Any change in such title or
delegation of duties inconsistent with such title shall be deemed a Termination
Without Cause under section 7 (b) of this Agreement.
2. Term. The term of this Agreement shall be for a period of three (3)
years commencing on the date hereof and continuing for three (3) years until
March 31, 2000, subject to termination as set forth in Section 7 hereof.
3. Salary. During the term of this Agreement, the Company shall pay
Employee a minimum base annual salary, before deducting all applicable
withholdings, of $150,000 per year, payable at the times and in the manner
dictated by the Company's standard payroll policies. Such base salary may be
periodically reviewed and increased (but not decreased) at the discretion of the
Chief Executive Officer and/or the Compensation Committee of the Board of
Directors to reflect among other matters cost of living increases and
performance results.
4. Other Compensation and Fringe Benefits. In addition to any executive
bonus, pension, deferred compensation and stock option plans which the Company
may from time to time make available to Employee upon mutual agreement, the
Employee shall be entitled to the following:
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<PAGE> 10
(a) The standard Company benefits enjoyed by the Company's other top
executives.
(b) Company shall pay Employee's initiation and membership dues in a
social and/or recreational club as deemed necessary and appropriate by Employee
to maintain various business relationships on behalf of the Company; provided,
however, that the Company shall not be obligated to pay for any of Employee's
personal purchases and expenses at such clubs.
(c) Company shall provide medical and insurance coverage to Employee
and his dependents commencing on the date of execution hereof and so long as
this Agreement and all renewals of same are in force and effect.
(d) Supplemental disability insurance sufficient to provide two-thirds
of pre-disability base salary as base salary has been defined in Section 3.
(e) An annual bonus equal to $5,000 for each full percentage point the
Company's return on equity exceeds 10% (based on equity as of the beginning of
the year being measured). Return on equity shall be determined by dividing net
income before extraordinary items by stockholders' equity as of the beginning of
the year being measured. Any fractional percentage point increase shall be
applied to $5,000 to determine the amount of such bonus ( for example, an 11.5%
return on equity would result in a $7,500 bonus). Said bonus shall be paid no
later than March 31st of each year and is fully vested in the event of a
non-renewal of this agreement or is vested pro-rata in the event of a
termination of this Agreement other than for cause. The Board may additionally,
in its sole discretion, grant to Employee an annual merit bonus based upon
Employee's performance during the preceding year and any other factors the Board
considers relevant. Notwithstanding the effective date of this Agreement, the
start date for the 1997 bonus calculation shall be January 1, 1997.
(f) Options. Employee and the Company executed a letter entitled "Terms
of Employment" under which Employee received certain options and the right to
earn certain options (the "Letter"). A copy of the Letter is attached hereto as
Exhibit "A" Employee shall retain the right to the options and future grants of
options as referenced in paragraphs 2, 3, 4, and 6 of the Letter, as such rights
are
2
<PAGE> 11
expressed in the Letter. Employee shall also continue to have the right to
represent Carl N. Karcher as set forth in paragraph 5 of the Letter.
The Company shall deduct from all compensation payable under this
Agreement to Employee any taxes or withholdings the Company is required to
deduct pursuant to state and federal laws or by mutual agreement between the
parties.
5. Vacation. For and during each year of this Agreement, the Employee
shall be entitled to reasonable vacation periods with pay consistent with his
positions with the Company. In addition, Employee shall be entitled to such
holidays consistent with the Company's standard policies or as the Company's
Board of Directors may approve.
6. Expense Reimbursement. In addition to the compensation and benefits
provided herein, the Company shall, upon receipt of appropriate documentation,
reimburse Employee each month for his reasonable travel, lodging, entertainment,
promotion and other ordinary and necessary business expenses.
7. Termination.
(a) For Cause. The Company may terminate this Agreement
immediately for cause upon written notice to the Employee, in which event the
Company shall be obligated to pay the Employee that portion of the minimum base
compensation set forth in Section 3 due him through the date of termination.
Cause shall be limited to gross and willful neglect of duties or criminal or
other illegal activities as determined by a court of competent jurisdiction.
(b) Without Cause. Either party may terminate this Agreement
immediately without cause by giving written notice to the other. (i) If the
Company terminates hereunder, it shall pay to the Employee an amount equal to
the product of (A) the Employee's minimum base annual salary rate in effect as
of the date of termination plus the bonus paid for calender year 1996 and paid
in 1997 (base year bonus), multiplied by (B) the greater of the number of years
(including partial years) remaining in the term of employment hereunder or the
number 2. Such payment to be made in a lump sum on or before the fifth day
following the date of termination, or as otherwise directed by Employee. The
Company shall maintain in full force and effect, for the continued benefit of
the Employee for the greater of the number of
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<PAGE> 12
years (including partial years) remaining in the term of employment hereunder or
the number 2, all employee benefit plans and programs in which the executive was
entitled to participate immediately prior to the date of termination provided
that the Employee's continued participation is possible under the general terms
and provisions of such plans and programs. In the event that the Employee's
participation in any such plan or program is prohibited, the Company shall, at
the Company's expense, arrange to provide the Employee with or, if not possible
to arrange, to pay Employee the economic value of benefits substantially similar
to those which the Employee would otherwise have been entitled to receive under
such plans and programs from which his continued participation is prohibited.
(ii) If the Employee terminates hereunder, the Company shall be obligated to pay
the Employee the minimum base annual salary and a prorated annual bonus as set
forth in Sections 3 and 4 due him through the date of termination."
(c) Disability. If the Employee fails to perform his duties
hereunder on account of illness or other incapacity for a period of nine (9)
consecutive months, the Company shall have the right upon written notice to the
Employee to terminate this Agreement without further obligation by paying
Employee the minimum base salary without offset for the remainder of the term of
this Agreement and the base year bonus without offset prorated through the date
of termination in a lump sum or as otherwise directed by Employee.
(d) Death. If the Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and the Employee's legal
representatives shall be entitled to receive the base salary for the remainder
of the term of this Agreement and the minimum annual bonus without offset
prorated through the date of termination in a lump sum or as otherwise directed
by Employee's legal representative.
(e) Effect of Termination. Termination for any cause shall not
constitute a waiver of the Company's rights under this Agreement nor a release
of Employee from any obligation hereunder except his obligation to perform his
day-today duties as an employee.
8. Severance Payment.
4
<PAGE> 13
(a) Employee may terminate his employment hereunder for "Good Reason".
For purposes of this Agreement, "Good Reason" shall mean a change in control of
the Company (as defined below). For purposes of this Agreement, a "change in
control of the Company shall be deemed to have occurred if (i) there shall be
consummated (x) any consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation, or pursuant to which shares of
the Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock of the surviving corporation immediately
after the merger, or (y) any sale, lease exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (ii) the stockholders of the Company approved
any plan or proposal for the liquidation or dissolution of the Company, or (iii)
any "person" (such as that term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company or
any "person" who on the date hereof is a director or officer of the Employer, is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), of securities of the Company representing 30% or more of the combined
voting power of the Company's then outstanding securities, or (iv) during any
period of two (2) consecutive years during the term of this Agreement or any
renewals hereof, individuals who at the beginning of such period constitute the
board cease for any reason to constitute at least a majority thereof, unless the
election of each director who was not a director at the beginning of such period
has been approved in advance by directors representing at least two-thirds of
the directors then in office who were directors at the beginning of the period.
Employee may only terminate this 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.
(b) If the Employee shall terminate his employment for Good Reason, or
if, after a change in control of the Company, the Company shall terminate the
Employee's employment in breach of this Agreement or pursuant to section 7(b),
then:
(i) the Company shall pay the Employee his full salary through the
date of termination pursuant to this Agreement;
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<PAGE> 14
(ii) in lieu of any further salary and bonus payments or other
payments due to the Employee for periods subsequent to the date of termination,
the Company shall pay as severance to the Employee an amount equal to the
product of (A) the Employee's annual salary rate in effect as of the date of
termination plus the base year bonus, multiplied by (B) the greater of the
number of years (including partial years) remaining in the term of employment
hereunder or the number 2, such payment to be made in a lump sum on or before
the fifth day following the date of termination; and
(iii) the Company shall maintain in full force and effect, for the
continued benefit of the Employee for the greater of the number of years
(including partial years) remaining in the term of employment hereunder or the
number 2, all employee benefit plans and programs in which the executive was
entitled to participate immediately prior to the date of termination provided
that the Employee's continued participation is possible under the general terms
and provisions of such plans and programs. In the event that the Employee's
participation in any such plan or program is prohibited, the Company shall, at
the Company's expense, arrange to provide the Employee with or, if not possible,
to arrange to pay Employee the economic value of benefits substantially similar
to those which the Employee would otherwise have been entitled to receive under
such plans and programs from which his continued participation is prohibited.
(c) The Employee shall not be required to mitigate the amount of any
payment provided for in this section 8 or section 7(b) above by seeking other
employment or otherwise, nor shall any compensation or other payments received
by the Employee after the date of termination reduce any payments due under this
section 8 or section 7(b).
(d) Notwithstanding the provision hereinabove, if any payment pursuant
to this section 8 would be a "parachute payment" (as defined in Section 280G of
the Internal Revenue Code), such payment shall be limited to the largest portion
of such payment as can be paid without being a "parachute payment."
9. Non-Delegation of Employee's Rights. The obligations, rights and
benefits of Employee hereunder are personal and may not be delegated, assigned
or
6
<PAGE> 15
transferred in any manner whatsoever, nor are such obligations, rights or
benefits subject to involuntary alienation, assignment or transfer.
10. Confidential Information. Employee acknowledges that in his
capacity as an employee of the Company he will occupy a position of trust and
confidence, and he further acknowledges that he will have access to and learn
much information about the Company and its operations that is confidential or
not generally known in the industry including, without limitation, information
that relates to purchasing, sales, customers, marketing, the Company's financial
position and financing arrangements. Employee agrees that all such information
is proprietary or confidential or constitutes trade secrets and is the sole
property of the Company. Employee will keep confidential, and will not
reproduce, copy or disclose to any other person or firm, any such information or
any documents or information relating to the Company's methods, processes,
customers, accounts, analyses, systems, charts, programs, procedures,
correspondence, or records, or any other documents used or owned by the Company,
nor will Employee advise, discuss with or in any way assist any other person or
firm in obtaining or learning about any of the items described in this section.
Accordingly, Employee agrees that during the term of this Agreement, or
afterwards, he will not disclose, or permit or encourage anyone who is not an
employee of the Company to disclose any such information, nor will he utilize
any such information, either alone or with others, outside the scope of his
duties and responsibilities with the Company.
11. Non-Competition During Employment Term. Employee agrees that during
the term of his employment by the Company, he will devote substantially all his
business time and effort to and give undivided loyalty to the Company (except as
noted in section 4(f) above and section 14 below). He will not engage in any way
whatsoever, directly or indirectly, in any business that is competitive with the
Company or its affiliates, nor solicit, or in any other manner work for or
assist any business which is competitive with the Company or its affiliates.
During the term of this Agreement, he will undertake no planning for or
organization of any business activity competitive with the work he performs as
an employee of the Company, and Employee will not combine or conspire with any
other employee of the Company or any other person for the purpose of organizing
any such competitive business activity.
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<PAGE> 16
12. Non-Competition After Employment Term. The parties acknowledge that
the Employee will acquire much knowledge and information concerning the business
of the Company and its affiliates as a result of his employment. The parties
further acknowledge that the scope of business in which the Company is engaged
as of the date of execution of this Agreement is national and very competitive
and one in which few companies can successfully compete. Competition by Employee
in that business after this Agreement is terminated would severely injure the
Company. Accordingly, until two (2) years after this Agreement is terminated or
Employee leaves the employment of the Company for any reason whatsoever, except
as otherwise stated hereinbelow, Employee agrees (a) not to become an employee,
consultant, advisor, principal, partner or substantial shareholder of any firm
or business that in any way competes with the Company or its affiliates in any
of their presently existing or then existing products and markets and (b) not to
solicit any person or business that was at the time of such termination and
remains a customer or prospective customer of the Company or any of its
affiliates. Notwithstanding any of the foregoing provisions to the contrary,
Employee shall not be subject to the restrictions set forth in this Section 12
under the following circumstances:
(a) When Employee leaves the employment of the Company as a result
of termination by the Company without cause;
(b) When Employee is terminated as a result of the Company's failure
to renew his employment agreement; or
(c) When Employee leaves the employment of the Company for Good
Reason pursuant to section 8 above.
13. Return of Company Documents. Upon termination of this Agreement,
Employee shall return immediately to the Company all records and documents of or
pertaining to the Company and shall not make or retain any copy or extract of
any such record or document.
14. Employment by CKE Restaurants, Inc. Anything to the contrary
hereinabove notwithstanding, Company acknowledges that Employee is also the
General Counsel of CKE Restaurants, Inc. ("CKE") and will direct a reasonable
portion of his time to fulfilling his duties as an officer of CKE. Company
further acknowledges that Employee may become an employee of CKE in addition to
the
8
<PAGE> 17
Company and that such employment shall not be a violation of this agreement so
long as employee dedicates a reasonable amount of his time to his duties
hereunder. For purposes of Sections 11, "Company" shall include CKE.
Notwithstanding time spent on matters involving CKE, Employee shall continue to
be considered a full time employee of the Company.
15. Relocation. Prior to July 30, 1997, or as soon thereafter as the
Company has office space available, Employee shall move to Santa Barbara County,
California to perform his duties hereunder. The Company shall cover the
reasonable expenses of such move. Employee shall not be required to move from
Santa Barbara County, California to perform his duties hereunder during the term
of this Agreement.
16. Improvements and Inventions. Any and all improvements or inventions
which Employee may conceive, make or participate in during the period of his
employment shall be the sole and exclusive property of the Company. Employee
will, whenever requested by the Company, execute and deliver any and all
documents which the Company shall deem appropriate in order to apply for and
obtain patents for improvements or inventions or in order to assign and convey
to Company the sole and exclusive right, title and interest in and to such
improvements, inventions, patents or applications.
17. Actions. The parties agree and acknowledge that the rights conveyed
by this Agreement are of a unique and special nature and that the Company will
not have an adequate remedy at law in the event of failure of the Employee to
abide by its terms and conditions nor will money damages adequately compensate
for such injury. It is, therefore, agreed between the parties that in the event
of breach by Employee of any of his agreements contained in this Agreement,
Company shall have the right, among other rights, to damages sustained thereby
and to obtain an injunction or decree of specific performance from any court of
competent jurisdiction to restrain or compel Employee to perform as agreed
herein. Employee agrees that this section shall survive the termination of his
employment and he shall be bound by its terms and at all times subsequent to the
termination of his employment for so long a period as Company continues to
conduct the same business or businesses as it was conducting during the period
of this Agreement. Nothing herein contained shall in any way limit or exclude
any other right granted by law or equity to the Company.
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<PAGE> 18
18. Amendment. This Agreement contains, and its terms constitute, the
entire agreement of the parties, and it may be amended only by a written
document signed by both parties to this Agreement.
19. Governing Law. California law shall govern the construction and
enforcement of this Agreement and the parties agree that any litigation
pertaining to this Agreement shall be in courts located in California.
20. Attorneys' Fees. If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceedings against the other
party to enforce any of the terms hereof, the party prevailing in any such
action or other proceeding shall be paid by the other party its reasonable
attorneys' fees as well as court costs all as determined by the court and not a
jury.
21. Severability. If any section, subsection or provision hereof is
found for any reason whatsoever, to be invalid or inoperative, that section,
subsection or provision shall be deemed severable and shall not affect the force
and validity of any other provision of this Agreement. If any covenant herein is
determined by a court to be overly broad thereby making the covenant
unenforceable, the parties agree and it is their desire that such court shall
substitute a reasonable judicially enforceable limitation in place of the
offensive part of the covenant and that as so modified the covenant shall be as
fully enforceable as if set forth herein by the parties themselves in the
modified form. The covenants of Employee in this Agreement shall each be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of Employee against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of the covenants in this Agreement.
22. Notices. Any notice, request, or instruction to be given hereunder
shall be in writing and shall be deemed given when personally delivered or three
(3) days after being sent by United States certified mail, postage prepaid, with
return receipt requested, to the parties at their respective addresses set forth
below:
To the Company:
Fidelity National Financial, Inc.
17911 Von Karman Avenue, Suite 300
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<PAGE> 19
Irvine, California 92714
Attention: Frank P. Willey President
To Employee:
Andrew F. Puzder
25761 Pecos Road
Laguna Hills, California 92653
23. Waiver of Breach. The waiver by any party of any provisions of this
Agreement shall not operate or be construed as a waiver of any prior or
subsequent breach by the other party.
IN WITNESS WHEREOF the parties have executed this Employment
Agreement as of the date set forth herein above.
FIDELITY NATIONAL FINANCIAL, INC.
/s/ WILLIAM P. FOLEY
---------------------------------------
By: William P. Foley
Its: Chairman of the Board and Chief
Executive Officer
ANDREW F. PUZDER
/s/ ANDREW F. PUZDER
---------------------------------------
11
<PAGE> 20
Fidelity National Financial, Inc. FRANK P. WILLEY
PRESIDENT
January 1, 1995
Mr. Andrew F. Puzder
25761 Pecos Road
Laguna Hills, California 92653
Re: Terms of Employment
Dear Andy:
The purpose of this letter is to set forth the terms pursuant to which
you will be employed by Fidelity National Financial, Inc. ("FNFI") as Executive
Vice President and General Counsel.
1. You will be paid a salary of $18,000 per month ($9,000) paid twice
monthly) - From this amount FNFI will deduct (i) a minimum of $1,000 per month
as a contribution to FNFI's Employee Stock Option Plan (you may contribute more
at your option) , (ii) an employee contribution for medical insurance in
accordance with FNFI's normal practice, and (iii) withholding taxes and other
required deductions (Federal, State, FICA, and State Disability Insurance).
2. You will be entitled to the benefits enjoyed by FNFI's other top
executives including an annual bonus based on performance (comparable to the
bonuses received by FNFI's other top executives), annual grants of stock
options pursuant to FNFI's Stock Option Plan(s) in effect at the time of the
grant (in amounts comparable to FNFI's other top executives), monthly club dues
at one club of your choice, and life, health and disability insurance coverage.
FNFI will also cover all bar dues and costs of continuing legal education to
keep your bar association memberships current.
3. Your employment will commence on January 1, 1995. At the time your
employment commences, you will receive options for 50,000 shares of FNFI stock
at the closing market price on December 30, 1994. These options will vest as
follows: (i) 16,667 shares on January 1, 1995; (ii) 16,667 shares on January 1,
1996; and (iii) 16,666 shares on January 1. 1997. These options shall be
incentive stock options as defined by section 422 of the Internal Revenue Code
(to the maximum extent possible), and will be exercisable for 10 years from the
date of grant.
4. For the first three years of your employment, on the date your annual
bonus is granted, in lieu of $25,000 of such bonus, you may elect to take
options, for 25,000 shares of FNFI stock at the
<PAGE> 21
average closing price for FNFI stock for the twelve month period ending December
31st of the year for which the bonus is granted. These options will vest
immediately upon your making the election. This will result in a maximum of an
additional 75,000 options over three years. These options shall be incentive
stock options as defined by section 422 of the Internal Revenue Code (to the
maximum extent possible) and will be exercisable for 10 years from the date of
grant.
5. During the term of your employment, you shall be permitted to
continue to represent Carl N. Karcher so long as your representation of Mr.
Karcher does not materially interfere with your duties as Executive Vice
President and General Counsel of FNFI. You may bill Mr. Karcher directly for
your services and retain any amounts collected.
6. If FNFI terminates your employment at any time during the first two
years of such employment (i.e., between January 1, 1995 and January 1, 1997),
you shall be entitled to your salary, as set forth in paragraph 1 above, and
your stock options, as set forth in paragraph 3 above, for the period from the
date of such termination through January 1, 1997.
If the foregoing is acceptable, please sign the enclosed copy of this
letter in the space provided below and return it to me at your earliest
convenience. This letter sets forth the terms of your employment and shall not
be construed as, and is not intended to be a contract of employment.
/s/ FRANK P. WILLEY
------------------------------------
Frank P. Willey
President
Fidelity National Financial, Inc.
Accepted: /s/ ANDREW F. PUZDER
-----------------------------
Andrew F. Puzder
<PAGE> 22
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of April 1,
1997, by and between FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation
(the "Company"), and CARL A. STRUNK (the "Employee"), and supersedes any prior
employment agreement entered into between the parties. In consideration of the
mutual covenants and agreements set forth herein, the parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs the Employee to serve in an executive and
managerial capacity as the Chief Financial Officer and Executive Vice President
of the Company, and the Employee accepts such employment and agrees to perform
such reasonable responsibilities and duties commensurate with the aforesaid
position, as directed by the Chief Executive Officer and as set forth in the
Articles of Incorporation and the Bylaws of the Company. Any change in such
title or delegation of duties inconsistent with such title shall be deemed a
Termination Without Cause under section 7 (b) of this Agreement.
2. Term. The term of this Agreement shall be for a period of three (3)
years commencing on the date hereof and continuing for three (3) years until
March 31, 2000, subject to termination as set forth in Section 7 hereof.
3. Salary. During the term of this Agreement, the Company shall pay
Employee a minimum base annual salary, before deducting all applicable
withholdings, of $150,000 per year, payable at the times and in the manner
dictated by the Company's standard payroll policies. Such base salary may be
periodically reviewed and increased (but not decreased) at the discretion of the
Chief Executive Officer and/or the Compensation Committee of the Board of
Directors to reflect among other matters cost of living increases and
performance results.
4. Other Compensation and Fringe Benefits. In addition to any executive
bonus, pension, deferred compensation and stock option plans which the Company
may from time to time make available to Employee upon mutual agreement, the
Employee shall be entitled to the following:
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<PAGE> 23
(a) The standard Company benefits enjoyed by the Company's other top
executives.
(b) Company shall pay Employee's initiation and membership dues in a
social and/or recreational club as deemed necessary and appropriate by Employee
to maintain various business relationships on behalf of the Company; provided,
however, that the Company shall not be obligated to pay for any of Employee's
personal purchases and expenses at such clubs.
(c) Company shall provide medical and insurance coverage to Employee
and his dependents commencing on the date of execution hereof and so long as
this Agreement and all renewals of same are in force and effect.
(d) Supplemental disability insurance sufficient to provide
two-thirds of pre-disability base salary as base salary has been defined in
Section 3.
(e) An annual bonus equal to $5,000 for each full percentage point
the Company's return on equity exceeds 10% (based on equity as of the beginning
of the year being measured). Return on equity shall be determined by dividing
net income before extraordinary items by stockholders' equity as of the
beginning of the year being measured. Any fractional percentage point increase
shall be applied to $5,000 to determine the amount of such bonus (for example,
an 11.5% return on equity would result in a $7,500 bonus). Said bonus shall be
paid no later than March 31st of each year and is fully vested in the event of a
non-renewal of this agreement or is vested pro-rata in the event of a
termination of this Agreement other than for cause. The Board may additionally,
in its sole discretion, grant to Employee an annual merit bonus based upon
Employee's performance during the preceding year and any other factors the Board
considers relevant. Notwithstanding the effective date of this Agreement, the
start date for the 1997 bonus calculation shall be January 1, 1997.
The Company shall deduct from all compensation payable under this
Agreement to Employee any taxes or withholdings the Company is required to
deduct pursuant to state and federal laws or by mutual agreement between the
parties.
2
<PAGE> 24
5. Vacation. For and during each year of this Agreement, the Employee
shall be entitled to reasonable vacation periods with pay consistent with his
positions with the Company. In addition, Employee shall be entitled to such
holidays consistent with the Company's standard policies or as the Company's
Board of Directors may approve.
6. Expense Reimbursement. In addition to the compensation and benefits
provided herein, the Company shall, upon receipt of appropriate documentation,
reimburse Employee each month for his reasonable travel, lodging, entertainment,
promotion and other ordinary and necessary business expenses.
7. Termination.
(a) For Cause. The Company may terminate this Agreement immediately
for cause upon written notice to the Employee, in which event the Company shall
be obligated to pay the Employee that portion of the minimum base compensation
set forth in Section 3 due him through the date of termination. Cause shall be
limited to gross and willful neglect of duties or criminal or other illegal
activities as determined by a court of competent jurisdiction.
(b) Without Cause. Either party may terminate this Agreement
immediately without cause by giving written notice to the other. (i) If the
Company terminates hereunder, it shall pay to the Employee an amount equal to
the product of (A) the Employee's minimum base annual salary rate in effect as
of the date of termination plus the bonus paid for calender year 1996 and paid
in 1997 (base year bonus), multiplied by (B) the greater of the number of years
(including partial years) remaining in the term of employment hereunder or the
number 2. Such payment to be made in a lump sum on or before the fifth day
following the date of termination, or as otherwise directed by Employee. The
Company shall maintain in full force and effect, for the continued benefit of
the Employee for the greater of the number of years (including partial years)
remaining in the term of employment hereunder or the number 2, all employee
benefit plans and programs in which the executive was entitled to participate
immediately prior to the date of termination provided that the Employee's
continued participation is possible under the general terms and provisions of
such plans and programs. In the event that the Employee's participation in any
such plan or program is prohibited, the Company shall, at the Company's
3
<PAGE> 25
expense, arrange to provide the Employee with or, if not possible to arrange, to
pay Employee the economic value of benefits substantially similar to those which
the Employee would otherwise have been entitled to receive under such plans and
programs from which his continued participation is prohibited. (ii) If the
Employee terminates hereunder, the Company shall be obligated to pay the
Employee the minimum base annual salary and a prorated annual bonus as set forth
in Sections 3 and 4 due him through the date of termination."
(c) Disability. If the Employee fails to perform his duties
hereunder on account of illness or other incapacity for a period of nine (9)
consecutive months, the Company shall have the right upon written notice to the
Employee to terminate this Agreement without further obligation by paying
Employee the minimum base salary without offset for the remainder of the term of
this Agreement and the base year bonus without offset prorated through the date
of termination in a lump sum or as otherwise directed by Employee.
(d) Death. If the Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and the Employee's legal
representatives shall be entitled to receive the base salary for the remainder
of the term of this Agreement and the minimum annual bonus without offset
prorated through the date of termination in a lump sum or as otherwise directed
by Employee's legal representative.
(e) Effect of Termination. Termination for any cause shall not
constitute a waiver of the Company's rights under this Agreement nor a release
of Employee from any obligation hereunder except his obligation to perform his
day-to-day duties as an employee.
8 . Severance Payment
(a) Employee may terminate his employment hereunder for "Good
Reason". For purposes of this Agreement, "Good Reason" shall mean a change in
control of the Company (as defined below). For purposes of this Agreement, a
"change in control of the Company shall be deemed to have occurred if (i) there
shall be consummated (x) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation, or pursuant to which
shares
4
<PAGE> 26
of the Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock of the surviving corporation immediately
after the merger, or (y) any sale, lease exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (ii) the stockholders of the Company approved
any plan or proposal for the liquidation or dissolution of the Company, or (iii)
any "person" (such as that term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company or
any "person" who on the date hereof is a director or officer of the Employer, is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), of securities of the Company representing 30% or more of the combined
voting power of the Company's then outstanding securities, or (iv) during any
period of two (2) consecutive years during the term of this Agreement or any
renewals hereof, individuals who at the beginning of such period constitute the
board cease for any reason to constitute at least a majority thereof, unless the
election of each director who was not a director at the beginning of such period
has been approved in advance by directors representing at least two-thirds of
the directors then in office who were directors at the beginning of the period.
Employee may only terminate this 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.
(b) If the Employee shall terminate his employment for Good Reason,
or if, after a change in control of the Company, the Company shall terminate the
Employee's employment in breach of this Agreement or pursuant to section 7(b),
then:
(i) the Company shall pay the Employee his full salary through
the date of termination pursuant to this Agreement;
(ii) in lieu of any further salary and bonus payments or other
payments due to the Employee for periods subsequent to the date of termination,
the Company shall pay as severance to the Employee an amount equal to the
product of (A) the Employee's annual salary rate in effect as of the date of
termination plus the base year bonus, multiplied by (B) the greater of the
number of years (including partial
5
<PAGE> 27
years) remaining in the term of employment hereunder or the number 2, such
payment to be made in a lump sum on or before the fifth day following the date
of termination; and
(iii) the Company shall maintain in full force and effect, for the
continued benefit of the Employee for the greater of the number of years
(including partial years) remaining in the term of employment hereunder or the
number 2, all employee benefit plans and programs in which the executive was
entitled to participate immediately prior to the date of termination provided
that the Employee's continued participation is possible under the general terms
and provisions of such plans and programs. In the event that the Employee's
participation in any such plan or program is prohibited, the Company shall, at
the Company's expense, arrange to provide the Employee with or, if not possible,
to arrange to pay Employee the economic value of benefits substantially similar
to those which the Employee would otherwise have been entitled to receive under
such plans and programs from which his continued participation is prohibited.
(c) The Employee shall not be required to mitigate the amount of any
payment provided for in this section 8 or section 7(b) above by seeking other
employment or otherwise, nor shall any compensation or other payments received
by the Employee after the date of termination reduce any payments due under this
section 8 or section 7(b).
(d) Notwithstanding the provision hereinabove, if any payment
pursuant to this section 8 would be a "parachute payment" (as defined in Section
280G of the Internal Revenue Code), such payment shall be limited to the largest
portion of such payment as can be paid without being a "parachute payment."
9. Non-Delegation of Employee's Rights. The obligations, rights and
benefits of Employee hereunder are personal and may not be delegated, assigned
or transferred in any manner whatsoever, nor are such obligations, rights or
benefits subject to involuntary alienation, assignment or transfer.
10. Confidential Information. Employee acknowledges that in his capacity
as an employee of the Company he will occupy a position of trust and confidence,
6
<PAGE> 28
and he further acknowledges that he will have access to and learn much
information about the Company and its operations that is confidential or not
generally known in the industry including, without limitation, information that
relates to purchasing, sales, customers, marketing, the Company's financial
position and financing arrangements. Employee agrees that all such information
is proprietary or confidential or constitutes trade secrets and is the sole
property of the Company. Employee will keep confidential, and will not
reproduce, copy or disclose to any other person or firm, any such information or
any documents or information relating to the Company's methods, processes,
customers, accounts, analyses, systems, charts, programs, procedures,
correspondence, or records, or any other documents used or owned by the Company,
nor will Employee advise, discuss with or in any way assist any other person or
firm in obtaining or learning about any of the items described in this section.
Accordingly, Employee agrees that during the term of this Agreement, or
afterwards, he will not disclose, or permit or encourage anyone who is not an
employee of the Company to disclose any such information, nor will he utilize
any such information, either alone or with others, outside the scope of his
duties and responsibilities with the Company.
11. Non-Competition During Employment Term. Employee agrees that during
the term of his employment by the Company, he will devote substantially all his
business time and effort to and give undivided loyalty to the Company (except as
noted in section 14 below). He will not engage in any way whatsoever, directly
or indirectly, in any business that is competitive with the Company or its
affiliates, nor solicit, or in any other manner work for or assist any business
which is competitive with the Company or its affiliates. During the term of this
Agreement, he will undertake no planning for or organization of any business
activity competitive with the work he performs as an employee of the Company,
and Employee will not combine or conspire with any other employee of the Company
or any other person for the purpose of organizing any such competitive business
activity.
12. Non-Competition After Employment Term. The parties acknowledge that
the Employee will acquire much knowledge and information concerning the business
of the Company and its affiliates as a result of his employment. The parties
further acknowledge that the scope of business in which the Company is engaged
as of the date of execution of this Agreement is national and very competitive
and one in which few companies can successfully compete. Competition by Employee
in that
7
<PAGE> 29
business after this Agreement is terminated would severely injure the Company.
Accordingly, until two (2) years after this Agreement is terminated or Employee
leaves the employment of the Company for any reason whatsoever, except as
otherwise stated hereinbelow, Employee agrees (a) not to become an employee,
consultant, advisor, principal, partner or substantial shareholder of any firm
or business that in any way competes with the Company or its affiliates in any
of their presently existing or then existing products and markets and (b) not to
solicit any person or business that was at the time of such termination and
remains a customer or prospective customer of the Company or any of its
affiliates. Notwithstanding any of the foregoing provisions to the contrary,
Employee shall not be subject to the restrictions set forth in this Section 12
under the following circumstances:
(a) When Employee leaves the employment of the Company as a result
of termination by the Company without cause;
(b) When Employee is terminated as a result of the Company's failure
to renew his employment agreement; or
(c) When Employee leaves the employment of the Company for Good
Reason pursuant to section 8 above.
13. Return of Company Documents. Upon termination of this Agreement,
Employee shall return immediately to the Company all records and documents of or
pertaining to the Company and shall not make or retain any copy or extract of
any such record or document.
14. Employment by CKE Restaurants, Inc. Anything to the contrary
hereinabove notwithstanding, Company acknowledges that Employee is also the
Chief Financial Officer of CKE Restaurants, Inc. ("CKE") and will direct a
reasonable portion of his time to fulfilling his duties as an officer of CKE.
Company further acknowledges that Employee may become an employee of CKE in
addition to the Company and that such employment shall not be a violation of
this agreement so long as employee dedicates a reasonable amount of his time to
his duties hereunder. For purposes of Sections 11, "Company" shall include CKE.
Notwithstanding time spent on matters involving CKE, Employee shall continue to
be considered a full time employee of the Company.
8
<PAGE> 30
15. Relocation.- Prior to July 30, 1997, or as soon thereafter as the
Company has office space available, Employee shall move to Santa Barbara County,
California to perform his duties hereunder. The Company shall cover the
reasonable expenses of such move. Employee shall not be required to move from
Santa Barbara County, California to perform his duties hereunder during the term
of this Agreement.
16. Improvements and Inventions. Any and all improvements or inventions
which Employee may conceive, make or participate in during the period of his
employment shall be the sole and exclusive property of the Company. Employee
will, whenever requested by the Company, execute and deliver any and all
documents which the Company shall deem appropriate in order to apply for and
obtain patents for improvements or inventions or in order to assign and convey
to Company the sole and exclusive right, title and interest in and to such
improvements, inventions, patents or applications.
17. Actions. The parties agree and acknowledge that the rights conveyed
by this Agreement are of a unique and special nature and that the Company will
not have an adequate remedy at law in the event of failure of the Employee to
abide by its terms and conditions nor will money damages adequately compensate
for such injury. It is, therefore, agreed between the parties that in the event
of breach by Employee of any of his agreements contained in this Agreement,
Company shall have the right, among other rights, to damages sustained thereby
and to obtain an injunction or decree of specific performance from any court of
competent jurisdiction to restrain or compel Employee to perform as agreed
herein. Employee agrees that this section shall survive the termination of his
employment and he shall be bound by its terms and at all times subsequent to the
termination of his employment for so long a period as Company continues to
conduct the same business or businesses as it was conducting during the period
of this Agreement. Nothing herein contained shall in any way limit or exclude
any other right granted by law or equity to the Company.
18. Amendment. This Agreement contains, and its terms constitute, the
entire agreement of the parties, and it may be amended only by a written
document signed by both parties to this Agreement.
9
<PAGE> 31
19. Governing Law. California law shall govern the construction and
enforcement of this Agreement and the parties agree that any litigation
pertaining to this Agreement shall be in courts located in California.
20. Attorneys' Fees. If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceedings against the other
party to enforce any of the terms hereof, the party prevailing in any such
action or other proceeding shall be paid by the other party its reasonable
attorneys' fees as well as court costs all as determined by the court and not a
jury.
21. Severability. If any section, subsection or provision hereof is
found for any reason whatsoever, to be invalid or inoperative, that section,
subsection or provision shall be deemed severable and shall not affect the force
and validity of any other provision of this Agreement. If any covenant herein is
determined by a court to be overly broad thereby making the covenant
unenforceable, the parties agree and it is their desire that such court shall
substitute a reasonable judicially enforceable limitation in place of the
offensive part of the covenant and that as so modified the covenant shall be as
fully enforceable as if set forth herein by the parties themselves in the
modified form. The covenants of Employee in this Agreement shall each be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of Employee against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of the covenants in this Agreement.
22. Notices. Any notice, request, or instruction to be given hereunder
shall be in writing and shall be deemed given when personally delivered or three
(3) days after being sent by United States certified mail, postage prepaid, with
return receipt requested, to the parties at their respective addresses set
forth below:
To the Company:
Fidelity National Financial, Inc.
17911 Von Karman Avenue, Suite 300
Irvine, California 92714
Attention: Andrew F. Puzder
Executive Vice President and
10
<PAGE> 32
General Counsel
To Employee:
Carl A. Strunk
563 Promontory Drive East
Newport Beach, California 92660
23. Waiver of Breach. The waiver by any party of any provisions of this
Agreement shall not operate or be construed as a waiver of any prior or
subsequent breach by the other party.
IN WITNESS WHEREOF the parties have executed this Employment
Agreement as of the date set forth herein above.
FIDELITY NATIONAL FINANCIAL, INC.
/s/ WILLIAM P. FOLEY
-----------------------------------
By: William P. Foley
Its: Chairman of the Board and
Chief Executive Officer
CARL A. STRUNK
/s/ CARL A. STRUNK
-----------------------------------
11
<PAGE> 1
EXHIBIT 10.1.3
Meadows Employment Agreement (page 1)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of September 15,
1997, by and between FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation
(the "Company"), and ALLEN D. MEADOWS (the "Employee"), and supersedes any prior
employment agreement entered into between the parties. In consideration of the
mutual covenants and agreements set forth herein, the parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs the Employee to serve in an executive and
managerial capacity as the Chief Financial Officer and Executive Vice President
of the Company, and the Employee accepts such employment and agrees to perform
such reasonable responsibilities and duties commensurate with aforesaid
position, as directed by the Chief Executive Officer as set forth in the
Articles of Incorporation and the Bylaws of the Company.
2. Term. The term of this Agreement shall be for a period of three (3)
years commencing on the date hereof and continuing for three (3) years until
September 15, 2000, subject to termination as set forth in Section 7 hereof.
3. Salary. During the term of this Agreement, the Company shall pay
employee a minimum base annual salary, before deducting all applicable
withholdings, of $200,000 per year, payable at the times and in the manner
dictated by the Company's standard payroll policies. Such base salary may be
periodically reviewed and increased at the discretion of the Chief Executive
Officer and/or the Compensation Committee of the Board of Directors to reflect
among other matters cost of living increases and performance results.
4. Other Compensation and Fringe Benefits. In addition to any executive
bonus, pension, deferred compensation and stock option plans which the Company
may from time to time make available to Employee upon mutual agreement, the
Employee shall be entitled to the following:
(a) The standard Company benefits enjoyed by the Company's other top
executives.
<PAGE> 2
Meadows Employment Agreement (page 2)
(b) Company shall pay Employee's initiation and membership dues in a
social and/or recreational club as deemed necessary and appropriate by Employee
to maintain various business relationships on behalf of the Company; provided,
however, that the Company shall not be obligated to pay for any of Employee's
personal purchases and expenses at such clubs.
(c) Company shall provide medical and insurance coverage to employee
and his dependants commencing on the date of the execution hereof and so long as
this Agreement and all renewals of same are in force and effect.
(d) Supplemental disability insurance sufficient to provide
two-thirds of pre-disability base salary as base salary has been defined in
Section 3.
(e) An annual bonus equal to $7,500 for each full percentage point
the Company's return on equity exceeds 10% (based on equity as of the beginning
of the year being measured). Return on equity shall be determined by dividing
net income before extraordinary items by stockholder's equity as of the
beginning of the year being measured. Any fractional percentage point increase
shall be applied to $7,500 to determine the amount of such bonus (for example,
an 11.5% return on equity would result in a $11,250 bonus). Said bonus shall be
paid no later than March 31st of each year and is fully vested in the event of a
non-renewal of this Agreement or is vested prorata in the event you are employed
for a partial year (for example, the first year for which you will be entitled
to a bonus, you will have been employed for 3 and 1/2 months or 29% of the year
and will thus received 29% of the annual bonus amount calculated as set forth
above for 1997) or in the event of a termination of this Agreement other than
for cause. The Board may additionally, in its sole discretion, grant to Employee
an annual merit bonus based upon Employee's performance during the preceding
year and any other factors the Board considers relevant.
The Company shall deduct from all compensation payable under this
Agreement to Employee any taxes or withholdings the Company is required to
deduct pursuant to state and federal laws or by mutual agreement between the
parties.
(f) The Company will cover the expenses of Employee's move to Santa
Barbara County. Such expenses will include moving expenses as charged by a
moving company selected by the Company, title and closing costs for the sale of
your current home, and any real estate commissions as may be due on the sale of
your current home.
<PAGE> 3
Meadows Employee Agreement (page 3)
For the period from September 15, 1997 through June 30, 1998, the Company will
reimburse Employee for apartment rental in the amount of $500.00 per month.
5. Vacation. For and during each year of this Agreement, the Employee
shall be entitled to reasonable vacation periods with pay consistent with his
positions with the Company. In addition, Employee shall be entitled to such
holidays consistent with the Company's standard policies or as the Company's
Board of Directors may approve.
6. Expense Reimbursement. In addition to the compensation and benefits
provided herein, the Company shall, upon receipt of appropriate documentation,
reimburse Employee each month for his reasonable travel, lodging, entertainment,
promotion and other ordinary and necessary business expenses.
7. Termination.
(a) For Cause. The Company may terminate this Agreement immediately
for cause upon written notice to the Employee, in which event the Company shall
be obligated to pay the Employee that portion of the minimum base compensation
set forth in Section 3 due him through the date of termination. Cause shall be
limited to gross and willful neglect of duties or criminal or other illegal
activities as determined by a court of competent jurisdiction.
(b) Without Cause. Either party may terminate this Agreement
immediately without cause by giving written notice to the other. If the Company
terminates hereunder, it shall pay to the Employee an amount equal to the
product of (A) the Employee's minimum base annual salary rate in effect as of
the date of termination plus the total bonus paid or payable to the employee for
the most recently ended calendar year, multiplied by (B) the greater of the
number of years (including partial years) remaining in the term of employment
hereunder or the number 2. Such payment to be made in a lump sum on or before
the fifth day following the date of termination or as otherwise directed by
Employee. The Company shall maintain in full force and effect, for the continued
benefit of the Employee for the greater of the number of years (including
partial years) remaining in the term of employment hereunder or the number 2,
all employee benefit plans and programs in which the Employee was entitled to
participate immediately prior to the date of termination provided that the
Employee's continued participation is possible under the general terms and
provisions of such plans and programs. In the event that the Employee's
<PAGE> 4
Meadows Employment Agreement (page 4)
participation in any such plan or program is prohibited, the Company shall, at
the Company's expense, arrange to provide the Employee with benefits
substantially similar to those which the employee would otherwise have been
entitled to receive under such plans and programs from which his continued
participation is prohibited. If the Employee terminates hereunder, the Company
shall be obligated to pay the Employee the minimum base compensation and a
prorated minimum annual bonus as set forth in Sections 3 and 4 due him through
the date of termination.
(c) Disability. If the Employee fails to perform his duties
hereunder on account of illness or other incapacity for a period of nine (9)
consecutive months, the Company shall have the right upon written notice to the
Employee to terminate this Agreement without further obligation by paying
Employee the minimum base salary without offset for the remainder of the term of
this Agreement in a lump sum or as otherwise directed by Employee.
(d) Death. If the Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and the Employee's legal
representatives shall be entitled to receive the base salary for the remainder
of the term of this Agreement and the minimum annual bonus without offset
prorated through the date of termination in a lump sum or as otherwise directed
by Employee's legal representative.
(e) Effect of Termination. Termination for any cause shall not
constitute a waiver of the Company's rights under this Agreement nor a release
of employee from any obligation hereunder except his obligation to perform his
day-to-day duties as an employee.
8. Severance payment
(a) Employee may terminate his employment hereunder for "Good
Reason". For purposes of this Agreement, "Good Reason" shall mean a change in
control of the Company (as defined below). For purposes of this Agreement, a
"change in control of the Company" shall be deemed to have occurred if (I) there
shall be consummated (x) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation, or pursuant to which
shares of the Company's Common Stock would be converted into cash, securities or
other property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock of the surviving corporation immediately
after the
<PAGE> 5
Meadows Employment Agreement (page 5)
merger, or (y) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, of the assets
of the Company, (ii) the stockholders of the Company approved any plan or
proposal for the liquidation or dissolution of the Company, or (iii) any
"person" (such as that term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act)), other than the Company or
any "person" who, on the date hereof, is a director or officer of the Employer,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities, or (iv)
during any period of two (2) consecutive years during the term of this Agreement
or any renewals thereof, individuals, who, at the beginning of such period,
constitute the board, cease for any reason to constitute at least a majority
thereof, unless the election of each director who was not a director at the
beginning of such period has been approved in advance by directors representing
at least two-thirds of the directors then in office who were directors at the
beginning of the period. Employee may only terminate this 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.
(b) If the Employee shall terminate his employment for Good Reason,
or, if after a change in control of the Company, the Company shall terminate the
Employee's employment in breach of this Agreement or pursuant to Section 7(b),
then:
(i) the Company shall pay the employee his full salary through
the date of termination pursuant to this Agreement:
(ii) in lieu of any further salary and bonus payments or other
payments due to the Employee for periods subsequent to the date of termination,
the Company shall pay as severanace pay to the Employee an amount equal to the
product of (A) the Employee's minimum base annual salary rate in effect as of
the date of termination plus the total bonus which would have been paid to
Employee had he been an employee of the Company for all of 1997 and had he been
entitled to a bonus calculated pursuant to paragraph 4(e) above, multiplied by
(B) the greater of the number of years (including partial years) remaining in
the term of employment hereunder or the number 2. Such payment to be made in a
lump sum on or before the fifth day folowing the date of termination, or as
otherwise directed by Employee; and
(iii) the Company shall maintain in full force and effect, for
the continued benefit of the Employee for the greater of the number of years
<PAGE> 6
Meadows Employment Agreement (page 6)
(including partial years) remaining in the term of employment hereunder or the
number 2, all employee benefit plans and programs in which the Employee was
entitled to participate immediately prior to the date of termination provided
that the Employee's continued participation is possible under the general terms
and provisions of such plans and programs. In the event that the Employee
participation in any such plan or program is prohibited, the Company shall, at
the Company's expense, arrange to provide the Employee with benefits
substantially similar to those which the Employee would otherwise have been
entitled to receive under such plans and programs from which his continued
participation is prohibited.
(c) The employee shall not be required to mitigate the amount of any
payment provided for in this Section 8 or Section 7(b) above by seeking other
employment or otherwise, nor shall any compensation or other payments received
by the Employee after the date of termination reduce any payments due under this
Section 8 or Section 7(b).
(d) Notwithstanding the provision hereinabove, if any payment
pursuant to this Section 8 would be a "parachute payment" (defied in Section
280G of the Internal Revenue Code), such payment shall be limited to the largest
portion of such payment as can be paid without being a "parachute payment."
9. Non-Delegation of Employee's Rights. The obligations, rights and
benefits of employee hereunder are personal and may not be delegated, assigned
or transferred in any manner whatsoever, nor are such obligations, rights or
benefits subject to involuntary alienation, assignment or transfer.
10. Confidential Information. Employee acknowledges that in his capacity
as an employee of the Company he will occupy a position of trust and confidence
and he further acknowledges that he will have access to and learn much
information about the Company and its operations that is confidential or not
generally known in the industry including, without limitation, information that
relates to purchase, sales, customers, marketing, the company's financial
position and financing arrangements. Employee agrees that all such information
is proprietary or confidential or constitutes trade secrets and is the sole
property of the Company. Employee will keep confidential, and will not
reproduce, copy or disclose to any other person or firm, any such information or
any documents or information relating to the Company's methods, processes,
customers, accounts, analyses, systems, charts, programs, procedures,
correspondence or records, or any other documents used or owned by the Company,
nor will employee advise, discuss with or in any way assist any other
<PAGE> 7
Meadows Employment Agreement (page 7)
person or firm in obtaining or learning about any of the items described in this
section. Accordingly, Employee agrees that during the term of this Agreement, or
afterwards, he will not disclose, or permit or encourage anyone who is not an
employee of the Company to disclose any such information, nor will he utilize
any such information, either alone or with others, outside the scope of his
duties and responsibilities with the Company.
11. Non-Competition During Employment Term. Employee agrees that, during
the term of his employoment by the Company, he will devote substantially all his
business time and effort to and give undivided loyalty to the Company. He will
not engage in any way whatsoever, directly or indirectly, in any business that
is competitive with the Company or its affiliates, nor solicit, or in any other
manner work for or assist any business which is competitive with the Company or
its affiliates. During the term of this Agreement, he will undertake no planning
for or organization of any business activity competitive with the work he
performs as an employee of the Company, and Employee will not combine or
conspire with any other employee of the Company or any other person for the
purpose of organizing any such competitive business activity.
12. Non-Competition After Employment Term. The parties acknowledge that
the Employee will acquire much knowledge and information concerning the business
of the Company and its affiliates as a result of his employment. The parties
further acknowledge that the scope of business in which the Company is engaged
as of the date of execution of this Agreement is national and very competitive
and one in which few companies can successfully compete. Competition by Employee
in that business after this Agreement is terminated would severely injure the
Company. Accordingly, until two (2) years after this Agreement is terminated or
Employee leaves the employment of the Company for any reason whatsoever, except
as otherwise stated hereinbelow, Employee agrees (a) not to become an employee,
consultant, advisor, principal, partner or substantial shareholder of any firm
or business that in any way competes with the Company or its affiliates in any
of their presently-existing or then-existing products and markets and (b) not to
solict any person or busienss that was at the time of such termination and
remains a customer or prospective customer of the Company or any of its
affiliates. Notwithstanding any of the foreoging provisions to the contrary,
Employee shall not be subject to the restrictions set forth in this Section 12
under the following circumstances:
(a) When Employee leaves the employment of the Company as a result of
termination of the Company without cause;
<PAGE> 8
Meadows Employment Agreement (page 8)
(b) When Employee is terminated as a result of the Company's failure to
renew his employment agreement; or
(c) When Employee leaves the employment of the Company for Good Reason
pursuant to Section 8 above.
13. Return of Company Documents. Upon termination of this Agreement,
Employee shall return immediately to the Company all records and documents of or
pertaining to the Company and shall not make or retain any copy or extract of
any such record or document.
14. Improvement and Inventions. Any and all improvements or inventions
which Employee may conceive, make or participate in during the period of his
employment shall be the sole and exclusive property of the Company. Employee
will, whenever requested by the Company, execute and deliver any and all
documents which the Company shall deem appropriate in order to apply for and
obtain patents for improvements or inventions or in order to assign and convey
to Company the sole and exclusive right, title and interest in and to such
improvements, inventions, patents or applications.
15. Actions. The parties agree and acknowledge that the rights conveyed by
this Agreement are of a unique and special nature and that the Company will not
have an adequate remedy at law in the event of failure of the Employee to abide
by its terms and conditions nor will money damages adequately compensate for
such injury. It is, therefore, agreed between the parties that, in the event of
a breach by employee of any of his agreements contained in this Agreement,
Company shall have the right, among other rights, to damages sustained thereby
and to obtain an injunction or decree of specific performance from any court of
competent jurisdiction to restrain or compel Employee to perform as agreed
herein. Employee agrees that this section shall survive the termination of his
employment and he shall be bound by its terms and at all time subsequent to the
termination of his employment for so long a period as Company continues to
conduct the same business or businesses as it was conducted during the period of
this Agreement. Nothing herein contained shall in any way limit or exclude any
other right granted by law or equity to the Company.
16. Amendment. This Agreement contains, and its terms constitute, the
entire agreement of the parties, and it may be amended only by a written
document signed by both parties to this Agreement.
<PAGE> 9
Meadows Employment Agreement (9)
17. Governing Law. California law shall govern the construction and
enforcement of this Agreement and the parties agree that any litigation
pertaining to this Agreement shall be courts located in California.
18. Attorneys Fees. If any party finds it necessary to employ legal
counsel or to bring an action a law or other proceedings against the other party
to enforce any of the terms hereof, the party prevailing in any such action or
other proceedings shall be paid by the other party its reasonable attorneys'
fees as well as court costs all as determined by the court and not a jury.
19. Severability. If any section, subsection or provision hereof is found
for any reason whatsoever, to be invalid or inoperative, that section,
subsection or provision shall be deemed severable and shall not affect the force
and validity of any other provision of this Agreement. If any covenant herein is
determined by a court to be overly broad thereby making the covenant
unenforceable, the parties agree and it is their desire that such court shall
substitute a reasonable judicially enforceable limitation in place of the
offensive part of the covenant and that as so modified the covenant shall be as
fully enforceable as if set forth herein by the parties themselves in the
modified form. The covenants of Employee in this Agreement shall each be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of Employee against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of the covenants in this Agreement.
20. Notices. Any notice, request, or instruction to be given hereunder
shall be in writing and shall be deemed given when personally delivered or three
(3) days after being sent by United States certified mail, postage prepaid, with
return receipt requested, to the parties at their respective addresses set forth
below:
To the Company:
Fidelity National Financial, Inc.
3916 State Street
Santa Barbara, CA 93105
Attention: Andrew F. Puzder
Executive Vice President
<PAGE> 10
Meadows Employment Agreement (page 10)
To Employee:
Allen D. Meadows
20160 Allentown Drive
Woodland Hills, CA 01364
21. Waiver of Breach. The waiver by any part of any provisions of
this Agreement shall not operate or be construed as a waiver of any prior or
subsequent breach by the other party.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the date set forth herein above.
FIDELITY NATIONAL FINANCIAL, INC.
By: /s/ Andrew F. Puzder
Its: Executive Vice President
ALLEN D. MEADOWS
/s/ Allen D. Meadows
<PAGE> 1
EXHIBIT 10.8.3.5
EXECUTION COPY
AMENDMENT NO. 5
AMENDMENT NO. 5 dated as of March 31, 1997, between FIDELITY
NATIONAL FINANCIAL, INC., a corporation duly organized and validly existing
under the laws of the State of Delaware (the "Company"); each of the lenders
that is a signatory hereto (individually, a "Bank" and, collectively, the
"Banks"); and THE CHASE MANHATTAN BANK, a New York state-chartered banking
corporation, as administrative agent for the Banks (in such capacity, together
with its successors in such capacity, the "Administrative Agent").
The Company, the Banks and the Administrative Agent are parties
to a Credit Agreement dated as of September 21, 1995 (as heretofore modified and
supplemented and in effect on the date hereof, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for loans to be made by
said Banks to the Company in an aggregate principal amount not exceeding
$35,000,000. The Company, the Banks and the Administrative Agent wish to amend
the Credit Agreement in certain respects, and accordingly, the parties hereto
hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this
Amendment No. 5, terms defined in the Credit Agreement are used herein as
defined therein.
Section 2. Amendments. Subject to the satisfaction of the
conditions precedent specified in Section 4 below, but effective as of December
31, 1996, the Credit Agreement shall be amended as follows:
2.01. References in the Credit Agreement (including references to
the Credit Agreement as amended hereby) to "this Agreement" (and indirect
references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed
to be references to the Credit Agreement as amended hereby.
2.02. Section 8.06 of the Credit Agreement shall be amended by
(i) deleting the "and" at the end of clause (j) thereof, (ii) replacing the
period at the end of clause (k) thereof with a semicolon and the word "and" and
(iii) adding the following new clause (l) thereto:
"(l) liens on the property of any Subsidiary of the Company securing
obligations of such Subsidiary under letters of credit permitted by
Section 8.07(i) hereof plus additional obligations of such Subsidiary to
the issuer of such letter
Amendment No. 5
<PAGE> 2
- 2 -
of credit incurred in connection with such issuance and not exceeding
20% of the amount of such letter of credit."
2.03. Section 8.07 of the Credit Agreement shall be amended by
(i) deleting the word "and" at the end of clause (g) thereof, (ii) replacing the
period at the end of clause (h) thereof with a semicolon and the word "and" and
(iii) adding the following new clause (i) thereto:
"(i) Indebtedness under letters of credit for the account of (x) any of
the Subsidiaries of Nations Title in an aggregate amount not exceeding
$27,000,000 or (y) any of the Subsidiaries of the Company (other than
Nations Title or any of its Subsidiaries) in an aggregate amount not
exceeding $55,000,000, which letters of credit in any such case are
issued to reinsurers in connection with aggregate excess of loss
reinsurance transactions to cover funds held liabilities of such
reinsurers in connection with such transactions; provided that such
reinsurance transactions result in an increase in the statutory surplus
of Nations Title or the Company, as the case may be, in accordance with
Chapter 22 of the Accounting Practices and Procedures Manual for
Property and Casualty Insurers published by the National Association of
Insurance Commissioners."
Section 3. Representations and Warranties. The Company represents
and warrants to the Banks that the representations and warranties set forth in
Section 7 of the Credit Agreement are true and complete on the date hereof as if
made on and as of the date hereof and as if each reference in said Section 7 to
"this Agreement" included reference to this Amendment No. 5.
Section 4. Conditions Precedent. As provided in Section 2 above,
the amendments to the Credit Agreement set forth in said Section 2 shall become
effective, as of December 31, 1996, upon receipt by the Administrative Agent of
duly executed counterparts of this Amendment No. 5 by the Company and the Banks
constituting Majority Banks.
Section 5. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 5 may be executed in any number of counterparts, all of which taken together
shall constitute one and the same amendatory instrument and any of the parties
hereto may execute this Amendment No. 5 by signing any such counterpart. This
Amendment No. 5 shall be governed by, and construed in accordance with, the law
of the State of New York.
Amendment No. 5
<PAGE> 3
- 3 -
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 5 to be duly executed and delivered as of the day and year first above
written.
FIDELITY NATIONAL FINANCIAL, INC.
By /s/ Carl A. Strunk
--------------------------------
Title: Executive Vice President
Chief Financial Officer
BANKS
THE CHASE MANHATTAN BANK
By /s/ David W. Nelson
--------------------------------
Title: Managing Director
IMPERIAL BANK
By /s/ Jeff Thomas
--------------------------------
Title: Vice President
SANWA BANK CALIFORNIA
By /s/ John C. Hyche
--------------------------------
Title: Vice President
WELLS FARGO BANK, N.A.
By /s/ Michael Sullivan
--------------------------------
Title: Vice President
Amendment No. 5
<PAGE> 4
- 4 -
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ David W. Nelson
--------------------------------
Title: Managing Director
Amendment No. 5
<PAGE> 1
EXHIBIT 10.8.3.6
AMENDMENT NO. 6
AMENDMENT NO. 6 dated as of August 5, 1997, between FIDELITY
NATIONAL FINANCIAL, INC., a corporation duly organized and validly existing
under the laws of the State of Delaware (the "Company"); each of the lenders
that is a signatory hereto (individually, a "Bank" and, collectively, the
"Banks"); and THE CHASE MANHATTAN BANK, a New York state-chartered banking
corporation, as administrative agent for the Banks (in such capacity, together
with its successors in such capacity, the "Administrative Agent").
The Company, the Banks and the Administrative Agent are parties
to a Credit Agreement dated as of September 21, 1995 (as heretofore modified and
supplemented and in effect on the date hereof, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for loans to be made by
said Banks to the Company in an aggregate principal amount not exceeding
$35,000,000. The Company, the Banks and the Administrative Agent wish to amend
the Credit Agreement in certain respects, and accordingly, the parties hereto
hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this
Amendment No. 6, terms defined in the Credit Agreement are used herein as
defined therein.
Section 2. Amendments. Subject to the satisfaction of the
conditions precedent specified in Section 6 below, but effective as of June 30,
1997, the Credit Agreement shall be amended as follows:
2.01. References in the Credit Agreement (including references to
the Credit Agreement as amended hereby) to "this Agreement" (and indirect
references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed
to be references to the Credit Agreement as amended hereby.
2.02. Section 8.12 of the Credit Agreement shall be amended by
replacing "$25,000,000" with "$35,000,000".
Section 3. Representations and Warranties. The Company represents
and warrants to the Banks that the representations and warranties set forth in
Section 7 of the Credit Agreement are true and complete on the date hereof as if
made on and as of the date hereof and as if each reference in said Section 7 to
"this Agreement" included reference to this Amendment No. 6.
Amendment No. 6
<PAGE> 2
- 2 -
Section 4. Conditions Precedent. As provided in Section 2 above,
the amendments to the Credit Agreement set forth in said Section 2 shall become
effective, as of June 30, 1997, upon receipt by the Administrative Agent of duly
executed counterparts of this Amendment No. 6 by the Company and the Banks
constituting Majority Banks.
Section 5. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 6 may be executed in any number of counterparts, all of which taken together
shall constitute one and the same amendatory instrument and any of the parties
hereto may execute this Amendment No. 6 by signing any such counterpart. This
Amendment No. 6 shall be governed by, and construed in accordance with, the law
of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 6 to be duly executed and delivered as of the day and year first above
written.
FIDELITY NATIONAL FINANCIAL, INC.
By /s/ Carl A. Strunk
--------------------------------
Title: Executive Vice President
Chief Financial Officer
BANKS
THE CHASE MANHATTAN BANK
By /s/ Heather Lindstrom
--------------------------------
Title: Vice President
Amendment No. 6
<PAGE> 3
- 3 -
IMPERIAL BANK
By /s/ Jeff Thomas
--------------------------------
Title: Vice President
SANWA BANK CALIFORNIA
By /s/ John C. Hyche
--------------------------------
Title: Vice President
WELLS FARGO BANK, N.A.
By /s/ Sandra D. Martin
--------------------------------
Title: Vice President
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ Heather Lindstrom
--------------------------------
Title: Vice President
Amendment No. 6
<PAGE> 1
EXHIBIT 10.8.3.7
AMENDMENT NO. 7
AMENDMENT NO. 7 dated as of September 16, 1997, between FIDELITY
NATIONAL FINANCIAL, INC., a corporation duly organized and validly existing
under the laws of the State of Delaware (the "Company"); each of the lenders
that is a signatory hereto (individually, a "Bank" and, collectively, the
"Banks"); and THE CHASE MANHATTAN BANK, a New York state-chartered banking
corporation, as administrative agent for the Banks (in such capacity, together
with its successors in such capacity, the "Administrative Agent").
The Company, the Banks and the Administrative Agent are parties
to a Credit Agreement dated as of September 21, 1995 (as heretofore modified and
supplemented and in effect on the date hereof, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for loans to be made by
said Banks to the Company in an aggregate principal amount not exceeding
$35,000,000. The Company, the Banks and the Administrative Agent wish to amend
the Credit Agreement in certain respects, and accordingly, the parties hereto
hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this
Amendment No. 7, terms defined in the Credit Agreement are used herein as
defined therein.
Section 2. Amendments. Subject to the satisfaction of the
conditions precedent specified in Section 4 below, the Credit Agreement shall be
amended as follows:
2.01. References in the Credit Agreement (including references to
the Credit Agreement as amended hereby) to "this Agreement" (and indirect
references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed
to be references to the Credit Agreement as amended hereby.
2.02. The definition of "Revolving Credit Commitment Termination
Date" in Section 1.01 of the Credit Agreement shall be hereby amended to read in
its entirety as follows:
"'Revolving Credit Commitment Termination Date' shall mean November 21,
1997, subject to extension as provided in Section 2.09 hereof."
Section 3. Representations and Warranties. The Company represents
and warrants to the Banks that the representations and warranties set forth in
Section 7 of the Credit Agreement are true and complete on the date hereof as if
made on and as of the date hereof and as if each reference in
Amendment No. 7
<PAGE> 2
- 2 -
said Section 7 to "this Agreement" included reference to this Amendment No. 7.
Section 4. Conditions Precedent. As provided in Section 2 above,
the amendments to the Credit Agreement set forth in said Section 2 shall become
effective upon receipt by the Administrative Agent of duly executed counterparts
of this Amendment No. 7 by the Company and the Banks.
Section 5. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 7 may be executed in any number of counterparts, all of which taken together
shall constitute one and the same amendatory instrument and any of the parties
hereto may execute this Amendment No. 7 by signing any such counterpart. This
Amendment No. 7 shall be governed by, and construed in accordance with, the law
of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 7 to be duly executed and delivered as of the day and year first above
written.
FIDELITY NATIONAL FINANCIAL, INC.
By /s/ Carl A. Strunk
--------------------------------
Title:
BANKS
THE CHASE MANHATTAN BANK
By /s/ Peter Platten
--------------------------------
Title: Vice President
Amendment No. 7
<PAGE> 3
- 3 -
IMPERIAL BANK
By /s/ Jeff Thomas
--------------------------------
Title: Vice President
SANWA BANK CALIFORNIA
By /s/ John C. Hyche
--------------------------------
Title: Vice President
WELLS FARGO BANK, N.A.
By /s/ Sandra D. Martin
--------------------------------
Title: Vice President
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ Peter Platten
--------------------------------
Title: Vice President
Amendment No. 7
<PAGE> 1
EXHIBIT 10.8.3.8
AMENDMENT NO. 8
AMENDMENT NO. 8 dated as of November 21, 1997, between FIDELITY
NATIONAL FINANCIAL, INC., a corporation duly organized and validly existing
under the laws of the State of Delaware (the "Company"); each of the lenders
that is a signatory hereto (individually, a "Bank" and, collectively, the
"Banks"); and THE CHASE MANHATTAN BANK, a New York state-chartered banking
corporation, as administrative agent for the Banks (in such capacity, together
with its successors in such capacity, the "Administrative Agent").
The Company, the Banks and the Administrative Agent are parties
to a Credit Agreement dated as of September 21, 1995 (as heretofore modified and
supplemented and in effect on the date hereof, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for loans to be made by
said Banks to the Company in an aggregate principal amount not exceeding
$35,000,000. The Company, the Banks and the Administrative Agent wish to amend
the Credit Agreement in certain respects, and accordingly, the parties hereto
hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this
Amendment No. 8, terms defined in the Credit Agreement are used herein as
defined therein.
Section 2. Amendments. Subject to the satisfaction of the
conditions precedent specified in Section 4 below, the Credit Agreement shall be
amended as follows:
2.01. References in the Credit Agreement (including references to
the Credit Agreement as amended hereby) to "this Agreement" (and indirect
references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed
to be references to the Credit Agreement as amended hereby.
2.02. The definition of "Revolving Credit Commitment Termination
Date" in Section 1.01 of the Credit Agreement shall be hereby amended to read in
its entirety as follows:
"'Revolving Credit Commitment Termination Date' shall mean February 18,
1998, subject to extension as provided in Section 2.09 hereof."
Section 3. Representations and Warranties. The Company represents
and warrants to the Banks that: (a) the representations and warranties set forth
in Section 7 of the Credit Agreement are true and complete on the date hereof as
if made on and as of the date hereof and as if each reference in said Section 7
to "this Agreement" included reference to this
Amendment No. 8
<PAGE> 2
- 2 -
Amendment No. 8 and (b) no Default shall have occurred and be continuing.
Section 4. Conditions Precedent. As provided in Section 2 above,
the amendments to the Credit Agreement set forth in said Section 2 shall become
effective upon receipt by the Administrative Agent of: (a) duly executed
counterparts of this Amendment No. 8 by the Company and the Banks and (b)
evidence reasonably satisfactory to the Administrative Agent that the Company
has duly authorized the amendments contemplated by this Amendment No. 8.
Section 5. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 8 may be executed in any number of counterparts, all of which taken together
shall constitute one and the same amendatory instrument and any of the parties
hereto may execute this Amendment No. 8 by signing any such counterpart. This
Amendment No. 8 shall be governed by, and construed in accordance with, the law
of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 8 to be duly executed and delivered as of the day and year first above
written.
FIDELITY NATIONAL FINANCIAL, INC.
By /s/ Carl A. Strunk
--------------------------------
Title: Executive Vice President
BANKS
THE CHASE MANHATTAN BANK
By /s/ Laurence Karp
--------------------------------
Title: Associate
Amendment No. 8
<PAGE> 3
- 3 -
IMPERIAL BANK
By /s/ Jeff Thomas
--------------------------------
Title: Vice President
SANWA BANK CALIFORNIA
By /s/ Steve Skelton
--------------------------------
Title: Vice President
WELLS FARGO BANK, N.A.
By /s/ Sandra Martin
--------------------------------
Title: Vice President
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ Laurence Karp
--------------------------------
Title: Associate
Amendment No. 8
<PAGE> 1
EXHIBIT 10.8.3.9
MTH&M DRAFT
2/6/98
AMENDMENT NO. 9
AMENDMENT NO. 9 dated as of February __, 1998, between FIDELITY
NATIONAL FINANCIAL, INC., a corporation duly organized and validly existing
under the laws of the State of Delaware (the "Company"); each of the lenders
that is a signatory hereto (individually, a "Bank" and, collectively, the
"Banks"); and THE CHASE MANHATTAN BANK, a New York state-chartered banking
corporation, as administrative agent for the Banks (in such capacity, together
with its successors in such capacity, the "Administrative Agent").
The Company, the Banks and the Administrative Agent are parties
to a Credit Agreement dated as of September 21, 1995 (as heretofore modified and
supplemented and in effect on the date hereof, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for loans to be made by
said Banks to the Company in an aggregate principal amount not exceeding
$35,000,000. The Company, the Banks and the Administrative Agent wish to amend
the Credit Agreement in certain respects, and accordingly, the parties hereto
hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this
Amendment No. 9, terms defined in the Credit Agreement are used herein as
defined therein.
Section 2. Amendments. Subject to the satisfaction of the
conditions precedent specified in Section 4 below, the Credit Agreement shall be
amended as follows:
2.01. References in the Credit Agreement (including references to
the Credit Agreement as amended hereby) to "this Agreement" (and indirect
references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed
to be references to the Credit Agreement as amended hereby.
2.02. Section 1.01 of the Credit Agreement shall be amended be
adding the following new definition in the appropriate alphabetical order:
"'Granite' shall mean Granite Financial, Inc., a Delaware corporation."
2.02. The definition of "Revolving Credit Commitment Termination
Date" in Section 1.01 of the Credit Agreement shall be hereby amended to read in
its entirety as follows:
Amendment No. 9
<PAGE> 2
- 2 -
"'Revolving Credit Commitment Termination Date' shall mean April 15,
1998, subject to extension as provided in Section 2.09 hereof."
2.03. The parenthetical in Section 8.08(d) of the Credit
Agreement shall be amended by adding the words "and other than Investments in
Granite unless expressly permitted by Section 8.08(l) hereof" immediately after
the word "hereof" in the third line thereof.
2.04. Section 8.08 of the Credit Agreement shall be amended by
adding a new clause (m) thereto to read as follows:
"(m) Investments in the capital stock of Granite, provided that
(i) such Investments shall not have an aggregate purchase price in
excess of $137,000,000, (ii) after giving effect thereto, Granite shall
be a Wholly Owned Subsidiary of the Company but not a Restricted
Subsidiary and (iii) the Company shall forthwith amend the Pledge
Agreement to add all of the shares of such capital stock to the
Collateral provided for therein, deliver to the Administrative Agent the
certificates evidencing such shares, accompanied by undated stock powers
executed in blank and take such other action as the Administrative Agent
shall request to perfect the security interest created therein pursuant
to the Pledge Agreement, as so amended."
2.05. Section 8.17 of the Credit Agreement shall be amended by
adding the following language immediately after the word "Affiliate" and
immediately before the period in the last line thereof:
", provided that neither the Company nor any of its Affiliates may
lease, as lessee, at any time, more than 10% of the fair market value of
all assets then leased, directly or indirectly, by Granite or any of its
Subsidiaries or by any trust or other Person in which Granite or any of
its Subsidiaries holds any equity or residual interest".
Section 3. Representations and Warranties. The Company represents
and warrants to the Banks that: (a) the representations and warranties set forth
in Section 7 of the Credit Agreement are true and complete on the date hereof as
if made on and as of the date hereof and as if each reference in said Section 7
to "this Agreement" included reference to this Amendment No. 9 and (b) no
Default shall have occurred and be continuing.
Amendment No. 9
<PAGE> 3
- 3 -
Section 4. Conditions Precedent. As provided in Section 2 above,
the amendments to the Credit Agreement set forth in said Section 2 shall become
effective upon receipt by the Administrative Agent of: (a) duly executed
counterparts of this Amendment No. 9 by the Company and the Banks and (b)
evidence reasonably satisfactory to the Administrative Agent that the Company
has duly authorized the amendments contemplated by this Amendment No. 9.
Section 5. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 9 may be executed in any number of counterparts, all of which taken together
shall constitute one and the same amendatory instrument and any of the parties
hereto may execute this Amendment No. 9 by signing any such counterpart. This
Amendment No. 9 shall be governed by, and construed in accordance with, the law
of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 9 to be duly executed and delivered as of the day and year first above
written.
FIDELITY NATIONAL FINANCIAL, INC.
By /s/ A. D. Mead
--------------------------------
Title: Executive Vice President
and Chief Financial Officer
BANKS
THE CHASE MANHATTAN BANK
By /s/ Helen L. Newcomb
--------------------------------
Title: Vice President
Amendment No. 9
<PAGE> 4
- 4 -
IMPERIAL BANK
By /s/ Jeff Thomas
--------------------------------
Title: Vice President
SANWA BANK CALIFORNIA
By /s/ Craig M. Ciebiera
--------------------------------
Title: Vice President / Manager
WELLS FARGO BANK, N.A.
By /s/ Sandra Martin
--------------------------------
Title: Vice President
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ Helen L. Newcomb
--------------------------------
Title: Vice President
Amendment No. 9
<PAGE> 1
EXHIBIT 10.39.3
(FLEET LETTERHEAD)
PROMISSORY NOTE
Floating Rate (LIBOR)/
Scheduled Principal Payments
$4,767,422.00 April 30, 1997
For value received, the undersigned (jointly and severally if more
than one) promises to pay to the order of Fleet Capital Corporation ("LENDER"),
having its principal place of business in Providence, Rhode Island (together
with any other holder of this Note, hereinafter referred to as the "HOLDER"),
the principal sum of $4,767,422.00 together with interest thereon as provided
herein. This Promissory Note is one of the "NOTES," and the obligations of the
undersigned hereunder are "OBLIGATIONS" secured by the "COLLATERAL," as such
terms are defined or referred to in Equipment Security Agreement Schedule No.
31831-00006 by and between the undersigned and Lender dated as of March 14,
1997 (the "SECURITY AGREEMENT").
This Note shall be payable by the undersigned to Holder in 48
consecutive installments of principal and interest (the "PAYMENTS") commencing
on June 1, 1997 and continuing monthly thereafter through and including May 1,
2001 (the "MATURITY DATE"). Each succeeding Payment shall be due and payable on
the same day of the month as the initial Payment set forth above in each
succeeding payment period during the term of this Note (each, a "PAYMENT
DATE"). The principal amount of this Note shall be payable by the undersigned
to Holder in 48 consecutive monthly installments (the "PRINCIPAL INSTALLMENTS")
in the amounts set forth in and corresponding to each of the numbered Payments
listed in Schedule A attached hereto and incorporated herein by this reference.
Interest shall accrue on the entire principal amount of this Note
outstanding from time to time as provided below, from the date hereof until the
principal amount of this Note is paid in full, and shall be due and payable
together in the Principal Installments on each Payment Date. The final Payment
due and payable on the Maturity Date shall in any event be equal to the entire
outstanding and unpaid principal amount of this Note, together with all accrued
and unpaid interest, charges and other amounts owing hereunder and under the
Security Agreement. Interest shall accrue on the outstanding principal balance
of this Note at a variable rate of interest, adjusted monthly equal to the
Index Rate (as hereinafter defined) plus 1.84% per annum (the "INTEREST
RATE"). The "INDEX RATE" for the calculation of interest payable with any
Payment shall be the one-month London Interbank Offered Rate (LIBOR) as
published in the Wall Street Journal in effect as of the 15th day of the month
preceding the applicable Payment Date. All interest hereunder shall be
calculated on the basis of a year of 360 days comprised of 12 months of 30 days
each.
The entire unpaid principal balance of this Note may be prepaid in
full (but not in part) upon thirty days prior written notice to Holder,
provided that any such prepayment shall be made together with (a) all accrued
interest and other charges owing hereunder or under the Security Agreement, and
(b) a prepayment fee equal to: 1% of such prepayment if made prior to the first
anniversary of this Note and thereafter no prepayment fee shall be required.
Time is of the essence in the payment and performance of those
Obligations which are evidenced by this Note. In the event any amount due
hereunder is not paid within ten (10) days of the date when due, the
undersigned agrees to pay an administrative and late charge equal to the lesser
of (a) five percent (5%) on and in addition to the amount of such overdue
amount, or (b) the maximum charges allowable under applicable law. In addition,
the undersigned shall pay overdue interest on any delinquent Payment or other
Obligation due (by reason of acceleration or otherwise) from thirty (30) days
after the due date thereof through the date of payment thereof at a rate of
interest equal to the lesser of: (a) 1.5% per month, or (b) the maximum rate of
interest allowable under then applicable law.
Each payment hereunder shall be made in lawful money of the United
States and shall be payable to such account or address as Holder shall from
time to time direct the undersigned. Whenever any payment to be made under this
Note shall be stated to be due on a Saturday, Sunday or a public holiday, or
the equivalent for banks generally under the laws of the State of Rhode
Island, such payment shall be made on the next succeeding Business Day, and
such extension of time shall be included in the computation of the payment of
interest. All amounts received hereunder or in respect of this Note shall be
applied first, to accrued late charges and any other costs or expenses due and
owing hereunder or under the terms of the Security Agreement; second, to
accrued interest; and third, to unpaid principal. It is the intention of Holder
to comply with all applicable usury laws. Accordingly, it is agreed that
notwithstanding anything to the contrary contained herein, in no event shall
any provision contained herein require or permit interest in excess of the
maximum amount permitted by applicable law to be paid by the undersigned. If
necessary to give effect to these provisions, Holder will, at its option, in
accordance with applicable law, either refund any amount to the undersigned to
the extent that it was in excess of that allowed by applicable law or credit
such excess amount against the then unpaid principal balance hereunder.
Failure to pay this Note or any installment hereunder promptly when
due, or the occurrence of an "EVENT OF DEFAULT" under the Security Agreement,
or default or failure in the performance or due observance of any of the terms,
conditions or obligations under any other agreement or instrument between the
undersigned (or any endorser, guarantor, surety or other party liable for the
undersigned's obligations hereunder, or any other entity controlling,
controlled by, or under common control with the undersigned) and Holder (or any
other entity controlling, controlled by or under common control with Holder),
shall constitute a default hereunder and entitle Holder to accelerate the
maturity of this Note and to declare the entire unpaid principal balance and
all accrued interest and other charges hereunder (including prepayment fees
calculated as of the date of default) and under the Security Agreement to be
immediately due and payable, and to proceed at once to exercise each and every
one of the remedies provided in the Security Agreement or otherwise available
at law or in equity.
The undersigned and all other parties who may be liable (whether as
endorsers, guarantors, sureties or otherwise) for payment of any sum or sums due
or to become due under the terms of this Note waive diligence, presentment,
demand, protest, notice of dishonor, notice of intention to accelerate, notice
of acceleration and notice of any other kind whatsoever and agree to pay all
costs incurred by Holder in enforcing its rights under this Note or the Security
Agreement, including reasonable attorney's fees, and they do hereby consent to
any number of renewals or extensions at any time in the payment of this Note. No
extension of time for payment of this Note made by any agreement with any person
now or hereafter liable for payment of this Note shall operate to release,
discharge, modify, change or affect the original liability of the undersigned
under this Note, either in whole or in part. No delay or failure by Holder
hereof in exercising any right, power, privilege or remedy shall be deemed to be
a waiver of the same or any part thereof; nor shall any single or partial
exercise thereof or any failure to exercise the same in any instance preclude
any future exercise thereof, or exercise of any other right, power, privilege or
remedy available at law or in equity. The Holder of this Note may proceed
against all or any of the Collateral securing this Note or against any guarantor
hereof, or may proceed contemporaneously or in the first instance against the
undersigned, in such order and at such times following default hereunder as
Holder may determine in its sole discretion. All of the undersigned's
obligations under this Note are absolute and unconditional, and shall not be
subject to any offset or deduction whatsoever. The undersigned waives any right
to assert, by way of counterclaim or affirmative defense in any action to
enforce the undersigned's obligations hereunder, any claim whatsoever against
the Holder of this Note.
THIS NOTE AND THE LEGAL RELATIONS OF THE UNDERSIGNED AND HOLDER SHALL IN
ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF RHODE ISLAND. WITHOUT REGARD TO PRINCIPLES REGARDING THE CHOICE OF LAW.
The UNDERSIGNED HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF THE COURTS OF
THE STATE OR RHODE ISLAND AND THE FEDERAL DISTRICT COURT FOR THE DISTRICT OF
RHODE ISLAND FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING
OUT OF ITS OBLIGATIONS HEREUNDER, AND EXPRESSLY WAIVES ANY OBJECTIONS THAT IT
MAY HAVE TO THE VENUE OF SUCH COURTS. THE UNDERSIGNED HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS
NOTE.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
by its duly authorized representative as of the date first above written.
ATTEST/WITNESS: MAKER: FIDELITY ASSET MANAGEMENT, INC.
/s/ DAVID N. KENNEALLY By: /s/ CARL A. STRUNK
- ------------------------------- -----------------------------
Name: DAVID N. KENNEALLY Name: CARL A. STRUNK
- ------------------------------- -----------------------------
Title: PRES.
-----------------------------
<PAGE> 1
EXHIBIT 10.39.4
[LOGO]
IMPERIAL BANK
Member FDIC
NOTE
$8,000,000.00 San Jose, California July 29, 1997
On May 4, 1998, and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking
corporation, or order, at its Santa Clara Valley Regional office, the principal
sum of $8,000,000.00 MAXIMUM 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 0.500% 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
[ ] in addition to principal [ ] _____, beginning September 2, 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. [ ] (If checked),
Principal shall be payable in installments of $ __________, or more, each
installment on the _____ day of each __________, beginning _______________.
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 of 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 or 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 attached Reference Provision
Fidelity Asset Management, Inc.
- ---------------------------------- -----------------------------------
BY /s/ CARL A. STRUNK Pres.
- ---------------------------------- -----------------------------------
CARL A. STRUNK
- ---------------------------------- -----------------------------------
L 494 E (Rev 10/92)
<PAGE> 2
[LOGO]
IMPERIAL BANK
Member FDIC
CORPORATE RESOLUTION REGARDING CREDIT
OFFICE: Santa Clara Valley Regional Address: 226 Airport Parkway
San Jose, California 95110
RESOLVED, that Fidelity Asset Management, Inc. borrow from IMPERIAL BANK,
hereinafter referred to as "Bank", from time to time, such sums of money as, in
the judgement of the officer or officers hereinafter authorized, this
corporation may require; provided that the aggregate amount of such borrowing,
pursuant to this resolution, shall not at any one time exceed the principal sum
of Eight Million and No/100 DOLLARS ($8,000,000.00), in addition to such amount
as may be otherwise authorized;
RESOLVED FURTHER, that any 1 of the following named officers
----------
(Specify Number)
Carl Strunk the President/CFO/Treas
- ------------------------ ------------------------------
William P. Foley the Chairman
- ------------------------ ------------------------------
Frank P. Willey the Vice President
- ------------------------ ------------------------------
the
- ------------------------ ------------------------------
the
- ------------------------ ------------------------------
of this corporation (the officer or officers acting in combination, authorized
to act pursuant hereto being hereinafter designated as "authorized officers"),
be and they are hereby authorized, directed and empowered, for and on behalf
and in the name of this corporation (1) to execute and deliver to the Bank such
notes or other evidences of indebtedness of this corporation for the monies so
borrowed, with interest thereon, as the Bank may require, and to execute and
deliver, from time to time, renewals or extensions of such notes or other
evidences of indebtedness; (2) to grant a security interest in, transfer, or
otherwise hypothecate or deed in trust for Bank's benefit and deliver by such
instruments in writing or otherwise as may be demanded by the Bank, any of the
property of this corporation as may be required by the Bank to secure the
payment of any notes or other indebtedness of this corporation or third parties
to the Bank, whether arising pursuant to this resolution or otherwise; and (3)
to perform all acts and execute and deliver all instruments which the Bank may
deem necessary to carry out the purposes of this resolution;
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized and empowered, and that any one of said authorized officers be and
he/she is hereby authorized and empowered (1) to discount with or sell to the
Bank conditional sales contracts, notes, acceptances, drafts, bailment
agreements, leases, receivables and evidences of indebtedness payable to this
corporation, upon such terms as may be agreed upon by them and the Bank, and to
endorse in the name of this corporation said notes, acceptances, drafts,
bailment agreements, leases, receivables and evidences of indebtedness so
discounted, and to guarantee the payment of the same to the Bank, and (2) to
apply for and obtain from the Bank letters of credit and in connection
therewith to execute such agreement, applications, guarantees, indemnities and
other financial undertakings as Bank may require;
RESOLVED FURTHER, that said authorized officers are also authorized to
direct the disposition of the proceeds of any such obligation, and to accept or
direct delivery from the Bank of any property of this corporation at any time
held by the Bank;
RESOLVED FURTHER, that the authority given hereunder shall be deemed
retroactive and any and all acts authorized hereunder performed prior to the
passage of this resolution are hereby ratified and affirmed;
RESOLVED FURTHER, that this resolution will continue in full force and
effect until the Bank shall receive official notice in writing from this
corporation of the revocation thereof by a resolution duly adopted by the Board
of Directors of this corporation, and that the certification of the Secretary
of this corporation as to the signatures of the above named persons shall be
binding on this corporation.
I, M'Liss Jones Kane, Secretary of the above named corporation, duly
organized and existing under the laws of the State of California, do hereby
certify that the foregoing is a full, true and correct copy of a resolution of
the Board of Directors of said corporation, duly and regularly passed and
adopted by the Board of Directors of said corporation.
I further certify that said resolution is still in full force and effect
and has not been amended or revoked, and that the specimen signatures appearing
below are the signatures of the officers authorized to sign for this
corporation by virtue of said resolution.
EXECUTED ON July 29, 1997
AUTHORIZED SIGNATURES
---------------------
Signature: /s/ CARL STRUNK
-----------------------------
Carl Strunk
Signature: /s/ WILLIAM P. FOLEY /s/ M'LISS JONES KANE
----------------------------- -----------------------------
William P. Foley (Secretary)
M'Liss Jones Kane
Signature: /s/ FRANK P. WILLEY
-----------------------------
Frank P. Willey
Signature:
-----------------------------
Signature:
-----------------------------
L 550 E (Rev 10/92)
<PAGE> 1
EXHIBIT 10.39.5
[FLEET CAPITAL LEASING LOGO]
50 Kennedy Plaza
Providence, Rhode Island 02903-2305 PROMISSORY NOTE
Floating Rate (LIBOR)/
Scheduled Principal Payments
$6,131,283.00 September 30, 1997
For value received, the undersigned (jointly and severally, if more than
one) promises to pay to the order of Fleet Capital Corporation ("LENDER"),
having its principal place of business in Providence, Rhode Island (together
with any other holder of this Note, hereinafter referred to as the "HOLDER"),
the principal sum of $6,131,283.00 together with interest thereon as provided
herein. This Promissory Note is one of the "NOTES," and the obligations of the
undersigned hereunder are "OBLIGATIONS" secured by the "COLLATERAL," as such
terms are defined or referred to in Equipment Security Agreement Schedule No.
31831-00007 by and between the undersigned and Lender dated as of September 25,
1997 (the "SECURITY AGREEMENT").
This Note shall be payable by the undersigned to Holder in 48 consecutive
installments of principal and interest (the "PAYMENTS") commencing on
OCTOBER 30, 1997 and continuing monthly thereafter through and including
SEPTEMBER 30, 2001 (the "MATURITY DATE"). Each succeeding Payment shall be due
and payable on the same day of the month as the initial Payment set forth above
in each succeeding payment period during the term of this Note (each, a
"PAYMENT DATE"). The principal amount of this Note shall be payable by the
undersigned to Holder in 48 consecutive monthly installments (the "PRINCIPAL
INSTALLMENTS") in the amounts set forth in and corresponding to each of the
numbered Payments listed in Schedule A attached hereto and incorporated herein
by this reference.
Interest shall accrue on the entire principal amount of this Note
outstanding from time to time as provided below, from the date hereof until the
principal amount of this Note is paid in full, and shall be due and payable
together with the Principal Installments on each Payment Date. The final
Payment due and payable on the Maturity Date shall in any event be equal to the
entire outstanding and unpaid principal amount of this Note, together with all
accrued and unpaid interest, charges and other amounts owing hereunder and
under the Security Agreement. Interest shall accrue on the outstanding
principal balance of this Note at a variable rate of interest, adjusted monthly
equal to the Index Rate (as hereinafter defined) plus 2.10% per annum (the
"INTEREST RATE"). The "INDEX RATE" for the calculation of interest payable with
any Payment shall be the one-month London Interbank Offered Rate (LIBOR) as
published in the Wall Street Journal in effect as of the 15th day of the month
preceding the applicable Payment Date. All interest hereunder shall be
calculated on the basis of a year of 360 days comprised of 12 months of 30 days
each.
The entire unpaid principal balance of this Note may be prepaid in full
(but not in part) upon thirty days prior written notice to Holder, provided that
any such prepayment shall be made together with (a) all accrued interest and
other charges owing hereunder or under the Security Agreement, and (b) a
prepayment fee equal to: 1% of such prepayment if made prior to the first
anniversary of this Note and thereafter no prepayment fee shall be required.
Time is of the essence in the payment and performance of those Obligations
which are evidenced by this Note. In the event any amount due hereunder is not
paid within ten (10) days of the date when due, the undersigned agrees to pay an
administrative and late charge equal to the lesser of (a) five percent (5%) of
the overdue amount in addition to the amount of such overdue amount, or (b) the
maximum charges allowable under applicable law. In addition, the undersigned
shall pay overdue interest on any delinquent Payment or other Obligation due
(by reason of acceleration or otherwise) from thirty (30) days after the due
date thereof through the date of payment thereof at a rate of interest equal to
the lesser of: (a) 1.5% per month, or (b) the maximum rate of interest
allowance under then applicable law.
Each payment hereunder shall be made in lawful money of the United States
and shall be payable to such account or address as Holder shall from time to
time direct the undersigned. Whenever any payment to be made under this Note
shall be stated to be due on a Saturday, Sunday or a public holiday, or the
equivalent for banks generally under the laws of the State of Rhode Island,
such payment shall be made on the next succeeding Business Day, and such
extension of time shall be included in the computation of the payment of
interest. All amounts received hereunder or in respect of this Note shall be
applied first, to accrued late charges and any other costs or expenses due and
owing hereunder or under the terms of the Security Agreement; second, to
accrued interest; and third, to unpaid principal. It is the intention of Holder
to comply with all applicable usury laws. Accordingly, it is agreed that
notwithstanding anything to the contrary contained herein, in no event shall
any provision contained herein require or permit interest in excess of the
maximum amount permitted by applicable law to be paid by the undersigned. If
necessary to give effect to these provisions, Holder will, at its option, in
accordance with applicable law, either refund any amount to the undersigned to
the extent that it was in excess of that allowed by applicable law or credit
such excess amount against the then unpaid principal balance hereunder.
Failure to pay this Note or any installment hereunder promptly when due,
or the occurrence of an "EVENT OF DEFAULT" under the Security Agreement, or
default or failure in the performance or due observance of any of the terms,
conditions or obligations under any other agreement or instrument between the
undersigned (or any endorser, guarantor, surety or other party, liable for the
undersigned's obligations hereunder, or any other entity controlling,
controlled by, or under common control with the undersigned) and Holder (or any
other entity controlling, controlled by or under common control with Holder),
shall constitute a default hereunder and entitle Holder to accelerate the
maturity of this Note and to declare the entire unpaid principal balance and all
accrued interest and other charges hereunder (including prepayment fees
calculated as of the date of default) and under the Security Agreement to be
immediately due and payable, and to proceed at once to exercise each and every
one of the remedies provided in the Security Agreement or otherwise available
at law or in equity.
<PAGE> 2
The undersigned and all other parties who may be liable (whether as
endorsers, guarantors, sureties or otherwise) for payment of any sum or sums due
or to become due under the terms of this Note waive diligence, presentment,
demand, protest, notice of dishonor, notice of intention to accelerate, notice
of acceleration and notice of any other kind whatsoever and agree to pay all
costs incurred by Holder in enforcing its rights under this Note or the Security
Agreement, including reasonable attorney's fees, and they do hereby consent to
any number of renewals or extensions at any time in the payment of this Note. No
extension of time for payment of this Note made by any agreement with any person
now or hereafter liable for payment of this Note shall operate to release,
discharge, modify, change or affect the original liability of the undersigned
under this Note, either in whole or in part. No delay or failure by Holder
hereof in exercising any right, power, privilege or remedy shall be deemed to be
a waiver of the same or any part thereof; nor shall any single or partial
exercise thereof or any failure to exercise the same in any instance preclude
any future exercise thereof, or exercise of any other right, power, privilege or
remedy available at law or in equity. The Holder of this Note may proceed
against all or any of the Collateral securing this Note or against any guarantor
hereof, or may proceed contemporaneously or in the first instance against the
undersigned, in such order and at such times following default hereunder as
Holder may determine in its sole discretion. All of the undersigned's
obligations under this Note are absolute and unconditional, and shall not be
subject to any offset or deduction whatsoever. The undersigned waives any right
to assert, by way of counterclaim or affirmative defense in any action to
enforce the undersigned's obligations hereunder, any claim whatsoever against
the Holder of this Note.
THIS NOTE AND THE LEGAL RELATIONS OF THE UNDERSIGNED AND HOLDER SHALL IN
ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF RHODE ISLAND. WITHOUT REGARD TO PRINCIPLES REGARDING THE CHOICE OF LAW.
The UNDERSIGNED HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF THE COURTS OF
THE STATE OR RHODE ISLAND AND THE FEDERAL DISTRICT COURT FOR THE DISTRICT OF
RHODE ISLAND FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING
OUT OF ITS OBLIGATIONS HEREUNDER, AND EXPRESSLY WAIVES ANY OBJECTIONS THAT IT
MAY HAVE TO THE VENUE OF SUCH COURTS. THE UNDERSIGNED HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS
NOTE.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
by its duly authorized representative as of the date first above written.
ATTEST/WITNESS: MAKER: FIDELITY ASSET MANAGEMENT, INC.
/s/ M'LISS JONES KANE By: /s/ CARL A. STRUNK
- ------------------------------- -----------------------------
Name: M'LISS JONES KANE Name: CARL A. STRUNK
- ------------------------------- -----------------------------
Title: PRES.
-----------------------------
<PAGE> 1
EXHIBIT 10.46
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AND LOAN AGREEMENT (the "Agreement") is entered into
as of this ___ 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 purchase
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
<PAGE> 2
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
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
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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,
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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
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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
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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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<PAGE> 17
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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<PAGE> 18
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 C. Lowther
--------------------------------
Its:
Address: FIDELITY NATIONAL FINANCIAL, INC.,
a Delaware Corporation
17911 Von Karman Avenue By: /s/ Carl A. Strunk
Irvine, CA 92614 --------------------------------
Its:
Address: AMERICAN TITLE COMPANY,
a California Corporation
17911 Von Karman Avenue
Irvine, CA 92614
By: /s/ Wayne Diaz
--------------------------------
Its:
18
<PAGE> 1
EXHIBIT 10.47
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF
AUGUST 15, 1997
BY AND AMONG
FIDELITY NATIONAL FINANCIAL, INC.,
FIRST TITLE CORPORATION,
ERNEST N. MOORE, JEANENE S. MOORE AND T. FRANK JORDAN
AND
FIRST TITLE ACQUISITION CORPORATION
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of this __ day of August, 1997, by and among FIDELITY NATIONAL
FINANCIAL, INC., a Delaware corporation ("FNFI"); FIRST TITLE CORPORATION, a
Tennessee corporation ("Company"); ERNEST N. MOORE, JEANENE S. MOORE, and T.
FRANK JORDAN (collectively,"Shareholders"); and FIRST TITLE ACQUISITION
CORPORATION, a Tennessee corporation that is a newly-formed, wholly-owned
subsidiary of FNFI ("Newco"). FNFI, Company, Shareholders and Newco are referred
to collectively herein as the "Parties" or singularly as a"Party."
RECITALS
A. Shareholders are the record and beneficial owner of 1,836 shares of
Company Common Stock (the "Company Shares"), which represents all the issued and
outstanding shares of capital stock of Company.
B. The respective Boards of Directors of FNFI, Company and Newco deem it
advisable and in the best interests of their respective shareholders that Newco
merge with and into Company (the "Merger") pursuant to this Agreement, the
Articles of Merger substantially in the form attached hereto as Exhibit A (the
"Articles of Merger") and the applicable provisions of the laws of the State of
Tennessee.
C. The Parties hereto expect that the Merger will further certain of
their business objectives, including, without limitation, increased market
share, reduced administrative costs and volume efficiencies.
D. The Boards of Directors of FNFI, Company and Newco have approved and
adopted this Agreement as a plan of reorganization within the provisions of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
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:
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ARTICLE I
DEFINITIONS
Unless otherwise defined herein or the context otherwise requires, the
terms defined in this Section 1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and the plural forms
of any of the terms herein defined.
"Action" shall mean any actual or threatened claim, action, suit,
arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by
or before any Governmental Entity or arbitrator and any appeal from any of the
foregoing.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, Liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses, in each case (i)
net of any insurance recoveries (except to the extent such recoveries increase
the cost of insurance, through retrospective adjustments or otherwise); and (ii)
net of any Tax benefit, after taking into account any Tax detriment of any
indemnity.
"Affiliate" shall mean, 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.
"Articles of Merger" has the meaning set forth in Recital B, above.
"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" shall 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.
"Cash Consideration" has the meaning set forth in Section 2.2(d),
below.
"Closing" has the meaning set forth in Section 3.1, below.
"Closing Calculated Shares" means the number of shares of Fidelity
Common Stock equal to $3,760,000 divided by the Closing Fidelity Price.
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"Closing Date" has the meaning set forth in Section 3.1, below.
"Closing Fidelity Price" means the average of the per share closing
sales price of FNFI's Common Stock publicly traded on the New York Stock
Exchange for the ten (10) consecutive trading days ending two (2) days prior to
the Closing.
"Code" has the meaning set forth in Recital D, above.
"Company Shares" has the meaning set forth in Recital A.
"Company Stock" means shares of common stock, no par value per share, of
Company.
"Confidential Information" means any information concerning the
businesses and affairs of any of the Parties that is not already generally
available to the public.
"Damages" shall mean any and all losses, liabilities, obligations,
costs, expenses, damages or judgments of any kind or nature, whatsoever
(including reasonable attorneys,' accountants' and experts' fees, disbursements
of counsel, and other costs and expenses incurred pursuing indemnification
claims under Section 10 hereof).
"Effective Time" has the meaning set forth in Section 3.1, below.
"Employee Plan" shall mean 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, of the Company.
"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 other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws 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, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"Fidelity Common Stock" means the shares of restricted common stock, par
value of $0.0001 per share, of FNFI.
"Fidelity Shares" means the shares of Fidelity Common Stock, either held
in treasury and transferred to Shareholders or newly issued by FNFI to
Shareholders, to which Shareholders shall become entitled to receive pursuant to
Section 2.2(d) and (e), below.
"GAAP" means, subject to Schedule 1, at any particular time, generally
accepted accounting principles, consistently applied on a going concern basis
without regard to the pendency of the transactions contemplated hereby and using
audit scope and materiality standards used in the past and, with respect to
interim financial statements, subject to normal year-end adjustment.
"Governmental Entity" shall mean any court, federal, state, local or
foreign government or any administrative agency or commission or any other
governmental authority or instrumentality whatsoever.
"Hazardous Substances" shall mean any hazardous, toxic or infectious
substance, material, gas or waste which is regulated by any local, state or
federal Governmental Entity.
"Indebtedness" shall mean, 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.
"Initial Calculated Shares" means 230,322 shares of Fidelity Common
Stock.
"Intellectual Property" means (i) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent
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<PAGE> 6
applications, and patent disclosures, together with all reissuances,
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,
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).
"Legal Requirement" shall mean 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.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Licenses" has the meaning set forth in Section 4.14, below.
"Lien" shall mean all liens (including judgment and mechanics' liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or otherwise), deeds of trust,
options or other charges, encumbrances or restrictions.
"Lower Limit Price" shall mean $14.325 per share of Fidelity Common
Stock.
"Lower Limit Shares" means the number of shares of Fidelity Common Stock
equal to $3,760,000 divided by the Lower Limit Price, or 262,478 Fidelity
Shares.
"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, business relationships, properties, condition (financial
or otherwise), insurability or prospects of Company; (ii) the ability of the
Parties to consummate the transactions contemplated by this Agreement; or (iii)
the legal right or authorization of Company to continue to operate its business.
"Material Contracts" has the meaning set forth in Section 4.9, below.
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<PAGE> 7
"Merger" has the meaning set forth in Recital B, above.
"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.
"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.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, Lien, other than (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; (iii) purchase money liens and liens securing rental
payments under capital lease arrangements; and (iv) other liens arising in the
Ordinary Course of Business and not incurred in connection with the borrowing of
money.
"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 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.
"Upper Limit Price" shall mean $18.325 per share of Fidelity Common
Stock.
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<PAGE> 8
"Upper Limit Shares" means the number of shares of Fidelity Common Stock
equal to $3,760,000 divided by the Upper Limit Price, or 205,184 Fidelity
Shares.
ARTICLE 2
PLAN OF REORGANIZATION
2.1 The Merger.
(a) The Merger. At the Effective Time (as defined in Section 3.1,
below), Newco shall be merged with and into Company pursuant to this Agreement
and the Articles of Merger, and the separate existence of Newco shall cease, all
in accordance with the general corporation laws of the State of Tennessee (the
"Tennessee Statute"). Company, as it exists from and after the Effective Time,
is sometimes referred to herein as the "Surviving Corporation".
(b) Effect of the Merger. Subject to the terms and conditions of
this Agreement and the Articles of Merger, at the Effective Time (i) the
separate existence of Newco shall cease and Newco shall be merged with and into
Company, and (ii) the Merger shall have all the effects provided by the
Tennessee Statute, this Agreement and the Articles of Merger.
(c) Articles of Incorporation; Bylaws; Directors and Officers.
The Articles of Incorporation of Surviving Corporation from and after the
Effective Time shall be the Articles of Incorporation of Company until
thereafter amended in accordance with the provisions therein and as provided by
the Tennessee Statute. The Bylaws of Surviving Corporation from and after the
Effective Time shall be the Bylaws of Company as in effect immediately prior to
the Effective Time, continuing until thereafter amended in accordance with their
terms and the Articles of Incorporation of Surviving Corporation and as provided
by the Tennessee Statute. The initial directors of Surviving Corporation shall
be the individuals referred to in Schedule 2.1(c)(1), in each case until their
successors are elected and qualified. The initial officers of Surviving
Corporation shall be those individuals holding such titles set forth in Schedule
2.1(c)(2), in each case until their successors are duly elected and qualified.
2.2 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of FNFI, Newco, Company or
Shareholders, the shares of capital stock of Newco and Company shall be
converted as follows:
(a) Capital Stock of Newco. Each issued and outstanding share of
capital stock of Newco shall continue to be issued and outstanding and shall be
converted into one (1) share of validly issued, fully paid and non-assessable
Common Stock of Company. Each stock certificate of Newco evidencing ownership of
any such shares shall continue to evidence ownership of such shares of Common
Stock of Surviving Corporation.
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(b) Cancellation of Certain Shares of Capital Stock of Company.
All shares of capital stock of Company that are owned directly or indirectly by
Company, including all treasury shares and all capital stock which has been
authorized but not issued, shall be canceled and no Fidelity Shares or Cash
Consideration shall be delivered in exchange therefore.
(c) Conversion of Company Shares. The Company Shares shall
automatically be canceled, extinguished and converted, without any action on the
part of the holder thereof, into the right to receive the Cash Consideration and
the Fidelity Shares, as more fully described in subsections (d) and (e), below.
All Company Shares, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
Shareholder shall cease to have any rights with respect thereto, except the
right to receive the Cash Consideration and the Fidelity Shares to be paid or
issued in consideration therefor upon the surrender of such certificate in
accordance with subsection (g), below.
(d) Consideration. In consideration for the cancellation and
exchange by Shareholders of the Company Shares, (I) Newco shall pay to
Shareholders the cash sum of Nine Hundred Forty Thousand Dollars ($940,000) (the
"Cash Consideration"), and (ii) FNFI shall issue to Shareholders the Initial
Calculated Shares, subject to adjustment pursuant to subsection (e), below.
(e) Adjustments to Initial Calculated Shares. No adjustment shall
be made to the number of Initial Calculated Shares to be issued Shareholders at
Closing if the Closing Fidelity Price is (i) equal to or less than the Upper
Limit Price; and (ii) equal to or greater than the Lower Limit Price. If the
Closing Fidelity Price exceeds the Upper Limit Price, then Shareholders shall
receive that number of Fidelity Shares equal to the difference between (i) the
Initial Calculated Shares, minus (ii) the Upper Limit Shares minus the Closing
Calculated Shares. If the Closing Fidelity Price is less than the Lower Limit
Price, then Shareholders shall receive the number of Fidelity Shares equal to
the sum of (I) the Initial Calculated Shares, plus (ii) the Closing Calculated
Shares minus the Lower Limit Shares. Schedule 2.2 (e) hereto sets forth examples
for the above formulas.
(f) Payment and Allocation of Consideration. Provided that all of
the conditions to the Closing set forth in Article 8, below, have been satisfied
or waived by the party benefitting therefrom, (i) Newco shall, immediately after
the Effective Time and on the Closing Date, pay to Shareholders the Cash
Consideration by delivery, at Newco's Option, of a cashier's or certified bank
check, or by wire transfer to an account or accounts designated by Shareholders;
and (ii) FNFI shall, as soon as practicable after the Effective Time, issue and
deliver the Fidelity Shares to Shareholders. The Cash Consideration and the
Fidelity Shares shall be allocated among the Shareholders pro rata in accordance
with their respective ownership interest in the Company.
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(g) Certificate Delivery Requirement. At the Effective Time,
Shareholders shall deliver to FNFI the certificates (the "Certificates")
representing the Company Shares, duly endorsed in blank by the Shareholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps affixed and canceled. The Certificates so delivered shall be
promptly canceled. Until delivered as contemplated by this subsection (g), each
Certificate shall be deemed at any time after the Effective Time to represent
the right to receive upon such surrender the Cash Consideration and the Fidelity
Shares as provided for and allocated in accordance with this Article 2.
ARTICLE 3
CLOSING
3.1 Closing. The consummation of the Merger and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of FNFI, located at 3916 State Street, Suite 300, Santa Barbara, California
93105, 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 Article 8, below
(including, without limitation, the Requisite Regulatory Approvals), or such
other date, time, place and manner as the Parties may mutually agree. On the
Closing Date, the Articles of Merger and any required officers' certificates,
shall be filed with the Secretary of State of the State of Tennessee in
accordance with the provisions of the Tennessee Statute. The Merger shall become
effective upon such filing or such later time on the Closing Date as may be
specified in the filing with the Secretary of State of the State of Tennessee.
3.2 Termination. If the Closing has not occurred by September 1, 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, FNFI may, at its sole discretion, terminate this
Agreement prior to September 1, 1997, if it is unsatisfied with (i) its due
diligence investigation of Company described in Section 8.1(d), below; or (ii)
its review of the Schedules to the Agreement described in Section 8.1 (f),
below.
3.3 Mutual Deliveries at Closing. Provided that all of the conditions to
the Closing set forth in Section 8, below, have been satisfied or waived by the
Party benefitting therefrom, the appropriate Parties or Persons shall execute
and deliver or cause to be delivered to the appropriate parties at Closing the
following:
(a) The Employment Agreements in substantially the form of
Exhibits B, C, D, E and K hereto;
(b) The Lease Agreement in substantially the form of Exhibit F
hereto; and
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(c) The Registration Rights Agreement substantially in the form
of Exhibit G hereto.
3.4 Shareholders' Deliveries at Closing. Provided that all of the
conditions to the Closing set forth in Section 8, below, have been satisfied or
waived by the Party benefiting therefrom, Shareholders shall execute and deliver
or cause to be delivered to FNFI at the Closing the following documents:
(a) The Certificates, in accordance with Section 2(g), 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) the Company's
Bylaws presently in effect; (iii) the 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 the
Company's Board of Directors and shareholders; and
(c) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested by FNFI in order to
consummate the transactions contemplated hereby.
3.5 Company's Deliveries at Closing. Provided that all of the conditions
to the closing set forth in section 8, below, have been satisfied or waived from
the Party benefitting therefrom, Company shall execute and deliver or cause to
be delivered to FNFI at the Closing the following:
(a) An Officer's Certificate dated the Closing Date
substantially in the form of Exhibit H hereto;
(b) A Secretary's Certificate dated the Closing Date
substantially in the form of Exhibit I hereto;
(c) An opinion of counsel substantially in the form of Exhibit J
hereto;
(d) A good standing certificate of Company, dated within fifteen
(15) business days of the Closing Date, for each jurisdiction in which
Company is required to be qualified and authorized to do business;
(e) Minutes of the Board of Directors and shareholders of Company
authorizing and approving this agreement and the transactions
contemplated herein; and
(f) Resignations of all of the directors of Company effective as
of the Closing Date.
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3.6 FNFI's Deliveries at Closing. Provided that all of the conditions to
the Closing set forth in Section 8, below, have been satisfied or waived by the
Party benefiting therefrom, FNFI shall execute and deliver or cause to be
delivered to Shareholders at the Closing the following:
(a) The Fidelity Shares in accordance with Section 2.2 (f),
above; and
(b) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested by Shareholder in order
to consummate the transactions contemplated hereby.
3.7 Newco's Deliveries. Provided that all of the conditions to the
Closing set forth in Section 8, below, have been satisfied or waived by the
Party benefitting therefrom, Newco shall deliver to Shareholders the Cash
Consideration in accordance with Section 2.2 (f), above.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS
Company and Shareholders hereby make the following representations and
warranties to FNFI and Newco as of the date hereof and as of the Closing Date:
4.1 Organization and Standing; Articles and Bylaws. Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Tennessee, has full power and authority to own its properties
and to carry on its 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 upon Company.
Company has furnished FNFI 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 Closing Date.
4.2 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, the
performance of all of Company's and Shareholders' obligations hereunder and
thereunder, and for the authorization, issuance, sale and delivery of the
Company Shares 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 Company and
Shareholders enforceable in accordance with their respective terms, subject to
laws of general application relating to bankruptcy,
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insolvency and the relief of debtors and subject to the availability of
equitable remedies.
4.3 Subsidiaries. Company does not presently own or control, directly or
indirectly, any equity interest in any corporation, association, or business
entity. Company is not directly or indirectly a participant in any joint venture
or partnership.
4.4 Capitalization. The authorized capital stock of Company consists of
2000 shares of Common Stock, no par value, of which 1,836 shares are issued and
outstanding. All of the Company Shares have been duly authorized and validly
issued, are fully paid and non-assessable and are owned of record and
beneficially by each Shareholder in the amounts set forth in Schedule 4.4
hereto, free and clear of all Liens and claims of every kind. All of the Company
Shares 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 Company Shares were issued in violation of any preemptive rights
created by statue, or by Company's charter document, or by any agreement to
which Company may be bound. Schedule 4.4 hereto contains a complete list of, and
the number of shares owned of record by, the holders of the issued and
outstanding Company Stock.
Other than as described in this Section 4.4, there are no outstanding
shares of Company 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 Company or any Shareholder
may be bound that do or may obligate Company to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of Company Stock, preferred
stock or other equity securities or that do or may obligate 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. Other than as provided in or
contemplated by this Agreement, neither Company nor Shareholders have, or prior
to the Effective Time will have, 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. As a result of
the Merger, FNFI 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. The balance sheet and statements of
shareholders' equity of Company as of July 31, 1997, together with statements of
income for the year ending December 31, 1996, heretofore delivered to FNFI, are
complete and correct in all material respects, and fairly present the financial
condition of Company and the results of its operation as of the dates and for
the periods referred to and have been
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prepared in accordance with generally accepted accounting principles
consistently applied. There are no liabilities, direct or indirect, fixed or
contingent, which are not reflected in the balance sheet as of July 31, 1997,
except for liabilities and obligations incurred in the ordinary course of
business subsequent to July 31, 1997, which, either individually or in the
aggregate, would not be material. There is no basis for any assertion against
Company of any liability or obligation of any nature whatsoever that is not
fully reflected in the financial statements delivered to FNFI which, either
individually or in the aggregate, would be material.
4.6 Material Contracts. Schedule 4.6 hereto contains a complete and
accurate list of all Material Contracts to which Company is a party or bound.
Without limiting the generality of the foregoing, such list includes all such
contracts and agreements and all licenses and instruments which (i) grant a
Security Interest or permit or provide for the imposition of any Lien on, or
provide for the sale (other than in the ordinary course of business and
consistent with past practices) of, any of the assets of Company or of any of
the shares of the Company Stock; (ii) require the consent of any third party to,
or would interfere with, the consummation by Company or Shareholders of the
transactions contemplated by this Agreement; (iii) involve the borrowing of
money or provide for capital expenditures to be made in the future; or (iv)
relate to Company's Intellectual Property rights. True, correct and complete
copies of all Material Contracts listed on Schedule 4.6 have been furnished by
Company to FNFI. Each Material Contract so listed is a valid and binding
obligation of Company and is enforceable in accordance with its terms. Company
has performed all material obligations required to be preformed 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 if time
or both, would constitute such a default or breach under any Material Contract.
To the best knowledge of Company and the Shareholders, no party with whom
Company has a Material Contract is in default of its obligations thereunder.
Except as set forth on Schedule 4.6, no consent or approval of any party to any
of the Material Contracts is necessary in order to permit Company to consummate
the transactions contemplated hereby.
4.7 Title to Assets Other Than Real Property. Except as set forth on
Schedule 4.7 hereto, Company has good and marketable title to all properties and
assets (other than real property which is subject to Section 4.8) owned or
leased by the Company, free and clear of all Liens except for: (i) Liens for
current Taxes not yet due and payable which have been fully reserved for; 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 of 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'
business.
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4.8 Real Property. Schedule 4.8 hereto contains an accurate list and
general description of all real property owned or leased by Company. Company has
good and marketable title to the real properties that it owns, as described in
such schedule, free and clear of all Liens and Security Interests, except for
(i) rights of lessors, lessees or sublessees in such matters that are reflected
in a written lease; (ii) current Taxes (including assessments collected with
Taxes) not yet due and payable; (iii) Liens, if any, that are not substantial in
character, amount, or extent and do not materially detract from the value, or
interfere with present use of the ability of Company to sell or otherwise
dispose, of the property subject thereto or affected thereby; and (iv) other
matters as described in Schedule 4.8 hereto. Company has valid leasehold
interests in the leaseholds it holds, free and clear of all Liens and Security
Interests, except for (i) claims of lessors, co-lessees or sublessees in such
matters as are reflected in a written lease; (ii) title exceptions affecting the
fee estate of the lessor under such leases; and (iii) other matters as described
in Schedule 4.8 hereto. 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 under which Company possesses
or uses real property. The activities of Company, with respect to all real
property owned or leased by it for use in connection with its operations, are in
all material respects permitted and authorized by applicable zoning laws,
ordinances and regulations and all laws and regulations of any Governmental
Entity.
4.9 No Conflicts. Neither the execution and delivery nor the performance
of this Agreement by Company or Shareholders 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 Company, (B) any contract, lease, license, franchise, promissory note,
conditional sales contract, commitment, indenture, mortgage, deed of trust,
security or pledge agreement, or other agreement, instrument, or arrangement to
which Company or any of the Shareholders is a party or by which any of their
respective properties or any of their respective assets are bound and which is
material to Company or such Shareholder (a "Material Contract"); (ii) the
termination of any Material Contract or the acceleration of the maturity of any
indebtedness or other material obligation of Company or any of the Shareholders;
(iii) the creation or imposition of any Lien on any of the respective assets or
properties of Company or any of the Shareholders or any of their shares of the
Company Stock; (iv) a violation or breach of any writ, injunction or decree of
any court or governmental instrumentality to which Company or any of the
Shareholders is a party or by which any of their respective properties are
bound.
4.10 Litigation. Except as set forth in Schedule 4.10 hereto, there are
no actions, proceedings, or investigations before any court or administrative
agency pending or currently threatened against or with respect to Company (or
any basis therefor known to Company or Shareholders), which question the
validity of this Agreement or any action taken or to be taken in connection
herewith, or which,
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Company individually or in the aggregate, might result in a Material Adverse
Effect, 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 Company. 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 court or governmental agency or
instrumentality.
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 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. Company has paid, or has provided
adequate reserves (in the good faith judgment of Company and Shareholders) for
the payment of, all federal and state Taxes applicable for all prior fiscal
years and for the current fiscal year to the date hereof.
4.12 Employees. Schedule 4.12 hereto sets forth a complete list of all
current employees of Company, together with each employee's tenure with Company,
title or job classification, and the current semi-monthly rate of compensation
payable to each such employee. There are no unfair labor practice complaints,
strikes, slowdowns, stoppages or other controversies pending or, to the best
knowledge of Company or Shareholders, attempts to unionize or controversies
threatened between Company and, or relating to, any of its employees. 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, except
as set forth on Schedule 4.12 hereto, 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. Except as set forth on Schedule 4.12 hereto, no officer, director, or
employee is entitled to receive any payment of any amount under any existing
agreement, severance plan or other benefit plan, 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 federal
and state statutes and regulations which govern workers' compensation, equal
employment opportunity and equal pay.
4.13 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 Shareholders 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,
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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.
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 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. Company has conducted its business so as to comply in all material
respects with all such Licenses.
4.15 Compliance with Applicable Laws. The business and operations of
Company have been and are being conducted in compliance with all laws,
ordinances, regulations, rules, orders, judgments or decrees to which Company is
subject. Company holds, and the properties, assets, operations and businesses of
Company have been maintained and conducted in all material respects in
compliance with, all authorizations, permits, licenses, certificates, variances,
exemptions, orders, franchises, rights and approvals that are necessary for the
conduct of its businesses. No investigation or review by any governmental entity
with respect to Company is pending or, to the best knowledge of Company or
Shareholders, threatened, nor has any governmental entity indicated to Company
an intention to conduct the same.
4.16 Insurance. Company has in full force and effect policies of
insurance with respect to its assets and businesses against such casualties and
contingencies and in such amounts, types and forms as are customarily
appropriate for its businesses, operations, properties and assets. Schedule 4.16
hereto contains a list of all such policies of insurance maintained by or on
behalf of Company. Company is not in default under any such policy of insurance
such that it can be canceled and all claims thereunder have been filed in timely
fashion.
4.17 Absence of Changes. Except as disclosed in Schedule 4.17 hereto,
since January 1, 1997, 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 Common 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 Common Stock by any of the Shareholders; (iv) any amendment,
termination or revocation, or any threat of any amendment, termination, or
revocation having a Material Adverse Effect, of any
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Material Contract; (v) any sale, transfer, mortgage, pledge, or subjection to
Lien of, on or affecting any of the assets of the Company valued at or above
$5,000 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 employee benefit plans not in existence in the fiscal
year ended December 31, 1996; (vii) any damage, destruction or loss, whether or
not covered by insurance, of any of the assets of Company; or (viii) any
purchase of 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.
4.18 Employee Plans. Schedule 4.18 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 FNFI, 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.
4.19.1 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
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action designed to safeguard and maintain the secrecy and confidentiality of,
and its proprietary right in, all of its Intellectual Property.
4.19.2 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, to the best knowledge of Company and
Shareholders, threatened any claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any Intellectual Property
or that the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, nor to the best knowledge of the
Company and Shareholders, is there any basis for any such assertion.
4.20 Environment, Health and Safety.
4.20.1 Company has complied with all Environmental, Health and
Safety Laws, except where failure to comply would not have a Material Adverse
Effect, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against it
alleging any failure so to 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 permits, 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.
4.20.2 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 reasonable basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand 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.
4.20.3 To the best of Company's and Shareholders' knowledge, all
properties used in its business are free of Hazardous Substances, except where
the existence thereof would not have a Material Adverse Effect.
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4.21 Certain Transactions. There are no existing or pending
transactions, nor are there any agreements or understandings, between Company,
or any of the Shareholders or the officers, directors, or employees of Company,
or any person or entity affiliated with any of them, 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 Investment Representations. Each Shareholder represents that they
are receiving the Fidelity Shares for their own account for investment purposes
only, 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. Each Shareholder
hereby acknowledges that the Fidelity Shares to be issued hereunder will not be
registered under the Securities Act, nor qualified under any state securities
laws on the ground, among others, that no distribution or public offering is to
be effected.
4.23 Absence of Claims Against Company. None of the Shareholders has any
claims against the Company.
4.24 Certain Claims. Schedule 4.24 hereto lists all litigation and claim
matters asserted or assertable by third Persons including, without limitation,
those litigation and claim matters related to the Company's title insurance or
other related services.
4.25 Tax-Free Reorganization. This Agreement, the Merger and the
transactions contemplated thereby qualify, in all respects, as a tax-free
reorganization pursuant to Code Section 368(a).
4.26 Brokers' Fees. Company has 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.
4.27 Full Disclosure. Neither this Agreement, the representations and
warranties by Company and/or Shareholders contained herein, the Exhibits or
Schedules hereto, nor any other written statement or certificate delivered or to
be furnished to FNFI 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 Company or Shareholders which has not been disclosed
to FNFI that would materially adversely affect Company's business or financial
condition or its ability to perform its obligations under this Agreement.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF FNFI
FNFI and Newco hereby represent and warrant to Company and Shareholders
as follows:
5.1 Organization and Good Standing. FNFI and Newco are corporations duly
organized, validly existing and in good standing under the laws of the States of
Delaware and Tennessee, respectively, and have all requisite corporate power and
authority to own, operate and lease their properties and to carry on their
respective business as they are being conducted on the date of this Agreement.
FNFI and Newco have all requisite corporate power and authority to enter into
this Agreement and to perform their respective obligations hereunder with
respect to the consummation of the transactions contemplated hereby.
5.2 Authorization. The execution and delivery of this Agreement by FNFI
and Newco and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of FNFI and Newco,
respectively. This Agreement has been duly executed and delivered by FNFI and
Newco and constitutes a legal, valid and binding obligation of FNFI and Newco,
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting the rights of creditors generally and by general equitable principles.
5.3 Noncontravention. Neither the execution and delivery of this
Agreement by FNFI and Newco nor the consummation of the transactions
contemplated hereby by FNFI and Newco will (i) violate any statute, regulation,
rule, injunction, judgment, order, decree, ruling charge, or other restriction
of any Governmental Entity to which FNFI or Newco is subject or any provision of
the charter or bylaws of FNFI and Newco; or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument or other
arrangement to which either FNFI or Newco is a party or by which they are bound
or to which any of their assets is subject, except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, or failure to give notice would not have a material adverse effect
on the ability of FNFI and/or Newco to consummate the transactions contemplated
by this Agreement.
5.4 Fidelity SEC Documents. FNFI has filed all forms, reports and
documents required to be filed with the SEC (the "Fidelity SEC Documents"), all
of which have been made available to Company. As of their respective dates, the
Fidelity SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act, as the case may be, and the rules
and regulations
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of the SEC thereunder applicable to such Fidelity SEC Documents, and none of the
Fidelity SEC Documents contain 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, in light of the circumstances under which they were made,
not misleading. The financial statements of FNFI included in the Fidelity SEC
Documents comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto, or in the case of the unaudited interim financial statements, as
permitted by Form 10-Q promulgated by the SEC) and fairly present (subject, in
the case of the unaudited interim financial statements, to recurring audit
adjustments normal in nature and amount) the consolidated financial position of
FNFI as at the dates thereof and the consolidated results of its operations and
cash flows or changes in financial position for the periods then ended.
5.5 Fidelity Shares. All of the Fidelity Shares to be issued to
Shareholders in connection with the Merger shall be duly authorized, validly
issued, fully paid and non-assessable. Such shares shall be offered, issued,
sold and delivered by FNFI in compliance with all applicable state and federal
laws concerning the issuance of securities and none of such shares shall be
issued in violation of the preemptive rights of any shareholder of FNFI.
5.6 Brokers' Fees. Neither FNFI nor Newco is 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.
5.7 Disclosure. The representations and warranties contained in this
Article 5 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained herein, in light of the circumstances under which they are
made, not misleading.
ARTICLE 6
CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through
the Closing Date, Company and Shareholders, jointly and severally, covenant and
agree that:
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.
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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 materially from those methods
used by the Company as of the date of this Agreement. 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. 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
substantially all 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. Notwithstanding
subsection (iv) of this section 6.3, FNFI understands that Company has been
filing under Subchapter S of the Code and has made certain distributions of
previously taxed income. Such distributions shall be allowed provided (i) they
do not exceed, in the aggregate, Three Hundred Thousand Dollars ($300,000)
during the period between May 31, 1997 and the Closing; and (ii) the
post-distribution net worth of Company, determined in accordance with GAAP,
exceeds Six Hundred Eighty-Seven Thousand Dollars ($687,000).
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, records 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
with all requirements that applicable law may impose upon it and its operations
and with respect to the transactions contemplated by this Agreement, and shall
cooperate promptly with, and furnish information to, FNFI in connection with any
such requirements imposed upon FNFI, or upon any of its Affiliates, in
connection therewith or herewith.
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6.7 Disposition of Assets. 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.
6.8 Compensation. 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 compensation of any kind, or any severance or termination pay
to, or enter into any employment or loan or loan guarantee agreement with, any
current or former officer, director, employee or consultant of Company.
6.9 Modification or Breach of Agreements; New Agreements. 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, disclosed in this Agreement or the Schedules hereto. 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 as set forth on Schedule 6.10 hereto,
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 $5,000 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 Person required to be
obtained or made by any Party 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 and shall not do, permit or willingly allow
to be done any act by which any of said policies of insurance may be suspended,
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 of material value, 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.
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<PAGE> 25
6.14 Actions. Company shall not institute, settle or agree to settle any
Action before any Governmental Entity.
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 FNFI a copy of all notices of
proposed assessment or similar notices or 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 Company and Shareholders. During the period from the
date hereof through the Closing Date, Company and Shareholders 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, FNFI
in connection with any such requirements imposed upon FNFI or upon any of its
Affiliates in connection therewith or herewith;
(b) Use their reasonable best efforts to obtain (and to cooperate
with FNFI in obtaining) any consent, authorization or approval of, or exemption
by, any Person required to be obtained or made by Shareholders in connection
with the transactions contemplated by this Agreement;
(c) Use their reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 8.1
below;
(d) Immediately advise FNFI orally and, within three (3) business
days thereafter, in writing of any change in Company's business or condition
that has had or may have a Material Adverse Effect;
(e) Deliver to FNFI 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
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<PAGE> 26
untrue statement or omission shall not prevent FNFI from terminating this
Agreement pursuant to Section 9.1(c) hereof at any time at or prior to the
Closing in respect of any original untrue or misleading statement;
(f) Be responsible for the preparation and filing of all Company
Subchapter S Tax returns for all periods up to and including the Closing Date,
and have paid or will pay all Taxes attributable to such periods; and
(g) Assume and be responsible for any and all Liability,
including without limitation any and all Tax Liability, caused by, arising from,
or related to the failure of the Merger to qualify, in any respects, as a
tax-free reorganization pursuant to Code Section 368 (a).
7.2 Covenants of FNFI. During the period from the date hereof to the
Closing Date, FNFI 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, Shareholders in
connection with any such requirements imposed upon the Shareholders or Company
or upon any of Company's Affiliates in connection therewith or herewith;
(b) Use its reasonable best efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by FNFI in connection with the transactions contemplated by
this Agreement;
(c) Use its reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 8.2 of
this Agreement; and
(d) Cause Surviving Corporation to continue at least one (1)
significant historical business line of Company, or use at least a significant
portion of Company's historical business assets in a business, in each case in
accordance with Treasury Regulation Section 1.368-1.
7.3 Access and Information.
(a) During the period commencing on the date hereof and
continuing through the Closing Date, Shareholders shall cause Company to afford
to FNFI and to FNFI's accountants, counsel, and other representatives,
reasonable access to all of its properties, books, contracts, commitments,
records and personnel and, during such period, to cause Company to furnish
promptly to FNFI all information concerning its business, properties and
personnel as FNFI may reasonably request.
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<PAGE> 27
(b) Except to the extent permitted by the provisions of Section
7.6 below, FNFI 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 Shareholders or Company concerning Company and
shall not disclose such information to any third party 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 FNFI or
its representatives; (ii) becomes available to FNFI or its representatives from
a third party other than Shareholders or Company, and FNFI or its
representatives have no reason to believe that such third party is not entitled
to disclose such information; (iii) is known to FNFI or its representatives on a
non-confidential basis prior to its disclosure by any Shareholder or Company; or
(iv) is made available by any Shareholder or Company to any other Person on a
non-restricted basis. FNFI's obligations under the foregoing sentence shall
expire on the Closing Date or, if the closing does not occur, one year after the
date hereof.
7.4 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.
7.5 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 may result in the failure to satisfy any of
the conditions specified in Article 8, below.
7.6 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 7.6. 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.
7.7 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
26
<PAGE> 28
applicable Legal 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
Shareholders and the proper officers or directors of FNFI and Company, 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 convenient documentation.
7.8 Competing Offers. Shareholders agree that they will not, and will
cause Company not to, directly or indirectly, through an officer, director,
agent, or otherwise, solicit, initiate or encourage the submissions of bids,
offers or proposals by, any Person with respect to an acquisition of Company or
its assets or capital stock or a merger or similar transaction, and Shareholders
will not, and will not permit Company to, engage any broker, financial adviser
or consultant to initiate or encourage proposals or offers from other parties.
Furthermore, Shareholders shall not, and shall not permit Company to, directly
or indirectly, through any officer, director, agent or otherwise, engage in
negotiations concerning any such transaction with, or provide information to,
any Person other than FNFI and its representatives with a view to engaging, or
preparing to engage, that Person with respect to any matters in this Section
7.8. Shareholders shall ensure that Company shall not commence any proceeding to
merge, consolidate or liquidate or dissolve or obligate itself to do so.
7.9 Post-Termination Employment. Company and Shareholders acknowledge
and agree that after the Effective Time (i) neither FNFI nor Surviving
Corporation shall be required to employ or retain any employee of Company or any
other Person; and (ii) FNFI, in its sole and absolute discretion, may cause
Surviving Corporation to retain all, some, or none or such employees.
7.10 Employment Agreements. On or before the Closing Date, Shareholders
shall cause Company and the appropriate employee of Company to execute the
Employment Agreements substantially in the forms of Exhibits B, C, D, E and K
hereto.
7.11 Lease Agreement. On or before the Closing Date, Shareholders shall
cause Company and Jeanene S. Moore to execute the Lease Agreement substantially
in the form of Exhibit F hereto.
7.12 Registration Rights Agreement. On or before the Closing Date,
Shareholders shall execute the Registration Rights Agreement substantially in
the form of Exhibit G hereto.
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<PAGE> 29
ARTICLE 8
CONDITIONS PRECEDENT TO CLOSING
8.1. Conditions of FNFI. FNFI's obligations hereunder are subject to the
satisfaction, at or prior to the Effective Time, of all of the following
conditions:
(a) Representations and Warranties True: Performance of
Obligations. The representations and warranties made by Company and Shareholders
in this Agreement shall be true and correct 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
Company and Shareholders 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 Effective Time.
(b) Material Adverse Effect. No act, event or condition shall
have occurred after the date hereof which FNFI determines has had or could have
a Material Adverse Effect.
(c) Authorizations and Approvals. 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) Investigation of Company. FNFI shall have concluded (through
its representatives, accountants, counsel and other experts) a due diligence
investigation of the business, condition (financial and other), properties,
assets, prospects, operations and affairs of Company and shall be satisfied, in
its sole discretion, with the results thereof.
(e) Deliveries. FNFI shall have received from the appropriate
Party or Person, the delivery obligations set forth in Sections 3.3 through 3.5,
below.
(f) Schedules. Shareholders shall cause Company to deliver all of
the Schedules to this Agreement set forth in Article 4 above, and FNFI shall be
satisfied with such Schedules in its absolute and sole discretion.
(g) No Actions. There shall not be instituted and pending or
threatened any Action before any Governmental Entity (i) challenging the Merger
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 FNFI of all or a material portion of the
business or assets of Company, or to compel FNFI or Company to dispose of or
hold separate all or a material portion of the business or assets of Company or
FNFI.
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(h) 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 FNFI and its counsel.
(I) 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 Party (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 FNFI or any
Party or Person to be affected by such condition.
8.2 Conditions of the Shareholders. Shareholders' obligations hereunder
are subject to the satisfaction, at or prior to the Effective Time, of the
following conditions:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by FNFI in this Agreement
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 FNFI 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 consents, if any, from third parties, including from any Governmental Entity
or other Person, necessary for the consummation of the transactions contemplated
hereby shall have been obtained.
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time:
(a) By mutual consent of the FNFI and Shareholders;
(b) By Shareholders, acting together, or by FNFI, by written
notice to the other Party or Parties hereto if the Closing has not occurred on
or before
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<PAGE> 31
September 1, 1997, (or such later date as FNFI and Shareholders may agree),
provided that in the case of a termination under this clause, the Party or
parties terminating this Agreement shall not then be in material breach of any
or its or their obligations under this Agreement.
(c) By FNFI if (i) there has been a material misrepresentation,
breach of warranty or breach of covenant by Company or any Shareholder under
this Agreement; or (ii) any of the conditions precedent to Closing set forth in
Section 8.1 have not been met on the Closing Date, and, in each case, FNFI is
not then in material default of its obligations hereunder; or
(d) By Shareholders acting together if (i) there has been a
material misrepresentation, breach of warranty or breach of covenant by FNFI and
Newco under this Agreement; or (ii) any of the conditions precedent to Closing
set forth in Section 8.2 have not been met on the Closing Date, and, in each
case, no Shareholder is then in material default of his obligations hereunder.
9.2 Effect of Termination.
(a) In the case of any termination of this Agreement, the
provisions of Section 7.3 and 7.4 shall remain in full force and effect.
(b) Upon termination of this Agreement as provided in Section
9.1(a), except as stated in subsection (a) above, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of any
Party hereto or their respective directors, officers, employees, agents or other
representatives.
(c) In the event of termination of this Agreement as provided in
Section 9.1(b), (c) or (d) hereof, such termination shall be without prejudice
to any rights that the terminating party or parties may have against the
breaching party or parties or any other person under the terms of this Agreement
or otherwise.
9.3 Amendment. This Agreement may be amended at any time by a written
instrument executed by the Parties. Any amendment effected pursuant to this
Section 9.3 shall be binding upon all Parties.
9.4 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 9.4 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
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preceding or subsequent breach of the same or any 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 10
INDEMNIFICATION
10.1 Survival of Representations and Warranties. The representations and
warranties of Company and Shareholders hereto 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 until the
fourth (4th) anniversary of the Closing Date; provided that the representations
and warranties contained in Sections 4.2, 4.4, 4.11 and 4.20 shall not terminate
but shall continue indefinitely; and provided further that Company's
indemnification obligations under Section 10.2, below, shall terminate
immediately subsequent to the Effective Time.
10.2 Indemnification by Company and Shareholders. Company and
Shareholders, in accordance with Section 10.7, below, shall indemnify and hold
harmless FNFI from and against any Damages arising out of or relating to: (i)
any inaccuracy in or breach of any representation or warranty made by Company or
any Shareholder in this Agreement or in any writing delivered pursuant to this
Agreement or at the Closing; or (ii) the failure of Company or any Shareholder
to perform or observe fully any covenant, agreement or provision to be performed
or observed by Company or such Shareholder pursuant to this Agreement.
10.3 Indemnification by FNFI. FNFI shall indemnify, defend and hold
harmless Shareholders from and against any Damages arising out of or related to:
(i) any inaccuracy in or breach of any representation or warranty made by FNFI
or Newco in this Agreement or in any writing delivered pursuant to this
Agreement or at the Closing; or (ii) the failure by FNFI or Newco to perform or
observe any covenant, agreement or condition to be performed or observed by it
pursuant to this Agreement.
10.4 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 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
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<PAGE> 33
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 10.4, 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, 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.
10.5 Indemnification Non-Exclusive. The foregoing indemnification
provisions 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.
10.6 Limitation on Indemnification Claims. Notwithstanding anything to
the contrary in this Article 10, FNFI's indemnification claims against
Shareholders or Company in connection with those litigation and claim matters
specifically set forth in Schedule 4.24, shall (i) be limited to a maximum
recovery of One Hundred Twenty Thousand Dollars ($120,000); and (ii) shall not
arise until such time as such claims, in the aggregate, exceed Two Hundred
Eighty Thousand Dollars ($280,000).
10.7 Allocation of Shareholder Indemnities. Ernest N. Moore and Jeanene
S. Moore, jointly and severally, shall be responsible for ninety percent (90%)
of any and all indemnity claims arising under Section 10.2, above, and T. Frank
Jordan shall be responsible for ten percent (10%) of any and all such claims.
ARTICLE 11
GENERAL PROVISIONS
11.1 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.
11.2 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.
11.3 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
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<PAGE> 34
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.
11.4 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.
11.5 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 FNFI, addressed to:
Fidelity National Financial, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Attn: Andrew F. Puzder
Facsimile: (805) 898-7149
(b) If to Shareholders and Company, addressed to:
First Title Corporation
3761 Venture Drive, Suite 210
Duluth, Georgia 30136
Attn: Ernest N. Moore
Facsimile: (800) 615-7129
With a copy to:
Wilton Sanders, Esq.
Frantz, Sanders & Grattan
6100 Lake Forrest Drive, N.W., Suite 400
Atlanta, Georgia 30328
Facsimile (404) 257-9657
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<PAGE> 35
11.6 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.
11.7 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.
11.8 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.
11.9 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.
11.10 Covenant Not-To-Compete. Ernest N. Moore covenants and agrees that
for a period of two (2) years following the Closing Date, he will not, without
the prior written consent of Surviving Corporation and FNFI, directly or
indirectly, engage or have an interest in (as owner, partner, shareholder,
employee, director, officer, consultant or otherwise), with or without
compensation, any business (i) in direct competition with the businesses being
conducted by Surviving Corporation or FNFI; and (ii) within 100 miles of any
office of Surviving Corporation.
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<PAGE> 36
IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the
date first above written.
FNFI:
FIDELITY NATIONAL FINANCIAL, INC.,
a Delaware Corporation
By: /s/ ANDREW F. PUZDER
----------------------------------
Its: EXECUTIVE VICE PRESIDENT
COMPANY:
FIRST TITLE CORPORATION,
a Tennessee Corporation
By:
----------------------------------
Its:
----------------------------------
SHAREHOLDERS:
----------------------------------------
T. Frank. Jordan
---------------------------------------
Jeanene S. Moore
----------------------------------------
Ernest N. Moore
NEWCO:
FIRST TITLE ACQUISITION CORPORATION,
a Tennessee Corporation
By: /s/ PATRICK F. STONE
----------------------------------
Its: President
35
<PAGE> 37
IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the
date first above written.
FNFI:
FIDELITY NATIONAL FINANCIAL, INC.,
a Delaware Corporation
By:
----------------------------------
Its:
----------------------------------
COMPANY:
FIRST TITLE CORPORATION,
a Tennessee Corporation
By: /s/ ERNEST N. MOORE
----------------------------------
Its: Chairman/CEO
SHAREHOLDERS:
/s/ T. FRANK JORDAN
----------------------------------------
T. Frank. Jordan
/s/ JEANENE S. MOORE
BY: ERNEST N. MOORE
----------------------------------------
Jeanene S. Moore
/s/ ERNEST N. MOORE
----------------------------------
Ernest N. Moore
NEWCO:
FIRST TITLE ACQUISITION CORPORATION,
a Tennessee Corporation
By:
----------------------------------
Its:
----------------------------------
35
<PAGE> 1
EXHIBIT 10.48
AGREEMENT AND PLAN OF REORGANIZATION
DATED: SEPTEMBER ___, 1997
BY AND AMONG
FIDELITY NATIONAL FINANCIAL, INC.
ICS IFLAND CREDIT SERVICES, INC.
RICK W. IFLAND
AND
ICS ACQUISITION CORPORATION
<PAGE> 2
EXHIBIT 10.48
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of this ___ day of September, 1997, by and among FIDELITY
NATIONAL FINANCIAL, INC., a Delaware corporation ("FNFI"); ICS IFLAND CREDIT
SERVICES, INC., a Kentucky corporation ("Company"); RICK W. IFLAND
("Shareholder"); and ICS ACQUISITION CORPORATION, a Kentucky corporation that is
a newly-formed, wholly-owned subsidiary of FNFI ("Newco"). FNFI, Company,
Shareholder and Newco are referred to collectively herein as the "Parties" or
singularly as a"Party."
RECITALS
A. Shareholder is the record and beneficial owner of 1,000 shares of
Company Common Stock (the "Company Shares"), which represents all the issued and
outstanding shares of capital stock of Company.
B. The respective Boards of Directors of FNFI, Company and Newco deem it
advisable and in the best interests of their respective shareholders that Newco
merge with and into Company (the "Merger") pursuant to this Agreement, the
Articles of Merger substantially in the form attached hereto as Exhibit A (the
"Articles of Merger") and the applicable provisions of the laws of the State of
Kentucky.
C. The Parties hereto expect that the Merger will further certain of
their business objectives, including, without limitation, increased market
share, reduced administrative costs and volume efficiencies.
D. The Boards of Directors of FNFI, Company and Newco have approved and
adopted this Agreement as a plan of reorganization within the provisions of
Section 368 (a) of the Internal Revenue Code of 1986, as amended (the "Code").
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:
<PAGE> 3
ARTICLE I
CERTAIN DEFINITIONS
Unless otherwise defined herein or the context otherwise requires, the
terms defined in this Section 1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and the plural forms
of any of the terms herein defined.
"Action" shall mean any actual or threatened claim, action, suit,
arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by
or before any Governmental Entity or arbitrator and any appeal from any of the
foregoing.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, Liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses, in each case (i)
net of any insurance recoveries (except to the extent such recoveries increase
the cost of insurance, through retrospective adjustments or otherwise); and (ii)
net of any Tax benefit, after taking into account any Tax detriment of any
indemnity.
"Affiliate" shall mean, 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.
"Articles of Merger" has the meaning set forth in Recital B, above.
"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" shall 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.
"Cash Consideration" has the meaning set forth in Section 2.2 (d),
below.
"Claims" shall mean any and all liabilities, losses, claims, damages,
causes of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interests from the date of such damages), and costs and expenses
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(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description).
"Closing" has the meaning set forth in Section 3.1, below.
"Closing Date" has the meaning set forth in Section 3.1, below.
"Closing Fidelity Price" means the average of the per share closing
sales price of FNFI's Common Stock publicly traded on the New York Stock
Exchange for the ten (10) consecutive trading days ending two (2) days prior to
the Closing Date.
"Code" has the meaning set forth in Recital D, above.
"Company Shares" has the meaning set forth in Recital A.
"Company Stock" means shares of common stock, no par value per share, of
Company.
"Confidential Information" means any information concerning the
businesses and affairs of any of the Parties that is not already generally
available to the public.
"Effective Time" has the meaning set forth in Section 3.1, below.
"Employee Plan" shall mean 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, of the Company.
"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 other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws 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, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"Fidelity Common Stock" means the shares of non-registered, restricted
Common Stock, par value of $0.0001 per share, of FNFI.
"Fidelity Shares" means $3,000,000 of Fidelity Common Stock, either held
in treasury and transferred to Shareholders or newly issued by FNFI to
Shareholders, the exact number of shares of which shall be equal to 3,000,000
divided by the Closing Fidelity Price.
"GAAP" means, at any particular time, generally accepted accounting
principles, consistently applied on a going concern basis without regard to the
pendency of the transactions contemplated hereby and using audit scope and
materiality standards used in the past and, with respect to interim financial
statements, subject to normal year-end adjustment.
"Governmental Entity" shall mean any court, federal, state, local or
foreign government or any administrative agency or commission or any other
governmental authority or instrumentality whatsoever.
"Hazardous Substances" shall mean any hazardous, toxic or infectious
substance, material, gas or waste which is regulated by any local, state or
federal Governmental Entity.
"Indebtedness" shall mean, 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
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof; (ii) all trademarks, service marks,
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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, 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).
"Legal Requirement" shall mean 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.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Licenses" has the meaning set forth in Section 4.14, below.
"Lien" shall mean all liens (including judgment and mechanics' liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or otherwise), deeds of trust,
options or other charges, encumbrances or restrictions.
"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, business relationships, properties, condition (financial
or otherwise), insurability or prospects of Company; (ii) the ability of the
Parties to consummate the transactions contemplated by this Agreement; or (iii)
the legal right or authorization of Company to continue to operate its business.
"Material Contracts" has the meaning set forth in Section 4.9, below.
"Merger" has the meaning set forth in Recital B, above.
"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).
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"Party" has the meaning set forth in the preamble to this Agreement.
"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.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, Lien, other than (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; (iii) purchase money liens and liens securing rental
payments under capital lease arrangements; and (iv) other liens arising in the
Ordinary Course of Business and not incurred in connection with the borrowing of
money.
"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 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.
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ARTICLE 2
PLAN OF REORGANIZATION
2.1 The Merger.
(a) The Merger. At the Effective Time (as defined in Section 3.1,
below), Newco shall be merged with and into Company pursuant to this Agreement
and the Articles of Merger, and the separate existence of Newco shall cease, all
in accordance with the general corporation laws of the State of Kentucky (the
"Kentucky Statute"). Company, as it exists from and after the Effective Time, is
sometimes referred to herein as the "Surviving Corporation."
(b) Effect or of the Merger. Subject to the terms and conditions
of this Agreement and the Articles of Merger, at the Effective Time (i) the
separate existence of Newco shall cease and Newco shall be merged with and into
Company, and (ii) the Merger shall have all the effects provided by the Kentucky
Statute, this Agreement and the Articles of Merger.
(c) Articles of Incorporation; Bylaws; Directors and Officers.
The Articles of Incorporation of Surviving Corporation from and after the
Effective Time shall be the Articles of Incorporation of Company until
thereafter amended in accordance with the provisions therein and as provided by
the Kentucky Statute. The Bylaws of Surviving Corporation from and after the
Effective Time shall be the Bylaws of Company as in effect immediately prior to
the Effective Time, continuing until thereafter amended in accordance with their
terms and the Articles of Incorporation of Surviving Corporation and as provided
by the Kentucky Statute. The initial directors of Surviving Corporation shall be
the individuals referred to in Schedule 2.1(c)(1), in each case until their
successors are elected and qualified. The initial officers of Surviving
Corporation shall be those individuals holding such titles set forth in Schedule
2.1(c)(2), in each case until their successors are duly elected and qualified.
2.2 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of FNFI, Newco, Company or
Shareholder, the shares of capital stock of Newco and Company shall be converted
as follows:
(a) Capital Stock of Newco. Each issued and outstanding share of
capital stock of Newco shall continue to be issued and outstanding and shall be
converted into one (1) share of validly issued, fully paid and non-assessable
Common Stock of Company. Each stock certificate of Newco evidencing ownership of
any such shares shall continue to evidence ownership of such shares of Common
Stock of Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of Company.
All shares of capital stock of Company that are owned directly or indirectly by
Company, including all treasury shares and all capital stock which has been
authorized but not issued, shall be
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canceled and no Fidelity Shares or Cash Consideration shall be delivered in
exchange therefore.
(c) Conversion of Company Shares. The Company Shares shall
automatically be canceled, extinguished and converted, without any action on the
part of the holder thereof, into the right to receive the Cash Consideration and
the Fidelity Shares, as more fully described in subsection (d), below. All
Company Shares, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and Shareholder
shall cease to have any rights with respect thereto, except the right to receive
the Cash Consideration and the Fidelity Shares to be paid or issued in
consideration therefor upon the surrender of the Certificates in accordance with
subsection (f), below.
(d) Consideration. In consideration for the cancellation and
exchange by Shareholder of the Company Shares and in accordance with subsection
(e), below, (i) Newco shall pay to Shareholder the cash sum of Seven Hundred
Fifty Thousand Dollars ($750,000) (the "Cash Consideration"), and (ii) FNFI
shall issue to Shareholder the Fidelity Shares.
(e) Payment and Allocation of Consideration. Provided that all of
the conditions to the Closing set forth in Article 8, below, have been satisfied
or waived by the party benefitting therefrom, (i) Newco shall, immediately after
the Effective Time and on the Closing Date, pay to Shareholder the Cash
Consideration by delivery, at Newco's option, of a cashier's or certified bank
check, or by wire transfer to an account or accounts designated by Shareholder;
and (ii) FNFI shall, as soon as practicable after the Effective Time, issue and
deliver the Fidelity Shares to Shareholder.
(f) Certificate Delivery Requirement. At the Effective Time,
Shareholder shall deliver to FNFI the certificates (the "Certificates")
representing the Company Shares, duly endorsed in blank by Shareholder, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps affixed and canceled. The Certificates so delivered shall be
promptly canceled. Until delivered as contemplated by this subsection (f), each
Certificate shall be deemed at any time after the Effective Time to represent
the right to receive upon such surrender a pro rata portion of the Cash
Consideration and the Fidelity Shares.
ARTICLE 3
CLOSING
3.1. Closing. The consummation of the Merger and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of FNFI, located at 3916 State Street, Suite 300, Santa Barbara, California
93105, 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 Article 8, below
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(including, without limitation, the Requisite Regulatory Approvals), or such
other date, time, place and manner as the Parties may mutually agree. On the
Closing Date, the Articles of Merger and any required officers' certificates,
shall be filed with the Secretary of State of the State of Kentucky in
accordance with the provisions of the Kentucky Statute. The Merger shall become
effective upon such filing or such later time on the Closing Date as may be
specified in the filing with the Secretary of State of the State of Kentucky.
3.2 Mutual Deliveries at Closing. Provided that all of the conditions to
the Closing set forth in Article 8, below, have been satisfied or waived by the
Party benefitting therefrom, the appropriate Parties or Persons shall execute
and deliver or cause to be delivered to the appropriate Parties at Closing the
following:
(a) The Employment Agreement in substantially the form of
Exhibit B hereto; and
(b) The Registration Rights Agreement substantially in the form
of Exhibit C hereto.
3.4. Shareholder's Deliveries at Closing. Provided that all of the
conditions to the Closing set forth in Article 8, below, have been satisfied or
waived by the Party benefiting therefrom, Shareholder shall execute and deliver
or cause to be delivered to FNFI at the Closing the following documents:
(a) The Certificates, in accordance with Section 2(f), 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) the Company's
Bylaws presently in effect; (iii) the 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 the
Company's Board of Directors and shareholders; and
(c) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested by FNFI in order to
consummate the transactions contemplated hereby.
3.5 Company's Deliveries at Closing. Provided that all of the conditions
to the closing set forth in Article 8, below, have been satisfied or waived from
the Party benefitting therefrom, Company shall execute and deliver or cause to
be delivered to FNFI at the Closing the following:
(a) An Officers' Certificate dated the Closing Date
substantially in the form of Exhibit D hereto;
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(b) A Secretary's Certificate dated the Closing Date
substantially in the form of Exhibit E hereto;
(c) An opinion of counsel substantially in the form of Exhibit F
hereto;
(d) A Restated Amendment to Lease Agreement substantially in the
form of Exhibit G hereto;
(e) A good standing certificate of Company, dated within fifteen
(15) business days of the Closing Date, for each jurisdiction in which
Company is required to be qualified and authorized to do business;
(f) Minutes of the Board of Directors and shareholders of Company
authorizing and approving this agreement and the transactions
contemplated herein;
(g) Resignations of all of the officers and directors of Company
effective as of the Closing Date; and
(h) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested by FNFI in order to
consummate the transactions contemplated hereby.
3.6 FNFI's Deliveries at Closing. Provided that all of the conditions to
the Closing set forth in Article 8, below, have been satisfied or waived by the
Party benefiting therefrom, FNFI shall execute and deliver or cause to be
delivered to Shareholder the following:
(a) The Fidelity Shares in accordance with Section 2.2(e),
above; and
(b) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested by Shareholder in order
to consummate the transactions contemplated hereby.
3.7 Newco's Deliveries. Provided that all of the conditions to the
Closing set forth in Article 8, below, have been satisfied or waived by the
Party benefitting therefrom, Newco shall deliver to Shareholder at the Closing
the Cash Consideration in accordance with Section 2.2(e), above.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDER
Company and Shareholder, jointly and severally, represent and warrant
to FNFI, Newco and Surviving Corporation that (except for changes contemplated
by this Agreement), 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 Company and
Shareholder 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. Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Kentucky, has full power and authority to own its properties and
to carry on its 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. Company has furnished FNFI
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 Closing Date.
4.2 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, the
performance of all of Company's and Shareholder's obligations hereunder and
thereunder, and for the exchange and cancellation of the Company Shares 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 Company and Shareholder 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 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
2,000 shares of Common Stock, no par value, of which 1,000 shares are issued and
outstanding. All of the Company Shares have been duly authorized and validly
issued, are fully paid and non-assessable and are owned of record and
beneficially by
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Shareholder in the amounts set forth in Schedule 4.4 hereto, free and clear of
all Liens, Indebtedness and Claims of every kind. All of the Company Shares 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
Company Shares 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. Schedule 4.4 hereto contains a complete list of, and the number of
shares owned of record by, the holders of the issued and outstanding Company
Stock.
Other than as described in this Section 4.4, there are no outstanding
shares of Company 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 Company or any Shareholder
may be bound that do or may obligate Company to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of Company Stock, preferred
stock or other equity securities or that do or may obligate 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. Other than as provided in or
contemplated by this Agreement, neither Company nor Shareholders have, or prior
to the Effective Time will have, 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. As a result of
the Merger, FNFI 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 hereto includes (i) true,
complete and correct copies of Company's balance sheet as of December 31, 1996
(the end of its most recently completed fiscal year) and statements of income
and retained earnings for the year ended December 31, 1996; and (ii) true,
complete and correct copies of Company's balance sheet as of July 31, 1997, and
statements of income and retained earnings for the period then ended. Except as
set forth on Schedule 4.5 hereto, the above described financial statements have
been prepared in accordance with GAAP consistently applied and fairly present
the financial position of Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended, subject, in the case of
the July 31, 1997 financial statements, to the omission of complete footnote
information. There are no Company Liabilities, direct or indirect, fixed or
contingent, which are not reflected in the balance sheet as of July 31, 1997,
except for Liabilities incurred in the ordinary course of business subsequent to
July 31, 1997, which, either individually or in the aggregate, would not be
material. There is no basis for any assertion against Company of any liability
or obligation of any nature whatsoever that is not fully reflected in the
financial statements delivered to FNFI
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which, either individually or in the aggregate, would be material. Since the
date of the July 31, 1997 financial statements, there have been no material
changes in Company's accounting policies.
4.6 Material Contracts. Schedule 4.6 hereto contains a complete and
accurate list of all Material Contracts to which Company is a party or bound.
Without limiting the generality of the foregoing, such list includes all such
contracts and agreements and all licenses and instruments which (i) grant a
Security Interest or permit or provide for the imposition of any Lien on, or
provide for the sale (other than in the ordinary course of business and
consistent with past practices) of, any of the assets of Company or of any of
the shares of the Company Stock; (ii) require the consent of any third party to,
or would interfere with, the consummation by Company or Shareholder of the
transactions contemplated by this Agreement; (iii) involve the borrowing of
money or provide for capital expenditures to be made in the future; or (iv)
relate to Company's Intellectual Property rights. True, correct and complete
copies of all Material Contracts listed on Schedule 4.6 have been furnished by
Company to FNFI. Each Material Contract so listed is a valid and binding
obligation of Company and is enforceable in accordance with its terms. Company
has performed all material obligations required to be preformed 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 if time
or both, would constitute such a default or breach under any Material Contract.
To the best knowledge of Company and Shareholder, no party with whom Company has
a Material Contract is in default of its obligations thereunder. Except as set
forth on Schedule 4.6, no consent or approval of any party 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. Except as set forth on Schedule 4.7
hereto, 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) Liens for current
Taxes not yet due and payable which have been fully reserved for; 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 of 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, material machinery and equipment of Company are in good working
order and condition, ordinary wear and tear excepted.
4.8 Real Property. Company does not own any real property. Schedule 4.8
hereto contains an accurate list and general description of all real property
leases, subleases, licenses or similar agreements ("Leases") to which Company is
a party
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(copies of which have been previously furnished to FNFI), 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 Security Interests,
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 Schedule
4.8 hereto. 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 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 best knowledge of Company and
Shareholder, 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 and reasonable anticipated normal business activities as conducted
thereat.
4.9 No Conflicts. Neither the execution and delivery nor the performance
of this Agreement by Company or Shareholder 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
Company, (B) any contract, lease, license, franchise, promissory note,
conditional sales contract, commitment, indenture, mortgage, deed of trust,
security or pledge agreement, or other agreement, instrument, or arrangement to
which Company or Shareholder is a party or by which any of their respective
properties or any of their respective assets are bound and which is material to
Company or Shareholder (a "Material Contract"); (ii) the termination of any
Material Contract or the acceleration of the maturity of any indebtedness or
other material obligation of Company or Shareholder; (iii) the creation or
imposition of any Lien on any of the respective assets or properties of Company
or Shareholder or any shares of the Company Stock; (iv) a violation or breach of
any writ, injunction or decree of any court or governmental instrumentality to
which Company or Shareholder is a party or by which any of their respective
properties are bound.
4.10 Litigation. Except as set forth in Schedule 4.10 hereto, there are
no actions, proceedings, or investigations before any court or administrative
agency pending or currently threatened against or with respect to Company (or
any basis therefor known to Company or Shareholder), which question the validity
of this Agreement or any action taken or to be taken in connection herewith, or
which, Company individually or in the aggregate, might result in a Material
Adverse Effect, or
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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 Company. 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 court or governmental agency or instrumentality.
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 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. Company has paid, or has provided
adequate reserves (in the good faith judgment of Company and Shareholder) for
the payment of, all federal and state Taxes applicable for all prior fiscal
years and for the current fiscal year to the date hereof.
4.12 Employees. Schedule 4.12 hereto sets forth a complete list of all
current employees of Company, together with each employee's age, tenure with
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, to
the best knowledge of Company or Shareholder, attempts to unionize or
controversies threatened between Company and, or relating to, any of its
employees. 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, except as set forth on Schedule 4.12 hereto, 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. Except as set forth on Schedule 4.12 hereto, no
officer, director, or employee is entitled to receive any payment of any amount
under any existing agreement, severance plan or other benefit plan, 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 federal and state statutes and regulations which
govern workers' compensation, equal employment opportunity and equal pay.
4.13 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 exchange and cancellation 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.
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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 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. Company has conducted its business so as to comply in all material
respects with all such Licenses.
4.15 Compliance with Applicable Laws. The business and operations of
Company have been and are being conducted in compliance with all laws,
ordinances, regulations, rules, orders, judgments or decrees to which Company is
subject. Company holds, and the properties, assets, operations and businesses of
Company have been maintained and conducted in all material respects in
compliance with, all authorizations, permits, licenses, certificates, variances,
exemptions, orders, franchises, rights and approvals that are necessary for the
conduct of its businesses. No investigation or review by any governmental entity
with respect to Company is pending or, to the best knowledge of Company or
Shareholder, threatened, nor has any governmental entity indicated to Company an
intention to conduct the same.
4.16 Insurance. Schedule 4.16 hereto sets forth an accurate list, as of
July 31, 1997, 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 hereto 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. 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 best knowledge of Company and Shareholder, such
policies of insurance are of the type and in amounts carried by Persons
conducting businesses similar to that of Company. Neither Company nor
Shareholder knows of any 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 disclosed in Schedule 4.17 hereto,
since January 1, 1997, 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 Common 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,
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any of the outstanding shares of the Company Common Stock by Shareholder; (iv)
any amendment, termination or revocation, or any threat of any amendment,
termination, or revocation having a Material Adverse Effect, of any Material
Contract; (v) any sale, transfer, mortgage, pledge, or subjection to Lien of, on
or affecting any of the assets of the Company valued at or above $5,000
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 employee benefit plans not in existence in the fiscal year ended
December 31, 1996; (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 Company or Shareholder to take any action
which, if taken prior to the date hereof, would have made any representation or
warranty set forth in this Agreement untrue or incorrect as of the date when
made; or (xi) the commencement or notice or, to the best knowledge of Company
and Shareholder, threat of commencement of any lawsuit or proceeding against or
investigation of Company or any of its affairs.
4.18 Employee Plans. Schedule 4.18 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 FNFI, 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
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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.
4.19.1 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.
4.19.2 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, to the best knowledge of Company and
Shareholder, threatened any claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any Intellectual Property
or that the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, nor to the best knowledge of the
Company and Shareholder, is there any basis for any such assertion.
4.20 Environment, Health and Safety.
4.20.1 Company has complied with all Environmental, Health and
Safety Laws, except where failure to comply would not have a Material Adverse
Effect, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, 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 permits, 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.
4.20.2 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 reasonable basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand 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,
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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.
4.20.3 To the best of Company's and Shareholder's knowledge, all
properties used in its business are free of Hazardous Substances, except where
the existence thereof would not have a Material Adverse Effect.
4.21 Certain Transactions. There are no existing or pending
transactions, nor are there any agreements or understandings, between Company,
or Shareholder, or the officers, directors, or employees of Company, or any
person or entity affiliated with any of them, 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 Investment Representations. Shareholder is receiving the Fidelity
Shares for his own account for investment purposes only, 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. Shareholder acknowledges that the Fidelity Shares
to be issued hereunder will not be registered under the Securities Act, nor
qualified under any state securities laws on the ground, among others, that no
distribution or public offering is to be effected.
4.23 Absence of Claims Against Company. Shareholder has no claims
against the Company.
4.24 Bank Accounts; Powers of Attorney. Schedule 4.24 hereto sets forth
an accurate list, as of the date of this Agreement, of the following: (i) the
name of each financial institution in which Company has any account or safe
deposit box; (ii) the names in which the accounts or boxes are held; (iii) the
type of account; and (iv) the name of each person authorized to draw thereon or
have access thereto. Schedule 4.24 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.
4.25 Tax-Free Reorganization. This Agreement, the Merger and the
transactions contemplated thereby qualify, in all respects, as a tax-free
reorganization pursuant to Code Section 368 (a).
4.26 Real Property Leased by Shareholder to Company. The Leased Premises
of Company located at 2459 Nicholasville Road, Lexington, Kentucky 40503 (the
"Lexington Property"), is owned by Shareholder and Neile E. Ifland. Company is
not a party, whether as obligor, guarantor or otherwise, to any Indebtedness or
any
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other agreement or obligation (other than the Lease described in Schedule 4.8
hereto), that in any way relates to or is secured by the Lexington Property, and
no assets of Company have been pledged as security for any such Indebtedness or
other agreement or obligation.
4.27 Brokers' Fees. Neither Company nor Shareholder has any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
4.28 Full Disclosure. Neither this Agreement, the representations and
warranties by Company and/or Shareholder contained herein, the Exhibits or
Schedules hereto, nor any other written statement or certificate delivered or to
be furnished to FNFI 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 Company or Shareholder which has not been disclosed to
FNFI that would materially adversely affect Company's business or financial
condition or its ability to perform its obligations under this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF FNFI
FNFI and Newco represent and warrant to Company and Shareholder that
(except for changes contemplated by this Agreement) 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 FNFI and Newco on that date with the Closing Date being
substituted for the date of this Agreement throughout this Article 5):
5.1 Organization and Good Standing. FNFI and Newco are corporations duly
organized, validly existing and in good standing under the laws of the States of
Delaware and Kentucky, respectively, and have all requisite corporate power and
authority to own, operate and lease their properties and to carry on their
respective business as they are being conducted on the date of this Agreement.
FNFI and Newco have all requisite corporate power and authority to enter into
this Agreement and to perform their respective obligations hereunder with
respect to the consummation of the transactions contemplated hereby.
5.2 Authorization. The execution and delivery of this Agreement by FNFI
and Newco and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of FNFI and Newco,
respectively. This Agreement has been duly executed and delivered by FNFI and
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Newco and constitutes a legal, valid and binding obligation of FNFI and Newco,
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting the rights of creditors generally and by general equitable principles.
5.3 Noncontravention. Neither the execution and delivery of this
Agreement by FNFI and Newco nor the consummation of the transactions
contemplated hereby by FNFI and Newco will (i) violate any statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any Governmental Entity to which FNFI or Newco is subject or any provision of
the charter or bylaws of FNFI and Newco; or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument or other
arrangement to which either FNFI or Newco is a party or by which they are bound
or to which any of their assets is subject, except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, or failure to give notice would not have a material adverse effect
on the ability of FNFI and/or Newco to consummate the transactions contemplated
by this Agreement.
5.4 Fidelity SEC Documents. FNFI has filed all forms, reports and
documents required to be filed with the SEC (the "Fidelity SEC Documents"), all
of which have been made available to Company. As of their respective dates, the
Fidelity SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act, as the case may be, and the rules
and regulations of the SEC thereunder applicable to such Fidelity SEC Documents,
and none of the Fidelity SEC Documents contain 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, in light of the circumstances under
which they were made, not misleading. The financial statements of FNFI included
in the Fidelity SEC Documents comply in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto, or in the case of the unaudited interim financial statements, as
permitted by Form 10-Q promulgated by the SEC) and fairly present (subject, in
the case of the unaudited interim financial statements, to recurring audit
adjustments normal in nature and amount) the consolidated financial position of
FNFI as at the dates thereof and the consolidated results of its operations and
cash flows or changes in financial position for the periods then ended.
5.5 Fidelity Shares. All of the Fidelity Shares to be issued to
Shareholder in connection with the Merger shall be duly authorized, validly
issued, fully paid and non-assessable. Such shares shall be offered, issued,
sold and delivered by FNFI in compliance with all applicable state and federal
laws concerning the issuance of
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securities and none of such shares shall be issued in violation of the
preemptive rights of any shareholder of FNFI.
5.6 Brokers' Fees. Neither FNFI nor Newco is 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.
5.7 Disclosure. The representations and warranties contained in this
Article 5 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained herein, in light of the circumstances under which they are
made, not misleading.
ARTICLE 6
CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through
the Closing Date, Company and Shareholder, jointly and severally, covenant and
agree that:
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 materially from those methods
used by the Company as of July 31, 1997. 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.
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) except as provided in
Section 7.1(g), below, acquire by merging or consolidating with, or agreeing to
merge or consolidate with, or purchase substantially all 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
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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, records 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
with all requirements that applicable law may impose upon it and its operations
and with respect to the transactions contemplated by this Agreement, and shall
cooperate promptly with, and furnish information to, FNFI in connection with any
such requirements imposed upon FNFI, or upon any of its Affiliates, in
connection therewith or herewith.
6.7 Disposition of Assets. 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.
6.8 Compensation. 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 compensation of any kind, or any severance or termination pay
to, or enter into any employment or loan or loan guarantee agreement with, any
current or former officer, director, employee or consultant of Company.
6.9 Modification or Breach of Agreements; New Agreements. 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, disclosed in this Agreement or the Schedules hereto. 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.
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6.10 Capital Expenditures. 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 $5,000 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 Person required to be
obtained or made by any Party 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 and shall not do, permit or willingly allow
to be done any act by which any of said policies of insurance may be suspended,
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 of material value, 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 Actions. Company shall not institute, settle or agree to settle any
Action before any Governmental Entity.
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 FNFI a copy of all notices of
proposed assessment or similar notices or 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 Company and Shareholder. During the period from the
date hereof through the Closing Date, Company and Shareholder 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, FNFI
in connection with any such requirements imposed upon FNFI or upon any of its
Affiliates in connection therewith or herewith;
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(b) Use their reasonable best efforts to obtain (and to cooperate
with FNFI in obtaining) any consent, authorization or approval of, or exemption
by, any Person required to be obtained or made by Company and/or Shareholder in
connection with the transactions contemplated by this Agreement;
(c) Use their reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 8.1
below;
(d) Immediately advise FNFI orally and, within three (3) business
days thereafter, in writing of any change in Company's business or condition
that has had or may have a Material Adverse Effect;
(e) Deliver to FNFI 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 FNFI from terminating this Agreement pursuant to Section 9.1(b) hereof
at any time at or prior to the Closing in respect of any original untrue or
misleading statement;
(f) Obtain the release of Company or any assets of Company from
any Indebtedness, Liability, Lien or Security Interest incurred by Company that
in any way relates to the Lexington Property, except for any obligations
expressly incurred by Company under the Lease described in Schedule 4.8 hereto;
(g) Effect and consummate the merger of MicroCEL International
Corp., a Kentucky corporation ("MicroCEL), with and into Company in accordance
with the Kentucky Statute and upon such terms and conditions and in accordance
with such documentation pre-approved by FNFI in its absolute and sole
discretion. Upon the consummation of the above-described merger (i) all of the
assets and liabilities of MicroCEL existing as of July 31, 1997 (other than
assets and liabilities acquired or disposed of in the Ordinary Course of
Business) shall be merged into Company; and (ii) all of the capital stock of
MicroCEL, including all options, warrants, calls, conversions rights,
commitments or agreements of any character which relate to such capital stock,
shall be canceled and extinguished; and
(h) Shareholder shall at or prior to the Closing pay in full all
outstanding Indebtedness owed by Shareholder to Company.
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7.2 Covenants of FNFI. During the period from the date hereof to the
Closing Date, FNFI 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, Shareholder in
connection with any such requirements imposed upon the Shareholder or Company or
upon any of Company's Affiliates in connection therewith or herewith;
(b) Use its reasonable best efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by FNFI in connection with the transactions contemplated by
this Agreement;
(c) Use its reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 8.2 of
this Agreement; and
(d) Cause Surviving Corporation to continue at least one (1)
significant historical business line of Company, or use at least a significant
portion of Company's historical business assets in a business, in each case in
accordance with Treasury Regulation Section 1.368-1.
7.3 Access and Information.
(a) During the period commencing on the date hereof and
continuing through the Closing Date, Shareholder shall cause Company to afford
to FNFI and to FNFI's accountants, counsel, and other representatives,
reasonable access to all of its properties, books, contracts, commitments,
records and personnel and, during such period, to cause Company to furnish
promptly to FNFI all information concerning its business, properties and
personnel as FNFI may reasonably request.
(b) Except to the extent permitted by the provisions of Section
7.6 below, FNFI 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 Shareholder or Company concerning Company and
shall not disclose such information to any third party 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 FNFI or
its representatives; (ii) becomes available to FNFI or its representatives from
a third party other than Shareholder or Company, and FNFI or its representatives
have no reason to believe that such third party is not entitled to disclose such
information; (iii) is known to FNFI or its representatives on a non-confidential
basis prior to its disclosure by Shareholder or Company; or (iv) is made
available by Shareholder or Company to any other Person on a non-restricted
basis. FNFI's
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obligations under the foregoing sentence shall expire on the Closing Date or, if
the closing does not occur, one year after the date hereof.
7.4 Responsibility for Certain Potential Liabilities. Shareholder shall
assume and be responsible for any and all Liability, including without
limitation any and all Tax Liability, caused by, arising from, or related to the
failure of the Merger to qualify, in any respects, as a tax-free reorganization
pursuant to Code Section 368 (a).
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 may result in the failure to satisfy any of
the conditions specified in Article 8, below.
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.
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 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, Shareholder
and the proper officers or directors of FNFI and Company, 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 convenient documentation.
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7.9 Competing Offers. Shareholder agrees that he will not, and will
cause Company not to, directly or indirectly, through an officer, director,
agent, or otherwise, solicit, initiate or encourage the submissions of bids,
offers or proposals by, any Person with respect to an acquisition of Company or
its assets or capital stock or a merger or similar transaction, and Shareholder
will not, and will not permit Company to, engage any broker, financial adviser
or consultant to initiate or encourage proposals or offers from other Persons.
Furthermore, Shareholder shall not, and shall not permit Company to, directly or
indirectly, through any officer, director, agent or otherwise, engage in
negotiations concerning any such transaction with, or provide information to,
any Person other than FNFI and its representatives with a view to engaging, or
preparing to engage, that Person with respect to any matters in this Section
7.9. Shareholder shall ensure that Company shall not commence any proceeding to
merge, consolidate or liquidate or dissolve or obligate itself to do so.
7.10 Post-Termination Employment. Company and Shareholder acknowledge
and agree that after the Effective Time (i) neither FNFI nor Surviving
Corporation shall be required to employ or retain any employee of Company or any
other Person; and (ii) FNFI, in its sole and absolute discretion, may cause
Surviving Corporation to retain all, some, or none or such employees.
7.11 Employment Agreement. On or before the Closing Date, Shareholder
and the appropriate officer of Company shall execute the Employment Agreement
substantially in the form of Exhibit B hereto.
7.12 Registration Rights Agreement. On or before the Closing Date,
Shareholder and FNFI shall execute the Registration Rights Agreement
substantially in the form of Exhibit C hereto.
7.13 Restated Amendment to Lease Agreement. On or before the Closing
Date, Company and the appropriate Persons shall execute the Restated Amendment
to Lease Agreement substantially in the form of Exhibit G hereto.
ARTICLE 8
CONDITIONS PRECEDENT TO CLOSING
8.1. Conditions of FNFI. FNFI's obligations hereunder to consummate the
Merger are subject to the satisfaction, at or prior to the Effective Time, of
all of the following conditions:
(a) Representations and Warranties True: Performance of
Obligations. The representations and warranties made by Company and Shareholder
in this Agreement shall be true, correct and complete on and as of the Closing
Date
28
<PAGE> 30
with the same force and effect as if they had been made on and as of said date;
and Company and 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 Effective Time.
(b) Material Adverse Effect. No act, event or condition shall
have occurred after the date hereof which FNFI determines in its absolute and
sole discretion has had or could have a Material Adverse Effect.
(c) Authorizations and Approvals. 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) Investigation of Company. FNFI shall have concluded (through
its representatives, accountants, counsel and other experts) a due diligence
investigation of the business, condition (financial and other), properties,
assets, prospects, operations and affairs of Company and shall be satisfied, in
its absolute and sole discretion, with the results thereof.
(e) Deliveries. FNFI shall have received from the appropriate
Party or Person, the delivery obligations set forth in Sections 3.3 through 3.5,
below.
(f) Schedules. Shareholder shall cause Company to deliver all of
the Schedules to this Agreement set forth in Article 4 above, and FNFI shall be
satisfied with such Schedules in its absolute and sole discretion.
(g) No Actions. There shall not be instituted and pending or
threatened any Action before any Governmental Entity (i) challenging the Merger
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 FNFI of all or a material portion of the
business or assets of Company, or to compel FNFI or Company to dispose of or
hold separate all or a material portion of the business or assets of Company or
FNFI.
(h) 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 FNFI and its counsel.
29
<PAGE> 31
(i) 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 Party (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 FNFI or any
Party or Person to be affected by such condition.
(j) FNFI Board Approval. The approval by the board of Directors
of FNFI of this Agreement and the transactions contemplated thereby.
8.2 Conditions of Company and Shareholder. Company's and Shareholder's
obligations hereunder to consummate the Merger are subject to the satisfaction,
at or prior to the Effective Time, of the following conditions:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by FNFI and Newco in this
Agreement 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 FNFI and Newco 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 consents, if any, from third parties, including from any Governmental Entity
or other Person, necessary for the consummation of the transactions contemplated
hereby shall have been obtained.
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time:
(a) By mutual consent of the FNFI and Shareholder;
(b) By Shareholder and Company as a group, on the one hand, or by
FNFI, on the other hand, if there has been a material breach, failure to fulfill
or default on the part of the other 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
30
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(c) By Shareholder and Company as a group, on the one hand, or by
FNFI, on the other hand, if there shall be a final non-appealable order of a
federal or state court in effect preventing consummation of the Merger; or there
shall be any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any Governmental
Entity which would make the consummation of the Merger illegal.
9.2 Effect of Termination. In the case of any termination of this
Agreement pursuant to Section 9.1, 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 7.3 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 9.1(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.
9.3 Amendment. This Agreement may be amended at any time by a written
instrument executed by the Parties. Any amendment effected pursuant to this
Section 9.3 shall be binding upon all Parties.
9.4 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 9.4 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 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 10
INDEMNIFICATION
10.1 Indemnification by Company and Shareholder. Company and
Shareholder, jointly and severally, covenant and agree to indemnify, defend,
protect and hold harmless FNFI, Newco and Surviving Corporation and their
respective officers, directors, employees, shareholders, assigns, successors and
affiliates (a "FNFI Indemnified Party") from, against and in respect of:
31
<PAGE> 33
(a) All Claims suffered, sustained, incurred or paid by any FNFI
Indemnified Party in connection with resulting from or arising out of, directly
or indirectly:
(i) any breach of any representation or warranty of
Shareholder or Company set forth in this Agreement or any certificate, document
or instrument delivered by or on behalf of Shareholder or Company in connection
herewith;
(ii) any non-fulfillment of any covenant or agreement on
the part of Shareholder or Company in this Agreement; or
(iii) the business, operations or assets of Company prior
to the Closing Date, except as otherwise disclosed in the financial statements
set forth on Schedule 4.5 hereto; and
(b) Any and all Claims incident to any of the foregoing or to the
enforcement of this Section 10.1.
Payment shall not be a condition precedent to recovery under the above
indemnities. The indemnification obligations set forth above or in any writing
delivered by Company and/or Shareholder pursuant hereto or at the Closing shall
survive the Closing and the consummation of the transactions contemplated hereby
until the third (3rd) anniversary of the Closing Date; provided, however, that
the indemnification obligations with respect to the representations and
warranties contained in Sections 4.2, 4.4, 4.11 and 4.20, and the covenants
contained in Sections 7.1(f), 7.1(g) and 7.4 shall not terminate but shall
continue indefinitely; and provided further that Company's indemnification
obligations under this Section 10.1 shall terminate immediately subsequent to
the Effective Time.
10.2 Indemnification by FNFI. FNFI covenants and agrees to indemnify,
defend, protect and hold harmless Shareholder and his heirs, successors and
assigns (a "Shareholder Indemnified Party") from, against and in respect of:
(a) All Claims suffered, sustained, incurred or paid by any
Shareholder Indemnified Party in connection with resulting from or arising out
of, directly or indirectly:
(i) any breach of any representation or warranty of FNFI
or Newco set forth in this Agreement or any certificate, document or instrument
delivered by or on behalf of FNFI or Newco in connection herewith; or
(ii) any non-fulfillment of any covenant or agreement on
the part of FNFI or Newco in this Agreement; and
32
<PAGE> 34
(b) Any and all Claims incident to any of the foregoing or to the
enforcement of this Section 10.2.
Payment shall not be a condition precedent to recovery under the above
indemnities.
10.3 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 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 Article 10, the
reference to this Agreement includes any certificate, 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.
10.4 Indemnification Non-Exclusive. The foregoing indemnification
provisions 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.
ARTICLE 11
GENERAL PROVISIONS
11.1 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.
11.2 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.
11.3 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
33
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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.
11.4 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.
11.5 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 FNFI, addressed to:
Fidelity National Financial, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Attn: Andrew F. Puzder
Facsimile: (805) 898-7149
(b) If to Shareholder and Company, addressed to:
ICS Ifland Credit Services, Inc.
2459 Nicholasville Road
Lexington, Kentucky 40503
Attn: Rick Ifland
Facsimile: (800) 860-8108
With a copy to:
John S. Sawyer, Esq.
Sawyer & Glancy PLLC
3120 Wall Street, Suite 310
Lexington, Kentucky 40513
Facsimile: (606) 223-1583
34
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11.6 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.
11.7 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.
11.8 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.
11.9 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.
11.10 Tax Advice. Company and Shareholder acknowledge that they have
received their own independent tax advice with respect to the Merger, this
Agreement and the transactions contemplated thereby, including whether the
Merger qualifies as a tax free reorganization in accordance with Section 368(a)
of the Code, and are not in any way relying on any statements or advice of FNFI,
Newco or any of their officers, directors, employees, agents or representatives.
35
<PAGE> 37
IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the
date first above written.
FNFI:
FIDELITY NATIONAL FINANCIAL, INC.,
a Delaware Corporation
By: /s/ ANDREW F. PUZDER
-----------------------------------
Its: EXECUTIVE VICE PRESIDENT
-----------------------------------
COMPANY:
ICS IFLAND CREDIT SERVICES, INC.,
a Kentucky Corporation
By: /s/ RICK W. IFLAND
-----------------------------------
Its: PRESIDENT
-----------------------------------
SHAREHOLDER:
/s/ RICK W. IFLAND
-----------------------------------
Rick W. Ifland
NEWCO:
ICS ACQUISITION CORPORATION,
a Kentucky Corporation
By: /s/ ANDREW F. PUZDER
-----------------------------------
Its: VICE PRESIDENT
-----------------------------------
36
<PAGE> 1
EXHIBIT 10.49
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
FIDELITY NATIONAL FINANCIAL, INC.
BRON ACQUISITION CORPORATION
BRON RESEARCH, INC.,
AND
THE SHAREHOLDERS OF BRON RESEARCH, INC.
DATED AS OF SEPTEMBER 24, 1997
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C> <C>
RECITALS.................................................................................... 1
INDEX OF EXHIBITS........................................................................... iv
INDEX OF SCHEDULES.......................................................................... iv
ARTICLE I
Certain Definitions.................................. 2
ARTICLE 2
Plan of Reorganization................................. 7
2.1 The Merger......................................................................... 7
2.2 Conversion of Securities........................................................... 7
ARTICLE 3
Closing........................................ 9
3.1. Closing............................................................................ 9
3.2 Mutual Deliveries at Closing....................................................... 9
3.3 Shareholders' Deliveries at Closing................................................ 9
3.4 Company's Deliveries at Closing.................................................... 9
3.5 FNFI's Deliveries at Closing....................................................... 10
3.6 Conditions of FNFI................................................................. 11
3.7 Conditions of Company and Shareholders............................................. 12
ARTICLE 4
Representations and Warranties of Company and Shareholders................ 14
4.1 Representations and Warranties of Company.......................................... 14
4.1.1 Organization and Standing; Articles and Bylaws............................ 14
4.1.2 Authorization............................................................. 14
4.1.3 Subsidiaries.............................................................. 14
4.1.4 Capitalization............................................................ 14
4.1.5 Financial Statements...................................................... 15
4.1.6 Material Contracts........................................................ 16
4.1.7 Assets Other Than Real Property........................................... 16
4.1.8 Real Property............................................................. 16
4.1.9 No Conflicts.............................................................. 17
4.1.10 Litigation................................................................ 17
4.1.11 Taxes..................................................................... 17
4.1.12 Employees................................................................. 18
4.1.13 Governmental Consents..................................................... 18
4.1.14 Operating Rights.......................................................... 18
</TABLE>
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<TABLE>
<S> <C> <C>
4.1.15 Compliance with Applicable Laws........................................... 18
4.1.16 Insurance................................................................. 19
4.1.17 Absence of Changes........................................................ 19
4.1.18 Employee Plans............................................................ 20
4.1.19 Intellectual Property Rights.............................................. 20
4.1.20 Environment, Health and Safety............................................ 21
4.1.21 Certain Transactions...................................................... 21
4.1.22 Bank Accounts; Powers of Attorney......................................... 21
4.1.23 Tax-Free Reorganization................................................... 22
4.1.24 Employee Loans............................................................ 22
4.1.25 Pooling................................................................... 22
4.1.26 Brokers' Fees............................................................. 22
4.1.27 Full Disclosure........................................................... 22
4.2 Representations and Warranties of Shareholders..................................... 22
4.2.1 Authority................................................................. 22
4.2.2 Ownership of Shares....................................................... 22
4.2.3 No Conflicts.............................................................. 23
4.2.4 Litigation................................................................ 23
4.2.5 Certain Transactions...................................................... 23
4.2.6 Investment Representations................................................ 23
4.2.7 Absence of Claims Against Company......................................... 24
4.2.8 Tax-Free Reorganization................................................... 24
4.2.9 Continuity of Interest.................................................... 24
4.2.10 Pooling................................................................... 24
4.2.11 Brokers' Fees............................................................. 24
4.2.12 Disclosure................................................................ 24
ARTICLE 5
Representations and Warranties of FNFI and Newco.................... 24
5.1 Organization and Standing; Articles and Bylaws..................................... 25
5.2 Authorization...................................................................... 25
5.3 No Conflicts....................................................................... 25
5.4 Fidelity SEC Documents............................................................. 25
5.5 Fidelity Common Stock.............................................................. 26
5.6 Governmental Consents.............................................................. 26
5.7 Tax-Free Reorganization............................................................ 26
5.8 Brokers' Fees...................................................................... 26
5.9 Full Disclosure.................................................................... 26
ARTICLE 6
Conduct of Business Pending Closing.......................... 27
6.1 Qualification...................................................................... 27
6.2 Ordinary Course.................................................................... 27
6.3 Corporate Changes.................................................................. 27
</TABLE>
ii
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<TABLE>
<S> <C> <C>
6.4 Indebtedness....................................................................... 27
6.5 Accounting......................................................................... 27
6.6 Compliance with Legal Requirements................................................. 28
6.7 Disposition of Assets.............................................................. 28
6.8 Compensation....................................................................... 28
6.9 Modification or Breach of Agreements; New Agreements............................... 28
6.10 Capital Expenditures............................................................... 28
6.11 Consents........................................................................... 28
6.12 Maintenance of Insurance........................................................... 29
6.13 Discharge.......................................................................... 29
6.14 Claims............................................................................. 29
6.15 Taxes and Tax Assessments.......................................................... 29
ARTICLE 7
Additional Covenants.................................. 29
7.1 Covenants of Company and Shareholders.............................................. 29
7.2 Covenants of FNFI and Newco........................................................ 30
7.3 Tax-Free Reorganization/Tax Advice................................................. 31
7.4 Continuity of Interest............................................................. 31
7.5 Access and Information............................................................. 31
7.6 Expenses........................................................................... 32
7.7 Certain Notifications.............................................................. 32
7.8 Publicity.......................................................................... 32
7.9 Further Assurances................................................................. 32
7.10 Competing Offers................................................................... 33
7.11 Post-Termination Employment........................................................ 33
7.12 NYSE Listing....................................................................... 33
7.13 Employee Benefits.................................................................. 33
7.14 Supplements to Schedules........................................................... 34
7.15 Officer and Director Indemnity..................................................... 34
ARTICLE 8
[Omitted].......................................................................... 34
ARTICLE 9
Termination, Amendment and Waiver........................... 34
9.1 Termination........................................................................ 34
9.2 Effect of Termination.............................................................. 34
9.3 Amendment.......................................................................... 35
9.4 Waiver............................................................................. 35
ARTICLE 10
Indemnification.................................... 35
10.1 Survival of Representations and Warranties......................................... 35
</TABLE>
iii
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<TABLE>
<S> <C> <C>
10.2 Indemnification by Company and Shareholders........................................ 35
10.3 Indemnification by FNFI............................................................ 36
10.4 Third-Party Claims................................................................. 36
10.5 Additional Indemnification Provisions.............................................. 36
10.6 Indemnification Non-Exclusive...................................................... 37
10.7 Access and Information............................................................. 37
10.8 Mitigation......................................................................... 37
10.9 Right of Set-Off................................................................... 37
ARTICLE 11
General Provisions................................... 38
11.1 Governing Law...................................................................... 38
11.2 Successors and Assigns............................................................. 38
11.3 Entire Agreement................................................................... 38
11.4 Severability....................................................................... 38
11.5 Notice............................................................................. 38
11.6 Pooling............................................................................ 40
11.7 Construction....................................................................... 40
11.8 Headings........................................................................... 40
11.9 Counterparts....................................................................... 40
11.10 Recitals, Schedules, and Exhibits.................................................. 40
</TABLE>
INDEX OF EXHIBITS
EXHIBIT A - Articles of Merger
EXHIBIT B - Employment Agreement of Brian J. Balli
EXHIBIT C - Employment Agreement of Ronald F. Herrman, Jr.
EXHIBIT D - Registration Rights Agreement
EXHIBIT E - Officer's Certificate of the Company
EXHIBIT F - Secretary's Certificate of the Company
EXHIBIT G - Opinion of Counsel to the Company
EXHIBIT H - Officer's Certificate of FNFI
EXHIBIT I - Opinion of Counsel to FNFI
INDEX OF SCHEDULES
Schedule 2.1(c)(1) List of Directors of Surviving Corporation
Schedule 2.1(c)(2) List of Officers of Surviving Corporation
Schedule 2.2(d) Allocation of Fidelity Common Stock
Company Disclosure Schedule
iv
<PAGE> 6
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of this 24th day of September, 1997, by and among FIDELITY
NATIONAL FINANCIAL, INC., a Delaware corporation ("FNFI"); BRON RESEARCH, INC.,
a Texas corporation ("Company"); BRIAN J. BALLI, RONALD F. HERRMAN, JR. and RYAN
F. HERRMAN (collectively, "Shareholders"); and BRON ACQUISITION CORPORATION, a
Texas corporation that is a newly-formed, wholly-owned subsidiary of FNFI
("Newco"). FNFI, Company, Shareholders, and Newco are sometimes referred to
collectively herein as the "Parties" or singularly as a "Party."
RECITALS
A. Shareholders are the record and beneficial owners of all the issued
and outstanding shares of capital stock of Company (the "Company Shares").
B. The respective Boards of Directors of FNFI, Company and Newco deem it
advisable and in the best interests of their respective shareholders that Newco
merge with and into Company (the "Merger") pursuant to this Agreement, the
Articles of Merger substantially in the form attached hereto as Exhibit "A" (the
"Articles of Merger") and the applicable provisions of the laws of the State of
Texas.
C. The Parties hereto expect that the Merger will further certain of
their business objectives, including, without limitation, increased market
share, reduced administrative costs and volume efficiencies.
D. The Boards of Directors of FNFI, Company and Newco have approved and
adopted this Agreement as a plan of reorganization within the provisions of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
E. The Parties intend that the Merger be accounted for as a pooling of
interests.
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:
1
<PAGE> 7
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 any of the terms herein
defined. 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" shall mean, 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.
"Articles of Merger" has the meaning set forth in Recital B, above.
"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" shall 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" shall mean 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.
"Closing Fidelity Price" means the average of the per share closing
sales price of FNFI's Common Stock publicly traded on the New York Stock
Exchange for the ten (10) consecutive trading days ending September 22, 1997.
"Code" has the meaning set forth in Recital D, above.
"Company Shares" has the meaning set forth in Recital A.
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"Company Stock" means shares of Common Stock, no par value, of Company.
"Confidential Information" means any information concerning the
businesses and affairs of any of the Parties that is not already generally
available to the public.
"Effective Time" has the meaning set forth in Section 3.1, below.
"Employee Plan" shall mean 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, of the Company.
"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 other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws 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, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fidelity Common Stock" means the shares of Common Stock, par value of
$0.0001 per share, of FNFI.
"GAAP" means United States generally accepted accounting principles.
"Governmental Entity" shall mean any court, federal, state, local or
foreign government or any administrative agency or commission or any other
governmental authority or instrumentality whatsoever.
"Hazardous Substances" shall mean any hazardous, toxic or infectious
substance, material, gas or waste which is regulated by any local, state or
federal Governmental Entity.
"Indebtedness" shall mean, 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
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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
reissuances, 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, 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" with respect to Company means that Brian J. Balli or Ronald
F. Herrman, Jr. 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. "Knowledge" with respect to a
Shareholder means that such Shareholder 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, but only to the
extent such fact or matter relates to that Shareholder individually.
"Legal Requirement" shall mean 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.
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"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 any liability for
Taxes.
"Licenses" has the meaning set forth in Section 4.1.4, below.
"Lien" shall mean all liens (including judgment and mechanics' liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or otherwise), deeds of trust,
options or other charges, encumbrances or restrictions.
"Losses" shall mean any and all Liabilities, 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
Company or FNFI, as applicable; or (ii) the legal right or authorization of
Company or FNFI, as applicable, to continue to operate its business.
"Material Contracts" with respect to Company or Newco 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 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 Newco or Company, as applicable, 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
Newco or Company, as applicable, 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 Newco or
Company, as applicable; (ix) any agreements, contracts or commitments relating
to the
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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 Newco or Company, as applicable; (x) any contracts with a
Governmental Entity subject to price redetermination or renegotiation; or (xi)
any other agreement, contract or commitment which is material to Newco or
Company, as applicable. "Material Contracts" with respect to FNFI means any
agreement, contract or commitment which (i) is material to FNFI or (ii) FNFI
files or is requested to file with its SEC reports.
"Merger" has the meaning set forth in Recital B, above.
"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; (iii)
purchase money liens and liens securing rental payments under capital lease
arrangements; and (iv) liens arising in the Ordinary Course of Business and not
incurred in connection with the borrowing of money.
"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.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge or Lien, other than
Permitted Liens.
"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.
"Surviving Corporation" has the meaning set forth in Section 2.1(a),
below.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental,
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customs, duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value 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.
"TBCA" means the Texas Business Corporation Act, as amended.
ARTICLE 2
PLAN OF REORGANIZATION
2.1 The Merger.
(a) The Merger. At the Effective Time (as defined in Section 3.1,
below), Newco shall be merged with and into Company pursuant to this Agreement
and the Articles of Merger, and the separate existence of Newco shall cease, all
in accordance with the TBCA. Company, as it exists from and after the Effective
Time, is sometimes referred to herein as the "Surviving Corporation."
(b) Effect of the Merger. Subject to the terms and conditions of
this Agreement and the Articles of Merger, at the Effective Time (i) the
separate existence of Newco shall cease and Newco shall be merged with and into
Company; and (ii) the Merger shall have all the effects provided by the TBCA,
this Agreement and the Articles of Merger.
(c) Articles of Incorporation; Bylaws; Directors and Officers.
The Articles of Incorporation of Surviving Corporation from and after the
Effective Time shall be the Articles of Incorporation of Company until
thereafter amended in accordance with the provisions therein and as provided by
the TBCA. The Bylaws of Surviving Corporation from and after the Effective Time
shall be the Bylaws of Company as in effect immediately prior to the Effective
Time, continuing until thereafter amended in accordance with their terms and the
Articles of Incorporation of Surviving Corporation and as provided by the TBCA.
The initial directors of Surviving Corporation shall be the individuals set
forth on Schedule 2.1(c)(1) hereto, in each case until their successors are
elected and qualified. The initial officers of Surviving Corporation shall be
those individuals holding such titles set forth on Schedule 2.1(c)(2) hereto, in
each case until their successors are duly elected and qualified.
2.2 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of FNFI, Newco, Company or
Shareholders, the shares of capital stock of Newco and Company shall be
converted as follows:
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(a) Capital Stock of Newco. Each issued and outstanding share of
capital stock of Newco shall continue to be issued and outstanding and shall be
converted into one (1) validly issued, fully paid and non-assessable share of
Company Stock.
(b) Cancellation of Certain Shares of Capital Stock of Company.
All shares of capital stock of Company that are owned directly or indirectly by
Company, including all treasury shares and all capital stock which has been
authorized but not issued, shall be canceled and no consideration shall be
delivered in exchange therefor.
(c) Conversion of Company Shares. The Company Shares shall
automatically be canceled, extinguished and converted, without any action on the
part of the holder thereof, into the right to receive shares of Fidelity Common
Stock, as more fully described in subsection (d), below. All Company Shares,
when so converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and Shareholders shall cease to
have any rights with respect thereto, except the right to receive the shares of
Fidelity Common Stock to be paid or issued in consideration therefor upon the
surrender of the Certificates in accordance with subsection (e), below.
(d) Consideration. In consideration for the cancellation and
exchange by Shareholders of the Company Shares, FNFI shall, as soon as
practicable after the Effective Time, issue and deliver to Shareholders Nine
Million Eight Hundred Fifty Thousand Dollars ($9,850,000) of Fidelity Common
Stock, either held in treasury and transferred to Shareholders or newly issued
by FNFI to Shareholders. The exact number of shares of Fidelity Common Stock to
be issued pursuant to this subsection (d) shall be determined by dividing
$9,850,000 by the Closing Fidelity Price and shall be set forth on a certificate
to be agreed to by the Parties at Closing. The Fidelity Common Stock due
Shareholders under this subsection (d) shall be allocated among the Shareholders
in accordance with Schedule 2.2(d) hereto.
(e) Certificate Delivery Requirement. At the Closing,
Shareholders shall deliver to FNFI, against delivery (and written confirmation
thereof) by FNFI of irrevocable instructions to FNFI's transfer agent to issue
the number of shares of Fidelity Common Stock determined in accordance with
subsection (d), above, in the names of Shareholders in the respective amounts
set forth on Schedule 2.2(d) hereto, the certificates (the "Certificates")
representing the Company Shares, duly endorsed in blank by Shareholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps affixed and canceled. The Certificates so delivered shall be
promptly canceled. Until delivered as contemplated by this subsection (e), each
Certificate shall be deemed at any time after the Effective Time to represent
the right to receive upon such surrender a pro rata portion of Fidelity Common
Stock set forth in subsection (d), above.
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ARTICLE 3
CLOSING
3.1. Closing. The consummation of the Merger and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of FNFI, located at 3916 State Street, Suite 300, Santa Barbara, California
93105, 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 3.6 and 3.7,
below (including, without limitation, the Requisite Regulatory Approvals), or
such other date, time, place and manner as the Parties may mutually agree. On
the Closing Date, the Articles of Merger and any required officers'
certificates, shall be filed with the Secretary of State of the State of Texas
in accordance with the provisions of the TBCA. The Merger shall become effective
upon such filing or such later time on the Closing Date as may be specified in
the filing with the Secretary of State of the State of Texas (the "Effective
Time").
3.2 Mutual Deliveries at Closing. Provided that all of the conditions to
the Closing set forth in Sections 3.6 and 3.7, below, have been satisfied or
waived by the Party benefitting therefrom, the appropriate Parties or Persons
shall execute and deliver or cause to be delivered to the appropriate Parties at
Closing the following:
(a) The Employment Agreements in substantially the form of
Exhibits "B" and "C" hereto; and
(b) The Registration Rights Agreement substantially in the form
of Exhibit "D" hereto.
3.3 Shareholders' Deliveries at Closing. Provided that all of the
conditions to the Closing set forth in Sections 3.6 and 3.7, below, have been
satisfied or waived by the Party benefiting therefrom, Shareholders shall
execute and deliver or cause to be delivered to FNFI at the Closing the
following documents:
(a) The Certificates, in accordance with Section 2.2(e), above;
(b) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested by FNFI in order to consummate
the transactions contemplated hereby.
3.4 Company's Deliveries at Closing. Provided that all of the conditions
to the closing set forth in Sections 3.6 and 3.7, below, have been satisfied or
waived from the Party benefitting therefrom, Company shall execute and deliver
or cause to be delivered to FNFI at the Closing the following:
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(a) An Officer's Certificate of the Company dated the Closing
Date substantially in the form of Exhibit "E" hereto;
(b) A Secretary's Certificate of the Company dated the Closing
Date substantially in the form of Exhibit "F" hereto;
(c) An opinion of counsel to the Company substantially in the
form of Exhibit "G" hereto;
(d) 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; and
(e) A good standing certificate of Company, dated within fifteen
(15) business days of the Closing Date, for each jurisdiction in which Company
is required to be qualified and authorized to do business;
(f) Minutes of the Board of Directors and shareholders of Company
authorizing and approving this agreement and the transactions contemplated
herein;
(g) Subject to reappointment as provided in Schedule 2.1(c)(1)
and Schedule 2.2(c)(2) hereto, resignations of all of the officers and directors
of Company effective as of the Closing Date; and
(h) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested in writing by FNFI at least
five (5) days prior to the Closing Date in order to consummate the transactions
contemplated hereby.
3.5 FNFI's Deliveries at Closing. Provided that all of the conditions to
the Closing set forth in Sections 3.6 and 3.7, below, have been satisfied or
waived by the Party benefiting therefrom, FNFI shall execute and deliver or
cause to be delivered to Shareholders as soon as practicable following the
Effective Time the following:
(a) The Fidelity Common Stock in accordance with Section 2.2(d),
above;
(b) An Officer's Certificate of FNFI and Newco dated the Closing
Date substantially in the form of Exhibit "H" hereto;
(c) Minutes of the Board of Directors and shareholders of FNFI
and Newco authorizing and approving this agreement and the transactions
contemplated herein;
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(d) An opinion of counsel to FNFI substantially in the form of
Exhibit "I" hereto; and
(e) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested in writing by Shareholders at
least (5) days prior to the Closing Date in order to consummate the transactions
contemplated hereby.
3.6 Conditions of FNFI. FNFI's obligations hereunder to consummate the
Merger are subject to the satisfaction, at or prior to the Effective Time, of
all of the following conditions:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by Company and Shareholders
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 Company and Shareholders 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 Effective Time.
(b) Material Adverse Effect. No act, event or condition shall
have occurred after the date hereof which FNFI determines in its reasonable
discretion has had or could have a Material Adverse Effect on Company.
(c) Authorizations and Approvals. 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) Investigation of Company. FNFI shall have concluded (through
its representatives, accountants, counsel and other experts) a due diligence
investigation of the business, condition (financial, legal and other),
properties, assets, prospects, operations and affairs of Company and shall be
satisfied, in its absolute and sole discretion, with the results thereof.
(e) Deliveries. FNFI shall have received from the appropriate
Party or Person, the delivery obligations set forth in Sections 3.2 through 3.4,
above.
(f) Schedules. FNFI shall be satisfied in its absolute and sole
discretion with any written statement and/or supplement provided by Shareholders
and/or Company pursuant to Section 7.14, below.
(g) No Claims. There shall not be instituted and pending or
threatened any Claims before any Governmental Entity (i) challenging the Merger
or otherwise seeking to restrain or prohibit the consummation of the
transactions contemplated hereby, or (ii) seeking
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to prohibit the direct or indirect ownership or operation by FNFI of all or a
material portion of the business or assets of Company, or to compel FNFI or
Company to dispose of or hold separate all or a material portion of the business
or assets of Company or FNFI.
(h) 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 FNFI and its counsel.
(i) 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 Party (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 FNFI or any
Party or Person to be affected by such condition.
(j) Pooling. FNFI shall be satisfied, upon advice from its
regular outside accountants, that the business combination to be effected by the
Merger and the other transactions related thereto can be accounted for as a
pooling of interests.
(k) Employment Agreements. Brian J. Balli and Ronald F. Herrman
shall have entered into the Employment Agreements with Surviving Corporation
substantially in the forms attached hereto as Exhibits "B" and "C" hereto.
(l) Registration Rights Agreement. Shareholders shall have
entered into the Registration Rights Agreement substantially in the form of
Exhibit "D" hereto.
3.7 Conditions of Company and Shareholders. Company's and Shareholders'
obligations hereunder to consummate the Merger are subject to the satisfaction,
at or prior to the Effective Time, of the following conditions:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by FNFI and Newco 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 FNFI and Newco 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 Effective
Time.
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(b) Material Adverse Effect. No act, event or condition shall
have occurred after the date hereof which Company determines in its reasonable
discretion has had or could have a Material Adverse Effect on FNFI.
(c) Authorizations and Approvals. All authorizations, approvals
or consents, if any, from third parties, including from any Governmental Entity
or other Person, necessary for the consummation of the transactions contemplated
hereby shall have been obtained.
(d) NYSE Listing. FNFI shall have made such filings as are
necessary with the New York Stock Exchange regarding the transactions
contemplated hereby and the shares of Fidelity Common Stock to be issued under
this Agreement shall have been filed for listing on the NYSE, subject only to
official notice of issuance.
(e) Deliveries. Company or Shareholders, as appropriate, shall
have received from FNFI the delivery obligations set forth in Sections 3.2 and
3.5, above.
(f) 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 Company and its counsel.
(g) No Claims. There shall not be instituted and pending or
threatened any Claims before any Governmental Entity (i) challenging the Merger
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 FNFI of all or a material portion of the
business or assets of Company, or to compel FNFI or Company to dispose of or
hold separate all or a material portion of the business or assets of Company or
FNFI.
(h) Requisite Regulatory Approvals. 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 Company or any
Party or Person to be affected by such condition.
(i) Employment Agreements. FNFI shall have afforded Brian J.
Balli and Ronald F. Herrman, Jr. an opportunity to enter into the Employment
Agreements with Surviving Corporation substantially in the forms attached hereto
as Exhibits "B" and "C" hereto.
(j) Registration Rights Agreement. FNFI shall have afforded
Shareholders an opportunity to enter into the Registration Rights Agreement
substantially in the form of Exhibit "D" hereto.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS
4.1 Representations and Warranties of Company. Company represents and
warrants to FNFI, Newco and Surviving Corporation 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 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 Company on that date with the Closing Date
being substituted for the date of this Agreement throughout this Article 4.1):
4.1.1 Organization and Standing; Articles and Bylaws. Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Texas, has full power and authority to own its assets and
properties and to carry on its 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.
Company has furnished FNFI 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 Closing Date.
4.1.2 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,
the performance of all of Company's obligations hereunder and thereunder, and
for the exchange and cancellation of the Company Shares 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 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.
4.1.3 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.
4.1.4 Capitalization. The authorized capital stock of Company
consists of 10,000 shares of Common Stock, no par value, of which 1,000 shares
are issued and outstanding as of the date of this Agreement. All of the Company
Shares have been duly authorized and validly issued and are fully paid and
non-assessable. All of the Company Shares were offered, issued, sold and
delivered by Company in compliance with all applicable state and federal laws
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concerning the issuance of securities. None of the Company Shares were issued in
violation of any preemptive rights created by statue, or by Company's charter
documents, or by any agreement to which Company may be bound.
Schedule 4.1.4 to the Disclosure Schedule hereto contains a complete
list of, and the number of shares owned of record by, the holders of the issued
and outstanding Company Stock.
There are no outstanding shares of Company 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 Company
may be bound that do or may obligate Company to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of Company Stock, preferred
stock or other equity securities or that do or may obligate 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. Other than pursuant to the merger
referenced in Section 7.1(f) or as provided in or contemplated by this
Agreement, Company has not, or prior to the Effective Time 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. As a result of the Merger, FNFI will be the
record and beneficial owner of all outstanding capital stock of Company and
rights to acquire capital stock of Company.
4.1.5 Financial Statements. Schedule 4.1.5 to the Disclosure
Schedule hereto includes (i) true, complete and correct copies of Company's
unaudited balance sheet as of December 31, 1996 (the end of its most recently
completed fiscal year) and statements of income, cash flows and retained
earnings for the year ended December 31, 1996; and (ii) true, complete and
correct copies of Company's unaudited balance sheet as of August 31, 1997 and
statements of income and cash flows for the period then ended. The above
described financial statements have been prepared in accordance with GAAP
consistently applied and fairly present the financial position of Company as of
the dates thereof and the results of its operations and cash flows for the
periods then ended, subject, in the case of all of such financial statements, to
the omission of complete footnote information. There are no Company Liabilities,
direct or indirect, fixed or contingent, which are not reflected in the balance
sheet as of August 31, 1997, except for Liabilities incurred in the Ordinary
Course of Business subsequent to August 31, 1997, which, either individually or
in the aggregate, would not be material. To the Knowledge of Company, there is
no Basis for any assertion against Company of any liability or obligation of any
nature whatsoever that is not fully reflected in the financial statements
delivered to FNFI which, either individually or in the aggregate, would be
materially adverse. Since the date of the August 31, 1997 financial statements,
there have been no material changes in Company's accounting policies.
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4.1.6 Material Contracts. Schedule 4.1.6 to the Disclosure
Schedule hereto contains a complete and accurate list of all Material Contracts
to which Company is a party or bound. True, correct and complete copies of all
Material Contracts listed on Schedule 4.1.6 to the Disclosure Schedule have been
furnished by Company to FNFI. Each Material Contract so listed is a valid and
binding obligation of Company and is enforceable against Company and, to the
Knowledge of Company, against the other party or parties thereto, in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and subject to the availability of
equitable remedies. Company has performed all material 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 to the Knowledge of Company 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 Company, no
party with whom Company has a Material Contract is in default of its obligations
thereunder. No consent or approval of any party to any of the Material Contracts
is necessary in order to permit Company to consummate the transactions
contemplated hereby.
4.1.7 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 4.1.8, below) owned or leased by Company, free and clear of
all Liens except for: (i) Liens for current Taxes not yet due and payable which
have been fully reserved for; 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, material
machinery and equipment of Company are in good working order and condition,
ordinary wear and tear excepted.
4.1.8 Real Property. Company does not own any real property.
Schedule 4.1.8 to the Disclosure Schedule hereto contains an accurate list and
general description of all real property leases, subleases, licenses or similar
agreements ("Leases") to which Company is a party (copies of which have been
previously furnished to FNFI), 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 Security Interests, 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 the Leased Premises, are in
all material respects permitted and authorized by applicable zoning laws,
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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.
4.1.9 No Conflicts. Neither the execution and delivery nor the
performance of this Agreement by 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
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.
4.1.10 Litigation. There are no Claims before any court or
administrative agency pending or currently threatened against or with respect to
Company (or to the Knowledge of Company 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 Material
Adverse Effect, or in any material impairment of the right or ability to carry
on its business as now conducted or as proposed to be conducted, or in any
material Liability on the part of Company. 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.
4.1.11 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 to the Knowledge of Company 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 August 31, 1997 Financial
Statements. No Claim has ever been made by any Governmental Entity in a
jurisdiction where Company does not file Tax Returns that it is or may
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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 no basis for any such Claims exist.
4.1.12 Employees. Schedule 4.1.12 to the Disclosure Schedule
hereto sets forth a complete list of all current employees of Company, together
with each employee's tenure with 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, to the Knowledge of Company, attempts to unionize or
controversies threatened between Company and, or relating to, any of its
employees. 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, severance plan or other benefit plan, 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 federal
and state statutes and regulations 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.
4.1.13 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 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 effective at the
Closing.
4.1.14 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, to the Knowledge of Company,
threatened 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.
4.1.15 Compliance with Applicable Laws. The properties, assets,
business and operations of Company have been and are being conducted in
compliance with all laws, ordinances, regulations, rules, orders, judgments or
decrees to which Company is subject. Company holds, and the properties, assets,
operations and businesses of Company have been maintained and conducted in all
material respects in compliance with, all Licenses that are
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necessary for the conduct of its businesses. No investigation or review by any
Governmental Entity with respect to Company is pending or, to the best Knowledge
of Company, threatened, nor has any Governmental Entity indicated to Company an
intention to conduct the same.
4.1.16 Insurance. Schedule 4.1.16 to the Disclosure Schedule
hereto sets forth an accurate list, as of August 31, 1997, 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 4.1.16 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. 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 Company, such policies of insurance are
of the type and in amounts carried by Persons conducting businesses similar to
that of Company. To the Knowledge 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.
4.1.17 Absence of Changes. Since January 1, 1997, 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 having a Material Adverse Effect, 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
$25,000 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 employee benefit plans not in existence in the fiscal
year ended December 31, 1996; (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 Company or any Shareholder to
take any action which, if taken prior to the date hereof, would have made any
representation or warranty set forth in this Agreement untrue or incorrect as of
the date when made; or (xi) the commencement or notice or, to the Knowledge of
Company, threat of commencement of any Claim against Company or any of its
affairs.
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4.1.18 Employee Plans. Schedule 4.1.18 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 FNFI, 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.
4.1.19 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, to the Knowledge of Company, threatened any
Claim contesting the validity, ownership or right to use, sell, license or
dispose of any Intellectual Property or that the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party, nor to the Knowledge of Company, is there any Basis for any such
assertion.
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4.1.20 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 permits, 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 reasonable 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) To the Knowledge of Company (with the understanding
that no investigation was attempted or performed), all properties used in its
business are free of Hazardous Substances, except where the existence thereof
would not have a Material Adverse Effect.
4.1.21 Certain Transactions. There are no existing or pending
transactions, nor are there any agreements or understandings, between Company,
on the one hand, and any Shareholder, 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.
4.1.22 Bank Accounts; Powers of Attorney. The Disclosure Schedule
hereto sets forth an accurate list, as of the date of this Agreement, of the
following: (i) the name of each financial institution in which Company has any
account or safe deposit box; (ii) the names in which the accounts or boxes are
held; (iii) the type of account; and (iv) the name of each person authorized to
draw thereon or have access thereto. 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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4.1.23 Tax-Free Reorganization. Company has taken all action
necessary to ensure that, from the Company standpoint, the Merger qualifies, in
all respects, as a tax-free reorganization pursuant to Code Section 368(a).
4.1.24 Employee Loans. There are no outstanding loans and/or
other advances made by Company to any of its officers, directors, employees,
agents or consultants.
4.1.25 Pooling. Company is not actually aware of any event or
condition that would adversely affect the ability of FNFI to account for the
business combination to be effected by the Merger as a pooling of interests, it
being understood, however, that neither Company nor any Shareholder has engaged
an accounting firm with respect to such matters and that neither Company, nor
any of its officers, directors, employees, Shareholders or representatives is
qualified to render advice with respect to pooling-of-interests accounting.
4.1.26 Brokers' Fees. Company has 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.
4.1.27 Full Disclosure. Neither this Agreement, the
representations and warranties by Company contained herein, the Exhibits or
Schedules hereto, nor any other written statement or certificate delivered or to
be furnished to FNFI 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.
4.2 Representations and Warranties of Shareholders. Each Shareholder,
severally and not jointly, represents and warrants to FNFI, Newco and Surviving
Corporation 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 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 each
Shareholder on that date with the Closing Date being substituted for the date of
this Agreement throughout this Article 4.2):
4.2.1 Authority. Such Shareholder has all the power to execute
and deliver this Agreement and to carry out and perform such Shareholder's
respective obligations under the terms of this Agreement; such Shareholder has
the sole power to dispose of his Company Shares, either as his sole and separate
property or as community property, as may be applicable to each Shareholder; and
this Agreement, when executed and delivered by such Shareholder, will constitute
such Shareholder's valid and binding obligation, enforceable against him in
accordance with the terms of this Agreement.
4.2.2 Ownership of Shares. Such Shareholder owns of record and
beneficially, and has good and marketable title to, that number of Company
Shares set forth in Schedule 4.1.4
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to the Disclosure Schedule hereto, free and clear of all Liens, Indebtedness and
Claims of every kind. There are no options, warrants, calls, conversion rights,
commitments or agreements of any character to which such Shareholder may be
bound that do or may obligate such Shareholder to issue, deliver or sell, or
cause to be issued, delivered or sold, shares of such Shareholder's Company
Stock, preferred stock or other equity securities or that do or may obligate
such Shareholder to grant, extend or enter into any such option, warrant, call,
conversion right, commitment or agreement. Other than as provided in or
contemplated by this Agreement, such Shareholder has not, or prior to the
Effective Time 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 from
such Shareholder any rights in any of such Shareholder's capital stock or
securities of Company.
4.2.3 No Conflicts. Neither the execution and delivery nor the
performance of this Agreement by such Shareholder 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 any Material Contract to which such
Shareholder is a party or by which such Shareholder is bound; (ii) the
termination of any Material Contract or the acceleration of the maturity of any
Indebtedness or other material obligation of such Shareholder; (iii) the
creation or imposition of any Lien (except for Permitted Liens) on any of the
assets or properties of such Shareholder; (iv) the creation or imposition of any
Lien on any shares of the Company Stock owned by such Shareholder; or (v) a
violation or breach of any writ, injunction or decree of any Governmental Entity
or arbitrator to which such Shareholder is a party or by which any of his
properties are bound.
4.2.4 Litigation. To the Knowledge of such Shareholder, there are
no Claims before any Governmental Entity or arbitrator pending or currently
threatened against or with respect to such Shareholder relating to or affecting
such Shareholder's Company Shares (or 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 Material
Adverse Effect, or in any material impairment of the right or ability of such
Shareholder to enter into or perform under this Agreement.
4.2.5 Certain Transactions. There are no existing or pending
transactions, nor are there any agreements or understandings, between Company,
on the one hand, and such Shareholder, 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.
4.2.6 Investment Representations. Such Shareholder is receiving
the Fidelity Common Stock for his own account for investment purposes only, 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. Such Shareholder
acknowledges that the Fidelity Common Stock to be issued hereunder
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will not be registered under the Securities Act, nor qualified under any state
securities laws on the ground, among others, that no distribution or public
offering is to be effected.
4.2.7 Absence of Claims Against Company. Such Shareholder has no
Claims against the Company.
4.2.8 Tax-Free Reorganization. Such Shareholder has taken all
action necessary to ensure that, from such Shareholder's standpoint, the Merger
qualifies, in all respects, as a tax-free reorganization pursuant to Code
Section 368(a).
4.2.9 Continuity of Interest. Such Shareholder has no present
plan, intention or arrangement to dispose of any of the shares of Fidelity
Common Stock issued to him hereunder in a manner that would cause the Merger to
violate the continuity of shareholder interest requirement set forth in Treasury
Regulation Section 1.368-1.
4.2.10 Pooling. Neither such Shareholder nor any of his
Affiliates is aware of any event or condition that would adversely affect the
ability of FNFI to account for the business combination to be effected by the
Merger as a pooling of interests, it being understood, however, that neither
Company nor any Shareholder has engaged an accounting firm with respect to such
matters and that neither Company, nor any of its officers, directors, employees,
shareholders or representatives is qualified to render advice with respect to
pooling-of-interests accounting.
4.2.11 Brokers' Fees. Such Shareholder has 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.
4.2.12 Disclosure. Nothing has come to the attention of such
Shareholder that would lead such Shareholder to believe that the representations
and warranties by such Shareholder contained herein, the Exhibits or Schedules
hereto, or any other written statement or certificate delivered or to be
furnished by such Shareholder to FNFI 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 5
REPRESENTATIONS AND WARRANTIES OF FNFI AND NEWCO
FNFI and Newco represent and warrant to Company and Shareholders 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
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by FNFI and Newco 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. FNFI and Newco are
corporations duly organized, validly existing and in good standing under the
laws of the States of Delaware and Texas, respectively, have full power and
authority to own their respective assets and properties and to carry on their
respective businesses as presently conducted. FNFI and Newco are duly qualified
and authorized to do business, and are in good standing as foreign corporations,
in each jurisdiction where the nature of their respective activities and of
their respective properties (both owned and leased) make such qualification
necessary, except where the failure to so qualify would not have a Material
Adverse Effect. FNFI and Newco have furnished Company with copies of their
respective Articles of Incorporation and Bylaws, as amended to the date hereof.
Said copies are true, correct and complete and contain all amendments through
the Closing Date.
5.2 Authorization. All corporate action on the part of FNFI and Newco,
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 FNFI's and Newco's obligations
hereunder and thereunder, and for the exchange and cancellation of the Company
Shares have been taken or will be taken prior to the Closing. This Agreement and
the documents contemplated hereby, when executed and delivered by FNFI and
Newco, shall constitute valid and legally binding obligations of FNFI and Newco
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.
5.3 No Conflicts. Neither the execution and delivery nor the performance
of this Agreement by FNFI or Newco 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
FNFI or Newco, (B) any Material Contract of FNFI or Newco; (ii) the termination
of any Material Contract of FNFI or Newco or the acceleration of the maturity of
any Indebtedness or other material obligation of FNFI or Newco; (iii) the
creation or imposition of any Lien (except for Permitted Liens) on any of the
respective assets or properties of FNFI or Newco; (iv) the creation or
imposition of any Lien on any shares of the Fidelity Common Stock; or (v) a
violation or breach of any writ, injunction or decree of any Governmental Entity
to which FNFI or Newco is a party or by which any of their respective properties
are bound.
5.4 Fidelity SEC Documents. FNFI has filed all forms, reports and
documents required to be filed with the SEC (the "Fidelity SEC Documents"), all
of which have been made available to Company. As of their respective dates, the
Fidelity SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act, as the case may be, and the rules
and regulations of the SEC thereunder applicable to such Fidelity
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SEC Documents, and none of the Fidelity SEC Documents contain 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, in light of the
circumstances under which they were made, not misleading. The financial
statements of FNFI included in the Fidelity SEC Documents comply in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except in the case of the unaudited interim financial statements, as permitted
by Form 10-Q promulgated by the SEC) and fairly present (subject, in the case of
the unaudited interim financial statements, to recurring audit adjustments
normal in nature and amount) the consolidated financial position of FNFI as at
the dates thereof and the consolidated results of its operations and cash flows
or changes in financial position for the periods then ended. There has been no
Material Adverse Effect on FNFI since the filing of FNFI's most recent Form 10-Q
and there is no Basis for believing that there will be a Material Adverse Effect
on FNFI's results to be stated in FNFI's Form 10-Q for the third quarter of
1997.
5.5 Fidelity Common Stock. All of the shares of Fidelity Common Stock to
be issued to Shareholders in connection with the Merger will be duly authorized,
validly issued, fully paid and non-assessable. Such shares, when issued in
accordance with the terms hereof, will have been offered, issued, sold and
delivered by FNFI in compliance with all applicable state and federal laws, free
and clear of all Liens and Claims and none of such shares shall be issued in
violation of the preemptive rights, rights of first offer, or other rights of
any shareholder of FNFI.
5.6 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 FNFI and/or
Newco in connection with the valid execution and delivery of this Agreement and
the issuance of Fidelity Common Stock, or the consummation of any other
transaction contemplated hereby have been obtained, or will be effective at the
Closing.
5.7 Tax-Free Reorganization. FNFI and Newco have taken all action
necessary to ensure that, from FNFI's and Newco's standpoint, the Merger
qualifies, in all respects, as a tax-free reorganization pursuant to Code
Section 368(a).
5.8 Brokers' Fees. Neither FNFI nor Newco is 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.
5.9 Full Disclosure. Neither this Agreement, the representations and
warranties by FNFI and/or Newco contained herein, the Exhibits or Schedules
hereto, nor any other written statement or certificate delivered or to be
furnished to Company in connection herewith, when
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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, Company and Shareholders, jointly and severally, covenant and
agree that, except for (i) the necessary, reasonable, ordinary and anticipated
effects of the merger described in Section 7.1(f), below, and (ii) changes
contemplated by this Agreement:
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 materially from those methods
used by the Company as of July 31, 1997. Company will use commercially
reasonable 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
substantially all 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
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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 requirements that applicable law may
impose upon it, its operations and with respect to the transactions contemplated
by this Agreement, and shall cooperate promptly with, and furnish information
to, FNFI in connection with any such requirements imposed upon FNFI, 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 compensation of any kind,
or any severance or termination pay to, or enter into any employment or loan or
loan guarantee agreement with, any Shareholder 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, disclosed in this
Agreement or the Schedules hereto. 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 commercially reasonable efforts to
obtain any consent, authorization or approval of, or exemption by, any
Governmental Entity or Person required to be obtained or made by any Party
hereto in connection with the transactions contemplated hereby or the taking of
any action in connection with the consummation thereof.
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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 of material value, 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.
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 FNFI a copy of all notices of
proposed assessment or similar notices or 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 Company and Shareholders. During the period from the
date hereof through the Closing Date, Company and Shareholders 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, FNFI
in connection with any such requirements imposed upon FNFI or upon any of its
Affiliates in connection therewith or herewith;
(b) Use their reasonable best efforts to obtain (and to cooperate
with FNFI in obtaining) any consent, authorization or approval of, or exemption
by, any Person required to be obtained or made by Company and/or Shareholders in
connection with the transactions contemplated by this Agreement;
(c) Use their reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 3.6,
above;
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(d) Promptly advise FNFI 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 FNFI 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 FNFI from terminating this Agreement pursuant to Section 9.1(b) hereof
at any time at or prior to the Closing in respect of any original untrue or
misleading statement;
(f) Effect and consummate the merger or other business
combination of Firm Computer Solutions, LTD, a Texas limited partnership
("FCS"), with and into Company in accordance with the TBCA, and upon such terms
and conditions and in accordance with such documentation pre-approved by FNFI in
its absolute and sole discretion. Upon the consummation of the merger or other
business combination, (i) all of the assets and liabilities of FCS existing as
of July 31, 1997 (including or excluding, as the case may be, assets and
liabilities subsequently acquired or disposed of in the Ordinary Course of
Business) shall be merged or otherwise transferred into Company; and (ii) all of
the ownership interests in FCS, including all options, warrants, calls,
conversion rights, commitments or agreements of any character which relate to
such ownership interests, shall be canceled and extinguished.
7.2 Covenants of FNFI and Newco. During the period from the date hereof
to the Closing Date, FNFI and Newco 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, Shareholders in
connection with any such requirements imposed upon the Shareholders or Company
or upon any of Company's Affiliates in connection therewith or herewith;
(b) Use its reasonable best efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by FNFI in connection with the transactions contemplated by
this Agreement;
(c) Use its reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 3.7 of
this Agreement; and
(d) Cause Surviving Corporation to continue at least one (1)
significant historical business line of Company, or use at least a significant
portion of Company's historical
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business assets in a business, in each case in accordance with Treasury
Regulation Section 1.368-1.
(e) Promptly advise Company orally and, within three (3) business
days thereafter, in writing of any change in FNFI's or Newco's business or
condition that has had or would reasonably be expected to have a Material
Adverse Effect on FNFI or Newco;
7.3 Tax-Free Reorganization/Tax Advice.
(a) Except as a result of breaches by FNFI, Newco and/or
Surviving Corporation of Section 7.3(b) below, each Shareholder shall assume and
be fully responsible for any and all Liability, including without limitation any
and all Tax Liability, incurred by him, which is caused by, arises from, or
relates to the failure of the Merger to qualify, in any respects, as a tax-free
reorganization pursuant to Code Section 368(a). Company and Shareholders
acknowledge that they have received their own independent tax advice with
respect to the Merger, this Agreement and the transactions contemplated thereby,
including without limitation whether the Merger qualifies as a tax-free
reorganization in accordance with Section 368(a) of the Code, and except as
provided in Section 7.3(b) below, are not in any way relying on any statements
or advice of FNFI, Newco or any of their officers, directors, employees, agents
or representatives, other than the representations and warranties of FNFI and
Newco contained herein or in any ancillary agreement hereto.
(b) Neither FNFI, Newco, Surviving Corporation nor any
Shareholder shall take any action which, alone or taken together with other
actions, would result in the Merger not being treated as a tax-free
reorganization, including, but not limited to, the taking of any position that
would jeopardize the characterization of the Merger as a tax-free
reorganization.
7.4 Continuity of Interest. Shareholders shall not dispose of any shares
of Fidelity Common Stock in a manner that would cause the Merger to violate the
continuity of shareholder interest requirement set forth in Treasury Regulation
Section 1.368-1.
7.5 Access and Information.
(a) During the period commencing on the date hereof and
continuing through the Closing Date, Shareholders shall cause Company to afford
to FNFI and to FNFI'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
FNFI all information concerning its business, properties and personnel as FNFI
may reasonably request.
(b) Except to the extent permitted by the provisions of Section
7.8, below, FNFI shall hold in confidence, and shall use reasonable efforts to
ensure that its employees and
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representatives hold in confidence, all such information supplied to it by
Shareholder or Company concerning Company and shall not disclose such
information to any third party 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 FNFI or its
representatives; (ii) becomes available to FNFI or its representatives from a
third party other than Shareholders or Company, and FNFI or its representatives
have no reason to believe that such third party is not entitled to disclose such
information; (iii) is known to FNFI or its representatives on a non-confidential
basis prior to its disclosure by Shareholders or Company; or (iv) is made
available by Shareholders or Company to any other Person on a non-restricted
basis. FNFI's obligations under the foregoing sentence shall expire on the
Closing Date or, if the closing does not occur, one year after the date hereof.
7.6 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.
7.7 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 3.6 and 3.7,
above.
7.8 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 7.8. 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.
7.9 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 Requirements, to consummate and make
effective the transactions contemplated by this Agreement.
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(b) If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, Shareholders
and the proper officers or directors of FNFI and Company, 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.
7.10 Competing Offers. Shareholders agree that they will not, and will
cause Company not to, directly or indirectly, through an officer, director,
agent, or otherwise, solicit, initiate or encourage the submissions of bids,
offers or proposals by, any Person with respect to an acquisition of Company or
its assets or capital stock or a merger or similar transaction, and Shareholders
will not, and will not permit Company to, engage any broker, financial adviser
or consultant to initiate or encourage proposals or offers from other Persons.
Furthermore, Shareholders shall not, and shall not permit Company to, directly
or indirectly, through any officer, director, agent or otherwise, engage in
negotiations concerning any such transaction with, or provide information to,
any Person other than FNFI and its representatives with a view to engaging, or
preparing to engage, that Person with respect to any matters in this Section
7.10. Shareholders shall ensure that Company shall not commence any proceeding
to merge, consolidate or liquidate or dissolve or obligate itself to do so.
7.11 Post-Termination Employment. Company and Shareholders acknowledge
and agree that after the Effective Time (i) neither FNFI nor Surviving
Corporation shall be required to employ or retain any employee of Company or any
other Person; and (ii) FNFI, in its sole and absolute discretion, may cause
Surviving Corporation to retain all, some, or none or such employees.
7.12 NYSE Listing. FNFI will make such filings as are necessary with the
New York Stock Exchange regarding the transactions contemplated hereby and will
cause the shares of Fidelity Common Stock to be issued under this Agreement to
be approved for listing on the NYSE, subject only to official notice of
issuance, prior to the Effective Time.
7.13 Employee Benefits. As of the Effective Time, the Company's
Benefit Arrangements and Employee Plans shall either be fully maintained or
Company's employees and their eligible dependents shall be consolidated into
FNFI's Benefit Arrangements and Employee Plans with full takeover provisions
("FNFI Coverage"), such that, among other things, Company employees and their
eligible dependents who receive FNFI Coverage are (i) credited for service with
Company to be applied against all service and waiting periods under FNFI
Coverage, (ii) credited for any deductibles paid for the plan year under the
Company's Benefit Arrangements and Employee Plans to be applied against any
deductibles under FNFI Coverage and (iii) not excluded from FNFI Coverage for
any preexisting condition if such employee or eligible dependent was entitled to
coverage under the Company's Benefit Arrangements and Employee Plans as of the
Closing Date.
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7.14 Supplements to Schedules. Within five (5) days prior to the
Closing, Company will supplement or amend the Schedules which it has delivered
pursuant to this Agreement with respect to any matter hereafter arising which,
if existing or occurring at the date of this Agreement, would have been required
to be set forth or described in any such Schedule or which is necessary to
correct any information in any such Schedule which has been rendered inaccurate
thereby.
7.15 Officer and Director Indemnity. FNFI will not permit Company's
organizational documents to be amended to affect adversely the provisions
concerning indemnification for current indemnitees.
ARTICLE 8
[Omitted]
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time:
(a) By mutual consent of the FNFI and Shareholders;
(b) By Shareholders and Company as a group, on the one hand, or
by FNFI, on the other hand, if there has been a material 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 and such Breach is not
cured by the Breaching Party within ten (10) business days of the receipt of
written notice of such Breach from the other Party; or
(c) By Shareholders and Company as a group, on the one hand, or
by FNFI, 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
Merger; or there shall be any action taken, or any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity or arbitrator which would make the
consummation of the Merger illegal.
9.2 Effect of Termination. In the case of any termination of this
Agreement pursuant to Section 9.1, 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 7.5 and 7.6 shall remain
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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 9.1(b),
above, then notwithstanding the provisions of Section 7.6, 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.
9.3 Amendment. This Agreement may be amended at any time by a written
instrument executed by the Parties. Any amendment effected pursuant to this
Section 9.3 shall be binding upon all Parties.
9.4 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 9.4 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 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 10
INDEMNIFICATION
10.1 Survival of Representations and Warranties. The representations and
warranties of Company and Shareholders 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 until the second
(2nd) anniversary of the Closing Date; provided that the representations and
warranties contained in Sections 4.1.2, 4.1.4, 4.1.11, 4.1.20, 4.2.1 and 4.2.2
shall continue until the expiration of the applicable statutes of limitations.
10.2 Indemnification by Company and Shareholders. Effective as of the
Closing, Shareholders, severally in accordance with their pro rata ownership
interests in Company immediately prior to the Effective Time, in consideration
for the exchange of the Company Shares, covenant and agree with FNFI, Newco and
Surviving Corporation and their respective officers, directors, employees,
shareholders, assigns, successors and affiliates (a "FNFI Indemnified Party") to
indemnify and hold harmless a FNFI Indemnified Party from, against and in
respect of any and all Losses suffered, sustained, incurred or paid by any FNFI
Indemnified Party in connection with resulting from or arising out of, directly
or indirectly:
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(a) any breach of any representation or warranty of any
Shareholder or Company set forth in this Agreement or any certificate, document
or instrument delivered by or on behalf of any Shareholder or Company in
connection herewith; or
(b) any non-fulfillment of any covenant or agreement on the part
of any Shareholder or Company in this Agreement which is required to be
performed after the Closing.
Payment shall not be a condition precedent to recovery under the above
indemnities.
10.3 Indemnification by FNFI. Effective as of the Closing, FNFI
covenants and agrees with Shareholders and their respective heirs, successors
and assigns (a "Shareholder Indemnified Party") to indemnify and hold harmless a
Shareholder Indemnified Party from, against and in respect of any and all Losses
suffered, sustained, incurred or paid by any Shareholder Indemnified Party in
connection with resulting from or arising out of, directly or indirectly:
(a) any breach of any representation or warranty of FNFI or Newco
set forth in this Agreement or any certificate, document or instrument delivered
by or on behalf of FNFI or Newco in connection herewith; or
(b) any non-fulfillment of any covenant or agreement on the part
of FNFI or Newco in this Agreement which is required to be performed after the
Closing.
Payment shall not be a condition precedent to recovery under the above
indemnities.
10.4 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. The Parties shall cooperate in defending
against any asserted third-party Claims. For purposes of this Article 10, the
reference to this Agreement includes any certificate, 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.
10.5 Additional Indemnification Provisions. Notwithstanding anything to
the contrary in this Article 10, (i) Shareholders aggregate Liability under
Section 10.2, above, shall not exceed Two Million Dollars ($2,000,000); (ii)
Shareholders shall not incur any Liability under Section 10.2, above, until the
aggregate amount of indemnification obligations exceed Twenty-
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<PAGE> 42
Five Thousand Dollars ($25,000); (iii) subject to clause (ii) above,
Shareholders shall not incur any Liability under Section 10.2, above, for an
indemnifiable Loss that individually does not exceed One Thousand Dollars
($1,000); (iv) Shareholders shall have the right but not the obligation to pay
any indemnification obligations owed FNFI in Fidelity Common Stock valued at the
Closing Fidelity Price; and (v) the Parties will make appropriate adjustments
for any Tax benefits or Tax detriments or insurance proceeds in determining the
amount of any indemnification obligation under this Article 10.
10.6 Indemnification Non-Exclusive. The indemnification provisions of
this Article 10 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.
10.7 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
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.
10.8 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.
10.9 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.
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ARTICLE 11
GENERAL PROVISIONS
11.1 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.
11.2 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.
11.3 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 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.
11.4 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.
11.5 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 FNFI, Newco or Surviving Corporation, addressed to:
Fidelity National Financial, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Attn: Andrew F. Puzder
Facsimile: (805) 898-7149
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With a copy to:
C. Craig Carlson, Esq.
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Facsimile: (714) 725-4100
(b) If to Shareholders (Pre-Closing) and/or Company
(Pre-Closing), addressed to:
BRON Research, Inc.
P. O. Box 162094 (mailing address)
Austin, Texas 78716-2094
1001 S. Capital of Texas Hwy., Building I
(physical address)
Austin, Texas 78746
Attn: Brian J. Balli/Ronald F. Herrman, Jr.
Facsimile: (512) 329-8140
With a copy to:
J. Matthew Lyons, Esq.
Brobeck, Phleger & Harrison LLP
301 Congress Avenue, Suite 1200
Austin, Texas 78701
Facsimile: (512) 477-5813
(c) If to a Shareholder (Post-Closing), addressed to such
Shareholder at such Shareholder's most recent address as
shown on the records of the Company:
With a copy to:
J. Matthew Lyons, Esq.
Brobeck, Phleger & Harrison LLP
301 Congress Avenue, Suite 1200
Austin, Texas 78701
Facsimile: (512) 477-5813
By its inclusion herein as a recipient of copies of notices, the parties
acknowledge and agree that notwithstanding the fact that Brobeck, Phleger &
Harrison LLP represented Company (which effective as of the Closing will be
wholly owned by FNFI) in connection with the
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<PAGE> 45
transactions contemplated by this Agreement, Brobeck, Phleger & Harrison LLP
shall be (i) permitted to represent the Shareholders and their respective heirs,
executors, administrators, affiliates, successors and assigns in connection with
any and all matters which may arise out of or in connection with this Agreement,
or any ancillary agreement hereto; and (ii) upon the receipt of appropriate
conflict waiver letters, if any be required, and subject to applicable ethical
obligations of attorneys, entitled to represent any of the other Parties (or
their respective Affiliates) on any other matters which any such Party (or its
Affiliates) may request.
11.6 Pooling. If any provision of this Agreement or any ancillary
agreement hereto or the application of any such provisions to any Person or
circumstance precludes the use of "pooling of interests" accounting treatment in
connection with the Merger, then provided the Parties mutually agree, (i) the
Parties shall negotiate in good faith to agree to such amendments, modifications
or supplements of or to this Agreement or such other appropriate actions in
order, to the maximum extent practicable, for the Merger to be accounted for as
a "pooling of interests," which amendments, modifications or supplements shall
be deemed to take effect as of the date of this Agreement or any ancillary
agreement hereto, as applicable; (ii) upon reading such agreement (if any), such
provision shall be of no force and effect to the extent and solely to the extent
necessary to preserve such accounting treatment for the Merger; and (iii) such
invalidity or unenforceability shall in no way affect any of the other
provisions hereof.
11.7 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.
11.8 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.
11.9 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.
11.10 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.
[SIGNATURE PAGES FOLLOW.]
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IN WITNESS WHEREOF, the foregoing Agreement and Plan of Reorganization
is hereby executed as of the date first above written.
FNFI:
FIDELITY NATIONAL FINANCIAL, INC.,
a Delaware Corporation
By: /s/ ANDREW F. PUZDER
----------------------------------
Its: Executive Vice President
COMPANY:
BRON RESEARCH, INC., a Texas Corporation
By: /s/ BRIAN J. BALLI
----------------------------------
Its: CEO
SHAREHOLDERS:
/s/ BRIAN J. BALLI
----------------------------------------
Brian J. Balli
/s/ RONALD F. HERRMANN, JR.
----------------------------------------
Ronald F. Herrman, Jr.
/s/ RYAN F. HERRMANN
----------------------------------------
Ryan F. Herrman
NEWCO:
BRON ACQUISITION CORPORATION, a Texas
Corporation
By: /s/ ANDREW F. PUZDER
----------------------------------------
Its: Executive Vice President
<PAGE> 1
EXHIBIT 10.50
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of this 12th day of September, 1997, by and among FIDELITY
NATIONAL FINANCIAL, INC., a Delaware corporation ("FNFI"); CREDIT REPORTS, INC.,
a California corporation ("Company"); COLIN HOWARD FRIEDMAN AND HEDY KRAMER
FRIEDMAN, AS TRUSTEES OF THE FRIEDMAN FAMILY TRUST UDT, DATED JULY 23, 1987
("Shareholder"); COLIN H. FRIEDMAN ("Friedman"); FARID MESHKATAI ("Meshkatai");
and CRI ACQUISITION CORPORATION, a California corporation that is a
newly-formed, wholly-owned subsidiary of FNFI ("Newco"). FNFI, Company,
Shareholder, Friedman and Newco are referred to collectively herein as the
"Parties" or singularly as a "Party."
RECITALS
A. Shareholder is the record and beneficial owners of 1,000 shares of
Company Common Stock (the "Company Shares"), which represents all the issued and
outstanding shares of capital stock of Company.
B. The respective Boards of Directors of FNFI, Company and Newco deem it
advisable and in the best interests of their respective shareholders that Newco
merge with and into Company (the "Merger") pursuant to this Agreement, the
Articles of Merger substantially in the form attached hereto as Exhibit "A" (the
"Articles of Merger") and the applicable provisions of the laws of the State of
California.
C. The Parties hereto expect that the Merger will further certain of
their business objectives, including, without limitation, increased market
share, reduced administrative costs and volume efficiencies.
D. The Boards of Directors of FNFI, Company and Newco have approved and
adopted this Agreement as a plan of reorganization within the provisions of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
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:
<PAGE> 2
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 any of the terms herein
defined. 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.
"Action" shall mean any actual or threatened Claim, action, suit,
arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by
or before any Governmental Entity or arbitrator and any appeal from any of the
foregoing.
"Affiliate" shall mean, 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.
"Articles of Merger" has the meaning set forth in Recital B, above.
"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" shall 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.
"California Statute" means the general corporation laws set forth in the
California Corporations Code.
"Claims" shall mean any and all liabilities, losses, claims, damages,
causes of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, 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).
"Closing" has the meaning set forth in Section 3.1, below.
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<PAGE> 3
"Closing Balance Sheet" has the meaning set forth in Section 2.2(e),
below.
"Closing Date" has the meaning set forth in Section 3.1, below.
"Closing Fidelity Price" means the average of the per share closing
sales price of FNFI's Common Stock publicly traded on the New York Stock
Exchange for the eight (8) consecutive trading days ending on the date of this
Agreement.
"Code" has the meaning set forth in Recital D, above.
"Company Shares" has the meaning set forth in Recital A.
"Company Stock" means shares of Common Stock, no par value, of Company.
"Confidential Information" means any information concerning the
businesses and affairs of any of the Parties that is not already generally
available to the public.
"Effective Time" has the meaning set forth in Section 3.1, below.
"Employee Plan" shall mean 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, of the Company.
"ENI Merger Agreement" means that certain Agreement and Plan of
Reorganization of even date herewith by and among FNFI, Express Network, Inc.,
the shareholders of Express Network, Inc., Friedman and ENI Acquisition
Corporation.
"ENI Net Worth Deficiency" has the meaning set forth in Section 2.2(e)
of the ENI Merger Agreement.
"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 other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws 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, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
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<PAGE> 4
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fidelity Common Stock" means the shares of non-registered, restricted
Common Stock, par value of $0.0001 per share, of FNFI.
"GAAP" means United States generally accepted accounting principles, as
the same may change from time to time.
"Governmental Entity" shall mean any court, federal, state, local or
foreign government or any administrative agency or commission or any other
governmental authority or instrumentality whatsoever.
"Hazardous Substances" shall mean any hazardous, toxic or infectious
substance, material, gas or waste which is regulated by any Governmental Entity.
"Indebtedness" shall mean, 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
reissuances, 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
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<PAGE> 5
connection therewith; (iv) all trade secrets and confidential business
information (including ideas, research and development, know-how, 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, for purposes of Article 4, below, actual knowledge of
any officer of Company or Shareholder to the fact or matter in question, without
making any investigation.
"Legal Requirement" shall mean 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.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Licenses" has the meaning set forth in Section 4.14, below.
"Lien" shall mean all liens (including judgment and mechanics' liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or otherwise), deeds of trust,
options or other charges, encumbrances or restrictions.
"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, business relationships, properties, condition (financial
or otherwise), insurability or prospects of Company; (ii) the ability of the
Parties to consummate the transactions contemplated by this Agreement; or (iii)
the legal right or authorization of Company to continue to operate its business.
"Material Contracts" has the meaning set forth in Section 4.9, below.
"Merger" has the meaning set forth in Recital B, above.
"Net Worth" means the difference between (i) the reviewed aggregate book
value of the assets of Company; and (ii) the reviewed aggregate book value of
the liabilities of Company as reflected on the Reviewed Closing Balance Sheet,
provided that the Parties and/or a national accounting firm (as more fully
explained in Section 2.2(e), below) may (i) make reasonable
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<PAGE> 6
adjustment to or establish reasonable reserves for uncollectible accounts
receivable; (ii) adjust the book value of Company's assets or liabilities to
account for under- or over-valued assets or liabilities; and/or (iii) make any
other adjustments necessary or appropriate in order to state the Reviewed
Closing Balance Sheet in accordance with GAAP. In addition, Net Worth shall not
include any amounts stated on Company's July 31, 1997 financial statements
attributable to any insurance policy transferred by Company to Shareholder,
Friedman or any other Person pursuant to Section 7.1(g), below.
"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.
"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.
"Reviewed Closing Balance Sheet" has the meaning set forth in Section
2.2(e), below.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, Lien, other than (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; (iii) purchase money liens and liens securing rental
payments under capital lease arrangements; and (iv) other liens arising in the
Ordinary Course of Business and not incurred in connection with the borrowing of
money.
"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.
"Surviving Corporation" has the meaning set forth in Section 2.1(a),
below.
"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
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<PAGE> 7
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value 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
PLAN OF REORGANIZATION
2.1 The Merger.
(a) The Merger. At the Effective Time (as defined in Section 3.1,
below), Newco shall be merged with and into Company pursuant to this Agreement
and the Articles of Merger, and the separate existence of Newco shall cease, all
in accordance with the California Statute. Company, as it exists from and after
the Effective Time, is sometimes referred to herein as the "Surviving
Corporation."
(b) Effect of the Merger. Subject to the terms and conditions of
this Agreement and the Articles of Merger, at the Effective Time (i) the
separate existence of Newco shall cease and Newco shall be merged with and into
Company; and (ii) the Merger shall have all the effects provided by the
California Statute, this Agreement and the Articles of Merger.
(c) Articles of Incorporation; Bylaws; Directors and Officers.
The Articles of Incorporation of Surviving Corporation from and after the
Effective Time shall be the Articles of Incorporation of Company until
thereafter amended in accordance with the provisions therein and as provided by
the California Statute. The Bylaws of Surviving Corporation from and after the
Effective Time shall be the Bylaws of Company as in effect immediately prior to
the Effective Time, continuing until thereafter amended in accordance with their
terms and the Articles of Incorporation of Surviving Corporation and as provided
by the California Statute. The initial directors of Surviving Corporation shall
be the individuals set forth on Schedule 2.1(c)(1), in each case until their
successors are elected and qualified. The initial officers of Surviving
Corporation shall be those individuals holding such titles set forth on Schedule
2.1(c)(2), in each case until their successors are duly elected and qualified.
2.2 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of FNFI, Newco, Company or
Shareholder, the shares of capital stock of Newco and Company shall be converted
as follows:
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<PAGE> 8
(a) Capital Stock of Newco. Each issued and outstanding share of
capital stock of Newco shall continue to be issued and outstanding and shall be
converted into one (1) validly issued, fully paid and non-assessbale share of
Common Stock of Company. Each stock certificate of Newco evidencing ownership of
any such shares shall continue to evidence ownership of such shares of Common
Stock of Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of Company.
All shares of capital stock of Company that are owned directly or indirectly by
Company, including all capital stock which has been authorized but not issued,
shall be canceled and no consideration shall be delivered in exchange therefore.
(c) Conversion of Company Shares. The Company Shares shall
automatically be canceled, extinguished and converted, without any action on the
part of the holder thereof, into the right to receive shares of Fidelity Common
Stock, as more fully described in subsections (d) and (e), below. All Company
Shares, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and Shareholder
shall cease to have any rights with respect thereto, except the right to receive
the shares of Fidelity Common Stock to be paid or issued in consideration
therefor upon the surrender of the Certificates in accordance with subsection
(g), below.
(d) Consideration. In consideration for the cancellation and
exchange by Shareholder of the Company Shares, FNFI shall, immediately after the
Effective Time and on the Closing Date, issue and deliver to Shareholder One
Hundred Thousand Dollars ($100,000) of Fidelity Common Stock, either held in
treasury and transferred to Shareholder or newly issued by FNFI to Shareholder.
The consideration set forth in this subsection (d) is subject to adjustment
pursuant to subsection (e), below. The exact number of shares of Fidelity Common
Stock to be issued pursuant to subsection this (d) shall be based upon the
Closing Fidelity Price.
(e) Purchase Price Adjustments. Commencing immediately after the
Closing Date, (i) Shareholder shall cause Company to prepare a balance sheet for
Company as of the Closing Date (the "Closing Balance Sheet"); and (ii) within
thirty (30) days of the completion of the Closing Balance Sheet, the Chief
Financial Officer of Company and representatives of FNFI shall jointly and in
good faith review the Closing Balance Sheet and make any adjustments necessary
to state the Closing Balance Sheet in accordance with GAAP (the "Reviewed
Closing Balance Sheet"). If there is a dispute between the parties with respect
to any particular adjustment, then the disputed adjustment shall be submitted to
a national accounting firm mutually agreed upon by the Parties, whose
determination of the appropriateness and the amount of the adjustment shall be
binding on the Parties. The cost of such accounting firm's services shall be
divided equally between FNFI and Shareholder. If the Net Worth of Company as
stated on the Reviewed Closing Balance Sheet is less than Seven Hundred
Forty-Eight Thousand Dollars ($748,000) (the "CRI Net Worth Deficiency"), then
the post-closing payments described in Section 2.2(f) of the ENI Merger
Agreement (the
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<PAGE> 9
"Post-Closing Payments"), that are due on each of the first two (2)
anniversaries of the Closing Date, shall each be reduced by one-half (1/2) of
the amount of the CRI Net Worth Deficiency; provided, however, that if the CRI
Net Worth Deficiency plus the ENI Net Worth Deficiency exceeds One Million Three
Hundred Eighty-Seven Thousand Five Hundred Dollars ($1,387,500) (such excess is
hereinafter referred to as the "Combined Excess Deficiency"), then there shall
be no obligation to make any Post-Closing Payment on the first two (2)
anniversaries of the Closing Date and the Combined Excess Deficiency shall first
be deducted from the Post-Closing Payments due on the third anniversary of the
Closing Date and then, if necessary, from the Post-Closing Payments due on the
fourth anniversary of the Closing Date. If the Net Worth of Company as stated on
the Reviewed Closing Balance Sheet is greater than Seven Hundred Forty-Eight
Thousand Dollars ($748,000) (the "Net Worth Surplus"), then the Post-Closing
Payments due on each of the first two (2) anniversaries of the Closing Date,
shall each be increased by the amount of one-half (1/2) of the CRI Net Worth
Surplus. Notwithstanding anything to the contrary above, the Parties hereto
expressly agree that any downward adjustments for those items set forth on
Schedule 2.2(e) hereto shall only reduce Net Worth on the Reviewed Closing
Balance Sheet by one-half (1/2) of the amount of such adjustment.
(f) Payment of Certain Company Obligation. Immediately after the
Effective Time and on the Closing Date FNFI shall pay the principal balance of
the following Company obligation: that certain Loan Agreement, dated December
13, 1994, by and between Company and the Noah Kramer Foundation in the principal
amount of $500,000, a copy of which is attached hereto on Schedule 2.2(g).
(g) Certificate Delivery Requirement. At the Effective Time,
Shareholder shall deliver to FNFI the certificates (the "Certificates")
representing the Company Shares, duly endorsed in blank by Shareholder, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps affixed and canceled. The Certificates so delivered shall be
promptly canceled. Until delivered as contemplated by this subsection (h), each
Certificate shall be deemed at any time after the Effective Time to represent
the right to receive upon such surrender a pro rata portion of the consideration
set forth in subsections (d) and (e), above.
(h) Consideration for Non-Competition. In consideration for the
covenant not to compete set forth in Section 11.11, below, FNFI shall, as soon
as practicable after the Effective Time, issue and deliver to Meshkatai One
Hundred Thousand Dollars ($100,000) of Fidelity Common Stock, either held in
treasury and transferred to Meshkatai or newly issued by FNFI to Meshkatai. The
exact number of shares of Fidelity Common Stock to be issued pursuant to
subsection this (h) shall be based upon the Closing Fidelity Price.
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ARTICLE 3
CLOSING
3.1. Closing. The consummation of the Merger and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of FNFI, located at 3916 State Street, Suite 300, Santa Barbara, California
93105, 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 Article 8, below
(including, without limitation, the Requisite Regulatory Approvals), or such
other date, time, place and manner as the Parties may mutually agree. On the
Closing Date, the Articles of Merger and any required officers' certificates,
shall be filed with the Secretary of State of the State of California in
accordance with the provisions of the California Statute. The Merger shall
become effective upon such filing or such later time on the Closing Date as may
be specified in the filing with the Secretary of State of the State of
California (the "Effective Time"). Either FNFI or Shareholder may terminate this
Agreement without Liability to the other if the Closing does not occur on or
before October 31, 1997.
3.2 Mutual Deliveries at Closing. Provided that all of the conditions to
the Closing set forth in Article 8, below, have been satisfied or waived by the
Party benefitting therefrom, the appropriate Parties or Persons shall execute
and deliver or cause to be delivered to the appropriate Parties at Closing the
following:
(a) The Employment Agreement in substantially the form of
Exhibit "B" hereto; and
(b) The Registration Rights Agreement substantially in the form
of Exhibit "C" hereto.
3.3 Shareholder's Deliveries at Closing. Provided that all of the
conditions to the Closing set forth in Article 8, below, have been satisfied or
waived by the Party benefiting therefrom, Shareholder shall execute and deliver
or cause to be delivered to FNFI at the Closing the following documents:
(a) The Certificates, in accordance with Section 2.2(g), 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; and
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(c) Such other documents and instruments as may be specified in this
Agreement or otherwise reasonably requested by FNFI in order to consummate the
transactions contemplated hereby.
3.4 Company's Deliveries at Closing. Provided that all of the conditions
to the closing set forth in Article 8, below, have been satisfied or waived from
the Party benefitting therefrom, Company shall execute and deliver or cause to
be delivered to FNFI at the Closing the following:
(a) An Officer's Certificate dated the Closing Date
substantially in the form of Exhibit "D" hereto;
(b) A Secretary's Certificate dated the Closing Date
substantially in the form of Exhibit "E" hereto;
(c) An opinion of counsel substantially in the form of Exhibit
"F" hereto;
(d) A good standing certificate of Company, dated within fifteen
(15) business days of the Closing Date, for each jurisdiction in which
Company is required to be qualified and authorized to do business;
(e) Minutes of the Board of Directors and shareholders of
Company authorizing and approving this agreement and the transactions
contemplated herein;
(f) Resignations of all of the officers and directors of Company
effective as of the Closing Date; and
(g) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested by FNFI in order to
consummate the transactions contemplated hereby.
3.5 FNFI's Deliveries. Provided that all of the conditions to the
Closing set forth in Article 8, below, have been satisfied or waived by the
Party benefiting therefrom, FNFI shall execute and deliver or cause to be
delivered to Shareholders at the Closing:
(a) The Fidelity Common Stock in accordance with Section 2.2(d),
above;
(b) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested by Shareholder in order
to consummate the transactions contemplated hereby.
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3.6 Newco's Deliveries. Provided that all of the conditions to the
Closing set forth in Article 8, below, have been satisfied or waived by the
Party benefiting therefrom, Newco shall deliver to the appropriate Person at the
Closing the cash for the loan payments in accordance with Section 2.2(f), above.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDER
Company and Shareholder (which for purposes of this Article 4 shall
include Friedman), jointly and severally, represent and warrant to FNFI, Newco
and Surviving Corporation that (except for changes contemplated by this
Agreement), 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 Company and Shareholder 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. Company 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. 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.
Company has furnished FNFI 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 Closing Date.
4.2 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, the
performance of all of Company's and Shareholder's obligations hereunder and
thereunder, and for the exchange and cancellation of the Company Shares 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 Company and Shareholder 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 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,
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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
100,000 shares of Common Stock, of which 1,000 shares are issued and
outstanding. All of the Company Shares have been duly authorized and validly
issued, are fully paid and non-assessable and are owned of record and
beneficially by Shareholder, free and clear of all Liens, Indebtedness and
Claims of every kind. All of the Company Shares 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 Company Shares 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. Schedule 4.4
hereto contains a complete list of, and the number of shares owned of record by,
the holders of the issued and outstanding Company Stock.
Other than as described in this Section 4.4, there are no outstanding
shares of Company 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 Company or Shareholder may
be bound that do or may obligate Company to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of Company Stock, preferred
stock or other equity securities or that do or may obligate 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. Other than as provided in or
contemplated by this Agreement, neither Company nor Shareholder have, or prior
to the Effective Time will have, 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. As a result of
the Merger, FNFI 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 hereto includes (i) true,
complete and correct copies of Company's balance sheet as of December 31, 1996
(the end of its most recently completed fiscal year) and statements of income,
cash flows and retained earnings for the year ended December 31, 1996; and (ii)
true, complete and correct copies of Company's balance sheet as of July 31, 1997
and statements of income, cash flows and retained earnings for the period then
ended. The above described financial statements have been prepared in accordance
with GAAP consistently applied and fairly present the financial position of
Company as of the dates thereof and the results of its operations and cash flows
for the periods then ended, subject, in the case of the July 31, 1997 financial
statements to the omission of complete footnote information and
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Liabilities that under GAAP would not be included in a balance sheet not bearing
footnotes. Except as set forth above and on the Schedules hereto, there are no
material Company Liabilities, direct or indirect, fixed or contingent, which are
not reflected (i) in the balance sheet as of July 31, 1997, except for
Liabilities incurred in the ordinary course of business subsequent to July 31,
1997, which, either individually or in the aggregate, are not material; and (ii)
in the Closing Balance Sheet. Except as set forth above, there is no basis for
any assertion against Company of any Liability or obligation of any nature
whatsoever that is not fully reflected in the financial statements delivered to
FNFI which, either individually or in the aggregate, would have a Material
Adverse Effect. Since the date of the July 31, 1997 financial statements, there
have been no material changes in Company's accounting policies.
4.6 Material Contracts. Schedule 4.6 hereto contains a complete and
accurate list of all Material Contracts to which Company is a party or bound.
Without limiting the generality of the foregoing, such list includes all such
contracts and agreements and all licenses and instruments which (i) grant a
Security Interest or permit or provide for the imposition of any Lien on, or
provide for the sale (other than in the Ordinary Course of Business) of, any of
the assets of Company or of any of the shares of the Company Stock; (ii) require
the consent of any third party to, or would interfere with, the consummation by
Company or Shareholder of the transactions contemplated by this Agreement; (iii)
involve the borrowing of money or provide for capital expenditures to be made in
the future; or (iv) relate to Company's Intellectual Property rights. True,
correct and complete copies of all Material Contracts listed on Schedule 4.6
have been furnished by Company to FNFI. Each Material Contract so listed is a
valid and binding obligation of Company and is enforceable in accordance with
its terms. Company has performed all material obligations required to be
preformed 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 best knowledge of Company and Shareholder, no party
with whom Company has a Material Contract is in default of its obligations
thereunder. Except as set forth on Schedule 4.6, no consent or approval of any
party 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. Except as set forth on Schedule 4.7
hereto, 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) Liens for current
Taxes not yet due and payable which have been fully reserved for; 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
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assets, properties, rights, privileges and interests necessary for the operation
of Company's business. All of the vehicles, material machinery and material
equipment of Company are in good working order and condition, ordinary wear and
tear excepted.
4.8 Real Property. Company does not own any real property. Schedule 4.8
hereto contains an accurate list and general description of all real property
leases, subleases, licenses or similar agreements ("Leases") to which Company is
a party (copies of which have been previously furnished to FNFI), 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 Security
Interests, 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; (iii) Liens for taxes not yet due; and
(iv) other matters as described in Schedule 4.8 hereto. 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. To the knowledge of Company and Shareholder, the activities of Company
with respect to 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 and
Shareholder, 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 and reasonable anticipated normal business activities as conducted
thereat.
4.9 No Conflicts. Neither the execution and delivery nor the performance
of this Agreement by Company or Shareholder 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
Company, (B) any contract, lease, license, franchise, promissory note,
conditional sales contract, commitment, indenture, mortgage, deed of trust,
security or pledge agreement, or other agreement, instrument, or arrangement to
which Company or Shareholder is a party or by which any of their respective
properties or any of their respective assets are bound and which is material to
Company or Shareholder (a "Material Contract"); (ii) the termination of any
Material Contract or the acceleration of the maturity of any indebtedness or
other material obligation of Company or Shareholder; (iii) the creation
or imposition of any Lien on any of the respective assets or properties of
Company or Shareholder or any shares of the Company Stock; (iv) a violation or
breach of any writ,
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injunction or decree of any Governmental Entity to which Company or Shareholder
is a party or by which any of their respective properties are bound.
4.10 Litigation. Except as set forth in Schedule 4.10 hereto, to the
knowledge of Company or Shareholder there are no actions, proceedings, or
investigations before any court or administrative agency pending or currently
threatened against or with respect to Company (or to the knowledge of Company
and Shareholder 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 Material Adverse Effect, 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 Company. 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.
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. Except as set forth on Schedule 4.11 hereto, none of the Tax Returns
of Company are currently under investigation or audit, nor to the knowledge of
Company or Shareholder 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
July 31, 1997 Financial Statements and will be on the Closing Balance Sheet. No
Claim has ever been made by any Governmental Entity in 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 or withheld. There are no
unresolved Claims concerning Company's Tax Liability, and no basis for any such
Claims exist.
4.12 Employees. Schedule 4.12 hereto sets forth a complete list of all
current employees of Company, together with each employee's age, tenure with
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 to the
knowledge of Company or Shareholder pending
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or attempts to unionize or controversies threatened between Company and, or
relating to, any of its employees. 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, except as set forth on Schedule
4.12 hereto, and there are no understandings or agreements 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. Except as
set forth on Schedule 4.12 hereto, no officer, director, or employee is entitled
to receive any payment of any amount under any existing agreement, severance
plan or other benefit plan, 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 federal and state statutes
and regulations 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 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 exchange and cancellation of the Company Stock, or the
consummation of any other transaction contemplated hereby have been obtained, or
will be effective at 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 and as proposed to be conducted the absence of
which will cause a Material Adverse Effect. Such Licenses are in full force and
effect, no violations have been or, to the knowledge of Company and Shareholder,
are expected to have been recorded in respect of any such Licenses, and no
proceeding is threatened or, to the knowledge of Company of Shareholder, pending
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.
4.15 Compliance with Applicable Laws. The business and operations of
Company have been and are being conducted in all material respects in compliance
with all laws, ordinances, regulations, rules, orders, judgments or decrees to
which Company is subject. Company holds, and the properties, assets, operations
and businesses of Company have been maintained and conducted in all material
respects in compliance with, all authorizations, permits, licenses,
certificates, variances, exemptions, orders, franchises, rights and approvals
that are necessary for the conduct of its businesses. No investigation or review
by any Governmental Entity with respect to Company is threatened or, to the best
knowledge of Company or Shareholder,
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pending, nor has any Governmental Entity indicated to Company an intention to
conduct the same.
4.16 Insurance. Schedule 4.16 hereto sets forth an accurate list, as of
August 30, 1997, of all insurance policies carried by Company and all insurance
loss runs or workers' compensation claims received for the past two (2) policy
years. Attached to Schedule 4.16 hereto are true, complete and correct copies of
the summaries from the insurance company agent of all current insurance
policies, all of which are in full force and effect. 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). Neither Company nor Shareholder knows of any
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 disclosed in Schedule 4.17 hereto,
since January 1, 1997, 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 Common Stock by Shareholder; (iv) any amendment, termination or
revocation, or any threat of any amendment, termination, or revocation having a
Material Adverse Effect, of any Material Contract; (v) any sale, transfer,
mortgage, pledge, or subjection to Lien of, on or affecting any of the assets of
the Company out of the Ordinary Course of Business; (vi) any increase in the
compensation paid or payable or in the fringe benefits provided to any employee
of Company out of the Ordinary Course of Business, or the adoption of any
employee benefit plans not in existence in the fiscal year ended December 31,
1996; (vii) any damage, destruction or loss, whether or not covered by
insurance, of any of the assets of Company that has a Material Adverse Effect;
(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 Company or Shareholder to take any action which, if taken prior to the
date hereof, would have made any representation or warranty set forth in this
Agreement untrue or incorrect as of the date when made; or (xi) the commencement
or notice or, to the best knowledge of Company and Shareholder, threat of
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commencement of any lawsuit or proceeding against or investigation of Company or
any of its affairs.
4.18 Employee Plans. Schedule 4.18 hereto sets forth a complete list of
all Employee Plans and Benefit Arrangements maintained, administered or
contributed to, or otherwise participated in, by Company. A true and complete
copy of each such Employee Plan or Benefit Arrangement, including amendments
thereto, have been provided to FNFI, 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.
4.19.1 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. To the knowledge of Company
and Shareholder, 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.
4.19.2 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
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threatened or, to the best knowledge of Company and Shareholder, pending any
claim or litigation contesting the validity, ownership or right to use, sell,
license or dispose of any Intellectual Property or that the proposed use, sale,
license or disposition thereof conflicts or will conflict with the rights of any
other party, nor to the best knowledge of the Company and Shareholder, is there
any basis for any such assertion.
4.20 Environment, Health and Safety.
4.20.1 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 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
permits, 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.
4.20.2 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 reasonable Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand 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.
4.20.3 To the best of Company's and Shareholder's knowledge, all
properties used in its business are free of Hazardous Substances, except where
the existence thereof would not have a Material Adverse Effect.
4.21 Certain Transactions. There are no existing or pending
transactions, nor are there any agreements or understandings, between Company
and Shareholder, or the officers, directors, or employees of Company, or any
Person affiliated with any of them, 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.
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4.22 Investment Representations. Each Shareholder is receiving the
Fidelity Common Stock for his, her or its own account for investment purposes
only, 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. Each Shareholder
acknowledges that the Fidelity Common Stock to be issued hereunder will not be
registered under the Securities Act, nor qualified under any state securities
laws on the ground, among others, that no distribution or public offering is to
be effected.
4.23 Absence of Claims Against Company. No Shareholder has any Claims
against the Company.
4.24 Bank Accounts; Powers of Attorney. Schedule 4.24 hereto sets forth
an accurate list, as of the date of this Agreement, of the following: (i) the
name of each financial institution in which Company has any account or safe
deposit box; (ii) the names in which the accounts or boxes are held; (iii) the
type of account; and (iv) the name of each person authorized to draw thereon or
have access thereto. Schedule 4.24 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.
4.25 Tax-Free Reorganization. This Agreement, the Merger and the
transactions contemplated thereby qualify, in all respects, as a tax-free
reorganization pursuant to Code Section 368(a).
4.26 Continuity of Interest. No Shareholder has any present plan,
intention or arrangement to dispose of any of the shares of Fidelity Common
Stock issued hereunder in a manner that would cause the Merger to violate the
continuity of shareholder interest requirement set forth in Treasury Regulation
Section 1.368-1.
4.27 Brokers' Fees. Neither Company nor Shareholder has any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
4.28 Full Disclosure. Neither this Agreement, the representations and
warranties by Company and/or Shareholder contained herein, the Exhibits or
Schedules hereto, nor any other written statement or certificate delivered or to
be furnished to FNFI 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.
There is no fact known to Company or Shareholder which has not been disclosed to
FNFI that would have a Material Adverse Effect on Company's business or
financial condition or its ability to perform its obligations under this
Agreement.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF FNFI AND NEWCO
FNFI and Newco represent and warrant to Company and Shareholder that
(except for changes contemplated by this Agreement) 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 FNFI and Newco on that date with the Closing Date being
substituted for the date of this Agreement throughout this Article 5):
5.1 Organization and Good Standing. FNFI and Newco are corporations duly
organized, validly existing and in good standing under the laws of the States of
Delaware and California, respectively, and have all requisite corporate power
and authority to own, operate and lease their properties and to carry on their
respective business as they are being conducted on the date of this Agreement.
FNFI and Newco have all requisite corporate power and authority to enter into
this Agreement and to perform their respective obligations hereunder with
respect to the consummation of the transactions contemplated hereby.
5.2 Authorization. The execution and delivery of this Agreement by FNFI
and Newco and the consummation of the transactions contemplated hereby will be
duly authorized by all necessary corporate action on the part of FNFI and Newco,
respectively, prior to the Closing Date. This Agreement has been duly executed
and delivered by FNFI and Newco and constitutes a legal, valid and binding
obligation of FNFI and Newco, enforceable in accordance with its terms, except
as the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting the rights of creditors generally and
by general equitable principles.
5.3 Noncontravention. Neither the execution and delivery of this
Agreement by FNFI and Newco nor the consummation of the transactions
contemplated hereby by FNFI and Newco will (i) violate any statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any Governmental Entity to which FNFI or Newco is subject or any provision of
the charter or bylaws of FNFI and Newco; or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument or other
arrangement to which either FNFI or Newco is a party or by which they are bound
or to which any of their assets is subject, except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, or failure to give notice would not have a material adverse effect
on the ability of FNFI and/or Newco to consummate the transactions contemplated
by this Agreement.
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5.4 Fidelity SEC Documents. FNFI has filed all forms, reports and
documents required to be filed with the SEC (the "Fidelity SEC Documents"), all
of which have been made available to Company. As of their respective dates, the
Fidelity SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act, as the case may be, and the rules
and regulations of the SEC thereunder applicable to such Fidelity SEC Documents,
and none of the Fidelity SEC Documents contain 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, in light of the circumstances under
which they were made, not misleading. The financial statements of FNFI included
in the Fidelity SEC Documents comply in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto, or in the case of the unaudited interim financial statements, as
permitted by Form 10-Q promulgated by the SEC) and fairly present (subject, in
the case of the unaudited interim financial statements, to recurring audit
adjustments normal in nature and amount) the consolidated financial position of
FNFI as at the dates thereof and the consolidated results of its operations and
cash flows or changes in financial position for the periods then ended.
5.5 Fidelity Common Stock. All of the shares of Fidelity Common Stock to
be issued to Shareholder in connection with the Merger shall be duly authorized,
validly issued, fully paid and non-assessable. Such shares shall be offered,
issued, sold and delivered by FNFI in compliance with all applicable state and
federal laws concerning the issuance of securities and none of such shares shall
be issued in violation of the preemptive rights of any shareholder of FNFI.
5.6 Brokers' Fees. Neither FNFI nor Newco is 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.
5.7 Disclosure. The representations and warranties contained in this
Article 5 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained herein, in light of the circumstances under which they are
made, not misleading.
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ARTICLE 6
CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through
the Closing Date, Company and Shareholder (which for purposes of this Article 6
shall include Friedman), jointly and severally, covenant and agree that:
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 materially from those methods
used by the Company as of July 31, 1997. Company will use its reasonable
business 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. 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
substantially all 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, except in the Ordinary Course of Business, lend money to or
guarantee the Indebtedness of any Person. Company shall not restructure or
refinance its existing Indebtedness. Notwithstanding anything to the contrary in
this Section 6.4, Company may borrow under its line of credit as needed in the
Ordinary Course of Business.
6.5 Accounting. Company shall not make any change in the accounting
principles, methods, records 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.
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6.6 Compliance with Legal Requirements. Company shall comply promptly
with all requirements that applicable law may impose upon it and its operations
and with respect to the transactions contemplated by this Agreement, and shall
cooperate promptly with, and furnish information to, FNFI in connection with any
such requirements imposed upon FNFI, or upon any of its Affiliates, in
connection therewith or herewith.
6.7 Disposition of Assets. Other than 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 upon any of its properties or
assets, tangible or intangible, or upon any interest therein.
6.8 Compensation. 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) other than
in the Ordinary Course of Business, pay, or make any accrual or arrangement for
payment of, any increase in compensation, bonuses or special compensation of any
kind, or any severance or termination pay to, or enter into any employment or
loan or loan guarantee agreement with, any current or former officer, director,
employee or consultant of Company.
6.9 Modification or Breach of Agreements; New Agreements. 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, disclosed in this Agreement or the Schedules hereto. 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 for capital expenditures or
commitments in the Ordinary Course of Business necessary to maintain its
properties and assets in good condition and repair (the amount of which shall
not exceed $25,000 in the aggregate), Company shall not purchase or enter into
any contract to purchase any capital assets.
6.11 Consents. Company shall use its reasonable efforts to obtain any
consent, authorization or approval of, or exemption by, any Governmental Entity
or Person required to be obtained or made by any Party 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 and shall not do, permit or willingly allow
to be done any act by which any of said policies of insurance may be suspended,
impaired or canceled.
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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 of material value, 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 Actions. Company shall not institute, settle or agree to settle any
Action before any Governmental Entity.
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, except for Taxes contested by Company in good faith. Company shall
furnish promptly to FNFI a copy of all notices of proposed assessment or similar
notices or 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 Company and Shareholder. During the period from the
date hereof through the Closing Date, Company and Shareholder (which for
purposes of this Article 7 shall include Friedman) 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, FNFI
in connection with any such requirements imposed upon FNFI or upon any of its
Affiliates in connection therewith or herewith;
(b) Use their reasonable efforts to obtain (and to cooperate with
FNFI in obtaining) any consent, authorization or approval of, or exemption by,
any Person required to be obtained or made by Company and/or Shareholder in
connection with the transactions contemplated by this Agreement;
(c) Use their reasonable efforts to bring about the satisfaction
of the conditions precedent to Closing set forth in Section 8.1, below;
(d) Immediately advise FNFI orally and, within three (3) business
days thereafter, in writing of any change in Company's business or condition
that has had or may have a Material Adverse Effect;
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(e) Deliver to FNFI 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 FNFI from terminating this Agreement pursuant to Section 9.1(b) hereof
at any time at or prior to the Closing in respect of any original untrue or
misleading statement;
(f) All Company indebtedness owed to Colin H. Friedman, Farid
Meshkatai and Anita Meshkatai, or any trust of which any of them serve as
trustee, shall be converted to Company Stock on or prior to the Closing Date
upon such terms and conditions and in a manner pre-approved by FNFI; and
(g) The following Split Dollar Executive Retirement Policies
shall be transferred by Company to the insured on or prior to the Closing Date:
(i) Policy No. 2221416, issued on June 24, 1993, Julius Segal the insured party,
in the face amount of One Million Dollars ($1,000,000); (ii) Policy No. 2222292,
issued on July 14, 1993, Colin and Hedy Friedman the insured parties, in the
face amount of Two Million Dollars ($2,000,000); and (iii) Policy No. 2222595,
issued on July 1, 1993, Norman Ross the insured party, in the face amount of
Three Hundred Sixty-One Thousand Six-Hundred Dollars ($361,600).
7.2 Covenants of FNFI. During the period from the date hereof to the
Closing Date, FNFI 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, Shareholder in
connection with any such requirements imposed upon the Shareholder or Company or
upon any of Company's Affiliates in connection therewith or herewith;
(b) Use its reasonable efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by FNFI in connection with the transactions contemplated by
this Agreement;
(c) Use its reasonable efforts to bring about the satisfaction of
the conditions precedent to Closing set forth in Section 8.2 of this Agreement;
and
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(d) Cause Surviving Corporation to continue at least one (1)
significant historical business line of Company, or use at least a significant
portion of Company's historical business assets in a business, in each case in
accordance with Treasury Regulation Section 1.368-1.
7.3 Responsibility for Certain Potential Liabilities. Company and
Shareholder shall assume and be jointly and severally responsible for any and
all Liability, including without limitation any and all Tax Liability, caused
by, arising from, or related to the failure of the Merger to qualify, in any
respects, as a tax-free reorganization pursuant to Code Section 368(a).
7.4 Continuity of Interest. Shareholder shall not dispose of any shares
of Fidelity Common Stock in a manner that would cause the Merger to violate the
continuity of shareholder interest requirement set forth in Treasury Regulation
Section 1.368-1.
7.5 Access and Information.
(a) During the period commencing on the date hereof and
continuing through the Closing Date, Shareholder shall cause Company to afford
to FNFI and to FNFI's accountants, counsel, and other representatives,
reasonable access to all of its properties, books, contracts, commitments,
records and personnel and, during such period, to cause Company to furnish
promptly to FNFI all information concerning its business, properties and
personnel as FNFI may reasonably request.
(b) Except to the extent permitted by the provisions of Section
7.8, below, FNFI 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 Shareholder or Company concerning Company and
shall not disclose such information to any third party 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 FNFI or
its representatives; (ii) becomes available to FNFI or its representatives from
a third party other than Shareholder or Company, and FNFI or its representatives
have no reason to believe that such third party is not entitled to disclose such
information; (iii) is known to FNFI or its representatives on a non-confidential
basis prior to its disclosure by Shareholder or Company; or (iv) is made
available by Shareholder or Company to any other Person on a non-restricted
basis. FNFI's obligations under the foregoing sentence shall expire on the
Closing Date or, if the Closing does not occur, one year after the date hereof.
If the Merger is not consummated, then all information received by FNFI from CRI
and all copies thereof shall be returned or delivered to CRI, all computations
or other studies relating to CRI prepared by FNFI, its representatives or
Affiliates shall be destroyed, and FNFI shall supply CRI a sworn certificate
that such delivery or destruction has taken place and that
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FNFI, its representatives and/or Affiliates no longer have in their possession
any such documents, copies, computations or other studies.
7.6 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.
7.7 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 may result in the failure to satisfy any of
the conditions specified in Article 8, below.
7.8 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 agents or Affiliates 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 7.8. 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.
7.9 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 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, Shareholder
and the proper officers or directors of FNFI and Company, 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 convenient documentation, all at FNFI's expense.
7.10 Competing Offers. Shareholder agrees that it will not, and will
cause Company not to, directly or indirectly, through an officer, director,
agent, or otherwise, solicit, initiate or encourage the submissions of bids,
offers or proposals by,
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any Person with respect to an acquisition of Company or its assets or capital
stock or a merger or similar transaction, and Shareholder will not, and will not
permit Company to, engage any broker, financial adviser or consultant to
initiate or encourage proposals or offers from other Persons. Furthermore,
Shareholder shall not, and shall not permit Company to, directly or indirectly,
through any officer, director, agent or otherwise, engage in negotiations
concerning any such transaction with, or provide information to, any Person
other than FNFI and its representatives with a view to engaging, or preparing to
engage, that Person with respect to any matters in this Section 7.10.
Shareholder shall ensure that Company shall not commence any proceeding to
merge, consolidate or liquidate or dissolve or obligate itself to do so.
7.11 Post-Closing Employment. Except as provided in the Employment
Agreement attached hereto as Exhibit "B," Company and Shareholder acknowledge
and agree that after the Effective Time (i) neither FNFI nor Surviving
Corporation shall be required to employ or retain any employee of Company or any
other Person; and (ii) FNFI, in its sole and absolute discretion, may cause
Surviving Corporation to retain all, some, or none or such employees; provided,
however, that all such post-closing terminations shall be in accordance with all
applicable laws, rules and regulations.
7.12 Employment Agreement. On or before the Closing Date, Friedman and
the appropriate officer of Company shall execute the Employment Agreement
substantially in the form of Exhibit "B" hereto.
7.13 Registration Rights Agreement. On or before the Closing Date,
Shareholder and the appropriate officer of FNFI shall execute the Registration
Rights Agreement substantially in the form of Exhibit "C" hereto.
7.14 NYSE Listing. FNFI will make such filings as are necessary with the
New York Stock Exchange regarding the transactions contemplated hereby and will
cause the shares of Fidelity Common Stock to be issued under this Agreement to
be approved for listing on the NYSE, subject only to official notice of
issuance, prior to the Effective Time.
ARTICLE 8
CONDITIONS PRECEDENT TO CLOSING
8.1. Conditions of FNFI. FNFI's obligations hereunder to consummate the
Merger are subject to the satisfaction, at or prior to the Effective Time, of
all of the following conditions:
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(a) Representations and Warranties True: Performance of
Obligations. The representations and warranties made by Company and Shareholder
in this Agreement shall be true, correct and complete 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 Company and 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 Effective Time.
(b) Material Adverse Effect. No act, event or condition shall
have occurred after the date hereof which FNFI determines in its reasonable
discretion has had or could have a Material Adverse Effect.
(c) Authorizations and Approvals. 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) Investigation of Company. FNFI shall have concluded (through
its representatives, accountants, counsel and other experts) a due diligence
investigation of the business, condition (financial, legal and other),
properties, assets, prospects, operations and affairs of Company and shall be
satisfied, in its reasonable discretion, with the results thereof.
(e) Deliveries. FNFI shall have received from the appropriate
Party or Person, the delivery obligations set forth in Sections 3.2 through 3.4,
below.
(f) Schedules. Shareholder shall cause Company to deliver all of
the Schedules to this Agreement set forth herein, and FNFI shall be reasonably
satisfied with such Schedules.
(g) No Actions. There shall not be instituted and pending or
threatened any Action before any Governmental Entity (i) challenging the Merger
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 FNFI of all or a material portion of the
business or assets of Company, or to compel FNFI or Company to dispose of or
hold separate all or a material portion of the business or assets of Company or
FNFI.
(h) 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 FNFI and its counsel. Notwithstanding the
foregoing, FNFI
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shall advise Company and Shareholder of any perceived deficiencies and provide
Company and Shareholders with a reasonable period of time to cure such
deficiencies.
(i) 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 Party (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 FNFI or any
Party or Person to be affected by such condition.
(j) ENI. All of the conditions to close set forth in Article 8.1
of that certain Agreement and Plan of Reorganization of even date herewith, by
and among FNFI, Express Network, Inc., a California corporation ("ENI"), the
shareholders of ENI, Friedman and ENI Acquisition Corporation shall have been
satisfied at or prior to the Effective Time. In addition, the Closing of this
Merger is conditioned upon the closing of the ENI merger and vice versa.
(k) Classified Credit Data, Inc. Either (i) Friedman shall have
sold all of his ownership interest in Classified Credit Data, Inc, a California
corporation, to FNFI in accordance with the terms and conditions set forth in
that certain letter dated August 18, 1997, a copy of which is attached hereto as
Exhibit "G;" or (ii) Candy Marshall shall have exercised her right of first
refusal to acquire such ownership interest in accordance with the terms and
conditions of that certain Shareholders Agreement, dated May 9, 1988, by and
among CCD, Friedman and Ms. Marshall, and Friedman and Ms. Marshall shall have
completed such transfer of ownership interest.
(m) Board Approval. The Board of Directors of FNFI shall have
approved this Agreement and the transactions contemplated thereby.
8.2 Conditions of Company and Shareholder. Company's and Shareholder's
obligations hereunder to consummate the Merger are subject to the satisfaction,
at or prior to the Effective Time, of the following conditions:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by FNFI and Newco in this
Agreement 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 FNFI and Newco shall
have performed all obligations herein required to be performed by them at or
prior to the Closing.
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(b) Authorizations and Approvals. All authorizations, approvals
or consents, if any, from third parties, including from any Governmental Entity
or other Person, necessary for the consummation of the transactions contemplated
hereby shall have been obtained.
(c) Tax-Free Reorganization. Shareholder shall be satisfied in
its reasonable discretion that the Merger qualifies as a tax-free reorganization
under Section 368(a) of the Code.
(d) Material Adverse Effect. No act, event or condition shall
have occurred after the date hereof which Company and Shareholder determines in
their reasonable discretion has had or could have a material adverse effect on
FNFI.
(e) Deliveries. Shareholders shall have received from the
appropriate Party or Person, the delivery obligations set forth in Sections 3.2
and 3.5, above.
(f) No Actions. There shall not be instituted and pending or
threatened any Action before any Governmental Entity (i) challenging the Merger
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 FNFI of all or a material portion of the
business or assets of Company, or to compel FNFI or Company to dispose of or
hold separate all or a material portion of the business or assets of Company or
FNFI.
(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 Company and Shareholders and their
counsel. Notwithstanding the foregoing, Company and Shareholders shall advise
FNFI of any perceived deficiencies and provide FNFI with a reasonable period of
time to cure such deficiencies.
(h) ENI. All of the conditions to close set forth in Article 8.2
of that certain Agreement and Plan of Reorganization of even date herewith, by
and among FNFI, Express Network, Inc., a California corporation ("ENI"), the
shareholders of ENI, Friedman and ENI Acquisition Corporation shall have been
satisfied at or prior to the Effective Time. In addition, the Closing of this
Merger is conditioned upon the closing of the ENI merger and vice versa.
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ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time:
(a) By mutual consent of the FNFI and Shareholder;
(b) By Shareholder and Company as a group, on the one hand, or by
FNFI, on the other hand, if there has been a material breach, failure to fulfill
or default on the part of the other 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 Shareholder and Company as a group, on the one hand, or by
FNFI, on the other hand, if there shall be a final non-appealable order of a
federal or state court in effect preventing consummation of the Merger; or there
shall be any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any Governmental
Entity which would make the consummation of the Merger illegal.
9.2 Effect of Termination. In the case of any termination of this
Agreement pursuant to Section 9.1, 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 7.5(b) and 7.6 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 9.1(b), above, then
notwithstanding the provisions of Section 7.6, 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.
9.3 Amendment. This Agreement may be amended at any time by a written
instrument executed by the Parties. Any amendment effected pursuant to this
Section 9.3 shall be binding upon all Parties.
9.4 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 9.4 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
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any breach of any covenant or agreement hereunder shall be deemed a waiver of a
preceding or subsequent breach of the same or any 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 10
INDEMNIFICATION
10.1 Survival of Representations and Warranties. The representations and
warranties of Company and Shareholder (which for purposes of this Article 10
shall include Friedman) contained in this Agreement or in any writing delivered
pursuant hereto or at the Closing and the indemnification obligations set forth
in Section 10.2, below, shall survive the Closing and the consummation of the
transactions contemplated hereby until the second (2nd) anniversary of the
Closing Date; provided that the representations and warranties contained in
Sections 4.2, 4.4, 4.11 and 4.20 and the indemnification obligations related
thereto shall not terminate but shall until the expiration of the applicable
statutes of limitations; and provided further that Company's indemnification
obligations under Section 10.2, below, shall terminate immediately subsequent to
the Effective Time.
10.2 Indemnification by Company and Shareholder. Company and
Shareholder, jointly and severally, covenant and agree to indemnify, defend,
protect and hold harmless FNFI, Newco and Surviving Corporation and their
respective officers, directors, employees, shareholders, assigns, successors and
affiliates (a "FNFI Indemnified Party") from, against and in respect of all
Claims suffered, sustained, incurred or paid by any FNFI Indemnified Party in
connection with resulting from or arising out of, directly or indirectly:
(a) any breach of any representation or warranty of any
Shareholder or Company set forth in this Agreement or any certificate,
document or instrument delivered by or on behalf of Shareholder or
Company in connection herewith; or
(b) any non-fulfillment of any covenant or agreement on the part
of Shareholder or Company in this Agreement.
10.3 Indemnification by FNFI. FNFI covenants and agrees to indemnify,
defend, protect and hold harmless Shareholder and its respective heirs,
successors and assigns (a "Shareholder Indemnified Party") from, against and in
respect of all Claims suffered, sustained, incurred or paid by any Shareholder
Indemnified Party in connection with resulting from or arising out of, directly
or indirectly:
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(a) any breach of any representation or warranty of FNFI or
Newco set forth in this Agreement or any certificate, document or
instrument delivered by or on behalf of FNFI or Newco in connection
herewith; or
(b) any non-fulfillment of any covenant or agreement on the part
of FNFI or Newco in this Agreement.
10.4 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 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 Article 10, the
reference to this Agreement includes any certificate, Schedule or Exhibit
delivered to a Party by the Indemnifying Party or its agents and affiliates in
connection with this Agreement. The election by the Indemnifying Party to take
over a defense or settlement of the third party Claim shall not constitute an
admission that the Claim is indemnified against under this Agreement; the
question of whether the Claim is one which is subject to indemnity under this
Article 10 shall be determined separately from the assumption of the defense. If
the Indemnifying Party asserts in a notice to the Indemnified Party that it does
not believe that the Claim is one which it has agreed to indemnify the
Indemnified Party under this Agreement and it is later determined that the Claim
was in fact not subject to the indemnities provided for in this Article 10, then
the Indemnified Party will indemnify, reimburse and hold harmless the
Indemnifying Party against all Liability under the third party Claim and the
costs and expenses (including reasonable attorneys' fees) which the Indemnifying
Party incurs by reason of defense of the third party Claim.
10.5 Indemnification Non-Exclusive. The foregoing indemnification
provisions 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.
10.6 Additional Indemnification Provisions. Notwithstanding anything to
the contrary in this Article 10, (i) Shareholder's aggregate Liability under
Section 10.2, above, shall not exceed Two Million Five Hundred Thousand Dollars
($2,500,000); (ii) Shareholder shall not incur any Liability under section 10.2,
above, until the aggregate amount of indemnification obligations exceed Ten
Thousand Dollars ($10,000); and (iii) subject to clause
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(ii) above, Shareholder shall not incur any Liability under Section 10.2, above,
for indemnification obligations that individually do not exceed One Thousand
Dollars ($1,000).
ARTICLE 11
GENERAL PROVISIONS
11.1 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.
11.2 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.
11.3 Entire Agreement. This Agreement, the Exhibits and Schedules
hereto, and the other documents delivered at the Closing 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.
11.4 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.
11.5 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:
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(a) If to FNFI, addressed to:
Fidelity National Financial, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Attn: Andrew F. Puzder
Facsimile: (805) 898-7149
With a copy to:
C. Craig Carlson, Esq.
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Facsimile: (714) 725-4100
(b) If to Shareholders, addressed to:
Colin H. Friedman Farid Meshkatai
12428 N. 136th Place 9332 N. 71st Street
Scottsdale, Arizona 85253 Paradise Valley, Arizona 85253
Facsimile: (602) 905-7337 Facsimile (602) 905-7337
With a copy to:
David D. Wexler, Esq.
Rosenfeld, Meyer & Susman
9601 Wilshire Boulevard, Fourth Floor
Beverly Hills, California 90210-5288
Facsimile: (310) 271-6430
11.6 Tax Advice. Company, Shareholder and Friedman acknowledge that they
have received their own independent tax advice with respect to the Merger, this
Agreement and the transactions contemplated thereby, including whether the
Merger qualifies as a tax free reorganization in accordance with Section 368(a)
of the Code, and are not in any way relying on any statements or advice of FNFI,
Newco or any of their officers, directors, employees, agents or representatives.
11.7 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
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of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
11.8 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.
11.9 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.
11.10 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. Anything referenced on any
Schedule hereto shall be deemed incorporated into any other Schedule requesting
the same or similar information.
11.11 Non-Competition. For a period of five (5) years from and after the
Closing Date, Meshkatai will not, for any reason whatsoever, directly or
indirectly, for the himself or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:
(a) engage as an officer, director, stockholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any business
selling any products or services in direct competition with the current business
or any related business of Surviving Corporation, or any business to which it is
reasonably foreseeable that Surviving Corporation will enter, within 100 miles
of where the Company anywhere conducts such business (the "Territory");
(b) call upon any person who is, at that time, within the
Territory, an employee of Surviving Corporation in a managerial capacity for the
purpose or with the intent of enticing such employee away from or out of the
employ of Surviving Corporation;
(c) call upon any person or entity which is, at that time, or
which has been within one (1) year prior to that time, a customer of Surviving
Corporation within the Territory for the purpose of soliciting or selling
products or services in competition with Surviving Corporation within the
Territory; or
(d) call upon any prospective acquisition candidate, on
Meshkatai's own behalf or on behalf of any competitor, which candidate was
either called upon by Surviving Corporation or for which Surviving Corporation
made an acquisition analysis, for any purpose other than providing products or
services of Surviving Corporation.
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Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Meshkatai from acquiring as an investment not more than one percent
(1%) of the capital stock of a competing business whose stock is traded on a
national securities exchange or over-the-counter.
Meshkatai expressly agrees that the foregoing covenants impose a reasonable
restraint on Meshkatai in light of the activities and business of Company on the
date of the execution of this Agreement and the current plans of Company and/or
Surviving Corporation; but it is also the intent of Surviving Corporation and
Meshkatai that such covenants be construed and enforced in accordance with the
changing activities and business of Surviving Corporation throughout the term of
the covenants. The covenants in this Section 11.11 are severable and separate,
and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth are unreasonable, then it is the intention of the Parties that such
restrictions be enforced to the fullest extent which the court deems reasonable,
and this Section 11.11 shall thereby be reformed. All of the covenants in this
Section 11.11 shall be construed as an agreement independent of any other
provision of this Agreement, and the existence of any Claim by Meshkatai against
FNFI or Surviving Corporation, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by FNFI or
Surviving Corporation of such covenants. Meshkatai specifically agrees that the
period of five (5) years stated at the beginning of this Section 11.11 shall be
computed by adding to such five (5) year period any time during which Meshkatai
is found by a court of competent jurisdiction to have been in violation of any
provision of this Section 11.11. Meshkatai expressly agrees that the covenants
set forth in this Section 11.11 are a material and substantial part of this
Agreement.
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IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the
date first above written.
FNFI:
FIDELITY NATIONAL FINANCIAL, INC.,
a Delaware Corporation
By: /s/ ANDREW F. PUZDER
----------------------------------
Its: EXECUTIVE VICE PRESIDENT
COMPANY:
CREDIT REPORTS, INC., a California
Corporation
By: /s/ COLIN H. FRIEDMAN
----------------------------------
Its: PRESIDENT
SHAREHOLDER:
COLIN HOWARD FRIEDMAN AND HEDY
KRAMER FRIEDMAN, AS TRUSTEES OF THE
FRIEDMAN FAMILY TRUST UDT, DATED
JULY 23, 1987
/s/ COLIN H. FRIEDMAN
----------------------------------
Colin H. Friedman, Trustee
/s/ HEDY KRAMER FRIEDMAN
----------------------------------
Hedy Kramer Friedman, Trustee
FRIEDMAN:
/s/ COLIN H. FRIEDMAN
----------------------------------
Colin H. Friedman, Individually
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<PAGE> 1
EXHIBIT 10.51
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of this 12th day of September, 1997, by and among FIDELITY
NATIONAL FINANCIAL, INC., a Delaware corporation ("FNFI"); EXPRESS NETWORK,
INC., a California corporation ("Company"); COLIN HOWARD FRIEDMAN AND HEDY
KRAMER FRIEDMAN, AS TRUSTEES OF THE FRIEDMAN FAMILY TRUST UDT, DATED JULY 23,
1987, FARID MESHKATAI, and ANITA KRAMER MESHKATAI, AS TRUSTEE OF THE ANITA
KRAMER LIVING TRUST, DATED JULY 23, 1987 (collectively, "Shareholders"); COLIN
H. FRIEDMAN ("Friedman"); and ENI ACQUISITION CORPORATION, a California
corporation that is a newly-formed, wholly-owned subsidiary of FNFI ("Newco").
FNFI, Company, Shareholders, Friedman and Newco are referred to collectively
herein as the "Parties" or singularly as a"Party."
RECITALS
A. Shareholders are the record and beneficial owners of 2,000 shares of
Company Common Stock (the "Company Shares"), which represents all the issued and
outstanding shares of capital stock of Company.
B. The respective Boards of Directors of FNFI, Company and Newco deem it
advisable and in the best interests of their respective shareholders that
Company merge with and into Newco (the "Merger") pursuant to this Agreement, the
Articles of Merger substantially in the form attached hereto as Exhibit "A" (the
"Articles of Merger") and the applicable provisions of the laws of the State of
California.
C. The Parties hereto expect that the Merger will further certain of
their business objectives, including, without limitation, increased market
share, reduced administrative costs and volume efficiencies.
D. The Boards of Directors of FNFI, Company and Newco have approved and
adopted this Agreement as a plan of reorganization within the provisions of
Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the
"Code").
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:
<PAGE> 2
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 any of the terms herein
defined. 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.
"Action" shall mean any actual or threatened Claim, action, suit,
arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by
or before any Governmental Entity or arbitrator and any appeal from any of the
foregoing.
"Affiliate" shall mean, 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.
"Articles of Merger" has the meaning set forth in Recital B, above.
"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" shall 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.
"California Statute" means the general corporation laws set forth in the
California Corporations Code.
"Claims" shall mean any and all liabilities, losses, claims, damages,
causes of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, 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).
"Closing" has the meaning set forth in Section 3.1, below.
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"Closing Balance Sheet" has the meaning set forth in Section 2.2(e),
below.
"Closing Date" has the meaning set forth in Section 3.1, below.
"Closing Fidelity Price" means the average of the per share closing
sales price of FNFI's Common Stock publicly traded on the New York Stock
Exchange for the eight (8) consecutive trading days ending on the date of this
Agreement.
"Code" has the meaning set forth in Recital D, above.
"Company Shares" has the meaning set forth in Recital A.
"Company Stock" means shares of Common Stock, no par value, of Company.
"Confidential Information" means any information concerning the
businesses and affairs of any of the Parties that is not already generally
available to the public.
"CRI Net Worth Deficiency" has the meaning set forth in Section 2.2(e)
of that certain Agreement and Plan of Reorganization of even date herewith by
and among FNFI, Credit Reports, Inc., the shareholder of Credit Reports, Inc.,
Friedman and CRI Acquisition corporation (the "CRI Merger Agreement").
"Effective Time" has the meaning set forth in Section 3.1, below.
"Employee Plan" shall mean 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, of the Company.
"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 other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws 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, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"Fidelity Common Stock" means the shares of non-registered, restricted
Common Stock, par value of $0.0001 per share, of FNFI.
"GAAP" means United States generally accepted accounting principles, as
the same may change from time to time.
"Governmental Entity" shall mean any court, federal, state, local or
foreign government or any administrative agency or commission or any other
governmental authority or instrumentality whatsoever.
"Hazardous Substances" shall mean any hazardous, toxic or infectious
substance, material, gas or waste which is regulated by any Governmental Entity.
"Indebtedness" shall mean, 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
reissuances, 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, formulas, compositions, manufacturing and
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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, for purposes of Article 4, below, actual knowledge of
any officer of Company or Shareholders to the fact or matter in question,
without making any investigation.
"Legal Requirement" shall mean 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.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Licenses" has the meaning set forth in Section 4.14, below.
"Lien" shall mean all liens (including judgment and mechanics' liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or otherwise), deeds of trust,
options or other charges, encumbrances or restrictions.
"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, business relationships, properties, condition (financial
or otherwise), insurability or prospects of Company; (ii) the ability of the
Parties to consummate the transactions contemplated by this Agreement; or (iii)
the legal right or authorization of Company to continue to operate its business.
"Material Contracts" has the meaning set forth in Section 4.9, below.
"Merger" has the meaning set forth in Recital B, above.
"Net Worth" means the difference between (i) the reviewed aggregate book
value of the assets of Company; and (ii) the reviewed aggregate book value of
the liabilities of Company as reflected on the Reviewed Closing Balance Sheet,
provided that the Parties and/or a national accounting firm (as more fully
explained in Section 2.2(e), below) may (i) make reasonable adjustment to or
establish reasonable reserves for uncollectible accounts receivable; (ii) adjust
the book value of Company's assets or liabilities to account for under- or
over-valued assets or
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liabilities; and/or (iii) make any other adjustments necessary or appropriate in
order to state the Reviewed Closing Balance Sheet in accordance with GAAP.
"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.
"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.
"Reviewed Closing Balance Sheet" has the meaning set forth in Section
2.2(e), below.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, Lien, other than (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; (iii) purchase money liens and liens securing rental
payments under capital lease arrangements; and (iv) other liens arising in the
Ordinary Course of Business and not incurred in connection with the borrowing of
money.
"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.
"Surviving Corporation" has the meaning set forth in Section 2.1(a),
below.
"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 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.
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"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
PLAN OF REORGANIZATION
2.1 The Merger.
(a) The Merger. At the Effective Time (as defined in Section 3.1,
below), Company shall be merged with and into Newco pursuant to this Agreement
and the Articles of Merger, and the separate existence of Company shall cease,
all in accordance with the California Statute. Newco, as it exists from and
after the Effective Time, is sometimes referred to herein as the "Surviving
Corporation." Promptly after the Effective Time, Surviving Corporation shall
change its name to Fidelity National Express Network, Inc.
(b) Effect or of the Merger. Subject to the terms and conditions
of this Agreement and the Articles of Merger, at the Effective Time (i) the
separate existence of Company shall cease and Company shall be merged with and
into Newco; and (ii) the Merger shall have all the effects provided by the
California Statute, this Agreement and the Articles of Merger.
(c) Articles of Incorporation; Bylaws; Directors and Officers.
The Articles of Incorporation of Surviving Corporation from and after the
Effective Time shall be the Articles of Incorporation of Newco until thereafter
amended in accordance with the provisions therein and as provided by the
California Statute. The Bylaws of Surviving Corporation from and after the
Effective Time shall be the Bylaws of Newco as in effect immediately prior to
the Effective Time, continuing until thereafter amended in accordance with their
terms and the Articles of Incorporation of Surviving Corporation and as provided
by the California Statute. The initial directors of Surviving Corporation shall
be the individuals set forth on Schedule 2.1(c)(1), in each case until their
successors are elected and qualified. The initial officers of Surviving
Corporation shall be those individuals holding such titles set forth on Schedule
2.1(c)(2), in each case until their successors are duly elected and qualified.
2.2 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of FNFI, Newco, Company or
Shareholders, the shares of capital stock of Newco and Company shall be
converted as follows:
(a) Capital Stock of Newco. Each issued and outstanding share of
capital stock of Newco shall continue to be issued and outstanding.
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(b) Cancellation of Certain Shares of Capital Stock of Company.
All shares of capital stock of Company that are owned directly or indirectly by
Company, including all capital stock which has been authorized but not issued,
shall be canceled and no consideration shall be delivered in exchange therefore.
(c) Conversion of Company Shares. The Company Shares shall
automatically be canceled, extinguished and converted, without any action on the
part of the holder thereof, into the right to receive the cash and the shares of
Fidelity Common Stock, as more fully described in subsections (d), (e) and (f),
below. All Company Shares, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and
Shareholders shall cease to have any rights with respect thereto, except the
right to receive the cash and the shares of Fidelity Common Stock to be paid or
issued in consideration therefor upon the surrender of the Certificates in
accordance with subsection (h), below.
(d) Consideration at Closing. In consideration for the
cancellation and exchange by Shareholders of the Company Shares (i) Newco shall,
immediately after the Effective Time and on the Closing Date, pay to
Shareholders the cash sum of Two Million Five Hundred Thousand Dollars
($2,500,000) by delivery, at Newco's option, of a cashier's or certified bank
check, or by wire transfer to an account or accounts designated by Shareholders;
and (ii) FNFI shall, immediately after the Effective Time and on the Closing
Date, issue and deliver to Shareholders Five Million Two Hundred Seventy-Five
Thousand Dollars ($5,275,000) of Fidelity Common Stock, either held in treasury
and transferred to Shareholders or newly issued by FNFI to Shareholders. The
consideration set forth in this subsection (d) is subject to adjustment pursuant
to subsection (e), below. The exact number of shares of Fidelity Common Stock to
be issued pursuant to this subsection (d) shall be based upon the Closing
Fidelity Price. The cash and Fidelity Common Stock due Shareholders under this
subsection (d) and subsections (e) and (f), below, shall be allocated among the
Shareholders in accordance with Schedule 2.2(d) hereto.
(e) Purchase Price Adjustments. Commencing immediately after the
Closing Date, (i) Shareholders shall cause Company to prepare a balance sheet
for Company as of the Closing Date (the "Closing Balance Sheet"); and (ii)
within thirty (30) days following the completion of the Closing Balance Sheet,
the Chief Financial Officer of Company and representatives of FNFI shall jointly
and in good faith review the Closing Balance Sheet and make any adjustments
necessary to state the Closing Balance Sheet in accordance with GAAP (the
"Reviewed Closing Balance Sheet"). If there is a dispute between the Parties
with respect to any particular adjustment, then the disputed adjustment shall be
submitted to a national accounting firm mutually agreed upon by the Parties,
whose determination of the appropriateness and the amount of the adjustment
shall be binding on the Parties. The cost of such accounting firm's services
shall be divided equally between FNFI, on the one hand, and the Shareholders, on
the other hand. If the Net Worth of Company as stated on the Reviewed Closing
Balance Sheet is less than One Million Two Hundred Forty-Five Thousand
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($1,245,000) (the "ENI Net Worth Deficiency"), then the post-closing payments
described in subsection (f), below (the "Post-Closing Payments"), that are due
on each of the first two (2) anniversaries of the Closing Date, shall each be
reduced by one-half (1/2) of the amount of the ENI Net Worth Deficiency;
provided, however, that if the ENI Net Worth Deficiency plus the CRI Net Worth
Deficiency exceeds One Million Three Hundred Eighty-Seven Thousand Five Hundred
Dollars ($1,387,500) (such excess is hereinafter referred to as the "Combined
Excess Deficiency"), then their shall be no obligation to make the Post-Closing
Payments on the first two (2) anniversaries of the Closing Date and the Combined
Excess Deficiency shall first be deducted from the Post-Closing Payments due on
the third anniversary of the Closing Date and then, if necessary, from the
Post-Closing Payments due on the fourth anniversary of the Closing Date. If the
Net Worth of Company as stated on the Reviewed Closing Balance Sheet is greater
than One Million Two Hundred Forty-Five Thousand Dollars ($1,245,000) (the "Net
Worth Surplus"), then the Post-Closing Payments due on each of the first two (2)
anniversaries of the Closing Date, shall each be increased by the amount of
one-half (1/2) of the Net Worth Surplus. Notwithstanding anything to the
contrary above, the Parties hereto expressly agree that any downward adjustments
for those items set forth on Schedule 2.2(e) hereto shall only reduce Net Worth
on the Reviewed Closing Balance Sheet by one-half (1/2) of the amount of such
adjustment.
(f) Post-Closing Consideration. Subject to Section 2.2(d), above,
and Section 2.2(d) of the CRI Merger Agreement, in the event the Merger is
consummated, on each of the first four (4) anniversaries of the Closing Date,
Surviving Corporation shall pay to Shareholders in cash and without interest the
sum of Six Hundred Ninety-Three Thousand Seven Hundred Fifty Dollars ($693,750).
(g) Payment of Certain Company Obligations. Immediately after the
Effective Time and on the Closing Date FNFI shall pay the principal balance of
the following Company obligations: (i) that certain Loan Agreement, dated
November 3, 1995, by and between Company and the FKN Organization Ltd. in the
principal amount of $500,000, a copy of which is attached hereto on Schedule
2.2(g)(1); and (ii) a series of loans made by Noah Kramer to Company in the
aggregate outstanding principal amount of $415,000, evidence for which are
attached hereto on Schedule 2.2(g)(2).
(h) Certificate Delivery Requirement. At the Effective Time,
Shareholders shall deliver to FNFI the certificates (the "Certificates")
representing the Company Shares, duly endorsed in blank by Shareholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps affixed and canceled. The Certificates so delivered shall be
promptly canceled. Until delivered as contemplated by this subsection (h), each
Certificate shall be deemed at any time after the Effective Time to represent
the right to receive upon such surrender a pro rata portion of the consideration
set forth in subsections (d), (e) and (f), above.
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ARTICLE 3
CLOSING
3.1. Closing. The consummation of the Merger and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of FNFI, located at 3916 State Street, Suite 300, Santa Barbara, California
93105, 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 Article 8, below
(including, without limitation, the Requisite Regulatory Approvals), or such
other date, time, place and manner as the Parties may mutually agree. On the
Closing Date, the Articles of Merger and any required officers' certificates,
shall be filed with the Secretary of State of the State of California in
accordance with the provisions of the California Statute. The Merger shall
become effective upon such filing or such later time on the Closing Date as may
be specified in the filing with the Secretary of State of the State of
California (the "Effective Time"). Either FNFI or Shareholders may terminate
this Agreement without Liability to the other if the Closing does not occur on
or before October 31, 1997.
3.2 Mutual Deliveries at Closing. Provided that all of the conditions to
the Closing set forth in Article 8, below, have been satisfied or waived by the
Party benefitting therefrom, the appropriate Parties or Persons shall execute
and deliver or cause to be delivered to the appropriate Parties at Closing the
following:
(a) The Employment Agreement in substantially the form of
Exhibit "B" hereto; and
(b) The Registration Rights Agreement substantially in the form
of Exhibit "C" hereto.
3.3 Shareholders' Deliveries at Closing. Provided that all of the
conditions to the Closing set forth in Article 8, below, have been satisfied or
waived by the Party benefiting therefrom, Shareholders shall execute and deliver
or cause to be delivered to FNFI at the Closing the following documents:
(a) The Certificates, in accordance with Section 2.2(h), 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; and
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(c) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested by FNFI in order to
consummate the transactions contemplated hereby.
3.4 Company's Deliveries at Closing. Provided that all of the conditions
to the closing set forth in Article 8, below, have been satisfied or waived from
the Party benefitting therefrom, Company shall execute and deliver or cause to
be delivered to FNFI at the Closing the following:
(a) An Officer's Certificate dated the Closing Date
substantially in the form of Exhibit "D" hereto;
(b) A Secretary's Certificate dated the Closing Date
substantially in the form of Exhibit "E" hereto;
(c) An opinion of counsel substantially in the form of Exhibit
"F" hereto;
(d) A good standing certificate of Company, dated within fifteen
(15) business days of the Closing Date, for each jurisdiction in which
Company is required to be qualified and authorized to do business;
(e) Minutes of the Board of Directors and shareholders of
Company authorizing and approving this agreement and the transactions
contemplated herein;
(f) Resignations of all of the officers and directors of Company
effective as of the Closing Date; and
(g) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested by FNFI in order to
consummate the transactions contemplated hereby.
3.5 FNFI's Deliveries. Provided that all of the conditions to the
Closing set forth in Article 8, below, have been satisfied or waived by the
Party benefiting therefrom, FNFI shall execute and deliver or cause to be
delivered to the Shareholders at the Closing:
(a) The Fidelity Common Stock in accordance with Section 2.2(d),
above; and
(b) Such other documents and instruments as may be specified in
this Agreement or otherwise reasonably requested by Shareholders in
order to consummate the transactions contemplated hereby.
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3.6 Newco's Deliveries at Closing. Provided that all of the conditions
to the Closing set forth in Article 8, below, have been satisfied or waived by
the Party benefitting therefrom, Newco shall deliver to the appropriate Party or
Person at the Closing:
(a) The cash consideration in accordance with Section 2.2(d),
above; and
(b) The cash for the loan payments in accordance with Section
2.2(g), above.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS
Company and Shareholders (which for purposes of this Article 4 shall
include Friedman), jointly and severally, represent and warrant to FNFI, Newco
and Surviving Corporation that (except for changes contemplated by this
Agreement), 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 Company and Shareholders
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. Company 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. 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.
Company has furnished FNFI 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 Closing Date.
4.2 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, the
performance of all of Company's and Shareholders' obligations hereunder and
thereunder, and for the exchange and cancellation of the Company Shares 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 Company and Shareholders 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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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
10,000 shares of Common Stock, of which 2,000 shares are issued and outstanding.
All of the Company Shares have been duly authorized and validly issued, are
fully paid and non-assessable and are owned of record and beneficially by
Shareholders in the amounts set forth in Schedule 4.4 hereto, free and clear of
all Liens, Claims, Indebtedness and Security Interests of every kind. All of the
Company Shares 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 Company Shares were issued in violation of any
preemptive rights created by statue, or by Company's charter documents, or by
any agreement to which Company may be bound. Schedule 4.4 hereto contains a
complete list of, and the number of shares owned of record by, the holders of
the issued and outstanding Company Stock.
Other than as described in this Section 4.4, there are no outstanding
shares of Company 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 Company or any Shareholders
may be bound that do or may obligate Company to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of Company Stock, preferred
stock or other equity securities or that do or may obligate 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. Other than as provided in or
contemplated by this Agreement, neither Company nor Shareholders have, or prior
to the Effective Time will have, 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.
4.5 Financial Statements. Schedule 4.5 hereto includes (i) true,
complete and correct copies of Company's balance sheet as of December 31, 1996
(the end of its most recently completed fiscal year) and statements of income,
cash flows and retained earnings for the year ended December 31, 1996; and (ii)
true, complete and correct copies of Company's balance sheet as of July 31, 1997
and statements of income, cash flows and retained earnings for the period then
ended. The above described financial statements have been prepared in accordance
with GAAP consistently applied and fairly present the financial position of
Company as of the dates thereof and the results of its
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operations and cash flows for the periods then ended, subject, in the case of
the July 31, 1997 financial statements to the omission of complete footnote
information and Liabilities that under GAAP would not be included in a balance
sheet not bearing footnotes. Except as set forth above and in the Schedules
hereto, there are no material Company Liabilities, direct or indirect, fixed or
contingent, which are not reflected (i) in the balance sheet as of July 31,
1997, except for Liabilities incurred in the ordinary course of business
subsequent to July 31, 1997, which, either individually or in the aggregate, are
not material; and (ii) in the Closing Balance Sheet. Except as set forth above,
there is no basis for any assertion against Company of any Liability or
obligation of any nature whatsoever that is not fully reflected in the financial
statements delivered to FNFI which, either individually or in the aggregate,
would have a Material Adverse Effect. Since the date of the July 31, 1997
financial statements, there have been no material changes in Company's
accounting policies.
4.6 Material Contracts. Schedule 4.6 hereto contains a complete and
accurate list of all Material Contracts to which Company is a party or bound.
Without limiting the generality of the foregoing, such list includes all such
contracts and agreements and all licenses and instruments which (i) grant a
Security Interest or permit or provide for the imposition of any Lien on, or
provide for the sale (other than in the Ordinary Course of Business) of, any of
the assets of Company or of any of the shares of the Company Stock; (ii) require
the consent of any third party to, or would interfere with, the consummation by
Company or Shareholders of the transactions contemplated by this Agreement;
(iii) involve the borrowing of money or provide for capital expenditures to be
made in the future; or (iv) relate to Company's Intellectual Property rights.
True, correct and complete copies of all Material Contracts listed on Schedule
4.6 have been furnished by Company to FNFI. Each Material Contract so listed is
a valid and binding obligation of Company and is enforceable in accordance with
its terms. Company has performed all material obligations required to be
preformed 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 best knowledge of Company and Shareholders, no party
with whom Company has a Material Contract is in default of its obligations
thereunder. Except as set forth on Schedule 4.6, no consent or approval of any
party 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. Except as set forth on Schedule 4.7
hereto, 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) Liens for current
Taxes not yet due and payable which have been fully reserved for; and (ii)
Liens, if any, that are not
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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, material
machinery and material equipment of Company are in good working order and
condition, ordinary wear and tear excepted.
4.8 Real Property. Company does not own any real property. Schedule 4.8
hereto contains an accurate list and general description of all real property
leases, subleases, licenses or similar agreements ("Leases") to which Company is
a party (copies of which have been previously furnished to FNFI), 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 Security
Interests, 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; (iii) Liens for taxes not yet due; and
(iv) other matters as described in Schedule 4.8 hereto. 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. To the knowledge of Company and Shareholders, the activities of Company,
with respect to 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 and
Shareholders, 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 and reasonable anticipated normal business activities as conducted
thereat.
4.9 No Conflicts. Neither the execution and delivery nor the performance
of this Agreement by Company or Shareholders 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 Company, (B) any contract, lease, license, franchise, promissory note,
conditional sales contract, commitment, indenture, mortgage, deed of trust,
security or pledge agreement, or other agreement, instrument, or arrangement to
which Company or any Shareholder is a party or by which any of their respective
properties or any of their respective assets are bound and which is material to
Company or any Shareholder (a "Material Contract"); (ii) the termination of any
Material Contract or the acceleration of the maturity of any
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indebtedness or other material obligation of Company or any Shareholder; (iii)
the creation or imposition of any Lien on any of the respective assets or
properties of Company or any Shareholder or any shares of the Company Stock;
(iv) a violation or breach of any writ, injunction or decree of any Governmental
Entity to which Company or any Shareholder is a party or by which any of their
respective properties are bound.
4.10 Litigation. Except as set forth in Schedule 4.10 hereto, to the
knowledge of Company or Shareholders there are no actions, proceedings, or
investigations before any court or administrative agency pending or currently
threatened against or with respect to Company (or to the knowledge of Company
and Shareholders 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 Material Adverse Effect, 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 Company. 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.
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. Except as set forth on Schedule 4.11 hereto, none of the Tax Returns
of Company are currently under investigation or audit, nor to the knowledge of
Company or Shareholders 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
July 31, 1997 Financial Statements and will be on the Closing Balance Sheet. No
Claim has ever been made by any Governmental Entity in 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 or withheld. There are no
unresolved Claims concerning Company's Tax Liability, and no basis for any such
Claims exist.
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4.12 Employees. Schedule 4.12 hereto sets forth a complete list of all
current employees of Company, together with each employee's age, tenure with
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 to the best
knowledge of Company or Shareholders pending or attempts to unionize or
controversies threatened between Company and, or relating to, any of its
employees. 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, except as set forth on Schedule 4.12 hereto, and there are no
understandings or agreements 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. Except as set forth on Schedule 4.12 hereto,
no officer, director, or employee is entitled to receive any payment of any
amount under any existing agreement, severance plan or other benefit plan, 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 federal and state statutes and regulations 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 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 Company and/or
any Shareholder 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 effective at 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 and as proposed to be conducted the absence of
which will cause a Material Adverse Effect. Such Licenses are in full force and
effect, no violations have been or, to the knowledge of Company or Shareholders,
are expected to have been recorded in respect of any such Licenses, and no
proceeding is threatened or, to the knowledge of Company or Shareholders,
pending 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.
4.15 Compliance with Applicable Laws. The business and operations of
Company have been and are being conducted in all material respects in compliance
with all laws, ordinances, regulations, rules, orders, judgments or decrees to
which Company is subject. Company holds, and the properties, assets, operations
and
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businesses of Company have been maintained and conducted in all material
respects in compliance with, all authorizations, permits, licenses,
certificates, variances, exemptions, orders, franchises, rights and approvals
that are necessary for the conduct of its businesses. No investigation or review
by any Governmental Entity with respect to Company is threatened or, to the best
knowledge of Company or Shareholders, pending, nor has any Governmental Entity
indicated to Company an intention to conduct the same.
4.16 Insurance. Schedule 4.16 hereto sets forth an accurate list, as of
August 30, 1997, of all insurance policies carried by Company and all insurance
loss runs or workers' compensation claims received for the past two (2) policy
years. Attached to Schedule 4.16 hereto are true, complete and correct copies of
the summaries from the insurance company agent of all current insurance
policies, all of which are in full force and effect. 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). Neither Company nor Shareholders knows of any
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 disclosed in Schedule 4.17 hereto,
since January 1, 1997, 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 Common 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 Common Stock by any Shareholder; (iv) any amendment, termination
or revocation, or any threat of any amendment, termination, or revocation having
a Material Adverse Effect, of any Material Contract; (v) any sale, transfer,
mortgage, pledge, or subjection to Lien of, on or affecting any of the assets of
the Company out of the Ordinary Course of Business; (vi) any increase in the
compensation paid or payable or in the fringe benefits provided to any employee
of Company out of the Ordinary Course of Business, or the adoption of any
employee benefit plans not in existence in the fiscal year ended December 31,
1996; (vii) any damage, destruction or loss, whether or not covered by
insurance, of any of the assets of Company that has a Material Adverse Effect;
(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
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arrangement made by Company or any Shareholder to take any action which, if
taken prior to the date hereof, would have made any representation or warranty
set forth in this Agreement untrue or incorrect as of the date when made; or
(xi) the commencement or notice or, to the best knowledge of Company and
Shareholders, threat of commencement of any lawsuit or proceeding against or
investigation of Company or any of its affairs.
4.18 Employee Plans. Schedule 4.18 hereto sets forth a complete list of
all Employee Plans and Benefit Arrangements maintained, administered or
contributed to, or otherwise participated in, by Company. A true and complete
copy of each such Employee Plan or Benefit Arrangement, including amendments
thereto, have been provided to FNFI, 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.
4.19.1 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. To the knowledge of Company
and Shareholder, 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.
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4.19.2 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
Person; and there is not pending or, to the best knowledge of Company and
Shareholders, threatened any claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any Intellectual Property
or that the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, nor to the best knowledge of the
Company and Shareholders, is there any basis for any such assertion.
4.20 Environment, Health and Safety.
4.20.1 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 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
permits, 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.
4.20.2 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 reasonable 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.
4.20.3 To the best of Company's and Shareholders' knowledge, all
properties used in its business are free of Hazardous Substances, except where
the existence thereof would not have a Material Adverse Effect.
4.21 Certain Transactions. There are no existing or pending
transactions, nor are there any agreements or understandings, between Company
and any Shareholder, or the officers, directors, or employees of Company, or any
Person affiliated with any of them, including, without limitation, any
transactions, arrangements or understandings relating to the purchase or sale of
goods or services or the sale, lease or
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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 Investment Representations. Each Shareholder is receiving the
Fidelity Common Stock for his, her or its own account for investment purposes
only, 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. Each Shareholder
acknowledges that the Fidelity Common Stock to be issued hereunder will not be
registered under the Securities Act, nor qualified under any state securities
laws on the ground, among others, that no distribution or public offering is to
be effected.
4.23 Absence of Claims Against Company. No Shareholder has any Claims
against the Company.
4.24 Bank Accounts; Powers of Attorney. Schedule 4.24 hereto sets forth
an accurate list, as of the date of this Agreement, of the following: (i) the
name of each financial institution in which Company has any account or safe
deposit box; (ii) the names in which the accounts or boxes are held; (iii) the
type of account; and (iv) the name of each person authorized to draw thereon or
have access thereto. Schedule 4.24 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.
4.25 Tax-Free Reorganization. This Agreement, the Merger and the
transactions contemplated thereby qualify, in all respects, as a tax-free
reorganization pursuant to Code Section 368(a)(2)(D).
4.26 Continuity of Interest. No Shareholder has any present plan,
intention or arrangement to dispose of any of the shares of Fidelity Common
Stock issued hereunder in a manner that would cause the Merger to violate the
continuity of shareholder interest requirement set forth in Treasury Regulation
Section 1.368-1.
4.27 Line of Credit. The outstanding balance under that certain Business
Loan Agreement, dated March 1, 1996, as amended, a copy of which is attached to
Schedule 4.28 hereto is less than One Million Dollars ($1,000,000).
4.28 Brokers' Fees. Neither Company nor any Shareholder has any
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
4.29 Full Disclosure. Neither this Agreement, the representations and
warranties by Company and/or Shareholders contained herein, the Exhibits or
Schedules hereto, nor any other written statement or certificate delivered or to
be furnished to FNFI in connection herewith, when read together, contain any
untrue
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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 Company or Shareholders which has not been disclosed to FNFI
that would have a Material Adverse Effect on Company's business or financial
condition or its ability to perform its obligations under this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF FNFI AND NEWCO
FNFI and Newco represent and warrant to Company and Shareholders that
(except for changes contemplated by this Agreement) 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 FNFI and Newco on that date with the Closing Date being
substituted for the date of this Agreement throughout this Article 5):
5.1 Organization and Good Standing. FNFI and Newco are corporations duly
organized, validly existing and in good standing under the laws of the States of
Delaware and California, respectively, and have all requisite corporate power
and authority to own, operate and lease their properties and to carry on their
respective business as they are being conducted on the date of this Agreement.
FNFI and Newco have all requisite corporate power and authority to enter into
this Agreement and to perform their respective obligations hereunder with
respect to the consummation of the transactions contemplated hereby.
5.2 Authorization. The execution and delivery of this Agreement by FNFI
and Newco and the consummation of the transactions contemplated hereby will be
duly authorized by all necessary corporate action on the part of FNFI and Newco,
respectively, prior to the Closing Date. This Agreement has been duly executed
and delivered by FNFI and Newco and constitutes a legal, valid and binding
obligation of FNFI and Newco, enforceable in accordance with its terms, except
as the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting the rights of creditors generally and
by general equitable principles.
5.3 Noncontravention. Neither the execution and delivery of this
Agreement by FNFI and Newco nor the consummation of the transactions
contemplated hereby by FNFI and Newco will (i) violate any statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any Governmental Entity to which FNFI or Newco is subject or any provision of
the charter or bylaws of FNFI and Newco; or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license,
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instrument or other arrangement to which either FNFI or Newco is a party or by
which they are bound or to which any of their assets is subject, except where
the violation, conflict, breach, default, acceleration, termination,
modification, cancellation, or failure to give notice would not have a material
adverse effect on the ability of FNFI and/or Newco to consummate the
transactions contemplated by this Agreement.
5.4 Fidelity SEC Documents. FNFI has filed all forms, reports and
documents required to be filed with the SEC (the "Fidelity SEC Documents"), all
of which have been made available to Company. As of their respective dates, the
Fidelity SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act, as the case may be, and the rules
and regulations of the SEC thereunder applicable to such Fidelity SEC Documents,
and none of the Fidelity SEC Documents contain 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, in light of the circumstances under
which they were made, not misleading. The financial statements of FNFI included
in the Fidelity SEC Documents comply in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto, or in the case of the unaudited interim financial statements, as
permitted by Form 10-Q promulgated by the SEC) and fairly present (subject, in
the case of the unaudited interim financial statements, to recurring audit
adjustments normal in nature and amount) the consolidated financial position of
FNFI as at the dates thereof and the consolidated results of its operations and
cash flows or changes in financial position for the periods then ended.
5.5 Fidelity Common Stock. All of the shares of Fidelity Common Stock to
be issued to Shareholders in connection with the Merger shall be duly
authorized, validly issued, fully paid and non-assessable. Such shares shall be
offered, issued, sold and delivered by FNFI in compliance with all applicable
state and federal laws concerning the issuance of securities and none of such
shares shall be issued in violation of the preemptive rights of any shareholder
of FNFI.
5.6 Brokers' Fees. Neither FNFI nor Newco is 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.
5.7 Disclosure. The representations and warranties contained in this
Article 5 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained herein, in light of the circumstances under which they are
made, not misleading.
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ARTICLE 6
CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through
the Closing Date, Company and Shareholders (which for purposes of this Article 6
shall include Friedman), jointly and severally, covenant and agree that:
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 materially from those methods
used by the Company as of July 31, 1997. Company will use its reasonable
business 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. 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) except as required by
Section 7.1(g), below, acquire by merging or consolidating with, or agreeing to
merge or consolidate with, or purchase substantially all 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, except in the Ordinary Course of Business, lend money to or
guarantee the Indebtedness of any Person. Company shall not restructure or
refinance its existing Indebtedness. Notwithstanding anything to the contrary in
this Section 6.4, Company may, subject to Section 6.16, below, borrow under its
line of credit as needed in the Ordinary Course of Business.
6.5 Accounting. Company shall not make any change in the accounting
principles, methods, records 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.
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6.6 Compliance with Legal Requirements. Company shall comply promptly
with all requirements that applicable law may impose upon it and its operations
and with respect to the transactions contemplated by this Agreement, and shall
cooperate promptly with, and furnish information to, FNFI in connection with any
such requirements imposed upon FNFI, or upon any of its Affiliates, in
connection therewith or herewith.
6.7 Disposition of Assets. Other than 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 upon any of its properties or
assets, tangible or intangible, or upon any interest therein.
6.8 Compensation. 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) other than
in the Ordinary Course of Business, pay, or make any accrual or arrangement for
payment of, any increase in compensation, bonuses or special compensation of any
kind, or any severance or termination pay to, or enter into any employment or
loan or loan guarantee agreement with, any current or former officer, director,
employee or consultant of Company.
6.9 Modification or Breach of Agreements; New Agreements. 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, disclosed in this Agreement or the Schedules hereto. 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 for capital expenditures or
commitments in the Ordinary Course of Business necessary to maintain its
properties and assets in good condition and repair (the amount of which shall
not exceed $25,000 in the aggregate), Company shall not purchase or enter into
any contract to purchase any capital assets.
6.11 Consents. Company shall use its reasonable efforts to obtain any
consent, authorization or approval of, or exemption by, any Governmental Entity
or Person required to be obtained or made by any Party 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 and shall not do, permit or willingly allow
to be done any act by which any of said policies of insurance may be suspended,
impaired or canceled.
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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 of material value, 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
without the prior consent of FNFI, which consent will not be unreasonably
withheld.
6.14 Actions. Company shall not institute, settle or agree to settle any
Action before any Governmental Entity without the prior consent of FNFI, which
consent will not be unreasonably withheld.
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, except for Taxes contested by Company in good faith. Company shall
furnish promptly to FNFI a copy of all notices of proposed assessment or similar
notices or 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.
6.16 Line of Credit. Company shall maintain the outstanding principal
balance on its line of credit with Bank of America National Trust and Savings
Association, which line is evidenced by that certain Business Loan Agreement
attached to Schedule 4.28 hereto, in an amount less than One Million Dollars
($1,000,000).
ARTICLE 7
ADDITIONAL COVENANTS
7.1 Covenants of Company and Shareholders. During the period from the
date hereof through the Closing Date, Company and Shareholders (which for
purposes of this Article 7 shall include Friedman) 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, FNFI
in connection with any such requirements imposed upon FNFI or upon any of its
Affiliates in connection therewith or herewith;
(b) Use their reasonable efforts to obtain (and to cooperate with
FNFI in obtaining) any consent, authorization or approval of, or exemption by,
any Person required to be obtained or made by Company and/or Shareholders in
connection with the transactions contemplated by this Agreement;
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(c) Use their reasonable efforts to bring about the satisfaction
of the conditions precedent to Closing set forth in Section 8.1 below;
(d) Immediately advise FNFI orally and, within three (3) business
days thereafter, in writing of any change in Company's business or condition
that has had or may have a Material Adverse Effect;
(e) Deliver to FNFI 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 FNFI from terminating this Agreement pursuant to Section 9.1(b) hereof
at any time at or prior to the Closing in respect of any original untrue or
misleading statement;
(f) All Company indebtedness owed to Colin H. Friedman, Hedy
Kramer Friedman, Farid Meshkatai and Anita Meshkatai, or any trust of which any
of them serve as trustee, shall be converted to Company Stock on or prior to the
Closing Date upon such terms and conditions and in a manner pre-approved by
FNFI; and
(g) Effect and consummate the merger of Express Reprographics,
Inc. ("ERI"), with and into Company in accordance with the California Statute
and upon such terms and conditions and in accordance with such documentation
pre-approved by FNFI in its absolute and sole discretion. Upon the consummation
of the merger, (i) all of the assets and liabilities of ERI existing as of July
31, 1997 (other than assets or liabilities acquired or disposed of in the
Ordinary Course of Business) shall be merged into Company; and (ii) all of the
capital stock of ERI, including all options, warrants, calls, conversion rights,
commitments or agreements of any character which relate to such capital stock,
shall be canceled and extinguished.
7.2 Covenants of FNFI. During the period from the date hereof to the
Closing Date, FNFI 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, Shareholders in
connection with any such requirements imposed upon Shareholders or Company or
upon any of Company's Affiliates in connection therewith or herewith;
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(b) Use its reasonable efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by FNFI in connection with the transactions contemplated by
this Agreement;
(c) Use its reasonable efforts to bring about the satisfaction of
the conditions precedent to Closing set forth in Section 8.2 of this Agreement;
and
(d) Cause Surviving Corporation to continue at least one (1)
significant historical business line of Company, or use at least a significant
portion of Company's historical business assets in a business, in each case in
accordance with Treasury Regulation Section 1.368-1.
7.3 Responsibility for Certain Potential Liabilities. Company and
Shareholders shall assume and be jointly and severally responsible for any and
all Liability, including without limitation any and all Tax Liability, caused
by, arising from, or related to (i) the failure of the Merger to qualify, in any
respects, as a tax-free reorganization pursuant to Code Section 368(a)(2)(D),
including any and all Liability incurred by FNFI, Newco and Surviving
Corporation as a result of such failure; and (ii) the pending Internal Revenue
Service audit of Company's 1993 Tax Returns.
7.4 Continuity of Interest. Shareholders shall not dispose of any shares
of Fidelity Common Stock in a manner that would cause the Merger to violate the
continuity of shareholder interest requirement set forth in Treasury Regulation
Section 1.368-1. If, during the first year following the Closing Date, any
Shareholder desires to dispose of any shares of Fidelity Common Stock issued in
connection with the Merger, then such Shareholder shall provide written notice
to FNFI, not less than sixty (60) days prior to the intended date of
disposition, specifying the number of shares of Fidelity Common Stock such
Shareholder desires to dispose.
7.5 Access and Information.
(a) During the period commencing on the date hereof and
continuing through the Closing Date, Shareholders shall cause Company to afford
to FNFI and to FNFI's accountants, counsel, and other representatives,
reasonable access to all of its properties, books, contracts, commitments,
records and personnel and, during such period, to cause Company to furnish
promptly to FNFI all information concerning its business, properties and
personnel as FNFI may reasonably request.
(b) Except to the extent permitted by the provisions of Section
7.8, below, FNFI 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 Shareholders 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
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for information that (i) is or becomes generally available to the public other
than as result of disclosure by FNFI or its representatives; (ii) becomes
available to FNFI or its representatives from a third Person other than
Shareholders or Company, and FNFI or its representatives have no reason to
believe that such third Person is not entitled to disclose such information;
(iii) is known to FNFI or its representatives on a non-confidential basis prior
to its disclosure by Shareholders or Company; or (iv) is made available by
Shareholders or Company to any other Person on a non-restricted basis. FNFI's
obligations under the foregoing sentence shall expire on the Closing Date or, if
the closing does not occur, one year after the date hereof. If the Merger is not
consummated, then all information received by FNFI from CRI and all copies
thereof shall be returned or delivered to CRI, all computations or other studies
relating to CRI prepared by FNFI, its representatives or Affiliates shall be
destroyed, and FNFI shall supply CRI a sworn certificate that such delivery or
destruction has taken place and that FNFI, its representatives and/or Affiliates
no longer have in their possession any such documents, copies, computations or
other studies.
7.6 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.
7.7 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 may result in the failure to satisfy any of
the conditions specified in Article 8, below.
7.8 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, agents or Affiliates 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 7.8. 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.
7.9 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
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applicable Legal 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, Shareholders
and the proper officers or directors of FNFI and Company, 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 convenient documentation, all at FNFI's expense.
7.10 Competing Offers. Shareholders agree that they will not, and will
cause Company not to, directly or indirectly, through an officer, director,
agent, or otherwise, solicit, initiate or encourage the submissions of bids,
offers or proposals by, any Person with respect to an acquisition of Company or
its assets or capital stock or a merger or similar transaction, and Shareholders
will not, and will not permit Company to, engage any broker, financial adviser
or consultant to initiate or encourage proposals or offers from other Persons.
Furthermore, Shareholders shall not, and shall not permit Company to, directly
or indirectly, through any officer, director, agent or otherwise, engage in
negotiations concerning any such transaction with, or provide information to,
any Person other than FNFI and its representatives with a view to engaging, or
preparing to engage, that Person with respect to any matters in this Section
7.10. Shareholders shall ensure that Company shall not commence any proceeding
to merge, consolidate or liquidate or dissolve or obligate itself to do so.
7.11 Post-Closing Employment. Except as provided in the Employment
Agreement attached hereto as Exhibit "B," Company and Shareholders acknowledge
and agree that after the Effective Time (i) neither FNFI nor Surviving
Corporation shall be required to employ or retain any employee of Company or any
other Person; and (ii) FNFI, in its sole and absolute discretion, may cause
Surviving Corporation to retain all, some, or none or such employees; provided,
however, that such post-closing terminations shall be in accordance with all
applicable laws, rules and regulations.
7.12 Employment Agreement. On or before the Closing Date, Farid
Meshkatai and the appropriate officer of Company shall execute the Employment
Agreement substantially in the form of Exhibit "B" hereto.
7.13 Registration Rights Agreement. On or before the Closing Date,
Shareholders and the appropriate officer of FNFI shall execute the Registration
Rights Agreement substantially in the form of Exhibit "C" hereto.
7.14 NYSE Listing. FNFI will make such filings as are necessary with the
New York Stock Exchange regarding the transactions contemplated hereby and will
cause the shares of Fidelity Common Stock to be issued under this Agreement to
be
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approved for listing on the NYSE, subject only to official notice of issuance,
prior to the Effective Time.
ARTICLE 8
CONDITIONS PRECEDENT TO CLOSING
8.1. Conditions of FNFI. FNFI's obligations hereunder to consummate the
Merger are subject to the satisfaction, at or prior to the Effective Time, of
all of the following conditions:
(a) Representations and Warranties True: Performance of
Obligations. The representations and warranties made by Company and Shareholders
in this Agreement shall be true, correct and complete 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 Company and Shareholders 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 Effective Time.
(b) Material Adverse Effect. No act, event or condition shall
have occurred after the date hereof which FNFI determines in its reasonable
discretion has had or could have a Material Adverse Effect.
(c) Authorizations and Approvals. 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) Investigation of Company. FNFI shall have concluded (through
its representatives, accountants, counsel and other experts) a due diligence
investigation of the business, condition (financial, legal and other),
properties, assets, prospects, operations and affairs of Company and shall be
satisfied, in reasonable discretion, with the results thereof.
(e) Deliveries. FNFI shall have received from the appropriate
Party or Person, the delivery obligations set forth in Sections 3.2 through 3.4,
above.
(f) Schedules. Shareholders shall cause Company to deliver all of
the Schedules to this Agreement set forth herein, and FNFI shall be reasonably
satisfied with such Schedules.
(g) No Actions. There shall not be instituted and pending or
threatened any Action before any Governmental Entity (i) challenging the Merger
or
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<PAGE> 32
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 FNFI of all or a material portion of the business or
assets of Company, or to compel FNFI or Company to dispose of or hold separate
all or a material portion of the business or assets of Company or FNFI.
(h) 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 FNFI and its counsel. Notwithstanding the
foregoing, FNFI shall advise Company and Shareholders of any perceived
deficiencies and provide Company and Shareholders with a reasonable period of
time to cure such deficiencies.
(i) 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 Party (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 FNFI or any
Party or Person to be affected by such condition.
(j) CRI. All of the conditions to close set forth in Article 8.1
of that certain Agreement and Plan of Reorganization of even date herewith, by
and among FNFI, CRI, the shareholders of CRI, Friedman, Farid Meshkatai and CRI
Acquisition Corporation shall have been satisfied at or prior to the Effective
Time. In addition, the Closing of this Merger is conditioned upon the closing of
the CRI merger and vice versa.
(k) Classified Credit Data, Inc. Either (i) Friedman shall have
sold all of his ownership interest in Classified Credit Data, Inc, a California
corporation, to FNFI in accordance with the terms and conditions set forth in
that certain letter dated August 18, 1997, a copy of which is attached hereto as
Exhibit "G;" or (ii) Candy Marshall shall have exercised her right of first
refusal to acquire such ownership interest in accordance with the terms and
conditions of that certain Shareholders' Agreement, dated May 9, 1988, by and
among CCD, Friedman and Ms. Marshall, and Friedman and Ms. Marshall shall have
completed such transfer of ownership interest.
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<PAGE> 33
(l) Board Approval. The Board of Directors of FNFI shall have
approved this Agreement and the transactions contemplated thereby.
(m) Consent to Assignment of Line of Credit. Company and
Shareholders shall have obtained the consent of Bank of America National Trust
and Savings Association to the assignment of that certain Business Loan
Agreement described in Section 6.16, above, to Surviving Corporation, without
modification, amendment, acceleration or default. FNFI shall cooperate with
Company and Shareholders in obtaining the above consent.
8.2 Conditions of Company and Shareholders. Company's and Shareholders'
obligations hereunder to consummate the Merger are subject to the satisfaction,
at or prior to the Effective Time, of the following conditions:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by FNFI and Newco in this
Agreement 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 FNFI and Newco shall
have performed all obligations herein required to be performed by them at or
prior to the Closing.
(b) Authorizations and Approvals. All authorizations, approvals
or consents, if any, from third parties, including from any Governmental Entity
or other Person, necessary for the consummation of the transactions contemplated
hereby shall have been obtained.
(c) Tax-Free Reorganization. Each Shareholder shall be satisfied
in his or its reasonable discretion that the Merger qualifies as a tax-free
reorganization under Section 368(a)(2)(D) of the Code.
(d) Material Adverse Effect. No act, event or condition shall
have occurred after the date hereof which Company and Shareholder determines in
their reasonable discretion has had or could have a material adverse effect on
FNFI.
(e) Deliveries. Shareholders shall have received from the
appropriate Party or Person, the delivery obligations set forth in Sections 3.2,
3.5 and 3.6, above.
(f) No Actions. There shall not be instituted and pending or
threatened any Action before any Governmental Entity (i) challenging the Merger
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 FNFI of all or a material portion of the
business or assets of Company, or
33
<PAGE> 34
to compel FNFI or Company to dispose of or hold separate all or a material
portion of the business or assets of Company or FNFI.
(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 Company and Shareholders and their
counsel. Notwithstanding the foregoing, Company and Shareholders shall advise
FNFI of any perceived deficiencies and provide FNFI with a reasonable period of
time to cure such deficiencies.
(h) CRI. All of the conditions to close set forth in Article 8.2
of that certain Agreement and Plan of Reorganization of even date herewith, by
and among FNFI, Credit Reports, Inc., a California corporation ("CRI"), the
shareholders of CRI, Friedman, Farid Meshkatai and CRI Acquisition Corporation
shall have been satisfied at or prior to the Effective Time. In addition, the
Closing of this Merger is conditioned upon the closing of the CRI merger and
vice versa.
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time:
(a) By mutual consent of the FNFI and Shareholders;
(b) By Shareholders and Company as a group, on the one hand, or
by FNFI, on the other hand, if there has been a material breach, failure to
fulfill or default on the part of the other 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 Shareholders and Company as a group, on the one hand, or
by FNFI, on the other hand, if there shall be a final non-appealable order of a
federal or state court in effect preventing consummation of the Merger; or there
shall be any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any Governmental
Entity which would make the consummation of the Merger illegal.
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<PAGE> 35
9.2 Effect of Termination. In the case of any termination of this
Agreement pursuant to Section 9.1, 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 7.5(b) and 7.6 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 9.1(b), above, then
notwithstanding the provisions of Section 7.6, 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.
9.3 Amendment. This Agreement may be amended at any time by a written
instrument executed by the Parties. Any amendment effected pursuant to this
Section 9.3 shall be binding upon all Parties.
9.4 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 9.4 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 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 10
INDEMNIFICATION
10.1 Survival of Representations and Warranties. The representations and
warranties of Company and Shareholders (which for purposes of this Article 10
shall include Friedman) contained in this Agreement or in any writing delivered
pursuant hereto or at the Closing and the indemnification obligations set forth
in Section 10.2, below, shall survive the Closing and the consummation of the
transactions contemplated hereby until the second (2nd) anniversary of the
Closing Date; provided that the representations and warranties contained in
Sections 4.2, 4.4, 4.11 and 4.20 and the indemnification obligations related
thereto shall continue until the expiration of the applicable statutes of
limitations; and provided further that Company's indemnification obligations
under Section 10.2, below, shall terminate immediately subsequent to the
Effective Time.
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<PAGE> 36
10.2 Indemnification by Company and Shareholders. Company and
Shareholders, jointly and severally, covenant and agree to indemnify, defend,
protect and hold harmless FNFI, Newco and Surviving Corporation and their
respective officers, directors, employees, shareholders, assigns, successors and
affiliates (a "FNFI Indemnified Party") from, against and in respect of all
Claims suffered, sustained, incurred or paid by any FNFI Indemnified Party in
connection with resulting from or arising out of, directly or indirectly:
(a) any breach of any representation or warranty of any
Shareholder or Company set forth in this Agreement or any certificate,
document or instrument delivered by or on behalf of any Shareholder or
Company in connection herewith; or
(b) any non-fulfillment of any covenant or agreement on the part
of any Shareholder or Company in this Agreement.
10.3 Indemnification by FNFI. FNFI covenants and agrees to indemnify,
defend, protect and hold harmless Shareholders and their respective heirs,
successors and assigns (a "Shareholder Indemnified Party") from, against and in
respect of all Claims suffered, sustained, incurred or paid by any Shareholder
Indemnified Party in connection with resulting from or arising out of, directly
or indirectly:
(a) any breach of any representation or warranty of FNFI or Newco
set forth in this Agreement or any certificate, document or instrument
delivered by or on behalf of FNFI or Newco in connection herewith; or
(b) any non-fulfillment of any covenant or agreement on the part
of FNFI or Newco in this Agreement.
10.4 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 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 Article 10, the
reference to this Agreement includes any certificate, Schedule or Exhibit
delivered to a party by the Indemnifying Party or
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<PAGE> 37
its agents and affiliates in connection with this Agreement. The election by the
Indemnifying Party to take over a defense or settlement of the third party Claim
shall not constitute an admission that the Claim is indemnified against under
this Agreement; the question of whether the Claim is one which is subject to
indemnity under this Article 10 shall be determined separately from the
assumption of the defense. If the Indemnifying Party asserts in a notice to the
Indemnified Party that it does not believe that the Claim is one which it has
agreed to indemnify the Indemnified Party under this Agreement and it is later
determined that the Claim was in fact not subject to the indemnities provided
for in this Article 10, then the Indemnified Party will indemnify, reimburse and
hold harmless the Indemnifying Party against all Liability under the third party
Claim and the costs and expenses (including reasonable attorneys' fees) which
the Indemnifying Party incurs by reason of defense of the third party Claim.
10.5 Indemnification Non-Exclusive. The foregoing indemnification
provisions 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.
10.6 Additional Indemnification Provisions. Notwithstanding anything to
the contrary in this Article 10, (i) Shareholders' aggregate Liability under
Section 10.2, above, shall not exceed Two Million Five Hundred Thousand Dollars
($2,500,000); (ii) Shareholders shall not incur any Liability under section
10.2, above, until the aggregate amount of indemnification obligations exceed
Ten Thousand Dollars ($10,000); and (iii) subject to clause (ii) above,
Shareholders shall not incur any Liability under Section 10.2, above, for
indemnification obligations that individually do not exceed One Thousand Dollars
($1,000).
ARTICLE 11
GENERAL PROVISIONS
11.1 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.
11.2 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.
11.3 Entire Agreement. This Agreement, the Exhibits and Schedules
hereto, and the other documents delivered at the Closing 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
37
<PAGE> 38
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.
11.4 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.
11.5 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 FNFI, addressed to:
Fidelity National Financial, Inc.
3916 State Street, Suite 300
Santa Barbara, California 93105
Attn: Andrew F. Puzder
Facsimile: (805) 898-7149
With a copy to:
C. Craig Carlson, Esq.
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Facsimile: (714) 725-4100
(b) If to Shareholders, addressed to:
Colin H. Friedman Farid Meshkatai
12428 N. 136th Place 9332 N. 71st Street
Scottsdale, Arizona 85253 Paradise Valley, Arizona 85253
Facsimile: (602) 905-7337 Facsimile (602) 905-7337
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<PAGE> 39
With a copy to:
David D. Wexler, Esq.
Rosenfeld, Meyer & Susman
9601 Wilshire Boulevard, Fourth Floor
Beverly Hills, California 90210-5288
Facsimile: (310) 271-6430
11.6 Tax Advice. Company, Shareholders and Friedman acknowledge that
they have received their own independent tax advice with respect to the Merger,
this Agreement and the transactions contemplated thereby, including whether the
Merger qualifies as a tax free reorganization in accordance with Section
368(a)(2)(D) of the Code, and are not in any way relying on any statements or
advice of FNFI, Newco or any of their officers, directors, employees, agents or
representatives.
11.7 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.
11.8 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.
11.9 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.
11.10 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. Anything referenced on any
Schedule hereto shall be deemed incorporated into any other Schedule requesting
the same or similar information.
39
<PAGE> 40
IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the
date first above written.
FNFI:
FIDELITY NATIONAL FINANCIAL, INC.,
a Delaware Corporation
By: /s/ ANDREW F. PUZDER
----------------------------------
Its: EXECUTIVE VICE PRESIDENT
----------------------------------
COMPANY:
EXPRESS NETWORK, INC., a California
Corporation
By: /s/ FARID MESHKATAI
----------------------------------
Its: PRESIDENT
----------------------------------
SHAREHOLDERS:
COLIN HOWARD FRIEDMAN AND HEDY
KRAMER FRIEDMAN, AS TRUSTEES OF THE
FRIEDMAN FAMILY TRUST UDT, DATED
JULY 23, 1987
/s/ COLIN H. FRIEDMAN
----------------------------------------
Colin H. Friedman, Trustee
/s/ HEDY KRAMER FRIEDMAN
----------------------------------------
Hedy Kramer Friedman, Trustee
/s/ FARID MESHKATAI
----------------------------------------
Farid Meshkatai, Individually
ANITA KRAMER MESHKATAI, AS TRUSTEE
OF THE ANITA KRAMER LIVING TRUST,
DATED JULY 23, 1987
/s/ ANITA KRAMER MESHKATATI
----------------------------------------
Anita Kramer Meshkatai, Trustee
40
<PAGE> 1
EXHIBIT 10.52
FIDELITY NATIONAL FINANCIAL, INC.
Liquid Yield Option Notes
Due 2009
(Zero Coupon - Subordinated)
EXCHANGE AGREEMENT
October 17, 1997
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
In furtherance of and as contemplated in that certain letter, dated
October 3, 1997, from Paul Pepe of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Holder") to Carl A. Strunk of Fidelity National Financial, Inc.,
a Delaware corporation (the "Company"), the Company hereby agrees with Holder as
follows:
1. Certain Definitions. Unless otherwise defined herein or the context
requires otherwise, capitalized terms appearing in this Agreement shall have the
respective meanings ascribed to such terms in the Indenture. As used herein, the
following terms shall have the following meanings:
"Adjusted Minimum Price" shall mean $19.625 per share of Common
Stock of the Company.
"Additional Shares" shall mean the aggregate number of shares of
Common Stock (rounded to the nearest whole share), if any, to which Holder may
become entitled to receive pursuant to the provisions of Section 2(d)(ii),
Section 2(d)(iv) and Section 2(e) below.
"Agreements and Instruments" shall mean any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any Subsidiary is subject.
"Applicable Margin" shall mean 1.50% per annum during the first
nine (9) months of the Holding Period and 0.50% per annum thereafter; provided,
however, that from and after the occurrence of a Credit Downgrade the Applicable
Margin shall be 0.50% per annum.
<PAGE> 2
"Applicable Rate" shall mean, for any date of determination, the
quotient obtained by dividing (i) the sum of LIBOR plus the Applicable Margin,
by (ii) 360.
"Calculation Agent" shall mean Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
"Closing Date" shall mean Wednesday, October 22, 1997, or as soon
thereafter upon satisfaction of all conditions to closing set forth in Sections
6 and 7 below as is practicable, or such other date and time upon which the
Company and the Holder may mutually agree.
"Common Stock" shall mean the common stock, par value $.0001 per
share, of the Company.
"Cost of Carry" shall mean, for any date of determination during
the Holding Period, the Net Carry Amount multiplied by the Applicable Rate.
"Credit Downgrade" shall mean the LYONs are downgraded one notch
by either Standard & Poor's, a division of the McGraw-Hill Companies (from B+ to
B), or Moody's Investors Services, Inc. (from Ba3 to B1).
"DTC" shall mean the Depository Trust Company.
"Exchange Shares" shall mean the Initial Shares and the
Additional Shares, if any, issued pursuant to Section 2(d) and Section 2(e)
below.
"Exchange Value" shall mean the product of the aggregate number
of Initial Shares multiplied by the Initial Price.
"Execution Price" of the Common Stock shall mean the amount of
gross proceeds to Holder (or any Affiliate of Holder) from the sale or other
disposition of one Exchange Share, reduced by $0.025 (representing the
commission on such Exchange Share).
"Extended Holding Period" shall mean an additional period
commencing on the first day after the expiration of the Initial Holding Period
and ending on the earliest to occur of (i) the date on which Holder shall have
sold or otherwise disposed of all of the Initial Shares and the Additional
Shares, (ii) the date on which Holder shall have received aggregate Proceeds to
Holder in an amount equal to or in excess of the Net Exchange Value, or (iii)
the date which is six (6) months following the expiration of the Initial Holding
Period.
"Holder LYONs" shall mean $45,000,000 aggregate Principal Amount
at Maturity of LYONs owned by Holder for its own account.
"Holding Period" shall mean the period commencing on the Closing
Date and expiring as of the expiration of the Initial Holding Period or, if
extended pursuant to Section 2(d)(ii) below, the Extended Holding Period.
"Indenture" shall mean that certain Indenture, dated as of
February 1, 1994, by and between the Company and the Trustee, and any and all
amendments and indentures supplemental thereto.
2
<PAGE> 3
"Initial Holding Period" shall mean the period commencing on the
Closing Date and ending on the earliest to occur of (i) the date on which Holder
or its Affiliates shall have sold or otherwise disposed of all of the Initial
Shares, (ii) the date on which Holder shall have received aggregate Proceeds to
Holder in an amount equal to or in excess of the Net Exchange Value, (iii) the
first date on which a Credit Downgrade shall have occurred or (iv) the first
anniversary date of the Closing Date.
"Initial Price" shall mean $23.625 per share of Common Stock.
"Initial Shares" shall mean 1,152,381 shares of Common Stock
(which number of shares of Common Stock is determined by (a) multiplying
$45,000,000 Principal Amount at Maturity of Holder LYONS by .605 and (b)
dividing such amount by the Initial Price).
"LIBOR" shall be calculated by the Calculation Agent in
accordance with the following provisions:
(i) After the Closing Date, on which LIBOR shall initially be
calculated, LIBOR will be calculated on the first date of each calendar month
during which this Agreement is in effect, or if such rate is not available on
such date, the next date on which such rate is available, and will be the rate
for deposits in U.S. dollars having a maturity of one (1) month, commencing on
the second London Banking Day immediately following such determination date,
that appears on Telerate Page 3750 as of 11:00 A.M., London time, on such
determination date ("LIBOR Telerate"). "Telerate Page 3750" means the display
designated as page "3750" on the Telerate Service (or such other page as may
replace the 3750 page on that service or such other service or services as may
be nominated by the British Bankers' Association for the purpose of displaying
London interbank offered rates for U.S. dollar deposits). If no rate appears on
Telerate Page 3750, LIBOR in respect of such determination date will be
determined as if the parties had specified the rate described in (ii) below.
(ii) With respect to a LIBOR determination date on which no rate
appears on Telerate Page 3750, LIBOR will be determined on the basis of the
rates at which deposits in U.S. dollars having a maturity of one (1) month are
offered at approximately 11:00 A.M., London time, on such determination date by
four major banks in the London interbank market selected by the Holder (the
"Reference Banks") to prime banks in the London interbank market, commencing on
the second London Banking Day immediately following such determination date and
in a principal amount equal to an amount of not less than U.S. $1 million that
is representative for a single transaction in such market at such time. The
Holder will request the principal London office of each of the Reference Banks
to provide a quotation of its rates. If at least two such quotations are
provided, LIBOR for such determination date will be the arithmetic mean of such
quotations. If fewer than two quotations are provided, LIBOR for such
determination date will be the arithmetic mean of the rates quoted by 11:00
A.M., New York City time, on such determination date by three major banks in The
City of New York selected by the Holder for loans in U.S. dollars to leading
European banks, having a maturity of one (1) month, commencing on the second
London Banking Day immediately following such determination date and in a
principal amount equal to an amount of not less than U.S. $1 million that is
representative for a single transaction in such market at such time; provided,
however, that if the banks selected as aforesaid by the Holder are not quoting
as mentioned in this sentence, LIBOR will be LIBOR in effect on such
determination date.
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<PAGE> 4
"LYONs" shall mean $235,750,000 aggregate Principal Amount at
Maturity of Liquid Yield Option Notes due February 15, 2009 issued and sold by
the Company pursuant to the Indenture.
"Material Adverse Effect" shall mean the occurrence of any event
or circumstance which has a material adverse effect on the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise.
"Minimum Price" shall mean $21.625 per share of Common Stock of
the Company.
"Net Carry Amount" shall mean, for any date of determination, an
amount equal to the number of Exchange Shares (excluding the number of shares of
Common Stock representing Holder's Short Position on the Closing Date) held
(including shares of Common Stock traded but not yet settled) by Holder as of
6:00 p.m. Pacific time on the day prior to such date, multiplied by the Initial
Price.
"Net Exchange Value" shall mean the product of (a) the aggregate
number of Initial Shares, reduced by the number of shares of Common Stock
representing Holder's Short Position on the Closing Date, multiplied by (b) the
Initial Price.
"NYSE" shall mean the New York Stock Exchange.
"Proceeds to Holder" shall mean the aggregate amount of gross
proceeds to Holder (or any Affiliate of Holder) from sales or other dispositions
of Exchange Shares, reduced by $0.025 for each Exchange Share (representing the
commission on such Exchange Shares); provided, however, that gross proceeds
received or deemed to have been received by Holder by reason of delivering
Exchange Shares to close Holder's Short Position pursuant to Section 5(a) below
shall not constitute Proceeds to Holder, and no commissions shall be payable by
the Company to Holder in respect of Exchange Shares delivered by Holder to close
its Short Position; and provided further, however, that the gross proceeds to
Holder for any sale or other disposition of Exchange Shares in violation of the
minimum resale price provisions of Section 2(e) below shall be deemed to be the
Minimum Price or the Adjusted Minimum Price, as the case may be.
"Repayment Event" shall mean any event or condition which gives
the holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the Company
or any Subsidiary.
"Sale Price" of the Common Stock on any date means the closing
per share sale price for the Common Stock (or, if no closing sale price is
reported, the average of the bid and ask prices or, if more than one in either
case, the average of the average bid and average ask prices) on the NYSE
Composite Tape or, in the event the Common Stock is not listed on the NYSE, such
other national or regional securities exchange upon which the Common Stock is
listed, as reported in the composite transactions for the principal United
States securities exchange on which the Common Stock is traded or, if the Common
Stock is not listed on a United States national or regional securities exchange,
as reported by NASDAQ, or, if the Common Stock is not reported by NASDAQ, the
high per share bid price for the Common Stock in the over-the-counter market as
reported by the National Quotation Bureau or similar organization, or, if such
bid price is not available, the per share market value of the Common Stock on
such date shall be determined by the Company on such basis as it deems
appropriate.
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<PAGE> 5
"SEC Filings" shall mean the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, the Company's definitive proxy statement
relating to its annual meeting of stockholders held June 17, 1997, and the
Company's Quarterly Reports on Form 10-Q for the quarterly periods ended March
31, 1997 and June 30, 1997.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Short Position" shall mean 650,000 shares of Common Stock which
Holder is required (irrespective of the terms of Holder's contractual delivery
requirements in respect thereof) to deliver on the Closing Date in order to
eliminate its short position in the Common Stock.
"Subsidiary" shall mean each "significant subsidiary" of the
Company (as such term is defined in Rule 1-02 of Regulation S-X).
2. Exchange of Securities.
(a) Authorization of Exchange for LYONs. As of the date of this
Agreement, $187,500,000 aggregate Principal Amount at Maturity of the LYONs are
outstanding. The Company, upon the terms and subject to the conditions set forth
herein, has duly authorized the issuance of shares of its Common Stock in
exchange for the Holder LYONs.
(b) Calculation Agent. The Calculation Agent shall be solely
responsible for determining all amounts to be paid or transferred pursuant to
the terms of this Agreement and the Calculation Agent's determinations shall be
final and binding in the absence of manifest error.
(c) Exchange. Upon the terms and subject to the conditions of
this Agreement, on the Closing Date the Company agrees to issue to Holder the
Initial Shares and the right to receive the Additional Shares, and Holder agrees
to surrender to the Company the Holder LYONs in exchange therefore. The Initial
Shares are being offered and sold and will be issued to Holder without being
registered under the Securities Act in reliance upon the exemption therefrom
provided by Section 3(a)(9) of the Securities Act. The Exchange Shares will be
issued to the Holder in the manner set forth in this Agreement and the Initial
Shares will be and, upon the Effective Date (as defined below), the Additional
Shares will be free and clear of legend or transfer restrictions (other than
those imposed * pursuant to this Agreement).
(d) Adjustment Provisions.
(i) Upon the expiration of the Initial Holding Period, if
the aggregate amount of Proceeds to Holder arising from sales or other
dispositions of the Initial Shares during the Initial Holding Period is
determined to exceed the sum of the Net Exchange Value plus accrued and unpaid
Cost of Carry, the Holder shall surrender to the Company for cancellation and
assign to the Company, for no consideration to Holder, all of the Initial Shares
then held by Holder or, if Holder shall have sold or otherwise disposed of all
of the Initial Shares (including for purposes hereof Holder's surrender of its
Initial Shares pursuant to the immediately preceding clause) then Holder shall
acquire shares of Common Stock, and surrender to the Company for cancellation
and assign to the Company, for no consideration to Holder, a number of shares of
Common Stock (rounded to the nearest whole share) equal to the quotient obtained
by dividing the amount of such excess by the Sale Price of the Common Stock as
of the last Trading Day of the Initial Holding Period.
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<PAGE> 6
(ii) Upon the expiration of the Initial Holding Period, if
the aggregate amount of Proceeds to Holder arising from sales or other
dispositions of the Initial Shares during the Initial Holding Period is
determined to be less than the sum of the Net Exchange Value plus accrued and
unpaid Cost of Carry, then Holder shall be entitled to receive from the Company,
and the Company shall issue to the book entry account maintained by Holder with
DTC, upon the instructions of Holder, without the payment by Holder of any
additional consideration other than the Holder LYONs surrendered for exchange on
the Closing Date, a number of Additional Shares equal to (A) the quotient
obtained by dividing (1) the aggregate amount of such deficiency, by (2) the
Sale Price of the Common Stock as of last Trading Day of the Initial Holding
Period, reduced by (B) the number of Initial Shares, if any, held by Holder upon
the expiration of the Initial Holding Period. If the number of Additional Shares
to be delivered pursuant to this Section 2(d)(ii) exceeds 10,000, or if on any
day during the Initial Holding Period a Credit Downgrade shall have occurred,
then the Holding Period shall be extended for the Extended Holding Period.
(iii) Upon the expiration of the Extended Holding Period,
if the aggregate amount of Proceeds to Holder arising from sales or other
dispositions of Exchange Shares during the Extended Holding Period is determined
to exceed the sum of the Net Exchange Value plus accrued and unpaid Cost of
Carry, less the aggregate amount of Proceeds to Holder arising from sales or
other dispositions of Exchange Shares during the Initial Holding Period, the
Holder shall surrender to the Company for cancellation and assign to the
Company, for no consideration to Holder, all of the remaining Exchange Shares
then held by Holder or, if Holder shall have sold or otherwise disposed of all
of the Initial Shares and the Additional Shares (including for purposes hereof
Holder's surrender of its Initial Shares pursuant to the immediately preceding
clause) then Holder shall acquire shares of Common Stock, and surrender to the
Company for cancellation and assign to the Company, for no consideration to
Holder, a number of shares of Common Stock (rounded to the nearest whole share)
equal to the quotient obtained by dividing the amount of such excess by the Sale
Price of the Common Stock as of the last Trading Day of the Extended Holding
Period.
(iv) Upon the expiration of the Extended Holding Period,
if the aggregate amount of Proceeds to Holder arising from sales or other
dispositions of Exchange Shares during the Extended Holding Period is determined
to be less than the sum of the Net Exchange Value plus accrued and unpaid Cost
of Carry, less the aggregate amount of Proceeds to Holder arising from sales or
other dispositions of Exchange Shares during the Initial Holding Period, then
Holder shall be entitled to receive from the Company, and the Company shall
issue to the book entry account maintained by Holder with the DTC, upon the
instructions of Holder, without the payment by Holder of any additional
consideration other than the Holder LYONs surrendered for exchange on the
Closing Date, a number of Additional Shares equal to (A) the quotient obtained
by dividing (1) the aggregate amount of such deficiency, by (2) the Sale Price
of the Common Stock as of last Trading Day of the Extended Holding Period,
reduced by (B) the number of Exchange Shares, if any, held by Holder upon the
expiration of the Extended Holding Period.
(v) The Additional Shares, if any, to be delivered to
Holder pursuant to this Section 2(d) shall be issued at such date, time and
place as may be agreed upon by the Company and the Holder. In the event that
Additional Shares are delivered hereunder and the Holding Period is not extended
for the Extended Holding Period, then the Company shall compensate Holder in
cash for any decrease in the value of the Additional Shares between the dates on
which such number is determined and the later of (A) the date on which the
Additional Shares are delivered, or (B) the date on which the
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<PAGE> 7
registration statement covering resales of such Additional Shares described in
paragraph (f) below shall have become effective under the Securities Act (the
"Effective Date"). Such amount shall be determined as the difference, if
negative, between the Sale Price of the Common Stock on the last day of the
Initial Holding Period and the Sale Price of the Common Stock on the later of
(A) the date on which the Additional Shares are delivered to Holder pursuant to
the terms of this Agreement, or (B) the Effective Date, and shall be paid
immediately after such calculation has been made by the Calculation Agent. In
the event such amount is positive, Holder shall compensate the Company in a like
manner.
(vi) The Company shall have the right, exercisable by
delivery of written notice to Holder within two Business Days following the
expiration of the Extended Holding Period, to purchase from Holder any or all
Exchange Shares held by Holder at the expiration of the Extended Holding Period
for an aggregate purchase price equal to the difference, if positive, of (1) the
sum of the Net Exchange Value plus accrued and unpaid Cost of Carry, reduced by
(2) the aggregate amount of Proceeds to Holder arising from sales or other
dispositions of Exchange Shares during the Holding Period. If the Company elects
not to or fails to exercise such right, Holder shall be entitled to sell or
otherwise dispose of all such remaining Exchange Shares either during the five
(5) Trading Day period commencing on either the expiration of the Extended
Holding Period or, if later, the Effective Date. Within two (2) Business Days
following the end of such five (5) Trading Day period, the Company shall
compensate Holder in cash (without duplication for any compensation paid
pursuant to Section 2(d)(v)) for any losses realized by Holder from such sales
or dispositions of Exchange Shares and the Cost of Carry accrued during such
period. Such amount shall be determined as the difference, if positive, between
the Sale Price of such Exchange Shares as of the Trading Day on which such
Additional Shares were delivered to Holder pursuant to Section 2(d)(iv) and the
Proceeds to Holder arising from the sale or disposition thereof. In the event
such amount is negative, Holder shall compensate the Company in a like manner.
(e) Cost of Carry. During the Holding Period, the Company agrees
to pay to the Holder the Cost of Carry for each day from (but excluding) the
Closing Date to the last Trading Day of the Holding Period; provided, however,
that the aggregate amount payable by the Company as the Cost of Carry shall be
reduced (not below zero) by the aggregate amount of dividends in respect of the
Exchange Shares which Holder shall have become entitled to receive by reason of
being a holder of Exchange Shares as of any record date for the payment of
dividends on the Common Stock which occurs during the Holding Period. The Cost
of Carry shall become due and payable within ten (10) days after the last
Trading Day of the Holding Period and may be paid, at the option of the Company,
either in (i) cash, (ii) in Additional Shares as provided in Section 2(d) above,
or (iii) any combination thereof. For purposes of subsection (d)(iv), the Cost
of Carry shall be calculated to include the five (5) Trading Day period
referenced therein.
(f) Registration of Additional Shares. Any Additional Shares
shall be issued pursuant to an effective registration statement or pursuant to
an available exemption from the registration requirements of Section 5 of the
Securities Act, the availability of which shall be confirmed by an opinion of
Stradling Yocca Carlson & Rauth, or other counsel reasonably satisfactory to
Holder, in form and substance reasonably satisfactory to Holder. Within six (6)
months following the Closing Date, the Company shall file a registration
statement with the Securities and Exchange Commission under the Securities Act,
for the purpose of registering the Additional Shares, and shall use its best
efforts to cause such registration statement to be declared effective under the
Securities Act.
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<PAGE> 8
(g) Limitation on Resale Price. Holder agrees, for itself and on
behalf of its Affiliates, that (i) during the period commending on the Closing
Date and ending on the date which is five (5) calendar months after the Closing
Date, no Exchange Shares shall be sold or otherwise disposed of for a price per
share of Common Stock which is less than the Minimum Price, and (ii) during the
four (4) month period thereafter, no Exchange Shares shall be sold or otherwise
disposed of for a price per share of Common Stock which is less than the
Adjusted Minimum Price. The provision of this paragraph (g) shall terminate and
be of no further force or effect upon the occurrence of a Credit Downgrade.
(h) Closing. The closing of the exchange of LYONs for Initial
Shares under this Agreement (the "Closing") shall take place on the Closing Date
by electronic book entry through DTC. At the Closing, the Holder LYONs shall be
delivered by the Holder, and the Initial Shares by the Transfer Agent on behalf
of the Company, by book entry transfer through DTC. The exchange shall not be
deemed complete or the Closing to have been effected until a book entry
confirmation is received by the Company and the Holder confirming that the
Holder LYONs, in the case of the Company, and the Initial Shares, in the case of
the Holder, have been transferred to the account of the Company (or its designee
or nominee), in the case of the Holder LYONs, and the Holder (or its designee or
nominee), in the case of the Initial Shares, and such exchange shall take place
on the same Trading Day and as simultaneously as possible. The Company and the
Holder shall cooperate and coordinate their efforts, and those of their
respective agents, nominees and designees, with DTC, the Transfer Agent and the
Trustee to accomplish the foregoing objective; provided, however, that neither
the Company, the Holder nor the Transfer Agent, nor any designee or nominee of
the foregoing, shall have any liability for the performance by DTC or its
participants of their respective obligations under the rules and procedures
governing their operations.
(i) Cash Collateral. The Company agrees to pay to the Holder, on
the 15th and 30th day of each calendar month during the Holding Period, or if
there is no 30th day the last day of such calendar month (the "Deposit Date"),
for deposit to an account established by and for the benefit of holder (the
"Cash Collateral Account") an amount of cash, calculated by the Calculation
Agent as of the third Business Day immediately preceding the Deposit Date (the
"Calculation Date"), equal to:
(i) the amount, if any, of any accrued and unpaid Cost of
Carry; plus
(ii) an amount equal to (A) the number of Exchange Shares
sold or otherwise disposed of since the Closing Date multiplied by (B) the
difference, if positive, of the Initial Price and the Execution Price of the
Common Stock; plus
(iii) an amount equal to (A) the difference, if a positive
number, between (A) the Initial Price and (B) the Sale Price of the Common
Stock, multiplied by (B) the number of Exchange Shares then held by Holder;
minus
(iv) an amount equal to (A) the number of Exchange Shares
sold or otherwise disposed of since the Closing Date times (B) the difference,
if positive, of the Execution Price of the Common Stock and the Initial Price;
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<PAGE> 9
provided, however, that the Company's obligation to pay cash into the Cash
Collateral Account shall initially arise only if the net amount, calculated
pursuant to this Section (i), is in excess of $500,000 and, thereafter, on each
Deposit Date if the amount, calculated pursuant to this Section (i), is $500,000
in excess of the amount in the Cash Collateral Account on the date immediately
preceding that Deposit Date.
Holder agrees to pay interest to the Company monthly on the
amount in the Cash Collateral Account at a rate equal to LIBOR.
The Company's obligation to maintain the Cash Collateral Account
shall continue until the Company has satisfied all of its obligations under this
Agreement whereupon the entire amount of cash then on deposit in the Cash
Collateral Account shall be released to the Company. The Company grants to
holder a continuing security interest in the Cash Collateral Account to secure
the Company's obligations under this Agreement; provided, however, that Holder
shall not liquidate or apply any amount on deposit in the Cash Collateral
Account unless or until (a) the Company shall have defaulted on any obligation
under this Agreement, including the obligation to make payments to the Cash
Collateral Account pursuant to this Section 2(i), and such default shall have
continued for a period of five (5) Business Days after the Company receives
written notice of such default from Holder, or (b) as of the expiration of the
Holding Period, either the Common Stock is not then listed on the NYSE, any
national or regional securities exchange or the NASDAQ Stock Market or trading
in the Common Stock shall have been suspended by the NYSE, such securities
exchange or NASDAQ for two (2) consecutive Trading Days. In the foregoing
events, Holder shall be entitled to liquidate or apply amounts on deposit in the
Cash Collateral Account only in an amount equal to the difference, if negative,
between (1) the aggregate amount of Proceeds to Holder arising from sales or
other dispositions of Exchange Shares, and (2) the sum of the Net Exchange Value
plus accrued and unpaid Cost of Carry. Immediately upon such liquidation or
application of the Cash Collateral Account, Holder shall (a) surrender to the
Company for cancellation and assign to the Company, for no consideration to
Holder, all Exchange Shares then held by Holder, (b) release to the Company the
remaining amounts, if any, on deposit in the Cash Collateral Account, and (c)
pay to the Company all accrued and unpaid interest on amounts theretofore held
in the Cash Collateral Account.
(j) Credit Downgrade. In the event of a Credit Downgrade, (i) the
aggregate net accrued and unpaid obligations of the Company and the Holder, as
the case may be, under Section 2(d) under this Agreement shall become due and
payable within ten (10) Business Days following the Credit Downgrade, (ii)
Holder shall be entitled to sell or otherwise dispose of its remaining Exchange
Shares without any minimum price restrictions; provided, however, that Holder
shall first offer the Company the right to purchase all or any part of such
remaining Exchange Shares for cash at a purchase price equal to the Initial
Price, and (iii) the Initial Holding Period shall terminate and the Extended
Holding Period shall commence.
3. Representations and Warranties of the Company. Except as set forth in
the SEC Filings or in the Disclosure Schedules attached hereto, the Company
represents and warrants to the Holder as follows:
(a) Organization and Standing of the Company. The Company has
been duly organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to
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<PAGE> 10
conduct its business and to enter into and perform its obligations under this
Agreement; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(b) Organization and Standing of Subsidiaries. Each Subsidiary
has been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its properties and to conduct its
business and is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(c) Authorization of Agreement and Securities. This Agreement and
the transactions contemplated herein have been duly authorized, executed and
delivered by the Company. This Agreement is a legal, valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principals relating to or limiting creditors' rights
generally. The Exchange Shares have been duly authorized for issuance and sale
to the Holder pursuant to this Agreement and, when issued and delivered by the
Company pursuant to this Agreement against payment of the consideration set
forth herein, will be validly issued, fully paid and non-assessable; no holder
of the Exchange Shares will be subject to personal liability by reason of being
such a holder; and the issuance of the Exchange Shares is not subject to the
preemptive or other similar rights of any securityholder of the Company.
(d) Reports and Financial Statements. The SEC Filings complied
when filed in all material respects with all applicable requirements of the
Securities Exchange Act of 1934, as amended. None of the SEC Filings, including,
without limitation, any financial statements or schedules included or
incorporated by reference therein, contained when filed any untrue statement of
a material fact, or omitted when filed to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein, in light of the circumstances under which made, not
misleading. Since the dates as of which information is given in the SEC Filings,
except as otherwise stated therein, (i) there has been no material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company, whether or not arising in the
ordinary course of business, (ii) there have been no transactions entered into
by the Company, other than those in the ordinary course of business, which are
material with respect to the Company, and (iii) except by regular dividends
there has been no dividend or distribution of any kind declared, paid or made by
the Company on any class of its capital stock. The audited consolidated
financial statements of the Company included in its Annual Report on Form 10-K
referred to in the first sentence of this paragraph (d) fairly present, in
conformity with generally accepted accounting principles applied on a consistent
basis (except as may be indicated in the notes thereto), the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and their consolidated results of operations and changes in
financial position for the periods then ended.
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(e) Absence of Defaults and Conflicts. Neither the Company nor
any of its Subsidiaries is in violation of its charter or by-laws or in default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any of the Agreements and Instruments, except for such
defaults that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein and compliance by the Company with its
obligations hereunder have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or default or
Repayment Event under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
Subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that would not
result in a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of the Company or any
Subsidiary or any applicable law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any Subsidiary or any of
their assets, properties or operations.
(f) Absence of Proceedings. There is no action, suit, proceeding,
inquiry or investigation before or brought by any court or governmental agency
or body, domestic or foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or any Subsidiary, or which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of the transactions contemplated in this
Agreement or the performance by the Company of its obligations hereunder; the
aggregate of all pending legal or governmental proceedings to which the Company
or any Subsidiary is a party or of which any of their respective property or
assets is the subject, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material Adverse
Effect.
(g) Absence of Further Requirements. Based upon the
representations and warranties of the Holder set forth in Section 4 below, no
filing with, or authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency is
necessary or required for the performance by the Company of its obligations
hereunder, in connection with the offering, issuance or sale of the Exchange
Shares hereunder or the consummation of the transactions contemplated by this
Agreement.
(h) No Investment Company. Neither the Company nor any of its
Subsidiaries is an investment company within the meaning of the Investment
Company Act of 1940, a amended.
(i) Section 3(a)(9). The Company represents that the issuance and
sale of the Initial Shares is exempt from the requirements of Section 5 of the
Securities Act by reason of the exemption from registration requirements
provided by Section 3(a)(9) thereunder.
(j) Free Shares. Other than restrictions on transfer, if any,
imposed by this Agreement, or restrictions under applicable securities laws
imposed on any Additional Shares, if such Additional Shares shall have been
issued pursuant to an exemption from the requirements of Section 5 of the
Securities Act, there are no restrictions on the transfer of the Exchange
Shares, and no legends or stop order instructions shall be placed against the
certificates or book entries representing the Exchange Shares.
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<PAGE> 12
4. Representations and Warranties of the Holder. The Holder hereby
represents and warrants to the Company as follows:
(a) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Holder, and is a legal, valid and
binding agreement of the Holder enforceable against the Holder in accordance
with its terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principals relating to or limiting
creditors' rights generally.
(b) Ownership of LYONs. Holder is the beneficial owner of the
Holder LYONs and, upon the Closing, the Company will acquire good marketable and
unencumbered tile to the Holder LYONs surrendered by the Holder for exchange,
free and clear of all security interests, liens, charges, encumbrances,
conditional sales agreements as other obligations relating to their sale or
transfer, and subject to no adverse claim.
(c) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration, qualification or
decree of, any court, governmental authority or agency or stock exchange is
necessary or required by Holder for the performance by the Holder of its
obligations hereunder or the consummation of the transactions contemplated by
this Agreement, other than filings with the NYSE necessary to list the Exchange
Shares on the NYSE.
5. Certain Covenants of the Holder.
(a) Holder's Short Position. Within three (3) Trading Days
following the Closing Date, Holder shall deliver that number of Initial Shares
which is necessary to eliminate Holder's Short Position in the Common Stock. For
purposes of this Agreement (specifically, for the purposes of determining
Proceeds to Holder), the delivery of shares of Common Stock by Holder pursuant
to this Section 5(a) shall be deemed to generate gross proceeds from sales or
other dispositions of Common Stock in an amount equal to the product of the
number of shares so delivered multiplied by the Initial Price. During the term
of this Agreement Holder agrees that, except in connection with its normal
market making activities in the LYONs or in connection with transactions for or
on behalf of Holder's customers, Holder will not effect any short sales of the
Common Stock.
(b) Certain Information. Holder agrees to give notice to the
Company, to the attention of its Executive Vice President, Finance, by facsimile
transmission not later than 3:00 p.m. Pacific time on each Business Day during
the Holding Period, setting forth in reasonable detail (i) the number of
Exchange Shares sold or otherwise disposed of on the immediately preceding
Trading Day, (ii) the number of Exchange Shares delivered to close Holder's
Short Position in the Common Stock on the immediately preceding Trading Day,
(iii) the gross proceeds generated from sales or other dispositions of Exchange
Shares (including those described in (ii) above) on the immediately preceding
Trading Day, (iv) the number of Exchange Shares held by holder as of the close
of business on the immediately preceding Trading Day, and (v) LIBOR as of the
day of notice.
6. Conditions of Obligations of the Holder. The obligations of the
Holder hereunder are subject to the accuracy of the representations and
warranties of the Company contained in Section 3 hereof, to the performance by
the Company of its covenants and other obligations hereunder, and to the
satisfaction, at or before the delivery of the LYONs and Initial Shares at the
Closing, of each of the following conditions:
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<PAGE> 13
(a) Officers' Certificate. The Holder shall have received a
certificate of the President or an Executive Vice President of the Company and
the Chief Financial Officer of the Company, dated as of Closing Date, to the
effect that (i) the representations and warranties in Section 3 hereof are true
and correct with the same force and effect as though expressly made at and as of
Closing Date, and (ii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or prior to
Closing Date.
(b) Approval of Listing. The Exchange Shares shall have been
approved for listing on the NYSE, subject only to official notice of issuance.
(c) No Legal Restraints. There shall not be in effect on the
Closing Date any order, law, rule or regulation restraining, enjoining or
otherwise prohibiting or making illegal the communication of the transaction
contemplated by this Agreement.
(d) Opinion of Counsel. Holder shall have received an opinion of
counsel for the Company, in form and substance reasonably satisfactory to the
Holder, to the effect set forth in Appendix I hereto.
(e) Additional Documents. Counsel for the Holder shall have been
furnished with such documents as they may require for the purpose of enabling
them to pass upon the exchange of securities as herein contemplated, or in order
to evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained.
7. Conditions of Obligations of the Company. The obligations of the
Company hereunder are subject to the accuracy of the representations and
warranties of the Holder contained in Section 4 hereof, to the performance by
the Holder of its covenants and other obligations hereunder, and to the
satisfaction, at or before the delivery of the LYONs and the Initial Shares at
the Closing, of the following conditions:
(a) Officers' Certificate. The Company shall have received a
certificate of a duly authorized executive officer of the Holder, dated as of
Closing Date, to the effect that (i) the representations and warranties in
Section 4 hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Date, and (ii) the Holder has complied with
all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Date.
(b) Approval of Listing. The Exchange Shares shall have been
approved for listing on the NYSE, subject only to official notice of issuance.
(c) No Legal Restraints. There shall not be in effect on the
Closing Date any order, law, rule or regulation restraining, enjoining or
otherwise prohibiting or making illegal the communication of the transaction
contemplated by this Agreement.
(d) Additional Documents. Counsel for the Company shall have been
furnished with such documents as they may require for the purpose of enabling
them to pass upon the exchange of securities as herein contemplated, or in order
to evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained.
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<PAGE> 14
8. Representations, Warranties and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement shall
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of the Holder or any controlling person, or by or on behalf
of the Company, and shall survive delivery of the Exchange Shares to the Holder.
9. Termination of Agreement.
(a) Termination; General. The Holder may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Date (i)
if there has been, since the time of execution of this Agreement, any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its Subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there has occurred any material adverse change in the
financial markets in the United States or the international financial markets,
any outbreak of hostilities or escalation thereof or other calamity or crisis or
any change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Holder,
impracticable to enforce contracts for the sale of securities, or (iii) if
trading in any securities of the Company has been suspended or materially
limited by the Securities and Exchange Commission or the NYSE, or if trading
generally on the American Stock Exchange or the NYSE or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required, by
any of said exchanges or by such system or by order of the Commission, the
National Association of Securities Dealers, Inc. or any other governmental
authority, or (iv) if a banking moratorium has been declared by either Federal
or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section 9, such termination shall be without liability of any party to any other
party; provided, that Section 12 shall survive such termination and remain in
full force and effect.
10. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if mailed or transmitted by
any standard form of telecommunication. Notices to the Holder shall be directed
to the Holder at North Tower, 5th Floor, World Financial Center, New York, New
York 10281-1201, to the attention of Kathryn McAdams, Edward Weis and Paul Pepe,
and to Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557,
to the attention of John C. Maquire; and notices to the Company shall be
directed to it at 3916 State Street, Suite 300, Santa Barbara, California 93105,
to the attention of Carl A. Strunk, Executive Vice President, Finance, with
copies to M'Liss Jones Kane, General Counsel, and to Stradling Yocca Carlson &
Rauth, a Professional Corporation, 660 Newport Center Drive, Suite 1600, Newport
Beach, California 92660, to the attention of C. Craig Carlson.
11. Parties. This Agreement shall each inure to the benefit of and be
binding upon the Holder and the Company and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or corporation, other than the Holder and the Company and
their respective successors any legal or equitable right, remedy or claim under
or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Holder and
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<PAGE> 15
the Company and their respective successors, and for the benefit of no other
person, firm or corporation.
12. Expenses. Each of the parties to this Agreement shall bear its own
expenses in connection with the preparation and negotiation of this Agreement
and the consummation of the transactions contemplated hereby.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
14. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Holder and the Company in accordance with its terms.
Very truly yours,
FIDELITY NATIONAL FINANCIAL, INC.
By: /s/ CARL A. STRUNK
---------------------------------
Name: Carl A. Strunk
Title: Executive Vice President, Finance
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
--------------------------------
Name:
Title:
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<PAGE> 16
the Company and their respective successors, and for the benefit of no other
person, firm or corporation.
12. Expenses. Each of the parties to this Agreement shall bear its own
expenses in connection with the preparation and negotiation of this Agreement
and the consummation of the transactions contemplated hereby.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
14. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Holder and the Company in accordance with its terms.
Very truly yours,
FIDELITY NATIONAL FINANCIAL, INC.
By:
---------------------------------
Name: Carl A. Strunk
Title: Executive Vice President, Finance
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ FRANK V. MCMAHON
--------------------------------
Name: Frank V. McMahon
Title: Director
15
<PAGE> 1
EXHIBIT 10.53
EXECUTION COPY
STOCK AND ASSET PURCHASE AGREEMENT
THIS STOCK AND ASSET PURCHASE AGREEMENT (the "Agreement") is dated as of
May 22, 1997, by and between RANDALL F. ZURBACH and JOHN C. WILBUR, JR., on
behalf of a new entity formed by them for the purpose of this Agreement
(collectively, the "Purchaser"), and FIDELITY NATIONAL FINANCIAL, INC. (the
"Seller") with respect to the stock of FNF Ventures, Inc., a California
corporation (the "Company"), and certain related assets.
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
Sale of Stock and Related Assets
1.1 Sale of Stock and Other Assets. Subject to the terms and conditions
stated below, Seller agrees to sell and deliver to Purchaser and its successors
and assigns forever (a) all 250 shares of Company's common stock (the "Stock")
and (b) all the right, title and interest of Seller and its affiliates
(including without limitation Cal-West Services, Inc.), established by a
participation agreement dated January 19, 1996 granting a 25% interest in a
promissory note in the original principal amount of $1,000,000, and in a right
to acquire 37.5% of the shares of Falzetti Umbrella, Inc. (such interest being
called the "Other Assets" for purposes of this Agreement) and the Purchaser
agrees to purchase from the Seller all 250 shares of Stock, and the "Other
Assets," for the purchase price hereinafter set forth, on the Closing Date.
1.2 Purchase Price. In full consideration for the purchase of the Stock
and the Other Assets, the Purchaser shall
(a) pay to the Seller, on the Closing Date, an aggregate amount
of $2,600,000 for the Stock payable to the bank account designated by Seller in
immediately available funds;
(b) pay to Seller's designated affiliate the sum of $240,776 in
immediately available funds as consideration for the Other Assets;
<PAGE> 2
(c) grant to Seller or Seller's designee, as additional
consideration for sale of the Stock, a participation interest representing only
the right to receive 20% of any value received by Company from its existing
warrants in the following companies:
AMI Telecommunications, Inc.
Bluebird Systems, Inc.
NetPro Computing, Inc.
distributable at the earlier of (x) the date such warrants or shares obtained by
exercise thereof are sold for cash or for securities of another entity or (y)
the date any dividends are paid or securities obtained upon exercise of the
warrants are distributed to other holders or (z) after restrictions on transfer
imposed in the applicable Restricted Stock Agreement lapse; and
(d) pay, or cause Company to pay, the "Inter-Company Balance"
described below in Section 4.2(c) on the Closing Date.
1.3 Allocation of Price. Seller and Purchaser agree that the $2,600,000
payment and the grant of a participation interest as contemplated by Section
1.2(c) represent consideration for the Stock and the sum of $240,776 represents
consideration for the Other Assets.
1.4 Closing. The sale referred to in Section 1.1 shall take place at
10:00 a.m. at the offices of Paul, Hastings, Janofsky & Walker LLP, 695 Town
Center Drive, 17th Floor, Costa Mesa, California 92626 on or before the
thirtieth business day after receipt of the approval from the United States
Small Business Administration ("SBA") for the change of control of Company, or
at such other time and date as the parties hereto shall by written instrument
designate. Such time and date are herein referred to as the "Closing Date."
At the Closing:
(a) Seller shall tender or instruct the escrow holder to tender
the certificates for the Stock, together with appropriate transfer documents for
the Other Assets, duly endorsed in a manner reasonably satisfactory to
Purchaser, and accompanied by any necessary consents of third parties to the
transfer of the Other Assets;
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<PAGE> 3
(b) Seller shall deliver written resignations of William P.
Foley, II, M'Liss Jones Kane, Carl A. Strunk and Frank P. Willey.
(c) Seller shall deliver a certificate executed by Seller, dated
as of the Closing Date, that all warranties and representations given by Seller
in this Agreement are true and correct as of such date;
(d) Seller shall deliver a certified copy of the resolutions of
the Board of Directors of Seller authorizing the execution, delivery and
consummation of this Agreement and all agreements and documents executed in
connection herewith by it, sufficient in form and content to meet the
requirements of the law of the state of Seller's incorporation relevant to such
transactions and certified by officers of Seller to be validly adopted and in
full force and effect and unamended as of the Closing;
(e) Purchaser shall pay the amounts described in Sections 1.2(a)
and 1.2(b), less the deposit contemplated by Section 1.5, shall cause the escrow
holder to deliver the deposit, and shall provide evidence satisfactory to Seller
of the participation described in Section 1.2(c); and
(f) Purchaser and Seller shall agree upon the Inter-Company
Balance and Purchaser shall pay such amount, if any, as is due Seller.
1.5 Deposit. Upon execution of this Agreement, Purchaser has deposited
with American Title Company the sum of $100,000 and shall deposit a further
$200,000 upon filing the application for change of control described in Section
4.3, which amounts shall represent a deposit against the purchase price. Such
amounts shall be released from escrow to Seller not more than five (5) days
after the SBA confirms receipt of the change of control application or, in any
event, no later than on June 27, 1997. Such amount shall be returned to
Purchaser within five days if the Closing does not occur because approval of the
SBA for the transfer of control of the Company to Purchaser is not obtained,
provided Purchaser has complied with its obligations under Section 4.3 to apply
for and diligently prosecute the process of obtaining such approval. The deposit
shall also be returned to Purchaser if Seller is unable, or fails, to make the
deliveries required by Section 1.4(a) or Section 1.4(b), or if the Closing does
not occur because of a material misrepresentation by Seller. If the transactions
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contemplated by this Agreement fail to close for any other reason, such deposit
shall be retained by Seller.
ARTICLE II
Representations of the Seller
The Seller hereby represents and warrants to Purchaser as follows:
2.1 Ownership of the Stock; Right to Sell. The Seller is the lawful
owner of 250 validly issued shares of Company's common stock, constituting all
outstanding shares of the Company, free and clear of all liens, encumbrances,
restrictions and claims of every kind. Seller has full legal right, power and
authority to enter into this Agreement and to sell, assign, transfer and convey
the shares of Stock and to sell, or cause an affiliate to sell, the Other
Assets, and has validly executed and delivered this Agreement, which is Seller's
legal, valid and binding obligation, except as enforceability may be limited by
(a) bankruptcy, insolvency, reorganization, moratorium or other similar laws,
now or hereafter in effect, relating to or limiting creditors' rights generally,
and (b) general principles of equity (whether considered in an action in equity
or at law). The delivery to Purchaser of the Stock pursuant to the provisions of
this Agreement will transfer to Purchaser valid title thereto, free and clear of
all liens, encumbrances, restrictions and claims of every kind. Delivery of an
assignment of the participation interest described in Section 1.1 will transfer
to Purchaser valid title to the Other Assets.
2.2 Capitalization. There are no outstanding options, warrants, rights,
calls, commitments, conversion rights, rights of exchange, plans or other
agreements of any character providing for the purchase, issuance or sale of any
shares of the Stock of the Company other than as contemplated by this Agreement.
2.3 Consents Required by Seller. Except for the approval of the United
States Small Business Administration, no approval, authorization, consent, order
or other action of, or filing with, any third party, including without
limitation, any public, governmental, administrative or regulatory authority or
agency, is required in connection with the execution, delivery or performance of
this Agree-
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<PAGE> 5
ment by Seller or the consummation of the transactions it contemplates by
Seller.
2.4 No Violations; No Consents Required by the Company. To Seller's
actual knowledge, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) violate any
provision of law applicable to the Company, the Articles of Incorporation or
bylaws of the Company, or any order, judgment or decree of any court or other
agency of government binding on the Company, (ii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any contractual obligation of the Company material to the condition
(financial or otherwise) of the Company's business, or (iii) result in or
require the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the assets of the Company.
2.5 Litigation. To Seller's actual knowledge, there are no actions,
suits, proceedings, orders or investigations pending or threatened against the
Company at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, and there is no basis known to Seller for
any of the foregoing.
2.6 Compliance with the Law and Other Instruments. To Seller's actual
knowledge, the business and operation of the Company have been and are being
conducted in accordance and in full compliance with all applicable laws,
ordinances, rules and regulations of all authorities, the violation of which,
individually or in the aggregate, would materially and adversely affect the
business of the Company. To Seller's actual knowledge, the Company has all
current licenses and permits required for the conduct of its business and is in
compliance with the terms of such licenses and permits and the regulations and
requirements of licensing and permit authorities.
2.7 Absence of Undisclosed Liabilities. To Seller's actual knowledge,
the Company has no liabilities or obligations of any nature or of any amount,
whether accrued, absolute, liquidated or unliquidated, contingent or otherwise,
except:
(a) to the extent reflected in the Company's audited financial
statements for the year ended December 31, 1996 ("Financials Date"); and
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<PAGE> 6
(b) those that have been or will be incurred in or as a result of
the ordinary course of business of the Company since the Financials Date, or
those that are not material.
2.8 Brokers and Finders. Seller has not incurred any liability for any
brokerage fees, commissions, finders' fees or similar fees or expenses for which
Purchaser or the Company may be liable.
ARTICLE III
Representations of the Purchaser
The Purchaser hereby represents and warrants to Seller as follows:
3.1 Organization. The entity being formed as the Purchaser will at the
Closing be a limited partnership duly organized, existing, and in good standing
under the laws of the State of California, with the power and authority to
perform this Agreement and in good standing in California to the extent
necessary to perform its obligations under this Agreement.
3.2 Authorization. The execution and delivery of this Agreement by
Purchaser and the performance of its obligations hereunder have been duly
authorized by the general partner of Purchaser and no other corporate action or
approval by Purchaser or its partners is necessary for the execution, delivery
or performance of this Agreement by Purchaser. This Agreement has been duly
executed and delivered by Purchaser, and is a valid and binding obligation of
Purchaser, enforceable against it in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws, now or hereafter in effect, relating to or
limiting creditors' rights generally, and (b) general principles of equity
(whether considered in an action in equity or at law).
3.3 Investment Intent. Purchaser is acquiring the Stock for purposes
of investment and not with a view to resale or any distribution thereof as such
term is used in federal and California securities laws.
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ARTICLE IV
Covenants
4.1 Exclusive Dealings. During the period from the date of this
Agreement to the Closing Date or the date of termination of this Agreement, the
Seller shall not directly or indirectly, encourage, initiate or engage in
discussions or negotiations with, or provide any information to, any person or
entity, other than the Purchaser, concerning any purchase of the Stock or any
merger, sale of substantial assets or similar transaction involving the Company.
4.2 Operating the Business Pending the Closing. From the date of
execution of this Agreement, until the Closing, the business of the Company
shall be operated in the ordinary course of business and Seller and Purchaser
agree that the Company shall not (i) pay any dividends or redeem any shares or
(ii) make any additional loans or commitments to loan funds unless either funds
are available from SBA "leverage" provisions or such funds are provided by
Purchaser in a form acceptable to Seller.
(a) If any event such as a merger, sale of assets, initial public
offering or other event which causes the prepayment of any of the Company's
outstanding loans occurs, the funds derived from such prepayment shall be
retained by the Company in an interest-bearing account and not distributed
unless there is a corresponding dollar-for-dollar reduction in the purchase
price.
(b) In the event the Company receives any proceeds from any of
the warrants referred to in section 1.2(c) above prior to the Closing, 20% of
such amount shall be distributed to Seller immediately, and the balance shall be
retained by the Company for the benefit of Purchaser.
(c) Any funds needed to pay Company's normal operating costs
shall continue to be advanced by Seller and its affiliates as has been the case
in the past. All amounts so advanced, and any repayments, shall be recorded on
the books of Company and Seller in accordance with past practice and the
resulting amount (the "Inter-Company Balance") shall be due and payable from
Purchaser or Company to Seller at the Closing. Seller agrees to furnish Company
its computation of the Inter-Company Balance at least 24 hours prior to the
Closing.
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<PAGE> 8
(d) Without Purchaser's consent, Company will not change its
manner of doing business, or, except for cause, its management from the date of
this Agreement until the date of the Closing.
(e) During the period from the date of this Agreement to the
Closing Date, the Company shall not issue any capital stock or securities
convertible into capital stock.
(f) During the period from the date of this Agreement to the
Closing Date, the Company shall not permit any increase in the salaries or other
compensation payable to officers, directors or employees of the Company.
4.3 Application for Governmental Consent. Immediately upon the
execution and delivery of this Agreement, Purchaser agrees to commence the
preparation of the appropriate request to the United States Small Business
Administration for a change in control of the Company, to complete and file such
application with all reasonable promptness and not later than June 27, 1997, and
to diligently pursue such approval. Seller agrees that Company may cooperate in
this effort and agrees to direct Company to cooperate to the extent needed.
4.4 Confidentiality. In connection with Seller's ownership of the
Stock, Company has disclosed to Seller financial and other information
concerning the Company and its business, customers, vendors and future plans.
All of such information shall be deemed to be Confidential Information. The
parties agree that the Confidential Information was divulged in confidence, and
that the Confidential Information constitutes a trade secret and proprietary
information of the Company. Seller agrees:
(a) Not to directly or indirectly disclose the Confidential
Information, or any part thereof, to any third party, without the prior written
consent of the Purchaser except for: (i) disclosure to parties assisting the
Purchaser or its affiliates to prepare for the Closing; (ii) disclosure in the
course of preparation or review of Seller's financial statements and tax returns
or reports, (iii) any disclosure reasonably related to regulations or litigation
affecting the business of Seller or its affiliates, and (iv) any disclosure
related to pending or potential transactions involving Seller or its affiliates
which do not violate this Agreement and in which Seller has, by
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<PAGE> 9
agreement or otherwise, a reasonable expectation the Confidential information
will remain non-public and confidential.
(b) Not to use the Confidential Information, or any part thereof,
for the benefit of the Seller or any third party except in connection with this
Agreement, including after the Closing except for: (i) disclosure or use in the
course of preparation or review of Seller's financial statements and tax returns
or reports, (ii) any disclosure or use reasonably related to regulations or
litigation affecting the business of Seller or its affiliates, and (iii) any
disclosure related to pending or potential transactions involving Seller or its
affiliates which do not violate this Agreement and in which Seller has, by
agreement or otherwise, a reasonable expectation the Confidential information
will remain non-public and confidential.
(c) To the extent the Confidential Information is contained in a
writing, to return all Confidential Information and copies thereof to the
Company immediately upon demand made after the Closing, except for copies needed
to support Seller's financial and tax reporting, or its compliance with other
agreements.
The parties agree that the term Confidential Information shall not include
information which has become publicly known and made generally available through
no wrongful act of the Seller. Each party agrees that if the Seller breaches the
provisions of this Section 4.4, that it will be difficult if not impossible to
determine the damages to be suffered by the Company. Accordingly, the Seller
agrees that in the event of such breach, the Company shall be entitled to
equitable and injunctive relief, without having to post a bond, in addition to
any other relief to which it may be entitled.
4.5 Best Efforts. Purchaser and Seller agree to use best efforts to
cause the satisfaction of all conditions to the Closing, including without
limitation, on Seller's part, causing its subsidiaries to take any actions
required to carry out the transactions contemplated by this Agreement.
ARTICLE V
Conditions to Purchaser's Obligations
The obligation of Purchaser to consummate the purchase of the Stock
pursuant to this Agreement is subject to
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<PAGE> 10
the satisfaction of the following conditions, any of which may be waived in
writing by Purchaser.
5.1 Truth of Representations and Warranties. The representations and
warranties of the Seller contained in Article II of this Agreement shall be true
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date.
5.2 No Litigation Threatened. No action or proceedings shall have been
instituted or, to the best knowledge, information and belief of the Purchasers,
threatened before a court or other government body or by any public authority to
restrain or prohibit any of the transactions contemplated hereby.
5.3 Governmental Approvals. The approval of the United States Small
Business Association for the change of control of Company from Seller to
Purchaser, and all consents and appraisals necessary to permit the consummation
of the transactions contemplated by this Agreement shall have been obtained and
shall be in full force and effect.
5.4 Tender of Documents. Seller shall have delivered, or shall have
directed the escrow holder to deliver, certificates evidencing the shares of
Stock and the documents comprising the Other Assets duly endorsed and otherwise
in proper form for transfer, to Purchaser's and its counsel's reasonable
satisfaction.
ARTICLE VI
Conditions to the Seller's Obligations
The obligation of Seller to consummate the sale of the Stock pursuant to
this Agreement is subject to the satisfaction of the conditions set forth below.
Seller may waive any condition in writing.
6.1 Truth of Representations and Warranties. The representations and
warranties of the Purchaser contained in Article III of this Agreement shall be
true and correct on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date.
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6.2 No Litigation Threatened. No action or proceedings shall have been
instituted or, to the best knowledge, information and belief of Seller,
threatened before a court or other government body or by any public authority to
restrain or prohibit any of the transactions contemplated hereby.
6.3 Governmental Approvals. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
6.4 Payment. Purchaser shall at the closing on the Closing Date deliver,
and direct the escrow holder to deliver, the Purchase Price for the shares of
Stock owned by the Seller, and for the Other Assets in immediately available
funds and shall have delivered evidence reasonably satisfactory to Purchaser
that the participation interest described in Section 1.2(b) has been granted.
ARTICLE VII
Indemnity
7.1 Indemnification by Seller. Seller shall indemnify and hold harmless
the Company and Purchaser from and against and shall reimburse the Company and
Purchaser against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, remedies and penalties, including
interest, penalties and reasonable attorneys' fees and expenses (collectively,
"Losses") that Purchaser or the Company shall incur or suffer and which arise
from or are attributable to, by reason of, or in connection with any breach or
inaccuracy of or any failure to perform or comply with any of Seller's
representations, warranties, agreements or covenants contained in this Agreement
(including any exhibit, letter, schedule or certificate referred to herein).
7.2 Indemnification by Purchaser. Purchaser shall indemnify and hold
harmless Seller from and against and shall reimburse Seller against and in
respect of any and all Losses that Seller shall incur or suffer and which arise
from or are attributable to, by reason of, or in connection with any breach or
inaccuracy of or any failure to perform or comply with any of Purchaser's
representations, warranties, agreements or covenants contained in this Agreement
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<PAGE> 12
(including any exhibit, letter, schedule or certificate referred to herein).
7.3 Notification and Participation. Each party agrees to notify the
others of any liabilities, claims, litigation or proceeding that reasonably
appear to involve matters covered by the indemnities set forth in Sections 7.2
and 7.3 promptly upon its discovery or notification thereof, whether before or
after the Closing Date.
ARTICLE VIII
Termination
8.1 Termination.
Seller or Purchaser may terminate this Agreement, without
liability to any party, by mutual agreement upon two (2) days' written notice or
upon receipt of a formal denial from the SBA of the application to transfer
control of Company.
ARTICLE IX
Miscellaneous
9.1 Expenses. The parties hereto shall pay all of their own expenses
relating to the transactions contemplated by this Agreement, including, without
limitation, the fees and expenses of their respective counsel and financial
advisers. None of such expenses shall be charged to or paid by Company prior to
Closing.
9.2 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of California applicable to agreements executed and to be performed solely
within such State.
9.3 Jurisdiction; Attorneys' Fees. Any judicial proceeding brought
against any of the parties to this Agreement on any dispute arising out of this
Agreement or any matter related hereto shall be brought in the courts of the
State of California, County of Orange, or in the United States District Court
for the Central District of California, and, by execution and delivery of this
Agreement, each of the parties to this Agreement accepts the exclusive
jurisdiction of such courts, and irrevocably agrees to be bound by any
-12-
<PAGE> 13
final judgment rendered thereby in connection with this Agreement. The
prevailing party or parties in any such litigation shall be entitled to receive
from the losing party or parties all costs and expenses, including reasonable
counsel fees, incurred by the prevailing party or parties.
9.4 Captions. The article and section captions used herein are for
reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
9.5 Notices. Any notice or other communication required or permitted
hereunder shall be sufficiently given if delivered in person or sent by telex,
telecopy or by registered or certified mail, postage prepaid, addressed as
follows:
If to the Purchaser: Randall F. Zurbach
c/o Pinecreek Investment Company
5000 Birch, Suite 5500
Newport Beach, California 92660
Facsimile: (714) 660-1042
With a copy to: Paul, Hastings, Janofsky & Walker LLP
Attention: Peter J. Tennyson, Esq.
695 Town Center Drive, 17th Floor
Costa Mesa, California 92626-1924
Facsimile: (714) 979-1921
If to the Seller: Fidelity National Financial, Inc.
Attention: M'Liss Jones Kane, Esq.
17911 Von Karman Avenue, Suite 300
Irvine, California 92614
Facsimile: (714) 622-4131
or such other address or number as shall be furnished in writing by any such
party, and such notice or communication shall be deemed to have been given as of
the date so delivered, sent by telecopier, telex or mailed.
9.6 Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
-13-
<PAGE> 14
9.7 Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
9.8 Entire Agreement. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
9.9 Access. Purchaser acknowledges that Messrs. Zurbach and Wilbur
manage the business of Company and have full access to the records of Company
and thus are able to make informed decisions about Company's business and the
desirability of purchasing it.
9.10 Amendments. This Agreement may not be changed orally, but only by
an agreement in writing signed by Purchaser and the Seller.
9.11 Severability. In case any provision in this Agreement shall be
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
9.12 Third Party Beneficiaries. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person or entity other than the parties hereto.
[SIGNATURES ON FOLLOWING PAGE]
-14-
<PAGE> 15
IN WITNESS WHEREOF, the Purchaser and the Seller have caused their names
to be hereunto subscribed all as of the day and year first above written.
"Purchaser"
/s/ RANDALL F. ZURBACH
----------------------------------------
/s/ JOHN C. WILBUR, JR.
----------------------------------------
"Seller"
FIDELITY NATIONAL FINANCIAL, INC.
By: /s/ ANDREW F. PUZDER
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
-15-
<PAGE> 1
EXHIBIT 11
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
COMPUTATION OF BASIC AND DILUTED
EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1995 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Basic earnings per share calculation
Earnings before extraordinary loss........................ $41,471 $24,337 $ 7,632
Extraordinary loss, net of applicable income tax benefit
of $1,180 in 1997 and $437 in 1995..................... (1,700) -- (813)
------- ------- -------
Net earnings.............................................. $39,771 $24,337 $ 6,819
======= ======= =======
Weighted average shares........................... 15,911 15,037 15,131
======= ======= =======
Basic earnings per share
Earnings before extraordinary loss........................ 2.61 1.62 0.50
Extraordinary loss........................................ (0.11) -- (0.05)
------- ------- -------
Net earnings.............................................. $ 2.50 $ 1.62 $ 0.45
======= ======= =======
Diluted earnings per share calculation
Earnings before extraordinary loss........................ $41,471 $24,337 $ 7,632
Plus: Impact of assumed conversion of LYONs............... 3,142 3,196 --(1)
------- ------- -------
Earnings before extraordinary loss plus assumed
conversion............................................. 44,613 27,533 7,632
Extraordinary loss, net of applicable income tax benefit
of $1,180 in 1997 and $437 in 1995..................... (1,700) -- (813)
------- ------- -------
Net earnings plus assumed conversions..................... $42,913 $27,533 $ 6,819
======= ======= =======
Weighted average shares................................... 15,911 15,037 15,131
Plus: Incremental shares from assumed conversions
LYONs.................................................. 4,553 4,793 --(1)
Options................................................ 1,019 654 563
------- ------- -------
Dilutive potential shares................................. 21,483 20,484 15,694
======= ======= =======
Diluted earnings per share
Earnings before extraordinary loss plus assumed
conversions............................................ $ 2.08 $ 1.34 $ 0.49
Extraordinary loss........................................ (0.08) -- (0.05)
------- ------- -------
Net earnings.............................................. $ 2.00 $ 1.34 $ 0.44
======= ======= =======
</TABLE>
- ---------------
(1) As the conversion of the Liquid Yield Option Notes ("LYONs") have an
antidilutive effect in 1995, the assumed conversion is not considered in the
Diluted Earnings Per Share Calculation. Assumed conversion of the LYONs
would result in additional net earnings of $3,245,000 and 4,793,000
additional dilutive potential shares.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
1. Manchester Development Corporation, a California corporation (d/b/a Orion
Realty Group);
a. Kensington Development Corporation, a California corporation, owns
90%, Fidelity National Title Insurance Company ("FNTIC"), a
California corporation, owns 10% (see 3(d)(2) below);
2. Rocky Mountain Aviation, Inc., an Arizona corporation;
3. Fidelity National Title Insurance Company, a California corporation (99.9%
owned by FNFI);
Subsidiaries:
(a) Republic Title Insurance Agency, Inc., an Arizona corporation
(inactive);
(b) Fidelity National Title Insurance Company of Tennessee, a
Tennessee corporation;
Subsidiaries:
1. Title Services, Inc., a Tennessee corporation;
2. BHC&M, Ltd., a Virginia corporation;
(c) Western Financial Trust Company, a California corporation;
(d) Manchester Development Corporation, a California corporation, 10%
is owned by FNTIC; 90% by Kensington Development Corporation, a
California corporation (see 1(a) above);
(e) Fidelity National Company of Northern California, a California
corporation;
(f) Title Insurance Policy Co. of Pinal County, an Arizona
corporation;
(g) Pacific American Property Exchange Corporation, a California
corporation;
(h) UTC Capital Group, Inc., a Texas corporation;
Subsidiaries:
1. Dallas-Fidelity National Title Agency, Inc., a Texas corporation
d/b/a Fidelity National Title Agency, Inc.;
2. LRT Record Services, Inc., a Texas corporation d/b/a Land
Records of Texas;
(i) Fidelity Tax Service, a California corporation;
(j) Fidelity National Company of California, a California corporation;
(k) Fidelity National Title & Escrow of Hawaii, Inc., a Hawaii
corporation;
(l) Nations Title, Inc., a Kansas corporation;
Subsidiaries:
1. Fidelity National Appraisal Services, Inc., a Kansas
corporation;
4. Fidelity National Title Agency of Nevada, Inc., a Nevada corporation;
5. Western Pacific Property and Casualty Agency, Inc., an Arizona corporation;
6. Lake Mortgage Corporation, an Arizona corporation (inactive);
7. FNTIC Properties, a California corporation;
8. Rocky Mountain Printing Services, Inc., a California corporation;
9. Fidelity Asset Management, Inc., a California corporation;
<PAGE> 2
10. Fidelity Participations, Inc., an Arizona corporation;
11. Nationwide Recording Service, a California corporation;
12. CalWest Service Corporation, a California corporation;
13. Fidelity National Title Insurance Company of New York, a New York
corporation;
Subsidiaries:
1. National Title Insurance Services, Inc., a North Carolina
corporation (inactive)
2. Network Title Insurance Agencies of Florida, Inc., a Florida
corporation (inactive);
3. Statewide Research, Inc., a Florida corporation;
4. Amtitle Company, a California corporation (inactive);
5. Gulf Stream Title Company of Miami, a Florida corporation
(inactive);
6. Settlement Network of Pennsylvania, a Pennsylvania corporation
(inactive);
7. Miami Title and Abstract Company, a Florida corporation
(inactive);
8. National Title Insurance of New York, Inc., a New York
corporation;
9. Nations Title Insurance of New York, Inc., a New York
corporation;
Subsidiaries:
1. Fidelity National Title and Abstract, Inc., a Maryland
corporation;
2. Nations Title of Arizona, Inc., an Arizona corporation (FNFI
owns 40%);
14. Agency Sales and Posting, Inc., a California corporation;
15. Arizona Sales and Posting, Inc., an Arizona corporation;
16. A.S.A.P. Legal Publication Services, Inc., a California corporation;
17. Rocky Mountain Support Services, Inc., an Arizona corporation;
Subsidiary:
(a) ACS Systems, Inc., a California corporation;
18. Fidelity National Title Company of Washington, a Washington corporation;
19. Fidelity National Title Company of California, a California corporation;
20. Fidelity National Title Company, a California corporation;
21. Fidelity National Title Insurance Agency of Coconino, Inc., an Arizona
corporation (FNFI owns 21%);
22. Fidelity National Title Agency, Inc., an Arizona corporation;
23. Fidelity National Title Agency of Pinal County, Inc., an Arizona
corporation;
24. Fidelity National Title Company of Oregon, an Oregon corporation;
Subsidiary:
a. Professional Escrow, Inc., an Oregon corporation;
25. Western American Exchange Corporation, a California corporation;
26. Nations Title Insurance of Arizona, Inc., an Arizona corporation;
27. Fidelity Asset Management, Inc., an Arizona corporation;
<PAGE> 3
28. Fidelity National Information Services, Inc., a California corporation;
29. Fidelity National Tax Service, Inc., a California corporation (100% of the
Preferred stock is owned by FNFI);
30. San Joaquin Title Company, a California corporation
31. Title Insurance and Escrow Services, Inc., an Oregon corporation;
32. WAEC, Inc., a California corporation;
33. WAEC Apartments, Inc., a California corporation;
34. Classified Credit Data, Inc.;
35. American Document Services, Inc.;
36. Express Network, Inc., a California corporation;
37. First Title Company;
38. Ifland Credit Services, Inc.;
39. Credit Reports, Inc.;
40. Bron Research, Inc., a Texas corporation;
41. Granite Financial, Inc., a Delaware corporation;
Subsidiaries:
1. Granite Financial Acquisition Corp. I;
2. North Pacific Funding, Inc.;
3. GF Funding Corp. I;
4. GF Funding Corp. II;
5. GF Funding Corp. III;
6. GF Funding Corp. IV;
7. CKC Corporation;
42. MCC Merger Inc., a Colorado corporation;
43. American Title Company, a California corporation (FNFI owns 40%);
Subsidiaries:
a. Landmark REO Management Services, Inc., a Kansas corporation;
b. Nations Title Insurance of Arizona, Inc., an Arizona
corporation;
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Fidelity National Financial, Inc.:
We consent to incorporation by reference in the Registration Statements
(Nos. 33-32853, 33-15027, 33-34300, 33-45709, 33-45272, 33-15008, 33-56514,
33-64834, 33-64836, 33-83026, 33-61983 and 333-48411) on Form S-8 of Fidelity
National Financial, Inc. of our reports dated February 16, 1998, except as to
Note O to the Consolidated Financial Statements, which is as of March 25, 1998,
relating to the Consolidated Balance Sheets of Fidelity National Financial, Inc.
and subsidiaries as of December 31, 1997 and 1996 and the related Consolidated
Statements of Earnings, Stockholders' Equity and Cash Flows and related
schedules for each of the years in the three-year period ended December 31, 1997
which reports appear in the December 31, 1997 Annual Report on Form 10-K of
Fidelity National Financial, Inc.
KPMG PEAT MARWICK LLP
Los Angeles, California
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 217,001
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 70,418
<MORTGAGE> 0
<REAL-ESTATE> 5,201
<TOTAL-INVEST> 326,277
<CASH> 54,005
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 600,559
<POLICY-LOSSES> 190,747
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 123,023
0
0
<COMMON> 2
<OTHER-SE> 196,317
<TOTAL-LIABILITY-AND-EQUITY> 600,559
533,220
<INVESTMENT-INCOME> 16,568
<INVESTMENT-GAINS> 16,988
<OTHER-INCOME> 179,936
<BENEFITS> 38,661
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 634,621
<INCOME-PRETAX> 73,430
<INCOME-TAX> 31,959
<INCOME-CONTINUING> 41,471
<DISCONTINUED> 0
<EXTRAORDINARY> (1,700)
<CHANGES> 0
<NET-INCOME> 39,771
<EPS-PRIMARY> 2.50
<EPS-DILUTED> 2.00
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 166,329
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 43,578
<MORTGAGE> 0
<REAL-ESTATE> 11,352
<TOTAL-INVEST> 227,674
<CASH> 63,971
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 509,296
<POLICY-LOSSES> 187,245
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 148,922
0
0
<COMMON> 2
<OTHER-SE> 110,249
<TOTAL-LIABILITY-AND-EQUITY> 509,296
475,961
<INVESTMENT-INCOME> 15,067
<INVESTMENT-GAINS> 2,625
<OTHER-INCOME> 143,266
<BENEFITS> 33,302
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 563,068
<INCOME-PRETAX> 40,553
<INCOME-TAX> 16,216
<INCOME-CONTINUING> 24,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,337
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.34
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 129,236
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 31,412
<MORTGAGE> 0
<REAL-ESTATE> 8,659
<TOTAL-INVEST> 180,082
<CASH> 47,431
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 405,063
<POLICY-LOSSES> 146,094
<UNEARNED-PREMIUMS> 136,047
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 2
77,945
405,063
<COMMON> 285,552
<OTHER-SE> 12,403
<TOTAL-LIABILITY-AND-EQUITY> 5,213
106,677
<INVESTMENT-INCOME> 19,031
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 381,354
<BENEFITS> 9,460
<UNDERWRITING-AMORTIZATION> 1,828
<UNDERWRITING-OTHER> 7,632
<INCOME-PRETAX> 0
<INCOME-TAX> (813)
<INCOME-CONTINUING> 0
<DISCONTINUED> 6,819
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> .45
<EPS-DILUTED> .44
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 159,800
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 48,695
<MORTGAGE> 0
<REAL-ESTATE> 7,081
<TOTAL-INVEST> 224,027
<CASH> 49,711
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 496,555
<POLICY-LOSSES> 188,456
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 147,059
0
0
<COMMON> 2
<OTHER-SE> 109,278
<TOTAL-LIABILITY-AND-EQUITY> 0
110,914
<INVESTMENT-INCOME> 4,528
<INVESTMENT-GAINS> 1,567
<OTHER-INCOME> 36,183
<BENEFITS> 7,066
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 141,004
<INCOME-PRETAX> 5,122
<INCOME-TAX> 2,100
<INCOME-CONTINUING> 3,022
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,022
<EPS-PRIMARY> .20
<EPS-DILUTED> .18
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 167,616
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 59,014
<MORTGAGE> 0
<REAL-ESTATE> 7,767
<TOTAL-INVEST> 244,678
<CASH> 62,731
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 522,150
<POLICY-LOSSES> 188,351
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 149,506
0
0
<COMMON> 2
<OTHER-SE> 124,081
<TOTAL-LIABILITY-AND-EQUITY> 522,150
240,372
<INVESTMENT-INCOME> 7,944
<INVESTMENT-GAINS> 3,893
<OTHER-INCOME> 79,441
<BENEFITS> 16,060
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 295,393
<INCOME-PRETAX> 20,197
<INCOME-TAX> 8,070
<INCOME-CONTINUING> 12,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,127
<EPS-PRIMARY> .79
<EPS-DILUTED> .66
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 174,008
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 84,438
<MORTGAGE> 0
<REAL-ESTATE> 7,175
<TOTAL-INVEST> 289,759
<CASH> 80,329
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 576,259
<POLICY-LOSSES> 188,333
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 150,918
0
0
<COMMON> 2
<OTHER-SE> 153,787
<TOTAL-LIABILITY-AND-EQUITY> 576,259
381,432
<INVESTMENT-INCOME> 11,431
<INVESTMENT-GAINS> 14,342
<OTHER-INCOME> 122,360
<BENEFITS> 26,041
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 456,055
<INCOME-PRETAX> 47,469
<INCOME-TAX> 19,484
<INCOME-CONTINUING> 27,985
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,985
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.45
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 123,338
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 41,867
<MORTGAGE> 0
<REAL-ESTATE> 8,457
<TOTAL-INVEST> 179,014
<CASH> 45,119
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 406,055
<POLICY-LOSSES> 145,450
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 136,272
0
0
<COMMON> 2
<OTHER-SE> 79,585
<TOTAL-LIABILITY-AND-EQUITY> 406,655
89,823
<INVESTMENT-INCOME> 2,958
<INVESTMENT-GAINS> 1,156
<OTHER-INCOME> 32,461
<BENEFITS> 6,241
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 111,857
<INCOME-PRETAX> 8,300
<INCOME-TAX> 3,155
<INCOME-CONTINUING> 5,145
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,145
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